Business Combinations

12 Months Ended

Jul. 31, 2020

6. Business Combinations

During fiscal 2018 we acquired all of the outstanding equity interests of TSheets.com LLC, Exactor, Inc., and Applatix, Inc. for total combined cash and other consideration of approximately $412 million. The $412 million included approximately $27 million for the fair value of equity awards and other cash consideration that is being charged to expense over the future service period of up to three years. These three businesses became part of our Small Business & Self-Employed segment and will provide additional features to our QuickBooks offerings such as automated time tracking and scheduling and the calculation and filing of sales and use taxes. We have included their results of operations in our consolidated results of operations from the dates of acquisition. Their results of operations for all periods presented and periods prior to the dates of acquisition were not material when compared with our consolidated results of operations.

Under the acquisition method of accounting we allocated the fair value of the total combined purchase consideration of $385 million to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the dates of acquisition. The fair values assigned to the identifiable intangible assets acquired were based on estimates and assumptions determined by management. We recorded the excess of consideration over the aggregate fair values as goodwill which is primarily attributable to expected synergies from future growth. Using information available at the time the acquisitions closed, we allocated approximately $5 million of the total combined purchase consideration to net tangible assets and approximately $62 million to identified intangible assets which are being amortized over a weighted average life of four years. The identified intangible assets include $38 million for purchased technology, $17 million for customer lists, and $7 million for covenants not to compete. We recorded the excess combined purchase consideration of approximately $318 million as goodwill, of which approximately $219 million is deductible for income tax purposes.

Proposed Credit Karma Transaction

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 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 subject to receiving required regulatory approval. 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 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.