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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-Q
☑   Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended October 31, 2020
OR
☐   Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____________ to ____________ .
Commission File Number 0-21180
INTU-20201031_G1.JPG
INTUIT INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0034661
(State or other jurisdiction of incorporation or organization)   (IRS Employer Identification No.)

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

(650) 944-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
  Title of each class Trading Symbol Name of each exchange on which registered
  Common Stock, $0.01 par value INTU Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting
company		 ☐ Emerging growth
company		 ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 262,740,511 shares of Common Stock, $0.01 par value, were outstanding at November 13, 2020.


INTUIT INC.
FORM 10-Q
INDEX
Page
 
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Intuit, the Intuit logo, QuickBooks, TurboTax, Mint, Lacerte, ProSeries, and Intuit ProConnect, among others, are registered trademarks and/or registered service marks of Intuit Inc., or one of its subsidiaries, in the United States and other countries. Other parties’ marks are the property of their respective owners.
 Intuit Q1 Fiscal 2021 Form 10-Q
2

Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. These risks and uncertainties may be amplified by the coronavirus (“COVID-19”) pandemic, which has caused significant global economic instability and uncertainty. The extent to which the COVID-19 pandemic impacts Intuit’s business, operations, financial results, and financial condition, including the duration and magnitude of such effects, will depend on numerous evolving factors, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or respond to its impact, and how quickly and to what extent normal economic and operating conditions can resume. Please also see the section entitled "Risk Factors" in Item 1A of Part II of this Report for important information to consider when evaluating these statements. All statements in this report, other than statements that are purely historical, are forward-looking statements. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “forecast,” “estimate,” “seek,” and similar expressions also identify forward-looking statements. In this report, forward-looking statements include, without limitation, the following:
•our expectations and beliefs regarding future conduct and growth of the business;
•statements regarding the impact of the COVID-19 pandemic on our business;
•our beliefs and expectations regarding seasonality, competition and other trends that affect our business;
•our expectation that we will continue to invest significant resources in our product development, marketing and sales capabilities;
•our expectation that we will continue to invest significant management attention and resources in our information technology infrastructure and in our privacy and security capabilities;
•our expectation that we will work with the broader industry and government to protect our customers from fraud;
•our expectation that we will generate significant cash from operations;
•our expectation that total service and other revenue as a percentage of our total revenue will continue to grow;
•our expectations regarding the development of future products, services, business models and technology platforms and our research and development efforts;
•our assumptions underlying our critical accounting policies and estimates, including our judgments and estimates regarding revenue recognition; stock volatility and other assumptions used to estimate the fair value of share-based compensation; the fair value of goodwill; and expected future amortization of acquired intangible assets;
•our intention not to sell our investments and our belief that it is more likely than not that we will not be required to sell them before recovery at par;
•our belief that the investments we hold are not other-than-temporarily impaired;
•our belief that we take prudent measures to mitigate investment related risks;
•our belief that our exposure to currency exchange fluctuation risk will not be significant in the future;
•our assessments and estimates that determine our effective tax rate;
•our belief that it is not reasonably possible that there will be a significant increase or decrease in our unrecognized tax benefits over the next 12 months;
•our belief that our cash and cash equivalents, investments and cash generated from operations will be sufficient to meet our seasonal working capital needs, capital expenditure requirements, contractual obligations (including the pending acquisition of Credit Karma, Inc. ("Credit Karma")), debt service requirements and other liquidity requirements associated with our operations for at least the next 12 months;
•our expectation that we will return excess cash generated by operations to our stockholders through repurchases of our common stock and the payment of cash dividends, after taking into account our operating and strategic cash needs;
•our judgments and assumptions relating to our loan portfolio;
•our belief that the credit facilities will be available to us should we choose to borrow under them;
•our assessments and beliefs regarding the future developments and outcomes of pending legal proceedings and inquiries by regulatory authorities, the liability, if any, that Intuit may incur as a result of those proceedings and inquiries, and the impact of any potential losses or expenses associated with such proceedings or inquiries on our financial statements; and
•our expectations and beliefs regarding the pending acquisition of Credit Karma.
We caution investors that forward-looking statements are only predictions based on our current expectations about future events and are not guarantees of future performance. We encourage you to read carefully all information provided in this Quarterly Report and in our other filings with the Securities and Exchange Commission before deciding to invest in our stock or to maintain or change your investment. These forward-looking statements are based on information as of the filing date of this Quarterly Report, and we undertake no obligation to revise or update any forward-looking statement for any reason.
 Intuit Q1 Fiscal 2021 Form 10-Q
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
  Three Months Ended
(In millions, except per share amounts) October 31, 2020 October 31, 2019
Net revenue:    
Product $ 367  $ 353 
Service and other 956  812 
Total net revenue 1,323  1,165 
Costs and expenses:    
Cost of revenue:    
Cost of product revenue 15  17 
Cost of service and other revenue 234  267 
Amortization of acquired technology 7  6 
Selling and marketing 362  383 
Research and development 325  334 
General and administrative 169  146 
Amortization of other acquired intangible assets 2  2 
Total costs and expenses 1,114  1,155 
Operating income 209  10 
Interest expense (8) (2)
Interest and other income, net 9  14 
Income before income taxes 210  22 
Income tax provision (benefit) 12  (35)
Net income $ 198  $ 57 
Basic net income per share $ 0.75  $ 0.22 
Shares used in basic per share calculations 263  261 
Diluted net income per share $ 0.75  $ 0.22 
Shares used in diluted per share calculations 265  264 
Cash dividends declared per common share $ 0.59  $ 0.53 
See accompanying notes.
 Intuit Q1 Fiscal 2021 Form 10-Q
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INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
  Three Months Ended
(In millions) October 31, 2020 October 31, 2019
Net income $ 198  $ 57 
Other comprehensive income (loss), net of income taxes:
Unrealized gain (loss) on available-for-sale debt securities (1) 1 
Foreign currency translation loss (2) — 
Total other comprehensive income (loss), net (3) 1 
Comprehensive income $ 195  $ 58 
See accompanying notes.

