Volvo 1998 Annual Report Download - page 10

8
BOARD OF DIRECTORS’ REPORT
Ford’s plans for Volvo Cars’ future development
Ford gains a seventh global brand that will result in one of the strongest luxury
portfolios in the industry, including Lincoln, Jaguar and Aston Martin. Ford
plans to grow Volvo Cars’ worldwide volume and extend its product line-up into
new product segments. Volvo Cars will benefit from Ford’s worldwide distribu-
tion system.
Cars’ head office and research and development activities will continue to be
based in Sweden.
Volvo trademark
Prior to the sale of Volvo Cars to Ford, the Volvo trademark will be transferred
to a company owned jointly by AB Volvo and Volvo Car Corporation through
which Volvo Cars, and after the transfer Ford indirectly, will have the right to
use the “Volvo” trademark for passenger cars, minivans carrying up to 10
passengers, light trucks with a payload of 1,500 kilograms, sports utility vehicles
and other vehicles, but not buses or other vehicles used solely for commercial
applications, with a gross vehicle weight of up to 5,400 kilograms (12,000 lbs
gross weight). Volvo continues to have the right to use the trademark for trucks,
buses, construction equipment, industrial and marine engines, aerospace
equipment and all other products (apart from those which Volvo Cars will have
the right to use the trademark for).
Volvo’s pro forma balance sheet and key ratios
The pro forma balance sheet on page 91 shows the Volvo Group position as at
December 31, 1998, adjusted for the sale of Volvo Cars. The purpose of the pro
forma balance sheet is to illustrate the short-term effects on the consolidated
financial position due to the divestment of Volvo Cars.
Terms of the sale
Under the terms of the Heads of
Agreement Volvo will sell Volvo Cars to
Ford for SEK 50 billion.
Adjustment will be made for the net
financial assets/liabilities in the main
operations at December 31, 1998 and to
the extent that the debt/equity ratio in the
sales-financing operations deviates from
9:1 at December 31, 1998. Combined, it is
estimated that these adjustments will
amount to SEK 4.2 billion. Considering
that NedCar BV, the Netherlands, is
reported with a time lag of one quarter,
the final net debt of this company, at
December 31, 1998, has not yet been
determined but is included on a prelim-
inary basis. Volvo has also received a
dividend of SEK 17.7 billion from Volvo
Cars. After these adjustments to the price
determined in agreement, the payment to
Volvo Cars amounts to SEK 28.1 billion.
The payment for the transaction will be
made in two installments:
• an estimated SEK 10,169 M and USD
700 M on the date of completion
• USD 1,613 M two years following date of
completion
Interest at a rate of 3.25% on the
purchase price, discounted to estimate
the present value at the date of comple-
tion, is being received from January 1,
1999 until date of completion.
Ford will be entitled to Volvo Cars’
income as of January 1, 1999. Completion
of the transaction will take place as soon
as feasible after final agreement and on
receipt of required approvals. The sale is
conditional on approval or negative
clearance from the relevant competition
or other authorities and approval of the
General Meeting on March 8, 1999.
* Volvo Cars pertains to all the issued and
outstanding shares in Volvo Personvagnar
Holding AB, which on completion of the
contemplated sale will hold or have the right to
all assets and liabilities that form Volvo’s
business area “Cars” as reflected in the Annual
Report and Volvo Car Corporation’s interest in
the new entity which will own the Volvo
trademark.