Mercedes-Benz Group AG | Annual Report 1994

Automotive | Mercedes-Benz Group AG

People are our future

Success is essential to our corporate future. It is achieved

through the efforts of our employees. At a time of dramatically

intensified international competition, the company that can

count on an enthusiastic, motivated staff has the advantage.

These are simple truths, but not self-evident, in times of

personnel cutbacks and lean structures.

For the employees of the Daimler-Benz group, ideals and

demands have undergone far-reaching change in recent years.

Not spectacular, not coincidental, but a conscious adjustment

to totally new conditions. It was and still is the task of corporate

management to support this process by visibly and permanently

strengthening the premises for initiative and corporate thinking.

Contents

The Corporate Principles of

Daimler-Benz

The presentation of this year's annual report is a welcome

occasion for us to point this out once again.

Daimler-Benz Highlights

Letter to the Stockholders

and Friends of our Company

Board of Management

Report of the

Board of Management

Business Review

The Corporate Units at a Glance

Operating Activities of the Group

Central Corporate Functions

The Daimler-Benz Share

Discussion and Analysis of the

Financial Situation

Financial Statements

Proposal for the Allocation of

Unappropriated Profit

Supervisory Board

Report of the Supervisory Board

Executive Management and

Daimler-Benz Group Representation

and Liaison Offices

Principal Subsidiaries and

Affiliated Companies

Daimler-Benz in Figures

The Corporate Principles of Daimler-Benz

Our work at Daimler-Benz serves

people and their environment. We

aim to offer the world's most advanced

products, systems and services.

We aim to learn better and faster

than our competitors. To achieve

this, we need not only flexible organiza•

tional structures but also employees

who think entrepreneurially.

Our core businesses include vehicles

for passenger and freight transportation,

rail systems, aerospace, propulsion

systems, defense systems, automation,

energy systems technology and inform•

ation-technology services. In these

areas, Daimler-Benz strives to be a

world leader.

This requires a continual commit•

ment to technical, business and social

innovation as well as a corporate culture with a sense of responsibility, inde•

characterized not by complacency, but

by creative unrest.

Key to our success are employees

pendence, creativity, drive, teamwork

and openness to new ideas. We there•

Furthermore, we are active in

In a world increasingly complex, with fore promote every employee's personal

promising opportunities - but also risks - development to the best of our abilities.

even minor events can take on conse•

certain specialized areas, such as

applied microelectronics, selected

financial services, and countertrading,

where we aim to be highly competitive.

To a great extent, these activities inter•

link our core business areas.

Each of our business areas falls

under the responsibility of one of our

four corporate units. Thus, Mercedes-

Benz, AEG Daimler-Benz Industrie,

Daimler-Benz Aerospace and Daimler-

Benz InterServices (debis) work together

under the umbrella of Daimler-Benz, the

managing holding company of our

group.

quences of major proportions. There•

fore, we must carefully weigh our every

action.

We owe it to future generations to

use our natural resources prudently and

sparingly. This sense of responsibility

Daimler-Benz does business in all

corners of the globe. We are con•

vinced of the advantages to everyone of

open trade borders throughout the

world. Therefore, we view competition

as a welcome proving ground. The

must be reflected in all our thoughts and measure of our success is the recog•

activities throughout the Group.

nition our work receives, and economic

success is an undeniable part of this

recognition.

Our customers are the focus of our

efforts. We must strive not just to

meet their expectations, but to exceed

them. Cooperation and the open ex•

change of know-how throughout all

areas of our companies are central to

meeting this goal.

Inherent to our philosophy is respect

for other cultures. As an international

company, we reject all forms of dis•

crimination. This principle applies,

moreover, to the filling of management

positions, where we will extend equal

opportunities to every employee

regardless of nationality.

Our cooperation aim to:

Just as we are accountable to our

customers, we are equally responsible

to the companies' owners as well as to

the public. This means we must be

willing to provide feedback to others and

Combine know-how and experi•

ence to create new dimensions -

Responsibly promoting progress

for everyone.

Daimler-Benz is an integrated

technology group. This means that

to assess ourselves openly and honestly. our various business areas are linked by

cross cutting technologies and system

We are proud to continue a distin•

guished tradition guided by these

principles.

structures. We place a special emphasis

on our know-how and experience in

traffic management systems and trans•

portation technologies.

The Corporate Principles of Daimler-Benz

Letter to the Stockholders and Friends of our Company

export-oriented companies cannot be

passed on in the form of prices. More•

over, there are many indications that

despite all efforts, German industry is

already in danger of losing market

shares in its traditional export markets.

The only effective short-term counter-

measure that remains is the resolute

continuation of cost-cutting programs,

in particular rationalization.

It is not only the foreseeable enorm•

ous demand for means of transportation

that defines our company's tremendous

potential in these countries. Our corp•

orate structure, with its wide range of

products and services, allows us to offer

the comprehensive mobility and infra•

structure solutions so desperately

lacking there. From airport outfitting

and modernization to traffic studies for

Singapore, there is a tremendous

demand in these markets, and equally

great potential, for communications

infrastructures, energy and trans•

portation.

We have also undertaken foreign

exchange hedging transactions, with

very long-term effects for some of the

divisions of our company. But this does

not alter the fact that changes of such

dramatic dimensions as we saw last

year, and especially this year, against

both the U.S. dollar and nearly all other

important currencies in international

trade must eventually have a noticeable

impact on earnings.

At the same time, we are working

hard to strengthen our competitive

position in the triad markets - our

European home market, NAFTA and

Japan. For instance, we are constructing

a plant in Tuscaloosa, Alabama, where

we will produce a new recreational

vehicle - the All-Activity Vehicle - be•

ginning in 1997. Last December, we

selected a production site for the Micro

Compact Car, a car designed specifically

for urban areas that we are developing

together with the Swiss company SMH.

In addition to the three major global

markets, however, we must also create

all the necessary conditions for opening

up new growth markets with new pro•

ducts. But if we attempt to enter every

market of our own accord, we run the

risk of wasting our resources. We there•

fore attach the greatest importance to

expanding our long-term cooperative

arrangements with partners around

the world.

Looking back, 1994 was a satis•

factory year. The strategies we initiated

to update our products, streamline and

rationalize all processes, and broaden

our international presence have pro•

ceeded as planned. The reversal we

achieved in the development of our

earnings was more than remarkable,

and not only in comparison to 1993.

As with other companies, this

development was of course facilitated

by the general economic recovery that

has since stabilized in the important

regions of the world. However, the sole

reason why we were able to take ad•

vantage of the trend to such an extra•

ordinary degree is that we created the

necessary conditions in terms of cost

structures, productivity, and not least

of all in terms of strategy.

To overcome these difficulties, we

must become less dependent on such

incalculable, currency-related factors by

shifting production activity to other

countries. There clearly is no other

solution. In addition, the trend in recent

years has reconfirmed that economic

conditions follow different cycles in

mature and developing regions. This too

prompts us to spread out our industrial

activities and by doing so minimize

unavoidable risks to the greatest

extent possible.

As it is, the proximity to the re•

spective market - production on site -

is becoming an increasingly important

factor in competition. Especially the

markets in the Asian-Pacific region and

in Latin and Central America, all regions

still characterized by very dynamic

growth, demand new, different product

concepts based on their respective

requirements. A good example is our

Family Car China, a vehicle concept

developed specifically for Chinese

needs.

After all, 1994 was certainly not an

easy year. This is especially true in view

of the persistent weakness of important

currencies against the German mark,

above all the U.S. dollar, the drastic

undervaluation of which is clearly un•

justified by any objective economic

factors. From past experience we know

that currency-related burdens on

Letter to the Stockholders and Friends of our Company

Despite heightened concern over the business units at AEG Daimler-Benz

This year, 1995, will not be easy

either. We have already addressed our

concerns and the tasks at hand. In

addition, we face further non-recurrent

expenditures for structural measures.

But the course has been set. Despite all

the turbulence and adversity, we are

counting on a satisfactory earnings

trend overall, and barring unforeseen

events and factors, we expect even

stronger growth in the years to come.

competitiveness of Germany as a pro•

duction site in the wake of this year's

collective bargaining agreement for the

German metal industry, we are by no

means contemplating a gradual with•

drawal from Germany. Rather, our mis•

sion is to ensure long-term corporate

success by globalizing our activities,

thus ultimately ensuring domestic

employment as well.

Industrie, the new management struct•

ures at DASA, especially in its Aviation,

Defense and Civilian Systems divisions,

and the restructuring of debis System-

haus.

All in all we are continuing to work

on setting up our structures in such a

way that we can react more rapidly,

more efficiently, and more forcefully to

the requirements and changes of the

This goal is also furthered by the

comprehensive programs to improve

cost structures and efficiency that we

introduced several years ago. Between

market. As you know, in so doing we are The targeted earnings will be both

not afraid to make controversial deci•

sions or to take unconventional paths

of action.

welcome and necessary, because there

is no denying that in 1994 we ended up

far short of the level we have to achieve

1991 and 1994 alone, we achieved

It has been and remains our policy to in the medium and long term. Never•

increases in productivity of up to 30%;

this is true of Mercedes-Benz, as well as

divisions of Daimler-Benz Aerospace and ate our integrated technology corpora•

AEG Daimler-Benz Industrie. By 1997,

that figure will be over 40% group-wide.

Our consistent pursuit of decentral•

ization, which has lived up to all expect•

ations, also plays a key role in these

be flexible in taking the necessary steps

to expand our core areas and consolid•

theless, I am proud to say that in 1994,

thanks to their know-how and willing•

ness to work, our employees laid solid

foundations for a good future.

tion with flexibility. Our objective is also

to demonstrate the necessary resolve in

adapting to any changes in the environ•

In the past, we have always been

guided by the principle of allowing you,

ment. Such steps have made deep, even our stockholders, to share in the long-

painful cuts necessary, particularly in

term earnings trend. For this reason,

dividends were reduced last year only

from DM 13 to DM 8, even though the

earnings situation actually would have

suggested no dividend at all. It therefore

seems appropriate, in view of the

change for the better and our future

prospects, to recommend that the

dividend for 1994 be raised to DM 11.

strategies. The formation throughout the the past two years. This is true especial•

corporation of small units close to the

market and with a high degree of res•

ponsibility has noticeably improved the

flexibility of our organizational struct•

ures. Moreover, it has fostered an

entrepreneurial spirit that in turn has

generated an entirely new cost

awareness.

Another essential step is the re•

structuring of the Mercedes-Benz Board

of Management, which will take effect

on July 1 of this year. Basically, this

involves replacing the still largely

functional task structure with product

and regional fields with comprehensive

responsibility.

ly of the extensive capacity adjustments

throughout the company, which thus far

we have been able to implement, with•

out exception, in a socially acceptable

manner.

We have had to make careful deci•

sions on plant closings or on divesting

activities that are only slightly - if at all -

connected to the core purpose of this

company, mobility. We have achieved

many of our targets, and many others

are still in the works.

Obviously, these considerations also

apply to activities that are not yet big

enough to survive alone in the increas•

ingly fierce international competition. In

other instances, due to a number of

developments, full capacity utilization

has been limited to a European scale.

Thus, realignments and partnerships will

remain on the agenda. A recent example

is the planned cooperation with ABB,

Asea Brown Boveri, in the area of

railroad engineering.

Similar processes are underway

or have been completed in our other

divisions as well. Examples include the

implementation of bottom-line oriented

Letter to the Stockholders and Friends of our Company

Report of the Board of Management

Business Review

Against the backdrop of the improved global economic environment, sales

in the Daimler-Benz group rose to DM 104.1 billion in 1994. This was the

first time we topped the DM 100 billion mark. With the exception of DASA,

all corporate units contributed to the 7% growth. The steps we took to

reduce costs and improve production processes were clearly successful.

Along with the business expansion, these were primary factors in the

significant progress we made in 1994 toward a generally satisfactory

profit position.

Mercedes-Benz Passenger Cars:

Market Position Strengthened

Worldwide

The international automobile boom

gained momentum again in 1994. In

Western Europe the market situation

was more favorable than in the crisis

year 1993, following the general eco•

nomic recovery. While positive market

stimuli came from the U.S.A. and the

newly industrializing countries, the

demand for cars in Japan stagnated at

Global Economic Environment

Much Improved

Carried by the momentum of invest•

ment activity, economic growth in the

The global economic upswing was

U.S.A. accelerated. To avert the dangers a low level. Worldwide passenger car

significantly stronger in 1994. The natio• of an overtaxed economy, the U.S.

production rose 5% to 36.1 million

vehicles.

nal economies of Western Europe, in

particular, were able to emerge from the

recession surprisingly fast. Appreciable

stimuli for economic recovery initially

Federal Reserve Bank was obliged to

resort to higher prime interest rates

several times in 1994.

Mercedes-Benz sold 592,400 cars,

achieving above-average growth in

almost all major regions. Even in the

stagnating German market, sales of new

Mercedes-Benz vehicles increased by

19% to 249,800, so that our market

share rose from 7.0 to 8.2%. Outside

Germany we sold a record 341,300

passenger cars, exceeding the figure

of the previous year by 18%.

The generally favorable market

situation enabled us to increase

production by 23% to over 590,000

passenger cars; thus we produced at

full capacity.

Until the end of 1994 the Japanese

came from trade within Europe and from economy was not able to join the

exports to Asia, North America and the

former East Bloc countries. It was not

until the latter part of the year that the

economic boom was supported by

investment activity as well.

general upswing. The primary factor

here was domestic demand. Japanese

industrial exports are still hampered

by the strong yen.

Rounding off the generally positive

The German economy - starting with global economic picture was sharp

expanding foreign trade - is on the road

growth in the newly industrializing

to recovery. Although the healthy growth countries of Asia and Latin America,

in the New Federal States was financed

largely through western transfers, the

first signs of more efficient economic

structures began to emerge there.

Through massive layoffs and significant

enhancement of productivity, German

industry was able to improve its inter•

national competitiveness, thereby

strengthening its position in the export

markets.

as well as early signs of stabilization in

several former East Bloc countries.

Group Sales Top DM 100 Billion

for the First Time

Daimler-Benz group sales climbed to

DM 104.1 billion in 1994. This repre•

sents an increase of 7% over the figure

Mercedes-Benz Commercial

Vehicles: Sales Increase Sharply

The trends in the commercial vehicle

markets were also predominantly positi•

for 1993 considering significant changes ve. The largest contributing factor to the

in consolidation. Sales in the European

Union, at DM 59.9 billion, were 4%

higher than the 1993 level; in Germany,

they rose 3% to DM 39.0 billion. We

achieved above-average growth in the

U.S.A. with sales of DM 18.3 billion

recovery in Western Europe was the

large replacement need and the growing

demand for transport capacity. The

truck business in the U.S.A. was espe•

cially brisk in classes 7 and 8 (over 11.8

tons). The total world production of

commercial vehicles rose by 12% to

(+13%) and in the other markets with

DM 25.9 billion (+11%).

14.2 million units.

Excluding deliveries within the group,

Mercedes-Benz generated 66%, AEG

Daimler-Benz Industrie 10%, Daimler-

Benz Aerospace 16%, and debis 8% of

the group sales.

Note:

The Business Review is the combined audited

Business Review of Daimler-Benz AG and the

Daimler-Benz group.

Business Review

Unit sales for Mercedes-Benz

Sales at Daimler-Benz Aerospace

(DASA) Decline

commercial vehicles rose 14% in 1994

to 290,400 units. The growth stimuli

came mainly from North America, other

Western Europe countries and Latin

America. In Germany, however, our

registrations of new vehicle dropped

% to 79,000 because of the difficult

market situation throughout the

industry.

On January 1, 1995, the corporate

unit Deutsche Aerospace was renamed

Daimler-Benz Aerospace. This step not

only underscored the affiliation with the

Daimler-Benz group, it also took into

account the growing internationalization

of the aerospace industry.

Although the demand for air travel

rallied in 1994, the positive trend did

not carry over to the market that is

important to Daimler-Benz Aerospace,

the aircraft market. Furthermore, budget

cutbacks of public contractors for space

and defense systems hurt DASA's

business.

The production volumes of our

foreign subsidiaries reached a new high

of nearly 148,900 commercial vehicles.

A total of 291,900 commercial vehicles

rolled off the assembly line at our 46

German and foreign production sites.

AEG Daimler-Benz Industrie

Expands Slightly

In particular, the sales decline in the

Aircraft Division, which accounted for

roughly 50% of DASA's business, result•

ed in a 7% drop in overall sales to DM

17.4 billion. On the other hand, incoming

orders totaling DM 16.4 billion repre•

sented a slight growth of 5%. Significant•

ly higher orders in the Aircraft Division

stood in contrast to declines in the other

divisions.

The general economic upswing in

1994 was felt in the German electrical

engineering industry only after some

delay. While the foreign demand in•

creased as the year progressed, orders

from Germany showed signs of a weak

revival only after the midpoint of the

year. Trends varied widely for the indi•

vidual product groups in the electrical

engineering industry. Incoming orders

and sales of capital goods relevant to

AEG Daimler-Benz Industrie continued

to decline.

Against the backdrop of a difficult

economic situation, we proceeded with

the capacity adjustments and structural

improvements already begun at DASA.

In addition, we established several joint

ventures with international partners in

1994 to increase our competitiveness

worldwide.

New orders for AEG Daimler-Benz

Industrie reached DM 11.5 billion.

Calculated on a comparable basis, i.e.

after adjustment for the values of the

discontinued activity in household

debis Continues to Pursue

appliances, meters and lighting systems, Growth Course

this represents a 6% growth. Both the

The services relevant to Daimler-

German (+4%) and foreign markets (+8%) Benz InterServices (debis) contributed

contributed to this increase. Sales in

994 reached DM 10.3 billion. Com•

parably calculated, this represents a

%growth.

disproportionately to the overall eco•

nomic recovery. Debis was able to

increase its sales by 14% in 1994, to

DM 10.8 billion. Even when additional

companies were integrated in the

course of the business expansion, debis

continued to grow primarily on its own

strength.

Business Review

Sales in the Systemhaus Division

rose 9% to DM 1.8 billion, while in

Financial Services they increased 12% to

DM 7.6 billion. Business was especially

good in the mobile communications

market. Through the acquisition of

Bosch Telecom Service, which holds

second place in its sector, debitel was

able to significantly increase its market

share in Germany.

Purchasing Volume Exceeds Level

of Previous Year

the new A-class and the small roadster

(SLK). An important foreign project in

1994 was the new plant in Tuscaloosa,

Alabama, where production of the

recreational All Activity Vehicle (AAV)

is scheduled to begin in 1997.

In 1994 the Daimler-Benz group

purchased goods and services world•

wide in the amount of DM 61.1 billion

(1993: DM 56.7 billion). Nearly 70% of

the purchases pertained to Mercedes-

Benz, 9% to AEG Daimler-Benz Industrie,

14% to Daimler-Benz Aerospace, and 8%

to Daimler-Benz InterServices.

In the Commercial Vehicles Division,

approximately DM 1.3 billion were ex•

pended worldwide to prepare for new

vehicle generations and to adjust cur•

rent product lines to changing customer

demands. In Europe, the focus was on

preparations for two new van families,

Sprinter and City Transporter, model

updates for the light, medium and

heavy-duty truck classes, and the switch

to environmentally friendly EUR02 en•

gines. The MB 700, a light-duty truck

produced in Indonesia for the Asian

market was an additional investment

focus.

The 8% increase in purchasing vol•

ume is primarily due to the higher pro•

duction level, especially for Mercedes-

Benz, as well as to our activities to

further reduce vertical integration.

Because we stepped up our global

sourcing activity, material purchases

from foreign sources continued to

increase. We purchased goods and

services from the New Federal States in

the amount of DM 1 billion in 1994. The

billion-DM threshold was thus reached

one year ahead of schedule, a success

primarily attributable to the "Purchasing

Drive in the New Federal States".

Personnel Adjustments Necessary

The Daimler-Benz group had

330,551 employees at the end of the

year (366,736 in 1993). The cutback

affected above all the workforce in

Germany, where the number of em•

ployees dropped from 284,576 to

251,254. At the end of 1994 Mercedes-

Benz had 197,568, AEG Daimler-Benz

Industrie 44,769, DASA 75,581, debis

9,226, and Daimler-Benz AG 3,407

Capital expenditures at AEG

salaried and hourly-paid employees.

For group management tasks, all in all

amounted to DM 0.6 billion; at DASA,

DM 0.7 billion; at debis, DM 0.2 billion;

and at headquarters, DM 0.1 billion.

