<PAGE>
As filed with the Securities and Exchange Commission on March 31, 1999
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
Form 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
Commission file number 1-12356
------------------------
DAIMLERCHRYSLER AG
(Exact name of Registrant as specified in its charter)
DAIMLERCHRYSLER AG
(Translation of Registrant's name into English)
FEDERAL REPUBLIC OF GERMANY
(Jurisdiction of incorporation or organization)
70546 STUTTGART, GERMANY
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
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<S> <C>
Ordinary Shares, no par value Frankfurt Stock Exchange
New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Philadelphia Stock
Exchange
American Depositary Notes representing 5 3/4% Subordinated
Mandatory Convertible Notes Due June 14, 2002 New York Stock Exchange
Guarantee of the following securities of:
DaimlerChrysler North America Holding Corporation
7 3/8% Notes Due September 15, 2006 New York Stock Exchange
Chrysler Financial Company L.L.C.
13 1/4% Notes Due October 15, 1999 New York Stock Exchange
12 3/4% Notes Due November 1, 1999 New York Stock Exchange
9 1/2% Notes Due 1999 New York Stock Exchange
8 1/2% Putable-Extendible Notes Due February 1, 2018 New York Stock Exchange
6 5/8% Notes Due 2000 New York Stock Exchange
</TABLE>
------------------------
Securities registered or to be registered pursuant to Section 12(g) of the Act.
NONE
(Title of Class)
------------------------
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
NONE
(Title of Class)
------------------------
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
Ordinary Shares, no par value . . . . . . . . . 1,001,733,220
(as of December 31, 1998)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
<TABLE>
<S> <C>
Yes /X/ No / /
</TABLE>
Indicate by check mark which financial statement item the registrant has elected
to follow.
<TABLE>
<S> <C>
Item 17 / / Item 18 /X/
</TABLE>
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- - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I
Item 1. Description of Business....................................................................... 2
Introduction.............................................................................. 2
Group Strategy............................................................................ 3
Outlook................................................................................... 5
Description of Business Segments.......................................................... 7
Passenger Cars Mercedes-Benz, smart................................................... 7
Passenger Cars and Trucks Chrysler, Plymouth, Jeep-Registered Trademark-, Dodge....... 10
Commercial Vehicles Mercedes-Benz, Freightliner, Sterling, Setra...................... 14
Chrysler Financial Services........................................................... 18
Services.............................................................................. 20
Aerospace............................................................................. 23
Other................................................................................. 28
Supplies and Raw Materials................................................................ 30
Research and Development.................................................................. 30
Government Regulation and Environmental Matters........................................... 31
Employees and Labor Relations............................................................. 35
Operating Environment..................................................................... 36
Item 2. Description of Property....................................................................... 37
Item 3. Legal Proceedings............................................................................. 40
Item 4. Control of Registrant......................................................................... 41
Item 5. Nature of Trading Market...................................................................... 42
Item 6. Exchange Controls and Other Limitations Affecting Security Holders............................ 45
Item 7. Taxation...................................................................................... 46
Item 8. Selected Financial Data....................................................................... 50
Item 9. Management's Discussion and Analysis of Results of Operations and Financial Condition......... 53
Overview.................................................................................. 53
Results of Operations..................................................................... 53
Accounting Principles................................................................. 53
Inflation............................................................................. 53
Year 2000............................................................................. 54
Business Segment Information.......................................................... 56
1998 Compared With 1997............................................................... 57
1997 Compared With 1996............................................................... 61
Liquidity and Capital Resources........................................................... 66
1998 Compared With 1997 and 1996...................................................... 66
Item 9A. Quantitative and Qualitative Disclosures About Market Risk.................................... 69
Exchange Rate Exposure.................................................................... 69
Interest Rate Exposure.................................................................... 72
Item 10. Directors and Officers of Registrant.......................................................... 75
Item 11. Compensation of Directors and Officers........................................................ 79
Item 12. Options to Purchase Securities from Registrant or Subsidiaries................................ 80
Item 13. Interest of Management in Certain Transactions................................................ 82
PART II
Item 14. Description of Securities to be Registered.................................................... 82
PART III
Item 15. Defaults Upon Senior Securities............................................................... 82
Item 16. Changes in Securities and Changes in Security for Registered Securities....................... 82
PART IV
Item 17. Financial Statements.......................................................................... 82
Item 18. Financial Statements.......................................................................... 82
Item 19. Financial Statements and Exhibits............................................................. 83
</TABLE>
i
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Unless otherwise indicated, all amounts in this Annual Report are expressed
in euros ("euros" or "[EURO]"), German marks ("marks" or "DM") or United States
dollars ("dollars" or "$"). Effective January 1, 1999, Germany and ten other
member states of the European Union adopted the euro as their common currency.
Amounts stated in euros appearing herein for periods prior to January 1, 1999,
have been translated from marks at the official fixed conversion rate of [EURO]
1 = DM 1.95583 (the "Official Fixed Conversion Rate"). Amounts stated in
dollars, unless otherwise indicated, have been translated from euros or marks at
assumed rates solely for convenience and should not be construed as
representations that corresponding euro or mark amounts actually represent such
dollar amounts or could be converted into dollars at the rates indicated. Unless
otherwise stated, dollar amounts have been translated from marks at the noon
buying rate in New York City for cable transfers in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York (the
"Noon Buying Rate") on December 31, 1998, which was DM 1.6670 per $1. Such rate
may differ from the actual rates used in the preparation of the consolidated
financial statements of DaimlerChrysler as of December 31, 1998 and 1997, and
for each of the years in the three year period ended December 31, 1998, included
in Item 18 of this Annual Report, which were originally prepared in marks as
required by the German Commercial Code (HANDELSGESETZBUCH) and have been
translated into euros for each period presented using the Official Fixed
Conversion Rate. Accordingly, dollar amounts appearing herein may differ from
the actual dollar amounts that were originally translated into marks (and
subsequently translated into euros) in the preparation of such financial
statements. After the introduction of the euro on January 1, 1999, the Federal
Reserve Bank of New York ceased to quote Noon Buying Rates for the mark.
Therefore, certain amounts stated in dollars appearing herein for the period
commencing January 1, 1999, have been translated from euros into dollars at the
Noon Buying Rate indicated. For information regarding recent rates of exchange
between euros and dollars and between marks and dollars, see "Item 8. Selected
Financial Data." On March 23, 1999, the Noon Buying Rate for the euro was [EURO]
1 = $1.0918, which if expressed in marks would have been equivalent to a rate of
$1 = DM 1.7914, translated from euros at the Official Fixed Conversion Rate.
The consolidated financial statements as of December 31, 1998 and 1997 and
for each of the years in the three-year period ended December 31, 1998 (the
"Consolidated Financial Statements") included in this Annual Report, have been
prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP") except for the use of the proportionate method of
consolidation for certain joint ventures. Under U.S. GAAP, joint ventures would
be accounted for using the equity method of accounting. DaimlerChrysler AG has
received permission from the United States Securities and Exchange Commission to
prepare its consolidated financial statements with this departure from U.S.
GAAP. See Note 3 to the Consolidated Financial Statements.
Statements in this Annual Report with respect to financial information are
based on U.S. GAAP information prepared as described above.
------------------------
As used in this Annual Report, "DaimlerChrysler," the "DaimlerChrysler
Group" or the "Group" refers to DaimlerChrysler AG and its consolidated
subsidiaries.
------------------------
This Annual Report contains certain forward-looking statements and
information relating to the DaimlerChrysler Group that are based on beliefs of
its management as well as assumptions made by and information currently
available to DaimlerChrysler AG. When used in this document, the words
"anticipate," "believe," "estimate," "expect," "intend," "plan" and "project"
and similar expressions, as they relate to the DaimlerChrysler Group or its
management, are intended to identify forward-looking statements. Such statements
reflect the current views of DaimlerChrysler AG with respect to future events
and are subject to certain risks, uncertainties and assumptions. Many factors
could cause the actual results, performance or achievements of the
DaimlerChrysler Group to be materially different from any future results,
performance or achievements that may be expressed or implied by such
forward-looking statements, including, among others, changes in general economic
and business conditions, changes in currency exchange rates and interest rates,
introduction of competing products by other companies, lack of acceptance of new
products or services by the Group's targeted customers, changes in business
strategy and various other factors, both referenced and not referenced in this
Annual Report. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected, intended, planned or projected. DaimlerChrysler AG does not intend,
and does not assume any obligation, to update these forward-looking statements.
