Mercedes 2004 Annual Report Download - page 118

Commitments and Contingencies. Liabilities for loss contin-
gencies are recorded when it is probable that a liability to third
parties has been incurred and the amount can be reasonably
estimated. Liabilities for loss contingencies are regularly adjusted
as further information develops or circumstances change.
The accrued liability for expected warranty-related costs is estab-
lished when the product is sold, upon lease inception, or when a
new warranty program is initiated. Estimates for accrued warran-
ty costs are primarily based on historical experience. Because
portions of the products sold and warranted by the Group con-
tain parts manufactured (and warranted) by suppliers, the
amount of warranty costs accrued also contains an estimate of
recoveries from suppliers.
The accrued liability for sales incentives is based on the estimat-
ed cost of the sales incentive programs and the number of vehi-
cles 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
recent actual experience.
In accordance with Financial Accounting Standards Board
(“FASB”) Interpretation (“FIN”) 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guar-
antees of Indebtedness of Others – an interpretation of FASB
Statements No. 5, 57 and 107 and rescission of FASB Interpreta-
tion No. 34” DaimlerChrysler recognizes, at inception of a guar-
antee, a liability for the fair value of the non-contingent portion of
the obligation due to the issuance of the guarantee. Daimler-
Chrysler applies these provisions for guarantees issued or modi-
fied after December 31, 2002. If performance under the guaran-
tee is probable and the amount can be reasonably estimated, a
liability for the contingent obligation is recognized for any guaran-
tee regardless of its date of issuance. Further information on
the Group’s obligations under guarantees is included in Note 25b
and 32.
DaimlerChrysler records the fair value of an asset retirement
obligation in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets and
subsequently adjusts the carrying amount for changes in
expected cash flows and the passage of time.
Deposits from Direct Banking Business. Demand deposit
accounts are classified as financial liabilities. Interest paid on
demand deposit accounts is recognized in cost of sales as
incurred.
Stock-Based Compensation. DaimlerChrysler adopted the fair
value recognition provisions of SFAS 123, “Accounting for Stock-
Based Compensation,” prospectively to all employee awards
granted, modified, or settled after January 1, 2003. Compensa-
tion expense for all stock-options granted prospectively from
December 31, 2002, has been measured principally at the grant
date based on the fair value of the equity award using a modified
Black-Scholes option-pricing model. Compensation expense is
recognized over the employee service period with an offsetting
credit to equity (paid-in capital). DaimlerChrysler options granted
prior to January 1, 2003, continue to be accounted for using the
intrinsic value based approach under Accounting Principles
Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to
Employees,” and related Interpretations. Compensation expense
under APB 25 was measured at the grant date based on the dif-
ference between the strike price of the equity award and the fair
value of the underlying stock as of the date of grant. The follow-
ing table illustrates the effect on net income and earnings per
share if the fair value based method had been applied to all out-
standing and unvested awards in each period.
Further information on stock-based compensation is included in
Note 24.
114
200220032004
4,718
47
(161)
4,604
4.68
4.57
4.67
4.54
2,466
81
(113)
2,434
2.43
2.40
2.43
2.40
448
81
(164)
365
0.44
0.36
0.44
0.36
Year ended December 31,
(in millions of €)
Net income
Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects
Pro forma net income
Earnings per share (in €):
Basic
Basic – pro forma
Diluted
Diluted – pro forma