 Intuit Q1 Fiscal 2021 Form 10-Q
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INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(In millions) October 31, 2020 July 31,
2020
ASSETS    
Current assets:    
Cash and cash equivalents $ 5,174  $ 6,442 
Investments 619  608 
Accounts receivable, net 99  149 
Income taxes receivable 29  12 
Prepaid expenses and other current assets 246  314 
Current assets before funds held for customers 6,167  7,525 
Funds held for customers 484  455 
Total current assets 6,651  7,980 
Long-term investments 28  19 
Property and equipment, net 743  734 
Operating lease right-of-use assets 232  226 
Goodwill 1,697  1,654 
Acquired intangible assets, net 63  28 
Long-term deferred income taxes 60  65 
Other assets 233  225 
Total assets $ 9,707  $ 10,931 
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities:    
Short-term debt $ 325  $ 1,338 
Accounts payable 256  305 
Accrued compensation and related liabilities 233  482 
Deferred revenue 574  652 
Other current liabilities 280  297 
Current liabilities before customer fund deposits 1,668  3,074 
Customer fund deposits 484  455 
Total current liabilities 2,152  3,529 
Long-term debt 2,032  2,031 
Operating lease liabilities 228  221 
Other long-term obligations 50  44 
Total liabilities 4,462  5,825 
Commitments and contingencies
Stockholders’ equity:    
Preferred stock —  — 
Common stock and additional paid-in capital 6,283  6,182 
Treasury stock, at cost (11,929) (11,929)
Accumulated other comprehensive loss (35) (32)
Retained earnings 10,926  10,885 
Total stockholders’ equity 5,245  5,106 
Total liabilities and stockholders’ equity $ 9,707  $ 10,931 
See accompanying notes
 Intuit Q1 Fiscal 2021 Form 10-Q
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INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
Three Months Ended October 31, 2020
(In millions, except shares in thousands) Shares of
Common
Stock		 Common
Stock and
Additional
Paid-In Capital		 Treasury
Stock		 Accumulated
Other
Comprehensive
Loss		 Retained
Earnings		 Total
Stockholders'
Equity
Balance at July 31, 2020 261,740  $ 6,182  $ (11,929) $ (32) $ 10,885  $ 5,106 
Comprehensive income —  —  —  (3) 198  195 
Issuance of stock under employee stock plans, net of shares withheld for employee taxes 967  (11) —  —  (11)
Stock repurchases under stock repurchase programs —  —  —  —  —  — 
Dividends and dividend rights declared ($0.59 per share)
 —  —  —  —  (157) (157)
Share-based compensation expense —  112  —  —  —  112 
Balance at October 31, 2020 262,707  $ 6,283  $ (11,929) $ (35) $ 10,926  $ 5,245 
Three Months Ended October 31, 2019
(In millions, except shares in thousands) Shares of
Common
Stock		 Common
Stock and
Additional
Paid-In Capital		 Treasury
Stock		 Accumulated
Other
Comprehensive
Loss		 Retained
Earnings		 Total
Stockholders'
Equity
Balance at July 31, 2019 260,180  $ 5,775  $ (11,611) $ (36) $ 9,621  $ 3,749 
Comprehensive income —  —  —  1  57  58 
Issuance of stock under employee stock plans, net of shares withheld for employee taxes 690  (6) —  —  (6)
Stock repurchases under stock repurchase programs (515) —  (139) —  —  (139)
Dividends and dividend rights declared ($0.53 per share)
 —  —  —  —  (141) (141)
Share-based compensation expense —  112  —  —  —  112 
Balance at October 31, 2019 260,355  $ 5,881  $ (11,750) $ (35) $ 9,537  $ 3,633 
See accompanying notes.
 Intuit Q1 Fiscal 2021 Form 10-Q
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INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended
(In millions) October 31, 2020 October 31, 2019
Cash flows from operating activities:    
Net income $ 198  $ 57 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation 37  49 
Amortization of acquired intangible assets 9  8 
Non-cash operating lease cost 13  16 
Share-based compensation expense 111  111 
Deferred income taxes 17  (18)
Other (16) 4 
Total adjustments 171  170 
Originations of loans held for sale (43) — 
Sale and principal payments of loans held for sale 147  — 
Changes in operating assets and liabilities:
Accounts receivable 47  (16)
Income taxes receivable (17) (22)
Prepaid expenses and other assets (38) (63)
Accounts payable (58) (5)
Accrued compensation and related liabilities (248) (180)
Deferred revenue (85) (68)
Operating lease liabilities (12) (14)
Other liabilities (17) 14 
Total changes in operating assets and liabilities (428) (354)
Net cash provided by (used in) operating activities 45  (127)
Cash flows from investing activities:    
Purchases of corporate and customer fund investments (198) (207)
Sales of corporate and customer fund investments 30  53 
Maturities of corporate and customer fund investments 156  156 
Purchases of property and equipment (38) (38)
Acquisitions of businesses, net of cash acquired (85) — 
Originations of term loans to small businesses (11) (81)
Principal repayments of term loans from small businesses 29  79 
Other (13) (19)
Net cash used in investing activities (130) (57)
Cash flows from financing activities:    
Repayments on borrowings under unsecured revolving credit facility (1,000) — 
Repayment of debt (13) (13)
Proceeds from issuance of stock under employee stock plans 88  63 
Payments for employee taxes withheld upon vesting of restricted stock units (99) (71)
Cash paid for purchases of treasury stock —  (140)
Dividends and dividend rights paid (158) (141)
Net change in customer fund deposits 29  (23)
Net cash used in financing activities (1,153) (325)
Effect of exchange rates on cash, cash equivalents, restricted cash, and restricted cash equivalents (1) — 
 Intuit Q1 Fiscal 2021 Form 10-Q
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Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents (1,239) (509)
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period 6,697  2,352 
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period $ 5,458  $ 1,843 
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents reported within the condensed consolidated balance sheets to the total amounts reported on the condensed consolidated statements of cash flows
Cash and cash equivalents $ 5,174  $ 1,630 
Restricted cash and restricted cash equivalents included in funds held for customers 284  213 
Total cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period $ 5,458  $ 1,843 
See accompanying notes.
 Intuit Q1 Fiscal 2021 Form 10-Q
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INTUIT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Intuit helps consumers, small businesses, and the self-employed prosper by delivering financial management and compliance products and services. We also provide specialized tax products to accounting professionals, who are key partners that help us serve small business customers.
Our flagship brands, QuickBooks, TurboTax and Mint, help customers run their small businesses, pay employees and send invoices, separate business and personal expenses, track their money, and file income taxes. ProSeries and Lacerte are our leading tax preparation offerings for professional accountants. Incorporated in 1984 and headquartered in Mountain View, California, we sell our products and services primarily in the United States.
Basis of Presentation
These condensed consolidated financial statements include the financial statements of Intuit and its wholly owned subsidiaries. We have eliminated all significant intercompany balances and transactions in consolidation. We have included all adjustments, consisting only of normal recurring items, which we considered necessary for a fair presentation of our financial results for the interim periods presented. We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation, including amounts related to reportable segments. In August 2020, we reorganized certain technology and customer success functions that support and benefit our overall platform. Additionally, certain legal, facility and employee service costs are now managed at the corporate level. As a result, these costs are no longer included in segment operating income and are now included in other common expenses. For the three months ended October 31, 2019, we reclassified $43 million from Small Business & Self-Employed, $25 million from Consumer, and $3 million from ProConnect to other common expenses. In August 2020, we also renamed our Strategic Partner segment as the ProConnect segment. This segment continues to serve professional accountants. See Note 11, "Segment Information," for more information.
These unaudited condensed consolidated financial statements and accompanying notes should be read together with the audited consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2020. Results for the three months ended October 31, 2020 do not necessarily indicate the results we expect for the fiscal year ending July 31, 2021 or any other future period.
Seasonality
Our Consumer and ProConnect offerings have a significant and distinct seasonal pattern as sales and revenue from our income tax preparation products and services are heavily concentrated in the period from November through April. This seasonal pattern results in higher net revenues during our second and third quarters ending January 31 and April 30, respectively. During fiscal 2020, as a relief measure in response to the COVID-19 pandemic, the Internal Revenue Service extended the filing deadline for the 2019 tax year from April 15, 2020 to July 15, 2020. Additionally, all states with a personal income tax also extended their due dates, predominantly to July. As a result, there was a shift in sales and revenue from our third fiscal quarter to our fourth fiscal quarter during fiscal 2020.
Significant Accounting Policies
We describe our significant accounting policies in Note 1 to the financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2020. There have been no changes to our significant accounting policies during the first three months of fiscal 2021, other than the adoption of accounting pronouncements as described below in "Accounting Standards Recently Adopted."
 Intuit Q1 Fiscal 2021 Form 10-Q
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Use of Estimates
In preparing our condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP), we make certain judgments, estimates, and assumptions that affect the amounts reported in our financial statements and the disclosures made in the accompanying notes. For example, we use judgments and estimates in determining how revenue should be recognized. These judgments and estimates include identifying performance obligations, determining if the performance obligations are distinct, determining the standalone sales price (SSP) and timing of revenue recognition for each distinct performance obligation, and estimating variable consideration to be included in the transaction price. We use estimates in determining the collectibility of accounts receivable and notes receivable, the appropriate levels of various accruals including accruals for litigation contingencies, the discount rate used to calculate lease liabilities, the amount of our worldwide tax provision, the realizability of deferred tax assets, and the credit losses of available-for-sale debt securities. We also use estimates in determining the remaining economic lives and fair values of acquired intangible assets, property and equipment, and other long-lived assets. In addition, we use assumptions to estimate the fair value of reporting units and share-based compensation. Despite our intention to establish accurate estimates and use reasonable assumptions, actual results may differ from our estimates. Additionally, in the context of the ongoing global COVID-19 pandemic, while there has been no material impact on our estimates to date, in future periods, facts and circumstances could change and impact our estimates.
Computation of Net Income (Loss) Per Share
We compute basic net income or loss per share using the weighted average number of common shares outstanding during the period. We compute diluted net income per share using the weighted average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of the shares issuable upon the exercise of stock options and upon the vesting of restricted stock units (RSUs) under the treasury stock method.
We include stock options with combined exercise prices and unrecognized compensation expense that are less than the average market price for our common stock, and RSUs with unrecognized compensation expense that is less than the average market price for our common stock, in the calculation of diluted net income per share. We exclude stock options with combined exercise prices and unrecognized compensation expense that are greater than the average market price for our common stock, and RSUs with unrecognized compensation expense that is greater than the average market price for our common stock, from the calculation of diluted net income per share because their effect is anti-dilutive. Under the treasury stock method, the amount that must be paid to exercise stock options and the amount of compensation expense for future service that we have not yet recognized for stock options and RSUs are assumed to be used to repurchase shares.
All of the RSUs we grant have dividend rights. Dividend rights are accumulated and paid when the underlying RSUs vest. Since the dividend rights are subject to the same vesting requirements as the underlying equity awards they are considered a contingent transfer of value. Consequently, the RSUs are not considered participating securities and we do not present them separately in earnings per share.
In loss periods, basic net loss per share and diluted net loss per share are the same since the effect of potential common shares is anti-dilutive and therefore excluded.
 Intuit Q1 Fiscal 2021 Form 10-Q
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The following table presents the composition of shares used in the computation of basic and diluted net income per share for the periods indicated.
  Three Months Ended
(In millions, except per share amounts) October 31, 2020 October 31, 2019
Numerator:    
Net income $ 198  $ 57 
Denominator:    
Shares used in basic per share amounts:    
Weighted average common shares outstanding 263  261 
Shares used in diluted per share amounts:
Weighted average common shares outstanding 263  261 
Dilutive common equivalent shares from stock options
and restricted stock awards 2  3 
Dilutive weighted average common shares outstanding 265  264 
Basic and diluted net income per share:    
Basic net income per share $ 0.75  $ 0.22 
Diluted net income per share $ 0.75  $ 0.22 
Shares excluded from diluted net income per share:
Weighted average stock options and restricted stock units that have been excluded from dilutive common equivalent shares outstanding due to their anti-dilutive effect 1  — 
Deferred Revenue
Generally, we receive payment at the time we enter into a contract with a customer. We record deferred revenue when we have entered into a contract with a customer and cash payments are received or due prior to transfer of control or satisfaction of the related performance obligation. During the three months ended October 31, 2020, we recognized revenue of $399 million that was included in deferred revenue at July 31, 2020. During the three months ended October 31, 2019, we recognized revenue of $355 million that was included in deferred revenue at July 31, 2019.
Our performance obligations are generally satisfied within 12 months of the initial contract date. As of October 31, 2020 and July 31, 2020, the deferred revenue balance related to performance obligations that will be satisfied after 12 months was $9 million and $13 million, respectively, and is included in other long-term obligations on our condensed consolidated balance sheets.
Notes Receivable and Allowances for Loan Losses
Notes receivable held for investment consist of term loans to small businesses and are included in prepaid expenses and other current assets on our condensed consolidated balance sheets. As of October 31, 2020 and July 31, 2020, the notes receivable balance was $26 million and $40 million, respectively, and the allowances for loan losses were not material. The term loans are not secured and are recorded at amortized cost, net of allowances for loan losses. We maintain an allowance for loan losses to reserve for potentially uncollectible notes receivable. We evaluate the creditworthiness of our loan portfolio on a pooled basis due to its composition of small, homogeneous loans with similar general credit risk and characteristics and apply a loss rate at the time of loan origination. The loss rate and underlying model are updated periodically to reflect actual loan performance and changes in assumptions. We make judgments about the known and inherent risks in the loan portfolio, adverse situations that may affect borrowers’ ability to repay and current economic conditions. When we determine that amounts are uncollectible, we write them off against the allowance.
Paycheck Protection Program - In April 2020, Intuit was approved as a non-bank Small Business Administration lender for the Paycheck Protection Program (PPP). The PPP was authorized under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide small businesses loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt which is designed to provide assistance to small businesses during the COVID-19 pandemic. Lending under the program expired on August 8, 2020. All of the loans held for sale under this program have been sold. When loans under this program do not qualify to be sold, they are held for investment. As of October 31, 2020 and July 31, 2020, PPP loans held for investment were not material and are included in prepaid expenses and other current assets and other assets on our condensed consolidated balance sheets.
 Intuit Q1 Fiscal 2021 Form 10-Q
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Concentration of Credit Risk and Significant Customers
No customer accounted for 10% or more of total net revenue in the three months ended October 31, 2020 or October 31, 2019. No customer accounted for 10% or more of gross accounts receivable at October 31, 2020 or July 31, 2020.
Accounting Standards Recently Adopted
Internal-Use Software - In August 2018 the FASB issued Accounting Standards Update (ASU) 2018-15, “Intangibles—Goodwill and Other (Topic 350): Internal-Use Software.” This standard aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted this standard in the first quarter of our fiscal year beginning August 1, 2020 on a prospective basis. The adoption did not have a material impact on our condensed consolidated financial statements.
Goodwill Impairment - In January 2017 the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This standard eliminates Step 2 from the goodwill impairment test. Instead, an entity should compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. We adopted this standard in the first quarter of our fiscal year beginning August 1, 2020 on a prospective basis and will apply the guidance during our annual goodwill impairment test for the year ending July 31, 2021. The adoption did not have a material impact on our condensed consolidated financial statements.
Financial Instruments - In June 2016 the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326).” This standard requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. We adopted this standard in the first quarter of our fiscal year beginning August 1, 2020. The adoption did not have a material impact on our condensed consolidated financial statements.
2. Fair Value Measurements
Fair Value Hierarchy
The authoritative guidance defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. When determining fair value, we consider the principal or most advantageous market for an asset or liability and assumptions that market participants would use when pricing the asset or liability. In addition, we consider and use all valuation methods that are appropriate in estimating the fair value of an asset or liability.
The authoritative guidance establishes a fair value hierarchy that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities. In general, the authoritative guidance requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the measurement of its fair value. The three levels of input defined by the authoritative guidance are as follows:
•Level 1 uses unadjusted quoted prices that are available in active markets for identical assets or liabilities.
•Level 2 uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data for substantially the full term of the assets or liabilities.
•Level 3 uses one or more unobservable inputs that are supported by little or no market activity and that are significant to the determination of fair value. Level 3 assets and liabilities include those whose fair values are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.
 Intuit Q1 Fiscal 2021 Form 10-Q
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes financial assets and financial liabilities that we measured at fair value on a recurring basis at the dates indicated, classified in accordance with the fair value hierarchy described above.
October 31, 2020 July 31, 2020
(In millions) Level 1 Level 2 Total
Fair Value		 Level 1 Level 2 Total
Fair Value
Assets:            
Cash equivalents, primarily money market funds and time deposits $ 4,016  $ —  $ 4,016  $ 5,765  $ —  $ 5,765 
Available-for-sale debt securities:            
Municipal bonds —  17  17  —  9  9 
Corporate notes —  747  747  —  752  752 
U.S. agency securities —  55  55  —  47  47 
Total available-for-sale debt securities —  819  819  —  808  808 
Total assets measured at fair value on a recurring basis $ 4,016  $ 819  $ 4,835  $ 5,765  $ 808  $ 6,573 
Liabilities:
Senior unsecured notes(1)
 $ —  $ 2,013  $ 2,013  $ —  $ 2,042  $ 2,042 
(1) Carrying value on our balance sheets at each October 31, 2020 and July 31, 2020 was $1.98 billion. See Note 6 “Long-Term Obligations and Commitments” for more information.

