Mercedes 2002 Annual Report Download - page 108

102 |Notes to Consolidated Financial Statements
controlling financial interest or if the equity investment at risk
is not sufficient for the entity to finance its activities without
additional subordinated financial support from other parties.
The primary beneficiary of a variable interest entity is the par-
ty that absorbs a majority of the entity’s expected losses,
receives a majority of its expected residual returns, or both,
as a result of holding variable interests. FIN 46 also provides
disclosure requirements related to investments in variable
interest entities, whether or not those entities are consolidated.
For DaimlerChrysler, FIN 46 applies immediately to variable
interest entities created after January 31, 2003, and to vari-
able interest entities in which DaimlerChrysler obtains an
interest after that date. For variable interest entities created
prior to February 1, 2003, the consolidation requirements
of FIN 46 will be effective as of July 1, 2003.
DaimlerChrysler utilizes various special purpose entities to
securitize wholesale and retail automotive receivables in the
ordinary course of business. Public retail and public wholesale
transactions typically involve the sale of a portfolio of receivables
through trusts that issue securities to the public. These trusts
meet the criteria in SFAS 140 for qualifying special purposes
entities (QSPE) and therefore, such securitizations are treated
as sales with de-recognition of the transferred receivables. In
these transactions, DaimlerChrysler generally receives a
servicing fee in exchange for primarily collecting payments,
responding to inquiries of obligors on the sold receivables
and furnishing the reports as required under the respective
servicing agreements. DaimlerChrysler retains a subordinated
beneficial interest in the receivables sold and legally its risk
of loss is limited to the amount of the carrying value of these
retained interests. These transactions are not subject to the
provisions of FIN 46.
DaimlerChrysler also sells automotive receivables to multi-
seller and multi-collateralized bank conduits, which are
considered variable interest entities, in the ordinary course
of business. DaimlerChrysler generally remains as servicer.
DaimlerChrysler also retains residual beneficial interests in
the receivables sold which are designed to absorb substantial-
ly all of the credit, prepayment, and interest-rate risk of the
receivables transferred to the conduit. These transactions are
subject to the provisions of FIN 46. DaimlerChrysler is cur-
rently evaluating whether it is the primary beneficiary of these
variable interest entities and therefore would be required to
consolidate them.
The outstanding balance of receivables sold to QSPEs and
corresponding retained interest balance as of December 31,
2002 are approximately 122.9 billion and 13.2 billion, respec-
tively. The outstanding balance of receivables sold to conduits
and corresponding retained interest balance as of December 31,
2002 are approximately 17.2 billion and 11.0 billion, respec-
tively.
To a limited extent, DaimlerChrysler uses off-balance-sheet
leasing structures. In these structures, a variable interest
entity is established and owned by third parties. The variable
interest entity raises funds by issuing debt and equity securi-
ties to third party investors. The variable interest entity uses
the debt and equity proceeds to purchase property and
equipment, which is leased by the Group and used in the nor-
mal course of business. At the end of the lease term, Daimler-
Chrysler generally has the option to purchase the property
and equipment at fair value or re-lease the property and equip-
ment under new terms. DaimlerChrysler is currently evaluating
whether its interests in these entities require consolidation
or information to be disclosed when FIN 46 becomes effective.
If these entities are required to be consolidated in accordance
with FIN 46, their aggregate size is not expected to be material
to the Group's consolidated financial statements. Further,
the Group’s maximum exposure to loss as a result of its
involvement with these entities is also not expected to be
significant.
DaimlerChrysler is evaluating the extent to which it has
involvement in other entities, in addition to those described
above, and whether its interests are subject to the require-
ments of FIN 46. It is reasonably possible that Daimler-
Chrysler may be required to consolidate or disclose informa-
tion about any of these entities when FIN 46 becomes
effective. However, DaimlerChrysler believes the aggregate
size and the Group’s maximum exposure to loss as a result of
its involvement with these entities is also insignificant.
2. Scope of Consolidation
Scope of Consolidation – DaimlerChrysler comprises 451
German and non-German subsidiaries (2001: 470). A total
of 102 (2001: 102) companies are accounted for in the con-
solidated financial statements using the equity method of
accounting. During 2002, 45 subsidiaries were included in the
consolidated financial statements for the first time. A total
of 64 subsidiaries were no longer included in the consolidated
group. Significant effects of changes in the consolidated
group on the consolidated balance sheets and the consolidat-
ed statements of income (loss) are explained further in the
notes to the consolidated financial statements. A total of 305
subsidiaries (“affiliated companies”) are not consolidated as
their combined influence on the financial position, results of
operations, and cash flows of the Group is not material (2001:
296). The effect of such non-consolidated subsidiaries for
all years presented on consolidated assets, revenues and net
income (loss) of DaimlerChrysler was approximately 1%. In