Mercedes 1999 Annual Report Download - page 87

(in millions of €, except per share amounts)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
81
The assets and liabilities of foreign subsidiaries operating in
highly inflationary economies are remeasured into euro on the ba-
sis of period-end rates for monetary assets and liabilities and at
historical rates for non-monetary items, with resulting translation
gains and losses being recognized in income. Further, in such
economies, depreciation and gains and losses from the disposal of
non-monetary assets are determined using historical rates.
The exchange rates of the significant currencies of non-euro par-
ticipating countries used in preparation of the consolidated finan-
cial statements were as follows (prior periods have been restated
from Deutsche Marks into euros using the Official Fixed Conver-
sion Rate of €1 = DM1.95583):
Revenue Recognition – Revenue is recognized when title passes or
services are rendered net of discounts, sales incentives, customer
bonuses and rebates granted. Sales under which the Group condi-
tionally guarantees the minimum resale value of the product are
accounted for as operating leases with the related revenues and
costs deferred at the time of title passage. Operating lease income
is recorded when earned on a straight-line basis. Revenue on long-
term contracts is generally recognized under the percentage-of-
completion method based upon contractual milestones or perform-
ance. Revenue from finance receivables is recorded on the interest
method.
The Group sells significant amounts of finance receivables in
transactions subject to limited credit risk. The Group generally
sells its receivables to a trust and remains as servicer, for which it
is paid a servicing fee. Servicing fees are earned on a level-yield
basis over the remaining term of the related sold receivables. In a
subordinated capacity, the Group retains residual cash flows, a lim-
ited interest in principal balances of the sold receivables and cer-
tain cash deposits provided as credit enhancements for investors.
Gains and losses from the sales of finance receivables are recog-
nized in the period in which such sales occur. In determining the
gain or loss for each qualifying sale of finance receivables, the in-
vestment in the sold receivable pool is allocated between the por-
tion sold and the portion retained based upon their relative fair
values.
Product-Related Expenses – Expenditures for advertising and sales
promotion and for other sales-related expenses are charged to ex-
pense as incurred. Provisions for estimated costs related to product
warranty are made at the time the related sale is recorded. Re-
search and development costs are expensed as incurred.
Earnings Per Share – Basic earnings per share is calculated by di-
viding net income by the weighted average number of shares out-
standing. Diluted earnings per share reflects the potential dilution
that would occur if all securities and other contracts to issue Ordi-
nary Shares were exercised or converted (see Note 31). Net income
represents the earnings of the Group after minority interests. Bas-
ic and diluted earnings per Ordinary Share for the years ended De-
cember 31, 1998 and 1997 have been restated to reflect the conver-
sion of Daimler-Benz and Chrysler shares into DaimlerChrysler Or-
dinary Shares (see Note 1) and the dilutive effect resulting from
the discount to market value at which the Daimler-Benz Ordinary
Shares were sold in the rights offering (see Note 20).
Intangible Assets – Purchased intangible assets, other than good-
will, are valued at acquisition cost and are generally amortized
over their respective useful lives (3 to 40 years) on a straight-line
basis. Goodwill derived from acquisitions is capitalized and amor-
tized over 3 to 40 years. The Group periodically assesses the re-
coverability of its goodwill based upon projected future cash flows.
Property, Plant and Equipment – Property, plant and equipment is
valued at acquisition or manufacturing costs less accumulated de-
preciation. Depreciation expense is recognized either using the de-
clining balance method until the straight-line method yields larger
expenses or the straight-line method. Special tooling costs are
capitalized and amortized over their estimated useful lives, prima-
rily using the units of production method. The costs of internally
produced equipment and facilities include all direct costs and allo-
cable 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. The following
useful lives are assumed: buildings - 17 to 50 years; site improve-
ments – 8 to 20 years; technical equipment and machinery – 3 to
30 years; and other equipment, factory and office equipment – 2
to 15 years.
Currency:
Brazil BRL
Great GBP
Britain
Japan JPY
USA USD
1999
€1 =
Exchange rate at
December 31,
1999
€1 =
1998
€1 =
Annual average
exchange rate
1998
€1 =
1997
€1 =
1.80 1.42 1.93 1.29 1.22
0.62 0.70 0.66 0.67 0.69
102.73 134.84 121.25 144.96 136.20
1.00 1.17 1.07 1.11 1.13