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Merger And Acquisition Activities
 6 Months Ended
Jun. 30, 2011
Merger And Acquisition Activities  
Merger And Acquisition Activities

2. Merger and Acquisition Activities

Acquisition of Enfora

On November 30, 2010, the Company completed the acquisition of Enfora, Inc. ("Enfora"), a provider of intelligent asset-management solutions utilizing wireless technology and machine-to-machine (M2M) communications. The acquisition of Enfora diversifies the Company's customer base and product lines into adjacent markets and advances the Company's strategy of providing intelligent devices to all end markets - enterprise, consumer and vertical applications.

Enfora's results of operations and estimated fair value of assets acquired and liabilities assumed are included in the Company's consolidated financial statements from the date of acquisition. The Company may adjust the preliminary purchase price allocation after obtaining more information regarding preliminary estimates of net deferred tax assets and potential limitations on their use. The revenue and operating results contributed by Enfora during the three and six months ended June 30, 2011 are disclosed in the Company's Segment Information and Concentrations of Risk footnote (see Note 7).

 

Actual and Pro Forma Results of Enfora Acquisition

The following table presents the unaudited results for the three and six months ended June 30, 2011 and pro forma financial information for the three and six months ended June 30, 2010. The unaudited pro forma financial information for the three and six months ended June 30, 2010 combines the results of operations of Novatel Wireless and Enfora as though the companies had been combined as of the beginning of fiscal 2009 as previously reported in the 2010 Form 10-K. The pro forma financial information is presented for informational purposes only. The pro forma financial information is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2009. The following unaudited results and pro forma financial information presented include amortization charges for acquired intangible assets, inventory fair value adjustments, eliminations of intercompany transactions, adjustments to interest expense, reduction in share-based compensation and related tax effects (in thousands):

 

     Three Months Ended
June 30,		     Six Months Ended
June 30,		  
     2011     2010 (1)     2011     2010 (1)  

Net revenue

    $ 118,021      $ 87,328      $ 179,805      $ 175,292   

Net loss

      (3,898 )      (23,600 )      (25,986 )      (28,672 ) 

(1) Pro forma results

Enfora acquisition consideration

Under the terms of the acquisition agreement, the Company paid cash of $64.5 million and additional cash of $13.0 million for an agreed upon amount of Enfora working capital. The Company also agreed to pay additional consideration ("contingent consideration") of up to $6.0 million based on the operating results of Enfora for the 15 month period from October 1, 2010 to December 31, 2011. The estimated fair value of this contingent consideration at the acquisition date was $0.9 million, resulting in total estimated cash to be paid of $78.4 million. During the quarter ended March 31, 2011, the Company revised its estimate of contingent consideration to $0 and accordingly reflected this change as a benefit to general and administrative expenses for the quarter ended March 31, 2011. There were no changes in the fair value recorded in the three months ended June 30, 2011 as the Company continues to believe the operating results necessary to receive payment of the contingent consideration will not be achieved.

Cinterion

In June 2010, the Company submitted a bid to purchase certain assets of Cinterion Wireless Modules ("Cinterion"), a company in the cellular machine-to-machine communications industry. The Company was not the successful bidder at the conclusion of the process on June 28, 2010.

In June 2010, the Company borrowed $30 million, net of $2.2 million in lender fees, under a bridge loan facility in connection with its bid. In accordance with bidding procedures during June 2010, the Company deposited into escrow an amount in Euros equal to its bid price using cash and cash equivalents, proceeds from the sale of marketable securities, and borrowings under the $30 million bridge loan facility. The escrowed funds are reflected as a deposit of restricted funds in the accompanying Consolidated Statement of Cash Flows for the six months ended June 30, 2010. The escrowed funds were returned to the Company in July 2010.

While the Company's Euro funds were held in escrow, the Company engaged in hedging transactions to address foreign currency risk at a cost of $1.2 million, which amount was recorded in other income (expense), net, in the Consolidated Statement of Operations for the three months ended June 30, 2010.

During the three months ended June 30, 2010, the Company recorded a foreign currency gain of $2.9 million, which was recorded in other income (expense), net, in connection with the conversion of its Euro-denominated escrowed funds into U.S. dollars following completion of the auction on June 28, 2010.

Pursuant to authoritative accounting guidance, the $2.2 million in lender fees on the $30 million bridge loan facility were recorded as a discount to amounts outstanding under the facility and amortized over the stated term of the facility which was scheduled to mature on September 8, 2010. During June 2010, the Company also incurred $660,000 in professional fees attributable to the bridge facility, which were capitalized and amortized over the stated term of the facility. For the three months ended June 30, 2010, the Company recognized $687,000 in interest expense related to this facility, which primarily consisted of the amortization of lender and professional fees.

In connection with its bid, the Company incurred $2.0 million in legal, advisory and professional fees unrelated to the bridge loan facility, which were recorded in general and administrative expenses in the Consolidated Statement of Operations for the three months ended June 30, 2010.

In July 2010, the Company repaid all amounts outstanding under the bridge loan facility.