Mercedes 2003 Annual Report Download - page 123
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Please find page 123 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.Investments in Associated Companies. Significant equity invest-
ments in which DaimlerChrysler does not have a controlling financial
interest, but has the ability to exercise significant influence over
the operating and financial policies of the investee (“associated
companies”) such as the European Aeronautic Defence and Space
Company EADS N.V. (“EADS”), Mitsubishi Motors Corporation
(“MMC”), or Mitsubishi Fuso Truck and Bus Corporation (“MFTBC”)
are accounted for using the equity method. Because the financial
statements of EADS, MMC and MFTBC are not made available
timely to DaimlerChrysler in order to apply the equity method of
accounting, the Group’s proportionate share of the results of oper-
ations of these associated companies are included in Daimler-
Chrysler’s consolidated financial statements on a three month lag.
The excess of DaimlerChrysler’s initial investment in equity
method companies over the Group’s ownership percentage in the
underlying net assets of those companies is attributed to certain
fair value adjustments with the remaining portion recognized as
goodwill (“investor level goodwill”). Through December 31, 2001,
prior to the adoption of Statement of Financial Accounting Stan-
dards (“SFAS”) 142, “Goodwill and Other Intangible Assets,”
investor level goodwill was being amortized on a straight-line basis
over 20 years. Subsequent to the adoption of SFAS 142, such
investor level goodwill is not being amortized.
A decline in fair value of any investment in an associated compa-
ny below cost that is deemed to be other than temporary results in
a reduction in carrying amount to fair value. The impairment is
charged to earnings and a new cost basis for the investment is
established.
Foreign Currencies. The assets and liabilities of foreign operations
where the functional currency is not the euro are generally translated
into euro using period-end exchange rates. The resulting translation
adjustments are recorded as a component of accumulated other
comprehensive income (loss). The statements of income (loss) and
the statements of cash flows are translated using average
exchange rates during the respective periods.
The assets and liabilities of foreign operations in highly inflationary
economies are translated into euro on the basis of period-end
rates for monetary assets and liabilities and at historical rates for
non-monetary items, with resulting translation gains and losses
recognized in earnings. Further, for foreign operations in such
economies, depreciation and gains and losses from the disposal
of non-monetary assets are determined using historical rates.
Revenue Recognition. Revenue for sales of vehicles, service parts
and other related products 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 deter-
minable, and collectibility is reasonably assured. Revenues are
recognized net of discounts, cash sales incentives, customer
bonuses and rebates granted. 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 in the period incurred.
DaimlerChrysler uses price discounts (primarily at the Chrysler
Group) to adjust market pricing in response to a number of market
and product factors, including: pricing actions and incentives
offered by competitors, economic conditions, the amount of
excess industry production capacity, the intensity of market com-
petition, and consumer demand for the product. The Group may
offer a variety of sales incentive programs at any point in time,
including: cash offers to dealers and consumers, lease subsidies
which reduce the consumer’s monthly lease payment, or reduced
financing rate programs offered to consumers.
The Group records as a reduction to revenue at the time of sale to
the dealer the estimated impact of sales incentives programs offered
to dealers and consumers. This estimated impact represents the
incentive programs offered to dealers and consumers as well as the
expected modifications to these programs in order for the dealers
to sell their inventory. The accrued liability for sales incentives is
based on the estimated cost of the sales incentive programs and the
number of vehicles held in dealers’ inventory. The majority of
vehicles held in dealers’ inventory are sold to consumers within the
next quarter and the sales incentives accrued liability is adjusted
to reflect actual experience.
When below market rate loans under special financing programs
are used to promote sales of vehicles and the Services segment
finances the vehicle, the effect of the rate differential at the con-
tract origination date is recorded as unearned income in the con-
solidated balance sheet. Services amortizes the unearned income
balance into earnings using the interest method over the original
(contractual) life of the receivables. Upon prepayment or sale of
the receivable, the unamortized unearned income is recognized
into earnings.
Sales under which the Group guarantees the minimum resale value
of the product principally result in accounting for the transaction
as an operating lease with the related revenues and costs deferred
at the time of title passage. Revenue from operating leases is rec-
ognized on a straight-line basis over the lease term. Revenue on
long-term contracts is generally recognized under the percentage-
of-completion method based upon contractual milestones or per-
formance.
Revenue from sales financing and finance lease receivables is
recognized using the interest method. Recognition of revenue is
generally suspended when a finance or lease receivable becomes
contractually delinquent for periods ranging from 60 to 120 days.
The Group offers extended, separately priced warranty contracts
for certain products. Revenues from these contracts are deferred
and recognized into income over the contract period in proportion
to the costs expected to be incurred based on historical informa-
tion. In circumstances in which there is insufficient historical infor-
mation, income from extended warranty contracts is recognized on
a straight-line basis. A loss on these contracts is recognized in the
period, if the sum of expected costs for services under the contract
exceeds unearned revenue.
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