Additions to leased equipment

totaled DM 5.6 billion (1993: DM 5.9

billion). The amount of outside capital

used for leasing and sales financing was

DM 14.5 billion (1993: DM 13.7 billion).

20 employees were employed at

headquarters.

The adjustment of capacities to an

Investments for the Future

internationally competitive level, initia•

ted in previous years, was continued in

The investments in property, plant

and equipment in 1994 totaled DM 4.7

billion (1993: DM 5.4 billion). If the

effects especially of the first-time

1994. We were able to make personnel

cutbacks in a socially acceptable man•

ner for the most part; only in exceptional inclusion of Fokker in 1993 are taken

DM 8.7 Billion Expended for

cases were layoffs necessary. The

number of employees also declined

through the dissolution of divisions

and divestiture of business interests.

In many parts of AEG Daimler-Benz

Industrie and DASA, working hours

also had to be shortened.

into consideration, investments reached

the same level as in the year before. The

increase in intangible assets amounted

to DM 0.6 billion. Depreciation and

disposal of tangible and intangible

assets amounted to DM 5.9 billion.

We invested in new production

Research and Development Projects

We spent a total of DM 8.7 billion

(1993: DM 9.0 billion) on research and

development. Included in this figure is

DM 3.5 billion for contract-related

development services, incurred almost

exclusively by Daimler-Benz Aerospace.

The group continues to place high value

on environmental safety; our expenditu•

technology, product diversification, and

rationalization measures. The focus of

the investments was on Mercedes-Benz, res for environmental protection mea•

at DM 2.9 billion (1993: DM 2.6 billion).

In the Passenger Cars Division, the bulk

of the investment budget of DM 1.5

billion was allocated to production

preparations for the new E-class, the

new engine plant in Stuttgart-Bad

Cannstatt and the transition to water-

based paint technology. In addition, we

invested in production preparations for

sures in 1994 came to over DM 680

million.

Business Review

Mercedes-Benz spent a total of

DM 3.3 billion (1993: DM 3.2 billion)

on research and development. The

research and development work is the

basis for our promotional campaign in

the area of passenger cars and

commercial vehicles.

Mercedes-Benz AG, together with

Schweizerische Gesellschaft für

Mikroelektronic und Uhrenindustrie AG

Platform satellites, as well as the Ariane

booster rocket program. In the Defense

and Civil Systems Division, the focus

was on the Pars 3 LR program; in Pro•

pulsion Systems, on the engine EJ2000

for the Eurofighter and on the commer•

cial jet engine programs conducted

jointly with Pratt & Whitney.

Consolidated Net Income

(SMH), established MC Micro Compact

Climbs to DM 0.9 Billion

Car AG for the purpose of making a new

type of vehicle intended especially for

densely populated urban areas under

the project title Micro Compact Car

The net income of the Daimler-Benz

group in 1994 was DM 0.9 billion (1993:

0.6 billion). However, this increase does

not reflect the full extent of improved

operating results, as a number of special

circumstances had influenced the figure

for the prior year. The dramatic turn•

around in earnings is perhaps best

illustrated by the operating result, which

jumped from DM -3.3 billion to DM 2.7

billion. The DM 6 billion increase inclu•

des one-time income of DM 1.4 billion

resulting from the deconsolidation of

MBL Fahrzeug-Leasing GmbH & Co. KG

and income from the AEG Daimler-Benz

Industrie and Fokker divestments. DM

1.1 billion (1993: DM 3.5 billion) were

spent on restructuring measures.

(MCC). A wholly-owned subsidiary of

the joint venture took over the work of

development and production prepara•

tion. The French town of Hambach was

selected as the plant site.

At AEG Daimler-Benz Industrie,

DM 736 million went into research and

development in 1994 (1993: DM 764

million). The research pertained to our

modular 12X locomotive and new jet

trains for regional rail systems, intelli•

gent power components, systems and

components for vehicle electronics,

airbag gas generators and sensors, and

optoelectronic infrared modules. Addi•

tional focuses were new component and

system concepts for medium-voltage

technology and for network control

technology at the station level, a new

generation of programmable logic

control systems, and innovative modules

for the recognition of address fields and

for mail distribution.

Mercedes-Benz contributed DM 2.2

billion (1993: DM -1.3 billion) to opera•

ting profit. This increase was achieved

above all through expanded sales in the

passenger car and commercial vehicle

business in Germany and important

foreign markets. In addition, our cost-

cutting programs led to significant

savings. The expenditures for personnel

restructuring measures were substant•

ially lower than in the previous year.

The contribution of AEG Daimler-

Daimler-Benz Aerospace spent

DM 4.3 billion (1993: DM 4.8 billion)

on research and development. Of this

figure, DM 3.4 billion was for projects

carried out by third parties under

Benz Industrie to consolidated results

was DM -0.1 billion (1993: DM -0.9 bil•

contract (including projects in progress). lion). The DM 0.8 billion improvement

In the Aircraft Division, the Airbus

A330/340, Dornier 328 and Eurofighter

is related to the divestment of the

Domestic Appliances Division and the

power meters and lighting systems

units, with a book profit of DM 0.4 bil•

lion. Moreover, expenditures for re•

structuring measures were lower

than in 1993.

(EF 2000) programs were developed.

The primary research focuses in Space

Systems were the ERS-2 and Polar

The contribution of Daimler-Benz

Aerospace to consolidated operating

results improved, totaling DM -0.5 billion deconsolidation of MBL Fahrzeug-Lea-

1993: DM -1.0 billion). Earnings were

accounts payable trade, which also rose

by DM 0.9 billion to DM 7.7 billion. The

The economic upswing is expected

to pick up speed in Germany as well.

As in 1994, however, the primary growth

factors will be export demand and, to an

increasing extent, investments. Con•

sumption in the private sector is likely

to rally hesitantly at best, because of

higher taxes and the associated lower

household spending latitude.

The growing markets in Asia con•

tinue to offer good sales prospects.

Also, the countries of Latin America are

expected to gradually resume the

growth momentum of 1994 in the wake

of the financial crisis in Mexico and its

negative consequences for the entire

Central and South American economic

region.

On the basis of the generally favor•

able outlook for the global economy, the

rising trend in the international auto•

mobile business will also continue.

The Mercedes-Benz passenger car

business in 1995 will be affected by the

introduction of the new E-class. A sales

decline in anticipation of the model

change will be followed by an expected

sharp upswing in the second half of the

year.

In the Commercial Vehicles Division,

the development of our most important

markets will probably allow additional

sales growth. Particularly the Sprinter,

our new van in the 2.5 to 4.6 ton weight

(

sing GmbH & Co. KG and the sale of the

AEG Daimler-Benz power meters, ligh•

ting systems and domestic appliances

activities had the opposite effect on the

balance sheet. Excluding the predomi•

nantly third-party financed financial

services business, the percentage of

stockholders' equity increased from

26% to 28%, while the percentage of

limited by the persistently weak market

for commercial aircraft as well as by

government budget cuts in the defense

and aerospace industry and the attend•

ant underutilization of capacities. Lower

expenditures for structural measures

had a positive effect.

As in 1993, Daimler-Benz InterServi-

ces (debis) contributed DM 0.4 billion to stockholders' equity covering non-

the group's operating profit. Its principal current assets was up from 78% to

source of income was the financial ser•

vices sector, where business continued

to develop positively. The Systemhaus

and Mobile Communications Services

divisions experienced a significant

improvement over last year.

79%. As in the previous year, long and

medium-term capital amounted to 60%

of the consolidated balance sheet total.

Allocation of Earnings

The net income of Daimler-Benz AG

increased to DM 565 million (1993: DM

390 million). The improved results in the

operative area and the decrease in

restructuring expenditures meant that

after losses in 1993, Mercedes-Benz

AG returned a profit in 1994. The ab•

sorption of losses from AEG Aktien-

gesellschaft and Daimler-Benz Luft-

und Raumfahrt Holding AG, the parent

company of the DASA group, decreased

noticeably over the previous year.

At our Annual General Meeting on

May 24, 1995, we will propose that a

dividend of DM 11 be paid per share of

The financial results shown in the

consolidated statements of income

decreased significantly, from DM 2.0

billion to DM 0.2 billion. The decrease is

largely the result of reduced earnings

from the sale of securities, which were

DM 1.4 billion lower than in the previous

year. Also, provisions totaling DM 0.6

billion (1993: DM 0.3 billion) were taken

for losses on financial assets and

securities.

Balance Sheet Structure Marked

by Capital Increases

Mainly as a result of the inflow of

liquid assets from the two capital

increases undertaken in 1994, total

assets increased by DM 2.6 billion to

DM 93.5 billion. Liabilities were also up,

due to extensive liabilities from leasing

and sales financing, which at DM 14.5

DM 50 par value (1993: DM 8). The total class, will provide additional stimuli in

dividend payment will thus amount to

DM 564 million.

Western Europe. We expect competitive

advantages from the merger of our bus

activity with that of Karl Kassbohrer

GmbH in the new company EvoBus

GmbH.

Outlook

The economic trend of the first

months leads us to expect favorable

billion were DM 0.9 billion higher than in business conditions to continue for

993. The increase in business - above

the remainder of 1995. While the U.S.

economy will lose momentum because

of the restrictive rate of the U.S. Federal

Reserve Bank, accelerated growth can

be expected in Western Europe and in

Japan.

all at Mercedes-Benz - is reflected in

Business Review

Mercedes-Benz is betting on growth

through new markets. In the coming

years, it will develop buyer potentials by

tapping new regions and offering addi•

tional attractive models. The promo•

tional campaign for passenger cars and

commercial vehicles will be accompa•

nied by a comprehensive reorganization

of the unit's internal structures and

processes, and by increasing globaliza•

tion of the entire production chain.

AEG Daimler-Benz Industrie expects

its business volume to grow in 1995 in

all fields of activity, but especially in

microelectronics.

The invoicing of development

services for the Ariane 5 carrier booster

will bring about a sharp sales increase

for Space Systems. We are also likely to

exceed last year's sales in Propulsion

Systems and in the Aircraft Division,

where sharp increases are expected

particularly from the Fokker 70 and

Fokker 100 aircraft programs and from

the Dornier 328. In the Defense and

Civil Systems Division, however, a furt•

her decline in sales looms. Daimler-Benz

will continue to pursue the cost-cutting

programs already initiated to ensure

growth and jobs in its core activities.

With the assumption of the industrial These measures include the further

management of TEMIC as of January 1,

995, AEG Daimler-Benz Industrie has

now fully consolidated this company in

its financial statements. The increase in

sales connected with this move and with

the organizational allocation of MTU

tightening of company structures at

Fokker, a worldwide cooperation policy

and a global campaign to develop new

business opportunities.

Daimler-Benz InterServices expects

to be able to continue smoothly on the

Friedrichshafen will more than offset the favorable course established in 1994.

reduction in business volume resulting

from the disposal of the household

appliance, meter, and lighting systems

activities.

This positive outlook is based not only

on the momentum of the development

in its service sector but also on restruct•

uring measures, primarily in the debis

Systemhaus Division, which already

showed the first signs of success in

1994.

With a memorandum of under•

standing, ABB and AEG Daimler-Benz

Industrie announced on March 16, 1995

that they will be merging their activities

in the track-bound products sector in a

fifty-fifty joint venture. The largest rail

systems manufacturer in the world will

be established with the founding of

ABB Daimler-Benz Transportation. The

planned joint venture will have to be

approved by the European cartel

authorities.

Against the backdrop of a continuing

positive trend in the general economic

environment and the significantly en•

hanced efficiency that we have realized

in all group sectors, we are confident

that we will be able to increase the

business volume of the Daimler-Benz

group once again and continue to

improve our net income. There are,

however, uncertainties associated with

the currency front if the volatility of

important currencies experienced in

the first few months of 1995 persists

for an extended period.

Daimler-Benz Aerospace expects

a slight increase in sales group-wide,

after adjustment for changes in the

consolidated group.

Business Review

Operating Activities of the Group

Corporate Unit Mercedes-Benz

While American car and truck manu•

facturers enjoyed the advantage of the

continuing upward trend in their dom•

estic market, the automotive industry in

Japan had to cut back production sub•

stantially due to the rise in the prices for

their vehicles abroad resulting from

exchange rate fluctuations and the

continuing weakness in the Japanese

automotive market.

In 1994 Mercedes-Benz increased its sales by 9% to DM 70.7 billion. The

Passenger Car Division and the Commercial Vehicle Division contributed

equally to these results. The most important impetus came from North

America, from Western Europe, and from Southeast Asia. Due to the

positive trend in sales and the progress that had already been made in

productivity, the annual profit of DM 1.8 billion (1993: DM -1.2 billion) was

again clearly a positive result. We continued to expand our global presence

during the year in review, and at the same time laid the groundwork for

opening up new markets with both existing and new products.

Mercedes-Benz: Over DM 70 billion

in Sales for the First Time

The trend in the motor vehicle busi•

ness has been extremely positive at

The International Automotive

Business Picks Up Speed

demand for transport capacity. In the

passenger car sector, the incentives for

scrapping introduced by some govern•

The international automotive

industry picked up speed again in 1994,

with essentially parallel developments

in the passenger car and commercial

vehicle markets.

In step with the overall economic

recovery, the market situation in We•

stern Europe was more positive than

in the crisis year 1993. An important

contributing factor in the commercial

vehicle sector was the great need for

replacements, as well as the growing

ments provided a new upsurge. Demand Mercedes-Benz in comparison to the

for motor vehicles remained strong in

the U.S.A.; this is true both of the pas•

senger car market and the market for

class 7 and 8 trucks (11.8 metric tons

and heavier). In Japan the demand for

automobiles stagnated at a low level,

however, although a slight improvement

appeared at the end of the year in pas•

senger cars and commercial vehicles.

Because demand stimuli from the

emerging nations of Asia and Latin

America were for the most part positive,

passenger car production rose 5% world•

wide to 36.1 million vehicles. World

production of commercial vehicles rose

by 12%, to 14.2 million units.

rest of the industry. Group sales rose

9% to DM 70.7 billion. This gratifying

increase had a broad regional basis. The

U.S. market must be singled out, where

sales rose 18% to DM 11.8 billion. In

Western Europe outside of Germany our

sales were 13.9 billion DM, 13% higher

than the year before. We were also able

to achieve significant increases in South

America, Eastern Europe, and the emer•

ging countries of Asia. Even in Japan,

where the automotive market continued

to be generally weak, we increased sales

by 13% to DM 2.8 billion. In Germany,

too, in spite of the unfavorable market

situation, our business grew by 3% to

DM 26.9 billion. Since the bulk of

The sales situation in Germany

continued to be less than satisfactory.

Retarding factors included the purcha•

sing reluctance of commercial vehicle

customers in connection with the

growth took place outside of Germany,

however, the non-domestic share of

group sales rose to 62% (1993: 60%).

attempts to unify European freight traffic

and the continuing weakness in private

consumption, which is a significant

factor in the demand for passenger cars.

Many European manufacturers used

the years 1993 and 1994 to introduce

comprehensive measures for increasing

production, and to strengthen their in•

ternational competitive position with

attractive new models. Overcapacities,

the resulting fiercer competition, and

the still unsatisfactory profit levels

demonstrate that the structural deficits

in this industry have not been complete•

ly eliminated, however.

The E-class: With sales

of 2.7 million cars the most

successful Mercedes of all time.

Mercedes-Benz

Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.

Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.

Here was a product or mood picture without text or figures.

It was omitted in the pdffile to improve the usability of the file size.

In the Passenger Car Division, sales

were DM 42.1 billion, 9% higher than

in the year before; the Commercial

Vehicle Division also registered growth

of 9%, to DM 28.6 billion. With these

figures the Passenger Car Division con•

tributed 60% and Commercial Vehicles

Mercedes-Benz Commercial

Vehicles: Significant Increases

in Sales Volume

Commercial vehicle sales for

Mercedes-Benz rose by 14% in 1994 to

290,400 vehicles. We expanded group

sales of trucks over 6 metric tons to

167,200 units (1993: 143,900), main•

taining our position as the world's

leading manufacturer in this market

segment. The greatest stimuli for growth

40% to the business volume of the

Mercedes-Benz group.

Mercedes-Benz Passenger Cars:

Stronger Market Position Worldwide came from North America, Europe out•

Worldwide, Mercedes-Benz sold

92,400 passenger cars in 1994, the

side of Germany, and Latin America. In

Germany we strengthened our market

position, but new sales declined by 4%

to 79,000 vehicles because of the

difficult market situation in the entire

industry.

Due to the extremely fierce com•

petition in pricing and terms, and price

advantages afforded to major compe•

titors by favorable exchange rates, our

27% share in the Western European

market for trucks over 6 metric tons

second-highest annual sales volume in

the history of the company. In almost

every important region we achieved

above-average growth and thereby

increased our market share significantly.

In the stagnant German market the

registrations of new Mercedes-Benz

cars rose by 19%, to a total of 249,800;

our market share climbed from 7.0%

to 8.2%.

Outside of Germany we sold 341,300 was lower than in the prior year (30%).

cars in 1994, 18% more than in the prior

year and at the same time a new high.

Business was especially encouraging in

the U.S.A., where we succeeded in

increasing sales to consumers by 18%,

to 73,000 cars. Significant growth was

In contrast, our share of the Western

European market for transporters bet•

ween 2 and 6 metric tons rose from

12% to nearly 13%.

An important contribution to busi•

ness abroad was again made by our

also recorded in Eastern Europe, in Latin Freightliner subsidiary. Freightliner was

America, and particularly in the emer•

ging nations of Asia. In Western Europe

outside of Germany sales rose by 16% to

able to increase its sales in the United

States by 25% to 51,400 units, taking

over the leading position in the U.S.

market for Class 8 trucks (gross vehicle

weight 15 metric tons and above) with a

market share of 25% (1993: 24%).

153,300 cars, and even in Japan new

registrations were 20% higher, at 33,400

cars. We have now maintained our

position as the leading European import

car for the fifth year in a row.

As a consequence of the generally

positive sales situation we increased our

passenger car production by 109,500

units, or 23%, to over 590,000 cars,

and are therefore producing close to

capacity.

Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.

Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.

Here was a product or mood picture without text or figures.

It was omitted in the pdffile to improve the usability of the file size.

Since sales of our subsidiaries in

Latin America also rose, commercial

vehicle production volume of our foreign

companies reached a new high at nearly

Another supporting element of

our productivity drive is the process of

"Continuous Improvement", which we

stepped up in 1994 in all of the divisions

48,900 units (1993: 120,400). We were of the company through extensive edu•

able to increase commercial vehicle

production in Germany by 18%, to

cational activities and carefully targeted

information. These measures supported

and carried forward the productivity

campaign initiated in 1993.

143,000 units, on the basis of stronger

European demand outside of Germany;

a total of 291,900 commercial vehicles

rolled off the assembly lines of the 46

Mercedes-Benz production sites.

Further Staff Reductions

To raise our productivity to an inter•

nationally competitive level over longer

term, we had to continue personnel

reduction, even though business in the

reporting year, and consequently the

capacity utilization of our plants, had

improved greatly.

At the end of 1994 Mercedes-Benz

had 197,568 employees worldwide

(1993: 209,933). Mercedes-Benz AG

personnel was reduced by 12,037, to

147,061 persons. The reduction in

personnel affected both the automobile

and commercial vehicle plants as well

as the sales organization.

Increasing Motivation Through

New Structures

The internal agreement on revising

the performance and compensation

system, concluded in 1994, was an

important milestone for modernizing

time management. It grants employees

a major role in determining their own

working and productivity conditions.

This makes it possible to work out

solutions tailored to the

individual needs and cap•

abilities of the employee,

resulting in significantly

higher acceptance of

contractual productivity

Successful Cooperation with the

Supplier Industry

standards. Furthermore,

The TANDEM concept for coopera•

the new agreement allows tion continued to be the basis in 1994

leeway for adjusting time

schedules to the require•

ments of modern labor

systems and forms of

work organization.

for successful cooperation with our

suppliers. More than 500 teams of

employees from the suppliers and from

our company were formed as part of

TANDEM to work jointly on vendor-

supplied parts for our current vehicle

range as well as for new development

projects.

More than 30% of the

production jobs in the

Mercedes-Benz AG plants had been

converted to group work by the end of

the year. Group work, with its signifi•

cantly higher motivation for work and

productivity and its more efficient

organization of work processes, has

become an important motivating force

in our productivity drive. This has been

confirmed by a company-wide study of

employee experience with group work.

Mercedes-Benz

Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.

Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.

Here was a product or mood picture without text or figures.

It was omitted in the pdffile to improve the usability of the file size.

