Mercedes 2008 Annual Report Download - page 84

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Other industry and business risks. Due to the issuance of
guarantees and Daimler’s equity interest in the system for
recording and charging tolls for the use of highways in Germany
by commercial vehicles of more than 12 metric tons gross vehi-
cle weight, we are exposed to a number of risks that could have
negative effects on the Group’s financial position, cash flows
and profitability. The operation of the electronic toll-collection
system is the responsibility of the operator company, Toll Collect
GmbH, in which Daimler holds a 45% stake and which is in-
cluded in the consolidated financial statements using the equity
method of accounting. In addition to Daimler’s membership of
the Toll Collect consortium and its equity interest in Toll Collect
GmbH, guarantees were issued supporting the obligations of
Toll Collect GmbH towards the Federal Republic of Germany con-
cerning the completion and operation of the toll system. Risks
can arise primarily as a result of lower tolls derived from the sys-
tem or the non-fulfillment of contractually defined parameters,
additional alleged offsetting claims by the Federal Republic of Ger-
many beyond such claims already made, or a refusal to grant
the final operating permit. Additional information on contingent
obligations from guarantees granted and on the electronic toll-
collection system and the related risks can be found in Note 27
(Legal proceedings) and Note 28 (Guarantees and other financial
commitments) of the Notes to the Consolidated Financial State-
ments.
Daimler bears in principle a proportionate share of the risks of
its associated and affiliated companies, in particular the risks
of EADS. For the associated and affiliated companies that the
Group includes in the consolidated financial statements using the
equity method, any factors with a negative impact on those
companies’ earnings have a proportionate negative effect on our
net profit. In addition, such factors can mean that impairment
losses have to be recognized on those equity holdings, with a cor-
responding impact on our income statement.
In the context of transferring a majority interest in Chrysler, the
Group accepted a guarantee for pension obligations in an amount
of US $1 billion. The guarantee will fall due if Chrysler’s pension
plans are terminated within five years of the transfer of the majority
interest.
Financial market risks
The Daimler Group is exposed to market risks from changes in
foreign currency exchange rates, interest rates, commodity prices
and share prices. Market risks may adversely affect Daimler’s
financial position, cash flows and profitability. The Group seeks
to monitor and manage these risks primarily through its regular
operating and financing activities and, if appropriate, through the
use of derivative financial instruments. As part of the risk mana-
gement process, Daimler regularly assesses these risks by con-
sidering changes in key economic indicators and market infor-
mation. Any market-sensitive instruments, including equity and
interest-bearing securities held in pension funds and other post-
retirement pension plans, are not included in the following analysis.
Exchange rate risks. The Daimler Group’s global reach means
that its business operations and financial transactions are
connected with risks arising from fluctuations of foreign exchange
rates, especially of the US dollar and other important currencies
against the euro. An exchange rate risks arises in the operating
business primarily when revenue is generated in a different
currency than the related costs (transaction risk). This applies
in particular to the Mercedes-Benz Cars division, as a major
portion of its revenue is generated in foreign currencies while
most of its production costs are incurred in euros. The Daimler
Trucks division is also exposed to such transaction risks, but only
to a minor degree because of its worldwide production network.
Currency exposures are gradually hedged with suitable financial
instruments, predominantly foreign exchange forwards and
currency options, in accordance with exchange rate expectations,
which are constantly reviewed. Exchange rate risks also exist
in connection with the translation into euros of the net assets,
revenues and expenses of the companies of the Group outside
the euro zone (translation risk); these risks are not hedged.