Mercedes 2004 Annual Report Download - page 125

Subsequent to the acquisition of the controlling interest in
MFTBC, a number of quality problems concerning MFTBC vehi-
cles spanning production years since July 1974 were identified.
During the second and third quarter of 2004, DaimlerChrysler
was able to comprehensively assess those quality issues and
define necessary technical solutions and a course of action to
perform them. The estimates of cost in the interim periods of
2004 were based on the status of the investigation and Daimler-
Chrysler’s best estimate of the probable costs to be incurred to
address and remedy the identified quality issues.
Of the €1.1 billion recorded by MFTBC, (i) €0.1 billion was recog-
nized in “Financial income (expense), net” on the statement of
income representing DaimlerChrysler’s proportionate share of
the results of MFTBC which is included on a one month lag relat-
ing to amounts attributed to refinements to estimates that were
made before MFTBC was fully consolidated, (ii) €0.7 billion to
cost of sales representing the sum of the 43% attributed to the
March 2003 investment (for which the purchase price allocation
period is closed) and the 35% of the costs attributed to minority
shareholders of MFTBC; (iii) €0.2 billion to goodwill attributed to
the 22% interest acquired in 2004; and (iv) €0.1 billion to
deferred tax assets.
Due to the complexity of the issues, the investigation of these
quality issues and evaluation of the extent of required product
recalls and other quality measures is not finalized and Daimler-
Chrysler may need to revise or refine the approach. MFTBC
expects to be able to complete the majority of the field cam-
paigns by the end of 2005.
DaimlerChrysler assigned €95 million of the aggregate prelimi-
nary purchase price to registered trademarks that are not subject
to amortization, €81 million to technology with a useful life of
10 years, €49 million to other identifiable intangible assets and
€14 million to acquired in-process R&D that was expensed in the
periods the investments were made. In addition, DaimlerChrysler
assigned €6,206 million to tangible assets acquired and €5,469
million to liabilities assumed. The remaining €275 million were
allocated to goodwill of the Commercial Vehicles segment and is
not expected to be deductible for tax purposes.
The following table is prepared on a pro forma basis for 2004 and
2003, as though DaimlerChrysler acquired its controlling interest
in MFTBC as of the beginning of the periods presented. The pro
forma amounts include charges for acquired in-process R&D.
The pro forma results above are not necessarily indicative of what
would have occurred if DaimlerChrysler’s acquisition of a
controlling interest in MFTBC had been in effect for the periods
presented. They do not reflect any synergies that are expected
to be achieved from combining the operations of DaimlerChrysler
and MFTBC, and are not intended to be a projection of future
results.
DaimlerChrysler believes that it has valid claims as a result of
representations and warranties by the seller (MMC) in connec-
tion with the purchase of its controlling interest in MFTBC and is
currently in discussions with MMC regarding these issues. If
DaimlerChrysler receives consideration from MMC as a result of
the ongoing discussions, it will be recognized when realized and
allocated to income and goodwill consistent with the accounting
for the quality issues subsequent to the business combination.
Dispositions. At December 31, 2004, the Group classified fixed
assets with a carrying amount of €92 million as held for sale
which are included in property, plant and equipment, net, in the
consolidated balance sheet.
In May 2004, as part of the realignment of its strategic alliance
with Hyundai Motor Company (“HMC”), DaimlerChrysler termi-
nated discussions with HMC regarding the formation of a com-
mercial vehicles joint venture. Also in May 2004, DaimlerChrysler
sold its non-controlling 50% interest in DaimlerHyundai Truck
Corporation (“DHTC”) to HMC for a total pretax gain of €60 mil-
lion (€27 million is recognized in other income and €33 million is
recognized in financial income (expense), net), which is attributed
to the Commercial Vehicles segment. In August 2004, as part
of the realignment of its strategic alliance with HMC, Daimler-
Chrysler sold its 10.5% stake in HMC for €737 million in cash,
resulting in a pretax gain of €252 million that is included
in financial income (expense), net, of the unaudited condensed
consolidated statements of income.
121
20032004
143,950
2,449
2,449
2.42
2.41
142,999
(407)
459
(0.40)
(0.40)
Revenues
Income (loss) from continuing operations
Net income
Earnings (loss) per share from continuing operations
Basic
Diluted
(in millions of € except earnings per share)