The principal objective of the

cooperative undertaking was to make

the entire value-added chain even more

for the two new transporter families, the

Sprinter and the City Transporter, on

model maintenance for our light,

the interest of further expanding our

customer base, we are working on

introducing the CharterWay spectrum of

services in other markets in the future.

efficient, all the way to the final product. medium and heavy truck classes, and

The results of the TANDEM projects

made it possible to achieve significantly

improved price and cost levels for a

variety of vendor-supplied part as early

as 1994.

on conversion of our model lines to the

environmentally friendly EUR02 engines. DM 3.3 Billion for Research

Areas of focus outside of Germany

included the preparations for the MB

700 - a new family of light trucks devel•

and Development

Research and development activities

are the basis of our product campaign in

passenger cars and commercial vehic•

les. The global distribution of our devel•

opment activities, which until recently

were largely confined to the Commercial

Vehicle Division, assures us maximum

proximity to markets and customers.

New forms of interdisciplinary project

activities and greater involvement of the

supplier industry have enabled us to

further increase the efficiency of our

research and development efforts in

1994. Of the total of DM 3.3 billion we

spent on research and development in

the year in review (1993: DM 3.2 billion),

DM 2.2 billion went to the Passenger

Car Division and DM 1.1 billion to

Commercial Vehicles.

On the basis of increased production oped especially for the Asian market

and of our activities directed at reducing that will first be marketed in its country

production depth our purchasing volume of production, Indonesia. In cooperation

nevertheless rose by 12% to DM 43.8

billion, with orders from abroad increa•

sing at a higher than average rate.

with our partner Ssang Yong we are

developing a transporter - also for the

Asian region - which we will present in

South Korea in 1995.

DM 2.9 Billion Invested in

Property, Plant and Equipment

Worldwide Sales

To continue expanding the innovative Organization Strengthened

basis of our motor vehicle business and

thereby ensure our international com•

petitive position, we made extensive

capital investments again in 1994.

In the Passenger Car Division, pre•

parations for the new E-class, the new

engine plant in Bad Cannstatt, and the

In 1994 we spent DM 135 million

(1993: DM 224 million) on expanding

our worldwide sales and service organ•

ization. The most important activities

were a number of construction projects

in the New Federal States, four additio•

nal centers for pre-owned commercial

ongoing conversion to water-base paints vehicles, and the enlargement of our

were the areas of focus of our invest•

ments in property, plant and equipment,

totaling DM 1.5 billion (1993: DM 1.3

billion). In addition, preparations are

now underway for the production of the

new A-class in the Rastatt plant. In Bre•

men we began preparing for production

of the new small roadster (SLK). Our

most important foreign project in 1994

was the new plant in Tuscaloosa, Ala•

bama; starting in 1997 a completely

newly-developed four-wheel-drive re•

creational vehicle ("All Activity Vehicle")

will be manufactured there.

central supply depot in Germersheim,

Germany. Investment volume abroad

came to DM 72 million. The most

Micro Compact Car -

A Cooperative Venture with SMH

In February 1994 we announced our

cooperative venture with Schweizerische

Gesellschaft fur Mikroelektronic und

Uhrenindustrie AG (SMH) to build an

innovative vehicle intended specially

designed for densely populated areas.

The project name is Micro Compact

Car(MCC).

significant projects are the new admini•

strative headquarters for Mercedes-

Benz in Austria, the sales company in

Sweden, Avtomobili AOST in Moscow

and the new supply depot in Fontana,

U.S.A. To open up additional sales pot•

ential for our vehicles, we have further

expanded our sales and service organi•

zations in Eastern Europe, Latin America

and the emerging countries of Asia.

Responsibility for implementing the

project rests with MC Micro Compact

Car AG (MCAG) in Biel, Switzerland, of

which a 51% share is held by Mercedes-

Benz AG and 49% by SMH.

In line with the central idea of per•

manent innovation, around DM 1.3

billion was invested worldwide in the

Commercial Vehicle Division to prepare

the next generation of vehicles and to

adapt the current product lines to the

changing wishes of our customers. In

Europe the focus was on preparations

CharterWay Services Expanded

Although Mercedes-Benz Charter-

Way has only been offered in selected

European countries since 1992, the

name has become synonymous with

expert service for every aspect of

Mercedes-Benz commercial vehicles.

We therefore decided to market long-

term rentals and service leasing and, in

some markets, our service contracts, as

CharterWay services starting 1994. In

Mercedes-Benz

Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.

Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.

Here was a product or mood picture without text or figures.

It was omitted in the pdffile to improve the usability of the file size.

The developmental activities and

production preparations are being

legal entity of MB Turk. Operational

control will be held by EvoBus GmbH.

carried out by a wholly-owned subsidiary The Mercedes-Benz and Setra product

In the Commercial Vehicle Division,

too, we have begun a far-reaching pro•

duct campaign that includes the comp•

lete renewal of the existing lines as well

as supplementing them with vehicles

tailored to the specific circumstances of

new markets.

The product drive in passenger cars

and commercial vehicles is accompa•

nied by a comprehensive realignment of

our internal structures and processes.

of MCAG, Micro Compact Car Entwick-

lungsgesellschaft in Renningen, Ger•

many. The designated production site

is in Hambach, France.

lines will be marketed independently.

Outlook

With the generally favorable pro•

spects for the world economy, the up•

ward trend in the international automo•

tive industry should continue in 1995.

Particularly in the rest of Western

Acquisition of Kassbohrer

Approved by EU Commission

Following a thorough investigation,

the EU Commission approved the ac•

quisition of Karl Kassbohrer Fahrzeug-

werke GmbH by Mercedes-Benz AG on

February 14, 1995. The European bus

activities of Mercedes-Benz will now be

consolidated into the newly founded

EvoBus GmbH, with its four industrial

bases in Mannheim, Germany, Ulm/Neu

Ulm, Germany, Ligny, France, and Istan•

bul, Turkey. The Omnibus Division in

Europe, signs of continued growth in the This is the only way we will be able to

demand for passenger cars and com•

mercial vehicles are appearing, and the

market situation can be expected to

improve in Japan as well. The American

motor vehicle market, on the other

hand, is unlikely to be able to maintain

the dynamic level of recent years, while

the emerging countries of Asia and Latin

America will continue to open up good

give lasting strength to our cost position

in the face of increasingly tough com•

petition. In addition, we are working

persistently to give an even more global

shape to the entire value-added se•

quence involved in the creation of our

products.

Mannheim was spun off from Mercedes- opportunities for sales.

Benz AG retroactive to January 1, 1995.

The Turkish bus division will remain a

In Germany the market situation

remains difficult. The harmonization of

European freight traffic and the resulting

effects on the German trucking industry

will further restrict the demand for com•

mercial vehicles, and there is only very

limited room for growth in

the German passenger

car market due to the

stagnating and even de•

clining purchasing power

of private households.

Mercedes-Benz is

placing its hope on

growth in new markets.

We will be opening up

new purchasing potential

in both geographical

terms and by means of

attractive new models.

After the model

change in the E-class at

the mid-year Mercedes-

Benz will have an extremely up-to-date

lineup of models in the Passenger Car

Division, and we will be able to round

this out in future years with additional

cars. We will position ourselves as the

top supplier in new markets with high

growth potential.

Mercedes-Benz

Corporate Unit AEG Daimler-Benz Industrie

trend in orders at Modicon and in Sy•

stems and Automation. In contrast,

orders for Project and Drive Systems fell

below the 1993 level.

In 1994, AEG Daimler-Benz Industrie achieved incoming orders totaling

DM 11.5 billion and sales in the amount of DM 10.3 billion. This growth was

essentially sustained by Rail Systems and Microelectronics. On the group

level, although net income clearly improved compared with the previous

year, it is still not satisfactory. For 1995, we are therefore continuing to

focus our primary goals on speeding up the reorganization of the company

DM 10.3 Billion in Sales

AEG Daimler-Benz Industrie's sales

by means of implementing structural and performance-improving measures in 1994 totaled DM 10.3 billion. Com•

in all business sectors.

parably calculated, i.e., not including the

Domestic Appliances, Power Meter and

Lighting Systems activities, revenues

increased by 5% to DM 8.5 billion. Sales

revenues rose by 13% abroad, while re•

venues in Germany fell by 2% compared

with the previous year.

Delayed Recovery in the

Slight Growth in Incoming Orders

Incoming orders for AEG Daimler-

Benz Industrie reached DM 11.5 billion

in 1994. After making an adjustment for

the value of the divested domestic

appliances, power meter and lighting

systems activities, a growth of 6%

results. On the German market, custo•

Electrical Engineering Industry

In the German electrical engineering

industry, the upward trend in the econ•

omy was delayed. While foreign demand

rose over the course of 1994, a slight

recovery in customer orders from Ger•

many did not set in until the middle of

the year. Production in the West German mer orders were up by 4% to DM 5.2

electrical engineering industry climbed

by 4% compared with the previous year.

Rail Systems and Microelectronics,

in particular, contributed to this largely

satisfactory development. The growth in

Rail Systems is essentially based on high

project invoicing in Germany and the

U.S. In Microelectronics, the positive

business trend of TEMIC TELEFUNKEN

microelectronic is responsible for the

increase in sales.

billion, foreign orders climbed by 8%.

In Rail Systems, incoming orders

Although capacity utilization did improve rose by 3%. The large orders of Deut•

slightly, it was clearly below the level of

utilization at the beginning of the '90s.

sche Bahn AG, as well as orders for the

Berlin U-Bahn, the Metro in Guangzhou,

China, and the Airport Express Line in

Hong Kong played a major role in this

increase.

Inconsistent Development among

Product Groups

Development progressed at varying

rates among the individual product

groups of the electrical engineering

industry. Incoming orders and sales

continued to fall with respect to the

capital goods that are significant for

our company. This was especially true in

Energy Systems Technology, which was

marked by cautious investment behavior

on the part of important customers,

primarily abroad. With price levels that

continued to decline, no recovery was

registered in Drive Systems. However,

Controller Technology profited from the

upswing in manufacturing.

The incoming orders of the Micro•

electronics Division showed especially

strong growth at 21%. This positive trend

was due solely to a marked increase in

customer orders at TEMIC TELEFUNKEN

microelectronic GmbH. Above all, new

orders for semiconductors, vehicle

electronics, and gas generators should

be emphasized.

The Energy Systems Technology Divi•

sion did not match the incoming order

volumes of the previous year; a decline

occurred in almost all power trans•

mission and distribution activities, as

well as in industry components and

electrical machinery.

The recovery process developed

at an exceptional pace in electronic

components. As a result of the good

Because of several large orders in

Postal Automation, incoming orders

domestic and foreign economy, business were gratifyingly high. Moreover, in the

expanded, primarily in vehicle electro•

nics, telecommunications, and home

entertainment electronics.

fourth quarter of 1994, the newly

acquired U.S. firm ElectroCom Automa•

tion was included in the consolidation

for the first time. The growth in Automa•

tion was also sustained by the positive

AEG Daimler-Benz Industrie

In Energy Systems

Technology, sales reve•

nues stagnated at the

previous year's level. The

weak business activity in

Low and Medium-Voltage

Systems caused by the

economy was offset by

The restructuring costs incurred at

the same time, which put a DM 600

million strain on the 1993 results, still

totaled DM 150 million in 1994. Over

and above the structural measures

already introduced in the previous year,

we have adopted additional projects

such as gearing the domestic and

higher project invoicing in foreign sales organization specifically

High-Voltage Systems. In

contrast, the business

volume in Industry Com•

ponents and Electrical

Machinery was below the

toward the business units responsible

for profits.

The profits from the sale of various

activities, particularly Domestic Appli•

ances, Power Meters and Lighting

Systems, improved the net income for

1994 by DM 300 million, so that the net

loss before loss absorption by the group

totaled DM 350 million compared with

DM 1.2 billion in 1993. For AEG Aktien-

gesellschaft, the loss came to DM 552

million, because the income from the

divestiture of the Power Meters and

Lighting Systems activities had already

been included in AEG Aktiengesell-

schaft's profit and loss statement in

the previous year.

1993 level.

In Automation, the

previous year's revenues were not

matched. The strong competitive

pressure in both the Project and Drive

Systems as well as Systems and Auto•

mation sectors led to a sharp decline in

business. Modicon, however, registered

a positive trend in sales.

Sale of AEG Hausgerate

Following the approval by the EU

authorities of the sale of the Domestic

Appliances Division to Electrolux, this

business activity was eliminated from

the group as of September 30, 1994.

The profit and loss statement for AEG

Hausgerate is still included in the con•

solidated financial statements for nine

months.

Despite a marked increase in sales,

the Rail Systems Division exhibited

operating losses close to the previous

year's figure. The poor revenues from

customer orders played a role in this

development.

Net income in Microelectronics

improved considerably as a result of

the gratifying business trend in vehicle

electronics and because of the cost-

cutting measures implemented, but

still remain in the red, as expected.

Considerably Reduced Group Loss

The profit and loss situation of AEG

Daimler-Benz Industrie in 1994 was hurt

by the delayed economic upswing. The

underutilization of capacities led to

extremely fierce price competition.

By carrying out restructuring programs

and sweeping rationalization programs,

we succeeded in cushioning the impact

of these burdens, as well as the impact

of increasing costs, and in maintaining

operating losses at approximately

DM 500 million compared with the

previous year.

AEG Daimler-Benz Industrie

Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.

Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.

Here was a product or mood picture without text or figures.

It was omitted in the pdffile to improve the usability of the file size.

In Energy Systems Technology, the

Power Transmission and Distribution

business field broke even, even though

revenues declined. Net income in the

Components sector, which no longer

includes the Power Meter and Lighting

Systems activities, was burdened by a

price-related decline in sales. However,

because of the measures implemented

with respect to structural reorganization

and cost improvement, losses were

reduced considerably.

U.S. subsidiary ElectroCom Automation

were included in the profit and loss

statement for the fourth quarter of

1994.

Outlook

In the current business year, full

recovery of the German electrical

engineering industry can be expected.

On this basis, AEG Daimler-Benz

Reduction of Workforce

Industrie assumes that business

At year-end 1994, AEG Daimler-

Benz Industrie employed 44,769 people

worldwide. The drop in the employment

figure compared with 58,921 in 1993

can basically be attributed to the nega•

tive balance from the sale and takeover

of businesses. In addition, there were

cutbacks as a result of structural and

economic adjustments. Comparably

calculated, this translates to a 5%

decrease.

volumes will grow, sustained by all

divisions, especially Microelectronics.

However, the economic recovery will

have at best a delayed effect in sectors

with long-term contracts, in particular.

As of January 1, 1995, we took over

the industrial management of TEMIC,

which will be fully included in our con•

solidated financial statements. The

sales-boosting effects resulting from

this and from the organizational

allocation of MTU Friedrichshafen will

more than compensate for the decline

in sales associated with the divestiture

of the Domestic Appliances Division.

Our goal remains to accelerate the

structural reorganization of AEG Daim•

ler-Benz Industrie by means of strategic,

income-boosting measures in the

individual fields of activities, focusing

The Automation Division countered

the intensified competitive pressure in

the industrial sector with intensive

rationalization measures. However,

because of the still insufficient utiliza•

tion of streamlined capacities, as well

as a further drop in prices, the net loss

was higher than in 1993. Although net

income fell in postal automation due to

lower prices, it still remained gratifyingly

positive. The activities of the acquired

DM 1 Billion in Investments

Investment by AEG Daimler-Benz

Industrie companies in 1994, including

the assets taken over from newly acqui•

red companies, totaled DM 983 million

(1993: 764 million). This figure includes

DM 564 million (1993: 622 million) in

additions to property, plant and equip•

ment, DM 215 million (1993: 105 million) primarily on Rail Systems. We will con•

of which involve foreign

companies.

centrate our efforts on improving the

quality of revenues and the utilization of

capacities by cutting costs and further

internationalizing our activities.

The full takeover of

ElectroCom Automation

represented the largest

share of the investments.

Investment activities in

Germany also focused on

the continued moderniza•

tion of the Hennigsdorf

plant for Rail Systems.

Outside Germany, the

companies of AEG

Daimler-Benz Industrie

invested primarily in a

new production line for

Microelectronics at the

plant in Nantes, France.

Projects that were completed included

the Technology Center for Systems

Electronics in Pittsburgh, U.S.A., and

the administration and services facility

in Greece, which we had already begun

in the previous year.

AEG Daimler-Benz Industrie

Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.

Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.

Here was a product or mood picture without text or figures.

It was omitted in the pdffile to improve the usability of the file size.

We entered into an agreement with

Thomson-CSF to merge the activities of

both companies in the area of high-

performance explosives and form the

new company TDA Armements S.A.S.

Activities in the field of projectile pro•

pulsion were consolidated under the

aegis of Bayern-Chemie. In a joint effort

with Aerospatiale we will combine the

area of guided weapons systems within

EMS (European Missile Systems), a

company to be founded for this purpose.

We were able to reach an agreement

with the American company Collins

Avionics, a subsidiary of Rockwell Inter•

national, to found Collins-Dasa Avionics

Systems GmbH. This joint venture will

be responsible for the definition and

worldwide marketing of products for

satellite-supported navigation systems

and state-of-the-art avionics. With the

Russian company Aviapribor AG, the

leading manufacturer of avionics and

aircraft equipment in the CIS, we will

found the joint venture Davia. Davia will

be headquartered in Moscow and will

handle the development, production and

marketing of selected avionics and flight

safety equipment for the CIS market.

Later, Davia will expand its market west•

ward.

Corporate Unit Daimler-Benz Aerospace

In 1994, business trend for Daimler-Benz Aerospace was characterized by

declining sales and a shortage of orders. Although the air travel market

recovered, the positive development was not yet felt in our core business,

the aircraft market. In the public sector, the funds available for space

exploration and defense were cut even more drastically, and our business

volume was painfully reduced. The programs we had introduced to adapt

structures and capacities and reduce costs in response to the adverse

market conditions in the year before required further workforce reductions

in 1994. These measures represented an important step toward improving

our earnings situation.

Strengthening the Core Business

Through New Structures

In June 1994, the company and the

employees reached a consensus on the

proposed measures. The agreement

confirms our intention to eliminate

The dramatic deterioration in the

economic environment forced DASA to

make incisive changes in order to

ensure the company's existence. In

October of 1993 an action plan was

presented that focuses on strengthening

the core fields of operation and discon•

tinuing business activities that were no

longer strategically relevant. The pro•

gram includes measures for adapting

structures and capacities to the

reduced and anticipated levels of

capacity utilization.

10,300 jobs, primarily in the Aircraft and

Defense and Civil Systems divisions. The

reductions also include the plan to close

or sell a number of sites in Germany in

the period between 1993 and 1996.

Particularly in the Air Transport Division,

we will eliminate overlap between indi•

vidual activities and implement a new

manufacturing structure in the plants.

In Defense and Civil Systems, the

dramatic cutback in the budget of the

Federal Ministry for Defense (BMVg)

made a fundamental strategic reorient•

ation unavoidable. We converted the

former four product areas of the division

into a new management structure con•

sisting of two product divisions with a

number of profit centers and two inde•

pendent profit centers. Further, we are

reallocating a variety of activities to ex•

isting and future European companies.

In 1994, we entered into negotia•

tions with Canada's Northern Telecom

concerning the joint founding of a

company that will develop and offer a

broad range of services and systems for

modern telecommunications networks

to telecommunications carriers in

Germany and Eastern Europe.

Recovering Our Competitive Edge

Through New Cooperative Ventures

As a consequence of reduced

defense spending, certain defense

capacities can only be maintained

and utilized on a European scale. This

prompted us to found additional Europ•

ean joint ventures in 1994. In the civilian

sector too, we intensified our internatio•

nal cooperative effort to expand our

worldwide market presence and pene•

trate new markets.

Daimler-Benz Aerospace

Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.

Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.

Here was a product or mood picture without text or figures.

It was omitted in the pdffile to improve the usability of the file size.

In the year under review we trans•

ferred solar technology, formerly a part

of the energy and system technology

product division, to the company Ange-

The exchange of experience bet•

ween industry and research is also to

be intensified in the Technology Center

founded jointly by Daimler-Benz Aero•

Losses for Aircraft, New Orders Rise

In the Aircraft Division, sales de•

clined 15% to DM 8.7 billion (1993:

DM 10.3 billion). Almost all divisions

were affected, but especially drastically

hit were the Fokker and Military Aircraft

Divisions. In the civilian aircraft sector

revenues were adversely affected by the

drop in the dollar exchange rate and -

especially for Fokker aircraft - by fierce

competition over prices. In the short-

haul aircraft sector a vigorous rise in-

sales was achieved with the Dornier

328, which has been in series produc•

tion since October 1993. Incoming

orders rose 14% to DM 8.7 billion (1993:

DM 7.6 billion), reflecting in particular

the increase orders in the Airbus pro•

gram and the Dornier 328 program, but

they remained at an unsatisfactory level.

wandte Solarenergie - ASE GmbH, which space Airbus and the Hamburg-Harburg

was founded in cooperation with the

RWE subsidiary Nukem. With Carl Zeiss,

Oberkochen, we are working toward a

joint venture in the field of Optronics.

