Mercedes 2006 Annual Report Download - page 177

Consolidated Financial Statements | Basis of Presentation | 161
During the first quarter of 2005, MFTBC finished investigating
this product quality reports and its conclusions about the issues
that required action. The level of information reached during
this process enabled DaimlerChrysler to refine its estimate of
the probable cost and an additional amount of €5 million was
recorded in the first quarter of 2005.
Under the two share purchase agreements under which Daimler-
Chrysler acquired interests in MFTBC, DaimlerChrysler had
the right to a price adjustment if the warranty reserve recorded
on the books of MFTBC proved to be inadequate. Negotiations
with MMC resulted in a settlement agreement on March 4, 2005,
in which the parties agreed on such a price adjustment. Under
the terms of the settlement agreement, DaimlerChrysler received
(i) MMC’s remaining 20% stake in MFTBC, (ii) a cash payment of
€72 million, (iii) promissory notes having an aggregate face value
of €143 million, payable in four equal installments over the
next four years and (iv) certain other assets and rights pertaining
to the distribution of MFTBC products in one Asian market.
The parties also clarified the terms of their cooperation under
other, ongoing agreements. The fair value assigned to the
consideration received from MMC was €0.5 billion and has been
allocated to income and goodwill consistent with Daimler-
Chrysler’s accounting for the quality issues in 2004. Accordingly,
€0.3 billion was recognized as a reduction of cost of sales
and €0.2 billion was recognized as reduction of goodwill.
As a result of the settlement with MMC, DaimlerChrysler’s
controlling interest in MFTBC increased from 65% to 85% and
the aggregate purchase price after giving effect to the price
reduction was €1,014 million. As of June 30, 2005, goodwill of
€53 million related to the purchase price allocation of MFTBC
was allocated to the Truck Group segment. The goodwill is not
expected to be deductible for tax purposes.
Dispositions
Off-Highway business. In September 2005, DaimlerChrysler
acquired the 11.65% interest in MTU Friedrichshafen GmbH
(“MTU-F”) held by minority shareholders for €171 million in
cash, including direct transaction costs. DaimlerChrysler has
subsequently owned 100% of the MTU-F shares. As a result of
this transaction, DaimlerChrysler recorded goodwill of €134 million
that was allocated to goodwill of Van, Bus, Other.
On December 27, 2005, as part of the Group’s ongoing strategy
to focus on its core automotive business, DaimlerChrysler
entered into a share sale and purchase agreement with the Swedish
investor group EQT regarding the sale of a major portion of
its Off-Highway business unit, including the MTU-Friedrichshafen
GmbH Group and the Off-Highway activities of Detroit Diesel
Corporation. The sale was consummated in the first quarter of
2006. The consideration received from the buyer consisted
of €822 million in cash and a note receivable with a fair value of
€58 million due in 2018, subject to customary adjustments. On
October 31, 2006, the parties determined the final consideration,
which resulted in an increase of the sales price by €5 million,
and the note receivable was redeemed by the acquirer for cash
of €78 million. In 2006, the Off-Highway business positively
impacted Group operating profit by €261 million (including a
gain on the sale of €226 million), of which €248 million and
€13 million have been allocated to Van, Bus, Other and the Truck
Group segment, respectively (see Note 34). In addition, net
income was positively impacted by €204 million by the disposed
of Off-Highway business in 2006.
AmericanLaFrance. In the third quarter of 2005, as part of the
Group’s ongoing strategy to focus on its core automotive
business, Freightliner, a wholly-owned US subsidiary of Daimler-
Chrysler, entered into an agreement to sell major parts of its
subsidiary AmericanLaFrance (“ALF”), a fire-truck manufacturer,
to a US investment company. The sale was closed in the fourth
quarter of 2005. Prior to the sale and based upon the agreed pur-
chase price, Freightliner recorded asset impairment charges
in 2005 of €87 million, related to the write-down of inventories
and certain long-lived assets, which are reflected in cost of
sales and other operating expenses of the Truck Group segment.
Hyundai. In May 2004, as part of the realignment of its strategic
alliance with Hyundai Motor Company (“HMC”), DaimlerChrysler
terminated discussions with HMC regarding the formation of
a commercial vehicles joint venture. Also in May 2004, Daimler-
Chrysler sold its non-controlling 50% interest in DaimlerHyundai
Truck Corporation to HMC resulting in a total pretax gain of €60
million (€27 million was recognized in other income and €33
million was recognized in financial income (expense), net), which
is attributed to the Truck Group segment. In August 2004, as
part of the realignment of its strategic alliance with HMC, Daimler-
Chrysler sold its 10.5% stake in HMC for €737 million in
cash, resulting in a pretax gain of €252 million that is included
in financial income (expense), net.