4. Business combinations
Digital Television Solutions
On February 29, 2008, the Group purchased 100 % of SAS EDSI, France, for a cash consideration of EUR 7.0 million (CHF 11.1 million). SAS EDSI is specialized in the development of high security software solutions for Digital TV, mobile phone and banking applications. The Goodwill amounting to CHF 6.8 million is attributable to a specialized workforce to develop smartcard software solutions and to potential synergies in the development of smartcard-based software. The Goodwill is allocated to the Digital Television Solutions cash generating unit.
On March 7, 2008, the Group closed an asset deal to acquire the assets of EmbedICs Inc., USA, active in embedded software and cryptography and providing hardware and software solutions to Digital TV operators, for a total consideration of USD 19.2 million (CHF 20.1 million), of which USD 17.0 million (CHF 17.8 million) were paid in cash. The Group created a new company EmbedICs LLC, USA to acquire the assets of EmbedICs Inc.
The Goodwill amounting to USD 19.1 million (CHF 20.0 million) is allocated to the Digital Television Solutions cash generating unit and is mainly attributable to the knowledge of employees to optimize system security and synergies enabling the Group to reduce its development costs.
Public Access
On June 2, 2008, the Group purchased 100 % of Skibadge International, France for a cash consideration of EUR 1.1 million (CHF 1.7 million) and a contigent consideration of up to EUR 0.8 million depending upon 2008/2009 and 2009/2010 revenue and gross margin targets. Skibadge International is a provider of automated ski ticket vending equipment. The Goodwill amounting to EUR 1.2 million (CHF 1.9 million) is allocated to the Public Access cash generating unit. It is attributable to the workforce and potential synergies.
As of December 22, 2008, the Group acquired 100 % of Orcus BVBA, Belgium for a cash consideration of EUR 0.2 million (CHF 0.2 million). Orcus BVBA offers access control solutions for the parking industry. The Goodwill amounting to CHF 0.7 million is allocated to the Public Access cash generating unit and is mainly based on the existing workforce of Orcus' employees.
Middleware & advertising
On September 17, 2008, OpenTV Corp acquired 100 % ownership of Ruzz TV, Australia for a consideration of AUD 0.3 million (CHF 0.3 million). This acquisition is in line with OpenTV's strategy of winning top tier network operators and acquiring engineering talents. The Goodwill amounting to USD 0.2 million (CHF 0.2 million) is allocated to the Middleware & Advertising cash generating unit and is attributable to the knowledge of employees to develop high-quality technology solutions for broadcasters.
The aggregated assets and liabilities arising from the above 2008 business combinations are as follows:
| In CHF'000 | Acquirees carrying amount | Fair value of assets acquired |
|---|---|---|
| Tangible fixed assets | 476 | 476 |
| Intangible fixed assets (Goodwill excl.) | 3 | 1 235 |
| Deferred income taxes | - | 137 |
| Financial assets and other non-current assets | 37 | 37 |
| Inventories | 451 | 430 |
| Trade accounts receivable | 2 259 | 2 247 |
| Other current assets | 206 | 206 |
| Cash and cash equivalents | 4 188 | 4 188 |
| Trade accounts payable | -1 276 | -1 276 |
| Other current liabilities | -1 412 | -1 271 |
| Current income taxes | -483 | -572 |
| Deferred tax liabilities | - | -413 |
| Long term liabilities | -236 | -569 |
| Net assets | 4 213 | 4 855 |
| Minority interest purchased | - | |
| Fair value of net assets acquired | 4 855 | |
| Purchase consideration: | ||
| - cash paid | 31 045 | |
| - contingent consideration | 2 945 | |
| - acquisition costs | 370 | |
| Fair value of net assets acquired | -4 855 | |
| Goodwill | 29 505 | |
| Purchase consideration: | ||
| - cash paid | 31 045 | |
| - acquisition costs | 370 | |
| Cash and cash equivalents acquired | -4 188 | |
| Net cash outflow from acquisitions | 27 227 |
Furthermore, on January 31, 2008, the Group created a new company with its Spanish distribution partner Siatron, SkiData Iberica SL and holds a controlling interests of 51%. The remaining 49% are subject to a put option from 01.01.2009 to 31.12.2012 that entitles the partner to sell its interests in SkiData Iberica SL and a call option from 01.01.2013 to 31.12.2014 that entitles the Group to purchase the remaining interests. The redemption value of the put option that entitles the partner to sell its interests amounts to EUR 1.8 million (CHF 2.7 million) and is recognized in equity. This newly created company is distributing SkiData parking systems. The transaction resulted in Minority Interests of kEUR 784 (kCHF 1 168).