<PAGE>
PART I
Item 1. Description of Business.
INTRODUCTION
DaimlerChrysler AG is a stock corporation organized under the laws of the
Federal Republic of Germany. It effected the business combination of Chrysler
Corporation and Daimler-Benz in 1998. It is the successor corporation to
Daimler-Benz Aktiengesellschaft and now comprises the respective businesses,
stockholder groups, managements and other constituencies of Chrysler and
Daimler-Benz.
On May 7, 1998, the managements of Daimler-Benz and Chrysler announced a
definitive agreement to combine the two companies in a "merger-of-equals"
transaction. The stockholders of both companies voted overwhelmingly to approve
the combination in special meetings held on September 18, 1998. In a subsequent
offer to Daimler-Benz stockholders to exchange their Daimler-Benz ordinary
shares for ordinary shares of DaimlerChrysler AG more than 98% of the
outstanding Daimler-Benz ordinary shares were tendered. Chrysler Corporation
then became a wholly owned subsidiary of DaimlerChrysler AG through a merger
transaction in which its shareholders received DaimlerChrysler ordinary shares.
The business combination was completed with the merger of Daimler-Benz into
DaimlerChrysler AG on December 21, 1998.
DaimlerChrysler provides a wide range of transportation products and
financial and other services. It is the third largest automobile manufacturer in
the world in terms of revenues (1998: [EURO] 132 billion). In 1998, the Group
operated in seven business segments:
PASSENGER CARS MERCEDES-BENZ, SMART. DaimlerChrysler is world renowned
for its high quality Mercedes-Benz passenger cars which reflect a long
tradition of exceptional engineering, performance, service and safety. The
smart, a new micro compact passenger car that defines a new market segment,
is specifically designed for urban mobility. The Passenger Cars
Mercedes-Benz, smart segment contributed approximately 23% of the Group's
revenues in 1998.
PASSENGER CARS AND TRUCKS CHRYSLER, PLYMOUTH,
JEEP-REGISTERED TRADEMARK-, DODGE. This segment consists of the automotive
operations of DaimlerChrysler Corporation, formerly Chrysler Corporation.
DaimlerChrysler Corporation manufactures, assembles and sells cars and
trucks under the brand names Chrysler, Plymouth, Jeep and Dodge. In 1998,
approximately 43% of the Group's revenues were contributed by this segment.
COMMERCIAL VEHICLES MERCEDES-BENZ, FREIGHTLINER, STERLING, SETRA.
DaimlerChrysler manufactures and sells commercial vehicles under the brand
names Mercedes-Benz, Freightliner, Sterling and Setra. It is the world's
leading manufacturer of trucks over 6 metric tons (t) GVW and of buses over
8t GVW. With worldwide facilities, the Group has the world's most developed
network for the production and assembly of commercial vehicles and core
components. It also has a worldwide distribution and service network. This
segment contributed approximately 17% of the Group's revenues in 1998.
CHRYSLER FINANCIAL SERVICES. Chrysler Financial Services includes the
operations of Chrysler Financial Company L.L.C., its consolidated
subsidiaries, and managed operations in Mexico. Chrysler Financial Services
principally engages in providing consumer and dealer automotive financing
for the products of DaimlerChrysler Corporation, including retail and lease
financing for vehicles, dealer inventory and other financing needs. It also
provides dealer property and casualty insurance and dealer facility
development and management, primarily for Chrysler, Plymouth, Jeep and Dodge
dealers and their customers. Chrysler Financial Services contributed
approximately 2% of the Group's revenues in 1998.
SERVICES. DaimlerChrysler Services (debis) provides financial services
supporting the sale of Group products. It also engages in insurance
brokerage, trading, information technology (IT) services and
telecommunications services. Services contributed approximately 6% of the
Group's revenues in 1998.
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debis and Chrysler Financial Company L.L.C. are combining their
financial services activities. The new business entity will be the fourth
largest financial services provider in the world outside the banking and
insurance sector.
AEROSPACE. Principal Aerospace activities include the development,
production and sale of commercial aircraft and helicopters, defense and
civil systems, aero engines, military aircraft, satellites, and space
infrastructure. DaimlerChrysler Aerospace is the German partner (with a
37.9% share) in the European Airbus consortium Airbus Industrie G.I.E.
Aerospace contributed approximately 7% of the Group's revenues in 1998.
OTHER. This segment includes the operating businesses Rail Systems,
Automotive Electronics and MTU/ Diesel Engines. It contributed approximately
2% of the Group's revenues in 1998.
The DaimlerChrysler Group is active primarily in Europe and in the United
States, Canada and Mexico, commonly referred to as the NAFTA region. It is also
a leading commercial vehicle manufacturer in South America. In 1998, slightly
less than 50% of the Group's revenues was derived from sales in the United
States, 19% from sales in Germany and 18% from sales in other European
countries.
Group net income before non-recurring items (principally merger costs and
tax benefits) increased from [EURO] 4.1 billion in 1997 to [EURO] 5.2 billion in
1998. Net income including the effects of non-recurring items ([EURO] 0.4
billion of after-tax merger costs in 1998 and [EURO] 2.5 billion of special
non-recurring German tax benefits in 1997) was [EURO] 4.8 billion in 1998 and
[EURO] 6.5 billion in 1997. See "Item 8. Selected Financial Data" and "Item 9.
Management's Discussion and Analysis of Results of Operations and Financial
Condition." As of December 31, 1998, the DaimlerChrysler Group had approximately
441,500 employees, approximately 53% of whom were employed in Germany and 27% in
the United States.
As of December 31, 1998, DaimlerChrysler AG had more than 1.4 million
stockholders. Its ordinary shares are traded on all eight German stock
exchanges, on the New York Stock Exchange, the Chicago Stock Exchange, the
Pacific Stock Exchange and the Philadelphia Stock Exchange, on the stock
exchanges in Montreal, Paris, Tokyo, Toronto and Vienna, on the Swiss Stock
Exchange and, through an electronic link with the Frankfurt Stock Exchange, on
the stock exchange in London. DaimlerChrysler ordinary shares trade on the New
York Stock Exchange under the symbol "DCX."
GROUP STRATEGY
DaimlerChrysler has one focus: to become the world's leading automotive and
transportation products and services company in the 21(st) century -- the
pacesetter for customer orientation, innovation, technology and quality. Hence,
the DaimlerChrysler mission statement:
"OUR MISSION IS TO INTEGRATE TWO GREAT COMPANIES TO BECOME A WORLD
ENTERPRISE THAT BY 2001 IS THE MOST SUCCESSFUL AND RESPECTED AUTOMOTIVE AND
TRANSPORTATION PRODUCTS AND SERVICES PROVIDER. WE WILL ACCOMPLISH THIS BY
CONSTANTLY DELIGHTING OUR CUSTOMERS WITH THE QUALITY AND INNOVATION OF OUR
PRODUCTS AND SERVICES, RESULTING FROM THE EXCELLENCE OF OUR PROCESSES, OUR
PEOPLE AND OUR UNIQUE PORTFOLIO OF STRONG BRANDS."
