Mercedes 2004 Annual Report Download - page 115

Pension and Other Postretirement Plans. The measurement of
pension and postretirement benefit liabilities is based upon
the projected unit credit method in accordance with Statement
of Financial Accounting Standards (“SFAS”) 87, “Employers’
Accounting for Pensions,” and SFAS 106, “Employers’ Accounting
for Postretirement Benefits Other Than Pensions,” respectively.
As permitted under SFAS 87 and SFAS 106, changes in the
amount of either the projected benefit obligation (for pension
plans), the accumulated benefit obligation (for other postretire-
ment plans) or differences between actual and expected return
on plan assets and from changes in assumptions can result in
gains and losses not yet recognized in the Group’s consolidated
financial statements. The expected return on plan assets is deter-
mined based on the expected long-term rate of return on plan
assets and the fair value or market-related value of plan assets.
Amortization of an unrecognized net gain or loss is included as a
component of the Group’s net periodic benefit plan cost for a
year if, as of the beginning of the year, that unrecognized net gain
or loss exceeds 10 percent of the greater of (1) the projected
benefit obligation (for pension plans) or the accumulated postre-
tirement benefit obligation (for other postretirement plans) or (2)
the fair value or market-related value of that plan’s assets. In
such case, the amount of amortization recognized by the Group
is the resulting excess divided by the average remaining service
period of active employees expected to receive benefits under
the plan (see Note 25a).
DaimlerChrysler elected retroactive application as of January 1,
2004, to account for subsidies provided under the Medicare Pre-
scription Drug, Improvement and Modernization Act of 2003
(“Medicare Act”). Under certain conditions, the Medicare Act pro-
vides for subsidies related to postretirement healthcare benefits
that reduce the accumulated postretirement benefit obligation
(“APBO”) of companies in the United States. See Note 25a for
further information about the impact of the Medicare Act on the
Group’s consolidated financial statements.
Earnings Per Share. Basic earnings per share is calculated by
dividing income (loss) from continuing operations and net income
(loss), respectively, by the weighted average number of shares
outstanding. Diluted earnings per share reflects the potential
dilution that would occur if all securities and other contracts to
issue Ordinary Shares were exercised or converted (see Note
36).
Goodwill and Other Intangible Assets. The Group accounts for
all business combinations initiated after June 30, 2001, using the
purchase method of accounting. Goodwill represents the excess
of the cost of an acquired entity over the fair values assigned to
the assets acquired and the liabilities assumed after taking into
consideration the types of acquired intangible assets that are
required to be recognized and reported separately from goodwill.
Beginning January 1, 2002, goodwill acquired and intangible
assets determined to have an indefinite useful life are not amor-
tized, but instead are tested for impairment. Prior to January 1,
2002, goodwill was amortized on a straight-line basis over its
estimated useful life of 3 to 40 years, and was assessed for
recoverability based on estimated undiscounted future cash
flows.
DaimlerChrysler evaluates the recoverability of its goodwill at
least annually or when significant events occur or there are
changes in circumstances that indicate the fair value of a report-
ing unit of the Group is less than its carrying value. The Group
determines the fair value of each of its reporting units by estimat-
ing the present value of their future cash flows. In addition, any
recognized intangible asset determined to have an indefinite use-
ful life is tested at least annually for impairment until its life
is determined to no longer be indefinite. Intangible assets with
estimable useful lives are valued at acquisition cost, are amor-
tized on a straight-line basis over their respective estimated use-
ful lives (2 to 10 years) to their estimated residual values, and are
reviewed for impairment whenever events or changes in circum-
stances indicate that the carrying amount of the asset or asset
group may not be recoverable.
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