Mercedes 2004 Annual Report Download - page 160

The Group also enters into noncancellable operating leases for
facilities, plant and equipment. Total rentals under operating
leases charged to expense in 2004 in the statement of income
(loss) amounted to €902 million (2003: 747 million; 2002: €737
million). Future minimum lease payments under noncancellable
lease agreements as of December 31, 2004 are as follows:
33. 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, commer-
cial paper and bank loans in various currencies. As a conse-
quence of using these types of financial instruments, the Group
is exposed to risks from changes in interest and foreign currency
exchange rates. DaimlerChrysler holds financial instruments,
such as financial investments, variable- and fixed-interest bearing
securities and to a lesser extent equity securities that subject the
Group to risks from changes in interest rates and market prices.
DaimlerChrysler manages the various types of market risks
by using among others derivative financial 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 con-
trolling 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.
DaimlerChrysler is also exposed to market price risks associated
with the purchase of commodities. To a minor degree, Daimler-
Chrysler uses derivative instruments to reduce market price
risks. The risk resulting from derivative commodity instruments is
not significant to the Group.
The contract volumes at December 31 of derivative financial
instruments used for hedging currency- and interest rate risks
are shown in the table below. The contract or notional amounts
do not always represent amounts exchanged by the parties and,
thus, are not necessarily a measure for the exposure of Daimler-
Chrysler through its use of derivatives.
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
reference to available market information at the balance sheet
date and the valuation methodologies discussed below. Consider-
ing the variability 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 fair value of derivative instruments classified as assets are
included in other assets (see Note 19). The fair value of
derivative instruments classified as liabilities are included in
other accrued liabilities (see Note 25b).
The methods and assumptions used to determine the fair values
of financial instruments are summarized below:
156
(in millions of €)
2004
20,226
38,313
25,366
31,577
2003
At December 31,
Currency contracts
Interest rate contracts
(in millions of €)
Fair
value
Carrying
amount
Fair
value
Carrying
amount
At December 31,
2003
At December 31,
2004
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
1,610
56,785
3,884
7,771
76,620
1,287
2,667
152
196
1,610
57,558
3,884
7,771
78,594
1,287
2,667
152
196
Financial instruments
(other than derivative instruments):
Assets:
Financial assets
Receivables from
financial services
Securities
Cash and cash equivalents
Liabilities:
Financial liabilities
Derivative instruments:
Assets:
Currency contracts
Interest rate contracts
Liabilities:
Currency contracts
Interest rate contracts
(in millions of €)
there-
after
20092008200720062005
583 425 343 286 254 1,099
Operating leases