From this mission statement derive the six corporate goals of
DaimlerChrysler:
- Delighted Customers -- an ability to anticipate and exceed the
expectations of its customers
- Superior Profitability -- profitability superior to all other automotive
and transportation products and services companies
- Unique Portfolio -- a unique portfolio of strong brands, products and
services
- Sustained Growth -- sustained profitable growth that will outpace the best
of its competitors
- Integrated Enterprise -- an integrated enterprise that will achieve
maximum value from shared resources and expertise
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- Globalization -- a truly global company building on its strong presence in
North America and Europe while expanding into growth markets
DaimlerChrysler will take five key steps to achieve these goals:
First: The Product Offensive. From now until 2001, DaimlerChrysler plans to
introduce 18 completely new car and truck models. It also intends to be the
first in the market with an economically viable range of attractive fuel cell
vehicles.
Second: Steady Growth in Market Share and Global Presence. DaimlerChrysler
plans to internationalize its U.S. brands further and to challenge European
volume manufacturers with new and exciting Chrysler and Jeep models. It will
expand in Latin America where it already has a strong foothold. There is a
developing strategy for Asia which builds on the Group's comprehensive
Mercedes-Benz network.
Third: Outstanding Brand Management. DaimlerChrysler's brand management
philosophy observes the following fundamental principles:
- Individual target markets
- Separate worldwide brand responsibilities
- Unique marketing for each DaimlerChrysler brand
- No platform sharing with the Group's premium products
- Specific product quality standards that meet customer expectations and do
not vary by market
Fourth: Leader in Innovation. In the next three years DaimlerChrysler plans
an unparalleled investment program to develop and produce superior, innovative
products with a competitive edge that provide superior margins.
Fifth: Synergies. DaimlerChrysler's most important short-term task is
completing the post-merger integration successfully, realizing the synergies
expected from the business combination and transforming the Group's corporate
goals into individual business unit strategies.
The business segments of DaimlerChrysler are already progressing toward
achievement of the corporate goals:
The Passenger Cars Mercedes-Benz, smart division has one of the world's
strongest car brand names and a long tradition of quality, safety and service.
With the A-Class, the M-Class, the SLK, the CLK, the CLK convertible and, as a
second brand, the smart, the division has added new innovative products to its
line-up which provide access to new markets and customer segments. The new
S-Class introduced in the fall of 1998 has solidified the Group's leading
position in the upper luxury segment of the passenger car market. In new product
development the division will continue to focus on the traditional Mercedes-Benz
values of quality, comfort and safety while at the same time drawing on its
innovative strength.
The Passenger Cars and Trucks Chrysler, Plymouth,
Jeep-Registered Trademark-, Dodge segment has a tradition of designing and
producing cars and trucks that inspire customer enthusiasm. With the all-new
Chrysler LHS and 300M and Jeep Grand Cherokee, introduced in 1998, this proud
tradition continues. In new product development, the division will continue to
focus on cutting-edge design and innovation in expanding the Chrysler, Plymouth,
Jeep and Dodge product lines. This focus is exemplified with the PT Cruiser, the
new hybrid vehicle which will be available to customers in 2000. The PT Cruiser
has the potential to create an entirely new vehicle segment. In 1999, the
division will introduce the Dodge Dakota Quad Cab, viewed as the industry's
first compact pickup truck produced in the U.S. with four full-sized doors.
The Commercial Vehicles Mercedes-Benz, Freightliner, Sterling, Setra
division has updated the entire range of vans and trucks offered in Europe. In
the United States, Freightliner has strengthened its leading market position
with the new Sterling product line derived from the heavy truck lines acquired
from Ford. In order to sustain its long-term growth and profitability goals, the
division is determined to enter selected new product segments, further optimize
production and penetrate new geographical markets.
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debis is combining its financial services activities with Chrysler Financial
Services. The new business entity will be the fourth largest financial services
provider in the world outside the banking and insurance sector. debis expects to
expand further its IT and telecommunication activities as it benefits from the
accelerated growth of these markets.
At DaimlerChrysler Aerospace, the high level of competition in the aerospace
industry and the continued consolidation trend among industry participants in
the United States have led to one of the most important long-term strategic
initiatives within the European aerospace industry -- to create the European
Aerospace and Defense Company which would encompass most of the European
aerospace and defense industry. As a first step, the partners in Airbus
Industrie are seeking to combine all Airbus activities in a single corporate
entity to achieve future efficiency and productivity gains, thereby further
strengthening the competitive position of Airbus.
Within Other, DaimlerChrysler has reached an arrangement with ABB Asea Brown
Boveri whereby DaimlerChrysler will purchase ABB's 50% interest in Adtranz for
$472 million and ABB's right to put its interest to DaimlerChrysler under the
joint venture agreement will be extinguished. DaimlerChrysler plans to integrate
Adtranz into its strategic framework and to reinforce Adtranz' position as a
leader in the global rail transportation market. It will be necessary to use its
100% control to implement efficiencies to return Adtranz to profitability. The
Group's Automotive Electronics unit is actively seeking opportunities for
cooperations and joint projects with mechanical engineering companies in order
to enhance its ability to offer complete systems solutions to its customers.
MTU/Diesel Engines has introduced a series of new and innovative products and
will work on expanding its market position, primarily in the area of diesel
engines for commercial applications.
Achieving DaimlerChrysler's ambitious goals requires more than excellent
products, market shares and continuous innovation. Even though DaimlerChrysler
will have to measure its economic performance and evaluate its success based on
hard facts such as market shares, customer loyalty and value creation, it will
also look very closely at "softer" factors such as its appeal to employees
seeking to be a part of a winning global team and its acceptance within the
communities it serves. Most importantly, however, DaimlerChrysler knows that in
forging the new combined enterprise and striving to achieve its ambitious
targets, it is its people who will make necessary things happen everywhere and
that those people possess the greatest strength of DaimlerChrysler, namely the
diversity of their experiences and skills. Successfully integrating and serving
the interests of stockholders, customers and employees will provide
DaimlerChrysler with the strength required to continue into the future as a
world-class market leader.
OUTLOOK
The management of DaimlerChrysler expects the worldwide economic environment
to stabilize in 1999 and the years following. Although economic growth in
Germany, the rest of Western Europe and North America may initially lose some of
its dynamic force, management anticipates stable growth in these key markets for
DaimlerChrysler.
DaimlerChrysler derives a significant portion of its revenues and operating
profits from the U.S. and Canadian automotive markets. DaimlerChrysler expects
to continue to face an increasingly competitive automotive environment in the
U.S. and Canada within the context of worldwide industry overcapacity.
Many Asian markets continue to be in economic turmoil. Although the Asian
emerging markets should have begun to recover from their economic lows by the
end of 1999, a fundamental improvement in the market situation cannot be
anticipated in the short term. In South America the prospects for growth
continue to be favorable, but in the current year, because of the economic
crisis in Brazil, a further deterioration of overall economic conditions is
expected. In the near term, the economic difficulties in Asia and South America
may negatively affect the ability to produce and sell DaimlerChrysler vehicles
in those markets. The economic situation in Asia could also cause additional
competitive pressure in the U.S. and Canadian automotive markets. Moreover,
continuation of economic difficulties in other markets outside of the U.S. and
volatility in certain world currencies and capital markets could have an
unfavorable effect on consumer confidence and overall economic conditions in the
U.S. and Canada.
5
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Within the European Union DaimlerChrysler estimates that the introduction of
the euro will contribute to the stabilization of exchange rates and
simultaneously promote economic growth and price stability. It anticipates
reduced costs for currency hedging activities and improved planning reliability.
Altogether, the management of DaimlerChrysler believes that the euro will
strengthen the Group's international competitiveness.
On the basis of the overall economic development, DaimlerChrysler
anticipates vehicle demand in the current year to weaken somewhat in Western
Europe and North America. Nonetheless, it estimates that some niche segments
such as minivans, sport-utility vehicles, pickup trucks, and convertibles will
continue to develop favorably in the near future. Strict cost management in all
fields of business and the synergies which DaimlerChrysler anticipates to
achieve through the business combination are expected to provide a good
foundation for growing profitably and increasing the Group's earning power in
the future.