University, which was inaugurated in

Hamburg-Finkenwerder in 1994.

Entering Markets of the Future:

In the Space Systems Division, nego• Marketing Companies Bring Us

tiations continued with Aerospatiale on

founding ESI (European Satellite Indus•

tries). In the aerospace sector, our

cooperation with the People's Republic

of China, begun over ten years ago, was

Closer to Our Customers

During the year under review we

continued the worldwide market drive

we began in countries that are of

interest to our company as potential

reinforced during the reporting year with future markets. We founded marketing

the founding of EurasSpace GmbH,

Munich. This joint venture between

CASC (China Aerospace Corporation)

and DASA will take over the develop•

ment, manufacturing and marketing of

satellites for communication and earth

surveillance, and the associated ground

stations.

The Propulsion Systems Land/Mari•

ne Division entered into a comprehens•

ive cooperation agreement with Detroit

Diesel Corporation for the purpose of

sharing the existing sales organizations

of the two companies as well as devel•

oping, producing and marketing new

diesel motors.

companies in Greece, Italy, Mexico,

Austria, Singapore, Spain, Turkey, the

United Arab Emirates and the People's

Republic of China to bring us closer

to our international customers. The

marketing companies will combine the

technological competence and product

spectrum of several divisions, allowing

us to offer complex solutions to poten•

tial customers in their own country. In

addition, our circle of traditional liaison

offices was expanded worldwide.

Space Systems at the

Previous Year's Level

Space Systems sales were at the

same level as the year before, at DM 1.4

billion. Along with the research satellite

ERS-2, one of the most important con•

tributors to sales was the Ariane pro•

gram. Incoming orders were unchanged

at DM 1.5 billion.

Group Sales Decline

Group sales for Daimler-Benz Aero•

space, at DM 17.4 billion (1993: DM

Downward Trend for

18.6 billion) were down 7% from the year Defense Technology

Intensified Cooperation Between

Research and Industry

Together with Daimler-Benz AG and

the German Aerospace Research Institu• 50% of the group's business volume.

before. A major factor in this trend was

a substantial decline in sales in the Air•

craft Division, which contributes around

Sales declined throughout the De•

fense and Civil Systems Division. Only

through extensive settling of accounts in

the Stinger program was there a growth

of 8% to DM 3.1 billion (1993: DM 2.8

billion). Orders were down 3% to DM 2.2

billion (1993: DM 2.3 billion). The vol•

ume of orders was considerably lower

than sales, as in the years before.

te (DLR) we have reached a basic agree•

ment on closer cooperation. The goal of

this innovative partnership is to jointly

pursue research and development

objectives in future-oriented technol•

ogies in order to significantly increase

the speed of innovation and make more

efficient use of the shrinking pool of

available funds. At the same time there

are efforts to engage in cooperation

with additional industrial and research

entities.

In Germany, sales declined 7% to

DM 5.4 billion (1993: DM 5.8 billion).

Foreign sales, which as in 1993 con•

tributed 69% of total sales, declined 6%

to DM 12.0 billion (1993: DM 12.8 bill•

ion). The military portion of sales came

to 29%, as in the prior year. Incoming

orders showed a slight growth, by 5%, to

DM 16.4 billion (1993: DM 15.6 billion).

The significantly higher orders in the

Aircraft Division were offset by declines

in other divisions.

Daimler-Benz Aerospace

Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.

Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.

Here was a product or mood picture without text or figures.

It was omitted in the pdffile to improve the usability of the file size.

More Favorable Sales Situation for

Propulsion Systems

Propulsion Systems sales, influenced

by the departure of KKK from the con•

solidated group, were DM 3.0 billion

hours had to be implemented for an

extended period.

For the same reason, we decided at

the beginning of 1995 to undertake a

restructuring program for Fokker in an

effort to improve the earnings situation

picture here as well.

At the same time we are continuing

our policy of European cooperation and

downsizing by merging domestic activi•

ties in the sector.

Finally, with our worldwide market

campaign, we are making a significant

contribution toward opening up new

business opportunities in markets offer•

ing a high potential for growth.

By division, 42,220 persons (1993:

46,863) were employed in Aircraft,

4,205 (1993: 4,463) in Space Systems,

9,970 (1993: 12,387) in Defense and

Civil Systems, and 12,618 (1993: 15,347,

including 1,736 at KKK) in Propulsion

Systems. In the other divisions, which

include primarily the joint venture

TEMIC, listed pro rata, and Medical

Technology, there were 6,568 emp•

loyees (1993: 7,026).

(1993: DM 3.1 billion), 3% lower than in

the year before. When calculated in

comparable terms, however, there was

an increase of 7%. The decline in orders

by 12% to DM 2.8 billion (1993: DM 3.2

billion) was also influenced decisively by

this change. Comparably calculated, the

decline was only 5%.

Workforce Reductions Continued

Daimler-Benz Aerospace had 75,581

employees throughout the group at the

end of 1994 (1993: 86,086), including

Outlook

With this program we are establish•

ing the prerequisites for securing jobs in

our core divisions, and for the healthy

growth of our company in the future.

As of the end of 1994 we owned a

50% share each in TEMIC TELEFUNKEN

microelectronic GmbH. At year's end we

sold a 1% share to AEG Daimler-Benz

Industrie, reducing our share to 49%.

3,058 apprentices and trainees. There

were 15,499 persons (1993: 16,713)

working in foreign countries. The decline TEMIC will therefore be listed as an in•

in workforce reflects the measures we

introduced to adjust capacities. For

example, we have largely withdrawn

from the Lernwerder site. In addition

to the workforce reductions, in many

vestment as of 1995, and will no longer

be included pro rata in the consolidated

financial statements of DASA. With the

adjustment for the resulting effects, we

are anticipating a moderate increase in

divisions of the group shortened working comparative sales for the group in 1995.

In Space Systems the

settlement of accounts for

the development costs of

the Ariane 5 will boost

sales considerably. We

are expecting a slight

increase for Propulsion

Systems and for Aircraft,

where we are anticipating

significant growth, partic•

ularly in the Fokker 70,

Fokker 100 and Dornier

328 aircraft programs.

However, a further decline

can be expected in De•

fense and Civil Systems.

The programs initiated to lower costs

and improve profits are progressing

according to plan, including the elimi•

nation of additional positions and the

closing of a number of sites. This will

bring our costs down to a level and

enable us to compete internationally.

Daimler-Benz Aerospace

Corporate Unit Daimler-Benz InterServices

Following the upswing in the industrial services sector, debis increased its

The business trends regarding soft•

ware projects and products varied. The

sales 14% to DM 10.8 billion in 1994. Growth in the Mobile Communications Services, Telecommunications, Public

Division was especially good, in no small measure due to the acquisition of

Bosch Telecom Service. Significant growth rates were evident in the

Systemhaus and Financial Services Divisions. The internationalization

of business activities was also a focus for Daimler-Benz InterServices.

Restructuring measures were quite successful, especially in the area of

information technology.

Sector, and Traffic subdivisions posted

increases in incoming orders and sales.

In the Industry and Standard Software

Products divisions, which operate in a

difficult environment, we implemented

the majority of the restructuring mea•

sures decided on in the previous year.

The attendant optimization of business

processes resulted in cost savings and

personnel cuts in these divisions. Con•

tingency reserves were available for the

resulting non-recurring expenses.

The software and management con•

sulting business at Diebold continued at

the previous year's high level. The order

sposition was positive during the second

six months especially.

debis Continues to Grow

In addition, we partially restructured

the refinancing of our domestic leasing

and financing businesses. Through the

investment of external partners in a

vehicle holding company its sales are

no longer consolidated; the disposal

revenues at the point when the contract

expired are also no longer included in

the consolidated sales. The sales trend

was also influenced by the fact that we

expanded the sales financing business

more strongly than the leasing business.

A comparable effect was seen in the

countertrade area, through the change

in the proportions of the consulting

business and own-account trading.

In the year under review, debis

raised consolidated sales by 14% to DM

10.8 billion. Because of the conversion

of the accounting system from the total

cost method to the internationally

prevalent cost of sales method, interest

income from sales financing amounting

to DM 1 billion is now included under

sales; aside from minor inventory

changes, this corresponds to the total

output that we reported in previous

financial years.

The new joint venture with Mitsubi•

shi, debis Advanced Communication

Services, began offering enhanced fax

services in the fall of 1994. The aim here

is to offer our customers innovative

services surrounding this widely used

transmission medium.

In all divisions, further internation•

alization contributed to the growth in

sales. In terms of region, Germany

accounted for 55% of 1994 sales, the

partner countries of the European Union Systemhaus:

for 7%, the U.S. market for 29%, and

Higher Profitability

other markets for 9%.

debis Systemhaus was able to raise

its sales by 9% to DM 1.8 billion and

make a positive contribution to profits.

Computer Communication Services

(CCS) again contributed disproportion•

ately to this result.

We restructured the cooperation

with CAP-Gemini in Germany. While

maintaining the commitment in terms of

value, our French partner now holds a

The acquisitions of Bosch Telecom

Service, the Leipzig Data Processing

Center and several other firms account•

ed for DM 0.1 billion of the higher sales

figure. This is a clear indication that

debis achieved the continuous growth

primarily by its own efforts.

19.6% investment in the overall activities

of Systemhaus. As part of this restruct•

uring, the separation of the individual

areas under corporate law was aband•

oned in order to give CCS and the

software projects and products the

opportunity to enter the market together

and under one name.

Daimler-Benz InterServices (debis)

Financial Services:

Further Upswing

Mexico and Japan. In Italy and Spain,

the respective measures taken in a

difficult environment assured new

business. In Portugal, Mercedes-Benz

MultiServigos, and in Hungaria, Merce•

des-Benz Lfzing Hungaria were founded,

specializing in the classical vehicle

leasing trade.

The debis leasing companies, which

are concerned with financing other

products of the group, were also able to

significantly expand their portfolio. The

development of the American debis

Financial Services was especially positi•

ve in this regard. During the year under

review, we founded new companies in

Switzerland, the Netherlands, Great

Britain and Japan in order to expand this

Another focus was continued inter•

nationalization. Besides the opening of

new offices in Singapore and Italy, the

presence in France was expanded

through an investment in the Théoréme

insurance broker.

The Financial Services Division was

able to expand its sales by 12% to DM

7.6 billion. The biggest contribution to

this figure was made by the domestic

market, where the commercial and pre-

owned car business expanded in part•

icular. The main source of foreign sales

revenue was our American company

Mercedes-Benz Credit Corporation

Trading

Despite the difficult political and

economic situation of important partner

countries for countertrade transactions,

debis Trading was able to expand the

countertrade volume by 16% to DM 0.6

billion by strengthening the consulting

business. Cooperation with the Russian

company Gasprom as part of the

DITGAS Handelshaus joint venture

continued to proceed positively.

(MBCC). Despite the end of the special

programs launched with Mercedes-Benz

during the previous year, the company

was able to further increase its sales.

An especially positive trend could be

observed in the Commercial Vehicle

Division of MBCC, which works closely

with the North American Mercedes-Benz business.

Commercial Vehicle subsidiary, Freight-

liner. High sales increases were also

posted by the company in Great Britain

and by the new company operations in

Worldwide, new business rose by

Marketing Services

10% to 213,000 units, valued at DM 13.8

billion. Accountable contract volume

thus rose by 15% to 530,000 units,

which correspond to a value of DM 25.1

billion. Accountable contract volume

includes all contracts for which debis

bears corporate responsibility. This

also covers those contracts that were

brought into non-consolidated comp•

anies as part of the effort to make

refinancing more flexible or were di•

vested through other off-balance-sheet

measures.

At DM 0.5 billion, sales of debis

Marketing Services were in the same

range as the previous year. The largest

contribution to this was made by the

Media subdivision. In order to cover

international media budgets, a European

network of media agencies were

initiated.

debis Aviation Leasing was able to

continue the successful business trend

of the previous year and raise the num•

ber of realized aircraft leasing funds to

five.

Insurance Brokerage:

Expansion of Third-Party Business

Through steady growth, especially in

the external commercial customer trade,

debis Assekuranz was able to raise the

commission earnings posted as sales to

DM 76 million. The premium volume

amounted to DM 0.7 billion. In further

developing the Insurance Brokerage

Division, we focused on the reinsurance

business.

Daimler-BenzInterServices(debis)

Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.

Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.

Here was a product or mood picture without text or figures.

It was omitted in the pdffile to improve the usability of the file size.

Mobile Communications Services:

Acquisition of Bosch Telecom

Service

Real Estate Management: Progress

at Potsdamer Platz on Schedule

After excavation work began in the

spring of 1994, the cornerstone for the

construction project on Berlin's Potsda•

mer Platz was laid in October, a project

which debis Immobilienmanagement

(dIM) is managing for Daimler-Benz AG.

The Financial Services Division will

continue its internationalization with the

founding of further leasing and financing

companies in Sweden and Argentina.

Growth opportunities for our leasing and

financing companies outside the auto•

motive sector should be seized by our

own companies in Belgium, Italy and

The Mobile Communications Ser•

vices Division took advantage of the

strong market growth in Germany and

the other deregulated European count•

ries. Sales in Germany rose to DM 0.5

billion (1993: DM 0.2 billion). Because

the foreign subsidiaries and affiliated

companies are still of secondary im•

portance, they were not included in the

debis consolidated financial statements.

Through the acquisition of com•

petitor Bosch Telecom Service (BTS),

whose range of products is to be

maintained as a second brand name,

debitel is in second place in Germany

after Mannesmann Mobilfunk, with a

Construction continues to proceed com• Argentina. There are outstanding pro•

spects for an expansion of business in

the United States, in part through the

agreement to offer exclusive financial

services for the engine manufacturer

Detroit Diesel Corporation.

pletely on schedule. Thus, it is currently

projected that the first segment of con•

struction will be completed in 1997.

During the past year, dIM has al•

ready managed to win over the first

attractive operators for a hotel, a

musical theater, a cinema complex, and

retail operations in the area offering

340,000 square meters of gross floor

space

Trading and Insurance Brokerage will

vigorously continue their expansion of

business. Through the further develop•

ment of the international Media Net•

work, Marketing Services has good

prospects for tailoring its full service

marketing services to the European

market. With the companies founded in

the Netherlands and France, the Mobile

Communications Services Division will

take part in the dynamic growth of those

deregulated markets. In Germany, the

outstanding market position, combined

with credit solvency-oriented growth,

will make it possible for the division to

further strengthen its profitability.

19% market share (1993: 11%). debitel

In addition, the company has begun

and BTS have taken steps to counter the offering developer and facility manage•

loss of receivables outstanding that is

especially serious in the mobile com•

munications market and represents a

major burden on the annual financial

statements. In an effort to better limit

losses, they are geared toward credit

solvency-oriented growth. The division

still managed to more than double the

number of customers - even without

considering BTS. In Germany, around

ment services for other properties. In

this context, usage analyses and market•

ing concepts are formulated for various

properties.

Outlook

Based on past performance, debis is

confident that it can take advantage of

the opportunities present in the consist•

ently dynamic services sector. This posi•

tive expectation applies both to further

increases in sales and to profits.

320,000 customers utilized the services

of our two mobile communications

companies at year-end.

The restructuring measures taken in

the past, especially in the area of infor•

mation technology, already had an effect

in the most recent financial year. For

that reason we are confident that we

will further raise and solidify the earning

power in this area. In the New Federal

States, the consolidation of the individ•

ual divisions of Systemhaus will make it

possible to centralize the development

of solutions for all work areas. We will

place particular emphasis on expanding

comprehensive business solutions.

The French affiliated company

MTEL, which we are also operating

jointly with our Europe-wide partner

Metro, has in the meantime acquired

around 30,000 subscribers. That cor•

responds to a share of 6% of the French

digital mobile communications market.

debitel Niederlande has handled around

5,000 customers since the official

network startup in July 1994, which

corresponds to a market share of 12%.

Daimler-Benz InterServices (debis)

Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.

Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.

Here was a product or mood picture without text or figures.

It was omitted in the pdffile to improve the usability of the file size.

Central Corporate Functions

Research and Technology

This program is supported by a

newly developed procedure for planning

research activities, which not only

demands innovation and but also

advances it.

Internationalization is also accelerating in the Research and Technology

Department. Greater international cooperation in several projects in 1994

was accompanied by the establishment of new research centers in the

U.S.A. and in China. A worldwide sensation was caused when we presented

Europe's first roadworthy vehicle with a fuel cell that operates under

ordinary conditions. At the same time, we have taken over the market

leader position in this technology segment.

Strategy Workshop

As part of the annual strategy work•

shop, a process was introduced for crit•

ically reviewing the allocation of funds

for research areas and projects. Its

objective is to adapt research priorities

to new knowledge and internal reorient•

ation. Less successful projects are

discontinued and the funds reallocated

to new and innovative undertakings. As

a result, 20 long-range projects were

defined, and it became evident in the

process that information technology in

particular would become considerably

more important in research.

First Roadworthy Vehicle

with Fuel Cell

Research and Technology. In addition,

we secured expertise not already avail•

able within the group through interna•

tional cooperation.

In the worldwide search for alter•

native automobile propulsion systems,

Daimler-Benz has reached an important

milestone: Europe's first vehicle with a

fuel cell that operates under ordinary

conditions was unveiled to the public in

May 1994 at the new Research Center

in Ulm. The fuel cell generates electrical

current directly from hydrogen gas. The

propulsion system is emission-free. The

only by-product of the "cold combus•

tion" is water vapor.

Now that Daimler-Benz has demons•

trated that the fuel cell used is suitable

in principle and can be integrated in a

vehicle, researchers are working on

ways to reduce the cost, volume and

weight of the new propulsion system.

They also hope to improve its efficiency

and substitute liquid methanol for the

hydrogen gas currently used as the

energy source. When they succeed, the

ranges common today for vehicles that

run on gasoline or diesel fuel will be

attainable for the first time with an

electric vehicle.

Daimler-Benz Research Prize

Awarded

Our position as market leader in this

technology was attainable only through

cooperation from several sectors. We

consolidated the fuel-cell research

activities, formerly established at three

subsidiaries, into one project under

The Daimler-Benz Research Prize is

awarded to employees in Research and

Technology who have made outstanding

achievements. With this prize, we aim to

reward outstanding work at Daimler-

Benz with an additional bonus over and

above the usual remuneration systems,

in order to increase employee motiva•

tion.

With our expertise in fuel cell tech•

nology, we also hope to play an import•

ant role in the promising market of

decentralized electric power supply.

However, it will take several more years

of research and development work

before the new technology is ready for

the market.

The prize was awarded in 1994 for

the first time. It went to Dr. Peter

Konhauser, Prof. Boris Kerner and Mar•

tin Schilke, who were honored for their

in-depth studies of the phenomenon of

traffic congestion. Their work made

possible the development of a new

model that can help simulate traffic flow

on highways. The newly gained know•

ledge will enable us to develop approp•

riate measures for optimizing traffic

flow.

"Innovation Campaign" in Research

The success of the fuel cell research

is a result of Research and Technology's

effort to expedite the transfer of know•

ledge from research to product and to

foster innovation.

Also serving this goal was the "Inno•

vation Campaign" begun in 1994. Its

purpose is to strengthen internal and

external factors that promote inno•

vation, to reinforce international ties,

and to intensify interdisciplinary

cooperation.

Research and Technology

Research Audit, a Research

New Research Center

Evaluation Process

Established in U.S.A.

Procedures to determine the effici•

ency and effectiveness of research are

being sought worldwide. In this context,

Daimler-Benz developed and implemen•

ted the "research audit", in which re•

search fields of strategic importance

are evaluated against world standards

and the competition, as well as for their

Another result of the innovation

process is the Daimler-Benz Research

& Technology Center established in

California. Its purposes are to arrange

contacts and cooperative projects with

other research institutions in the U.S.A.

and to observe technological develop•

ments on site. The research center,

prospects of success. The audit is based which became operational at the end

on firmly established criteria. Both in•

ternal decision-makers and outside

experts take part in the process.

Daimler-Benz subjects about four

research areas to this audit annually.

