Mercedes 2009 Annual Report Download - page 240

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Derivative financial instruments. The Group does not use deriva-
tive 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 included 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
in 2009, 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 addition
to the cash inflows generated by its operating business. These
liquid assets comprise in particular cash and cash equivalents as
well as debt instruments classified as held for sale. The Group
can dispose of these liquid assets at short notice.
In general, Daimler makes use of a broad spectrum of financial
instruments to cover its funding requirements. Depending on fund-
ing requirements and market conditions, Daimler issues com-
mercial paper, bonds and financial instruments secured by receiv-
ables in various currencies. Credit lines are also used to cover
financing requirements. In addition, significantly increased cus-
tomer deposits at Mercedes-Benz Bank in 2009 were used as a
further source of refinancing. The funds raised are primarily 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 maturi-
ties of cash flows.
In light of the financial and economic crisis and the resulting
risks, the Group deliberately increased its liquidity in 2009 to
€16.1 billion (December 31, 2008: €8.0 billion). The high level
of liquidity will tend to decrease again in 2010, depending on the
development of the economic environment.
At year-end 2009, the Group had short-term and long-term credit
lines totaling €21.1 billion, of which €8.0 billion was not utilized.
These credit lines include a syndicated US $4.9 billion credit facili-
ty of Daimler AG. This facility will mature in December 2011.
In October 2009 the Group replaced the maturing syndicated
€3 billion 364-day facility with a new €3 billion 2-year-credit-
facility with a syndicate of international banks. These two syndi-
cated facilities serve as a back-up for commercial paper
drawings and provide funds for general corporate purposes.
At the end of 2009, both facilities were unused.
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.
Despite the ongoing financial market crisis in 2009, Daimler had
adequate access to the capital markets. High borrowing costs
at the beginning of 2009 decreased significantly for the Daimler
Group as the year progressed. In the case of a renewed negative
trend in the financial markets, Daimler could again be faced with
increasing 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.