Business Acquisitions and Dispositions

Acquisitions in 2012

On December 31, 2012, the Company acquired a 62.4% ownership interest of Digital Leash, LLC, d/b/a ProtectCELL and an option to purchase the remaining 37.6% ownership interest in ProtectCELL after 2014. ProtectCELL provides membership plans that afford protection for mobile wireless devices and other benefits including data management and identity theft protection. ProtectCELL is one of the leaders in mobile device protection plans and will spearhead Fortegra's efforts to expand its warranty and service contract business in the mobile and wireless device space. ProtectCELL's results will be included in the Company's Payment Protection segment.

On December 31, 2012, the Company acquired 100% of the outstanding stock ownership of 4Warranty Corporation, a leading warranty and extended service contract administrator with extensive expertise in furniture, electronics, appliance, lawn and garden, and fitness equipment. 4Warranty complements the Company's rapidly expanding warranty business. 4Warranty's results will be included in the Company's Payment Protection segment.

On April 24, 2012, the Company acquired a 100% ownership interest in MHA & Associates LLC ("MHA"), for $0.3 million, obtaining the renewal rights of the business and hiring the prior owner to maintain and increase the block of business.

The Consolidated Balance Sheets at December 31, 2012, include the accounts of both ProtectCELL and 4Warranty as of December 31, 2012. The financial results for the 2012 acquisitions of ProtectCELL and 4Warranty have not been included in the Company's Consolidated Statements of Income for the year ended December 31, 2012, because both acquisitions closed after business on December 31, 2012.

The Company did not issue shares of its common stock in connection with any of the acquisitions completed during the years ended December 31, 2012, 2011 and 2010, respectively.

The following unaudited pro forma summary presents the Company's consolidated financial information as if ProtectCELL and 4Warranty had been acquired on January 1 of each year. Due to the insignificant impact of the MHA acquisition, its pro forma results have been excluded from the table below. These amounts have been calculated after applying the Company's accounting policies and adjusting the results of the acquired company to reflect the additional interest expense associated with the funding necessary to complete the acquisition and any amortization of intangibles that would have been charged to operations assuming the intangible assets would have existed on January 1, 2012 and 2011, excluding the transaction costs and the consequential tax effect.



	Years Ended December 31,
	2012		2011
Revenue	$	359,950	$	321,135

Net income	$	11,615	$	9,549

The unaudited pro forma results in the above table were prepared for comparative purposes only and do not purport to be indicative of the results of operations which may have actually resulted had the acquisitions of ProtectCELL and 4Warranty occurred at January 1, 2012 and 2011, respectively, nor is it indicative of any future operating results of the Company.

During 2012, the Company received the final valuation studies for identifiable intangible assets to determine the final valuation for the 2011 acquisitions of eReinsure and PBG. Accordingly, the Consolidated Balance Sheet at December 31, 2011 has been retrospectively adjusted to include the effect of the measurement period adjustments as required under ASC 805. Please see the Notes, "Goodwill," and "Other Intangible Assets," for more information on the retrospective measurement period adjustments made in 2012.

The following table presents the preliminary determination of the fair value of the amounts for the identifiable assets acquired, liabilities assumed, non-controlling interests and goodwill recorded for the 2012 acquisitions of ProtectCELL and 4Warranty and the final amounts recorded for the 2011 acquisitions based on their fair values as of the respective acquisition date and the effects of the measurement period adjustments recorded in 2012, as discussed above:



	2011 Acquisitions												2012 Acquisitions
	Auto Knight			eReinsure			PBG			Magna Insurance			4Warranty			ProtectCELL
Assets:
Cash	$	—		$	3,694		$	38		$	400		$	703		$	350
Restricted cash	—			—			—			—			72			7,438
Investments	1,403			1,212			—			2,432			—			—
Short-term investments	—			—			—			—			—			252
Notes receivable	—			—			—			—			—			6,341
Other receivables	90			1,826			—			83			199			2,312
Deferred acquisition costs	408			—			—			—			—			19,845
Property and equipment, net	—			142			65			—			61			674
Other intangible assets, net	1,807			13,908			3,650			—			1,900			27,815
Other assets	—			54			23			—			—			1,470
Net deferred tax asset	—			—			127			—			—			—
Liabilities:
Unpaid claims	—			—			—			—			—			(176		)
Accrued expenses and accounts payable	(137		)	(2,825		)	(304		)	(455		)	(180		)	(2,644		)
Commissions payable	(116		)	—			(60		)	—			(41		)	—
Deferred revenue	(2,443		)	(835		)	—			—			(1,260		)	(45,409		)
Income taxes payable	—			—			—			—			(296		)	—
Net deferred tax liability	(477		)	(1,757		)	—			(36		)	(266		)	—
Net assets acquired	535			15,419			3,539			2,424			892			18,268
Non-controlling interest	—			—			—			—			—			(10,000		)
Purchase consideration ^{(1) (2)}	4,750			38,931			7,607			2,424			3,616			20,000
Goodwill	$	4,215		$	23,512		$	4,068		$	—		$	2,724		$	11,732

⁽¹⁾ - Reflects a purchase price reduction of $0.3 million for the final eReinsure working capital adjustments.

⁽²⁾ - The purchase consideration for the 4Warranty acquisition includes $0.3 million of contingent consideration and $0.5 million of working capital and hold back reserves, which are expected to be paid out based on the agreed terms of the Stock Purchase Agreement.

The Company has determined that none of the goodwill acquired in 2012 is expected to be tax deductible. The following table presents goodwill attributable to acquisitions that is expected to be tax deductible by year of acquisition:



	Year of the Acquisition
	2012		2011		2010
Total⁽¹⁾	$	—	$	4,069	$	10,008

⁽¹⁾The amount of goodwill attributable to acquisitions that is expected to be tax deductible for acquisitions completed in 2011 has been revised from the amount presented in the 2011 Annual Report on Form 10-K resulting from adjustments to goodwill for final valuations obtained in 2012 for the 2011 acquisitions.

Dispositions

In July 2011, the Company sold its wholly owned subsidiary, CIRG, for a sales price of $1.2 million, comprised of cash and a $1.1 million secured note receivable. For the year ended December 31, 2011, the Company recorded a $0.5 million loss on the sale of CIRG. This disposition resulted in a non-consolidated VIE. For more information see the Note, "Variable Interest Entity."