So far the process has brought valuable

information to light, for example in

optical character recognition and in

combustion research, which allows us

to assess the status of our research

accurately by international standards.

It has also reinforced our resolve to

become a leader in all relevant research

fields by world standards.

of 1994, will also undertake its own

research, especially in information

technology and microelectronics. In

addition, it will conduct research in

the field of "technology and society".

Research Projects to Increase

Production Efficiency

In national, pan-European, and glo•

bal cooperation, our researchers are

working on projects to improve effici•

ency in production.

The pilot phase of the aerospace

and automotive industry's pan-European

project "AIT-Advanced Information

Technology in Design and

Manufacturing", which we

initiated, began in 1994.

In this project, over thirty

manufacturers and supply

companies aim to pool

their research potential

and make use of the

latest information tech•

nology to shorten dev•

Cooperation with the Chinese

Academy of Sciences

Another step toward internationali•

zation in the research sector was the

establishment of a joint research insti•

tute with the Shanghai Institute of

Metallurgy, a member of the Chinese

Academy of Sciences. This cooperative

project in the field of packaging tech•

nology for microelectronic components

is connected with a joint venture, TEMIC elopment and production

TELEFUNKEN microelectronic GmbH.

The joint venture, also headquartered in

Shanghai, took over final production of

times drastically in the

future. The procedure

used heretofore was

semiconductor components destined for reversed, in that for the

the world market. With new packaging

technologies, we hope to secure and

enhance TEMIC's competitive edge in

power semiconductor technology.

first time users of the

information technology

defined the demands to be placed on

the future technology and set the

priorities important for them. In the

main phase, which will begin in 1995,

they will work jointly with the suppliers

of information technology to put the

results of the research projects into

practice.

Research and Technology

Daimler-Benz also played a sub•

stantial role in the establishment of the

project ProSTEP in the spring of 1994.

The goal of this project is to enable the

exchange of standardized electronic

processing data, for example between

automobile manufacturer and suppliers,

and thus considerably shorten produc•

tion time. Meanwhile nearly 100 comp•

anies - including some from Italy,

Sweden and Switzerland - have joined

in this initiative.

Under the auspices of the research

program IMS-Intelligent Manufacturing

System, we are working with partners in

Canada, the U.S.A. and Australia. The

sub project "Rapid Product Develop•

ment", completed in 1994, was a study

not only of how the prototype of a

product can be quickly produced from

CAD data in the future, but also of how

electronically readable design data can

be quickly retrieved from a modified

prototype.

Global Networking

sight simulation. At the same time, the

data processing system was brought up

to date. The simulator's range of move•

ment has been increased, which essent•

ially allows more realistic movements

and thus offers a broader range of

benefits.

In support of the globalization of the

group, Daimler-Benz is currently devel•

oping a series of innovative procedures

that will make intercontinental net•

working possible. An example of this

cooperative work is the "Live-Board", an

electronic panel currently being tested

in a pilot program at AEG Bahntechnik,

with which empirical data are currently

collected from Pittsburgh, Pennsylvania,

and Nuremberg, Germany, as well as

from the research center in Ulm,

Germany.

During the last years, the driving

simulator furnished valuable information

about the behavior of automobile dri•

vers. In addition, Mercedes-Benz uses it

intensively in the development of new

model series to study driving behavior

even before a prototype is built.

Lower Pollutant Emissions and

Fuel Consumption

Germany as Innovation Site

In view of the increasing inter•

national competition to which German

Independent of its research in alter•

native propulsion systems, Daimler-Benz industry is exposed, we have joined in

will continue to pursue its goal of devel•

oping engines with lower emissions and

fuel consumption. For this research, we

have the most up-to-date engine-testing

stations in Europe. We believe that it is

possible to reduce hydrocarbon and

nitrogen oxide emissions much further.

We are convinced that the potential for

conserving fuel is far from exhausted.

the public discussion concerning

Germany's future as a site for industry

and research. Daimler-Benz would like

to contribute to this dialog, in the

interest of using the funds for research

as efficiently as possible. We therefore

advocate a research policy that has the

common support of industrial, scientific,

and political communities and will

ensure the future of German industry.

The "Process Chain" Program

Information technology is also used

to support process chains in the manu•

facturing of a product. In contrast to

isolated applications still widely used,

continuous information technology

systems and software aim to optimize

the process chain as a unit. The primary

goal is to improve product run times in

manufacturing.

Fiber-Reinforced Plastics

Daimler-Benz also sees potential for

conservation in materials, whereby "in•

telligent light-gauge construction" merits

special attention. Based on expertise

derived from aerospace, we are working

intensively to lay the technological

groundwork for the economical use of

fiber-reinforced plastics in motor vehic•

les and rail cars. The current projects

have already shown that even the pas•

sive safety of future vehicles can be

significantly improved.

In addition to four pilot projects

pertaining to automobile, rail car and

aircraft construction, the program also

addresses comprehensive interdiscip•

linary topics, in order to quantify the

attainable benefits of the program,

expand expertise within the group, and

facilitate the exchange of practical

knowledge.

Reactivation of the

Driving Simulator

In the winter of 1994, the driving

simulator in Berlin was officially put

back in operation following an eight-

month period of remodeling. After

almost ten years of use, an extensive

overhaul was needed in the area of

Research and Technology

Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.

Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.

Here was a product or mood picture without text or figures.

It was omitted in the pdffile to improve the usability of the file size.

PROMETHEUS Project

Successfully Concluded

ITF Intertraffic Concentrates on

the Environment and Mobility

ITF Intertraffic, a company special•

izing in integrated traffic management

systems, draws on the knowledge of the

entire group with the goal of this expert•

ise as a service. In February 1995, ITF

opened an office in Berlin, where it will

develop traffic concepts for Berlin and

the New Federal States.

The research project "PROMET-

HEUS-Programme for a European

Traffic with Highest Efficiency and Un•

precedented Safety", which Daimler-

Benz initiated several years ago in

cooperation with the European auto•

mobile industry, was successfully

concluded in 1994. Preliminary market

research generated many suggestions

for new products. The findings of the

study in the area of automotive safety,

comfort, and environmental compat•

ibility are now being put into practice.

Market Preparation for

Microelectronic Components

Our efforts to transfer research

knowledge into products at a faster

pace are showing the first signs of

One result of the PROMETHEUS

project is the Daimler-Benz experimental success in the Microelectronics Divisi•

vehicle VITA II (Vision Technology Ap•

plication), which is computer-controlled

and requires no human input. It is

capable of recognizing objects and can

independently adjust distance intervals

and speed to the given situation. This

on. Here we have gained a position of

world leadership in silicon germanium

transistors, which are indispensable as

electronic switches. These transistors

make excellent switching components,

e.g. for the growing mobile communic•

ations sector, for satellite communic•

ations, or for global vehicle position

indication systems. TEMIC is now work•

ing to translate the existing possibilities

into products. Series production will

begin soon in Heilbronn.

"computer vision" enables the vehicle to

change lanes and pass other vehicles

automatically without collision. It is

supported by the ability to recognize

traffic signs.

In addition, the PROMETHEUS pro•

gram also branched out into several

subprojects, one of which was "Fleet

Management". The knowledge gained

from this project is currently being

applied to new products in the

In addition, researchers in Ulm hope

to develop technologically superior and

less expensive switching elements

based on the silicon germanium com•

pound, as opposed to the components

currently in use based on pure silicon.

Matra MHS, one of TEMIC's joint

ventures, has taken this project under

its wing.

Mercedes-Benz Commercial Vehicle

Division.

The subproject "Dual Target Control"

is also being further pursued in the

traffic management project "STORM",

which tests modern traffic information

and advice systems in the Stuttgart

area. After construction of the infra•

structure at the beginning of 1995,

STORM took over the pilot operation.

Research and Technology

Environmental Protection

Recycling — Less Pollution and

Greater Conservation of Resources

In the course of global industrializ•

Daimler-Benz stepped up its activities in the area of environmental

protection in 1994. With our reinforced efforts in waste prevention and

recycling, we are making a lasting contribution to the solution of environ•

mental problems. We begin by considering environmental protection

aspects in the design of a new product, and we are pursuing the use of

natural raw materials. We are also concentrating on the separation of

waste into its individual materials and on the qualified processing of

these materials according to regulation.

ation, it has become increasingly evi•

dent that resources will not be available

forever and that nature's ability to ab•

sorb pollutants is limited. Problems such

as the petroleum shortage and the

greenhouse effect cannot be solved by

our continuing to pursue the industrial

development course of the past; nor can

it be solved by placing the very concept

of the industrial society under question.

What we need are improvements in both

product and production technology, as

well as in the reprocessing and recycling

of used products and production waste.

Daimler-Benz research made visible

progress in these areas in 1994. Using

Waste Legislation

Daimler-Benz Environmental

The environmental legislation passed Report —Open Information Policy

in 1994 was essentially shaped by

developments in the field of waste law.

Now that the Basel Accord has been

translated into national law, the export

of waste into countries outside the EU

on Environmental Data

With its environmental report, first

presented for the year 1993, the Daim•

ler-Benz group lives up to the claim of

"open information" expressed in its envi•

and EFTA is prohibited. It is also unlawful ronmental protection policy.

to export waste for use in countries

outside the OECD if these countries

have neither signed the Basel Accord

nor concluded comparable bilateral

agreements. In such cases, the expor•

ting country is obligated to retrieve any

waste exported illegally.

In this document, we report compre• intelligent processing and recycling

hensively on the most important group

environmental data. The pollution levels

connected with production are dis•

closed in the figures on significant

emissions, energy consumption, and

waste generation.

procedures, and without harming the

environment, we succeeded in stripping

previously unrecyclable painted bum•

pers of their paint and reclaiming the

Also adopted in 1994 was an amend•

ment to the waste law that had been

under discussion for many years: the

recycling law. The responsibility this

legislation places on the generator of

the waste in terms of production and

product underscores the need for the

diverse efforts of the Daimler-Benz

group in the field of waste prevention

and recycling.

Also documented are the efforts the

group has made in recent years to mini•

mize the effects of production on the

environment. Through several research

projects, some long-term, we show how

technological innovations can lead to

ecological improvements.

Investments and Expenditures for

Environmental Protection

Mainly due to special factors such

as the sale of the Domestic Appliances

Division, the investments made in the

area of environmental production were

slightly lower in 1994, at DM 133 million.

The highest single amount was contrib•

uted by investments for the conversion

to water based paints in car production.

Meanwhile, expenditures for environ•

mental protection -which, in contrast

to investments, better reflect the long-

term trend - rose to over DM 680

million.

Environmental Protection

high-grade plastic (polycarbonate) as a

base material for new bumpers. The

resulting paint sludge is then processed

Cooperation with Mitsubishi

The joint research efforts of Daimler-

Benz and Mitsubishi Heavy Industries in

into secondary polyol, a high-grade base the field of recycling plastic and elect•

material.

ronic waste were intensified in 1994,

and the first phases were successfully

concluded.

Another focus of our recycling

research at the Ulm Research Center is

the area of electronic waste processing.

Experimenting with new procedures, we

succeeded in separating metal, pre•

cious-metal and plastic fractions on a

laboratory scale at a quality level never

before attained, thus laying the ground•

work for high-grade reuse of the indi•

vidual materials.

Through a feasibility study, we

proved that the planned recycling pro•

cess is technically viable. Its economic

feasibility is being studied in trials at the

institutional level. In addition, joint

ventures with Mitsubishi in other areas

of environmental technology are being

considered.

In addition to the various recycling

processes, we are also studying applic•

ation possibilities for renewable raw

materials. Besides the advantages of a

natural material cycle, these raw mate•

Building on the ecological balance

sheet project begun in 1992, Daimler-

Benz and Mitsubishi are stepping up

work on an instrument that indicates

environmental aspects of a component

rials also have an even C02 balance. The at the design stage. It will help the

use of renewable raw materials in tech•

nology - for example, in natural-fiber-

reinforced plastics - is only an inter•

mediate step toward the production of

so-called "ecocomposites" in a biological

recycling process. In these fiber-

development engineer to recognize at

an early stage the ecological impact of

the materials used and of the production

and disposal or reclamation processes.

reinforced plastics, not only is the fiber

made of a renewable raw material, but

the plastic is also made from vegetable-

based oils. In addition to studying mate•

rial properties, we are also developing

suitable processes for economically

recovering the usable fibers and oils

from plants and processing them into

components. The first concrete results

of these efforts have already been

carried over into series production.

Parallel to the research into the use

of new types of materials, we are also

investigating new possibilities for

environmentally friendly processing of

conventional components. For instance,

our goal in the dry processing project

was to find new production processes

and tool materials that would eliminate

the need for the ecologically unsound

cooling lubricants still necessary in

many areas.

Env ir onmentalProtection

Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.

Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.

Here was a product or mood picture without text or figures.

It was omitted in the pdffile to improve the usability of the file size.

Daimler-Benz Aerospace had 75,581

employees at the end of 1994, and of

these, 60,082 in Germany. Because

business in the fields of aeronautics,

space systems, and defense technology

continued to be slow, extensive cuts in

the corporate structure and personnel

were necessary. Here again, we were

able to adjust capacities to a large

extent through normal attrition, early

retirement, severance agreements and

reduced working hours. But wherever

these possibilities did not suffice, we

had to announce layoffs. The entire

package of measures was the subject of

a June 1994 reconciliation of interests/

social compensation plan and included

the Lemwerder plant, which was taken

over by a company owned by the state

of Lower Saxony on January 1, 1995.

Daimler-Benz InterServices had a

Personnel

In 1994, the number of employees in the Daimler-Benz group at the end of

the year dropped 10% to 330,551. The decline was primarily due to the

restructuring measures also implemented in 1994. Irrespective of the tight

personnel situation, the professional development of our core employees

and the maintenance of a qualified junior staff remained top priorities in

our Personnel Department.

Fit for Global Competition

In the future human resources will

be shaped by the need to work - and

especially to produce - closer to the

markets internationally, as well as by

further changes in the corporate

structure.

The strategic realignment of busi•

ness areas in the Daimler-Benz group in

994 also affected the work of the per•

sonnel departments. Their main task

was to keep abreast of the necessary

changes and help shape them.

A special emphasis in this regard

was the further decentralization of

corporate responsibility. We were able

to pass on to other divisions the ex•

perience we had gained with smaller

business units over the past few years

in AEG Daimler-Benz Industrie and

Daimler-Benz Aerospace. To enable us

to act more quickly and directly in the

markets, we also optimized work flow

and set new challenges for ourselves in

the formulation of quality goals.

Employment Situation

At the end of the year, 330,551 per•

sons (1993: 366,736) were employed

in the Daimler-Benz group, and of these,

251,254(1993: 284,576) were in

Germany.

total of 9,226 employees at the end of

1994, and of these, 7,817 in Germany.

While the employment situation was

tense in parts of the Systemhaus Divisi•

on, expanding business enabled us to

hire new employees in the Mobile Com•

munications and Financial Services

Divisions.

As in the previous year, we were able

to make most of the personnel cutbacks

in the German companies (95%) through

early retirement measures, severance

agreements, or outplacements. Layoffs

were announced only in exceptional

cases. Further personnel adjustments

will therefore be necessary in 1995.

At Mercedes-Benz a total of 197,568

persons were employed at the end of

994, and of these, 148,194 in Germany.

Hours had to be reduced only for some

workers in the Commercial Vehicles

Division. In the Passenger Cars Division

we were again able to conclude a limited

number of fixed-term work agreements,

because of the sharp increase in de•

mand in the last half of the year.

AEG Daimler-Benz Industrie had a

total of 44,769 employees at the end of

994, and of these, 31,828 in Germany.

Reduced working hours remained in

effect in several divisions. The Rail Sy•

stems Division had a particularly tight

employment situation in 1994. The

Household Appliances Division, with

,800 employees, was taken over by the

Swedish firm Elektrolux on September 30.

Personnel

Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.

Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.

Here was a product or mood picture without text or figures.

It was omitted in the pdffile to improve the usability of the file size.

The group management function is

served by 520 (1993: 540) employees.

An additional 1,734(1993: 1,274)

employees are work on group research

projects at headquarters, and another

1994 Collective Wage Agreements

In the Old Federal States, a 2% wage

increase was negotiated, effective June

1, 1994. Wages remained unchanged for

the first five months of the year. The

collectively bargained claim to special

payments was lowered by ten percent•

age points. Through this arrangement,

combined with further cost-cutting

measures, we were largely able to avoid

a wage-based rise in personnel costs.

Within the framework of a collective

Personnel and Social Welfare

Expenses / Company Pensions

Personnel expenditures amounted to

DM 30.1 billion in 1994. The core of our

employee benefit package is still the

company pension plan. Financed by the

company, the individual pension plans in

the Daimler-Benz group contribute to

the economic security of the employees

and their families in retirement as well

as in the event of disability or death.

The pension plans for top managers

1,153 (1993: 1,170) work in service

capacities for the corporate units and

the Mohringen site.

A total of 3,407 (1993: 2,984)

persons were employed at Daimler-Benz

AG. The increase over the previous year

is due primarily to the integration of

research centers, to additional jobs for

undergraduate trainees and doctoral

candidates and to positions at head•

quarters arising from the employment

initiative of the Daimler-Benz group.

contract on occupational safety in effect have largely evened out within the

until the end of 1995, we made further

progress with the flexible structuring of

working hours. Furthermore, this con•

tract makes it possible, for a limited

time, to reduce the work week from 36

hours to 30 hours through voluntary

shop agreements.

In the New Federal States, under a

graduated plan, the parties to the

collective contract raised wages to 87%

of the level of the Old Federal States,

effective July 1, 1994. After a further

group. The goal, in principle, is fixed

compensation scales irrespective of

salary history. They are already fully in

effect at Daimler-Benz AG, Mercedes-

Benz AG, AEG Daimler-Benz Industrie,

and partially at DASA and debis. The

revision of older DASA pension plans

that do not conform with this principle is

underway. This measure ensures socially

equitable and financially uniform man•

agement of the pension systems.

step on July 1, 1995, to 94%, the planned Capital Formation

00% level will become effective July 1,

Employees of Daimler-Benz AG and

Mercedes-Benz AG as well as some of

the debis member companies were able

to participate in the 1994 scheme for

the formation of private capital. Appro•

ximately 47,000 employees - 31 % of

those eligible to participate - each

1996. This settlement affects most of

the roughly 10,000 employees of the

Daimler-Benz group in the New Federal

States.

Compensation Policy

In view of the economic situation, we acquired an employee share of Daimler-

refrained from a general review and

increase of salaries in the German

companies of the Daimler-Benz group in

Benz AG at a preferential rate set by the

company.

994. The bonuses for managers were

cut.

The compensation systems were

reviewed in many parts of the group with

a view to the promotion of autonomous

managerial action. We decided to ex•

tend the group-wide uniform system of

variable compensation based on qualita•

tive and quantitative goal agreements,

already in effect at top management

levels, to the second management level

beginning in 1995.

Personnel

Junior Staff Development

Human Resource Development

The strategic orientation at Daimler-

Benz requires a continuous, targeted

professional development program for

employees.

Thanks to Our Employees

An important strategic task of the

Personnel department is the develop•

ment of a qualified junior staff. In 1994,

in the context of our International Junior

Management Group, we offered 50

college graduates with internationally

oriented training an opportunity to

qualify for higher-level positions in the

group through project assignments in

Germany and abroad. Overall, some 200

junior management positions are

provided in the group.

We could not have achieved our

renewed success without the efforts of

our employees. We extend our thanks to

everyone, and especially to the mem•

bers of the labor councils and manag•

erial committees at all levels of the

group, for their great commitment.

The change processes within the

group have the primary goal of confer•

ring decision-making authority and

responsibility on our employees and

promoting independent managerial

action at all levels. This idea is fostered

not only through specialized continuing

education but also through the newly

implemented variable compensation

plan.

To add impetus to the growing desire

for new tasks and positions, we have

adopted a policy of assigning a manage•

ment executive to any given task for a

limited term only. An internal publication

listing open management positions

throughout the group, also serving to

make employees' areas of competence

as broad as possible.

To expand the development of junior

management staff beyond the filling of

existing positions, we offered 100

college graduates a one-year internship

to facilitate their entry into their career

field. Complementing this initiative were

additional programs and models in the

corporate units, such as part-time

opportunities at the entry level. We

continued to foster and expand our

contacts with colleges and universities,

and with students at both undergraduate

and graduate levels.

Another emphasis in personnel

development is the international orient•

ation of employees. Along with sponsor•

ship of the International Junior Manage•

We also devoted special attention to

developing and securing junior technical

personnel, to maintain our preparedness ment Group, our primary goal is to make

for expected medium- and long-term

needs.

our German employees into even more

competent players in international busi•

ness through job rotation, international

project work and network forums.

