Volvo 2007 Annual Report Download - page 98
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94 Financial information 2007
Notes to consolidated fi nancial statements
Note 4 Acquisition and divestments of shares in subsidiaries
AB Volvo’s holding of shares in subsidiaries as of December 31, 2007
is shown in the table, AB Volvo’s holding of shares. Signifi cant
acquisitions, formations and divestments within the Group are listed
below.
Ingersoll Rand’s road development division
On April 30 2007, Volvo completed the acquisition of American Inger-
soll Rand’s road development division, with the exception of the oper-
ations in India, which followed on May 4, 2007. Ingersoll Rand’s road
development division is a world-leading manufacturer of heavy con-
struction equipment for road and soil work, with net sales of about
SEK 6.4 billion and an operating income of 745 in 2006. The acquisi-
tion is mainly an acquisition of assets; accounts receivables, inventory
and plant and equipment. The purchase consideration amounts to
SEK 8.8 billion. The fi nal purchase price will be determined during the
fi rst quarter 2008, but is currently estimated to SEK 9.3 billion. The
difference refers to changes in the net asset value between the
agreement date and the acquisition date. The goodwill arising from
the acquisition is mainly related to synergies at the operating income
level, attributed to sales and distribution. The effect of the acquisition
on the Volvo Group cash and cash equivalents is estimated at SEK
(9.2) billion. The division is consolidated in the Volvo Group from May
1, 2007. Ingersoll Rand’s road development division is reported in the
Construction Equipment segment.
Nissan Diesel
During the fourth quarter 2007, Volvo acquired the minority in Nissan
Diesel and owns 100% of the company at the end of 2007.
The acquisition of Nissan Diesel has been achieved in stages dur-
ing the year. At the beginning of 2007, the reported value for Nissan
Diesel amounted to SEK 5,445 M, which was equivalent to holdings
of 19%. Moreover, AB Volvo had purchased all 57.5 million preferred
shares in Nissan Diesel from Nissan Motor and Japanese banks, for
an approximate total of SEK 3.5 billion. The holdings were then
reported as an associated company, since according to Volvo’s
assessment, Volvo held signifi cant control. On March 29, Volvo
acquired additional shares in Nissan Diesel, worth SEK 7.4 billion. This
brought the total holdings to 96% of the shares outstanding at the
end of the fi rst quarter.
Nissan Diesel is consolidated in the consolidated balance sheet of
the Volvo Group as of the end of fi rst quarter of 2007. As Volvo con-
solidates Nissan Diesel according to the purchase method, the hold-
ings previosusly-reported as an associate company have been
reversed. Sales and earnings are reported as from the beginning of
second quarter. The operations of Nissan Diesel are reported in the
Trucks segment. The goodwill arising from the acquisition of Nissan
Diesel is related to integration gains as a result of increased purchas-
ing volumes and positive effects within product development, engines
and drivelines.
The effect of the acquisition on the Volvo Group cash and cash
equivalents amounts to SEK (11.9) billion, whereof SEK (0.4) billion is
related to the acquisition of the outstanding 4% of the shares in the
fourth quarter 2007, SEK (6.0) billion is related to the fi rst quarter
2007 and SEK (5.5) billion relates to the holdings previously reported
as shares in an associate company.
During 2007, Volvo reviewed the recognition of certain fi nancial
arrangements in Nissan Diesel with the result that the purchase price
allocation was adjusted in the fourth quarter. Nissan Diesel had
entered into certain credit guarantees for customer fi nance receiva-
bles. In accordance with IAS 39 Financial Instruments: Recognition
and Measurement, an evaluation was made whether substantially all
the risks and rewards had been transferred to an external party. Volvo
concluded that was not the case, but also that Volvo did not retain
substantially all risks and rewards with regard to the customer fi nance
receivables. In accordance with IAS 39, Volvo recognized the part of
the receivables that refl ected Volvo’s continuous involvement and
therefore adjusted the purchase price allocation regarding customer
fi nance receivables with SEK 3.1 billion, equivalent to slightly more
than 50% of the outstanding customer fi nance receivables pertaining
to Nissan Diesel products in the external fi nancing company. A cor-
responding amount was reported as a fi nancial liability. The adjust-
ment did not affect the reported goodwill. The receivables and the
liabilities are reported in the segment Customer Finance. Further-
more, the purchase price allocation has been adjusted with regard to
pension provision, vacation payment liability and valuation of intangi-
ble assets as well as the acquisition of the minority. These adjust-
ments resulted in a total increase in goodwill of SEK 0.3 billion in the
fourth quarter.
Nissan Diesel was delisted from the Tokyo Stock Exchange in July.
Shandong Lingong Construction Machinery Co.
In January 2007, the acquisition of 70% of the shares in the Chinese
manufacturer of construction equipment, Shandong Lingong Con-
struction Machinery Co. (Lingong), was completed, after having
obtained all the requisite approvals from the Chinese authorities.
Lingong is China’s third-largest manufacturer of wheel-loaders, with
an extensive dealership network in the country. Volvo Construction
Equipment paid CNY 328 M, corresponding to slightly more than SEK
300 M, for 70% of the shares in Lingong. The transaction has a
limited effect on Volvo’s fi nancial position.
Other divestment and acquisitions
During the fourth quarter Volvo Aero acquired the composite company
Applied Composites AB, ACAB, as a part of the investment in light-
weight technologies. The transaction has a limited impact on the Volvo
Group.
During the second quarter Volvo divested its ownership in U.S.
truck stop chain Petro Stopping Centers Holding L.P. and the former
subsidiary Sörred Energi. The two transactions resulted in a total
capital gain of 516.
In addition to this, only a few dealerships have been acquired or
divested during 2007. These transactions have not had any material
impact on the Volvo Group.
During 2006, a number of French dealer companies were divested
within the business area Trucks.