Mercedes 2006 Annual Report Download - page 165

Consolidated Financial Statements | Basis of Presentation | 149
Principles of consolidation. The accompanying consolidated
financial statements include the financial statements of Daimler-
Chrysler AG and all of its material, majority-owned subsidiaries
and certain variable interest entities for which DaimlerChrysler is
determined to be the primary beneficiary (see Note 2).
All significant intercompany accounts and transactions
relating to consolidated subsidiaries and consolidated variable
interest entities have been eliminated.
Investments in associated companies. Significant equity
investments in which DaimlerChrysler does not have a controlling
financial interest, but has the ability to exercise significant
influence over the operating and financial policies of the investee
(“associated companies”) are accounted for using the equity
method.
The excess of DaimlerChrysler’s initial investment in equity method
companies over the Group’s ownership percentage in the
underlying net assets of those companies is attributed to certain
fair value adjustments with the remaining portion recognized
as goodwill (“investor level goodwill”) which is not amortized.
A decline in fair value of an investment in any associated company
below its carrying amount that is deemed to be other than
temporary results in a reduction in the carrying amount of
the investment to fair value. The impairment is charged to
earnings and a new cost basis for the investment is established.
The European Aeronautic Defence and Space Company EADS
N.V. (“EADS”) constitutes a significant associated company.
Because the financial statements of EADS are not made available
to DaimlerChrysler in time to apply the equity method of
accounting, the Group’s proportionate share of the results of
operations of this associated company are included in
DaimlerChrysler’s consolidated financial statements with a
three month lag.
Foreign currencies. The assets and liabilities of foreign operations
where the functional currency is not the euro are generally
translated into euros using period-end exchange rates. The result-
ing translation adjustments are recorded as a component of
accumulated other comprehensive loss. The statements of income
and the statements of cash flows are translated using average
exchange rates during the respective periods.
The exchange rates for the US dollar, which is the significant
foreign currency used in the preparation of the consolidated
financial statements were as follows:
Revenue recognition. Revenue for sales of vehicles, service
parts and other related products is recognized when persuasive
evidence of an arrangement exists, delivery has occurred or
services have been rendered, the price of the transaction is fixed
and determinable, and collectibility is reasonably assured.
Revenues are recognized net of discounts, cash sales incentives,
customer bonuses and rebates granted. Non-cash sales incentives
that do not reduce the transaction price to the customer are
classified within cost of sales. Revenues are disclosed net of taxes
collected from customers and remitted to governmental
authorities. Shipping and handling costs are recorded as cost
of sales in the period incurred.
DaimlerChrysler uses price discounts to adjust market pricing
in response to a number of market and product factors, including:
pricing actions and incentives offered by competitors, economic
conditions, the amount of excess industry production capacity, the
intensity of market competition, and consumer demand for the
product. The Group may offer a variety of sales incentive programs
at any point in time, including cash offers to dealers and
consumers, lease subsidies which reduce the consumer’s monthly
lease payment, or reduced financing rate programs offered to
consumers.
2004
20052006
1 € = 1 € = 1 € =
1.3170
1.2023
1.2582
1.2743
1.2887
1.1797
1.3113
1.2594
1.2199
1.1897
1.3621
1.2497
1.2046
1.2218
1.2977
Exchange rate at December 31
Average exchange rates
First quarter
Second quarter
Third quarter
Fourth quarter