Mercedes 2003 Annual Report Download - page 124
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Please find page 124 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.Financial Reporting | Overview | Analysis of the Financial Situation | Statement by the Board of Management | Independent Auditors’ Report | Financial Statements
The Group sells significant amounts of finance receivables as
asset-backed securities through securitization transactions. The
Group sells a portfolio of receivables to a non-consolidated trust
and usually remains as servicer for a servicing fee. Servicing fees
are recognized on a consistent yield basis over the remaining term
of the related receivables sold. In a subordinated capacity, the
Group retains residual cash flows, a beneficial interest in principal
balances of receivables sold and certain cash deposits provided as
credit enhancements for investors. Gains and losses from the sale
of finance receivables are recognized in the period in which the
sale occurs. In determining the gain or loss for each qualifying sale
of finance receivables, the investment in the receivable pool sold is
allocated between the portion sold and the portion retained based
upon their relative fair values.
Estimated Credit Losses. DaimlerChrysler determines its
allowance for credit losses based on an ongoing systematic review
and evaluation performed as part of the credit-risk evaluation
process. The evaluation performed considers historical loss experi-
ence, the size and composition of the portfolios, current economic
events and conditions, the estimated fair value and adequacy of
collateral and other pertinent factors. Certain homogeneous loan
portfolios are evaluated collectively, taking into consideration pri-
marily historical loss experience adjusted for the estimated impact
of current economic events and conditions, including fluctuations
in the fair value and adequacy of collateral. Other receivables, such
as wholesale receivables and loans to large commercial borrowers,
are evaluated for impairment individually based on the fair value of
collateral. Credit exposures deemed to be uncollectible are charged
against the allowance for doubtful accounts.
Valuation of Retained Interests in Sold Receivables. Daimler-
Chrysler retains residual beneficial interests in certain pools of
sold and securitized retail and wholesale finance receivables. Such
retained interests represent the present value of the estimated
residual cash flows after repayment of all senior interests in the
sold receivables. The Group determines the value of its retained
interests using discounted cash flow modeling upon the sale of
receivables and at the end of each quarter. The valuation method-
ology considers historical and projected principal and interest
collections on the sold receivables, expected future credit losses
arising from the collection of the sold receivables, and estimated
repayment of principal and interest on notes issued to third parties
and secured by the sold receivables.
The Group recognizes unrealized gains or losses attributable to the
change in the fair value of the retained interests, which are record-
ed in a manner similar to available-for-sale securities, net of related
income taxes as a component of accumulated other comprehen-
sive income (loss) until realized. The Group is not aware of an
active market for the purchase or sale of retained interests, and
accordingly, determines the estimated fair value of the retained
interests by discounting the estimated cash flow releases (the
cash-out method) using a discount rate that 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 sold,
and forward yield curves based on trends in the economy. An
impairment adjustment to the carrying value of the retained inter-
ests is recognized in the period a decline in the estimated cash
flows below the cash flows inherent in the cost basis of an individual
retained interest (the pool-by-pool method) is considered to be
other than temporary. Other than temporary impairment adjust-
ments are generally recorded as a reduction of revenue.
Product Warranties. A liability for the expected warranty-related
costs is established when the product is sold, upon lease incep-
tion, or when a new warranty program is initiated. Estimates for
accrued warranty costs are primarily based on historical experi-
ence. Because portions of the products sold and warranted by the
Group contain parts manufactured (and warranted) by suppliers,
the amount of warranty costs accrued also contains an estimate of
recoveries from suppliers.
Research and Development and Advertising. Research and
development and advertising costs are expensed as incurred.
Sales of Newly Issued Subsidiary Stock. Gains and losses
resulting from the issuance of stock by a Group subsidiary to third
parties that reduce DaimlerChrysler’s percentage ownership
(“dilution gains and losses”) are recognized in the Group’s consoli-
dated statement of income (loss) in the line items “Other Income”
for gains and “Selling, administrative and other expenses” for
losses. DaimlerChrysler also recognizes its share of any dilution
gains and losses reported by its investees accounted for under the
equity method in the Group’s consolidated statement of income
(loss) in the line item “Financial income (expense) net.”