Mercedes 2004 Annual Report Download - page 123

The most significant assumptions used in its accounting for the
investment in Toll Collect relate to the launch date of the toll col-
lection system, the estimated cost to design and construct the
system, and the operation of the system. According to the Oper-
ating Agreement, the toll collection system was to be operational
no later than August 31, 2003. Delays in the expected launch
date of the toll collection system resulted in a loss of revenue for
Toll Collect and in payments of contractual penalties for delays.
In addition, cost overruns related to the design and construction
of the toll collection system that will not be reimbursed by the
Federal Republic of Germany resulted in additional losses.
On February 19, 2004, the Federal Republic of Germany sent an
advance notice of termination to the Toll Collect consortium. In
subsequent negotiations, on February 29, 2004, the consortium
members reached an agreement with the Federal Republic of
Germany to continue the Toll Collection project. According to the
additional agreement (supplement to the Operating Agreement) ,
notarized in April 2004, the Federal Republic of Germany and the
consortium members agreed on introducing toll collection on
January 1, 2005, with on-board units (“OBUs”) that allow for
slightly less than full technical performance in accordance with
the technical specification (start of phase 1). Subject to an exten-
sion of phase 1 up to one year under certain circumstances, the
toll collection system will be installed and operated with full
effectiveness as specified in the Operating Agreement no later
than January 1, 2006 (start of phase 2).
Penalties, revenue reductions and other provisions under the
supplement to the Operating Agreement and the Operating
Agreement itself are described in more detail below.
Revenue reductions and other provisions under the supple-
ment of the Operating Agreement:
– During phase 1, Toll Collect GmbH or the consortium will be
liable for any shortfall of net toll proceeds (i.e., excess of tolls
over the fees payable to Toll Collect GmbH) of the Federal
Republic of Germany. However, such liability will be limited to
€1 billion per year but in any event will not exceed €83.4 mil-
lion per month.
– Due to the slightly reduced technical functionality during phase
1, the Federal Republic of Germany will pay Toll Collect GmbH
only 95% of the fees which would otherwise be payable under
the Operating Agreement.
– However, if the total toll revenues received by the Federal
Republic of Germany from the toll collection system in any
month of operation during phase 1 are less than 80% of the
projected toll collection revenues for this month, the fees will
be subject to a sliding scale based on the actual toll revenues
collected. No fees will be paid if during phase 1 the revenues
collected for the respective month do not exceed 20% of the
projected toll collection revenues for this month plus €83.4 mil-
lion.
Penalties and revenue reductions under the Operating
Agreement. Failure to perform various obligations under the
Operating Agreement may result in penalties, additional revenue
reductions and damage claims that could become significant
over time. However, penalties and revenue reductions are capped
at €75 million per year during phase 1, at €56.25 million for the
first nine months following the end of phase 1, at €150 million
per year thereafter until the final operational permit has been
issued, and at €100 million per year following issuance of the
final operational permit. These cap amounts are subject to a 3%
increase for every year of operation. Contractual penalties, rev-
enue reductions and recourse claims in the case of third party
liability of the Federal Republic of Germany are not subject to the
liability cap of €1 billion per year in phase 1.
The Operating Agreement calls for submission of all disputes
related to the toll collection system to arbitration. The Federal
Republic of Germany has initiated arbitration proceedings against
DaimlerChrysler Services AG, Deutsche Telekom AG and the con-
sortium by serving an introductory writ. The Federal Republic of
Germany is seeking damages, including contractual penalties and
reimbursement of lost revenues, that allegedly arose from delays
in the operability of the toll collection system. See Note 31 for
additional information.
Each of the consortium members (including DaimlerChrysler Ser-
vices) have provided guarantees supporting the obligations of Toll
Collect GmbH towards the Federal Republic of Germany relating
to the completion and operation of the toll collection system,
which are subject to specific triggering events. In addition, Daim-
lerChrysler AG has guaranteed bank loans obtained by the con-
sortium. The guarantees are described in detail below:
– Guarantee of bank loan. DaimlerChrysler AG issued a guarantee
to third parties up to a maximum amount of €600 million,
which represents a 50% share of security to bank loans
obtained by the consortium.
– Guarantee of obligations. Towards the Federal Republic of Ger-
many the consortium members have jointly and severally guar-
anteed the obligations of Toll Collect GmbH resulting from the
operating agreement concerning the delivery and operation of
the toll collection system. This guarantee expires one year after
the successful launch of the completed toll collection system,
which is scheduled for January 1, 2006.
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