E_mg_GB_03_vorne-29_3_04

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152 Section 307 (I) of the HGB states that minority interests must be reported as a component of shareholders’ equity. Minority interests are also contained in the Group’s net income or loss for the year. Under U.S. GAAP, however, minority interests are reported not under shareholders’ equity, but separately between equity and debt capital. Consequently, minority interests must be recognized as a separate income or expense item before the consolidated net income or loss. Differences in Accounting Policies and Reporting Reinstatement of Original Values for Long-Lived Assets If an asset has been written down due to impairment pursuant to section 253 (II) and (III) of the HGB, the requirement to reinstate its original value under section 280 (I) of the HGB states that this value may not be retained if the reasons for the write-down no longer apply at a later balance sheet date. In such cases, the asset must be written up. Under U.S. GAAP, the carrying amount of a long-lived asset has to be tested for impairment if events or changed circumstances indicate that the asset’s carrying amount may exceed its fair value. Impairment is measured by comparing the estimated future discounted pre-tax cash flows of the related asset to its carrying amount. SFAS 144 (‘Accounting for the Impairment or Disposal of Long- Lived Assets’) states that original values may not be reinstated even if the reasons for such a writedown no longer apply. Leases The accounting treatment of leases is not explicitly stated in the HGB. As a rule, we have therefore based our accounting treatment on the tax authorities’ pronouncements on leases, which state that leased assets should generally be capitalized by the lessor. U.S. GAAP contain detailed rules on the recognition of leases, especially SFAS 13 (‘Accounting for Leases’). These distinguish between capital leases and operating leases, depending on who bears the main risks and derives the main opportunities arising from use of the leased assets and is therefore deemed to be the beneficial owner. With capital leases, the lessee, as beneficial owner, has to capitalize the leased assets, while the lessor has to carry them as an asset in the case of operating leases. Valuation of Inventories Inventories are reported at cost. Section 255 (II) of the HGB states that manufacturing costs may include not just compulsory items such as direct material and production costs and specific manufacturing costs, but also attributable manufacturing overheads and administrative costs, depreciation, and the cost of certain social benefits. By contrast, U.S. GAAP (ARB 43) state that, in addition to direct costs, production-related overheads, depreciation, and production-related administrative costs have to be recognized as part of manufacturing cost.
MANAGEMENT SHARE STRATEGY SPECIAL SECTION MANAGEMENT REPORT FINANCIAL STATEMENTS FURTHER INFORMATION Consolidated Balance Sheets • Statements of Income • Statements of Cash Flows • Statements of Changes in shareholders’ Equity • Fixed Assets Schedule • Notes • Independent Auditors’ Report Long-Term Construction Contracts Long-term construction-type contracts are those that take at least six months to complete, calculated from the date when the contract is awarded until the point at which the contract has essentially been completed. For long-term construction contracts, the HGB and Germany’s generally accepted accounting principles basically only permit profits to be realized once the entire contract has been supplied and accepted or partially billed, i.e. not until contractually agreed delivery has been largely completed and the residual risks are insignificant (completed-contract method). U.S. GAAP (SOP 81-1 and ARB 45), however, allow profits on long-term contracts to be partially recognized prior to completion, provided a sufficiently reliable computation of the total proceeds, aggregate costs, and percentage of completion is possible. The percentage of completion is defined within the Group as the ratio of contract costs incurred at fiscal year-end to total estimated costs for the entire contract (cost-to-cost method). Marking-to-Market The imparity principle of the HGB states that unrealized losses have to be accounted for, but not unrealized profits. Under U.S. GAAP, however, unrealized profits are also reported, which is reflected in the following items: Under the HGB, assets and liabilities denominated in foreign currency are valued at the lower of cost or market at the balance sheet date. Under U.S. GAAP SFAS 52 (‘Foreign Currency Translation’), however, all assets and liabilities denominated in foreign currency have to be translated at their market rate at the balance sheet date, so that unrealized profits are recognized in income. While under the HGB, securities are accounted for at the lower of cost or market at the balance sheet date, their accounting treatment under U.S. GAAP (SFAS 115 ‘Accounting for Certain Investments in Debt and Equity Securities’) depends on their classification. Available-for-sale securities are always reported at fair value at the balance sheet date, with adjustments resulting from this mark-to-market valuation being recorded as other comprehensive income unless an impairment is not merely temporary. Trading securities, which are held solely for dealing or speculative purposes, are reported at fair value at the balance sheet date and recognized in income. Held-to-maturity securities are reported at amortized cost under U.S. GAAP. Factoring and ABS Transactions For accounting treatment under the German Commercial Code, statement IdW RS HFA 8 of October 1, 2002 stipulates with respect to ABS and similar transactions that assets sold are no longer to be reported on the seller’s balance sheet only if beneficial ownership of these assets has passed to the buyer. The decisive criterion for determining whether beneficial ownership has passed to the buyer is whether the latter bears the credit risk attaching to the assets. Under U.S. GAAP, however, sales of assets reduce the carrying amount of assets if the seller has relinquished control over the assets sold. Under SFAS 140 (‘Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities’), this is the case if the following three conditions are met: the seller and its creditors no longer have access to the receivables (isolation); the buyer can pledge or exchange the receivables; and the seller no longer has any (effective) power of disposal over the receivables owing to a right to repurchase them. 153
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“2003 was a year of transition fo
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Consolidated Key Figures 2003 RESUL
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Creating freedom for action CONTENT
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MANAGEMENT SHARE STRATEGY SPECIAL S
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zation As the world’s population
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The pharmaceutical industry will co
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Milk Last year, over 160 million co
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The MODUL tablet press produced by
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For a technology-driven organizatio
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mg's mission is to ensure sustainab
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Page 185: Key Figures for the mg Group RESULT
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