Mercedes 2003 Annual Report Download - page 164
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Commercial Commitments. In addition to the above guarantees
and warranties, in connection with certain production programs,
the Group has committed to purchase various levels of outsourced
manufactured parts and components over extended periods at
market prices. The Group has also committed to purchase or invest
in the construction and maintenance of various production facili-
ties. Amounts under these guarantees represent commitments to
purchase plant or equipment at market prices in the future. As of
December 31, 2003, commitments to purchase outsourced manu-
factured parts and components or to invest in plant and equipment
are approximately €8.8 billion. These amounts are not reflected in
the above table.
The Group also enters into noncancellable operating leases for
facilities, plant and equipment. Total rentals under operating leases
charged to expense in 2003 in the statement of income (loss)
amounted to €747 million (2002: €737 million; 2001: €819 million).
Future minimum lease payments under noncancellable lease
agreements as of December 31, 2003 are as follows:
32. Information About Financial Instruments and Derivatives
a) Use of Financial Instruments
The Group conducts business on a global basis in numerous major
international currencies and is, therefore, exposed to adverse
movements in foreign currency exchange rates. The Group uses
among others bonds, medium-term-notes, commercial paper and
bank loans in various currencies. As a consequence of using these
types of financial instruments, the Group is exposed to risks from
changes in interest and foreign currency exchange rates. Daimler-
Chrysler holds financial instruments, such as financial investments,
variable- and fixed-interest bearing securities and to a minor extent
equity securities that subject the Group to risks from changes in
interest rates and market prices. DaimlerChrysler manages the var-
ious types of market risks by using among others derivative finan-
cial instruments. Without these instruments the Group’s market
risks would be higher. DaimlerChrysler does not use derivative
financial instruments for purposes other than risk management.
Based on regulations issued by regulatory authorities for financial
institutions, the Group has established guidelines for risk control-
ling procedures and for the use of financial instruments, including
a clear segregation of duties with regard to operating financial
activities, settlement, accounting and controlling.
Market risks are quantified according to the “value-at-risk”
method which is commonly used among banks. Using historical
variability of market data, potential changes in value resulting from
changes of market prices are calculated on the basis of statistical
methods.
To a minor degree, DaimlerChrysler is also exposed to market price
risks associated with the purchase of certain commodities. When
we deem it necessary, DaimlerChrysler uses derivative instruments
to reduce this risk. The risk resulting from derivative commodity
instruments is not significant to the Group.
b) Fair Value of Financial Instruments
The fair value of a financial instrument is the price at which one
party would assume the rights and/or duties of another party. Fair
values of financial instruments have been determined with refer-
ence to available market information at the balance sheet date and
the valuation methodologies discussed below. Considering the vari-
ability of their value-determining factors, the fair values presented
herein are only an indication of the amounts that the Group could
realize under current market conditions.
The carrying amounts and fair values of the Group’s financial
instruments are as follows:
The methods and assumptions used to determine the fair values of
financial instruments are summarized below:
Financial Assets and Securities. The fair values of securities
were estimated using quoted market prices. The Group has certain
equity investments in related and affiliated companies not presen-
ted in the table, as these investments are not publicly traded and
determination of fair values is impracticable.
(in millions of €)
there-
after
20082007200620052004
554 334 267 206 189 918
Operating
leases
(in millions of €)
Fair
value
Carrying
amount
Fair
value
Carrying
amount
At December 31,
2002
At December 31,
2003
1,870
52,088
3,293
9,130
5
79,283
1,759
3,776
105
302
1,870
52,622
3,293
9,130
5
84,032
1,759
3,776
105
302
1,631
52,638
3,268
11, 017
–
75,690
2,380
3,695
267
163
1,631
53,919
3,268
11, 017
–
77,993
2,380
3,695
267
163
Financial instruments
(other than derivative instruments):
Assets:
Financial assets
Receivables from
financial services
Securities
Cash and cash equivalents
Other receivables
Liabilities:
Financial liabilities
Derivative instruments:
Assets:
Currency contracts
Interest rate contracts
Liabilities:
Currency contracts
Interest rate contracts