Business Combination

Business Combination

On acquisition date in October 2006 Icelandair Group Holding hf. took over operations of Icelandair Group hf. and its subsidiaries listed in note 45. On 1 November 2006 the two companies legally merged with Icelandair Group hf. as the continuing company. The acquisition is accounted for using the purchase method in accordance with IFRS 3, where Icelandair Group hf. is the acquiree based on the balance sheet 1 October 2006.

If the acquisitions had occurred on 1 January 2006, management estimates that consolidated revenue would have been ISK 56,143 million and consolidated profit for the year 2006 would have been ISK 2,615 million as stated in the pro forma figures in the consolidated income statement.

The acquisitions, accounted for according to the purchase method, had the following effect on the Group‘s balance sheet:

Pre-acquisition carrying asmounts Fair value adjustments Recognised values on acquisition
Operating assets 22,684 2,132 20,552
Intangible assets 4,743 2,069 6,812
Investments in associates 1,744
Prepaid aircraft acquisitions 11,499
L ong-term receivables and deposits 2,071
Inventories 1,156
Trade and other receivables 7,793
Cash and cash equivalents 4,976
Loans and borrowings 27,855
Deferred income taxliability 988,000 384 604
Trade and other payables 11,658
Deferred income 4,009

The share issue equals 496 million shares at the price of ISK 27 per share.

Included in the consideration satisfied by cash are acquisition related expenses, i.e. expert advisors fees and other fees amounting to ISK 424 million.

Pre-acquisition carrying amounts were determined based on applicable IFRS s immediately before the acquisition. The values of assets, liabilities, and contingent liabilities recognised on acquisition are their estimated fair values (see note 4 for methods used in determining fair values).

The goodwill recognised on the acquisition is attributable mainly to the location of Iceland in the North Atlantic between North America and Europe as the key to the Group´s network strategy and operations. Part of the goodwill is also attributable to the skills and technical talent of the acquired business’s work force.

The purchase price allocation has not been completed.

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