The following table summarizes our cash equivalents and available-for-sale debt securities by balance sheet classification and level in the fair value hierarchy at the dates indicated.
October 31, 2020 July 31, 2020
(In millions) Level 1 Level 2 Total
Fair Value		 Level 1 Level 2 Total
Fair Value
Cash equivalents:            
In cash and cash equivalents $ 4,016  $ —  $ 4,016  $ 5,765  $ —  $ 5,765 
Available-for-sale debt securities:            
In investments $ —  $ 619  $ 619  $ —  $ 608  $ 608 
In funds held for customers —  200  200  —  200  200 
Total available-for-sale debt securities $ —  $ 819  $ 819  $ —  $ 808  $ 808 
We value our Level 1 assets, consisting primarily of money market funds and time deposits using quoted prices in active markets for identical instruments. Financial assets whose fair values we measure on a recurring basis using Level 2 inputs consist of municipal bonds, corporate notes, and U.S. agency securities. We measure the fair values of these assets with the help of a pricing service that either provides quoted market prices in active markets for identical or similar securities or uses observable inputs for their pricing without applying significant adjustments. Our fair value processes include controls that are designed to ensure that we record appropriate fair values for our Level 2 investments. These controls include comparison to pricing provided by a secondary pricing service or investment manager, validation of pricing sources and models, review of key model inputs, analysis of period-over-period price fluctuations, and independent recalculation of prices where appropriate. Financial assets whose fair values we measure using Level 3 inputs consist of loans held for sale.
These loans are recorded at the lower of cost or fair value and totaled $98 million at July 31, 2020. The difference between
cost and fair value on that date was not material. We had no loans held for sale at October 31, 2020.
Financial liabilities whose fair values we measure using Level 2 inputs consist of senior unsecured notes. See Note 6, “Long-Term Obligations and Commitments” for more information. We measure the fair value of our senior unsecured notes based on their trading prices and the interest rates we could obtain for other borrowings with similar terms.
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended October 31, 2020.
3. Cash and Cash Equivalents, Investments, and Funds Held for Customers
We consider highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. In all periods presented, cash equivalents consist primarily of money market funds and time deposits. Investments consist primarily of investment-grade available-for-sale debt securities. Funds held for customers represent cash held on behalf of our customers that is invested in cash and cash equivalents and investment-grade available-for-sale securities, restricted for use
 Intuit Q1 Fiscal 2021 Form 10-Q
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solely for the purpose of satisfying amounts we owe on behalf of our customers. Except for direct obligations of the United States government, securities issued by agencies of the United States government, and money market funds, we diversify our investments in debt securities by limiting our holdings with any individual issuer.
The following table summarizes our cash and cash equivalents, investments, and funds held for customers by balance sheet classification at the dates indicated.
  October 31, 2020 July 31, 2020
(In millions) Amortized
Cost		 Fair Value Amortized
Cost		 Fair Value
Classification on condensed consolidated balance sheets:        
Cash and cash equivalents $ 5,174  $ 5,174  $ 6,442  $ 6,442 
Investments 613  619  600  608 
Funds held for customers 484  484  455  455 
Total cash and cash equivalents, investments, and funds
held for customers		 $ 6,271  $ 6,277  $ 7,497  $ 7,505 
The following table summarizes our cash and cash equivalents, investments, and funds held for customers by investment category at the dates indicated.
  October 31, 2020 July 31, 2020
(In millions) Amortized
Cost		 Fair Value Amortized
Cost		 Fair Value
Type of issue:        
Total cash, cash equivalents, restricted cash,
and restricted cash equivalents		 $ 5,458  $ 5,458  $ 6,697  $ 6,697 
Available-for-sale debt securities:
Municipal bonds 17  17  9  9 
Corporate notes 741  747  744  752 
U.S. agency securities 55  55  47  47 
Total available-for-sale debt securities 813  819  800  808 
Total cash, cash equivalents, restricted cash, restricted cash equivalents, and investments $ 6,271  $ 6,277  $ 7,497  $ 7,505 
We use the specific identification method to compute gains and losses on investments. We include realized gains and losses on our available-for-sale debt securities in interest and other income on our condensed consolidated statements of operations. Gross realized gains and losses on our available-for-sale debt securities for the three months ended October 31, 2020 and October 31, 2019 were not significant.
We accumulate unrealized gains and losses on our available-for-sale debt securities, net of tax, in accumulated other comprehensive income or loss in the stockholders’ equity section of our condensed consolidated balance sheets, except for certain unrealized losses described below. Gross unrealized gains and losses on our available-for-sale debt securities at October 31, 2020 and July 31, 2020 were not significant.
For available-for sale debt securities in an unrealized loss position, we determine whether a credit loss exists. The estimate of the credit loss is determined by considering available information relevant to the collectibility of the security and information about past events, current conditions, and reasonable and supportable forecasts. The allowance for credit loss is recorded to interest and other income on our condensed consolidated statement of operations, not to exceed the amount of the unrealized loss. Any excess unrealized loss greater than the credit loss at a security level is recognized in accumulated other comprehensive income or loss in the stockholders' equity section of our condensed consolidated balance sheets. We determined there were no credit losses related to available-for-sale securities as of October 31, 2020. Unrealized losses on available-for-sale debt securities at October 31, 2020 were not significant. We do not intend to sell these investments. In addition, it is more likely than not that we will not be required to sell them before recovery of the amortized cost basis, which may be at maturity.
 Intuit Q1 Fiscal 2021 Form 10-Q
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The following table summarizes our available-for-sale debt securities, included in investments and funds held for customers, classified by the stated maturity date of the security at the dates indicated.
  October 31, 2020 July 31, 2020
(In millions) Amortized
Cost		 Fair Value Amortized
Cost		 Fair Value
Due within one year $ 371  $ 372  $ 389  $ 390 
Due within two years 246  250  256  261 
Due within three years 187  188  137  139 
Due after three years 9  9  18  18 
Total available-for-sale debt securities $ 813  $ 819  $ 800  $ 808 
Long-term investments represent non-marketable equity securities in privately held companies that do not have a readily determinable fair value. These investments are accounted for under the measurement alternative whereby we adjust the carrying value of these investments based on observable price changes from orderly transactions for identical or similar investments of the same issuer. As of October 31, 2020 and July 31, 2020, the carrying value of long-term investments was $28 million and $19 million, respectively, and adjustments to the carrying value of these investments for the three months ended October 31, 2020 were not significant.
The following table summarizes our funds held for customers by investment category at the dates indicated.
  October 31, 2020 July 31, 2020
(In millions)
Restricted cash and restricted cash equivalents $ 284  $ 255 
Restricted available-for-sale debt securities 200  200 
Total funds held for customers $ 484  $ 455 
  October 31, 2019 July 31, 2019
(In millions)
Restricted cash and restricted cash equivalents $ 213  $ 236 
Restricted available-for-sale debt securities 200  200 
Total funds held for customers $ 413  $ 436 
4. Business Combinations
Credit Karma
On February 24, 2020, we entered into an agreement and plan of merger (the Merger Agreement) to acquire Credit Karma, Inc., (Credit Karma) for $7.1 billion, subject to certain customary adjustments set forth in the Merger Agreement. We are acquiring Credit Karma to expand our consumer finance platform, accelerate our mission of powering prosperity around the world, and help consumers unlock smart money decisions to help make ends meet.
The purchase price for Credit Karma will be payable in equal portions of cash and Intuit common stock, with the shares being valued at $299.7306 per share (which price was calculated based on the daily volume-weighted average sales price per share for Intuit common stock for the ten trading days ending on February 21, 2020). The per share price of these shares has been fixed as of the Merger Agreement signing date. The aggregate value of these shares will fluctuate based on changes in our share price between the signing date and the closing date.
The total consideration of $7.1 billion includes an estimated $1.0 billion for the fair value of equity awards that will be expensed over service periods of up to three years. Additionally, as part of the merger agreement, following the close of the transaction we have agreed to issue to the employees of Credit Karma approximately $300 million of restricted stock units, which will be charged to expense over a service period of four years. The cash portion of the purchase price is expected to be financed with our existing cash.
The Merger Agreement must be approved by Credit Karma shareholders and is subject to receipt of required regulatory approvals and satisfaction or waiver of other customary closing conditions. The transaction is expected to close before the end of calendar year 2020. Additionally, if the Merger Agreement is terminated as a result of reaching its termination date (10 months from the signing date unless extended by us by up to five additional months) without receiving clearance to close under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or on the termination date there is in effect an order or
 Intuit Q1 Fiscal 2021 Form 10-Q
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injunction or similar restraint preventing consummation of the transaction under applicable U.S. antitrust laws, then under certain circumstances we would be obligated to pay Credit Karma a termination fee of between $230 million and $350 million.
5. Current Liabilities
Short-Term Debt
On May 2, 2019 we entered into an amended and restated credit agreement with certain institutional lenders with an aggregate principal amount of $1.4 billion, including a $400 million unsecured term loan that matures on February 1, 2021 and a $1 billion unsecured revolving credit facility that matures on May 2, 2024.
Under the amended and restated agreement we may, subject to certain customary conditions including lender approval, on one or more occasions increase commitments under the term loan in an amount not to exceed $400 million in the aggregate. The term loan accrues interest at rates that are equal to, at our election, either Bank of America's alternate base rate plus a margin that ranges from 0.0% to 0.125% or the London Interbank Offered Rate (LIBOR) plus a margin that ranges from 0.625% to 1.125%. Actual margins under either election will be based on our senior debt credit ratings. The amended and restated credit agreement includes customary affirmative and negative covenants, including financial covenants that require us to maintain a ratio of total gross debt to annual earnings before interest, taxes, depreciation and amortization (EBITDA) of not greater than 3.25 to 1.00 as of any date and a ratio of annual EBITDA to annual interest expense of not less than 3.00 to 1.00 as of the last day of each fiscal quarter. As of October 31, 2020 we were compliant with all required covenants. The term loan is subject to quarterly principal payments of $12.5 million through October 31, 2020, with the balance payable on February 1, 2021. At October 31, 2020, $325 million was outstanding under the term loan and was classified as short-term debt on our condensed consolidated balance sheet. The carrying value of the term loan approximates its fair value. Interest on the term loan is payable monthly. We paid $1 million for interest on the term loan during the three months ended October 31, 2020 and $3 million during the three months ended October 31, 2019.
Unsecured Revolving Credit Facility
The amended and restated credit agreement we entered into on May 2, 2019 includes a $1 billion unsecured revolving credit facility that will expire on May 2, 2024. Under this agreement we may, subject to certain customary conditions including lender approval, on one or more occasions increase commitments under the unsecured revolving credit facility in an amount not to exceed $250 million in the aggregate and may extend the maturity date up to two times. Advances under the unsecured revolving credit facility accrue interest at rates that are equal to, at our election, either Bank of America's alternate base rate plus a margin that ranges from 0.0% to 0.1% or LIBOR plus a margin that ranges from 0.69% to 1.1%. Actual margins under either election will be based on our senior debt credit ratings. The amended and restated credit agreement includes customary affirmative and negative covenants. See "Short-Term Debt" above for more information. We repaid the $1 billion that was outstanding as of July 31, 2020 under this unsecured revolving credit facility during the three months ended October 31, 2020, and at October 31, 2020 no amounts were outstanding. We paid $1 million in interest on the unsecured revolving credit facility during the three months ended October 31, 2020 and no interest during the three months ended October 31, 2019.
Other Current Liabilities
Other current liabilities were as follows at the dates indicated:
(In millions) October 31, 2020 July 31,
2020
Executive deferred compensation plan liabilities $ 135  $ 123 
Current portion of operating lease liabilities 49  46 
Reserve for promotional discounts and rebates 9  11 
Reserve for returns and credits 20  24 
Current portion of dividend payable 6  6 
Interest payable 8  3 
Other 53  84 
Total other current liabilities $ 280  $ 297 
The balances of several of our other current liabilities, particularly our reserves for product returns and promotional discounts and rebates, are affected by the seasonality of our business. See Note 1, “Description of Business and Summary of Significant Accounting Policies – Seasonality,” for more information.
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6. Long-Term Obligations and Commitments
Senior Unsecured Notes
In June 2020 we issued four series of senior unsecured notes (together, the Notes) pursuant to a public debt offering. The proceeds from the issuance were $1.98 billion, net of debt discount of $2 million and debt issuance costs of $15 million.
The carrying value of the Notes was as follows at the dates indicated:

