Annual Report 2003 2004

134
Research and development costs
Research and development costs are expensed as incurred.
Earnings per share
Basic earnings per share are computed by dividing the Group’s net
income by the weighted average number of shares outstanding.
Shares issued during the period and shares reacquired during the
period are weighted for the portion of the period that they were
outstanding. There were no dilutive securities in the periods
presented.
Intangible assets
Purchased intangible assets with definite useful lives are capitalized
and amortized on a straight-line basis over their estimated useful
lives. For identifiable internally developed intangible assets, only the
direct external costs incurred in generating these assets are
capitalized and amortized on a straight-line basis over their
estimated useful life. The Group reviews its intangible assets with
definite useful lives for impairment whenever events or changes in
circumstances indicate that the carrying amount of its assets may
not be recoverable.
Costs incurred in connection with the acquisition and selfdevelopment
of internally used computer software, inclusive of the
costs for transforming such software into an operational condition,
are capitalized and amortized on a straight-line basis over its
estimated useful life, usually 3 to 5 years.
Costs incurred during the preliminary stage of internal use
computer software projects are expensed as incurred.
In accordance with sfas 142, the Group evaluates goodwill and
indefinite lived intangible assets for impairment on an annual basis
and between annual test dates if events or changes in
circumstances indicate that the asset may be impaired. The
adoption of sfas 142 resulted in a goodwill impairment of €347
million (€338 million net of tax) or €0.66 per share, which has been
reported as a change in accounting principle in fiscal year
2001/2002. Based on the Group’s annual impairment test, no
goodwill impairment charges have been necessary since the
adoption of the Standard.
Property, plant and equipment
Property, plant and equipment are valued at acquisition or
production cost less accumulated depreciation. Capitalized
production costs for internally developed assets include direct
material, labor, and allocable material and manufacturing overhead
costs. When production activities are performed over an extended
period, interest costs incurred during production are capitalized.
Administrative costs are capitalized only if such costs are directly
related to production. Maintenance and repair costs are expensed as
incurred. Costs for activities that lead to the prolongation of useful
life or to expand future use capabilities of an asset are capitalized.
Property, plant and equipment are primarily depreciated using the
straight-line method. Upon sale or retirement, the acquisition or
production cost and related accumulated depreciation are removed
from the balance sheet and any gain or loss is included in the
consolidated statement of income.
The following useful lives are used as a basis for calculating
depreciation:
Useful lives property, plant and equipment
Buildings
Building and land improvements
Technical machinery and equipment
Factory and office equipment
10 to 50 years
15 to 25 years
8 to 25 years
3 to 10 years
Leases
Leases are classified as either capital or operating. Leasing transactions
whereby the Group is the lessee and bears all substantial risks and
rewards from use of the leased item are accounted for as capital
leases. Accordingly, the Group capitalizes the leased asset and
records the corresponding lease obligation on the balance sheet.
All other leasing agreements entered into by the Group, as a lessee,
are accounted for as operating leases whereby the lease payments
are expensed as incurred.
Leasing transactions whereby the Group is the lessor and transfers
substantially all of the benefits and risks incident to the ownership
of property, are accounted for as a sale or financing of the leased
asset. All other lease agreements entered into by the Group, as a
lessor, are accounted for as operating leases whereby the leased
asset remains on the Group’s balance sheet and is depreciated.
Scheduled lease payments are recorded as income when earned.