Mercedes 2012 Annual Report Download - page 197

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Pensions and similar obligations. The measurement of
defined benefit plans for pensions and other post-employment
benefits (medical care) in accordance with IAS19 Employee
Benefits is based on the projected unit credit method. For
the valuation of defined post-employment benefit plans, differ-
ences between actuarial assumptions used and actual devel-
opments and changes in actuarial assumptions result in actuarial
gains and losses, which generally have to be amortized in
future periods in accordance with the corridor approach. This
approach requires partial amortization of actuarial gains
and losses in the following year with an effect on earnings if the
unrecognized gains and losses exceed 10% of the greater of
(1) the present value of the defined post-employment benefit
obligation or (2) the fair value of the plan assets. In such cases,
the amount of amortization recognized in profit or loss by
the Group is the resulting excess divided by the average remain-
ing service period of active employees expected to receive
benefits under the plan.
Plan assets invested to cover defined pension benefit obligations
and other post-employment benefit obligations (medical care)
are measured at fair value and offset against the corresponding
obligations. Plan assets are recognized in the consolidated
statement of income with their expected returns with an effect
on earnings (see also Note 22).
Expenses resulting from the compounding of pension benefit
obligations and other post-employment benefit obligations
as well as the expected returns on plan assets are presented
within interest expense and interest income. The amortization
of unrecognized actuarial gains and losses is also included
in these line items. Other expenses resulting from providing
pension benefits and other post-employment benefits are
allocated to the functional costs in the consolidated statement
of income. The discounting factors used to calculate the
present values of defined benefit pension obligations are to
be determined by reference to market yields at the end of
the reporting period on high-quality corporate bonds in the
respective markets. For long maturities, a significant reduction
of the number of high-quality corporate bonds was to be
observed. At December 31, 2012, selection criteria for the inclu-
sion of high-quality corporate bonds with AA-rating were
adjusted to increase the number of bonds included and to ensure
reliable estimates of discounting factors in the future. For
very long maturities, there are no high-quality corporate bonds
as a benchmark available. The respective discounting factors
are estimated by extrapolating current market rates along
the yield curve. Due to the change in the method of determining
the discounting factor, the pension benefit obligation decreased
on December 31, 2012 by approximately €1.1 billion. There
was no effect on the consolidated income statement. Effects
on future periods are expected to be minor.
Gains or losses on the curtailment or settlement of a defined
benefit plan are recognized when the curtailment or settlement
occurs.
Provisions for other risks and contingent liabilities.
A provision is recognized when a liability to third parties has
been incurred, an outflow of resources is probable and
the amount of the obligation can be reasonably estimated.
The amount recognized as a provision represents the best
estimate of the obligation at the balance sheet date. Provisions
with an original maturity of more than one year are discounted
to the present value of the expenditures expected to settle
the obligation at the end of the reporting period. Provisions
are regularly reviewed and adjusted as further information
becomes available or circumstances change.
The provision for expected warranty costs is recognized
when a product is sold, upon lease inception, or when
a new warranty program is initiated. Estimates for accrued
warranty costs are primarily based on historical experience.
Daimler records the fair value of an asset retirement obligation
from the period in which the obligation is incurred.
Restructuring provisions are set up in connection with pro-
grams that materially change the scope of business per-
formed by a segment or business unit or the manner in which
business is conducted. In most cases, restructuring expenses
include termination benefits and compensation payments due
to the termination of agreements with suppliers and dealers.
Restructuring provisions are recognized when the Group has
a detailed formal plan that has either commenced implemen-
tation or been announced.
Share-based payment. Share-based payment comprises
cash-settled liability awards and equity-settled equity awards.
The fair value of equity awards is generally determined by
using a modified Black-Scholes option pricing model at grant
date and represents the total payment expense to be recog-
nized during the service period with a corresponding increase
in equity (paid-in capital).
Liability awards are measured at fair value at each balance
sheet date until settlement and are classified as provisions.
The expense of the period comprises the addition to and/or
the reversal of the provision between two balance sheet dates
and the dividend equivalent paid during the period, and is
included in the functional costs.
Presentation in the consolidated statement of cash flows.
Interest and taxes paid as well as interest and dividends
received are classified as cash provided by/used for operating
activities. Dividends paid are shown in cash provided by/used
for financing activities.