Volvo 2014 Annual Report Download - page 126

ACCOUNTING POLICY
Recognition of business combinations
The Volvo Group applies IFRS 3, Business Combinations, for acquisitions.
All business combinations are recognized in accordance with the pur-
chase method. Volvo Group measures acquired identifi able assets, tangi-
ble and intangible, and liabilities at fair value. Any surplus amount from the
purchase price, possible minority interests and fair value of previously
held equity interests at the acquisition date compared to the Volvo Group’s
share of acquired net assets is recognized as goodwill. Any defi cit amount,
known as negative goodwill, is recognized in the income statement.
In step acquisitions, a business combination occurs only on the date
control is achieved, which is also the time when goodwill is calculated.
Transactions with the minority are recognized as equity as long as control
of the subsidiary is retained. For each business combination, the Volvo Group
decides whether the minority interest shall be valued at fair value or at the
minority interest’s proportionate share of the net assets of the acquiree. All
acquisition-related costs are expensed. Companies acquired during the
year are consolidated as of the date of acquisition. Companies that have
been divested are included in the consolidated fi nancial statements up to
and including the date of the divestment.
Non-current assets held for sale and discontinued operations
The Volvo Group applies IFRS 5, Non-current Assets Held for Sale and
Discontinued Operations. The standard also includes the treatment of cur-
rent assets. In a global group like the Volvo Group, processes are continu-
ously ongoing regarding the sale of assets or groups of assets at minor
values. When the criteria for being classifi ed as a non-current asset held
for sale are fulfi lled and the asset or group of assets are of signifi cant
value, the asset or group of assets and the related liabilities are recognized
on a separate line in the balance sheet. The asset or group of assets are
tested for impairment and, if impaired, measured at fair value after deduc-
tions for selling expenses. The balance sheet items and the income effect
resulting from the revaluation to fair value less selling expenses are
normally recognized in the segment Corporate functions, Group functions
and Other, until the sale is completed and the result is distributed to
each segment.
AB Volvo’s holding of shares in subsidiaries as of December 31, 2014
is disclosed in note 13 for the Parent Company. Signifi cant acquisitions,
formations and divestments within the Group are listed below.
Business combinations during the period
On 30 May 2014 the acquisition of the hauler manufacturing business
from Terex Inc. was fi nalized. Volvo Group has acquired 100% of Terex
Equipment Ltd. based in Motherwell, Scotland where the main production
facility is located. The deal includes two product ranges that offer both
rigid and articulated haulers. It includes also the distribution of haulers in
the U.S. as well as a 25.2% holding in Inner Mongolia North Hauler Joint
Stock Co (NHL), which manufactures and sells rigid haulers under the
Terex brand in China. NHL is listed on the Shanghai Stock Exchange.
Terex is included in the Construction Equipment segment.
The purchase price amounted to USD 160 M (approximately SEK 1 bn)
on a cash and debt free basis. Additional contingent consideration could
be paid pending fi nancial performance of the acquired business in the
next coming two fi nancial years. The contingent consideration is capped
at USD 5 M out of which USD 2.3 M has been recognized as of acquisition
date based on best estimate of estimated outcome. The acquisition
increased the Volvo Group Industrial Operation’s net fi nancial debt by SEK
1.1 bn. The acquisition resulted in goodwill of SEK 59 M. Acquired net
assets amounted to SEK 1,025 M, whereof intangible assets other than
goodwill of SEK 280 M and the holding in NHL valued at SEK 233 M.
Acquired net assets has been reduced by SEK 68 M corresponding to the
best estimate of closing account adjustment.
The market value of the NHL shares approximated SEK 600 M at the
acquisition date, but the shares are recognized at the fair value SEK 233
M taking into consideration a restriction in the right of disposal.
Read more in Note 5 regarding investment in associated companies.
In 2014, the acquisition had a positive effect on sales by SEK 503 M and
negative effect on operating income by SEK 68 M from the acquisition
date. The monthly expenses related to depreciation of identifi ed assets is
SEK 3 M.
In addition to that the Volvo Group has not made any other acquisitions
during 2014 which solely or jointly have had a signifi cant impact on the
Volvo Group’s fi nancial statement.
For the comparative year 2013, the Volvo Group did not make any
signifi cant acquisitions.
The impact on the Volvo Group’s balance sheet and cash-fl ow statement
in connection with the divestment of subsidiaries and other business units
are specifi ed in the following table:
Acquisitions 2014 2013
Intangible assets 280 –
Property, plant and equipment 124 14
Assets under operating lease – 8
Shares and participations 233 –
Inventories 385 96
Current receivables 436 2
Cash and cash equivalents 67 –
Other assets 7 –
Provisions (84) (1)
Loans (55) (1)
Current liabilities (368) (95)
Acquired net assets 1,025 23
Goodwill 75 48
Total 1,100 71
Cash and cash equivalents paid (1,170) (71)
Cash and cash equivalents according
to acquisition analysis 67 –
Effect on Volvo Group cash and
cash equivalents (1,103) (71)
Cash to be paid 68 –
Effect on Volvo Group net fi nancial
position (1,158) (138)
NOTE 3 ACQUISITIONS AND DIVESTMENTS OF SHARES IN SUBSIDIARIES
FINANCIAL INFORMATION 2014
122