Mercedes 2001 Annual Report Download - page 84

80 Notes to Consolidated Financial Statements
Earnings Per Share – Basic earnings per share is
calculated by dividing net income by the weighted av-
erage number of shares outstanding. 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 33).
Net income represents the earnings of the Group after
minority interests.
Intangible Assets – Purchased intangible assets,
other than goodwill, are valued at acquisition cost and
are amortized over their respective useful lives (2 to 10
years) on a straight-line basis. Goodwill derived from
acquisitions that were completed before July 1, 2001, is
capitalized and amortized over 3 to 40 years. The
Group periodically assesses the recoverability of its
goodwill based upon projected future undiscounted
cash flows. Goodwill acquired in business combinations
after June 30, 2001, and intangible assets with an
indefinite useful life acquired after June 30, 2001, were
not amortized in accordance with Statement of Finan-
cial Accounting Standards (“SFAS”) 142, “Goodwill and
Other Intangible Assets” (see New Accounting Pro-
nouncements). Goodwill acquired in business combina-
tions that were completed before July 1, 2001, and
intangible assets with an indefinite useful life acquired
before July 1, 2001, were amortized until December 31,
2001.
Property, Plant and Equipment – Property, plant
and equipment is valued at acquisition or manufactur-
ing costs less accumulated depreciation. Depreciation
expense is recognized using either the declining bal-
ance method until the straight-line method yields larger
expenses or the straight-line method. The costs of inter-
nally produced equipment and facilities include all di-
rect costs and allocable manufacturing overhead. Costs
of the construction of certain long-term assets include
capitalized interest which is amortized over the esti-
mated useful life of the related asset. The following use-
ful lives are assumed: buildings – 10 to 50 years; site
improvements – 5 to 33 years; technical equipment
and machinery – 3 to 30 years; and other equipment,
factory and office equipment – 2 to 33 years.
For the Group’s subsidiaries in Germany, depre-
ciation expense for property, plant and equipment
placed in service before January 1, 2001 is being recog-
nized using either the straight-line method or the
declining balance method until the straight-line method
yields larger expenses. Property, plant and equipment
placed in service at these companies after December
31, 2000 is depreciated using the straight-line method
of depreciation. This change in accounting principle for
new additions beginning January 1, 2001 was made to
reflect improvements in the design and flexibility of
manufacturing machinery and equipment and improve-
ments in maintenance practices. These improvements
have resulted in more uniform productive capacities
and maintenance costs over the useful life of an asset,
and straight-line depreciation is preferable in these
circumstances. The effect of this change on the net loss
of 2001 was not significant.
Leasing – The Group is a lessee of property, plant
and equipment and lessor of equipment, principally
passenger cars and commercial vehicles. All leases that
meet certain specified criteria intended to represent
situations where the substantive risks and rewards of
ownership have been transferred to the lessee are
accounted for as capital leases. All other leases are
accounted for as operating leases. Equipment on
operating leases, where the Group is lessor, is valued
at acquisition cost and depreciated over its estimated
useful life of 1 to 30 years using the straight-line
method.
Long-Lived Assets – The Group accounts for long-
lived assets in accordance with the provisions of SFAS
121, “Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of.”
This Statement requires that long-lived assets and cer-
tain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recov-
erable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be gener-
ated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured
as the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Non-fixed Assets – Non-fixed assets represent the
Group’s inventories, receivables, securities and cash,
including amounts to be realized in excess of one year.
In the accompanying notes, the portion of assets and li-
abilities to be realized and settled in excess of one year
has been disclosed.
Marketable Securities and Investments – Securities
and investments are accounted for at fair value, if
readily determinable. Unrealized gains and losses on
trading securities, representing securities bought princi-
pally for the purpose of near term sales, are included in
earnings. Unrealized gains and losses on available-
for-sale securities are included in accumulated other
comprehensive income, net of applicable taxes. All
other securities are recorded at cost. Unrealized losses
on all marketable securities and investments that are
other than temporary are recognized in earnings.