Acquisition

9 Months Ended

Sep. 30, 2012

Acquisition [Abstract]

Acquisition

3. Acquisition

TaxACT Holdings. On January 31, 2012, the Company acquired all of the outstanding stock of TaxACT Holdings and its wholly-owned subsidiary, 2^nd Story, which operates the TaxACT tax preparation software and online service business. The Company paid $287.5 million in cash for this acquisition, less certain transaction expenses, and subject to certain specified working capital adjustments. The acquisition of the TaxACT business was funded from the Company’s cash reserves and from the net proceeds of a $105 million credit facility (of which $100 million was drawn). See Note 9 for further discussion of the credit facility. The acquisition was intended to diversify the Company’s business model and expand its operations. Under the acquisition method, assets acquired and liabilities assumed are recorded at their fair values as of the acquisition date. Any excess of the purchase price over the fair values of the net assets acquired is recorded as goodwill. Preliminary valuations are as follows (in thousands):

	Fair Value
Tangible assets acquired	$	21,666
Liabilities assumed		15,898
Identifiable net assets acquired	$	5,768
Fair value adjustments to intangible assets
Customer relationships	$	101,400
Proprietary technology		29,800
Trade name		19,499
Fair value of intangible assets acquired	$	150,699
Purchase price:
Cash paid	$	287,500
Less identifiable net assets acquired		(5,768	)
Plus deferred tax liability related to intangible assets		55,132
Less fair value of intangible assets acquired		(150,699	)
Excess of purchase price over net assets acquired, allocated to goodwill	$	186,165

The preliminary fair value determinations for assets acquired and liabilities assumed for this acquisition were based upon a preliminary valuation and certain of our estimates and assumptions are subject to change as we obtain additional information for our estimates in future periods. The primary areas of the acquisition accounting that are not yet finalized relate to income and non-income based taxes and the related indemnification assets. The Company recorded acquisition costs of $305,000 in 2011 and $18,000 and $1.1 million in the three and nine months ended September 30, 2012, respectively, which were recognized in general and administrative expenses. The Company incurred $2.3 million of debt origination costs related to the credit facility used to help fund the acquisition, which the Company plans to amortize to interest expense over the term of the credit facility. The Company did not assume any equity awards or plans from 2^nd Story. Following the completion of the acquisition, the Company issued 380,000 options and 167,000 RSUs to 2 ^nd Story’s employees as an incentive for future services and at levels consistent with other employee awards.

The Company’s estimates of the economic lives of the acquired assets are eight years for the customer relationships, four years for the proprietary technology, approximately three years for the personal property assets, and the trade name is estimated to have an indefinite-life. The Company plans to amortize the assets over their respective estimated lives. The goodwill and the trade name will be tested for impairment at least annually.

The gross contractual amount of trade accounts receivable acquired was $9.4 million, all of which has been collected. The Company recorded a fair value of $304,000 for deferred revenue associated with the TaxACT business’s data storage and retrieval service, which 2 ^nd Story, prior to the acquisition, had recorded at $5.1 million as of the acquisition date.

Since the acquisition date, the Company has included in its consolidated results the financial results of operations of the TaxACT business, which included total revenue of $60.9 million and a contribution to the Tax Preparation segment income of $32.5 million.

Pro Forma Financial Information of Acquisitions (unaudited)

The financial information in the table below summarizes the combined results of operations of Blucora and 2 ^nd Story on a pro forma basis, as though they had been combined as of the beginning of each period presented. This pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition occurred at the beginning of each period presented. The pro forma revenues and income from continuing operations for the three and nine months ended September 30, 2012 and 2011 combines the historical results of operations of the Company and 2 ^nd Story for the quarters ended September 30, 2011, June 30, 2011, and March 31, 2011, and combines the historical results of the Company for the quarters ended September 30, 2012, June 30, 2012, and March 31, 2012 with the results of 2 ^nd Story for the month ended January 31, 2012.

The following amounts are in thousands:

	Three months ended September 30,					Nine months ended September 30,
	2012			2011		2012		2011
Revenues	$	92,870		$	58,261	$	330,339	$	238,776
Income (loss) from continuing operations	$	(2,398	)	$	4,936	$	22,999	$	13,666

Goodwill

The goodwill arising from the acquisition consists largely of the ability to attract new customers and develop new technologies post acquisition, which do not qualify for separate recognition. The Company does not expect that any of the goodwill arising from the acquisition will be deductible for tax purposes. The following summarizes the Company’s goodwill activity in the first nine months of 2012 by segment (in thousands):

	Search		Tax Preparation		Total
Goodwill – January 1, 2012	$	44,815	$	—	$	44,815
New acquisitions		—		186,165		186,165
Goodwill – September 30, 2012	$	44,815	$	186,165	$	230,980

The following summarizes the change in other indefinite-lived intangible assets in the first nine months of 2012 by segment (in thousands):

	Search		Tax Preparation		Total
Other indefinite-lived intangible assets – January 1, 2012	$	283	$	—	$	283
New acquisitions		—		19,499		19,499
Other indefinite-lived intangible assets – September 30, 2012	$	283	$	19,499	$	19,782