Mercedes 2008 Annual Report Download - page 162

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Furthermore, the Group retained additional rights with a fair
value of €0.2 billion at August 3, 2007, contingent upon the
occurrence of certain events in the future (e.g. residual values
for leased vehicles).
Daimler also holds a subordinated loan to Chrysler with a nomi-
nal amount of US $0.4 billion.
In addition, Daimler supported the financing of the transaction
by committing a credit line of US $1.5 billion of subordinated
debt for Chrysler’s automotive business; the entire credit line
was drawn in the second quarter of 2008.
The transaction contracted with Cerberus is subject to custom-
ary representations and warranties by the Group which could
require payments after closing for contingent liabilities that arose
prior to or in connection with the closing, e.g. for income taxes.
In 2008, Cerberus made claims in excess of the amount of its
investment which go beyond the agreed contractual obliga-
tions under representations and warranties in the contract.
Daimler believes the claims are without merit.
In connection with this transaction, Daimler agreed with the
Pension Benefit Guaranty Corporation to provide a guarantee of
up to US $1 billion to be paid to the Chrysler pension plans if
the plans terminate within five years of closing. In addition, certain
previously outstanding guarantees provided by the Group for
the benefit of Chrysler continue to be outstanding. In 2008 the
amount of those guarantees decreased, as expected, by €0.4
billion to €0.3 billion. As coverage of the liabilities underlying
these guarantees, Chrysler provided collateral to an escrow
account, which was reduced by €0.1 billion to €0.2 billion at
December 31, 2008.
In connection with the transaction, Daimler and Cerberus
entered into a number of ancillary agreements setting forth the
terms of future cooperation and service agreements in the
areas of manufacturing, research and development, distribution,
procurement and financial services.
The net profit or loss of the Chrysler activities is included in the
Group’s consolidated statements of income in the line item
net profit (loss) from discontinued operations for 2007 and 2006.
The Group ceased to depreciate or amortize the non-current
assets of the disposal group upon classification as assets and
liabilities held for sale on May 16, 2007.
In 2007, the assets and liabilities of the Chrysler activities were
derecognized following the consummation of the transaction on
August 3, 2007. The loss from the deconsolidation of €753
million is also included in the line item net profit (loss) from dis-
continued operations. In determining the loss from decon-
solidation, the Group used certain estimates.
The future tax benefits of temporary differences related to the
assets and liabilities of the transferred Chrysler activities contin-
ue to be available to Daimler with certain limitations. At the
closing date, the deferred tax assets with respect to these tem-
porary differences amounted to €2.0 billion. As a result of the
Chrysler transaction, the conditions to use these deferred taxes
changed; the necessary assessment of the recoverability of
these assets in the third quarter of 2007 led to a valuation
allowance of €2.0 billion. Furthermore, the Group had to
write off €0.2 billion on foreign tax credits. These expenses are
included in income tax expense from continuing operations
in the consolidated statement of income for 2007.
Daimler and its Chinese partner Beijing Automotive Industry
Holding Co. Ltd. (BAIC) each own a 50% equity interest in the
joint venture Beijing-Benz-DaimlerChrysler Automotive Co. Ltd.
(BBDC) which manufactures and distributes Mercedes-Benz pas-
senger cars and Chrysler vehicles in China. In connection
with the transfer of the majority interest in Chrysler in 2007,
Daimler, Chrysler and Cerberus agreed on a framework dea-
ling with the future business model at BBDC. Under the frame-
work agreement, the final terms of future cooperation at
BBDC with respect to the manufacturing of Chrysler vehicles
should be determined at a later point in time.
In June 2008, it was agreed, subject to consent by BAIC and
BBDC, that the manufacturing of Chrysler vehicles at BBDC
should be discontinued by the end of the existing license agree-
ments.
In this context, in December 2008, Daimler, BAIC and BBDC
entered into a contract, which determines that Daimler should be
responsible for certain costs related to Chrysler vehicles at
BBDC and reimburse such costs to BBDC, since they are directly
connected to the transfer of the majority interest in Chrysler.
The costs include in particular the impairment of plant and equip-
ment, the valuation of Chrysler inventories at BBDC and com-
pensation payments to suppliers and dealers. Daimler does not
obtain an additional interest in BBDC in exchange.
Therefore, Daimler recognized additional charges of €293 million
(before income taxes) in 2008 within “net profit (loss) from
discontinued operations.” An amount of €186 million was paid in
2008.