Note 3: Business Combinations

Presented below is information regarding the Company’s business combinations during the years ended December 31, 2013, 2012, and 2011, including information about the purchase price accounting from these transactions.

Balance Financial: On October 4, 2013, TaxACT acquired all of the equity of Balance Financial, a provider of web and mobile-based financial management software, for $4.9 million in cash which includes a $0.7 million escrow amount recorded in “Other long-term liabilities” for indemnifications related to general representations and warranties. The escrow period expires on June 3, 2015, at which time the amount, net of any losses, will be released. The acquisition of the Balance Financial business is strategic to TaxACT and was funded from the revolving credit loan under the TaxACT 2013 credit facility. See “Note 8: Debt” for further discussion of the TaxACT 2013 credit facility. The identifiable net assets acquired amounted to $1.0 million, consisting primarily of deferred tax assets, and intangible assets acquired amounted to $0.8 million, consisting primarily of internally-developed software and customer relationships both of which have finite lives. Goodwill amounted to $3.1 million. Pro forma results of operations have not been presented because the effects of this acquisition were not material to the Company’s consolidated results of operations.

Monoprice: On August 22, 2013, the Company acquired all of the outstanding stock of Monoprice, an online provider of self-branded electronics and accessories for both consumers and businesses (see “Note 1: The Company and Basis of Presentation”). The Company paid $182.9 million, which was funded from available cash, after a $0.4 million working capital adjustment in the fourth quarter of 2013. The acquisition was intended to diversify the Company’s business model and expand its operations.

Preliminary valuations are as follows (in thousands):


	Fair Value
Tangible assets acquired	$	49,714
Liabilities assumed		(23,623	)

Identifiable net assets acquired	$	26,091

Fair value adjustments to intangible assets:
Customer relationships	$	30,900
Trade name		38,000

Fair value of intangible assets acquired	$	68,900

Purchase price:
Cash paid	$	182,909
Less identifiable net assets acquired		(26,091	)
Plus deferred tax liability related to intangible assets		27,683
Less fair value of intangible assets acquired		(68,900	)

Excess of purchase price over net assets acquired, allocated to goodwill	$	115,601

The preliminary fair value determinations for assets acquired and liabilities assumed for this acquisition were based upon a preliminary valuation. 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, indemnification assets, and residual goodwill.

The Company incurred acquisition costs of $0.7 million in 2013, which were recognized in “General and administrative expense.” The Company did not assume any equity awards or plans from Monoprice. Following the completion of the acquisition, the Company issued 27,152 options and 126,259 restricted stock units (“RSUs”), which are at levels consistent with other awards to Blucora subsidiary employees, and 243,750 performance-based RSUs to Monoprice’s employees (see “Note 11: Stock-Based Compensation”). In addition, the sellers of Monoprice are entitled to federal and state tax refunds related to pre-acquisition tax periods pursuant to the purchase agreement (see “Note 6: Balance Sheet Components”).

The Company’s estimates of the economic lives of the acquired assets are two years for the business-to-consumer customer relationships, seven years for the business-to-business customer relationships, approximately six years for the personal property assets, and the trade name is estimated to have an indefinite life. Goodwill 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 Monoprice acquisition will be deductible for income tax purposes.

The gross contractual amount of trade accounts receivable acquired was $3.2 million, which the Company has substantially collected. The Company recorded deferred revenue at a fair value of $1.3 million as of the acquisition date. Prior to the acquisition, Monoprice had recorded deferred revenue at $2.0 million.

For the period from the acquisition date to December 31, 2013, the Company’s total revenues included $54.3 million in revenue and a $5.0 million operating income contribution from the Monoprice business.

Pro Forma Financial Information of Monoprice Acquisition (unaudited)

The financial information in the table below summarizes the combined results of operations of Blucora and Monoprice on a pro forma basis, for the period in which the acquisition occurred and the prior reporting period as though the companies 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 condensed combined statement of operations for the year ended December 31, 2013 combines the historical results of operations of the Company and Monoprice for the year ended December 31, 2013 with the results of Monoprice for the period from January 1, 2013 to the acquisition date. The following amounts are in thousands:


	Years ended December 31,
	2013		2012
Revenues	$	663,900	$	525,027
Net income (loss)	$	25,637	$	22,874

TaxACT: On January 31, 2012, the Company acquired all of the outstanding stock of TaxACT, which operates the TaxACT tax preparation online service and software business (see “Note 1: The Company and Basis of Presentation”). The Company paid $287.5 million in cash, less certain transaction expenses. The TaxACT acquisition was funded from the Company's cash reserves and from the TaxACT 2012 credit facility, of which $100.0 million was drawn at the transaction's close. See “Note 8: Debt” for further discussion of the TaxACT 2012 credit facility. The acquisition was intended to diversify the Company's business model and expand its operations.

Final valuations are as follows (in thousands):


	Fair Value
Tangible assets acquired	$	22,465
Liabilities assumed		(17,759	)

Identifiable net assets acquired	$	4,706

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		(4,706	)
Plus deferred tax liability related to intangible assets		53,380
Less fair value of intangible assets acquired		(150,699	)

Excess of purchase price over net assets acquired, allocated to goodwill	$	185,475

The Company recorded acquisition costs of $1.1 million in 2012 and $0.3 million in 2011, which were recognized in “General and administrative expense.” The Company incurred $2.3 million of debt origination costs related to the credit facility used to fund the acquisition, a portion of which was recorded as loss on debt extinguishment and modification expense in “Other loss, net” and the remainder of which is being amortized to interest expense over the term of the credit facility. The Company did not assume any equity awards or plans from TaxACT. Following the completion of the acquisition, the Company issued 380,000 options and 167,000 RSUs to TaxACT’s employees as an incentive for future services and at levels consistent with other employee awards (see “Note 11: Stock-Based Compensation”). In addition, the sellers of TaxACT are entitled to certain federal tax refunds related to pre-acquisition tax periods pursuant to the purchase agreement (see “Note 6: Balance Sheet Components”).

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. Goodwill consists largely of the ability to attract new customers and develop new technologies post acquisition, which do not qualify for separate recognition. The Company determined that no portion of the goodwill arising from the TaxACT acquisition will be deductible for income tax purposes.

The gross contractual amount of trade accounts receivable acquired was $9.4 million, all of which has been collected. The Company recorded deferred revenue associated with the TaxACT business’s data storage and retrieval service at a fair value of $0.3 million as of the acquisition date. Prior to the acquisition, TaxACT had recorded deferred revenue at $5.1 million.

For the period from the acquisition date to December 31, 2012, the Company’s total revenues included $62.1 million in revenue and a $30.1 million operating income contribution from the TaxACT business.

Pro Forma Financial Information of TaxACT Acquisition (unaudited)

The financial information in the table below summarizes the combined results of operations of Blucora and TaxACT on a pro forma basis, for the period in which the acquisition occurred and the prior reporting period as though the companies 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 condensed combined statement of operations for the year ended December 31, 2012 combines the historical results of the Company for the year ended December 31, 2012 with the results of TaxACT for the month ended January 31, 2012. The following amounts are in thousands:


	Years ended December 31,
	2012		2011
Revenues	$	427,809	$	307,594
Net income (loss)	$	26,819	$	11,251