INTUIT INC. 2004 Annual Report to Stockholders

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. DISCONTINUED OPERATIONS

Quicken Loans

In July 2002 we sold 87.5% of our Quicken Loans mortgage business to Rock Acquisition Corporation and recorded a pre-tax gain of $23.3 million on the transaction. We retained a 12.5% non-voting equity interest in Rock, which we accounted for on a cost basis. In October 2002, we sold our minority interest in Rock to Rock's majority shareholders and recorded a $5.6 million gain on the transaction. As part of the original sale transaction, we also agreed to provide a line of credit of up to $375.0 million to fund mortgage loans for a transitional period of up to six months. The line was repaid in full in January 2003.

    We accounted for the sale of Quicken Loans as discontinued operations in accordance with APB Opinion No. 30. The net assets, operating results and cash flows of Quicken Loans have therefore been segregated from continuing operations on our balance sheets, statements of operations and statements of cash flows for all periods prior to the sale. In fiscal 2002 Quicken Loans net revenue was $189.2 million and Quicken Loans income before income taxes was $73.6 million.

    Concurrent with the sale, Rock licensed the right to use our Quicken Loans trademark for its residential home loan and home equity loan products. We will receive a minimum royalty of $1.75 million a year for five years under the licensing agreement. We also entered into a five-year distribution agreement with Rock through which it will provide mortgage services on Quicken.com. In July 2004 we amended the distribution agreement to reduce the minimum fees over the life of the agreement by $1.75 million. We will receive minimum fees of $0.75 million a year for two years, $0.5 million for the third year and no minimum fees for the fourth and fifth years under the distribution agreement. The royalties from the licensing agreement and the fees from the distribution agreement are recorded as earned and included in interest and other income on our statement of operations.

    We recorded royalties under the trademark licensing agreement of $9.3 million in fiscal 2003 and fiscal 2004. We recorded fees under the distribution agreement of $0.8 million in fiscal 2003 and $0.9 million in fiscal 2004. Fees due from Rock under these agreements totaled $9.5 million at July 31, 2003 and July 31, 2004 and were included in accounts receivable on our balance sheet.

Intuit KK

In February 2003 we sold all of the outstanding stock of our wholly owned Japanese subsidiary, Intuit KK, to a private equity investment firm located in Japan for approximately $79.0 million. Intuit KK was part of our Other Businesses segment. In accordance with the provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we accounted for the sale as discontinued operations. The net assets, operating results and cash flows of Intuit KK have therefore been segregated from continuing operations on our balance sheets, statements of operations and statements of cash flows for all periods prior to the sale. Intuit KK net revenue was $46.1 million in fiscal 2002 and $26.6 million in fiscal 2003. Intuit KK income before income taxes was $14.4 million in fiscal 2002 and $5.6 million in fiscal 2003. We recorded a gain on disposal of discontinued operations of $71.0 million, net of income taxes of $5.1 million, in the third quarter of fiscal 2003.