6
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DESCRIPTION OF BUSINESS SEGMENTS
Passenger Cars Mercedes-Benz, smart
DaimlerChrysler is world renowned for its high quality Mercedes-Benz
passenger cars which reflect a long tradition of exceptional engineering,
performance, service and safety. The smart, a new micro compact passenger car
that defines a new market segment, is specifically designed for urban mobility.
The Passenger Cars Mercedes-Benz, smart division contributed approximately 23%
of the Group's revenues in 1998.
PRODUCTS
MERCEDES-BENZ. The Mercedes-Benz passenger car product range consists of
the following series:
THE S-CLASS. The S-Class is a line of full-size luxury sedans and coupes
that has been the main contributor over the years to the strength of the
Mercedes-Benz brand and its reputation for well-built, long-lasting, luxury
automobiles with an uncompromised emphasis on operator and passenger safety and
superior resale value. A new S-Class with a redesigned body style and more than
30 technological innovations was introduced in Europe in the fall of 1998. The
new S-Class, which has been exceptionally well received in the market, has been
available in the United States since the beginning of March 1999.
THE SL. The SL series has been a tradition for Mercedes-Benz since the
introduction of the famous 300 SL Roadster in 1954. The present line consists of
four models ranging from the SL 280 to the SL 600, each offering a removable
hardtop as well as an electrically operated hydraulic softtop and a roll bar
which extends automatically when required.
THE E-CLASS. The E-Class is a line of luxury sedans and station wagons. The
E-Class sedans are available in six gasoline engine versions ranging from the E
200 to the E 55 AMG and four diesel engine versions, the E 200 CDI, the E 220
CDI, the E 290 Turbodiesel and the E 300 Turbodiesel.
THE C-CLASS. The C-Class is a line of compact luxury sedans and station
wagons available in six gasoline engine versions ranging from the C 180 to the C
43 AMG and three diesel engine versions, the C 200 CDI, the C 220 CDI and the C
250 Turbodiesel. The station wagon model is not offered in the United States.
The SLK, a two-seat roadster, the CLK coupe and the CLK convertible complement
the C-Class sedans and station wagons.
THE A-CLASS. The A-Class, a new Mercedes-Benz subcompact model, is a
four-door hatchback featuring front-wheel drive for the first time in a
Mercedes-Benz passenger car. The A-Class is manufactured in Rastatt, Germany,
and beginning in February 1999, is being produced in Juiz de Fora, Brazil, for
certain Latin American markets. All A-Class vehicles are equipped with
Electronic Stability Program (ESP) which significantly improves handling,
especially under adverse road conditions. The A-Class is not available in the
United States.
THE V-CLASS. The V-Class is a passenger minivan derived from a commercial
van. As a consequence, unit sales and revenues relating to the V-Class are
included in the figures for the Commercial Vehicles Mercedes-Benz, Freightliner,
Sterling, Setra segment. The V-Class, which is manufactured in Vitoria, Spain,
is not available in the United States.
THE M-CLASS. The M-Class is a four-by-four sport-utility vehicle that
combines off-road capabilities with the comfort of a passenger car. The M-Class
production facility is in Tuscaloosa, Alabama. Beginning in mid-1999, the
Austrian assembly facility for the Jeep Grand Cherokee will commence
manufacturing the M-Class for the European market.
THE G-CLASS. The G-Class is a four-wheel drive cross-country vehicle that
comes in a short and long wheel-base version. Two gasoline engine models and one
diesel engine model are currently available. The G-Class is not offered in the
United States.
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At the Tokyo Motor Show in October 1997 DaimlerChrysler presented a
prototype of a high-end luxury limousine under the name "Mercedes-Benz Maybach."
In July 1998 DaimlerChrysler announced that it will develop the limousine for
production.
SMART. In October 1998, DaimlerChrysler introduced a new micro compact car,
the smart, in Germany and other European markets. The smart defines a new market
segment and is designed specifically for urban mobility. Effective October 31,
1998, DaimlerChrysler acquired the 19% interest in the smart enterprise which it
did not already own. In early March 1999, DaimlerChrysler announced that it
would upgrade the standard equipment level of the smart models and reduce list
prices to increase market interest in the vehicle.
MARKETS, SALES AND COMPETITION
In 1998, the most important markets for the Passenger Cars Mercedes-Benz,
smart segment were Germany (38% of unit sales), the European Union (excluding
Germany) (28% of unit sales), the United States (19% of unit sales) and Japan
(4% of unit sales). New car registrations in Germany were 6% higher than in the
previous year, reaching 3.7 million units. In the European Union (excluding
Germany) new registrations of passenger cars increased by 7%.
The following table sets forth the distribution of revenues and unit sales
for the Passenger Cars Mercedes-Benz, smart division by geographic market since
1996:
Revenues and Unit Sales
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1998 % change 1997 % change 1996
--------- ------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues(1)
Germany......................................... 12,670 +14 11,084 +4 10,632
European Union(2)............................... 7,548 +28 5,905 +19 4,968
Italy....................................... 1,565 +26 1,246 +20 1,041
France...................................... 1,140 +33 859 0 859
United Kingdom.............................. 2,127 +24 1,711 +39 1,234
United States................................... 6,730 +39 4,831 +47 3,296
Japan........................................... 1,646 -3 1,691 +10 1,544
Asia(3)......................................... 1,078 -28 1,506 +4 1,442
Other markets................................... 2,915 +15 2,537 +29 1,971
--------- --------- ---------
World....................................... 32,587 +18 27,554 +16 23,853
--------- --------- ---------
--------- --------- ---------
Units
Germany......................................... 355,200 +28 276,500 +5 264,000
European Union(2)............................... 255,000 +42 179,200 +10 162,400
Italy....................................... 61,800 +41 43,900 +18 37,200
France...................................... 42,300 +57 26,900 -2 27,400
United Kingdom.............................. 57,100 +30 43,900 +18 37,300
United States................................... 172,300 +40 123,400 +41 87,600
Japan........................................... 40,200 +2 39,400 +6 37,200
Asia(3)......................................... 26,300 -31 38,200 -7 41,200
Other markets................................... 73,800 +26 58,400 +11 52,600
--------- --------- ---------
World....................................... 922,800 +29 715,100 +11 645,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
- - ------------------------
(1) [EURO] in millions.
(2) Excluding Germany.
(3) Excluding Japan.
8
<PAGE>
In 1998, both unit sales and revenues of the Passenger Cars Mercedes-Benz,
smart division reached new record high levels. Total passenger car unit sales
increased 29% to 922,800 vehicles, primarily as a result of the success of the
A-Class and the continued popularity of the M-Class and some models of the
C-Class. Unit sales in Germany reached 355,200, 28% more than in 1997. In the
remaining European Union market, unit sales jumped 42% to 255,000, mainly due to
more favorable market conditions in France, Italy and the United Kingdom. In the
United States, which is the most important non-European market for Mercedes-Benz
passenger cars, unit sales were up 40%. This significant increase was the result
of strong market demand, particularly for the M-Class and certain other
passenger car models. For a discussion of changes in revenues see "Item 9.
Management's Discussion and Analysis of Results of Operations and Financial
Condition."
In Western Europe, the principal competitors of Mercedes-Benz passenger cars
are Audi and BMW and, depending on the market segment, Jaguar, Lexus, Porsche,
Rolls Royce, Volkswagen and certain models of Citroen, Fiat, Ford, General
Motors, Peugeot, Renault, Rover, Saab and Volvo. In the United States, the
principal competitors include Acura, Audi, BMW, Ford, Infiniti, Jaguar, Lexus,
Lincoln, Porsche, Rolls Royce, Saab and Volvo and, depending on the market
segment, Nissan, Toyota and certain models produced by General Motors, Mazda and
Mitsubishi Motors.