(In millions) October 31, 2020 July 31,
2020		 Effective
Interest Rate
Senior unsecured notes issued June 2020:
0.650% notes due July 2023
 $ 500  $ 500  0.837%
0.950% notes due July 2025
 500  500  1.127%
1.350% notes due July 2027
 500  500  1.486%
1.650% notes due July 2030
 500  500  1.767%
Total senior unsecured notes 2,000  2,000 
Unamortized discount and debt issuance costs (16) (17)
Net carrying value senior unsecured notes $ 1,984  $ 1,983 
Interest is payable semiannually on January 15 and July 15 of each year, beginning on January 15, 2021. The discount and debt issuance costs are amortized to interest expense over the term of the Notes under the effective interest method. We paid no interest on the Notes during the three months ended October 31, 2020.
The Notes are senior unsecured obligations of Intuit and rank equally with all existing and future unsecured and unsubordinated indebtedness of Intuit and are redeemable by us at any time, subject to a make-whole premium. Upon the occurrence of change of control transactions that are accompanied by certain downgrades in the credit ratings of the Notes, we will be required to repurchase the Notes at a repurchase price equal to 101% of the aggregate outstanding principal plus any accrued and unpaid interest to but not including the date of repurchase. The indenture governing the Notes requires us to comply with certain covenants. For example, the Notes limit our ability to create certain liens and enter into sale and leaseback transactions. As of October 31, 2020 we were compliant with all covenants governing the Notes.
Secured Revolving Credit Facility
On February 19, 2019, a subsidiary of Intuit entered into a two-year $300 million secured revolving credit facility with a lender. The revolving credit facility is secured by cash and receivables of the subsidiary and is non-recourse to Intuit Inc. Advances under this secured revolving credit facility are used to fund a portion of our loans to qualified small businesses and accrue interest at LIBOR plus 2.39%. Unused portions of the credit facility accrue interest at a rate of 0.50%. On March 2, 2020, we amended the secured revolving credit facility to extend the commitment term from February 19, 2021 to February 19, 2022 and the final maturity date from August 19, 2021 to August 19, 2022. The agreement includes certain affirmative and negative covenants, including financial covenants that require the subsidiary to maintain specified financial ratios. As of October 31, 2020 we were compliant with all required covenants. At October 31, 2020, $48 million was outstanding under this facility, with a weighted-average interest rate of 5.70%, which includes the unused facility fee. The outstanding balance is secured by cash and receivables of the subsidiary totaling $146 million. Interest on the facility is payable monthly. We paid $1 million for interest on the secured revolving credit facility during each of the three months ended October 31, 2020 and October 31, 2019.
Other Long-Term Obligations
Other long-term obligations were as follows at the dates indicated:
(In millions) October 31, 2020 July 31,
2020
Long-term income tax liabilities $ 23  $ 10 
Total dividend payable 11  12 
Long-term deferred revenue 9  13 
Other 13  19 
Total long-term obligations 56  54 
Less current portion (included in other current liabilities) (6) (10)
Long-term obligations due after one year $ 50  $ 44 
 Intuit Q1 Fiscal 2021 Form 10-Q
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Unconditional Purchase Obligations
We describe our purchase obligations in Note 8 to the financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2020. There were no significant changes in our purchase obligations during the three months ended October 31, 2020.
7. Leases
We lease office facilities under non-cancellable operating lease arrangements. Our facility leases generally provide for periodic rent increases and may contain escalation clauses and renewal options. Our leases have remaining lease terms of up to 10 years, some of which include one or more options to extend the leases for up to 10 years per option, generally at rates to be determined in accordance with the agreements. Options to extend the lease are included in the lease liability if they are reasonably certain of being exercised. We do not have significant finance leases.
We sublease certain office facilities to third parties. These subleases have remaining lease terms of up to 4 years, some of which include one or more options to extend the subleases for up to 5 years per option.
The components of lease expense were as follows:
Three Months Ended
(In millions) October 31, 2020 October 31, 2019
Operating lease cost (1)
 $ 15  $ 18 
Variable lease cost 3  3 
Sublease income (4) (7)
Total net lease cost $ 14  $ 14 
(1)    Includes short-term leases, which were not significant for each of the three months ended October 31, 2020 and 2019.
Supplemental cash flow information related to operating leases was as follows:
Three Months Ended
October 31, 2020 October 31, 2019
(In millions)
Cash paid for amounts included in the measurement of operating lease liabilities $ 14  $ 16 
Right-of-use assets obtained in exchange for new operating lease liabilities (1)
 $ 19  $ 322 
(1)    For the three months ended October 31, 2019, this includes $319 million for operating leases existing on August 1, 2019 and $3 million for operating leases that commenced in the first three months of fiscal 2020.
Other information related to operating leases was as follows at the dates indicated:
October 31, 2020 July 31,
2020
Weighted-average remaining lease term for operating leases (in years) 5.7 5.5
Weighted-average discount rate for operating leases 2.95  % 3.1  %
 Intuit Q1 Fiscal 2021 Form 10-Q
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Future minimum lease payments under non-cancellable operating leases as of October 31, 2020 were as follows:
(In millions)
Operating
Leases (1)
Fiscal year ending July 31,  
2021 (excluding the three months ended October 31, 2020) $ 41 
2022 59 
2023 53 
2024 52 
2025 40 
Thereafter 56 
Total future minimum lease payments 301 
Less imputed interest (24)
Present value of lease liabilities $ 277 
(1)    Non-cancellable sublease proceeds for the remainder of the fiscal year ending July 31, 2021 and the fiscal years ending July 31, 2022, 2023, 2024, and 2025, of $11 million, $11 million, $3 million, $2 million, and $1 million, respectively, are not included in the table above.
Supplemental balance sheet information related to operating leases was as follows at the dates indicated:
(In millions) October 31, 2020 July 31,
2020
Operating lease right-of-use assets $ 232  $ 226 
Other current liabilities $ 49  $ 46 
Operating lease liabilities 228  221 
Total operating lease liabilities $ 277  $ 267 
As of October 31, 2020, we have additional operating leases of $48 million, primarily for office facilities, that have not yet commenced and therefore are not reflected on the condensed consolidated balance sheet nor in the tables above. These operating leases will commence between fiscal year 2021 and fiscal year 2022 with lease terms of 3 to 11 years.
8. Income Taxes
Effective Tax Rate
We compute our provision for or benefit from income taxes by applying the estimated annual effective tax rate to income or loss from recurring operations and adding the effects of any discrete income tax items specific to the period.
We recognized excess tax benefits on share-based compensation of $52 million and $29 million in our provision for income taxes for the three months ended October 31, 2020, and 2019, respectively.
Our effective tax rate for the three months ended October 31, 2020 was approximately 6%. Excluding discrete tax items primarily related to share-based compensation tax benefits mentioned above, our effective tax rate was 25%. The difference from the federal statutory rate of 21% was primarily due to state income taxes and non-deductible share-based compensation, which were partially offset by the tax benefit we received from the federal research and experimentation credit.
We recorded a $35 million tax benefit on pretax income of $22 million for the three months ended October 31, 2019. Excluding discrete tax items primarily related to share-based compensation tax benefits mentioned above, our effective tax rate was 24%. The difference from the federal statutory rate of 21% was primarily due to state income taxes and non-deductible share-based compensation, which were partially offset by the tax benefit we received from the federal research and experimentation credit.
 Intuit Q1 Fiscal 2021 Form 10-Q
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Unrecognized Tax Benefits and Other Considerations
The total amount of our unrecognized tax benefits at July 31, 2020 was $101 million. Net of related deferred tax assets, unrecognized tax benefits were $61 million at that date. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of $61 million. There were no material changes to these amounts during the three months ended October 31, 2020. We do not believe that it is reasonably possible that there will be a significant increase or decrease in our unrecognized tax benefits over the next 12 months.
We have offset a $61 million long-term income tax receivable against our long term liability for uncertain tax positions at October 31, 2020. The long term income tax receivable is primarily related to the government’s approval of a method of accounting change request for fiscal 2018.
9. Stockholders’ Equity
Stock Repurchase Programs and Treasury Shares
Intuit’s Board of Directors has authorized a series of common stock repurchase programs. Shares of common stock repurchased under these programs become treasury shares. In connection with our pending acquisition of Credit Karma, we have temporarily suspended share repurchases. We repurchased no shares under these programs during the three months ended October 31, 2020. At October 31, 2020, we had authorization from our Board of Directors to expend up to an additional $2.4 billion for stock repurchases. Future stock repurchases under the current programs are at the discretion of management, and authorization of future stock repurchase programs is subject to the final determination of our Board of Directors.
Our treasury shares are repurchased at the market price on the trade date; accordingly, all amounts paid to reacquire these shares have been recorded as treasury stock on our condensed consolidated balance sheets. Repurchased shares of our common stock are held as treasury shares until they are reissued or retired. When we reissue treasury stock, if the proceeds from the sale are more than the average price we paid to acquire the shares we record an increase in additional paid-in capital. Conversely, if the proceeds from the sale are less than the average price we paid to acquire the shares, we record a decrease in additional paid-in capital to the extent of increases previously recorded for similar transactions and a decrease in retained earnings for any remaining amount.
In the past we have satisfied option exercises and restricted stock unit vesting under our employee equity incentive plans by reissuing treasury shares, and we may do so again in the future. During the second quarter of fiscal 2014 we began issuing new shares of common stock to satisfy option exercises and RSU vesting under our 2005 Equity Incentive Plan. We have not yet determined the ultimate disposition of the shares that we have repurchased in the past, and consequently we continue to hold them as treasury shares.
Dividends on Common Stock
During the three months ended October 31, 2020 we declared quarterly cash dividends that totaled $0.59 per share of outstanding common stock for a total of $157 million. In November 2020 our Board of Directors declared a quarterly cash dividend of $0.59 per share of outstanding common stock payable on January 19, 2021 to stockholders of record at the close of business on January 11, 2021. Future declarations of dividends and the establishment of future record dates and payment dates are subject to the final determination of our Board of Directors.
Share-Based Compensation Expense
The following table summarizes the total share-based compensation expense that we recorded in operating income for the periods shown.
  Three Months Ended
(In millions) October 31, 2020 October 31, 2019
Cost of revenue $ 15  $ 15 
Selling and marketing 32  30 
Research and development 38  38 
General and administrative 26  28 
Total share-based compensation expense $ 111  $ 111 
We capitalized $1 million and $1 million in share-based compensation related to internal use software projects during the three months ended October 31, 2020 and October 31, 2019, respectively.
 Intuit Q1 Fiscal 2021 Form 10-Q
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Share-Based Awards Available for Grant
A summary of share-based awards available for grant under our 2005 Equity Incentive Plan for the three months ended October 31, 2020 was as follows:
(Shares in thousands) Shares
Available
for Grant
Balance at July 31, 2020 18,047 
Restricted stock units granted (1)
 (363)
Options granted — 
Share-based awards canceled/forfeited/expired (1) (2)
 1,592 
Balance at October 31, 2020 19,276 
(1)RSUs granted from the pool of shares available for grant under our 2005 Equity Incentive Plan reduce the pool by 2.3 shares for each share granted. RSUs forfeited and returned to the pool of shares available for grant increase the pool by 2.3 shares for each share forfeited.
(2)Stock options and RSUs canceled, expired or forfeited under our 2005 Equity Incentive Plan are returned to the pool of shares available for grant. Shares withheld for income taxes upon vesting of RSUs that were granted on or after July 21, 2016 are also returned to the pool of shares available for grant. Stock options and RSUs canceled, expired or forfeited under older expired plans are not returned to the pool of shares available for grant.
Restricted Stock Unit Activity and Related Share-Based Compensation Expense
A summary of restricted stock unit (RSU) activity for the three months ended October 31, 2020 was as follows:
Restricted Stock Units
(Shares in thousands) Number
of Shares		 Weighted
Average
Grant Date
Fair Value
Nonvested at July 31, 2020 5,664  $ 231.97 
Granted 158  322.24 
Vested (480) 163.73 
Forfeited (404) 195.55 
Nonvested at October 31, 2020 4,938  $ 244.48 
At October 31, 2020, there was approximately $1.1 billion of unrecognized compensation cost related to non-vested RSUs with a weighted average vesting period of 3.0 years. We will adjust unrecognized compensation cost for actual forfeitures as they occur.
Stock Option Activity and Related Share-Based Compensation Expense
A summary of stock option activity for the three months ended October 31, 2020 was as follows:
  Options Outstanding
(Shares in thousands) Number
of Shares		 Weighted
Average
Exercise
Price
Per Share
Balance at July 31, 2020 2,681  $ 185.83 
Granted —  — 
Exercised (402) 121.96 
Canceled or expired (23) 244.47 
Balance at October 31, 2020 2,256  $ 196.64 
Exercisable at October 31, 2020 1,452  $ 150.72 
At October 31, 2020, there was approximately $52 million of unrecognized compensation cost related to non-vested stock options with a weighted average vesting period of 3.1 years. We will adjust unrecognized compensation cost for actual forfeitures as they occur.

