Mercedes 2002 Annual Report Download - page 142

136 |Other Notes
The Group assesses equity price risk by continually monitor-
ing changes in key economic, industry and market information
and maintains risk management control systems independent
of Corporate Treasury to monitor risks attributable to both
DaimlerChrysler’s investments as well as its offsetting hedge
positions. The risk control systems involve the use of analy-
tical techniques, including value-at-risk analyses, to estimate
the potential loss and support the risk management of the
Group’s investments.
Information with Respect to Fair Value Hedges
Gains and losses in fair value of recognized assets and liabi-
lities and firm commitments of operating transactions as well
as gains and losses on derivative financial instruments desig-
nated as fair value hedges of these recognized assets and
liabilities and firm commitments are recognized currently in
revenues or cost of sales, as the transactions being hedged
involve sales or production of the Group’s products. Net gains
and losses in fair value of both recognized financial assets
and liabilities and derivative financial instruments designated
as fair value hedges of these financial assets and liabilities
are recognized currently in financial income, net.
For the year ended December 31, 2002, net gains of 134
million (2001: net losses of 117 million) were recognized
in operating and financial income, net, representing principally
the component of the derivative instruments’ gain or loss
excluded from the assessment of hedge effectiveness and the
amount of hedging ineffectiveness.
Information with Respect to Cash Flow Hedges
Changes in the value of forward foreign currency exchange
contracts and currency options designated and qualifying as
cash flow hedges are reported in accumulated other compre-
hensive income. These amounts are subsequently reclassified
into operating income, in the same period as the underlying
transactions affect operating income. Changes in the fair val-
ue of derivative hedging instruments designated as hedges
of variability of cash flows associated with variable-rate long-
term debt are also reported in accumulated other comprehen-
sive income. These amounts are subsequently reclassified
into financial income, net, as a yield adjustment in the same
period in which the related interest on the floating-rate debt
obligations affect operating income.
For the year ended December 31, 2002, no gains or losses
(2001: net losses of 112 million), representing principally the
component of the derivative instruments’ gain/loss excluded
from the assessment of the hedge effectiveness and the
amount of hedge ineffectiveness, were recognized in operat-
ing and financial income, net.
For the year ended December 31, 2002, no gains or losses
(2001: gains of 11 million) had to be reclassified from accu-
mulated other comprehensive income into earnings as a result
of the discontinuance of cash flow hedges.
It is anticipated that 1517 million of net gains included in
accumulated other comprehensive income at December 31,
2002, will be reclassified into earnings during the next year.
As of December 31, 2002, DaimlerChrysler held derivative
financial instruments with a maximum maturity of 43 months
to hedge its exposure to the variability in future cash flows
from foreign currency forecasted transactions.
Information with Respect to Hedges of the Net Investment in
a Foreign Operation
In specific circumstances, DaimlerChrysler seeks to hedge
the currency risk inherent in certain of its long-term invest-
ments, where the functional currency is other than the euro,
through the use of derivative and non-derivative financial
instruments. For the year ended December 31, 2002, net
gains of 1127 million (2001: net gains of 153 million) hedging
the Group’s net investments in certain foreign operations
were included in the cumulative translation adjustment with-
out affecting DaimlerChrysler’s net income (loss).
33. Retained Interests in Sold Receivables and Sales of
Finance Receivables
The fair value of retained interests in sold receivables was as
follows:
In 2002, the Group recorded an impairment charge of 198
million on the retained interest in sold receivables resulting
from a decline in the expected pool by pool cash flows. This
decrease in cash flows was primarily the result of an increase
in the estimate of future credit losses.
At December 31, 2002, the significant assumptions used
in estimating the residual cash flows from sold receivables
and the sensitivity of the current fair value to immediate 10%
and 20% adverse changes are as follows:
(in millions of 3)2002
Fair value of estimated residual cash flows,
net of prepayments, from sold receivables,
before expected future net credit losses
Expected future net credit losses on
sold receivables
Fair value of net residual cash flows
from sold receivables
Restricted cash accounts
Retained subordinated securities
Retained interests in sold receivables,
at fair value
4,119
(644)
3,475
2
764
4,241
5,311
(787)
4,524
2
956
5,482
2001
At December 31,