The following table sets forth, by vehicle line, the number of units sold
since 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Units
S-Class................................................................ 42,700 47,800 52,200
SL..................................................................... 15,600 15,100 16,400
E-Class................................................................ 259,400 277,000 291,500
C-Class (including SLK and CLK)........................................ 384,400 348,700 280,300
A-Class................................................................ 136,100 6,700 --
M-Class................................................................ 63,700 16,300 --
G-Class................................................................ 3,800 3,500 4,600
smart.................................................................. 17,100 -- --
--------- --------- ---------
Total.............................................................. 922,800 715,100 645,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
DISTRIBUTION
The Group distributes Mercedes-Benz passenger cars through a worldwide
distribution system covering approximately 190 countries. Sales organizations
differ in the various sales regions according to local needs and requirements.
In Germany, the Group operates a wholesale and a retail network for
Mercedes-Benz passenger cars. In other major European markets and in the United
States, Canada and Japan, Mercedes-Benz passenger cars are sold through a Group
subsidiary to an independent dealer network. In smaller markets around the
world, Mercedes-Benz passenger cars are sold through independent general
distributors. DaimlerChrysler has established a separate distribution network
for the smart brand in Germany and other European markets.
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
The Passenger Cars Mercedes-Benz, smart division had [EURO] 2.0 billion of
capital expenditures for fixed assets in 1998. Principal areas of investment
were the preparation for production of the new S-Class and upcoming successor
models of the C-Class, expansion of production capacity for the M-Class, a new
technology center in Sindelfingen, Germany, and the A-Class manufacturing plant
in Juiz de Fora, Brazil.
In 1998, research and development projects of this division included the
development of new models, primarily the new S-Class and the upcoming successor
models of the C-Class and E-Class.
9
<PAGE>
The capital expenditures for fixed assets and the research and development
expenditures of the Passenger Cars Mercedes-Benz, smart division during the last
three years are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
([EURO] in millions)
Capital expenditures for fixed assets............................... 1,995 1,885 1,479
Research and development............................................ 1,930 1,583 1,486
</TABLE>
INTERNATIONAL COOPERATIONS
Mercedes-Benz South Africa manufactures Honda passenger cars under an
agreement with Honda Motor Corporation. In India, DaimlerChrysler and Tata
Engineering & Locomotive Comp. Ltd. formed a joint venture company,
Mercedes-Benz India, which manufactures E-Class passenger cars and automobile
engines. In December 1997, DaimlerChrysler, Ford Motor Company and the Canadian
company Ballard Power Systems Inc. agreed to join forces in the further
development of a fuel cell for automotive applications. The Group holds an
equity interest of approximately 20% in Ballard.
Passenger Cars and Trucks Chrysler, Plymouth, Jeep-Registered Trademark-, Dodge
This segment consists of the automotive operations of DaimlerChrysler
Corporation, formerly Chrysler Corporation. DaimlerChrysler Corporation
manufactures, assembles and sells cars and trucks under the brand names
Chrysler, Plymouth, Jeep and Dodge -- primarily in the NAFTA region. The
Passenger Cars and Trucks Chrysler, Plymouth, Jeep, Dodge segment contributed
approximately 43% of DaimlerChrysler's revenues in 1998.
PRODUCTS
The automotive design and development activities for Chrysler, Plymouth,
Jeep and Dodge vehicles are organized into cross-functional product development
groups called "platform teams." The platform team system seeks to improve
communications and product quality, and reduce the time required to design and
develop new vehicles. The platform team process has contributed significantly to
the success of DaimlerChrysler Corporation in recent years.
The passenger car and truck product ranges of the Chrysler, Plymouth, Jeep
and Dodge brands consist of the following vehicles:
NEON. Neon is a subcompact four-door sedan sold under the Chrysler,
Plymouth and Dodge brand names. Neon is available with a 1.8 or 2.0 liter
engine, depending on the market, and a 5-speed manual or 3-speed automatic
transmission. A new redesigned Neon became available in February 1999.
BREEZE, CIRRUS AND STRATUS. The Plymouth Breeze, Chrysler Cirrus and Dodge
Stratus are compact four-door sedans offering contemporary cab-forward styling.
Depending on the model, engine alternatives include a 2.0 liter and a 2.4 liter
four-cylinder, or a 2.5 liter V-6 engine. Breeze, Cirrus and Stratus models are
available in the NAFTA region, and the Cirrus is also available in other
markets.
INTREPID, CONCORDE, LHS AND 300M. Dodge Intrepid is a mid-size front-wheel
drive, four-door sedan offered with either a 2.7 or 3.2 liter aluminum V-6
engine. The Intrepid is available only in the NAFTA region. The Concorde is a
full-size front-wheel drive sedan available in two models, powered by either a
2.7 liter or 3.2 liter aluminum V-6 engine. The LHS is a full-size front-wheel
drive luxury sedan powered by a 2.7 liter or a 3.5 liter aluminum V-6 engine.
The 300M is a front-wheel drive sport sedan designed for international markets
powered by a 3.5 liter aluminum V-6. Concorde, LHS and 300M models are available
in the NAFTA region and in other select markets.
OTHER CARS. Other cars include the Viper models, a two-seat sport roadster
and a sport coupe with a high performance V-10 powertrain; the Prowler, a sport
roadster with retro styling cues; and the Dodge Avenger and
10
<PAGE>
Chrysler Sebring, two-door coupes produced by Mitsubishi Motor Manufacturing of
America in its Normal, Illinois, assembly plant. The Chrysler Sebring
Convertible is a front-wheel drive, four passenger, mid-sized convertible with a
power top and a 2.5 liter V-6 engine. Sebring is the best selling convertible in
the NAFTA region and is also available in select international markets.
MINIVANS. Minivans are marketed under the Chrysler, Plymouth and Dodge
brand names, and are offered in either long or short wheelbase versions.
Minivans come equipped with either front-wheel or all-wheel drive. Five gasoline
engines ranging from a 2.0 liter four-cylinder to a 3.8 liter V-6, plus a 2.5
liter turbodiesel are available. The Chrysler, Plymouth and Dodge minivans
continue to lead the market as the best-selling minivans in the world.
RAM PICKUP. Ram pickup trucks range from the Standard Cab to the Club and
Quad Cabs. A chassis Cab variant is also offered in three wheelbases for various
work applications. A modified Sport model with a unique front-end exterior and
other feature enhancements was made available starting in 1998.
DAKOTA. The Dakota pickup truck competes in the compact pickup truck
segment, and has consistently been the largest compact pickup truck available.
With both Standard and Club Cab configurations, Dakota will introduce a true
four-door Quad Cab version in late 1999.
DURANGO. The Dodge Durango, an eight-passenger sport-utility vehicle, was
introduced in 1997. The Durango was derived from the Dakota platform and
competes in the compact sport-utility market. The Durango is available with a
choice of two V-8 engines, all packaged in the bold, Dodge Ram-inspired
exterior.
RAM VAN AND WAGON. The Ram Van and Wagon are Dodge's entry in the full-size
van/wagon market and are available in a variety of wheelbases and body
configurations.
JEEP GRAND CHEROKEE. The Grand Cherokee was redesigned in 1998 and sets a
new standard in four-wheel drive leadership and style with an exceptional
balance of power, performance, on-road handling, security and luxury. It also
features a V-6 and an all-new 4.7 liter V-8 engine and the new
Quadra-Drive-Registered Trademark- four-wheel drive system. Grand Cherokee is
available in a four-door bodystyle in both two- and four-wheel drive
configurations. Vehicles for the NAFTA region are produced in Detroit, Michigan,
and vehicles for sale outside of the NAFTA region are produced in Graz, Austria.
JEEP CHEROKEE. The Cherokee offers excellent performance, versatility and
off-road capability along with outstanding value as one of the lowest priced
sport-utilities in its class. The Cherokee is available in two and four-wheel
drive configurations, two-door and four-door body styles, as a left hand and
right hand drive model, and with a choice of four and six cylinder gasoline
engines and a diesel engine.
JEEP WRANGLER. The Wrangler is the authentic four-wheel drive vehicle that
is the icon of the Jeep brand. Wrangler is offered with four-wheel drive,
removable soft and hard top systems, and a choice of four and six cylinder
gasoline engines.