 Intuit Q1 Fiscal 2021 Form 10-Q
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10. Litigation
Beginning in May 2019, various legal proceedings were filed and certain regulatory inquiries were commenced in connection with our provision and marketing of free online tax preparation programs. We believe that the allegations contained within these legal proceedings are without merit. We are vigorously defending our interests in the legal proceedings and cooperating in the inquiries. These proceedings include multiple putative class actions that were consolidated into a single putative class action in the Northern District of California in September 2019 and demands for arbitration that were filed beginning in October 2019. On November 12, 2020, Intuit entered into a settlement agreement to resolve the putative class action for a payment of $40 million, which is subject to court approval. Since the court could approve, reject, or ask the parties to modify the settlement, the ultimate outcome of this matter remains uncertain. In view of the complexity and ongoing nature of these proceedings and inquiries, at this time we are unable to estimate a reasonably possible financial loss or range of financial loss that we may incur to resolve or settle these matters.
As of October 31, 2020, there are approximately 125,000 individual arbitration claims pending and we could incur significant arbitration and legal fees associated with the defense of these claims. We recorded approximately $14 million in arbitration fees related to these claims in fiscal 2020 and approximately $10 million in the three months ended October 31, 2020. The arbitration fees are unrelated to the underlying merits of the claims and are accrued at the earlier of when invoiced or when the services are rendered. We could incur additional arbitration fees of approximately $400 million in future periods. While the settlement of the putative class action, discussed above, could eliminate a significant portion of these fees, we are continuing to dispute the applicability and propriety of these fees.
To date, the legal and other fees we have incurred related to these proceedings and inquiries have not been material. The ongoing defense and any resolution or settlement of these proceedings and inquiries could involve significant costs to us.
Intuit is subject to certain routine legal proceedings, including class action lawsuits, as well as demands, claims, government inquiries and threatened litigation, that arise in the normal course of our business, including assertions that we may be infringing patents or other intellectual property rights of others. Our failure to obtain necessary license or other rights, or litigation arising out of intellectual property claims could adversely affect our business. We currently believe that, in addition to any amounts accrued, the amount of potential losses, if any, for any pending claims of any type (either alone or combined) will not have a material impact on our condensed consolidated financial statements. The ultimate outcome of any legal proceeding is uncertain and, regardless of outcome, legal proceedings can have an adverse impact on Intuit because of defense costs, negative publicity, diversion of management resources and other factors.
 Intuit Q1 Fiscal 2021 Form 10-Q
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11. Segment Information
We have defined our three reportable segments, described below, based on factors such as how we manage our operations and how our chief operating decision maker views results. We define the chief operating decision maker as our Chief Executive Officer and our Chief Financial Officer. Our chief operating decision maker organizes and manages our business primarily on the basis of product and service offerings.
In August 2020, we reorganized certain technology and customer success functions that support and benefit our overall platform. Additionally, certain legal, facility and employee service costs are now managed at the corporate level. As a result, these costs are no longer included in segment operating income and are now included in other common expenses. For the three months ended October 31, 2019, we reclassified $43 million from Small Business & Self-Employed, $25 million from Consumer, and $3 million from ProConnect to other common expenses. In August 2020, we also renamed our Strategic Partner segment as the ProConnect segment. This segment continues to serve professional accountants.
 
Small Business & Self-Employed: This segment serves small businesses and the self-employed around the world, and the accounting professionals who assist and advise them. Our offerings include QuickBooks financial and business management online services and desktop software, payroll solutions, merchant payment processing solutions, and financing for small businesses.
Consumer: This segment serves consumers and includes do-it-yourself and assisted TurboTax income tax preparation products and services sold in the U.S. and Canada. Our Mint and Turbo offerings serve consumers and help them understand and improve their financial lives by offering a view of their financial health.
ProConnect: This segment serves professional accountants in the U.S. and Canada, who are essential to both small business success and tax preparation and filing. Our professional tax offerings include Lacerte, ProSeries, ProFile, and ProConnect Tax Online.
 
All of our segments operate primarily in the United States and sell primarily to customers in the United States. International total net revenue was approximately 6% of consolidated total net revenue for all periods presented.
We include expenses such as corporate selling and marketing, product development, general and administrative, and share-based compensation, which are not allocated to specific segments, in unallocated corporate items. Unallocated corporate items also include amortization of acquired technology, amortization of other acquired intangible assets, and goodwill and intangible asset impairment charges.
The accounting policies of our reportable segments are the same as those described in the summary of significant accounting policies in Note 1 to the financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2020 and in Note 1, "Description of Business and Summary of Significant Accounting Policies – Significant Accounting Policies" in this Quarterly Report on Form 10-Q. Except for goodwill and purchased intangible assets, we do not generally track assets by reportable segment and, consequently, we do not disclose total assets by reportable segment.
 Intuit Q1 Fiscal 2021 Form 10-Q
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The following table shows our financial results by reportable segment for the periods indicated. Segment results for fiscal 2020 have been reclassified to conform to the fiscal 2021 segment presentation, as described earlier in this footnote.
  Three Months Ended
(In millions) October 31, 2020 October 31, 2019
Net revenue:    
Small Business & Self-Employed $ 1,181  $ 1,046 
Consumer 119  100 
ProConnect 23  19 
Total net revenue $ 1,323  $ 1,165 
Operating income (loss):    
Small Business & Self-Employed $ 767  $ 593 
Consumer 4  (20)
ProConnect (10) (18)
Total segment operating income 761  555 
Unallocated corporate items:    
Share-based compensation expense (111) (111)
Other common expenses (432) (426)
Amortization of acquired technology (7) (6)
Amortization of other acquired intangible assets (2) (2)
Total unallocated corporate items (552) (545)
Total operating income $ 209  $ 10 
Revenue classified by significant product and service offerings was as follows:
  Three Months Ended
(In millions) October 31, 2020 October 31, 2019
Net revenue:    
QuickBooks Online Accounting $ 392  $ 306 
Online Services 229  195 
Total Online Ecosystem 621  501 
QuickBooks Desktop Accounting 241  239 
Desktop Services and Supplies 319  306 
Total Desktop Ecosystem 560  545 
Small Business & Self-Employed 1,181  1,046 
Consumer 119  100 
ProConnect 23  19 
Total net revenue $ 1,323  $ 1,165 
Revenue from our QuickBooks Desktop packaged software products was $20 million for the three months ended October 31, 2020, and $27 million for the three months ended October 31, 2019. These amounts are included in the QuickBooks Desktop Accounting revenue presented in the table above.
 Intuit Q1 Fiscal 2021 Form 10-Q
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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide readers of our condensed consolidated financial statements with the perspectives of management. This should allow the readers of this report to obtain a comprehensive understanding of our businesses, strategies, current trends, and future prospects. Our MD&A includes the following sections:
• Executive Overview: High level discussion of our operating results and some of the trends that affect our business.


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


• Results of Operations: A more detailed discussion of our revenue and expenses.