Correction of previous purchase price
In August 31, 2007 the Group bought 51 % of Parking Access Control Technologies SA, Belgium. The remaining 49% are subject to a forward contract agreement and will be bought in several stages until March 2010. For consolidation purposes, the acquisition of this company was considered as a 100 % interest and a contingent consideration was accounted for. In 2008, the Group paid EUR 0.5 million (CHF 0.7 million) in cash and as the company results exceed the plan set-up when calculating the initial contingent consideration, the contingent consideration has been adapted within one year of the acquisition to reflect new best management estimates of the amounts to be paid. Hence, the Group has booked an additional Goodwill and contingent consideration amounting to CHF 0.8 million in the annual 2008 financial statements.
Transactions with Minority Interests
The Kudelski Group acquired additional OpenTV Corp shares for a consideration of kCHF 1 049 on the NASDAQ stock exchange in the first half of 2008. During the fourth quarter 2008, OpenTV Corp bought own shares on the NASDAQ stock exchange for a total consideration of kCHF 1642. The acquisitions of the above shares are treated as transactions with minority interests and have resulted in a total consideration of kCHF 2691. This was allocated to retained earnings for kCHF 946and minority interests for kCHF 1745.Share based payments, exercise of options and conversion rights at OpenTV Corp led to a dilution effect amounting to kCHF 170 recognized in equity.
On January 1, 2008, the Group purchased the remaining 25% interests of TESC, Test Solution Center GmbH, Germany for a cash consideration of kCHF 4 144. This acquisition of shares is treated as a transaction with minority interests and is allocated to retained earnings for kCHF 3 765 and minority interests for kCHF 379.
Business combinations in 2007
OpenTV Corp
On January 17, 2007 the Group completed the acquisition of a controlling interest in OpenTV Corp for a cash consideration of USD 132.3 million corresponding to an economic interest of 26.53% and a voting interest of 74.51%. OpenTV Corp is a leading provider of middleware technology for the delivery of digital and interactive television. OpenTV Corp is a company listed on the NASDAQ (Ticker: OPTV) and is fully consolidated in the Group financial statements from the acquisition date.
The assets and liabilities arising from the OpenTV Corp 2007 business combination were as follows:
| In CHF'000 | Acquirees carrying amount | Fair value of assets acquired |
|---|---|---|
| Tangible fixed assets | 7 997 | 7 997 |
| Intangible fixed assets (Goodwill excl.) | 23 025 | 20 977 |
| Goodwill | 121 136 | - |
| Deferred income taxes | 431 | 431 |
| Financial assets and other non-current assets | 15 665 | 28 959 |
| Inventories | 298 | 298 |
| Trade accounts receivable | 25 892 | 24 806 |
| Other current assets | 5 592 | 12 217 |
| Financial assets (short term) | 10 661 | 10 661 |
| Cash and cash equivalents | 59 858 | 59 858 |
| Minority interest | -597 | -597 |
| Trade accounts payable | -5 124 | -5 124 |
| Other current liabilities | -54 846 | -28 044 |
| Current income taxes | -4 434 | -4 434 |
| Advances received from clients | -275 | -6 153 |
| Net assets | 205 279 | 121 852 |
| Minority interest purchased | -89 519 | |
| Fair value of net assets acquired | 32 333 | |
| Purchase consideration: | ||
| - cash paid | 162 420 | |
| - acquisition costs | 2 824 | |
| Fair value of net assets acquired | -32 333 | |
| Goodwill | 132 911 | |
| Purchase consideration: | ||
| - cash paid | 162 420 | |
| - acquisition costs | 2 824 | |
| Cash and cash equivalents acquired | -59 858 | |
| Net cash outflow from acquisitions | 105 386 |
The Goodwill is attributable to the potential synergies considered when purchasing the company as well as the workforce capacity to develop new technologies and a premium for the controlling stake acquired.
