Mercedes 2008 Annual Report Download - page 205

Consolidated Financial Statements |Notes to Consolidated Financial Statements |201
For trade receivables from export business, Daimler also evalu-
ates each general distribution company’s creditworthiness by
means of an internal rating process and its country risk. In this
context, the year-end financial statements and other relevant
information of the general distribution companies are recorded
and assessed.
Depending on the creditworthiness of the general distribution
companies, Daimler usually limits credit risks by the following
types of collateral:
– credit insurances,
– first-class bank guarantees,
– letters of credit, and
– pledges.
These procedures are defined in the export credit guidelines,
which have Group-wide validity.
Appropriate provisions are recognized for the risks inherent
in trade receivables. For this purpose, all receivables are
regularly reviewed and impairments are recognized if there is
any objective indication of non performance or other con-
tractual violations. In general, material individual receivables
and receivables whose realizability is jeopardized are assessed
individually. Taking country-specific risks and any collateral into
consideration, the other receivables are grouped by similarity
of contract and tested for impairment collectively.
Further information on trade receivables and the status of
impairments recognized is provided in Note 17.
Derivative financial instruments. The Group does not use
derivative financial instruments for purposes other than risk
management. Daimler manages the credit risk exposure in
connection with derivative financial instruments through a limit
system, which is based on the review of each counterparty’s
financial strength. This system limits and diversifies the credit
risk. As a result, Daimler is exposed to credit risk only to a
low extent with respect to its derivative financial instruments.
Other receivables and financial assets. Other receivables and
financial assets include Chrysler related loans, receivables and
other assets, which were subject to impairment in 2008 (see also
Note 12). With respect to other receivables and financial assets,
Daimler is exposed to credit risk only to a low extent.
Liquidity risk
Liquidity risk comprises the risk that a company cannot meet
its financial obligations in full.
Daimler manages its liquidity by holding adequate volumes of
liquid assets and maintaining syndicated credit facilities in addi-
tion to the cash inflows generated by its operating business.
In general, Daimler makes use of a broad spectrum of financial
instruments to cover its funding requirements. Depending on
funding requirements and market conditions, Daimler issues
commercial paper, bonds and financial instruments secured
by receivables in various currencies. Credit lines are also used
to cover financing requirements. The funds raised are pri-
marily used to finance the cash needs of the lease and financing
business and the working capital and capital expenditure
requirements. According to internal guidelines, the refunding
of the lease and financing business is generally carried out
with matching maturities of cash flows.
At year-end 2008, the Group had short-term and long-term
credit lines totaling €22.7 billion, of which €8.5 billion was not
utilized. These credit lines include a syndicated US $5 billion
credit facility of Daimler AG. This facility will mature in December
2011. In order to bolster its group liquidity, Daimler signed a
new €3 billion 364-day credit facility with a syndicate of interna-
tional banks in October 2008. These facilities serve as a backup
for commercial paper drawings and provide funds for general
corporate purposes. At the end of 2008, neither of the facilities
was utilized.
From an operating point of view, the management of the Group’s
liquidity exposures is centralized by a daily cash pooling process.
This process enables Daimler to manage its liquidity surplus
and liquidity requirements according to the actual needs of the
Group and each subsidiary. The Group’s short-term and mid-
term liquidity management takes into account the maturities of
financial assets and financial liabilities and estimates of cash
flows from the operating business.
Information on the Group’s financing liabilities is also provided
in Note 23 to the consolidated financial statements.
At present, refinancing in particular with regard to large amounts
is only possible at significantly higher borrowing costs. In
the case of a continued negative trend in the financial markets
Daimler could be faced with ongoing high borrowing costs
and lower financial flexibility. Higher borrowing costs would have
an impact on the competitiveness and profitability of the
Group’s financial services business.