Mercedes 2010 Annual Report Download - page 237

Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 233
Trade receivables. Trade receivables are mostly receivables
from worldwide sales activities of vehicles and spare parts. The
credit risk from trade receivables encompasses the default
risk of customers, e.g. dealers and general distribution companies,
other corporate and private customers. Daimler manages
its credit risk from trade receivables on the basis of internal
guidelines.
A significant part of the trade receivables from each country’s
domestic business is secured by various country-specific
types of collateral. These types include, for instance, conditional
sales, guarantees and sureties as well as mortgages and cash
deposits. In addition, Group companies guard against credit risk
via credit assessments.
For trade receivables from export business, Daimler also evaluates
each general distribution company’s creditworthiness by means
of an internal rating process and its country risk. In this context,
the year-end financial statements and other relevant information
on the general distribution companies such as the payment history
are used and assessed.
Depending on the creditworthiness of the general distribution
companies, Daimler usually establishes credit limits and limits
credit risks with the following types of collateral:
– credit insurances,
– first-class bank guarantees and
– letters of credit.
These procedures are defined in the export credit guideline,
which has Group-wide validity.
Appropriate provisions are recognized for the risks inherent in
trade receivables. For this purpose, all receivables are regularly
reviewed and impairments are recognized if there is any ob-
jective indication of non-performance or other contractual viola-
tions. In general, material individual receivables and receivables
whose realizability is jeopardized are assessed individually. Taking
country-specific risks and any collateral into consideration,
the other receivables are grouped by similarity of contract and
tested for impairment collectively.
Further information on trade receivables and the status of
impairments recognized is provided in Note 19.
Derivative financial instruments. The Group does not use
derivative 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.
According to the Group’s risk policy, most derivatives are
contracted with counterparties who have an external rating
of “A” or better.
Other receivables and financial assets. With respect to other
receivables and financial assets in 2009 and 2010, 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.
The liquid assets comprise 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 funding requirements and market conditions, Daimler issues
commercial paper, bonds and financial instruments secured
by receivables in various currencies. Credit lines are also used
to cover financing requirements. In addition, customer deposits
at Mercedes-Benz Bank have been used as a further source
of refinancing. The funds raised are primarily used to finance the
cash needs of the lease and financing business as well as
working capital and capital expenditure requirements. According
to internal guidelines, the refunding of the lease and financing
business is generally carried out with matching maturities of
cash flows.
At year-end 2010 liquidity amounted to €13.0 billion (2009:
€16.1 billion). In light of the financial and economic crisis
and the resulting risks, the Group deliberately increased its
liquidity in 2009.