MARKETS, SALES AND COMPETITION
In 1998, the most important markets for the Passenger Cars and Trucks
Chrysler, Plymouth, Jeep, Dodge segment were the United States (82% of unit
sales), Canada (8% of unit sales) and Mexico (3% of unit sales). Retail sales in
the United States and Canada amounted to 2,779,000 vehicles in 1998, which
compares to 2,560,000 and 2,690,000 vehicles in 1997 and 1996, respectively. For
1998 this represents a 16% share of the United States and Canada car and truck
market, compared to 15% and 16% in 1997 and 1996, respectively. Industry retail
sales in the United States and Canada for 1998 reached 17.4 million units, an
increase of 3% over 1997.
11
<PAGE>
The following table sets forth the distribution of revenues and unit sales
for this segment by geographic market since 1996:
Revenues and Unit Sales
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1998 % change 1997 % change 1996
----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues(1)
United States.............................. 46,991 +11 42,498 +11 38,134
Canada..................................... 4,113 -3 4,260 +29 3,309
Mexico..................................... 1,168 +21 965 +78 543
Europe..................................... 2,083 -3 2,147 +25 1,722
Other markets.............................. 1,985 -4 2,072 +38 1,500
----------- ----------- -----------
World.................................. 56,340 +8 51,942 +15 45,208
----------- ----------- -----------
----------- ----------- -----------
Units(2)
United States.............................. 2,548,900 +10 2,312,400 -5 2,445,800
Canada..................................... 261,800 -2 266,300 +13 235,800
Mexico..................................... 94,800 +34 70,900 +33 53,500
Europe..................................... 101,600 -8 110,000 +15 95,500
Other markets.............................. 86,600 -32 127,400 -1 128,200
----------- ----------- -----------
World.................................. 3,093,700 +7 2,887,000 -2 2,958,800
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- - ------------------------
(1) [EURO] in millions.
(2) Unit sales represent vehicle shipments by DaimlerChrysler Corporation.
--------------------------
In 1998, revenues of Passenger Cars and Trucks Chrysler, Plymouth, Jeep,
Dodge reached a new record high, and unit sales were the third best ever. Total
unit sales increased by 7% to 3,093,700, due primarily to the division's success
in the United States, by far its largest market. Unit sales in the United States
were up 10% in 1998 to 2,548,900 vehicles, mainly as a result of the success of
the Dodge Durango, the new series of full-size sedans -- Intrepid, Concorde and
LHS/300M -- and the introduction of the four-door Ram pickup truck, all
introduced in 1998. Grand Cherokee unit sales decreased in 1998 due to the plant
shutdown in preparation for the launch of the all-new Grand Cherokee in the fall
of 1998. For a discussion of changes in revenues see "Item 9. Management's
Discussion and Analysis of Results of Operations and Financial Condition."
In the NAFTA region, principal competitors of the Passenger Cars and Trucks
Chrysler, Plymouth, Jeep, Dodge division are General Motors, Ford, Toyota, Honda
and Nissan. Competition in the NAFTA region is very intense and is likely to
remain so. Due to the economic conditions in certain markets, particularly in
Asia, competitors with excess capacity may intensify their efforts to export
vehicles to the NAFTA region.
12
<PAGE>
The following table sets forth, by vehicle line, the number of units sold
since 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Units(1)
Cars
Neon......................................................... 268,200 269,900 310,200
Breeze, Cirrus and Stratus................................... 250,500 255,300 248,100
Intrepid, Concorde and LHS/300M.............................. 300,100 198,500 276,200
Other........................................................ 120,000 139,700 142,800
Minivans......................................................... 685,000 682,800 731,500
Trucks
Ram Pickup................................................... 474,700 432,400 433,300
Dakota....................................................... 160,100 166,900 89,800
Durango...................................................... 182,000 33,200 --
Ram Van and Wagon............................................ 84,400 77,800 96,500
Jeep
Grand Cherokee............................................... 270,200 311,400 340,800
Cherokee..................................................... 194,500 213,900 197,100
Wrangler..................................................... 104,000 105,200 92,500
----------- ----------- -----------
Total........................................................ 3,093,700 2,887,000 2,958,800
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- - ------------------------
(1) Unit sales represent vehicle shipments by DaimlerChrysler Corporation.
DISTRIBUTION
In the NAFTA region, new passenger cars and trucks are sold at retail by
dealers who have sales and service agreements with DaimlerChrysler Corporation.
The dealers purchase cars, trucks, parts and accessories from DaimlerChrysler
Corporation for sale to retail customers. In the United States, DaimlerChrysler
Corporation had 4,484 dealers at December 31, 1998, compared to 4,552 at
December 31, 1997. In Canada, the dealer network comprised 578 dealers at
December 31, 1998, compared to 588 dealers at December 31, 1997. In Mexico, the
dealer network comprised 114 dealers at December 31, 1998, compared to 122
dealers at December 31, 1997.
DaimlerChrysler Corporation also sells vehicles through wholly owned
distributors in Argentina, Australia, Austria, Belgium, Brazil, Egypt, France,
Germany, Italy, Japan, Korea, the Netherlands, Taiwan, Thailand and Venezuela
and in various other countries through independent distributors and dealers.
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
In 1998, the Passenger Cars and Trucks Chrysler, Plymouth, Jeep, Dodge
segment invested [EURO] 3.9 billion in fixed assets. These investments were
primarily spent on launching the all-new Jeep Grand Cherokee and Neon vehicles,
improving capacity and upgrading engine and transmission facilities, as well as
maintaining existing facilities.
The research and development activities of the segment in 1998 related
primarily to new product development, namely the all-new Jeep Grand Cherokee,
the redesigned Neon and the future minivans. Also included are development costs
for improvement of existing products, as well as compliance with regulations
that have been and are being promulgated by various governmental agencies
worldwide.
13
<PAGE>
The capital expenditures for fixed assets and research and development
expenditures of Passenger Cars and Trucks Chrysler, Plymouth, Jeep, Dodge during
the last three years are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
([EURO] in millions)
Capital expenditures for fixed assets........................ 3,920 4,501 3,545
Research and development..................................... 1,695 1,512 1,229
</TABLE>
INTERNATIONAL COOPERATIONS
In Austria, Jeep Grand Cherokees are assembled under an assembly contract
with Steyr-Daimler-Puch Fahrzeugtechnik AG & Co. KG and Chrysler Voyagers are
assembled by Eurostar Automobilwerke Ges.m.b.H. & Co. KG, a joint venture with
Steyr.
The segment's automotive operations in the Asia-Pacific region include the
assembly of Jeep Cherokees for distribution in China by Beijing Jeep
Corporation, Ltd., a minority-owned joint venture. In addition, DaimlerChrysler
Corporation has agreements for the assembly of right-hand-drive Jeep vehicles in
Malaysia and Thailand. Operations in South America include manufacturing
facilities in Venezuela, where Neons, Jeep Cherokees and Grand Cherokees are
assembled, Brazil, where Dakota pickup trucks are manufactured, and Argentina,
where Jeep Cherokees and Grand Cherokees are assembled. In January 1997,
DaimlerChrysler Corporation entered into a joint venture agreement with
Bayerische Motoren Werke AG to manufacture a small gasoline engine in Brazil for
use in both Chrysler and BMW vehicles. DaimlerChrysler Corporation also has a
minority interest in a company with assembly facilities in Egypt.
Commercial Vehicles Mercedes-Benz, Freightliner, Sterling, Setra
DaimlerChrysler manufactures and sells commercial vehicles under the brand
names Mercedes-Benz, Freightliner, Sterling and Setra. It is the world's leading
manufacturer of trucks over 6t GVW and of buses over 8t GVW. With worldwide
facilities, the Group has the world's most developed network for the production
and assembly of commercial vehicles and core components. It also has a worldwide
distribution and service network. This segment contributed approximately 17% of
the Group's revenues in 1998.
