Mercedes 2009 Annual Report Download - page 194

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Moreover, the settlement agreement provides for the forgiveness
of Daimler’s receivables in connection with a subordinated loan
and a credit line for Chrysler’s automotive business which was
drawn in 2008. The Group provided the credit line in connection
with the transaction contracted on August 3, 2007. The nominal
amounts of these receivables, which were fully impaired at
December 31, 2008, were US $0.4 billion and US $1.5 billion.
However, the forgiveness of the US $1.5 billion second lien
loan by Daimler was subject to the condition that certain unse-
cured creditors of Chrysler, represented by a committee under
US bankruptcy law, will not bring litigation against Daimler in the
course of the current Chrysler bankruptcy proceedings. In the
third quarter 2009, the committee of the unsecured creditors filed
a complaint with the bankruptcy court. In consequence, the
forgiveness was rescinded (see also Note 27).
The contractual agreements described above negatively impact-
ed 2009 EBIT by €379 million; these results are included in the
reconciliation of total segments’ EBIT to Group EBIT.
In connection with the legal transfer of Chrysler’s international
sales activities to Chrysler in the first quarter of 2009 and due to
the valuation of Chrysler-related assets, the Group recorded a
total gain before income taxes of €85 million in 2009. This gain is
included in the reconciliation of total segments’ EBIT to Group
EBIT in the segment reporting.
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 dealing with the
future business model at BBDC. Under the framework 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 agreements.
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 con-
nected to the transfer of the majority interest in Chrysler. The
costs include in particular the impairment of plant and equipment,
the valuation of Chrysler inventories at BBDC and compensation
payments to suppliers and dealers. Daimler does not obtain an
additional interest in BBDC in exchange.
Therefore, in 2007 and 2008, Daimler recognized charges of
€103 million and €293 million, respectively, (before income tax-
es) within “Net profit (loss) from discontinued operations” to
record an estimated total cost of €396 million. An amount of €42
million was paid in 2009 (2008: €186 million). Furthermore,
estimated costs were partially offset with gains from the ongoing
Mercedes-Benz passenger cars business at BBDC. The Group
expects the remaining amount of the provisions of €174 million
(after currency translation) to be cash effective in 2010.
The net profit or loss of the Chrysler activities is included in the
Group’s consolidated statement of income (loss) in the line item
“Net profit (loss) from discontinued operations” for 2007. 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
discontinued operations.”
The future tax benefits of temporary differences related to the
assets and liabilities of the transferred Chrysler activities continue
to be available to Daimler with certain limitations. At the closing
date of the Chrysler transaction, the deferred tax assets with
respect to these temporary 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.