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Business Combinations and Asset Acquisitions | 3 Months Ended
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Nov. 30, 2021
Business Combination and Asset Acquisition [Abstract] |
Business Combination Disclosure | On June 1, 2021, we completed the acquisition of Edmunds Holding Company, one of the most well established and trusted online guides for automotive information and a recognized leader in digital car shopping innovations. With this acquisition, CarMax has enhanced its digital capabilities and further strengthened its role and reach across the used auto ecosystem while adding exceptional technology and creative talent. Edmunds continues to operate independently and remains focused on delivering confidence to consumers and excellent value to its dealer and OEM clients. Additionally, this acquisition allows both businesses to accelerate their respective capabilities to deliver an enhanced digital experience to their customers by leveraging Edmunds’ compelling content and technology, CarMax’s unparalleled national scale and infrastructure, and the combined talent of both businesses. The acquisition was accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, and, accordingly, Edmunds’ results of operations have been consolidated in our financial statements since the date of acquisition. We recorded a preliminary allocation of the purchase price to assets acquired and liabilities assumed based on their estimated fair values as of June 1, 2021. The transaction costs associated with the acquisition were approximately $8.0 million and were expensed as incurred within selling, general and administrative expenses. The following table summarizes the total purchase consideration:
(In thousands) |
Total cash consideration for outstanding shares | $ | 251,047 |
Fair value of common stock (1) | 90,571 |
Fair value of preexisting relationship | 60,200 |
Total | $ | 401,818 |
(1) Represents the issuance of 776,097 shares of CarMax common stock to Edmunds equity holders, the fair value of which was based on the market value of CarMax common stock as of market close on the acquisition date (June 1, 2021). In January 2020, we acquired a minority stake in Edmunds for $50 million. The noncontrolling equity investment in Edmunds was remeasured at a fair value of $60.2 million prior to the acquisition of the remaining ownership stake on June 1, 2021, which resulted in the recognition of a gain of $8.7 million. The gain is included in other income in the consolidated statements of earnings. The following table summarizes the estimated preliminary fair values of the assets acquired and liabilities assumed at the date of the acquisition and is subject to final fair value determination:
(In thousands) | Fair Value
Cash | $ | 9,484 |
Accounts receivable, net | 33,719 |
Other current assets | 2,397 |
Property and equipment, net | 20,741 |
Goodwill (1) | 141,258 |
Intangible assets | 218,000 |
Operating lease assets | 97,250 |
Other assets | 191 |
Total assets acquired | 523,040 |
Accounts payable | 5,063 |
Accrued expenses and other current liabilities | 11,277 |
Current portion of operating lease liabilities | 12,795 |
Deferred income taxes (1) | 3,823 |
Operating lease liabilities, excluding current portion | 88,264 |
Total liabilities assumed | 121,222 |
Net assets acquired | $ | 401,818 |
(1) During the third quarter of fiscal 2022, we obtained new information about facts and circumstances that existed as of the acquisition date, which resulted in a change in the fair value of assets and liabilities recognized. The adjustments were primarily related to research and development tax credits, which resulted in a decrease in goodwill and a decrease in deferred income taxes of $8.4 million. The excess of purchase consideration over the fair value of net identifiable assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributed to expected synergies and the assembled workforce of the acquired business and is not deductible for tax purposes. The fair values assigned to the net identifiable assets and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is received. The primary areas that remain preliminary relate to the fair values of intangible assets acquired, certain identifiable assets and liabilities acquired, and income and non-income based taxes and residual goodwill. We expect to finalize the valuation as soon as practicable, but not later than one year from the acquisition date. Identifiable intangible assets were recognized at their estimated acquisition date fair values. The preliminary fair value of identifiable intangible assets was determined by using certain estimates and assumptions that are not observable in the market. The preliminary fair values of the trade name asset and the internally developed software asset were determined using the relief-from-royalty method, and the preliminary fair value of the customer relationships asset was determined using the excess earnings method. These income-based approaches included significant assumptions such as the amount and timing of projected cash flows, growth rates, customer attrition rates, discount rates, and the assessment of the asset’s life cycle. The preliminary estimated fair value and estimated remaining useful lives of identifiable intangible assets are as follows:
|  | Preliminary
(In thousands) | Useful Life (Years) | Fair Value
Trade name | Indefinite | $ | 31,900 |
Internally developed software | 7 | 52,900 |
Customer relationships | 17 | 133,200 |
Identifiable intangible assets |  | $ | 218,000 |
The operating results of Edmunds have been included in our consolidated financial statements since the date of the acquisition. Net sales and operating revenues and net earnings attributable to Edmunds were not material for the reporting periods presented. Our pro forma results as if the acquisition had taken place on the first day of fiscal 2021 would not be materially different from the amounts reflected in the accompanying consolidated financial statements, and therefore are not presented.

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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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