Mercedes 1998 Annual Report Download - page 107

103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies are presented at their
contractual values and include the following: 19971998
At December 31,
Contingent liabilities principally represent guarantees of
indebtedness of non-consolidated affiliated companies and
third parties and commitments by Group companies as to
contractual performance by joint venture companies.
DaimlerChrysler Aerospace is also obligated to make certain
guaranteed dividend payments to minority shareholders.
DaimlerChrysler is subject to potential liability under
government regulations and various claims and legal actions
which are pending or may be asserted against
DaimlerChrysler concerning environmental matters. Estimates
of future costs of such environmental matters are inevitably
imprecise due to numerous uncertainties, including the
enactment of new laws and regulations, the development and
application of new technologies, the identification of new sites
for which DaimlerChrysler may have remediation
responsibility and the apportionment and collectibility of
remediation costs among responsible parties.
DaimlerChrysler establishes reserves for these environmental
matters when a loss is probable and reasonably estimable. It is
reasonably possible that the final resolution of some of these
matters may require DaimlerChrysler to make expenditures, in
excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably
estimated. Although the final resolution of any such matters
could have a material effect on DaimlerChrysler’s consolidated
operating results for the particular reporting period in which
an adjustment of the estimated reserve is recorded,
DaimlerChrysler believes that any resulting adjustment should
not materially affect its consolidated financial position.
DaimlerChrysler periodically initiates voluntary service
actions and recall actions to address various customer
satisfaction, safety and emissions issues related to vehicles it
sells. DaimlerChrysler establishes reserves for product
warranty, including the estimated cost of these service and
recall actions, when the related sale is recognized. The
estimated future costs of these actions is based primarily on
prior experience. Estimates of the future costs of these actions
are inevitably imprecise due to numerous uncertainties,
including the enactment of new laws and regulations, the
number of vehicles affected by a service or recall action, and
the nature of the corrective action which may result in
adjustments to the established reserves. It is reasonably
possible that the ultimate cost of these service and recall
Guarantees 2,449 2,107
Notes payable 103 100
Contractual guarantees 500 829
Pledges of indebtedness of others 307 186
3,359 3,222
actions may require DaimlerChrysler to make expenditures, in
excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated.
Although the ultimate cost of these service and recall actions
could have a material effect on DaimlerChrysler’s consolidated
operating results for the particular reporting period in which
an adjustment of the estimated reserve is recorded,
DaimlerChrysler believes that any such adjustment should not
materially affect its consolidated financial position.
In connection with the development of aircraft,
DaimlerChrysler Aerospace Airbus GmbH (“DA”) is committed
to Airbus Industrie to incur future development costs. At
December 31, 1998, the remaining commitment not recorded in
the financial statements aggregated € 316.
Airbus Industries G.I.E. (“Airbus consortium”) has given a
performance guarantee to Agence Executive, the French
government agency overseeing Airbus; such performance
guarantee has been assumed by DA to the extent of its 37.9%
participation in the Airbus consortium.
At December 31, 1998, in connection with DA’s participation in
the Airbus consortium, DA was contingently liable related to
the Airbus consortium’s irrevocable financing commitments in
respect of aircraft on order, including options, for delivery in
the future. In addition, DA was also contingently liable related
to credit guarantees and participations in financing receivables
of the Airbus consortium under customer finance programs.
When entering into such customer financing commitments, the
Airbus consortium has generally established a secured position
in the aircraft being financed. The Airbus consortium and DA
believe that the estimated fair value of the aircraft securing
such commitments would substantially offset any potential
losses from the commitments. Based on experience, the
probability of material losses from such customer financing
commitments is considered remote.
DA’s obligations under the foregoing financing commitments of
the Airbus consortium are joint and several with its other
partners in the consortium. In the event that Airbus, despite
the underlying collateral, should be unable to honor its
obligations, each consortium partner would be jointly and
severally liable to third parties without limitation. Between the
consortium partners, the liability is limited to each partner’s
proportionate share in Airbus.