• Liquidity and Capital Resources: Discussion of key aspects of our condensed consolidated statements of cash flows, changes in our condensed consolidated balance sheets, and our financial commitments.
You should note that this MD&A contains forward-looking statements that involve risks and uncertainties. Please see the section entitled “Forward-Looking Statements” immediately preceding Part I for important information to consider when evaluating such statements.
You should read this MD&A in conjunction with the financial statements and related notes in Part I, Item 1 of this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended July 31, 2020.
In August 2020, we reorganized certain technology and customer success functions that support and benefit our overall platform. Additionally, certain legal, facility and employee service costs are now managed at the corporate level. As a result, these costs are no longer included in segment operating income and are now included in other common expenses. For the three months ended October 31, 2019, we reclassified $43 million from Small Business & Self-Employed, $25 million from Consumer, and $3 million from ProConnect to other common expenses. In August 2020, we also renamed our Strategic Partner segment as the ProConnect segment. This segment continues to serve professional accountants. Segment results for fiscal 2020 have been reclassified to conform to the fiscal 2021 segment presentation.
In March 2020 the World Health Organization declared the COVID-19 outbreak as a pandemic. The COVID-19 pandemic has
had significant adverse impacts on the U.S. and global economies. We are conducting business with substantial modifications
to employee work locations and employee travel, among other modifications. While we have not experienced significant
disruptions to our operations thus far from the COVID-19 pandemic, we are unable to predict the full impact that the
COVID-19 pandemic will have on our operations and future financial performance, including demand for our offerings, impact to our customers and partners, actions that may be taken by governmental authorities, and other factors identified in “Risk Factors” in Item 1A of Part II of this Quarterly Report.
EXECUTIVE OVERVIEW
This overview provides a high-level discussion of our operating results and some of the trends that affect our business. We believe that an understanding of these trends is important in order to understand our financial results as well as our future prospects. This summary is not intended to be exhaustive, nor is it a substitute for the detailed discussion and analysis provided elsewhere in this Quarterly Report on Form 10-Q.
 Intuit Q1 Fiscal 2021 Form 10-Q
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About Intuit
Intuit helps consumers, small businesses, and the self-employed prosper by delivering financial management and compliance products and services. We also provide specialized tax products to accounting professionals, who are key partners that help us serve small business customers. We organize our businesses into three reportable segments – Small Business & Self-Employed, Consumer, and ProConnect.
INTU-20201031_G2.JPG


 
Small Business & Self-Employed: This segment serves small businesses and the self-employed around the world, and the accounting professionals who assist and advise them. Our offerings include QuickBooks financial and business management online services and desktop software, payroll solutions, merchant payment processing solutions, and financing for small businesses.
Consumer: This segment serves consumers and includes do-it-yourself and assisted TurboTax income tax preparation products and services sold in the U.S. and Canada. Our Mint and Turbo offerings serve consumers and help them understand and improve their financial lives by offering a view of their financial health.
ProConnect: This segment serves professional accountants in the U.S. and Canada, who are essential to both small business success and tax preparation and filing. Our professional tax offerings include Lacerte, ProSeries, ProFile, and ProConnect Tax Online.
Our Growth Strategy
At Intuit, our strategy starts with customer obsession. We listen to and observe our customers, understand their challenges, and then use advanced technology, including artificial intelligence (AI), to develop innovative solutions designed to solve their problems and help them grow and prosper. For more than three decades, our values have inspired us to innovate and reimagine ways to save people time and money, eliminate drudgery and inspire confidence. We have reinvented and disrupted ourselves to better serve our customers, along the way.
Our strategy for delivering on our bold goals is to become an AI-driven expert platform where we and others can solve our customers' most important problems. We plan to accelerate the development of the platform by applying AI in the three key areas:
•Machine Learning - Building algorithms which progressively learn from data to automate tasks for our customers.
•Knowledge Engineering - Turning rules, such as IRS regulations, and relationships about data into code to eliminate work and provide tailored experiences.
•Natural Language Processing - Processing, analyzing and understanding human language to create interactions with customers and automate repetitive tasks.
As we build our AI-driven expert platform, we are prioritizing our resources on five strategic priorities across the company. These priorities focus on solving the problems that matter most to customers and include:
•Revolutionizing speed to benefit: When customers use our products and services, we aim to deliver value instantly by making the interactions with our offerings frictionless, without the need for customers to manually enter data. We are accelerating the application of AI with a goal to revolutionize the customer experience. This priority is foundational across our business, and execution against it positions us to succeed with our other four strategic priorities.
•Connecting people to experts: The largest problem our customers face is lack of confidence to file their own taxes or to manage their books. To build their confidence, we are connecting our customers to experts. We offer customers access to experts to help them make important decisions – and experts, such as accountants, gain access to new customers so they can grow their businesses.
 Intuit Q1 Fiscal 2021 Form 10-Q
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•Unlocking smart money decisions: Crippling high-cost debt and lack of savings are at unprecedented levels across the U.S. With the insights generated through our ecosystem, we strive to offer the right financial opportunities based on a customer’s unique situation. We expect that our proposed acquisition of Credit Karma will help us tackle these problems.
•Be the center of small business growth: We are focused on helping customers grow their businesses by offering a broad, seamless set of tools that are designed to help them get paid faster, manage and get access to capital, pay employees with confidence, and use third-party apps to help run their businesses. At the same time, we want to position ourselves to better serve product-based businesses to benefit customers who sell products through multiple channels.
•Disrupt the small business mid-market: We aim to disrupt the mid-market with QuickBooks Online Advanced, our online offering designed to address the needs of small business customers with 10 to 100 employees. This offering enables us to increase retention of these larger customers, and attract new mid-market customers who are over-served by available offerings.
As the external environment evolves, we continue to innovate and adapt our strategy and anticipate our customers’ needs. For more than 35 years, we have been dedicated to developing innovative financial and compliance products and services that are easy to use and are available where and when customers need them. As a result, our customers actively recommend our products and solutions to others, which is one important way that we measure the success of our strategy.
Industry Trends and Seasonality
Industry Trends
AI is transforming multiple industries, including financial technology. Disruptive start-ups, emerging ecosystems and mega-platforms are harnessing new technology to create personalized experiences, deliver data-driven insights and increase speed of service. These shifts are creating a more dynamic and highly competitive environment where customer expectations are shifting around the world as more services become digitized and the array of choices continues to increase.
Seasonality
Our Consumer and ProConnect offerings have a significant and distinct seasonal pattern as sales and revenue from our income tax preparation products and services are heavily concentrated in the period from November through April. This seasonal pattern results in higher net revenues during our second and third quarters ending January 31 and April 30, respectively. During fiscal 2020, as a relief measure in response to the COVID-19 pandemic, the Internal Revenue Service extended the filing deadline for the 2019 tax year from April 15, 2020 to July 15, 2020. Additionally, all states with a personal income tax also extended their due dates, predominantly to July. As a result, there was a shift in sales and revenue from our third fiscal quarter to our fourth fiscal quarter during fiscal 2020. We expect the seasonality of our Consumer and ProConnect businesses to continue to have a significant impact on our quarterly financial results in the future.
Key Challenges and Risks
Our growth strategy depends upon our ability to initiate and embrace disruptive technology trends, to enter new markets, and to drive broad adoption of the products and services we develop and market. Our future growth also increasingly depends on the strength of our third-party business relationships and our ability to continue to develop, maintain and strengthen new and existing relationships. To remain competitive and continue to grow, we are investing significant resources in our product development, marketing, and sales capabilities, and we expect to continue to do so in the future.
As we offer more online services, the ongoing operation and availability of our platforms and systems and those of our external service providers is becoming increasingly important. Because we help customers manage their financial lives, we face risks associated with the hosting, collection, use, and retention of personal customer information and data. We are investing significant management attention and resources in our information technology infrastructure and in our privacy and security capabilities, and we expect to continue to do so in the future.
For our consumer and professional tax offerings, we have implemented additional security measures and are continuing to work with state and federal governments to implement industry-wide security and anti-fraud measures, including sharing information regarding suspicious filings. We continue to invest in security measures and to work with the broader industry and government to protect our customers against this type of fraud.
For a complete discussion of the most significant risks and uncertainties affecting our business, please see “Forward-Looking Statements” immediately preceding Part I and “Risk Factors” in Item 1A of Part II of this Quarterly Report.
 Intuit Q1 Fiscal 2021 Form 10-Q
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Overview of Financial Results
The most important financial indicators that we use to assess our business are revenue growth for the company as a whole and for each reportable segment; operating income growth for the company as a whole; earnings per share; and cash flow from operations. We also track certain non-financial drivers of revenue growth and, when material, identify them in the applicable discussions of segment results below. Service offerings are a significant part of our business. Our total service and other revenue was $6.0 billion or 79% of our total revenue in fiscal 2020 and we expect our total service and other revenue to continue to grow in the future.
Key highlights for the first three months of fiscal 2021 include the following:
Revenue of Small Business & Self-Employed revenue of Cash, cash equivalents, and investments of
$1.3 B $1.2 B $5.8 B
up 14% from the same period of fiscal 2020 up 13% from the same period of fiscal 2020
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our net revenue, operating income or loss, and net income or loss, as well as on the value of certain assets and liabilities on our condensed consolidated balance sheets. We believe that the estimates, assumptions and judgments involved in the accounting policies described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2020 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. We believe that there were no significant changes in those critical accounting policies and estimates during the first three months of fiscal 2021. Senior management has reviewed the development and selection of our critical accounting policies and estimates and their disclosure in this Quarterly Report on Form 10-Q with the Audit and Risk Committee of our Board of Directors.
RESULTS OF OPERATIONS
Financial Overview
(Dollars in millions, except per share amounts) Q1
FY21		 Q1
FY20		 $
Change		 %
Change
Total net revenue $ 1,323  $ 1,165  $ 158  14  %
Operating income 209  10  199  1,990  %
Net income 198  57  141  247  %
Diluted net income per share $ 0.75  $ 0.22  $ 0.53  241  %
Total net revenue for the first quarter of fiscal 2021 increased $158 million or 14% compared with the same quarter of fiscal 2020. Our Small Business & Self-Employed segment revenue increased during the quarter primarily due to growth in our Online Ecosystem revenue. Revenue in our Consumer and ProConnect segments was seasonally light, consistent with the same quarter of fiscal 2020. See “Segment Results” later in this Item 2 for more information about the results for all of our reportable segments.
Operating income for the first quarter of fiscal 2021 increased $199 million compared with the same quarter of fiscal 2020. The increase was due to the increase in revenue described above and a decrease in cost of revenue and operating expenses. See "Cost of Revenue" and “Operating Expenses” later in this Item 2 for more information.
Net income for the first quarter of fiscal 2021 increased $141 million due to the increase in operating income described above, net of associated tax expense for the period. Diluted net income per share increased to $0.75 for the first quarter of fiscal 2021, in line with the increase in net income.
 Intuit Q1 Fiscal 2021 Form 10-Q
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Segment Results
The information below is organized in accordance with our three reportable segments. See “Executive Overview – About Intuit” earlier in this Item 2 and Note 11 to the financial statements in Part I, Item 1 of this Quarterly Report for more information. All of our segments operate and sell to customers primarily in the United States. International total net revenue was approximately 6% of consolidated total net revenue for all periods presented.
In August 2020, we reorganized certain technology and customer success functions that support and benefit our overall platform. Additionally, certain legal, facility and employee service costs are now managed at the corporate level. As a result, these costs are no longer included in segment operating income and are now included in other common expenses. For the three months ended October 31, 2019, we reclassified $43 million from Small Business & Self-Employed, $25 million from Consumer, and $3 million from ProConnect to other common expenses. In August 2020, we also renamed our Strategic Partner segment as the ProConnect segment. This segment continues to serve professional accountants.
Segment operating income or loss is segment net revenue less segment cost of revenue and operating expenses. See “Executive Overview – Industry Trends and Seasonality” earlier in this Item 2 for a description of the seasonality of our business. Segment expenses do not include certain costs, such as corporate selling and marketing, product development, general and administrative expenses, share-based compensation expenses, and certain technology and customer success costs, which are not allocated to specific segments. These unallocated costs totaled $543 million in the first three months of fiscal 2021 and $537 million in the first three months of fiscal 2020. Unallocated costs increased in the fiscal 2021 period due to increased corporate product development, selling and marketing, and general and administrative expenses in support of the growth of our businesses and higher share-based compensation expenses. Segment expenses also do not include amortization of acquired technology and amortization of other acquired intangible assets which totaled $9 million in the first three months of fiscal 2021 and $8 million in the first three months of fiscal 2020. See Note 11 to the financial statements in Part I, Item 1 of this Quarterly Report for reconciliations of total segment operating income or loss to consolidated operating income or loss for each fiscal period presented.
 Intuit Q1 Fiscal 2021 Form 10-Q
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 Small Business & Self-Employed
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Small Business & Self-Employed segment includes both Online Ecosystem and Desktop Ecosystem revenue.