PRODUCTS
VANS AND TRUCKS. Worldwide, the product lines consist of three series of
vans, the Vito, the Sprinter and the Vario, in categories of 2t to 7.5t GVW and
nine lines of trucks in categories above 6.5t. The European lines of trucks
consist of the Actros in the heavy weight category and the Atego in the light
and medium weight category. In January 1999, the Atego was voted "Truck of the
Year" by a jury of 18 European motor journalists.
Vans and trucks for the European market are manufactured primarily in
Germany and Spain. In the United States and Canada, the Group operates through
its wholly owned subsidiary Freightliner Corporation. Freightliner manufactures
trucks in the Class 8 category (above 33,000 lbs. GVW) where it is the market
leader in the United States and Canada. It also produces Class 5, 6 and 7 trucks
in weight categories between 16,000 lbs. and 33,000 lbs. GVW, primarily for the
United States and Canadian markets. Freightliner also acquired the former Class
8 and North American Cargo (Classes 6 and 7) product lines of Ford Motor
Company, which it offers under the brand name "Sterling." Through American La
France, Freightliner is active in the market for custom fire truck chassis.
Freightliner also manufactures chassis for trucks, buses and motorhomes in
weight categories between Class 3 (10,000 lbs) and Class 7 (33,000 lbs).
Mercedes-Benz Mexico manufactures trucks primarily for sale in the NAFTA region.
Mercedes-Benz Argentina and Mercedes-Benz do Brasil produce vans and trucks
for the South American markets. The African, Asian and Australian continents are
supplied by European factories and manufacturing operations in Brazil, South
Africa, Nigeria, Indonesia, Iran and Australia.
14
<PAGE>
BUSES. The bus product lines consist of complete buses for city, intercity
and touring purposes and bus chassis which are completed by local bus builders
in their respective countries. The division's operating companies in Europe, the
United States, Mexico, Argentina, Brazil and China have developed their own bus
designs based on national requirements and adapted their models to specific
market requirements of each region. Moreover, numerous cooperation partners
throughout the world manufacture buses or bus chassis under license. In Europe,
the division markets buses under the Mercedes-Benz and Setra brand names. In
October 1998, Freightliner acquired the U.S. school bus body manufacturer Thomas
Built Buses.
UNIMOGS. The Unimog is a special purpose, four-wheel drive vehicle designed
for applications such as street maintenance, certain construction industry uses,
fire-fighting, forestry and agriculture. Unimogs can carry and operate a wide
variety of attachments, including various types of farming equipment, snow
plows, cranes, excavators and drilling equipment.
POWERTRAIN. This business unit designs, manufactures and sells a full line
of powertrain components consisting of diesel engines, transmissions, axles and
steering systems. Its systems competence provides it with a unique competitive
advantage in the marketplace. The Powertrain business unit also manufactures
industrial diesel engines which are widely used as propulsion units in
off-highway applications.
MARKETS, SALES AND COMPETITION
The market for commercial vehicles depends significantly on general economic
conditions since they directly influence transportation needs and the
availability of funds for capital investment. In 1998, sales of commercial
vehicles continued to develop favorably in Western Europe and the NAFTA region.
In Western Europe the demand was especially pronounced for trucks in the
category over 6t GVW, notably in the category of heavy trucks over 16t GVW.
Sales in the United States were up approximately 15% to 355,700 vehicles in the
Class 6 through 8 categories that are particularly important for Freightliner
and Sterling. However, in various South American countries, especially in
Brazil, the growing economic uncertainty led to a considerable decline in
commercial vehicle demand, particularly in the second half of the year.
In Germany, registrations of new commercial vehicles increased 12% to
295,900 units. Exports by German manufacturers increased 11% to 241,500
commercial vehicles. Like most other European manufacturers of commercial
vehicles, DaimlerChrysler has a very close relationship to its home market where
it sold 22% of its commercial vehicles in 1998. The European Union (excluding
Germany) accounted for an additional 29% of the division's unit sales in 1998.
Outside Europe, the United States, Brazil, Argentina, Canada, Mexico and South
Africa are the most important markets for the division.
15
<PAGE>
The following table sets forth the distribution of revenues and unit sales
for the Commercial Vehicles Mercedes-Benz, Freightliner, Sterling, Setra
division by geographic market since 1996:
Revenues and Unit Sales
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1998 % change 1997 % change 1996
--------- ------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues(1)
Germany......................................... 6,355 +12 5,660 +7 5,307
European Union(2)............................... 5,093 +15 4,422 +22 3,637
France...................................... 1,141 +18 971 0 969
Italy....................................... 611 +12 547 +21 453
Netherlands................................. 512 +24 412 +20 343
Spain....................................... 544 +9 500 +51 331
United Kingdom.............................. 931 +17 799 +40 569
United States................................... 5,989 +48 4,033 +28 3,139
Canada.......................................... 604 +27 474 +65 287
Mexico.......................................... 344 +31 263 +237 78
Brazil.......................................... 1,353 -7 1,449 +23 1,180
Argentina....................................... 422 +19 356 +43 249
Other markets................................... 3,002 -11 3,355 +31 2,562
--------- --------- ---------
World....................................... 23,162 +16 20,012 +22 16,439
--------- --------- ---------
--------- --------- ---------
Units
Germany......................................... 107,500 +11 96,600 +12 86,600
European Union(2)............................... 139,600 +12 124,600 +22 102,300
France...................................... 26,600 +21 22,000 -3 22,600
Italy....................................... 16,700 +11 15,100 +21 12,500
Netherlands................................. 18,200 +16 15,700 +31 12,000
Spain....................................... 16,000 +14 14,000 +30 10,800
United Kingdom.............................. 27,700 +5 26,400 +38 19,100
United States................................... 107,800 +49 72,400 +4 69,600
Canada.......................................... 10,700 +37 7,800 +44 5,400
Mexico.......................................... 7,100 +18 6,000 +173 2,200
Brazil.......................................... 39,400 +5 37,500 +16 32,200
Argentina....................................... 10,700 +22 8,800 +31 6,700
Other markets................................... 66,900 +5 63,700 +48 43,100
--------- --------- ---------
World....................................... 489,700 +17 417,400 +20 348,100
--------- --------- ---------
--------- --------- ---------
</TABLE>
- - ------------------------
(1) [EURO] in millions.
(2) Excluding Germany.
--------------------------
Worldwide unit sales of the division increased significantly from 417,400 in
1997 to 489,700 vehicles in 1998. Sales of vans and trucks reached 216,500
(+12%) and 233,800 (+23%) units, respectively. Sales of buses increased 6% to
32,600 units in 1998. DaimlerChrysler was able to maintain its position as the
leading manufacturer in the truck and bus market segments.
Unit sales in Germany increased 11% to 107,500. In the European Union
(excluding Germany) unit sales rose 12% from 124,600 in 1997 to 139,600 in 1998,
which resulted from continued strong demand for buses, trucks and vans,
especially in France, the Netherlands and Spain. In Germany, DaimlerChrysler was
able to maintain its
16
<PAGE>
position as the market leader in the category of trucks above 6t GVW. This was
primarily due to the continued success of the Actros and Atego truck lines. The
division's market share for trucks above 6t GVW in Germany decreased slightly to
47% (1997: 48%) while it remained unchanged in the European Union (excluding
Germany) at 15%.
In the United States, the market for commercial vehicles in the Class 6
through 8 market segments continued to expand in 1998. Unit sales in these
segments for all manufacturers increased by 15% to 355,700 from 310,400 units in
1997. Through the addition of its Sterling truck lines, the Group was able to
increase its market share in the Class 6 through 8 market segments from 21% in
1997 to 27% in 1998. The Group's market share in the Class 8 heavy duty segment
increased to 33% in 1998.
For a discussion of changes in revenues see "Item 9. Management's Discussion
and Analysis of Results of Operations and Financial Condition."
Mercedes-Benz vans are primarily sold in Western Europe. Principal
competitors in this market are Volkswagen, Fiat, Ford, PSA (Peugeot/Citroen),
Renault, Toyota and Nissan.
