Mercedes 2003 Annual Report Download - page 126
Download and view the complete annual report
Please find page 126 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
Companies accounted for by DaimlerChrysler using the equity
method, such as EADS and MMC, are also subject to the require-
ments of SFAS 141 and SFAS 142. DaimlerChrysler’s proportionate
share of its equity method investees’ (primarily EADS) transitional
goodwill impairment charge resulting from the adoption of SFAS
142 was €159 million (€0.16 per share). This transitional impairment
charge and the related per share amount are reported as the
cumulative effect of a change in accounting principles in the Group’s
consolidated statement of income (loss) for the year ended
December 31, 2002 (see Note 11).
Property, Plant and Equipment. Property, plant and equipment is
valued at acquisition or manufacturing costs less accumulated
depreciation. Plant and equipment under capital leases are stated
at the lower of present value of minimum lease payments or fair
value less accumulated amortization. Depreciation expense is rec-
ognized using either the declining balance method until the
straight-line method yields larger expenses or the straight-line
method. For German Group companies, depreciation expense for
property, plant and equipment placed in service before January 1,
2001, is recognized using either the straight-line method or the
declining balance method. Property, plant and equipment placed in
service at these German Group companies after December 31,
2000, is depreciated using the straight-line method of depreciation.
The costs of internally produced equipment and facilities include
all direct costs and allocable manufacturing overhead. Costs of the
construction of certain long-term assets include capitalized interest,
which is amortized over the estimated useful life of the related
asset. Property, plant and equipment are depreciated over the
following useful lives: buildings – 10 to 50 years; site improve-
ments – 5 to 40 years; technical equipment and machinery – 3 to
30 years; and other equipment, factory and office equipment – 2 to
33 years.
As part of its Turnaround Plan objectives (see Note 7), the
Chrysler Group has lengthened its platform life-cycles and is
aggressively pursuing a strategy to use manufacturing equipment
for more than one product launch. The Chrysler Group performed
an extensive engineering review of the assets utilized in its manu-
facturing facilities. These studies resulted in revisions to the esti-
mated remaining useful lives as well as a reduction in estimated
salvage values of certain manufacturing machinery, equipment and
tooling to better represent the revised platform strategy and the
increased use of flexible manufacturing techniques in its facilities.
The change in these estimated useful lives and salvage values was
applied to existing assets and new additions beginning in 2002.
The change in estimates resulted in reduced depreciation and
amortization expenses of machinery, equipment and tooling of
€324 million (€206 million, net of taxes, or €0.20 per diluted share)
for the year ended December 31, 2002.
Leasing. Leasing includes all arrangements that transfer the right
to use specified property, plant or equipment for a stated period of
time, even if the right to use such property, plant or equipment is
not explicitly described in an arrangement. The Group is a lessee of
property, plant and equipment and lessor of equipment, principally
passenger cars and commercial vehicles. All leases that meet
certain specified criteria intended to represent situations where the
substantive risks and rewards of ownership have been transferred
to the lessee are accounted for as capital leases. All other leases
are accounted for as operating leases. Rent expenses on operating
leases, where the Group is lessee, is recognized over the respective
lease terms using the straight-line method. Equipment on operating
leases, where the Group is lessor, is carried initially at its acquisition
or production cost and is depreciated over the contractual term of
the lease, using the straight-line method, to its estimated residual
value. The estimated residual value is initially determined using
published third party information as well as projections based on
historical experience about expected resale values for the types of
equipment leased.
Impairment of Long-Lived Assets. The Group adopted SFAS 144
on January 1, 2002. The adoption of SFAS 144 did not have a sig-
nificant effect on the Group’s consolidated financial statements. In
accordance with SFAS 144, long-lived assets held and used, such
as property, plant and equipment, and purchased intangible assets
subject to amortization, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset or group of assets may not be recoverable.
Recoverability of assets to be held and used is measured by com-
paring the carrying amount of an asset or asset group to the
estimated future undiscounted cash flows expected to be generated
by the asset or group of assets. If the carrying amount of an asset
or group of assets exceeds its estimated future undiscounted cash
flows, an impairment charge is recognized in the Group’s financial
statements by the amount by which the carrying amount of the asset
or group of assets exceeds fair value of the asset or group of assets.
Assets to be disposed of are presented separately in the balance
sheet (or disclosed in the notes) and reported at the lower of the
carrying amount or fair value less costs to sell, and are no longer
depreciated. Assets and liabilities of a disposal group classified as
held for sale are presented separately in the appropriate asset and
liability sections of the balance sheet (or disclosed in the notes).
Prior to the adoption of SFAS 144, DaimlerChrysler accounted for
long-lived assets in accordance with SFAS 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of.”
Non-fixed Assets. Non-fixed assets represent the Group’s
inventories, receivables, securities and cash, including amounts
to be realized in excess of one year. In the accompanying notes,
the portion of assets to be realized in excess of one year has been
disclosed.
Inventories. Inventories are valued at the lower of acquisition or
manufacturing cost or market, cost being generally determined
on the basis of an average or first-in, first-out method (“FIFO”).
Certain of the Group’s U.S. inventories are valued using the last-in,
first-out method (“LIFO”). Manufacturing costs comprise direct
material and labor and applicable manufacturing overheads, includ-
ing depreciation charges.