Our Online Ecosystem includes revenue from QuickBooks Online, QuickBooks Live, QuickBooks Online Advanced and QuickBooks Self-Employed financial and business management offerings; small business payroll services, including QuickBooks Online Payroll, Intuit Online Payroll, Intuit Full Service Payroll; merchant payment processing services for small businesses who use online offerings; and financing for small businesses.
Our Desktop Ecosystem includes revenue from our QuickBooks Desktop packaged software products (Desktop Pro, Desktop for Mac, Desktop Premier, and QuickBooks Point of Sale); QuickBooks Desktop software subscriptions (QuickBooks Desktop Pro Plus, QuickBooks Desktop Premier Plus, and QuickBooks Enterprise, and ProAdvisor Program memberships for the accounting professionals who serve small businesses); desktop payroll products (QuickBooks Basic Payroll, QuickBooks Assisted Payroll and QuickBooks Enhanced Payroll); merchant payment processing services for small businesses who use desktop offerings; financial supplies; and financing for small businesses.

Segment product revenue is derived from revenue related to software license and version protection for our QuickBooks Desktop products and subscriptions, license and related updates for our desktop payroll products and financial supplies, which are all part of our Desktop Ecosystem. Segment service and other revenue is derived from our Online Ecosystem revenue; and Desktop Ecosystem revenue related to support and connected services for our QuickBooks Desktop and desktop payroll products and subscriptions and merchant payment processing services.
(Dollars in millions) Q1
FY21		 Q1
FY20		 %
Change
Product revenue $ 348  $ 336  4  %
Service and other revenue 833  710  17  %
Total segment revenue $ 1,181  $ 1,046  13  %
% of total revenue 89  % 90  %  
Segment operating income $ 767  $ 593  29  %
% of related revenue 65  % 57  %  

 Intuit Q1 Fiscal 2021 Form 10-Q
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Revenue classified by significant product and service offerings was as follows:
(Dollars in millions) Q1
FY21		 Q1
FY20		 %
Change
Net revenue:
QuickBooks Online Accounting $ 392  $ 306  28  %
Online Services 229  195  17  %
Total Online Ecosystem 621  501  24  %
QuickBooks Desktop Accounting 241  239  1  %
Desktop Services and Supplies 319  306  4  %
Total Desktop Ecosystem 560  545  3  %
Total Small Business & Self-Employed $ 1,181  $ 1,046  13  %
Revenue for our Small Business & Self-Employed segment increased $135 million or 13% in the first quarter of fiscal 2021 compared with the same period of fiscal 2020 primarily due to growth in Online Ecosystem revenue.
Online Ecosystem
Online Ecosystem revenue increased $120 million or 24% in the first quarter of fiscal 2021 compared with the same period of fiscal 2020. QuickBooks Online Accounting revenue increased 28% in the first quarter of fiscal 2021 primarily due to an increase in customers as well as a shift in mix to our higher priced offerings. Online Services revenue increased 17% in the first quarter of fiscal 2021 primarily due to an increase in revenue from our payments and payroll offerings. Online payments revenue increased due to an increase in customers and an increase in charge volume per customer. Online payroll revenue increased due to a shift in mix to our full service offering and an increase in customers.
Desktop Ecosystem
Desktop Ecosystem revenue increased $15 million or 3% in the first quarter of fiscal 2021 compared with the same period of fiscal 2020 due to growth in customers for our QuickBooks Desktop Enterprise subscription offering, which was partially offset by a decrease in Desktop unit sales. Additionally, during the first quarter of fiscal 2021 there was an increase in revenue from our Pro Advisor offerings as a result of delivering an updated point-of-sale license and higher revenue from version protection as a result of price increases in the prior year.
Small Business & Self-Employed segment operating income increased $174 million or 29% in the first quarter of fiscal 2021 compared with the same period of fiscal 2020 primarily due to the increase in revenue described above and lower expenses for marketing.
In August 2020, we reorganized certain technology and customer success functions that support and benefit our overall platform. Additionally, certain legal, facility and employee service costs are now managed at the corporate level. As a result, these costs are no longer included in segment operating income and are now included in other common expenses. For the three months ended October 31, 2019, we reclassified $43 million from Small Business & Self-Employed to other common expenses.
 Intuit Q1 Fiscal 2021 Form 10-Q
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 Consumer
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Consumer segment product revenue is derived primarily from TurboTax desktop tax return preparation software and related form updates.

Consumer segment service and other revenue is derived primarily from TurboTax Online and TurboTax Live offerings, electronic tax filing services and connected services, and also from our Mint and Turbo offerings.



(Dollars in millions) Q1
FY21		 Q1
FY20		 %
Change
Product revenue $ 7  $ 6  17  %
Service and other revenue 112  94  19  %
Total segment revenue $ 119  $ 100  19  %
% of total revenue 9  % 8  %  
Segment operating income (loss) $ 4  $ (20) (120) %
% of related revenue 3  % (20) %  
Revenue for our Consumer segment increased $19 million or 19% in the first quarter of fiscal 2021 compared with the same period of fiscal 2020. Due to the seasonal nature of our Consumer offerings, we typically generate nominal revenue from Consumer products and services in our first fiscal quarter compared with our second and third fiscal quarters. The majority of revenue for the first quarter of each fiscal year is for the filing of extended returns for the previous tax year.
In our first fiscal quarter, our Consumer segment typically generates operating losses because revenue is nominal while we continue to incur operating expenses for general and administrative functions and research and development. In the first quarter of fiscal 2021 expenses were slightly lower compared to the same period of fiscal 2020.
In August 2020, we reorganized certain technology and customer success functions that support and benefit our overall platform. Additionally, certain legal, facility and employee service costs are now managed at the corporate level. As a result, these costs are no longer included in segment operating income and are now included in other common expenses. For the three months ended October 31, 2019, we reclassified $25 million from Consumer to other common expenses.
Because of the seasonality of our Consumer revenue, we do not believe that the revenue or operating results for the first quarter of fiscal 2021 is indicative of trends for the current fiscal year. We will not have substantially complete results for the 2020 tax season until the third quarter of fiscal 2021.




 Intuit Q1 Fiscal 2021 Form 10-Q
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ProConnect
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ProConnect segment product revenue is derived primarily from Lacerte, ProSeries, and ProFile desktop tax preparation software products and related form updates.

ProConnect segment service and other revenue is derived primarily from ProConnect Tax Online tax products, electronic tax filing service, connected services and, bank products.

(Dollars in millions) Q1
FY21		 Q1
FY20		 %
Change
Product revenue $ 12  $ 11  9  %
Service and other revenue 11  8  38  %
Total segment revenue $ 23  $ 19  21  %
% of total revenue 2  % 2  %  
Segment operating loss $ (10) $ (18) (43) %
% of related revenue (43) % (92) %  
In August 2020, we renamed our Strategic Partner segment as the ProConnect segment. This segment continues to serve professional accountants.
Revenue for our ProConnect segment revenue increased $4 million or 21% the first quarter of fiscal 2021 compared with the same period of fiscal 2020. Due to the seasonal nature of our ProConnect offerings, we typically generate nominal revenue from professional tax products and services in our first fiscal quarter compared with our second and third fiscal quarters. The majority of revenue for the first quarter of each fiscal year is for the filing of extended returns for the previous tax year.
In our first fiscal quarter, our ProConnect segment typically generates operating losses because revenue is nominal while we continue to incur operating expenses for general and administrative functions and research and development. In the first quarter of fiscal 2021 expenses were slightly lower compared to the same period of fiscal 2020.
In August 2020, we reorganized certain technology and customer success functions that support and benefit our overall platform. Additionally, certain legal, facility and employee service costs are now managed at the corporate level. As a result, these costs are no longer included in segment operating income and are now included in other common expenses. For the three months ended October 31, 2019, we reclassified $3 million from ProConnect to other common expenses.
Because of the seasonality of our ProConnect revenue, we do not believe that the revenue or operating results for the first quarter of fiscal 2021 is indicative of trends for the current fiscal year. We will not have substantially complete results for the 2020 tax season until the third quarter of fiscal 2021.

