Mercedes 2003 Annual Report Download - page 101
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Please find page 101 of the 2003 Mercedes annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.benefit was partly offset by a tax expense and related interest of
€0.3 billion which mainly represents the accrual of tax costs
associated with current year developments in the examination of
the German tax Group’s tax filings by the German tax authorities
for the years 1994 to 1998.
The low effective tax rate of the prior year was mainly a result of
the tax-free gain realized on sale of the Group’s investments in
T-Systems ITS and Conti Temic microelectronic.
Additional information on income taxes can be found in Note 9 to
the Consolidated Financial Statements.
Decline in net income. The Group recorded net income of €0.4
billion, compared with €4.7 billion in 2002. Based on the reported
net income, earnings per share amounted to €0.44 compared with
€4.68 in the prior year.
In connection with the sale of MTU Aero Engines on December
31, 2003, the income of this business unit is included in the
“Income (loss) from discontinued operations” pursuant to the US
Accounting Standard SFAS 144. The after-tax profit of €0.9 billion
in 2003, which resulted from the sale, is reflected in the December
31, 2003 consolidated statement of income (loss) in a separate line
as “Income (loss) on disposal of discontinued operations”.
The initial application of the consolidation provisions of FIN 46R
to special purpose entities as of December 31, 2003, is reflected
as a cumulative effect of a change in accounting principle in the
amount of €30 million in DaimlerChrysler’s December 31, 2003
consolidated statement of income (loss). In the prior year, the
application of SFAS 142 and the associated change in the method
of accounting for goodwill and intangible assets resulted in
impairments of goodwill of €159 million. Both effects are reflected
in the consolidated statement of income (loss) as of December 31,
2003 in a separate line as “Cumulative effects of changes in
accounting principles: transition adjustments resulting from
adoption of FIN 46R and SFAS 142, net of taxes.”
The change in net income of €4.3 billion compared with the prior
year was primarily due to three major effects. The 2003 net
income was impacted in total by charges of €1.1 billion which
resulted from the sale of the MTU Aero Engines group (+ €0.9
billion) and from the write-down of the Group’s equity investment
in EADS to its fair value (- €2.0 billion). In the prior year, net income
included gains of €2.6 billion from the sales of investments in
T-Systems ITS and Conti Temic microelectronic.
Those three effects impacted on an aggregate basis earnings per
share with - €1.06 in 2003 and €2.61 in 2002.
Dividend of €1.50 per share. At the Annual Meeting to be held on
April 7, 2004, the Board of Management and the Supervisory Board
will again propose the distribution of €1.5 billion of unappropriated
profits of DaimlerChrysler AG or €1.50 per share, after a with-
drawal of €1.6 billion from retained earnings. In the prior year, €1.5
billion, i.e. €1.50 per share, were distributed to the shareholders
from unappropriated profits; the remaining amount of €1.65 billion
from the net income of 2002 was transferred to retained earnings.
2. Performance Measures
The Group’s management tools. The management and control
tools used at the DaimlerChrysler Group provide for the transfer of
responsibility to the division and business unit levels while
enhancing cross-divisional transparency. The management and
control system also promotes capital-market-oriented investment
analysis and control within the DaimlerChrysler Group.
For controlling purposes, DaimlerChrysler differentiates between
the Group level and the operating level of the divisions and
business units. Economic value added is one element of the control
system on both levels. At Group level, economic value added is
calculated by subtracting the weighted average cost of capital from
net operating income, an after-tax figure oriented towards the
capital markets. In the calculation of return on net assets (RONA)
as the corporate profitability ratio, net operating income is divided
by the capital employed within the Group. This ratio determines the
extent to which the DaimlerChrysler Group as a whole generates or
exceeds the rate of return required by its investors and creditors.
The required rate of return and the weighted average cost of
capital for the Group are derived from the minimum returns that
investors and creditors expect on equity and capital provided by
outside sources. The cost of equity is determined according to the
capital asset pricing model, using the interest rate for long-term,
risk-free securities (e.g. government bonds, fixed-interest bonds)
plus a risk premium for an investment in shares. The cost of capital
from outside sources is derived from the required rate of return for
obligations entered into by the company with outside sources
supplying the capital. Due to capital markets’ lower levels of
interest rates compared with the prior year, the weighted average
cost of capital could have been reduced. Assuming that interest
rates will again return to long-term averages in the foreseeable
future, for reasons of continuity in controlling the operating units,
the Group’s weighted average cost of capital of 8% after taxes has
been retained, although this results in a correspondingly low
economic value added.
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2003
200220012000
Operating Profit
Net Income
Development of Earnings
In billions of €