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Business Combinations | 6 Months Ended
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Jan. 31, 2021
Business Combinations [Abstract] |
Business Combinations |
5. Business Combinations
Credit Karma
On December 3, 2020 we acquired all of the outstanding shares of Credit Karma, a consumer technology platform. We acquired Credit Karma to help consumers unlock smart money decisions and accelerate our mission of powering prosperity around the world, by creating a personal financial assistant that helps consumers find the right financial products, put more money in their pockets and access financial expertise and advice. Credit Karma is a separate reportable segment. See Note 12, "Segment Information," for more information. We have included the financial results of Credit Karma in the condensed consolidated financial statements from the date of acquisition. For the three and six months ended January 31, 2021, the transaction costs associated with the acquisition were approximately $26 million and $31 million, respectively, and were recorded in general and administrative expenses. We acquired Credit Karma for total consideration of $8.1 billion which included assumed equity awards and restricted shares subject to a revest provision. The fair value of the purchase price totaled $7.2 billion and included $3.4 billion in cash, 10.6 million shares of Intuit common stock with a fair value of $3.8 billion and assumed equity awards for services rendered through the acquisition date of $47 million. We also issued shares of common stock with a fair value of $275 million which are restricted due to a revest provision, and will be expensed over a service period of three years. The share-based compensation expense related to these restricted shares is non-deductible for income tax purposes. Additionally, we assumed equity awards, for services to be rendered in the future, with a fair value of $663 million that will be charged to expense over the remaining service periods, which average approximately three years. The fair value of the stock consideration is based on the December 2, 2020 closing price of Intuit common stock of $355.49. As part of the merger agreement, following the close of the transaction, we issued approximately $300 million of restricted stock units to the employees of Credit Karma, which will be charged to expense over a service period of four years. The preliminary allocation of the Credit Karma purchase price is as follows:
(In millions) | Amount
Cash and cash equivalents | $ | 436 |
Accounts receivable, net | 141 |
Income taxes receivable | 59 |
Prepaid expenses and other current assets | 8 |
Long-term investments | 3 |
Property and equipment, net | 63 |
Operating lease right-of-use assets | 167 |
Goodwill | 3,899 |
Intangible assets | 3,372 |
Other assets | 83 |
Accounts payable | (86) |
Accrued compensation and related liabilities | (113) |
Other current liabilities | (24) |
Operating lease liabilities | (172) |
Long-term deferred income tax liabilities | (632) |
Other long-term obligations | (10) |
Total preliminary purchase price allocation | $ | 7,194 |
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce of Credit Karma and the synergies expected to be achieved. This goodwill is assigned to the new Credit Karma segment and is non-deductible for income tax purposes. The fair values assigned to tangible assets acquired and liabilities assumed are preliminary based on management's estimates and assumptions and may be subject to change as additional information is received and certain tax returns are finalized. We expect to finalize the valuation as soon as practicable, but not later than one year from the acquisition date. Intangible assets consist of user relationships, trade names/trademarks, purchased technology, and partner relationships. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is 14.4 years. The following table presents the details of identifiable intangible assets acquired.
(In millions, except years) | Estimated Useful Life |  | Amount
User relationships | 15 years |  | $ | 2,781 |
Trade names/Trademarks | 15 years |  | 375 |
Purchased technology | 6 years |  | 216 |
Total identifiable intangible assets |  |  | $ | 3,372 |
The following table summarizes the long-term deferred income tax liabilities included in the purchase price allocation above:
(In millions) | Amount
Intangibles | $ | (847) |
Federal and state net operating loss carryforwards | 135 |
Federal research and experimentation credit carryforwards | 45 |
Other, net | 35 |
Total long-term deferred income tax liabilities | $ | (632) |
The unaudited financial information in the table below summarizes the combined results of operations of Intuit and Credit Karma on a pro forma basis, as though the companies had been combined as of the beginning of our fiscal 2020. These pro forma results were based on estimates and assumptions, which we believe are reasonable. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of our fiscal 2020. The pro forma financial information assumes our senior unsecured notes were issued as of the beginning of our fiscal 2020 and includes adjustments to share-based compensation expense, amortization for acquired intangible assets, interest expense, transaction costs, capitalization and amortization of certain activities associated with the development of internal use software to conform with Intuit's accounting policy, and related tax effects. The pro forma financial information for the three months ended January 31, 2021 combines our results for the three months ended January 31, 2021, which include the results of Credit Karma subsequent to December 3, 2020, and the historical results for Credit Karma for the one month ended November 30, 2020. The pro forma financial information for the six months ended January 31, 2021 combines our results for the six months ended January 31, 2021, which include the results of Credit Karma subsequent to December 3, 2020, and the historical results for Credit Karma for the three months ended September 30, 2020 and one month ended November 30, 2020. The pro forma financial information for the three and six months ended January 31, 2020 combines our historical results for those periods with the historical results of Credit Karma for the three and six months ended December 31, 2019. The following table summarizes the pro forma financial information:
| Three Months Ended |  | Six Months Ended
(In millions) | January 31, 2021 |  | January 31, 2020 |  | January 31, 2021 |  | January 31, 2020
Total revenue | $ | 1,647 |  |  | $ | 1,958 |  |  | $ | 3,142 |  |  | $ | 3,381 |
Net income | $ | 23 |  |  | $ | 120 |  |  | $ | 104 |  |  | $ | 78 |
Basic net income per share | $ | 0.08 |  |  | $ | 0.44 |  |  | $ | 0.38 |  |  | $ | 0.29 |
Diluted net income per share | $ | 0.08 |  |  | $ | 0.44 |  |  | $ | 0.38 |  |  | $ | 0.28 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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