 Intuit Q1 Fiscal 2021 Form 10-Q
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Cost of Revenue
(Dollars in millions) Q1
FY21		 % of
Related
Revenue		 Q1
FY20		 % of
Related
Revenue
Cost of product revenue $ 15  4  % $ 17  5  %
Cost of service and other revenue 234  24  % 267  33  %
Amortization of acquired technology 7  n/a 6  n/a
Total cost of revenue $ 256  19  % $ 290  25  %
Our cost of revenue has three components: (1) cost of product revenue, which includes the direct costs of manufacturing and shipping or electronically downloading our desktop software products; (2) cost of service and other revenue, which includes the direct costs associated with our online and service offerings, such as costs for data processing and storage capabilities from cloud providers, customer support costs, costs for the tax and bookkeeping experts that support our TurboTax Live and QuickBooks Live offerings, as well as depreciation expense for developed technology; and (3) amortization of acquired technology which represents the cost of amortizing developed technologies that we have obtained through acquisitions over their useful lives.
Cost of product revenue as a percentage of product revenue was relatively consistent in the first quarter of fiscal 2021 compared with the same period of fiscal 2020. We expense costs of product revenue as they are incurred for delivered software and we do not defer any of these costs when product revenue is deferred.
Cost of service and other revenue as a percentage of service and other revenue decreased in the first quarter of fiscal 2021 compared to the same period of fiscal 2020 primarily due to a decrease in customer success costs as a result of fewer customer contacts and a decrease in depreciation expense.
Operating Expenses
(Dollars in millions) Q1
FY21		 % of
Total
Net
Revenue		 Q1
FY20		 % of
Total
Net
Revenue
Selling and marketing $ 362  27  % $ 383  32  %
Research and development 325  25  % 334  29  %
General and administrative 169  13  % 146  13  %
Amortization of other acquired intangible assets 2  —  % 2  —  %
Total operating expenses $ 858  65  % $ 865  74  %
Total operating expenses as a percentage of total net revenue decreased in the first quarter of fiscal 2021 compared to the same period of fiscal 2020. Total net revenue for the first quarter of fiscal 2021 increased $158 million or 14% while total operating expenses for the quarter decreased $7 million or 1%. Marketing expenses decreased due to shifting some marketing activities to later in the year. Staff and facility expenses decreased as a result of lower headcount and our continued efforts to control discretionary spending with the COVID-19 pandemic. These decreases were partially offset by higher corporate related expenses and professional fees primarily related to the pending acquisition of Credit Karma.
Non-Operating Income and Expenses
Interest Expense
Interest expense of $8 million for the first three months of fiscal 2021 consisted primarily of interest on our senior unsecured notes, unsecured term loan, unsecured revolving credit facility, and secured revolving credit facility. Interest expense of $2 million for the first three months of fiscal 2020 consisted primarily of interest on our unsecured term loan and secured revolving credit facility.
 Intuit Q1 Fiscal 2021 Form 10-Q
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Interest and Other Income, Net
(In millions) Q1
FY21		 Q1
FY20
Interest income (1)
 $ 3  $ 12 
Net gain (loss) on executive deferred compensation plan assets (2)
 (1) 3 
Other 7  (1)
Total interest and other income, net $ 9  $ 14 
(1)    Interest income in the first quarter of fiscal 2021 decreased compared to the same period of fiscal 2020 primarily due to lower average interest rates.
(2)    In accordance with authoritative guidance, we record gains and losses associated with executive deferred compensation plan assets in interest and other income and gains and losses associated with the related liabilities in operating expenses. The total amounts recorded in operating expenses for each period are approximately equal to the total amounts recorded in interest and other income in those periods.
Income Taxes
We compute our provision for or benefit from income taxes by applying the estimated annual effective tax rate to income or loss from recurring operations and adding the effects of any discrete income tax items specific to the period.
We recognized excess tax benefits on share-based compensation of $52 million and $29 million in our provision for income taxes for the three months ended October 31, 2020, and 2019, respectively.
Our effective tax rate for the three months ended October 31, 2020 was approximately 6%. Excluding discrete tax items primarily related to share-based compensation tax benefits mentioned above, our effective tax rate was 25%. The difference from the federal statutory rate of 21% was primarily due to state income taxes and non-deductible share-based compensation, which were partially offset by the tax benefit we received from the federal research and experimentation credit.
We recorded a $35 million tax benefit on pretax income of $22 million for the three months ended October 31, 2019. Excluding discrete tax items primarily related to share-based compensation tax benefits mentioned above, our effective tax rate was 24%. The difference from the federal statutory rate of 21% was primarily due to state income taxes and non-deductible share-based compensation, which were partially offset by the tax benefit we received from the federal research and experimentation credit.
LIQUIDITY AND CAPITAL RESOURCES
Overview
At October 31, 2020, our cash, cash equivalents and investments totaled $5.8 billion, a decrease of $1.3 billion from July 31, 2020 due to the factors discussed under “Statements of Cash Flows” below. Our primary sources of liquidity have been cash from operations, which entails the collection of accounts receivable for products and services, the issuance of senior unsecured notes, and borrowings under our credit facility. Our primary uses of cash have been for research and development programs, selling and marketing activities, capital projects, acquisitions of businesses, debt service costs and debt repayment, repurchases of our common stock under our stock repurchase programs, and the payment of cash dividends. As discussed in “Executive Overview – Industry Trends and Seasonality” earlier in this Item 2, our business is subject to significant seasonality. The balance of our cash, cash equivalents, and investments generally fluctuates with that seasonal pattern. We believe the seasonality of our business is likely to continue in the future.
The following table summarizes selected measures of our liquidity and capital resources at the dates indicated:
(Dollars in millions) October 31, 2020 July 31,
2020		 $
Change		 %
Change
Cash, cash equivalents, and investments $ 5,793  $ 7,050  $ (1,257) (18) %
Long-term investments 28  19  9  47  %
Short-term debt 325  1,338  (1,013) (76) %
Long-term debt 2,032  2,031  1  —  %
Working capital 4,499  4,451  48  1  %
Ratio of current assets to current liabilities 3.1 2.3    
We have historically generated significant cash from operations and we expect to continue to do so in the future. Our cash, cash equivalents, and investments totaled $5.8 billion at October 31, 2020. None of those funds were restricted and approximately 96% of those funds were located in the U.S.
 Intuit Q1 Fiscal 2021 Form 10-Q
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On February 24, 2020, we entered into an agreement and plan of merger (the Merger Agreement) to acquire Credit Karma, Inc. (Credit Karma), for $7.1 billion, subject to certain customary adjustments set forth in the Merger Agreement. The purchase price for Credit Karma will be payable in equal portions of cash and Intuit common stock. The transaction is expected to close before the end of calendar year 2020. See Note 4 to the financial statements in Part I, Item 1 of this Quarterly Report for more information.
In the fourth quarter of fiscal 2020, we borrowed the full $1 billion under our unsecured revolving credit facility and issued $2 billion in senior unsecured notes for general corporate purposes, which may include funding a portion of the pending acquisition of Credit Karma, and other possible acquisitions of businesses or assets or strategic investments. In August 2020, we repaid the $1 billion outstanding under the revolving credit facility. The unsecured revolving credit facility is available to us for general corporate purposes.
Based on past performance and current expectations, we believe that our cash and cash equivalents, investments, and cash generated from operations will be sufficient to meet anticipated seasonal working capital needs, capital expenditure requirements, contractual obligations (including the pending acquisition of Credit Karma), commitments, debt service requirements, and other liquidity requirements associated with our operations for at least the next 12 months. We believe that our financial resources will allow us to manage the impact of COVID-19 on our business operations for the foreseeable future, which could include potential reductions in revenue and delays in payments from customers and partners.
We expect to return excess cash generated by operations to our stockholders through payment of cash dividends, after taking into account our operating and strategic cash needs. In connection with our pending acquisition of Credit Karma, we have temporarily suspended share repurchases.
Our secured revolving credit facility is available to fund a portion of our loans to qualified small businesses. At October 31, 2020, $48 million was outstanding under the secured revolving credit facility.
We evaluate, on an ongoing basis, the merits of acquiring technology or businesses, or establishing strategic relationships with and investing in other companies. Our strong liquidity profile enables us to quickly respond to these types of opportunities.
Statements of Cash Flows
The following table summarizes selected items from our condensed consolidated statements of cash flows for the first three months of fiscal 2021 and fiscal 2020. See the financial statements in Part I, Item 1 of this Quarterly Report for complete condensed consolidated statements of cash flows for those periods.
  Three Months Ended
(Dollars in millions) October 31, 2020 October 31, 2019 $
Change
Net cash provided by (used in):      
Operating activities $ 45  $ (127) $ 172 
Investing activities (130) (57) (73)
Financing activities (1,153) (325) (828)
Effect of exchange rates on cash, cash equivalents, restricted cash, and restricted cash equivalents (1) —  (1)
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents $ (1,239) $ (509) $ (730)
 Intuit Q1 Fiscal 2021 Form 10-Q
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Our primary sources and uses of cash were as follows:
Three Months Ended
October 31, 2020 October 31, 2019
 Sources of cash:


• Net sales of loans held for sale
• Issuance of common stock under employee stock plans


 Uses of cash:

• Repayment of debt
• Payment of accrued bonuses for fiscal 2020
• Payment of cash dividends and dividend rights
• Acquisition of a business
• Capital expenditures
• Net originations of term loans to small businesses
 Sources of cash:


• Issuance of common stock under employee stock plans


 Uses of cash:

• Operations
• Payment of accrued bonuses for fiscal 2019
• Repurchases of shares of our common stock
• Payment of cash dividends and dividend rights
• Capital expenditures
• Repayment of debt
• Net originations of term loans to small businesses
Stock Repurchase Programs, Treasury Shares, and Dividends on Common Stock
As described in Note 9 to the financial statements in Part I, Item 1 of this Quarterly Report, our Board of Directors has authorized a series of common stock repurchase programs. In connection with our pending acquisition of Credit Karma, we have temporarily suspended share repurchases. During the first three months of fiscal 2021 we repurchased no shares under these programs. At October 31, 2020, we had authorization from our Board of Directors to expend up to an additional $2.4 billion for stock repurchases. Future stock repurchases under the current program are at the discretion of management, and authorization of future stock repurchase programs is subject to the final determination of our Board of Directors.
We have continued to pay quarterly cash dividends on shares of our outstanding common stock. During the three months ended October 31, 2020 we declared quarterly cash dividends that totaled $0.59 per share of outstanding common stock for a total of $157 million. In November 2020 our Board of Directors declared a quarterly cash dividend of $0.59 per share of outstanding common stock payable on January 19, 2021 to stockholders of record at the close of business on January 11, 2021. We currently expect to continue paying comparable cash dividends on a quarterly basis. However, future declarations of dividends and the establishment of future record dates and payment dates are subject to the final determination of our Board of Directors.
Business Combinations
On February 24, 2020, we entered into an agreement and plan of merger (the Merger Agreement) to acquire Credit Karma, Inc. (Credit Karma), for $7.1 billion, subject to certain customary adjustments set forth in the Merger Agreement. The purchase price for Credit Karma will be payable in equal portions of cash and Intuit common stock. The transaction is expected to close before the end of calendar year 2020 subject to receiving required regulatory approval. See Note 4 to the financial statements in Part I, Item 1 of this Quarterly Report for more information.
Commitments for Senior Unsecured Notes
In June 2020, we issued $2 billion of senior unsecured notes comprised of the following:
•$500 million of 0.650% notes due July 2023;
•$500 million of 0.950% notes due July 2025;
•$500 million of 1.350% notes due July 2027; and
•$500 million of 1.650% notes due July 2030 (together, the Notes).
Interest is payable semiannually on January 15 and July 15 of each year, beginning on January 15, 2021. At October 31, 2020, our maximum commitment for interest payments under the Notes was $164 million through the maturity dates.
The Notes are senior unsecured obligations of Intuit and rank equally with all existing and future unsecured and unsubordinated indebtedness of Intuit and are redeemable by us at any time, subject to a make-whole premium. Upon the occurrence of change of control transactions that are accompanied by certain downgrades in the credit ratings of the Notes, we will be required to repurchase the Notes at a repurchase price equal to 101% of the aggregate outstanding principal plus any accrued and unpaid interest to but not including the date of repurchase. The indenture governing the Notes requires us to comply with certain covenants. For example, the Notes limit our ability to create certain liens and enter into sale and leaseback transactions. As of October 31, 2020 we were compliant with all covenants governing the Notes. See Note 6 to the financial statements in Part I, Item 1 of this Quarterly Report for more information.