2. Significant acquisitions and dispositions of interests in companies and of other assets and liabilities

Acquisitions

Tognum. In 2008, the Group acquired an aggregate 28.4% stake in Tognum AG (Tognum). The acquisition costs amounted to €702 million in cash. The Group accounts for its equity interest in Tognum using the equity method (see also Note 12 for further information).

Dispositions

Daimler Financial Services. In line with the ongoing concentration on the automotive business, Daimler Financial Services disposed of non-automotive assets subject to finance leases (mainly leveraged leases) in 2009, which resulted in cash inflows of €825 million. After consideration of the costs of the transactions, the Group recorded a pre-tax loss of €31 million within cost of sales in the 2009 consolidated statement of income (loss). The expense is allocated to the Daimler Financial Services segment.

In addition, non-automotive assets subject to leveraged leases are presented separately as assets held for sale in the consolidated statement of financial position as of December 31, 2009 (€310 million). Measurement of these assets at fair value less costs to sell resulted in a pre-tax expense of €69 million in 2009, which is included in cost of sales in the consolidated statement of income (loss). The expense is allocated to the Daimler Financial Services segment. For further information on sales of non-automotive assets from the leasing business, see Note 13 and 18.

Chrysler. On May 14, 2007, the Board of Management of Daimler AG decided to transfer a majority interest in Chrysler and the related financial services business in North America to a subsidiary of the private-equity firm Cerberus Capital Management, L.P. (Cerberus). On May 16, 2007, the Supervisory Board of Daimler AG approved the transaction; the transaction was consummated on August 3, 2007.

On August 3, 2007, Cerberus made a capital contribution of €5.2 billion (US $7.2 billion) in cash for an 80.1% equity interest in the newly established company Chrysler Holding LLC (Chrysler Holding), which controlled the Chrysler activities. Of that cash, Daimler withdrew €0.9 billion (US $1.2 billion). As a result, Daimler retained a 19.9% equity interest in this entity, which was accounted for using the equity method until the redemption of the remaining investment on June 3, 2009 (see also Note 12).

In connection with the closing of the transaction in August 2007, subsidiaries of Chrysler Holding LLC repaid €24.7 billion of liabilities to the Group in cash.

In addition, certain previously outstanding guarantees provided by the Group for the benefit of Chrysler continue to be outstanding. At December 31, 2009, the amount of those guarantees was €0.3 billion. As coverage of the liabilities underlying these guarantees, Chrysler provided collateral to an escrow account of €0.2 billion as of December 31, 2009.

Based on a binding term sheet signed in April 2009, Daimler and Cerberus entered into a redemption agreement in June 2009. As a result, since June 3, 2009, Daimler no longer has any equity interest in Chrysler Holding or its subsidiaries and all Daimler representatives resigned from the boards of Chrysler Holding and its subsidiaries.

The binding term sheet also provided for a settlement agreement covering issues relating to Chrysler which Daimler, the US Pension Benefit Guaranty Corporation (PBGC), Chrysler LLC (Chrysler) and Cerberus entered into in June 2009. Among other matters, Chrysler and Cerberus waived all claims that might arise from the representations and warranties made in the contribution agreement dated August 3, 2007, including claims by Cerberus that Daimler allegedly improperly managed certain issues in the period between the signing of the contribution agreement and the conclusion of the transaction, as well as certain other claims against Daimler.

In addition, in June 2009, Daimler paid US $200 million into Chrysler’s pension plans and will make further payments of US $200 million in each of the next two years. The 2007 Daimler pension guarantee of US $1 billion vis-à-vis the PBGC has been replaced by a new guarantee in an amount of US $200 million that will remain in place until August 2012.

Moreover, the settlement agreement provides for the forgiveness of Daimler’s receivables in connection with a subordinated loan and a credit line for Chrysler’s automotive business which was drawn in 2008. The Group provided the credit line in connection with the transaction contracted on August 3, 2007. The nominal amounts of these receivables, which were fully impaired at December 31, 2008, were US $0.4 billion and US $1.5 billion. However, the forgiveness of the US $1.5 billion second lien loan by Daimler was subject to the condition that certain unsecured creditors of Chrysler, represented by a committee under US bankruptcy law, will not bring litigation against Daimler in the course of the current Chrysler bankruptcy proceedings. In the third quarter 2009, the committee of the unsecured creditors filed a complaint with the bankruptcy court. In consequence, the forgiveness was rescinded (see also Note 27).

The contractual agreements described above negatively impacted 2009 EBIT by €379 million; these results are included in the reconciliation of total segments’ EBIT to Group EBIT.

In connection with the legal transfer of Chrysler’s international sales activities to Chrysler in the first quarter of 2009 and due to the valuation of Chrysler-related assets, the Group recorded a total gain before income taxes of €85 million in 2009. This gain is included in the reconciliation of total segments’ EBIT to Group EBIT in the segment reporting.

Daimler and its Chinese partner Beijing Automotive Industry Holding Co. Ltd. (BAIC) each own a 50% equity interest in the joint venture Beijing-Benz-DaimlerChrysler Automotive Co. Ltd. (BBDC), which manufactures and distributes Mercedes-Benz passenger cars and Chrysler vehicles in China. In connection with the transfer of the majority interest in Chrysler in 2007, Daimler, Chrysler and Cerberus agreed on a framework dealing with the future business model at BBDC. Under the framework agreement, the final terms of future cooperation at BBDC with respect to the manufacturing of Chrysler vehicles should be determined at a later point in time.

In June 2008, it was agreed, subject to consent by BAIC and BBDC, that the manufacturing of Chrysler vehicles at BBDC should be discontinued by the end of the existing license agreements.