At the end of 1994, there were

11,200 young people in vocational

training at our German locations, and

of these, 2,967 had begun their training

during that year. We provided training in

nearly 60 industrial/technical and 10

commercial career fields. In addition,

we have 15 special training programs

for high-school graduates, particularly

in professional academies.

Preventive Health Care and

Occupational Safety

In our corporate social policy we

place great emphasis not only on

traditional preventive health care, but

also on the promotion of good health.

Our goal is to promote healthy behavior

among our employees and to make

them conscious of their individual

responsibility for their own health. We

Again the acceptance of trainees

posed problems. We tried to consider

the interests of our young employees

along with our own, through limited-term consider this an investment in the

and part-time contracts as well as a

number of permanent placements.

future.

For needs related to industrial health

and safety, we employed some 200 full-

time safety officers in Germany alone.

They provided advice and support in all

matters of safety in the workplace.

Personnel

The Company´s Role in Society

1994 we established a Daimler-Benz

scholarship program for students at

Beida University, the largest and oldest

of the renowned institutions of higher

learning in Beijing. In this program, we

not only grant scholarships to students

with outstanding grades; we also provide

stipends for room and board for stud•

ents from low-income families through•

out the entire four years of study.

In public relations work, our activity in 1994 was focused on supporting

and promoting the globalization of the group through appropriate

communication measures. One emphasis was the establishment of addi•

tional group representation and liaison offices worldwide. We expanded

our social welfare activity by awarding scholarships to Chinese students.

Expansion of the Worldwide Public

Affairs Network

International Presence Enhanced

Through group presentations and

In 1994 we continued with the

informational events, as well as through

greater participation in fairs and exhibi•

tions in the Pacific Rim and NAFTA, we

focused on regional interests in the

portrayal of our range of products and

services, just as we do in Europe. Ex•

amples are the group exhibitions on

traffic and environmental technology in

Hanoi and Ho Chi Minh City, Waste-Tec

in Tokyo and Technogerma in Mexico.

However, involvement and dialog

development of group representation

and liaison offices begun in 1989. The

network now covers all strategically

significant regions. We have representa•

tion in the important European cities of

Berlin, Bonn and Brussels, as well as in

Washington, Moscow, Beijing, Mexico

City, Tokyo and Jerusalem; there are

group liaison offices in London, Paris,

also require willingness to take a stand

at home and abroad on current socio•

political issues. For instance, in co•

operation with political, humanitarian,

and scientific institutions, we tackled

the subjects of xenophobia and vio•

lence. In the model Youth Against

Violence project, we are working with

others to develop concrete solutions.

Singapore, Hong Kong, Cairo, Sao Paulo, We also increased our press and media

Mulgrave and Pretoria. These group

representation and liaison offices per•

form tasks that are very important to our

internal and external communication as

well as to our entry in the markets. They

support our operating divisions by

accompanying political delegations as

they endeavor to open new trade

channels, particularly in the developing

markets of the Far East, Mexico/NAFTA

and the Middle East. The network is an

important early warning system for

changes in the general political and

socioeconomic climate. Finally, it

ensures that our active employees in the

respective regions are kept abreast of

corporate activity beyond their own

work areas.

presence in the most important regions.

Enhancement and Concentration of

International Youth Advancement

In the interest of continuity, our

corporate grant activities are based on

long-term cooperation with international

institutions. Especially in regions of

growing significance to our business, it

is important that the Daimler-Benz

technology group enjoy respect and

public sympathy, not only because of

the technology and quality standards of

its products, but also because of its

public-mindedness and willingness for

dialog. We aim to be a responsible corp•

orate citizen in the countries in which

we do business and are prepared to

accept the duties that go along with it.

Since 1991, our Award of Excellence

program, which includes thousands of

high schools and over 200,000 young

people, has made it possible for stud•

ents from the U.S.A. and Canada to

spend several weeks in Germany. In

TheCompany 's Ro le in Society

Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.

Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.

Here was a product or mood picture without text or figures.

It was omitted in the pdffile to improve the usability of the file size.

Technology and the Environment

A number of new instruments were

developed to better communicate the

technological accomplishments and

potentials of the Daimler-Benz group to

relevant target audiences, particularly in

environmental matters. For instance, we

were the first German company to offer

a service that provides audio reports -

and since 1993 also audiovisual reports

New Financial Disclosure Guidelines

When we went public at the New

York Stock Exchange in 1993, we

adjusted our financial disclosure policy

to the strict rules in effect there; similar

rules became effective in Germany in

1994 with the adoption of the Second

Law for the Promotion of the Financial

Market. Our clearing office, housed in

the Public Relations department and

operated jointly with Investor Relations

and the Legal department, examines

and distributes all corporate commun•

ications intended for publication, from

the point of view that news relevant to

market prices is forwarded to all secur•

ities and exchange commissions by the

stated deadline and made available to

the public according to regulation.

of selected events to radio and tele•

vision broadcasters, and increasingly to

educational and informational institu•

tions as well. These activities, which

have thus far focused mainly on Europe,

are being expanded.

Through the Daimler-Benz HighTech

Report, our quarterly technology maga•

zine published in German and English,

over 100,000 subscribers around the

world are informed about

the technological inno•

vations and leading ac•

complishments of our

company, with good

response. We reach

an estimated 400,000

readers in 117 countries

with this publication.

Featured topics last year

were the fuel cell, with

which we are exploring

an alternative to the com•

bustion engine in the

automotive sector; "in•

telligent light-gauge con•

struction", as applied to

road vehicles, aircraft,

satellites and rail cars; image processing

in factories, satellites and optical

character recognition.

For the first time in 1994, through a

detailed year-end environmental report,

we informed the general public of our

company's environment-related ac•

complishments, thus continuing the

tactic of dialog, especially with environ•

mental groups - something very few

companies have done so far.

The Company's Role in Society

The second capital increase, inten•

ded exclusively for the employees of the

group, was carried out in November.

This was the first time we made use of

the capital approved for the issue of

employee shares, in the amount of DM

Finance and Materials

The main focuses of our financial activity in 1994 were two successful

capital increases. As a result, Daimler-Benz AG acquired a total of DM 3

billion in new stockholders1 equity. As a result of the New Federal States

Purchasing Drive, the Daimler-Benz group purchased goods and services

from Eastern Germany valued at one billion DM in 1994, reaching that level

a year ahead of schedule.

20 million. The new shares were issued

at a price of DM 832 and offered to

employees at DM 532, taking into

account the maximum amount permis•

Group Treasury Expanded

Outside capital for the group is pro•

In 1994 we expanded our central

cured primarily through Daimler-Benz AG sible under the tax law. Thus Daimler-

Cash Management Department by

integrating our European group member

companies into the cash concentration

process technically and conceptually,

making it even more flexible and eco•

nomical. We made greater use of the

commercial paper programs available in

various countries for short-term

financing of regular business traffic.

In the context of asset allocation,

funds available for a longer term were

invested in fixed-interest-rate instru•

ments of first-class issuers. For these,

we use instruments of modern portfolio

management in which risk-control

factors are taken into account.

The duties of the foreign exchange

management consisted of recognizing

the currency risks in the area of opera•

tion and limiting them through approp•

riate hedging measures. We tailor the

hedging strategy in each case to foreign

exchange rate expectations, which are

and our network of regional holding and

finance companies. The sustained

Benz AG received additional stock•

holders' equity of roughly DM 25 million.

growth of the Financial Services Division The capital stock increased to DM 2,565

led to a greater need for outside capital.

This need was covered to a large extent

through our Euro medium-term note

program, which we also use increasingly

to issue Eurocurrency loans. To enable

us to take advantage of opportunities

offered by the international capital

markets at any time, we have boosted

the program from two billion to three

billion U.S. dollars. We were able to

keep our group debt within bounds by

selling off sales financing receivables

in securitized form again in 1994.

For all treasury activities, limits were

set on contracting parties, transaction

types and dealers on the basis of risk

analyses. With the help of data-proces•

sing systems, we not only keep track of

credit and market risks, but we also

examine liquidity, business and legal

million.

We were able to meet our goal of

broadening our worldwide stockholder

base in 1994 by internationalizing our

offer and by creating a new globally

oriented underwriting structure. Besides

expanding the purchasing syndicate to

include foreign banks, we established an

international and a U.S. selling syndic•

ate. These selling groups had the task

of selectively placing the new shares

procured by the purchasing syndicate

on the large capital markets, especially

in the U.S.A. Because of the high

demand in the U.S.A., the share of

American investors in the capital stock

increased to over 8%.

The funds generated from the capital

increases, together with our savings and

the capital available from other financ•

ing, are used both for investments to

further corporate growth and for new

products and production facilities.

constantly reviewed, adjusting the finan• risks.

cial instruments to individual currencies

and fields of business activity. Because

of our increased business volume in

newly industrializing countries, foreign-

exchange hedging is becoming increas•

ingly important for currency risks in

these countries.

Successful Capital Increases

More than four years after Daimler-

Benz AG's last capital increase in 1989,

we implemented two successful capital

increases in 1994. For the first, more

significant increase in June/July, we

raised the capital stock by DM 233

million to DM 2,563 million, at a ratio of

10:1, using part of the approved capital.

In addition, 4,659,276 new shares were

issued at a par value of DM 50. At an

issue price of DM 640, Daimler-Benz AG

gained a total of roughly DM 3 billion in

new stockholders' equity.

Finance and Materials

Financial Planning and Control

Sales and Project Financing

Investor Relations Activities

On the basis of our corporate financ•

For marketing the products of our

In the course of our investor rela•

ial plan, we are optimizing the use of the group internationally, we see a growing

tions activities, we provided compre•

hensive information about our business

and its development to financial analysts

and institutional investors, as well as to

our individual stockholders and potential

funds available to the group, our goal

being to minimize financing costs and at

the same time preserve the solid quality

of the group's financing. In 1994 our

quality claim was once again confirmed

by agency ratings of Aa3 by Moody's

Investors Service and AA- by Standard

need for product and customer-specific

solutions beyond traditional export fin•

ancing, which will allow us to offer suit•

able financing and still hedge against

economic and political risks. In guarding domestic and foreign investors. We

against outside risks, we are essentially

communicate with our stockholders, as

striving to select financing solutions that well as the general public, through our

will ease the strain on the balance

sheet.

annual report and through periodic in•

terim reports.

Poor's Ratings Group.

In addition to procuring outside

capital, our centrally controlled regional

holding and finance companies also

fulfill important internal capital alloca•

tion functions. For instance, we en•

hanced our potential in 1994 by estab•

lishing a regional holding structure in

Mexico, which allows us to realize a

whole range of synergistic financial

effects there.

In 1994 we also devoted special

attention to capital tie-up within the

group. Despite a higher business

volume, we managed to reduce working

capital. We intensified our efforts to use

the capital tied up in noncurrent assets

efficiently. For the management of our

real estate in particular, we developed

concepts that allow more economical

use and improve the management and

organization of our real estate. For

individual properties with unneeded

space, we made plans to develop and

use them or otherwise turn them to

good account.

We especially need new and innova•

tive financing and hedging structures for

the projects of divisions involved in the

infrastructure sector. Financing models

from the private business sector are fast

gaining recognition.

For individual stockholders, we

cooperated with DG Capital Manage•

ment in sponsoring an investor relations

forum in Düsseldorf/Neuss in October

1994. At this event, we provided over

1,000 interested guests with a brief

While the economies in the countries overview of the activities of the Daimler-

of Latin America, Central Europe and

the Far East continued to rally, the

Benz group. In light of the overwhelm•

ingly positive response, we will continue

to hold events aimed at communicating

with individual investors.

In addition, we address the informa•

tional needs of institutional investors

and financial analysts through round-

table discussions and corporate pre•

sentations. The sharply rising demand

for such programs reinforces our resolve

to intensify this form of communication

political stability and general economic

conditions of some African and Eastern

European countries (including the CIS)

deteriorated in 1994, or they stabilized

at a low point. In these areas we re•

sorted to state export credit insurance

wherever possible, although the restrict•

ive authorization policy for credit insur•

ance limited the financing possibilities.

The risk commitment of the international with the capital market in the future.

banks continues to be limited. If any

acceptable solutions are to be found, it

will only be through elaborate structur•

ing of financing.

We hold the corporate presentations

in Germany, as well as in the major

financial centers abroad, in close

cooperation with renowned business

and investment banks. On the docket as

early as January 1994 was an extended

road show in the U.S.A., through which

we supported the placement of Daimler-

Benz shares from the holdings of the

Deutsche Bank. Over a period of ten

days, we made 11 presentations and

Sponsorship programs offered by

public and supranational institutions for

the financing of delivery and investment

projects are important for the newly

industrializing and developing countries

of Africa, Asia, and Latin America, as

well as for the countries of Eastern

Europe and the CIS. For these countries, conducted 55 one-on-one sessions

financing is also possible within the

framework of technical assistance and

rehabilitation programs, which are used

to a very limited extent to finance our

group's products.

in 21 cities.

Finance and Materials

Further highlights were the present•

ations in connection with the introduc•

tion of our shares on the Stock Ex•

change of Singapore and the road show

we conducted in May and June in pre•

paration for the capital increase. The

latter included events in Frankfurt,

Zurich, Paris, Vienna, London, and

Edinburgh, as well as in numerous

cities of the U.S.A.

Global Sourcing Activities

To preserve jobs in the New Federal

States and increase them in some

cases, our purchasing drive is not

limited to awarding more contracts to

Eastern German businesses. We also

promote economic expansion by intro•

ducing appropriate technology to our

suppler companies. Against this back•

ground, our purchasing drive, scheduled

to continue until the end of 1996, is

increasingly becoming an industrializa•

tion drive.

With our global sourcing activities,

we were again able to increase purcha•

ses from foreign suppliers. The expan•

sion of our international supplier con•

tacts also allows worldwide expertise to

flow into our products. Global sourcing

ensures us not only an influx of new

technology but also supplier prices at

the attractive world-market level. We

see new potentials for global sourcing

Investments in Related Companies / primarily in the input markets of the

Mergers & Acquisitions

Asian Pacific Rim.

Within the framework of the general

corporate policy, we continued to work

on adjusting or rounding out the core

businesses of the group through joint

ventures, divestitures, and selective

acquisition, in order to safeguard our

competitive position. This activity inclu•

In 1994, with the cooperation of all

corporate units, we held a group sup•

plier fair focusing on Italy. Our buyers

were able to establish contacts with

over 100 capable suppliers in Italy, and

are now following up and expanding the

relations they forged. We realized the

Again in 1994, our business policy at

home and abroad was in conformity with

the OECD Guidelines for Multinational

Corporations. The internal transfer

prices between the individual companies

in the group are set on the basis of the

"arms-length" principle.

ded working out a transaction structure, first successes of the initiative before

determining valuations for enterprises,

performing business analyses (due dilig•

ence) for purchasing procedures, and

developing investment and management

concepts.

year end, in contracts awarded to

companies that had participated in the

supplier fair.

Purchasing Drive in the

In addition to our consultation du•

ties, we administered the group assets.

The group's investments in subsidiaries

and affiliated companies were evaluated

in terms of their performance, and if

necessary corrective measures were

conceived jointly with the group plan•

ning department and the corporate

units. These measures ranged from

optimization of the capital invested to

consideration of joint ventures and

divestitures.

New Federal States

In 1994, one year earlier than ex•

pected, the Daimler-Benz group reached

the DM 1 billion threshold for goods and

services purchased from the New Fed•

eral States. The purchase volume will

continue to increase as companies in

Eastern Germany become better known

and expand on the existing commercial

contacts.

The purchasing activities were

shown to inspire great personal commit•

ment and raise the self-confidence and

In the context of portfolio-invest•

ment management, we performed duties motivation of the people in the New

related to service on the Supervisory

Boards of group member companies,

tracked and evaluated current projects

and prepared draft resolutions.

Federal States. Furthermore, our in•

volvement so far has saved some 11,000

jobs.

Managers from the Daimler-Benz

group have sponsored 180 Eastern

German businesses to date. As a result

of this support, order volumes quadrup•

led in comparison to 1993.

Finance and Materials

The Daimler-Benz Share

Interest in Daimler-Benz stock has increased worldwide. With the intro•

duction of our shares on the Singapore stock market in May 1994, we

acknowledged the increased importance of Southeast Asia as an invest•

ment region. After our capital increase in June 1994, the portion of Daimler-

Benz stock held in the U.S.A. rose to roughly 8% of our share capital.

The price of the Daimler-Benz share

essentially followed the course of the

market in general. At the end of the year,

our stock, at DM 759.50, stood 10%

below the relatively high level at the end

of 1993; in the preceding year, it had

gained more (+57%) than the DAX

(+47%).

In the first two months of 1995, after

an initial weak phase, the DAX began an

upward trend, only to be interrupted

toward the end of February by the strike

in the metal industry and a further drop

in the U.S. dollar. The price of a Daimler-

Benz share continued to lag behind the

general market during this period, and at

the end of February it was 6% below the

1994 closing price, while the DAX

declined only slightly.

After brisk activity in 1993, the

trading volume on the German stock

exchange declined in 1994. Trading in

Daimler-Benz stock declined 15% to 263

million shares. However, our stock re•

mained one of the most heavily traded

securities on the German stock ex•

change. This volume, at a market value

Stock Exchange Trend

After the splendid record of the

previous year, the stock exchange year

1994 failed to meet our expectations.

The indexes declined sharply in all major of DM 211 billion, represented 11% of

stock markets except for Japan. A prim•

ary factor in the price declines was the

global rise in interest rates, which made

bonds appear much more attractive

than stock investments.

all domestic share trading. Also in the

German futures market, options on

Daimler-Benz shares, at one million

contracts, continued to be among the

most heavily traded securities.

The German stock market was also

unable to escape the negative effects

of the bond market in the course of the

year, after the German stock index

International Financial Profile

The international range of investors

in our stock expanded again in 1994.

At the beginning of the year, Deutsche

Bank placed shares from its Daimler-

Benz holding on the American market,

thus reducing its stake in Daimler-Benz

AG to 24.4%. This move raised the

portion of our share capital held by

U.S. investors to over 7%.

(DAX) reached a record high of 2.271

points in the middle of May. It was only

the favorable prognoses for corporate

profits and the unexpectedly fast

recovery of the German economy that

kept prices from falling still further. At

the end of the year the DAX stood at

2,107 points - 7% below the closing

level of the previous year.

The Daimler-Benz Share

In May we became the first German

company to introduce stocks in Singa•

pore. As on the New York Stock Ex•

change, they are traded in Singapore

in the form of Singapore Depository

Shares (SDS). The SDS are issued in

U.S. dollars and denominated at one

tenth of the par value of a German

share, just as they are in New York.

At the time of our capital increase

in June 1994, stock rights not used in

Germany were largely placed in the

United States, so that the portion of

American-held shares increased to more

than 8% of our capital stock. We expect

this percentage to increase in the next

few years.

Widely Held Stock

An investment in Daimler-Benz stock

for about twelve years calculates to an

average return of 9.6% per year. For a

commitment of only three years, on the

After Deutsche Bank, at 24.4%, the

Emirate of Kuwait is the second-largest

shareholder of Daimler-Benz at almost

13%. Stella Automobil-Beteiligungsgesell- other hand, it was -0.7%. The assump•

schaft mbH, which formerly held a 12.3% tion in these calculations is that the

proceeds from the stock rights and the

March 1995. Just under two-thirds of our cash dividends (excluding tax credit)

share, was merged with our company in

capital stock is now widely held. With a

market value of DM 36.6 billion (end of

February 1994) and over 450,000

stockholders, Daimler-Benz is one of

Germany's largest public corporations.

were always reinvested in Daimler-Benz

shares and that the investor made no

additional payments.

Dividend 11 DM for Each Share

of DM 50 Par Value

For the financial year 1994, a divi•

dend of DM 11 (1993: DM 8) for each

share of DM 50 par value will be pro•

posed at the Annual General Meeting on

May 24, 1995. For stockholders subject

to income taxes in Germany, the gross

dividend amounts to DM 15.71.

Since the stockholders voted an

authorized but unissued capital increase

in the amount of DM 300 million at the

Annual General Meeting in May 1994,

we can now also issue convertible

bonds up to a par value of DM 2 billion

until 1999. In addition, DM 367 million

in approved capital is available for rights

issues until the middle of 1996, and

roughly DM 18 million for the issue of

employee shares until the beginning of

Good Return Prospects

A long-term investment in Daimler-

Benz stock has good return prospects,

although interim price declines, such as

the one in 1994, can also result in a

much lower or even negative return.

