Mercedes 2006 Annual Report Download - page 213

The Group also enters into non-cancelable operating leases for
facilities, plant and equipment. Total rentals under operating
leases charged to expense in 2006 in the statement of income
amounted to €960 million (2005: €946 million; 2004: €902
million). Future minimum lease payments under non-cancelable
lease agreements as of December 31, 2006 are as follows:
Future payments to be received from the subleasing of these
facilities, plant and equipment to third parties total €275 million.
In 2006, DaimlerChrysler sold the real estate of its former head-
quarters in Stuttgart-Möhringen to IXIS Capital Partners Ltd. for
€240 million in cash. At the same time, DaimlerChrysler entered
into a leaseback arrangement for the properties sold with
non-cancelable lease periods ranging from ten to fifteen years.
At the end of the non-cancelable lease term, DaimlerChrysler
has renewal options for up to nine years. The lease payments are
adjusted based on the German consumer price index and are
included in the above table.
In 2003, DaimlerChrysler signed an agreement with the City of
Hamburg, Germany, a holder of approximately 6% of the common
shares of DaimlerChrysler Luft- und Raumfahrt Holding Aktien-
gesellschaft (“DCLRH”), a majority-owned subsidiary of the Group.
Pursuant to the terms of the agreement and upon execution
of the agreement, DaimlerChrysler holds a call option for the City’s
interest in DCLRH, exercisable on or after January 1, 2005,
and the City of Hamburg holds a put option exercisable at the
earlier of October 1, 2007, or upon the occurrence of certain
events which are solely within the control of DaimlerChrysler.
DaimlerChrysler believes the likelihood that these certain
events will occur is remote. Upon exercise of either option, the
City of Hamburg would have received a minimum consideration
of its interest in DCLRH of €450 million in cash or shares of EADS
or a combination of both. The agreement was amended in July
2004 with respect to the exercise price of the put option, so that
the City of Hamburg may only put its interest in DCLRH to the
Group for €450 million in cash. As a consideration for the amend-
ment, the City of Hamburg is entitled to receive an additional
payment upon execution of the option equal to 10% of the appre-
ciation of EADS shares in excess of a share price of €21 up to
a share price of €26.
Several major tier-one automotive suppliers have initiated
bankruptcy proceedings and continue to face financial difficulties.
Interruption in the supply of components from any of those
suppliers, in particular Collins & Aikman, Delphi Corporation and
Automotive Group ISE, would disrupt the production of certain
vehicles of DaimlerChrysler. Various vehicle manufacturers, includ-
ing DaimlerChrysler, have provided financial support to such
suppliers to avoid prolonged interruptions. DaimlerChrysler has
provided financial support to Collins & Aikman since 2005,
including €83 million for 2006 of which €66 million have negative-
ly impacted operating profit. Daimler Chrysler expects to pro-
vide additional financial support in 2007. DaimlerChrysler also
expects to provide financial support to other financially dis-
tressed suppliers in future.
32. Information about financial instruments and derivatives
a) Use of financial instruments
The Group conducts business on a global basis in numerous
international currencies and is therefore exposed to fluctuations
in foreign currency exchange rates. In addition, the Group uses
for example, bonds, medium-term-notes, commercial paper and
bank loans in various currencies to finance its operations,
especially its leasing and sales financing business. 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 also holds financial
instruments, such as money market investments, variable- and
fixed-interest bearing securities, and to a lesser extent, equity
securities for managing excess liquidity that subject the Group
to risks from changes in interest rates and market prices.
DaimlerChrysler manages the various types of market risks
by using, for example derivative financial instruments.
In addition, equity investments in publicly traded companies
also expose the Group to equity price risk, which, if deemed
appropriate, DaimlerChrysler hedges through the use of derivative
financial instruments. Without these derivative financial
instruments the Group’s exposure to these 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
controlling procedures and for the use of financial instruments,
including a clear segregation of duties with regard to operating
financial activities, settlement, accounting and controlling of
financial instruments.
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 in market prices are calculated on the basis of
statistical methods.
Consolidated Financial Statements | Other Notes | 197
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after
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Future mini-
mum lease
payments
(in millions of €)