Mercedes 2002 Annual Report Download - page 77

Analysis of the Financial Situation |71
Adjusted to exclude the one-time effects noted above, operat-
ing profit increased significantly by 10.5 billion to 10.7 billion
in 2002.
As a result of more efficient management of resources,
further cost reductions, increased synergy effects, and the
continuing market success of its products, EADS contributed
to the improvement in operating profit in 2002, despite
continued economic declines, by maintaining sales within
the civil aviation market.
Mitsubishi Motors recorded a significantly higher operating
profit, primarily due to the continued implementation of their
restructuring plan and increased revenues in Europe and
North America. In the Japanese market, revenues continued
to decline.
MTU Aero Engines could not reach the 2001 operating
profit level due to the difficult markets for industrial gas tur-
bines and civil-aviation engines.
Eliminations in the operating profit
Operating profit eliminations increased from 2001 to 2002
primarily due to the expansion of leasing operations in Ger-
many and the increase of inventory financing of European
dealers. From a group perspective, the profits generated from
increased vehicle deliveries between the segments were
unrealized and thus eliminated.
Financial result characterized by gains from sales
In 2002, the financial result was 12.2 billion, considerably
higher than the previous year (10.2 billion). The financial
results of both years were considerably influenced by one-
time effects.
In 2002 gains from the sales of investments in T-Systems
ITS and Conti Temic microelectronic, totaling 12.6 billion,
contributed to the increase in income from investments.
One-time expenses of 128 million resulted from an impairment
of an investment in an e-business company of the Group.
The financial result of the previous year was positively
impacted by one-time effects totaling 10.7 billion. Income
from investments included one-time gains recognized in
connection with the establishment of Airbus SAS at EADS
and from the sale of the remaining 10% interest in debitel to
Swisscom. The Group’s equity method share in the loss of
Mitsubishi Motors, which was negatively impacted by restruc-
turing charges, and expenditures related to impairments
within the e-business activities of the Group had a negative
impact on financial results. Due to the economic and currency
crisis in Argentina, 10.1 billion of expenses were recognized
in other financial income in 2001.
Adjusted to exclude the one-time effects noted above in
both years, the 2002 financial result increased by 10.2 billion
to financial expense of 10.3 billion compared to the previous
year. Results from investments rose by 10.5 billion to income
of 10.1 billion, primarily due to the improved earnings situa-
tion at EADS and Mitsubishi Motors, which are accounted for
using the equity method. Other financial result fell by 10.3
billion to an expense of 10.1 billion due to lower income from
sales of securities. Net interest expense of 10.3 billion, was
down slightly from the previous year.
The effects on operating profit of the operating investments
were allocated to the respective segment’s operating profit.
In 2002 this resulted in a positive overall contribution to ope-
rating profit of 10.5 billion, of which 10.8 billion related to
the investments in EADS and Mitsubishi Motors. Other invest-
ments reduced the operating profit by 10.3 billion.
These operative investments negatively impacted the
financial result by a total of 128 million.
Income taxes
In 2002, the Group recorded income tax expense of 11.2
billion, compared with an income tax benefit of 10.8 billion
in the previous year.
Based on the earnings before income taxes of 16.1 billion
(2001: 11.5 billion loss before income taxes), the effective tax
rate was 19.4% compared with the previous year’s rate of
52.4%. The low effective tax rate in 2002 was principally due
to the tax-free sale of the investments in T-Systems ITS and
Conti Temic microelectronic.
The high tax rate in 2001 was due to the pre-tax loss report-
ed in 2001 combined with the tax-free sales of the remaining
debitel shares, the Rail Systems business unit, and 60% of the
Group’s interest in TEMIC. Because of the pre-tax loss report-
ed in 2001, the tax-free gains realized in 2001 had the effect
of increasing the effective tax rate. Additional information
on income taxes can be found in Note 9 to the Consolidated
Financial Statements.