In this context, in December 2008, Daimler, BAIC and BBDC entered into a contract, which determines that Daimler should be responsible for certain costs related to Chrysler vehicles at BBDC and reimburse such costs to BBDC, since they are directly connected to the transfer of the majority interest in Chrysler. The costs include in particular the impairment of plant and equipment, the valuation of Chrysler inventories at BBDC and compensation payments to suppliers and dealers. Daimler does not obtain an additional interest in BBDC in exchange.

Therefore, in 2007 and 2008, Daimler recognized charges of €103 million and €293 million, respectively, (before income taxes) within “Net profit (loss) from discontinued operations” to record an estimated total cost of €396 million. An amount of €42 million was paid in 2009 (2008: €186 million). Furthermore, estimated costs were partially offset with gains from the ongoing Mercedes-Benz passenger cars business at BBDC. The Group expects the remaining amount of the provisions of €174 million (after currency translation) to be cash effective in 2010.

The net profit or loss of the Chrysler activities is included in the Group’s consolidated statement of income (loss) in the line item “Net profit (loss) from discontinued operations” for 2007. The Group ceased to depreciate or amortize the non-current assets of the disposal group upon classification as assets and liabilities held for sale on May 16, 2007.

In 2007, the assets and liabilities of the Chrysler activities were derecognized following the consummation of the transaction on August 3, 2007. The loss from the deconsolidation of €753 million is also included in the line item “Net profit (loss) from discontinued operations.”

The future tax benefits of temporary differences related to the assets and liabilities of the transferred Chrysler activities continue to be available to Daimler with certain limitations. At the closing date of the Chrysler transaction, the deferred tax assets with respect to these temporary differences amounted to €2.0 billion. As a result of the Chrysler transaction, the conditions to use these deferred taxes changed; the necessary assessment of the recoverability of these assets in the third quarter of 2007 led to a valuation allowance of €2.0 billion. Furthermore, the Group had to write off €0.2 billion on foreign tax credits. These expenses are included in income tax expense from continuing operations in the consolidated statement of income for 2007.

Net profit (loss) from discontinued operations for the years 2008 and 2007 is comprised as follows:

2008 2007
in millions of €


Revenue - 30,037
Cost of sales
- (26,410)
Selling expenses
- (1,579)
General administrative expenses
- (1,172)
Research and non-capitalized development costs
- (647)
Other income and other expenses
- (714
Profit (loss) before income taxes - (485)
Income taxes
- 368
Profit (loss) of Chrysler activities, net of taxes1 - (117)
Loss from deconsolidation before income taxes (383) (658)
Income taxes
93 (95)
Loss from deconsolidation, net of taxes (290) (753)
Net profit (loss) from discontinued operations (290) (870)

Net loss from discontinued operations for 2007 includes charges of €906 million before income taxes in connection with Chrysler’s Recovery and Transformation Plan, which was announced on February 14, 2007.

An extinguishment loss of €0.5 billion (net of tax €0.3 billion) resulting from the early redemption of long-term debt of Chrysler is included in net profit (loss) from discontinued operations in 2007.

The cash flows of 2007 attributable to discontinued operations are as follows:


in millions of €
Cash flow from operating activities 1,593
Cash flow from investing activities (1,404)
Cash flow from financing activities (2,655)

For further information on Chrysler, see also Note 12.

Potsdamer Platz. On December 13, 2007, the Supervisory Board of Daimler AG approved the sale of real-estate properties at Potsdamer Platz to the SEB Group. The transaction, which closed on February 1, 2008, resulted in a cash inflow of €1.4 billion (thereof €0.1 billion included in 2007). The transaction had a positive effect on 2008 EBIT of €449 million. The pre-tax gain is recognized in other operating income in the 2007 consolidated statement of income and is included in the 2007 reconciliation from total segments’ EBIT to Group EBIT in the segment reporting.

At the same time, the Group entered into leases for approximately half of the sold office space with a non-cancelable lease period ending December 31, 2012. At the end of the non-cancelable lease terms, there are two renewal options for five years each.

MFTBC. In 2007, Mitsubishi Fuso Truck and Bus Corporation (MFTBC) sold a number of real estate properties to Nippon Industrial TMK for approximately €1 billion in cash. At the same time, MFTBC entered into a leaseback arrangement for each of the properties sold with non-cancelable lease periods of fifteen years. At the end of the non-cancelable lease terms, there are renewal options for up to fifteen years. As a result of this transaction, MFTBC derecognized assets with a carrying amount of €865 million. After considering the costs of the transaction, Daimler recorded a gain of €78 million before income taxes on assets sold and leased back under the terms of an operating lease. In addition, the Group recorded assets sold and leased back under the terms of finance leases with a corresponding amount of debt of €110 million and deferred the recognition of the excess of the purchase price over the carrying amount of the assets sold of €46 million, which will be recognized over the lease term. The pre-tax gain recorded is included in other operating income in the 2007 consolidated statement of income and was allocated to the Daimler Trucks segment.

Other sales of real estate property. In 2007, Daimler AG sold its 50% equity interest in Wohnstätten Sindelfingen GmbH for a sales price of €82 million. The sale resulted in a gain of €73 million before income taxes. The pre-tax gain is included in other financial income (expense), net, in the 2007 consolidated statement of income and is included in the 2007 reconciliation from total segments’ EBIT to Group EBIT in the segment reporting.

EADS. For information on the disposal of equity interests in the European Aeronautic Defence and Space Company EADS N.V. (EADS), please see Note 12.

 

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