Mercedes 2002 Annual Report Download - page 112

106 |Notes to Consolidated Statements of Income (Loss)
Notes to Consolidated Statements of Income (Loss)
5. Functional Costs and Other Expenses
Selling, administrative and other expenses are comprised of
the following:
Moderate demand and strong competition in the European
market for commercial vehicles resulted in idle capacity at
one of the Group’s German assembly plants. Consequently,
DaimlerChrysler determined that it does not expect to recover
the carrying value of certain long-lived assets (primarily
manufacturing equipment and tooling) at this plant. In accor-
dance with the provisions of SFAS 144, an impairment charge
amounting to 1201 million was recognized in 2002. The
charge is included in cost of sales of the Commercial Vehicles
segment.
In 2002, a goodwill impairment charge of 140 million was
recognized in connection with the contracted sale of control-
ling interests in two businesses in the Commercial Vehicles
segment (see Note 4).
In October 2002, DaimlerChrysler reached a final agree-
ment with GE Capital to sell a significant portion of its port-
folio of corporate aircraft, consisting of finance lease receiv-
ables and owned aircraft currently under operating leases. The
sale will be consummated in tranches beginning in November
2002 over a period of approximately 12 months. The agree-
ment contains provisions for DaimlerChrysler to receive a
share of future payments throughout the remaining term of
the contracts in the portfolio. As a result of current economic
conditions, the Group also re-evaluated the recoverability of
its remaining leasing portfolio in the fourth quarter of 2002. In
connection with the sale agreement, the Group classified
finance lease receivables with a carrying value of 1493 million
and equipment under operating leases with a carrying value
of 140 million as held for sale at December 31, 2002. The
Services segment recognized impairment losses amounting to
1191 million in other expenses and 120 million in cost of
sales related to the assets held for sale and the re-evaluation
of the remaining portfolio.
In 2002, due to declining resale prices of used passenger cars
and commercial vehicles in North America, DaimlerChrysler
recognized impairment charges totaling 1256 million upon re-
evaluation of the recoverability of the carrying value of its
leased vehicles. This re-evaluation was performed using
product specific cash flow information. As a result, the carry-
ing values of these leased vehicles were determined to be
impaired as the identifiable undiscounted future cash flows
were less than their respective carrying values. In accordance
with SFAS 144, the resulting impairment charges, recorded as
a component of cost of sales in the Services segment, repre-
sent the amount by which the carrying values of such vehicles
exceeded their respective fair market values.
Following a decision of DaimlerChrysler’s Board of Manage-
ment in the fourth quarter of 2001, DaimlerChrysler, GE Capi-
tal and other financial services providers reached an agree-
ment during the six months ended June 30, 2002 to purchase
a portion of the DaimlerChrysler’s commercial real estate and
asset-based lending portfolios in the United States for 11,260
million. The decision resulted in a charge of 1166 million,
which is included in other expense of the Services segment
in 2001.
As discussed in Note 7, the DaimlerChrysler Supervisory
Board approved a multi-year turnaround plan for the Chrysler
Group in February 2001. The related charges are presented
as a separate line item on the accompanying consolidated
statements of income (loss) and are not reflected in cost of
sales or selling, administrative and other expenses.
In October 2001, the DaimlerChrysler Board of Management
approved a turnaround plan for its North American truck
subsidiary Freightliner. The turnaround plan is designed to
return Freightliner to sustainable profitability and comprises
four main elements: material cost savings, production cost
savings, overhead reductions and improvements to the exist-
ing business model. The implementation of the turnaround
plan resulted in charges of 1310 million, reflecting employee
termination benefits of 183 million, asset impairment charges
of 1170 million, and other costs to exit certain activities of
157 million (see Note 25b). The charges were recorded in cost
of sales (1173 million) and selling, administrative and other
expenses (1137 million) in 2001. Employee termination bene-
fits related to voluntary and involuntary severance measures
affected hourly and salaried employees. As a result of the
voluntary and involuntary measures, 1,314 and 1,484 hourly
and salaried employees were affected by the plan in 2002
and 2001, respectively. The amount of employee termination
benefit paid and charged against the liability was 138 million
in 2002.
(in millions of 3)
11,666
5,921
279
437
18,303
2000
11,823
5,539
184
785
18,331
12,059
5,390
40
804
18,293
20012002
Year ended December 31,
Selling expenses
Administration expenses
Goodwill amortization and
impairments
Other expenses