Mercedes 2003 Annual Report Download - page 108
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Please find page 108 of the 2003 Mercedes annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Financial Reporting |Overview | Analysis of the Financial Situation | Statement by the Board of Management | Independent Auditors’ Report | Financial Statements
The effects of transaction risks on operating profit for the year
2003 were of minor significance compared with the prior year due
to derivative currency-hedging transactions. If the current relative
strength of the euro against other, for the Group crucial currencies
continues for a longer period or if the euro continues to climb, this
could have a negative effect on the Group’s profitability and
financial situation, particularly beginning from the year 2005.
Asset and liability management. DaimlerChrysler holds a variety
of interest rate sensitive assets and liabilities to manage its liqui-
dity and cash needs of the day-to-day operations. A substantial
volume of interest rate sensitive assets and liabilities is related
to the leasing and sales financing business operated by
DaimlerChrysler Services. The leasing and sales financing business
enters into transactions with customers which primarily result in
fixed-rate receivables. DaimlerChrysler’s general policy is to match
funding in terms of maturities and interest rates. However, for a
limited portion of the receivables portfolio, the funding does not
match in terms of maturities and interest rates. As a result,
DaimlerChrysler is exposed to risks due to changes in interest
rates.
DaimlerChrysler coordinates funding activities of the industrial
business and financial services at the Group level. It uses interest
rate derivative instruments, such as interest rate swaps, forward
rate agreements, swaptions, caps and floors, to achieve the
desired interest rate maturities and asset/liability structures.
The following table shows value-at-risk figures for Daimler-
Chrysler’s 2003 and 2002 portfolio of interest-rate sensitive
financial instruments. We have computed the average exposure
based on an end-of-quarter basis.
In 2003, the average and period-end value-at-risk of our portfolio of
interest rate sensitive financial instruments decreased, primarily
due to less volatile interest rates and a reduced mismatch in terms
of interest rate maturities between both the receivables from the
Group’s leasing and sales financing business and the respective
funding of that business.
Ratings. In the year 2003, DaimlerChrysler commissioned “Fitch
Ratings” to determine a long-term and a short-term rating for the
Group. This was based on the fact that in recent years “Fitch
Ratings” has established itself internationally along with “Standard
& Poor’s” and “Moody’s Investors Service” as the world’s third
most important rating agency. The initial ratings announced in July
2003 were BBB+ for the long-term rating with a stable outlook and
F2 for the short-term rating.
Due in particular to the (in the opinion of “Standard & Poor’s”)
worsened outlook for Chrysler Group as a result of tougher
competition in the US market, “Standard & Poor’s” downgraded
DaimlerChrysler’s long-term rating from BBB+ to BBB on October
21, 2003, the outlook remained at negative. “Standard & Poor’s”
short-term rating also remained unchanged at A-2.
“Moody’s Investors Service” long-term rating remained at A3 with
a negative outlook in 2003; its short-term rating was also
unchanged at P-2.
In addition, the Canadian based “Dominion Bond Rating Service”
assigned to DaimlerChrysler a long-term rating of A(low) and a
short-term rating of R-1(low).
The downgrading of individual ratings could lead to an increase in
the cost of capital.
Legal Proceedings. Various legal proceedings are pending against
the Group. DaimlerChrysler believes that such proceedings in the
main constitute ordinary routine litigation incidental to our
business.
Various legal proceedings pending against our subsidiary
DaimlerChrysler Corporation allege defects in various components
(including occupant restraint systems, seats, brake systems, ball
joints and fuel systems) in several different vehicle models or
allege design defects relating to vehicle stability (rollover
propensity), pedal misapplication (sudden acceleration), brake
transmission shift interlock, or crashworthiness. Some of these
proceedings are filed as class action lawsuit that seek repair or
replacement of the vehicles or compensation for their alleged
reduction in value, while others seek recovery for personal injuries.
Adverse decisions in these proceedings could require Daimler-
Chrysler Corporation to pay substantial compensatory and punitive
damages, or undertake service actions, recall campaigns or other
costly actions.
In millions of €
Value-at-Risk
Average
for
2003
12.31.
2003
Average
for
2002
148157 185115
12.31.
2003
Interest-rate-sensitive
financial instruments