On the other hand, slump periods offer

favorable striking prices and thus the

prospect of a high return. Foreign

investors also have the chances and

risks due to fluctuation in the exchange

parities, so that the return can deviate

considerably from the return in German

marks.

1999.

Today Daimler-Benz stock is listed

on nine foreign stock exchanges:

The trading volume for our stock on

foreign stock exchanges reached 20

million shares in 1994. Trading was

especially heavy in London and New

York.

The Daimler-Benz Share

Discussion and Analysis of the Financial Situation

The rise in the consolidated net income in 1994 from DM 0.9 billion (1993:

Total selling expenses increased by

DM 0.6 billion) inadequately reflects the improvement in performance in

the operative area, since the previous year's figure was characterized by

high non-recurring earnings. The net income determined on the basis of

U.S. accounting principles (U.S. GAAP) shows a turnaround from DM -1.8

billion to DM 1.1 billion. The operating profit also improves clearly from

DM -3.3 billion to DM 2.7 billion.

DM 0.2 billion to DM 11.1 billion; as a

percentage of sales they remain at 11%.

The absolute level of general administra•

tive expenses dropped by DM 0.2 billion

to DM 3.3 billion, so that the correspon•

ding percentage is only 3.2% (1993:

3.5%).

Of the basic types of expenses

Statements of Income According

to Cost-of-Sales-Method

In 1993, for the first time for a Ger•

man company, we published a reconcil•

iation of net income and stockholders'

equity according to the German

Commercial Code to values under U.S.

GAAP. The response of the financial

press and the widespread approval by

analysts and investors have confirmed

that the international financial world

welcomed our step.

on the functional areas of production,

sales, and general administration,

another factor distinguishing the cost-

of-sales-method from the previously

used total-cost-method is that interest

income from the sales financing busi•

ness and interest expenses from the

refinancing of leasing and sales finan•

cing activities are no longer recorded

under interest income net, but rather

under sales or cost of sales.

contained in selling and general admini•

strative expenses, personnel expenses

decreased by DM 3.7 billion to DM 30.1

billion, reflecting the lower number of

employees and lower additions to

restructuring provisions. In contrast,

as a result of the pronounced increase

in production at Mercedes-Benz, the

costs of materials rose considerably by

DM 5.2 billion to DM 56.3 billion.

The financial result in 1994 was low

(DM 0.2 billion) as compared to 1993

(DM 2.2 billion) showing much higher

figures due to the sale of securities.

Another negative element was the fact

that provisions had to be made for

losses on the investment portfolio and

securities due to the drop on the bond

market.

The financial analyses since pub•

lished on Daimler-Benz reveal that in

their statements and recommendations,

leading financial analysts rely predomi•

nantly on U.S. figures. The most import•

ant reason is perhaps that American

accounting practices are accepted

worldwide, and hence allow accurate

comparisons irrespective of a comp•

any's home base. Therefore, we will

continue to observe the trends in inter•

national accounting with utmost care,

and we will also critically participate in

the discussion of future developments

in the interest of providing maximum

disclosure and improved quantitative

information to our investors.

Consolidated Net Income Up by

DM 280 Million to DM 895 Million

The consolidated financial state•

ments according to the German Com•

mercial Code were characterized in

1994 by a substantial improvement of

operating income; non-recurring income

is included to a much lower extent than

in 1993.

Calculated on comparable bases, the

results from ordinary business activities

clearly improved from DM -1.5 billion to

DM 2.1 billion.

Sales rose by 5.6% to DM 104.1

billion in 1994. Of critical importance to

this development was the strong growth

in business volume at Mercedes-Benz.

debis too was able to achieve a marked

increase in sales. In contrast, revenues

decreased at AEG Daimler-Benz Indu•

strie, based on changes in the con•

solidated group, as well as at DASA,

due to the persistently poor demand for

aircraft and budget restrictions in the

public defense and aerospace areas.

After subtracting the cost of sales,

After subtracting the income taxes,

which rose from DM 0.5 billion to

DM 1.2 billion as a result of increased

profits of the foreign Mercedes-Benz

production and sales companies, net

profit is up from DM 615 million to

DM 895 million. This increase inade•

quately reflects the improvement of the

operating profit from DM -3.3 billion to

DM 2.7 billion. Non-recurring income of

DM 1.4 billion was included in 1994 as

To best meet these goals, we have

changed the presentation of the state•

ments of income to the internationally

accepted cost-of-sales-method; data for

1993 have been reclassified accordingly.

Aside from recording expenses based

which because of cost-cutting measures well, of which DM 0.6 billion related to

showed a disproportionately low increa•

se of DM 0.4 billion to DM 90.3 billion,

and which dropped from 91 % to 87% as

a percentage of sales, the gross profit

rose by DM 5.2 billion to DM 13.8

billion.

the deconsolidation of MBL Fahrzeug-

Discussion and Analysis of the Financial Situation

Leasing GmbH & Co. KG and DM 0.4

billion related to capital gains from

divestments at AEG Daimler-Benz Indu•

strie and Fokker, each. These earnings

were offset by restructuring expenses

totaling DM 1.1 billion (1993: DM 3.5

billion) associated with the measures

to restructure technical capacities and

reduce the workforce. The reconciliation

of the operating profit to the results

from ordinary business activities is

shown on page 66.

The main contributor to the debis

operating profit, which was virtually

unchanged as compared to 1993, was

the Financial Services Division. Signi•

ficant improvements were seen at

Systemhaus and Mobile Communi•

cations Services.

Our stock of leasing and sales

financing contracts comprises a total

volume of future payments amounting

to DM 20,274 million, distributed over

the coming years as follows:

1995 1996 1997 1998 1999 2000,

there-

In contrast to the net income

in millions of DM

after

according to the German Commercial

Code, net income according to U.S.

GAAP shows a clear turnaround from

DM -1.8 billion to DM 1.1 billion. This

was due to the fact that non-recurring

income was eliminated from the 1993

net income. Although the U.S. net

income is thus in the same order of

magnitude as the net income according

to the German Commercial Code, there

are significant differences in the com•

position of the respective values (see

reconcilation chart on page 67). In the

reconciliation to U.S. GAAP, non-recur•

ring income from deconsolidation of the

domestic leasing company and the

capital gains from divestments at Fokker

were eliminated. In contrast, net income

is increased by the fact that under U.S.

GAAP unrealized profits from financial

instruments must be recognized. The

differences in determining and calculat•

ing deferred taxes and provisions also

have a positive effect on net income.

7,716 5,452 3,931 1,975

752

448

Changes in the Consolidated

Balance Sheet Through

Capital Increase

The group's total assets increased

2.9% to DM 93.5 billion as a result of

the mid-year capital increase and the

further expansion of the leasing and

sales financing business. A neutralizing

effect was provided by the restructuring

of the domestic leasing business and

the sale of company units at AEG Daim•

ler-Benz Industrie. On the whole, non-

current assets increased 2.5% to DM

36.2 billion. Without the influence

of the financial services business, non-

current assets rose by DM 1.4 billion to

DM 24.9 billion. While property, plant

and equipment decreased by DM 1.2

billion to DM 17.7 billion due to high

depreciations on investments made in

the preceding periods with a low level

of additions, financial assets increased

by DM 3.4 billion to DM 7.4 billion. This

reflects both the reclassification of long-

term securities from current to non-

current assets and the restructuring of

the domestic leasing business, since the

previously fully consolidated company

is included as an associated company

at equity and is recorded under financial

assets. Similar considerations apply to

the decrease of the book value of leased

equipment by DM 1.7 billion to DM 10.2

billion; without this effect, there would

have been a further increase of this

caption in the balance sheet. Thus, the

investment quota (excluding the effect

of the financial services business)

Decisive factors for the rise in

operating profit at Mercedes-Benz

included the expansion of passenger

and commercial vehicle sales and the

cost-cutting measures implemented in

previous years. Restructuring expenses

related to personnel amounted to only

DM 0.3 billion, compared to DM 1.7

billion in 1993.

The contribution to profit from AEG

Daimler-Benz Industrie includes gains

from the sale of the Domestic Applian•

ces Division and of the power meters

and lighting systems company units,

totaling DM 0.4 billion. A further im•

provement of DM 0.4 billion resulted

from the reduction in restructuring

costs.

Balance Sheet and

Statements of Income Influenced

by Financial Services Business

Both the statements of income and

the balance sheet of the Daimler-Benz

group are still strongly influenced by the

continued expansion of our leasing and

sales financing business.

Net losses of DASA were reduced

considerably because of, except for

Fokker, improved operating results. A

positive effect was due to lower re•

structuring expenses of DM 0.7 billion

(

1993: DM 1.1 billion). The persistently

difficult market for civil commercial

aircraft and the restrictive budget policy

in the areas of defense and aerospace

hindered a further improvement in

performance.

increased from 25.8% to 26.6%.

Receivables from sales financing

business increased again, by 15.9%

to DM 10.2 billion.

Discussion and Analysis of the Financial Situation

The decrease in net inventories

by DM 2.0 billion to DM 15.0 billion

is primarily due to lower inventories

at the foreign sales companies of

Mercedes-Benz and at Airbus and

Fokker. As a result of the capital in•

crease, liquid assets increased by one-

third to DM 14.0 billion; their share of

total assets rose from 11.5% to just

under 15%.

On the liabilities side, stockholders'

equity - excluding planned dividend

distribution - increased by DM 2.0 billion

to DM 19.7 billion. Transfers from the

capital increase and from net income

were partly offset by decreases in

stockholders' equity due to currency

influences and offsetting goodwill

resulting from the acquisition of shares

in DASA from the State of Bavaria. On

the whole, stockholders' equity as a

percentage of total assets rose from

19.5% to 21.1%. Without the financial

services business, which due to busi•

ness considerations was predominantly

externally financed, stockholders' equity

as a percentage of total assets is 27.6%

(

1993: 26.0%); coverage of the non-

billion is related to the utilization of

the restructuring provisions set up in

previous years. Both the non-current

assets (without the influence of the

financial services business) and the net

inventories continue to be covered by

stockholders' equity and long- and

medium-term provisions.

current assets (without the influence

of the financial services business) by

stockholders' equity increased from

7.5% to 79.1%.

Liabilities from leasing and sales

financing continued to rise, up 6.5% to

DM 14.5 billion. In contrast, provisions

decreased slightly by 0.8% to DM 35.6

billion. While pension accruals rose only

DM 0.4 billion to DM 13.2 billion due

to normal additions, the DM 0.7 billion

drop in other provisions to DM 22.4

On page 64 we have provided the

segment report based on German

accounting in the same form contained

in the report according to Form 20-F,

which we will file with the SEC.

Discussion and Analysis of the Financial Situation

Cash Flow from Operating Activities

Considerably Up

The increase in the cash flow from

operating activities to DM 11.3 billion

reflects both the improved operating

income and the decrease in working

The cash flow from financing activ•

ities was principally influenced by the

capital increase of Daimler-Benz AG

(DM 3.0 billion); outside financing in•

creased by DM 0.7 billion. The financial

trend is reflected in the increase in cash

is taken from our annual report; how•

ever, additional data and financial

information are provided that were

determined on the basis of U.S.

accounting principles. Since there are

substantial differences, especially in net

income and stockholders' equity, the

reconciliations are required to convert

certain financial data from the German

consolidated financial statements to the

values calculated using the U.S. GAAP.

An explanation of the most important

items is provided on page 96.

capital. At DM 10.6 billion, the cash flow by DM 0.4 billion to DM 6.9 billion and

from investment activities remained

similar to 1993 (DM 10.5 billion). This

was due to lower net expenditures for

our leasing and sales activities (1994:

DM 4.9 billion; 1993: DM 6.6 billion)

and for investments in related comp•

anies. Additionally, this was due to

outflows of funds for short-term capital

in liquidity by DM 3.5 billion to DM 14.0

billion.

Additional Information

in Accordance with the

U.S. Generally Accepted

Accounting Principles (U.S. GAAP)

With the listing of Daimler-Benz

investments amounting to DM 2.0 billion stock on the New York Stock Exchange,

after DM 1.0 billion had flowed in during

993. We expect investments in the

Daimler-Benz group to remain high in

the coming years as well.

we are obligated to file an annual report

on Form 20-F with the Securities and

Exchange Commission (SEC). Much of

the information contained in this report

Discussion and Analysis of the Financial Situation

Notes to the Consolidated Financial Statements

Summary of Significant Accounting Policies

The consolidated financial state•

ments have been prepared in accord•

ance with German generally accepted

accounting principles ("German GAAP").

All amounts shown herein, unless

separately stated, are in millions of

German marks ("DM").

Accounting and Valuation

Buildings are depreciated using the

greater of the straight-line method or

the declining balance method. Moveable

property in Germany having a useful life

of four years or more is depreciated

using the declining balance method.

We employ the straight-line depreciation

method as soon as even distribution of

the residual book value over the remain•

ing useful life yields larger depreciation

allowances. For foreign companies,

moveable property is depreciated for

the most part using the straight-line

method.

Where the circumstances are the

same within the consolidated group,

assets and liabilities are valued uni•

formly in the consolidated financial

statements.

Intangible assets are valued at

The 1994 income statement has

been prepared according to the inter•

nationally prevailing cost-of-sales

method for the first time. The figures

for the prior year were classified

accordingly; the net income remained

unchanged.

acquisition cost and are amortized on a

straight-line basis over their respective

useful lives. Goodwill resulting from

capital consolidation is amortized over a

period of five years, providing it relates

to the expansion of the group. Where it

relates to the restructuring of the group,

it is charged to retained earnings. Good•

will resulting from strategic alliances is

split; the amount relating to the expan•

sion of the group is charged to earnings

and the amount relating to restructuring

is charged to retained earnings.

According to the cost-of-sales

Depreciation on plant, property and

equipment additions in Germany during

the first and second half of the year is

calculated using full or half-year rates,

respectively, on the basis of the tax

simplification rule. Items having an

immaterial value are expensed when

purchased.

Investmentsinaffiliatedcompanies

and other financial assets are valued at

the lower of cost or market; long-term

non-interest or low-interest bearing

loans are recorded at present value.

Significant investmentsinassociated

companies are valued at-equity

method, operating expenses are

assigned to the functional areas of

manufacturing, distribution and general

administration. The manufacturing costs

of sales-generating activities are ident•

ified in the statements of income under

Property, plant and equipment is

cost of sales. This item also includes the valued at acquisition or manufacturing

expenses for personnel and materials for cost - less accelerated depreciation.

research and development, as well as

for warranties and the depreciation of

inventories. Also included in the cost

of sales is interest expenses from

refinancing the leasing and sales

financing business, which in previous

years was listed under net interest

income. The interest income previously

included in the net interest income from

the sales financing business is now

recorded under sales, resulting in a

slight change of the figure for the

previous year.

Additional depreciation is recorded

where a lower reported amount is

required. In addition, where applicable,

accelerated depreciation methods are

used in Germany pursuant to certain

sections of the German tax guidelines.

The manufacturing costs of comp•

any-built equipment and facilities cover

direct costs, as well as allocable over•

head costs of materials and manufact•

uring, including depreciation.

according to the book value method.

Leased equipment is valued at

acquisition or manufacturing cost. It is

depreciated to residual value primarily

using the declining balance method.

We employ the straight-line depreciation

method as soon as even distribution of

the residual book value over the

remaining useful life yields larger

depreciation allowances.

Property, plant and equipment is

depreciated over the following useful

lives: 10 to 50 years for buildings, 8 to

20 years for site improvements, 3 to 20

years for technical equipment and

machinery and 2 to 10 years for factory,

office and other equipment. If equip•

ment is used in multiple-shift opera•

tions, the useful life is reduced

In the financial results we have

summarized the income from affiliated,

associated and related companies, net

interest income and other financial

results; the individual components

are explained in Note 26.

accordingly.

Notes to the Consolidated Financial Statements

Rawmaterials, supplies andgoods

purchased for resale are valued at the

lower of cost or market; finished goods

are valued at manufacturing cost.

Manufacturing costs include direct

Consolidated Group

Two hundred and ninety-one (1993:

271) subsidiaries were not included as

their effect on the financial position and

results of operation was not material. In

addition, 11 companies administering

In addition to Daimler-Benz AG, the

consolidated group consists of 357

(1993: 305) domestic and foreign

subsidiaries and 16 (1993: 12) joint

material, labor and applicable manufact• ventures. The joint ventures are accoun• external pension funds, whose assets

uring overhead including depreciation.

Loss provisions are recorded for

inventories that have long periods of

storage or changes in construction.

Non-interest or low-interest bearing

receivables and other assets with more

than one year remaining to maturity are

discounted as of the balance sheet date

and valued after taking into account all

known risks. An allowance for doubtful

accounts is deducted from the receiv•

ables.

ted for using the pro rata consolidation

method.

are subject to restrictions, have not

been included in the consolidated finan•

cial statements. The entire consolidated

group of Daimler-Benz AG is contained

in the list of investment holdings filed in

the Stuttgart Commercial Register as

entry No. HRB 15 350.

During 1994, 80 subsidiaries and 5

joint ventures were added to the

consolidation.

Daimler-Benz Aerospace and the

Thomson-CSF group (France) contrib•

uted individual divisions to new joint

ventures; the shares of the new joint

ventures are held equally. As they were

part of the group until mid-December

1994, the statements of income for the

contributed Daimler-Benz Aerospace

subdivisions are fully included. By

contrast, the balance sheets of the

joint ventures are included pro rata.

Consolidation Principles

Capitalconsolidation isaccomp•

lished using the book value method by

netting the acquisition cost and the pro

rata share of stockholders' equity of the

subsidiary at the time of its acquisition

or when it is first included in the consol•

idation. Joint ventures are also account•

ed for under this method.

Short-term securities are valued at

the lower of cost or market as of the

balance sheet date.

Provisionsforpensionsandsimilar

obligations, including postretirement

medical benefits for retirees of U.S.

subsidiaries, are actuarially determined

on the basis of an assumed interest rate

of 6% using the entry age actuarial cost

method.

ElectroCom Automation, Inc. (Arling•

ton, U.S.A.), which was previously in•

cluded as a participation at equity (26%

share), was fully consolidated upon

acquisition of the remaining shares

in 1994.

Wherever possible, the accrued

differences arising from capital consolid•

ation are shown under the respective

consolidated balance sheet item and are

amortized to income over the expected

useful life. Goodwill is amortized in

accordance with the method discussed

in "Accounting and Valuation" above.

Provisionsfortaxesandother

Twenty-eight subsidiaries and one

joint venture were not included in the

consolidated group. The major effects

on the consolidated balance sheet and

on the consolidated statements of in•

come are explained under the individual

balance sheet items.

provisions have been recorded using the

principles of reasonable accounting

valuation. The obligations in employee

benefits and social costs are generally

recorded for the most part using the

entry age actuarial cost method. Deriva•

tive financial instruments (primarily

future exchange transactions and

currency options, interest rate and

currency swaps) are valued individually.

If there is a direct relationship between

a derivative financial instrument and a

basic transaction, a valuation unit is

formed. Provisions exist for interest rate

and currency risks as well as for general

credit risk.

A deferred difference arising from

capital consolidation is shown separat•

ely under "Other provisions" as "Differ•

ence from capital consolidation with

accrual character."

Appropriated retained earnings of

acquired subsidiaries are included in

the company's retained earnings. The

unappropriated profit reported in the

consolidated financial statements repre•

sents the unappropriated profits of

Daimler-Benz AG. Accordingly, the

proceeds from consolidation measures

affecting operating income and the

unappropriated profits of the subsid•

iaries have been offset against the

retained earnings of the company.

As part of the further development

of our leasing business in Germany, MBL

Mercedes-Benz Leasing GmbH & Co.

oHG (Stuttgart) was transformed into

MBL Fahrzeug-Leasing GmbH & Co. KG

(Stuttgart) in which external bank

partners hold a total participation of

80%. Accordingly, MBL Fahrzeug-Lea•

sing GmbH & Co. KG is no longer con•

solidated as of June 30, 1994; instead,

it is included as a 20% investment at

equity.

Liabilities are recorded at their

repayment amount.

Due to the sale of the domestic

appliances division of AEG Daimler-Benz

Industrie, 4 companies are no longer

included in the consolidated group.

Notes to the Consolidated Financial Statements

Investments in 143 associated comp•

anies are recorded in the consolidated

financial statements.

The difference resulting from the

currency translation of the balance

sheet items is charged or credited to

stockholders' equity; for companies

operating in highly inflationary countries

translation gains or losses are applied

to income.

