Mercedes 2001 Annual Report Download - page 83

Notes to Consolidated Financial Statements 79
Currency:
Brazil BRL
Great
Britain GBP
Japan JPY
United
States USD
2001
€1 =
Exchange rate at
December 31,
2001
€1 =
2000
€1 =
Annual average
exchange rate
2000
€1 =
1999
€1 =
2.05 1.84 2.11 1.69 1.93
0.61 0.62 0.62 0.61 0.66
115.33 106.92 108.69 99.47 121.25
0.88 0.93 0.90 0.92 1.07
The Group recognizes unrealized gains or losses
attributable to the change in the fair value of the
retained interests, which are recorded in a manner simi-
lar to available-for-sale securities, net of related income
taxes as a separate component of stockholders’ equity
until realized. The Group is not aware of an active mar-
ket for the purchase or sale of retained interests, and
accordingly, determines the estimated fair value of the
retained interests by discounting the expected cash
flow releases (the cash-out method) using a discount
rate which is commensurate with the risks involved. In
determining the fair value of the retained interests, the
Group estimates the future rates of prepayments, net
credit losses and forward yield curves. These estimates
are developed by evaluating the historical experience of
comparable receivables and the specific characteristics
of the receivables purchased, and forward yield curves
based on trends in the economy. An other-than-tempo-
rary impairment adjustment to the carrying value of
the retained interests generally is required if the ex-
pected cash flows decline below the cash flows inher-
ent in the cost basis of an individual retained interest
(the pool-by-pool method). Other-than-temporary
impairment adjustments are recorded as a component
of revenue.
Estimated Credit Losses – The allowance for doubt-
ful accounts represents management’s estimate of the
amount of asset impairment in the portfolios of finance,
trade and other receivables. The Group determines the
allowance for doubtful accounts based on periodical
review and evaluation performed as part of the credit-
risk evaluation process, historical loss experience, the
size and composition of the portfolios, current eco-
nomic events and conditions, the fair value and ad-
equacy of collateral, and other pertinent factors. Credit
exposures deemed to be uncollectible are charged
against the allowance for doubtful accounts.
Product-Related Expenses – Provisions for esti-
mated product warranty costs are recorded in cost of
sales at the time the related sale is recognized. Non-
cash sales incentives that do not reduce the transaction
price to the customer are classified within cost of sales.
Shipping and handling costs are recorded as cost of
sales. Expenditures for advertising and sales promotion
and for other sales-related expenses are charged to
selling expense as incurred.
Research and Development – Research and
development costs are expensed as incurred.
Sales of Newly Issued Subsidiary Stock – Gains
resulting from the issuance of stock by a Group subsid-
iary or equity method investment which reduces
DaimlerChrysler’s percentage ownership (“dilution
gains”) are recorded in the statement of income (loss).
Revenue Recognition – Revenue is recognized
when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered,
the price of the transaction is fixed and determinable,
and collectibility is reasonably assured. Revenues are
recognized net of discounts, cash sales incentives,
customer bonuses and rebates granted. Cash sales
incentives are recorded as a reduction of revenue
when the related revenue is recorded.
Sales under which the Group conditionally guar-
antees the minimum resale value of the product are
accounted for as operating leases with the related rev-
enues and costs deferred at the time of title passage.
Operating lease income is recorded when earned on a
straight-line basis. Revenue on long-term contracts is
generally recognized under the percentage-of-comple-
tion method based upon contractual milestones or
performance. Revenue from finance receivables is
recorded on the interest method.
Receivable Sales and Retained Interests in Sold
Receivables – The Group sells significant amounts of
finance receivables as asset-backed securities through
securitization. The Group sells a portfolio of receivables
to a non-consolidated trust and remains as servicer,
and is paid a servicing fee. Servicing fees are earned on
a level-yield basis over the remaining term of the
related sold receivables. In a subordinated capacity, the
Group retains residual cash flows, a beneficial interest
in principal balances of sold receivables and certain
cash deposits provided as credit enhancements for
investors. Gains and losses from the sales of finance
receivables are recognized in the period in which sales
occur. In determining the gain or loss for each qualify-
ing sale of finance receivables, the investment in the
sold receivable pool is allocated between the portion
sold and the portion retained based upon their relative
fair values.
The exchange rates of the significant currencies of
non-euro countries used in preparation of the consoli-
dated financial statements were as follows: