Mercedes 2002 Annual Report Download - page 139

Other Notes |133
The Group periodically initiates voluntary service actions
and recall actions to address various customer satisfaction,
safety and emissions issues related to vehicles it sells. The
Group records a liability for product warranty, including
the estimated cost of these service and recall actions, when
the related sale is recognized based on historical experience
as to product failures as well as current information on repair
costs. The Group also enters into extended product warranty
arrangements in consideration for a separate arrangement
fee. The consideration received in extended product warranty
arrangements is deferred and amortized to revenue over the
term of the extended warranty period. Costs related to
extended product warranty services contracts are expensed
as incurred. The ultimate costs associated with product war-
ranty arrangements cannot be estimated due to numerous
uncertainties including the enactment of new laws and regu-
lations, the number of vehicles affected by service or recall
actions, and the nature of the corrective action which may
result in adjustments to the established liabilities (see Note
25b). In accordance with FIN 45, the obligations associated
with product warranties are not reflected in the above table.
In addition to the above guarantees and warranties, in
connection with certain production programs, the Group has
committed to purchase various levels of outsourced manufac-
tured parts and components over extended periods at market
prices. The Group has also committed to purchase or invest
in the construction and maintenance of various production
facilities. Amounts under these guarantees represent commit-
ments to purchase plant or equipment at market prices in the
future. As of December 31, 2002, commitments to purchase
outsourced manufactured parts and components or to invest
in plant and equipment are approximately 13.7 billion. These
amounts are not reflected in the above table.
The Group also enters into noncancellable operating leases
for facilities, plant and equipment. Total rentals under operat-
ing leases charged to expense in 2002 in the statement of
income (loss) amounted to 1737 million (2001: 1819 million;
2000: 1881 million). Future minimum lease payments under
noncancellable lease agreements which have initial or remain-
ing terms in excess of one year at December 31, 2002 are
as follows:
32. Information About Financial Instruments and
Derivatives
a) Use of Financial Instruments
The Group conducts business on a global basis in numerous
major international currencies and is, therefore, exposed to
adverse movements in foreign currency exchange rates. The
Group uses bonds, medium-term-notes, commercial paper and
bank loans in various currencies. As a consequence of using
these types of financial instruments, the Group is exposed to
risks from changes in interest and foreign currency exchange
rates. DaimlerChrysler holds financial instruments, such
as financial investments, variable- and fixed-interest bearing
securities and to a minor extent equity securities that subject
the Group to risks from changes in interest rates and market
prices. DaimlerChrysler manages the various types of market
risks by using derivative financial instruments. Without these
instruments the Group’s market risks would be higher.
DaimlerChrysler does not use derivative financial instruments
for purposes other than risk management.
Based on regulations issued by regulatory authorities for
financial institutions, the Group has established guidelines
for risk controlling procedures and for the use of financial
instruments, including a clear segregation of duties with
regard to operating financial activities, settlement, accounting
and controlling.
Market risks are quantified according to the “value-at-risk”
method which is commonly used among banks. Using
historical variability of market data, potential changes in value
resulting from changes of market prices are calculated on
the basis of statistical methods.
b) Fair Value of Financial Instruments
The fair value of a financial instrument is the price at which
one party would assume the rights and/or duties of another
party. Fair values of financial instruments have been determined
with reference to available market information at the balance
sheet date and the valuation methodologies discussed below.
Considering the variability of their value-determining factors,
the fair values presented herein are only an indication of the
amounts that the Group could realize under current market
conditions.
(in millions of 3)
2003
2004
2005
2006
2007
thereafter
581
348
275
214
191
1,074
Operating
leases