Transactions with minority interests of OpenTV Corp in 2007
The Kudelski Group additionally acquired OpenTV Corp shares for a consideration of kCHF 9 069 on the NASDAQ stock exchange in the second half of 2007. In December 2007, OpenTV Corp bought own shares on the NASDAQ stock exchange for a total consideration of kCHF 1 474. The acquisitions of the above shares are treated as a transaction with minority interests and have resulted in a total consideration of kCHF 10 544 and were allocated to retained earnings for kCHF 3 504 and minority interests for kCHF 7 040.
Share based payments, exercise of options and conversion rights at OpenTV Corp led to a dilution effect amounting to kCHF 140.
Other acquisitions in 2007
As at October 24, 2007, the Group bought 50% of TESC Test Solution Center GmbH, Germany for a consideration of CHF 6.3 million. As the Group formerly owned 25 % of that company, TESC is treated as a subsidiary starting October 24, 2007. The Goodwill is essentially attributed to the workforce.
As at August 31, 2007, the Group bought 51% of Parking Access Control Technologies SA, Belgium for a cash consideration of EUR 1.6 million (CHF 2.6 million). The remaining 49% are subject to a forward contract agreement and will be bought in several stages until March 2010. For consolidation purposes, the acquisition of this company has been considered with a 100% interest and a contingent consideration has been taken into consideration. This company is active in distributing SkiData parking systems. After the acquisition the company has been renamed as SkiData SA/NV. The Goodwill is mainly attributable to the potential to attract new contracts for its parent unit.
The assets and liabilities arising from these prior year business combinations were as follows:
| In CHF'000 | Acquirees carrying amount | Fair value of assets acquired |
|---|---|---|
| Tangible fixed assets | 2 337 | 2 533 |
| Intangible fixed assets (Goodwill excl.) | 103 | 1 637 |
| Inventories | 1 238 | 1 123 |
| Trade accounts receivable | 2 356 | 2 122 |
| Other current assets | 126 | 79 |
| Cash and cash equivalents | 1 338 | 1 338 |
| Trade accounts payable | -3 716 | -3 606 |
| Other current liabilities | -644 | -757 |
| Deferred tax liabilities | - | -490 |
| Long term liabilities | -744 | -744 |
| Net assets | 2 394 | 3 235 |
| Minority interest purchased | -254 | |
| Fair value of net assets acquired | 2 981 | |
| Purchase consideration: | ||
| - cash paid | 8 945 | |
| - contingent consideration | 1 839 | |
| - acquisition costs | 96 | |
| Recognized income of a purchased associate | 254 | |
| Fair value of net assets acquired | -2 981 | |
| Goodwill | 8 153 | |
| Purchase consideration in cash: | ||
| - cash paid | 8 945 | |
| - acquisition costs | 96 | |
| Cash and cash equivalents acquired | -1 338 | |
| Net cash outflow from acquisitions | 7 703 |
Contribution and Pro forma data including business combinations for all of 2008
The acquired businesses contributed net income of kCHF -821 (2007: kCHF 2 908) to the Group for the period from acquisition dates to December 31, 2008.
If the acquisitions had occurred on January 1, the consolidated revenues and net income would have been approximately kCHF 1 030 940 (2007: kCHF 937 885) and kCHF-8 228 (2007: kCHF 65 617) respectively.