For the year ended December 31,

1994, 22 associated companies have

been included in the consolidated

financial statements at equity using

the book value method.

Expense and income items and the

Theremainingassociatedcompanies annual results are translated at the

are reported as investments at acquisi•

tion cost net of applicable depreciation

because the ownership is immaterial to

the financial position of the company.

Payablesandreceivablesbetween

the consolidated companies are offset;

differences resulting from the consolid•

ation of debts are treated according to

their effect on results.

annual average exchange rate. Where

such items concern non-current assets

and inventories of companies in highly

inflationary countries, the historical

exchange rates are used and the annual

results are adjusted accordingly. The

difference resulting after translation of

the change in reserves and the balance

sheet profit or loss is charged or

Intermediateresultsderivingfrom

credited to the stockholders' equity.

transactions within the group are elimin•

ated, if they are not already insignificant.

In the consolidated income statement,

proceeds from internal sales, as well as

other internal revenues, are charged

against the corresponding expenses.

The consolidated balance sheet

includes deferred taxes from elimination

procedures affecting net income.

Currency Translation

Foreign currency assets are translat•

ed at the lower of the entry date ex•

change rate or year-end exchange rate;

foreign currency liabilities are translated

at the higher of the selling rate on the

entry date or at the year-end selling

rate.

The year-end exchange rate is

generally used to translate balance

sheet items of foreign companies from

the respective local currency to German

marks. Excluded from this treatment are

the non-current assets and inventories

of companies in highly inflationary

countries, where historical exchange

rates are used.

Notes to the Consolidated Financial Statements

Notes to the Consolidated Balance Sheet

At December 31, 1994, intangible assets amounting to DM 880 million (1993: DM 523 million)

consist of goodwill, acquired computer software, patents and, to a lesser extent, advance

payments. The increase over the previous year is related primarily to the acquisition of

ElectroCom Automation, U.S.A.

The year under review included additional amortization amounting to DM 9 million (1993:

DM 88 million).

The decrease in property, plant and equipment by DM 1,194 million to DM 17,727 million is a

result of DM 4,918 of depreciation expense, DM 757 million in disposals, DM -162 million in

currency fluctuations and DM -9 million in reclassifications; this amount is offset by DM 4,652

million in additions. In accordance with tax regulations, depreciation of DM 326 million (1993:

DM 76 million) was taken. Non-scheduled depreciation amounted to DM 148 million (1993:

DM 287 million).

As part of the first inclusion of subsidiaries, capital expenditures and depreciation increased

by DM 353 million and by DM 223 million, respectively.

The financial assets of DM 7,423 million (1993: DM 4,031 million) primarily include securities

in non-current assets and participations in associated companies.

The increase in financial assets is related primarily to the addition of MBL Fahrzeug-Leasing

GmbH & Co. KG which is now included as a 20% share under financial assets instead of being

consolidated. Moreover, due to an altered investment strategy, securities with fixed interest

rates were reallocated from current assets to non-current assets.

Non-scheduled depreciations amounting to DM 253 million (1993: DM 298 million) were

recorded in participations and participations in associated companies.

The decrease in leased equipment of DM 1,670 million to DM 10,209 million reflects primarily

the deconsolidation of MBL Fahrzeug-Leasing GmbH & Co. KG, effective June 30, 1994.

In accordance with the provisions of tax law, depreciation has been recorded in the amount of

DM 8 million (1993: DM 5 million).

The majority of the inventory is owned by Mercedes-Benz and Daimler-Benz Aerospace. The

decrease in 1994 is mainly due to a decrease in inventory levels at the foreign Mercedes-Benz

sales companies and fewer semifinished goods at Airbus and Fokker.

Notes to the Consolidated Financial Statements

Advance payments received in the amount of DM 6,788 million (1993: DM 7,317 million)

primarily represent projects and long-term contracts with AEG Daimler-Benz Industrie,

Daimler-Benz Aerospace AG, Fokker, Dornier and MTU. Such payments have been deducted

from inventories.

This item represents receivables from customers in the amount of DM 10,151 million (1993:

DM 8,771 million), of which DM 5,831 million (1993: DM 5,569 million) are long-term

receivables. An allowance for losses of DM 236 million has been recorded on these

receivables.

In 1994 we purchased a total of 78,705 treasury shares at an average price of DM 823 per

share to transfer to employees of Daimler-Benz AG and the corporate units and to fulfill the

exchange offer still in effect for AEG shareholders. Of this, 46,700 shares are allocated to the

capital increase for issuing employee shares and 32,005 shares to acquisitions in the market

(5,702 in March, 6,701 in April, 9,703 in October, 56,380 in November and 219 in December).

In November 1994, Daimler-Benz AG and the corporate units sold 46,969 shares (par value of

DM 2.3 million, or 0.09% of equity) to employees at a discounted price of DM 532 per share.

As part of the exchange offer, AEG shareholders received 31,736 Daimler-Benz shares. No

treasury stock was on hand on December 31, 1994.

Other securities consist primarily of fixed-interest debt instruments.

Certain current assets could have been increased by DM 22 million to their original values in

accordance with German GAAP; however, the revaluation was not recorded due to a negative

effect on currently payable income taxes.

Notes to the Consolidated Financial Statements

The balance of DM 6,915 million (1993: DM 2,954 million) includes cash in banks, cash on

hand, cash in the German Bundesbank and Postbank as well as deposits in transit.

The liquid assets included in the various balance sheet positions total DM 14.0 billion (1993:

DM 10.5 billion); of this, DM 1.8 billion is committed between one and ten years through

valuation units with derivative financial instruments. The increase in liquid assets over the

previous year in the amount of DM 0.4 billion is related to the altered reporting of the checks

written to compensate for supplier commitments which were not yet redeemed by the receiver.

This item primarily reflects deferred rents, interest, insurance premiums and discount sums of

DM 26 million (1993: DM 16 million). In contrast to the previous year, at December 31, 1994,

deferred taxes generated from elimination procedures affecting income were reported as a

liability.

Stockholders' equity has developed as follows:

The offsetting of goodwill against stockholders' equity is based primarily on the acquisition of

all shares in Bayerische Beteiligungsgesellschaft fur Luft- und Raumfahrtwerte mbH, Munich,

which in turn holds 10% of the shares in Daimler-Benz Luft- und Raumfahrt Holding AG, Munich.

The capital stock increased by DM 235.3 million to DM 2,564.9 million through the capital

increase in June 1994 in the amount of par DM 233.0 million and the capital increase for

issuing employee shares in November 1994 in the amount of par DM 2.3 million. Following

these two capital increases, the number of votes is 51,298,736.

Of the DM 600 million of additional share capital approved on June 26, 1991, the remaining

amount is DM 367.0 million, which may be utilized until June 30, 1996. Of the DM 20 million

of additional share capital for issuance of employee shares approved on May 18, 1994, the

remaining amount is DM 17.7 million, which may be utilized until April 30, 1999. In addition,

as authorized by the shareholders on May 18, 1994, the company maintains authorized but

unissued capital in the amount of DM 300.0 million which is intended for the extension of

subscription rights to the holders of convertible bonds and options issued by the Board

of Management. No use has yet been made of this authorization, which extends through

April 30, 1999.

The increase in paid-in capital to DM 4,904 million (1993: DM 2,117 million) is to be attributed

to the premium from the two 1994 capital increases.

Notes to the Consolidated Financial Statements

Retained earnings contain the German statutory provision of DM 160 million and other retained

earnings of Daimler-Benz AG totaling DM 13,091 million. Retained earnings also include the

group's share of the consolidated subsidiaries' retained earnings and balance sheet results,

provided the earnings were generated by such subsidiaries since joining the company.

Additionally, retained earnings include the cumulative effect resulting from the elimination of

inter-company profits from the consolidation and foreign currency translation gains and losses.

The interest held by third-parties in the stockholders' equity of the consolidated subsidiaries

primarily consists of AEG Daimler-Benz Industrie, Daimler-Benz Luft- und Raumfahrt Holding

AG, Mercedes-Benz (Switzerland) AG, Dornier, MTU and Eurocopter.

In addition to the above, a negative minority interest amounting to DM 973 million relates to

Fokker.

Pension accruals have increased by DM 391 million to DM 13,150 (1993: DM 12,759 million) as

a result of the annual increase in pension provisions.

The pension accruals and the plan assets of the external pension plan fully fund the company's

pension obligations.

2/31/94

12/31/93

18 Other Provisions

DM in mill.

The other provisions consist of:

Notes to the Consolidated Financial Statements

Liabilities to associated and related companies include approximately DM 77 million (1993:

DM 243 million) due to financial institutions. The remaining liabilities to associated and related

companies are primarily obligations of Daimler-Benz Aerospace Airbus GmbH to Airbus

Industrie G.I.E., Toulouse, and accrued liabilities of Daimler-Benz Aerospace due to project

companies.

Commercial paper is recorded at a discounted basis plus accrued interest.

Miscellaneous liabilities consist primarily of accrued payroll and related payroll withholding

tax deductions.

Liabilities to financial institutions, notes payable, liabilities to affiliated and related companies

and miscellaneous liabilities are secured by mortgages, liens and assignment of receivables

of approximately DM 911 million (1993: DM 1,934 million).

Notes to the Consolidated Financial Statements

Notes to the Consolidated Statements of Income

The selling and general administrative expenses include restructuring costs amounting to

DM 1,114 million (1993: DM 3,486 million). Interest expense from leasing and sales financing

business included in the cost of sales is DM 918 million (1993: DM 1,139 million). Miscel•

laneous taxes total DM 297 million (1993: DM 390 million).

Other operating income primarily includes income from dissolved provisions in the amount of

DM 1,610 million (1993: DM 2,348 million). This item also includes income from the sale of

corporate units and from deconsolidations in the amount of DM 1,029 million and income from

land sales, which for the most part were further committed based on depreciation methods

pursuant to German tax law.

DM 2,718 million (1993: DM 3,581 million) of the other operating income relates to other fiscal

years.

Other operating expenses include increases to provisions that cannot be allocated to selling

and general administrative expenses as well as expenses from investment disposals.

DM 121 million (1993: DM 224 million) of the other operating expenses relates to other fiscal

years.

Notes to the Consolidated Financial Statements

The provisions for losses on financial assets and long-term investments total DM 552 million

1993: DM.300 million).

(

The income taxes of DM 1,182 million (1993: DM 515 million) primarily represent income taxes

of the foreign Mercedes-Benz group companies.

The net group income of DM 895 million was influenced by statutory depreciation of financial

and current assets as prescribed by German tax law in the amount of DM 270 million. Future

effects are immaterial.

Notes to the Consolidated Financial Statements

Other Information

Derivative financial instruments are used to hedge against interest rate and currency risks.

They primarily cover the basic supplier and services transactions. They are used to a minor

extent to optimize the interest rate and currency results. Contracts are signed only with

reputable international financial institutions.

The derivative financial instruments are subjected to risk checks appropriate to the extent of

the transactions and are executed under strict functional division into trade, administration,

documentation and control. The necessary critical organization and work procedures are

stipulated by internal guidelines. The effectiveness of the internal controls and the reliability of

the procedures are subjected to continual examination. For decision-making purposes, the

current risk positions are presented in each case based on regular, standardized financial

reports.

The currency instruments relate primarily to future exchange transactions and options in the

currencies of the major industrialized countries. The interest-rate instruments primarily include

interest-rate swaps and combined interest-rate/currency swaps, forward rate agreements,

futures and related options. The face values are calculated from the non-balanced sum of all

buy and sell amounts for derivative instruments. The market values are derived from the prices

at which the derivative instruments are traded or quoted on the balance sheet date without

taking into account contrary trends in the basic transactions.

In addition, the company is liable for compensatory payments guaranteed by Daimler-Benz

Aerospace AG which cannot be reasonably estimated for 1995 and future years. For outside

shareholders of AEG AG and Daimler-Benz Luft- und Raumfahrt Holding AG, claims also exist

for compensatory payments which cannot be reasonably estimated for 1995 and future years.

Notes to the Consolidated Financial Statements

The other financial obligations deriving from rental, leasehold and leasing agreements amount

to an average of approximately DM 1,102 million; the average contractual period is 6 years.

Other financial obligations toward non-consolidated subsidiaries represent annual payments

due of approximately DM 751 million over an average contractual period of 4 years.

In connection with the fiduciary settlement by Daimler-Benz Aerospace Airbus GmbH of the

federally guaranteed serial credits, the effective amount cannot be determined until the

beginning of 1995 when the German Federal Government's last tranche of DM 1 billion is due;

this also applies to the reorganization profit received in 1989.

Within the scope of the government-supported Airbus Development Program, Daimler-Benz

Aerospace Airbus GmbH has agreed to assume performance portions itself. DM 127 million

thereof relate to the time after the balance sheet date, to the extent that they are not already

reflected in the annual accounts.

All assets acquired by Daimler-Benz Aerospace Airbus GmbH with subsidy funds have been

transferred to the Federal Republic of Germany as security.

With reference to the development work for the Airbus program, Airbus Industrie G.I.E. has

given a performance guarantee to Agence Executive (the government office in charge of

Airbus); this guarantee was taken over by Daimler-Benz Aerospace Airbus GmbH - to the extent

of its share interest - without restriction. Daimler-Benz Aerospace Airbus GmbH considers the

obligation fully covered by the relevant agreements for the financing and execution of the

development work.

Beginning in 2002, the profit sharing agreement provides that the German Federal Government

will share 40% in the profits of Daimler-Benz Aerospace Airbus GmbH. This requirement, in its

economic effect, stipulates the sequence of the government's repayment demands.

The remaining financial obligations, particularly purchase order commitments for capital

investments, are within the scope of normal business activities.

The obligation arising from stock and capital subscriptions pursuant to Section 24 of the

GmbHG (Limited Liability Company Act) amounts to DM 79 million.

Within the scope of sales financing, Daimler-Benz Aerospace has submitted to industry-

standard liabilities.

The company is jointly and severally liable for certain non-incorporated companies,

partnerships and joint ventures. In addition, there exist performance and miscellaneous

guarantees in connection with normal business transactions.

In order to finance the construction project on Potsdamer Platz in Berlin, the company has

signed leases with several special companies committing to pay future leasing rates. These

leasing rates, which are computed on the basis of the estimated production costs for the entire

complex of DM 3.3 billion and are expected to take full effect at the end of 1998, cannot be

valued at the present time.

Executive Bodies

Under the presumption that the proposed dividend is ratified by the shareholders at the

Annual Meeting on May 24, 1995, the remuneration paid by the group companies to the

members of the Board of Management and the Supervisory Board of Daimler-Benz AG

amounts to DM 16,759,041 million and DM 1,736,035 million, respectively. Disbursements

to former members of the Board of Management of Daimler-Benz AG and their survivors

amount to DM 12,271,514 million. An amount of DM 90,943,099 million has been accrued in

the financial statements of Daimler-Benz AG and Mercedes-Benz AG for pension obligations to

former members of the Board of Management and their survivors. As of December 31, 1994,

advances and loans to members of the Board of Management of Daimler-Benz AG amounted

to DM 58,017. Home mortgages included herein are not subject to interest; other loans and

advances bear interest averaging 5.5%. During 1994, DM 111,846 of outstanding loans was

repaid. The terms for home mortgages are ten years and less than one year for loans and

advance payments.

Notes to the Consolidated Financial Statements

Auditor's Report

We rendered an unqualified opinion on the consolidated financial statements and the

business review report in accordance with § 322 HGB (German Commercial Code).

The translation of our opinion reads as follows:

"The consolidated financial statements, which we have audited in accordance with

professional standards, comply with the legal provisions. With due regard to the

generally accepted accounting principles, the consolidated financial statements give a

true and fair view of the assets, liabilities, financial position and results of operations

of the Daimler-Benz group. The business review report, which summarizes the state of

affairs of Daimler-Benz Aktiengesellschaft and that of the group, is consistent with the

financial statements of Daimler-Benz Aktiengesellschaft and the consolidated financial

statements."

Frankfurt/Main, March 22, 1995

KPMG Deutsche Treuhand-Gesellschaft

Aktiengesellschaft

Wirtschaftsprufungsgesellschaft

Zielke

Dr. Koschinsky

Wirtschaftsprufer

"Certified Public Accountant"

Auditor's Report

Supervisory Board

HILMAR KOPPER

WOLFGANG GABELE1)

DR. RER. POL. MANFRED SCHNEIDER

Leverkusen

Frankfurt/Main

Bremen

Member of the Board of Management,

Deutsche Bank AG

Deputy Chairman of the Corporate

Labor Council, Daimler-Benz Group

Chairman of the Corporate Labor

Council and the Joint Labor Council,

AEG

Chairman of the Board of Management,

BayerAG

Chairman

PETER SCHONFELDER1)

Augsburg

Member of the Labor Council,

Daimler-Benz Aerospace AG

KARL FEUERSTEIN1'

Mannheim

MANFRED GOBELS1)

Chairman of the Corporate Labor

Council, Daimler-Benz Group

Chairman of the Joint Labor Council,

Mercedes-Benz AG

Stuttgart

Senior Manager, Mercedes-Benz AG

Chairman of the Senior Managers'

Committee, Daimler-Benz Group

Chairman of the Senior Joint Managers'

Committee, Mercedes-Benz AG

PROF. DR. JUR. JOHANNES SEMLER

Kronberg/Taunus

Lawyer

Deputy Chairman

BERNHARD WURL1)

PROF. DR. RER. NAT. GERD BINNIG

Ruschlikon

Project Manager IBM Research Division

Frankfurt/Main

Departmental Manager within the Board

of Management,

ERICH KLEMM1)

Sindelfingen

Chairman of the Labor Council,

Sindelfingen Plant, Mercedes-Benz AG

Metal-Workers' Union

WILLI BOHM1'

Worth

Member of the Labor Council,

Worth Plant, Mercedes-Benz AG

MARTIN KOHLHAUSSEN

Frankfurt/Main

Committees of the

Supervisory Board:

Chairman of the Board

of Management,

Commerzbank AG

DR. H.C. BIRGIT BREUEL

Berlin

Committee pursuant to

§27 Sec. 3 MitbestG

President of the Treuhandanstalt

(

Government Agency for Privatization,

RUDOLF KUDA

HILMAR KOPPER (CHAIRMAN)

KARL FEUERSTEIN

until 12/31/94)

Frankfurt/Main

General Commissioner of EXPO 2000

Departmental Manager within the Board

of Management,

PROF. DR. JUR. JOHANNES SEMLER

BERNHARD WURL

PROF. HUBERT CURIEN

Metal-Workers' Union

Paris

Executive Committee

Former Minister for Research and

Technology of the Republic of France

HELMUT LENSE1)

Stuttgart

HILMAR KOPPER (CHAIRMAN)

KARL FEUERSTEIN

Chairman of the Labor Council,

Untertürkheim Plant,

Mercedes-Benz AG

DR. JUR. MICHAEL ENDRES

Frankfurt/Main

PROF. DR. JUR. JOHANNES SEMLER

BERNHARD WURL

Member of the Board of Management,

Deutsche Bank AG

WALTER RIESTER2)

Audit Committee

Frankfurt/Main

Vice-Chairman, Metal-Workers' Union

HILMAR KOPPER (CHAIRMAN)

KARL FEUERSTEIN

JÜRGEN SARRAZIN

Frankfurt/Main

WILLI BOHM

DR. BIRGIT BREUEL

Chairman of the Board

of Management,

Dresdner Bank AG

DR. JUR. ROLAND SCHELLING

Stuttgart

Attorney at Law

) Elected by the employees.

) Judicially appointed as employee

representative.

Supervisory Board

Report of the Supervisory Board

Selected areas of focus were the

At its meeting on June 29, 1994,

the Supervisory Board designated Mr.

Schrempp to succeed Mr. Reuter as

Chairman of the Board of Management

effective from the date of the Annual

General Meeting on May 24, 1995.

Thus, the future leadership of the

group was clarified at an early date.

At the meeting on November 2,

measures for globalization and localiz•

ation and for strengthening our interna•

tional competitiveness. Highlights were

the restructuring at AEG Daimler-Benz

Industry, the selling off of the household

appliance and cable harness activities

as well as meters and lighting systems,

the joint ventures with CEGELEC and

Magna, and the acquisition of ECA in the 1994, we then made further decisions

Postal Automation Division. Highlights

for Mercedes-Benz were the takeover

of Kassbohrer and the decision for the

Micro Compact Car. For Daimler-Benz

Aerospace, we thoroughly discussed the

development at Fokker as well as the

pan-European cooperative ventures.