In the truck market segment, competitors vary in each geographical region.
In the two most important truck markets for DaimlerChrysler, Western Europe and
the NAFTA region, its principal competitors are the following:
<TABLE>
<CAPTION>
Western Europe NAFTA Region
- - ------------------------ ------------------------
<S> <C>
IVECO Navistar
MAN Paccar
Volvo (Kenworth/Peterbilt)
R.V.I. Ford
Scania General Motors
Paccar Volvo
Renault/Mack
</TABLE>
Competitors in the bus sector (over 8t GVW) include MAN, R.V.I., Auwaerter,
IVECO and Dennis in Western Europe; Ford, Volkswagen, El Detalle, DINA and Kia
in Latin America; and Volvo and Scania in both areas.
The following table sets forth, by vehicle category, the unit sales of the
division since 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Units
Vans......................................................... 216,500 193,900 153,200
Trucks(1).................................................... 233,800 189,600 166,100
Buses........................................................ 32,600 30,800 26,100
Unimogs...................................................... 2,900 3,100 2,700
Pickup trucks (L 200)(2)..................................... 3,900 -- --
--------- --------- ---------
Total.................................................... 489,700 417,400 348,100
--------- --------- ---------
--------- --------- ---------
</TABLE>
- - ------------------------
(1) Including chassis manufactured by Freightliner for motorhomes and
walk-in-vans.
(2) Represents pickup trucks manufactured by Mercedes-Benz South Africa under an
agreement with Mitsubishi Motors Corporation which are included in unit
sales figures for the first time in 1998.
17
<PAGE>
DISTRIBUTION
In Germany, DaimlerChrysler operates a wholesale and a retail network for
its commercial vehicles. In other major European markets, subsidiaries of
DaimlerChrysler AG provide the wholesale function to a network of independent
dealers. Outside Europe commercial vehicles are generally sold by the sales
organization of the respective production company or through independent general
distributors.
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
Capital expenditures of the Commercial Vehicles Mercedes-Benz, Freightliner,
Sterling, Setra segment for fixed assets amounted to [EURO] 0.8 billion in 1998.
Principal areas of investment were the preparation for the production of the
Atego line of trucks in the light and medium weight category.
Research and development projects included successor models of existing
product lines, primarily vans, and ongoing development work performed over the
lifecycle of current van and truck models.
The capital expenditures for fixed assets and the research and development
expenditures of the Commercial Vehicles Mercedes-Benz, Freightliner, Sterling,
Setra segment during the last three years are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
([EURO] in millions)
Capital expenditures for fixed assets............................... 832 601 797
Research and development............................................ 714 602 557
</TABLE>
INTERNATIONAL COOPERATIONS
At the present time, cooperative efforts of the Commercial Vehicles
Mercedes-Benz, Freightliner, Sterling, Setra division are primarily targeting
the markets in Asia. In South Korea, the Group cooperates with SsangYong Motor
Company in the production of vans and engines. In the People's Republic of
China, the Group cooperates with NORINCO in the area of heavy-duty trucks, and
it manufactures buses in cooperation with Yangzhou Motor Coach Manufacturer.
Mercedes-Benz South Africa manufactures Mitsubishi Colt pickup trucks under an
agreement with Mitsubishi Motors Corporation. In Mexico, there is a cooperation
with the Brazilian body manufacturer Cia Americana Industrial de Onibus in the
production of buses. The Group also participates in a joint venture in which it
holds a majority interest with a Vietnamese partner to assemble trucks and
buses. In July 1998, the Group agreed with Nissan Diesel, a subsidiary of Nissan
Motor, to develop a new light truck for certain Asian and Latin American markets
in the category of 3t to 9t GVW.
In the United States, the Group is cooperating with the U.S. engine
manufacturer Detroit Diesel Corporation in several joint development, production
and marketing projects involving commercial vehicle and industrial diesel
engines. To support this cooperation, a U.S. affiliate of DaimlerChrysler AG
holds a 20% common equity investment in Detroit Diesel. The cooperation also
extends to MTU Motoren- und Turbinen-Union Friedrichshafen GmbH ("MTU
Friedrichshafen") which is primarily engaged in joint projects with Detroit
Diesel involving the design, development and marketing of diesel engines of
various displacements and power ranges for off-highway applications.
Chrysler Financial Services
Chrysler Financial Services includes the operations of Chrysler Financial
Company L.L.C., its consolidated subsidiaries, and managed operations in Mexico.
Chrysler Financial Services principally engages in providing consumer and dealer
automotive financing for the products of DaimlerChrysler Corporation, including
retail and lease financing for vehicles, dealer inventory and other financing
needs. It also provides dealer property and casualty insurance and dealer
facility development and management, primarily for Chrysler dealers and their
customers. Chrysler Financial Services contributed approximately 2% of the
Group's revenues in 1998.
18
<PAGE>
Chrysler Financial Services conducts its business through offices in the
United States, Canada and Mexico, and in Belgium, France, Italy, Japan, Germany,
the Netherlands, Venezuela, Taiwan and Puerto Rico. In addition, at December 31,
1998, a total of 189 automobile dealership properties were owned by Chrysler
Realty Corporation, a wholly owned subsidiary of Chrysler Financial Company
L.L.C., and leased primarily to franchised dealers of DaimlerChrysler
Corporation.
Chrysler Financial Services' portfolio of finance receivables managed
includes receivables owned and receivables serviced for others. Receivables
serviced for others include securitized automotive receivables and retail
leases. At December 31, 1998, receivables serviced for others accounted for 67%
of the total portfolio of receivables managed. Finance receivables managed at
the end of each of the three most recent years were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
([EURO] in millions)
<S> <C> <C> <C>
Automotive...................................................... 39,948 36,204 30,310
Non-automotive.................................................. 2,507 2,488 1,752
--------- --------- ---------
Total financing............................................. 42,455 38,692 32,062
--------- --------- ---------
--------- --------- ---------
</TABLE>
------------------------
Due to the significant portion of Chrysler Financial Services' business that
relates to DaimlerChrysler Corporation, lower levels of production and sales of
DaimlerChrysler Corporation automotive products would likely result in a
reduction in the level of finance operations of Chrysler Financial Services.
BUSINESS UNITS AND SERVICES
AUTOMOTIVE FINANCING. Chrysler Financial Services is the major source of
wholesale and retail financing for vehicles manufactured by DaimlerChrysler
Corporation throughout the NAFTA region. Chrysler Financial Services also offers
dealers working capital loans, real estate and equipment financing and financing
plans for fleet buyers, including daily rental car companies. The automotive
financing operations of Chrysler Financial Services are conducted through 31
zone offices in the United States, Canada (Chrysler Credit Canada Ltd.) and
Mexico (Chrysler Comercial S.A. de C.V.). Chrysler Financial Services also
provides automotive financial products and services in Europe and Asia.
AUTOMOTIVE INSURANCE. Chrysler Insurance Company and its subsidiaries
provide specialized insurance coverages for automotive dealers and their
customers in the United States and Canada. Chrysler Insurance's property and
casualty business includes physical damage, garage liability, worker's
compensation and property and contents coverage provided directly to automotive
dealers. Chrysler Insurance also provides vehicle collateral protection and
single interest insurance to retail customers and their financing sources.
AUTOMOBILE DEALERSHIP MANAGEMENT. Chrysler Realty Corporation, which is
engaged in the ownership, development and management of Chrysler automotive
dealership properties in the United States, typically purchases, leases or
options dealership facilities and then leases or subleases these facilities to
Chrysler, Plymouth, Jeep and Dodge dealers. At December 31, 1998, Chrysler
Realty Corporation managed 723 sites, of which it owned 189.
NON-AUTOMOTIVE FINANCING. Chrysler Financial Services conducts its
non-automotive finance business through its subsidiary, Chrysler Capital
Corporation. At December 31, 1998, the non-automotive receivables managed
throughout the United States consisted primarily of [EURO] 2.5 billion of
leveraged leases.
MARKETS, SALES AND COMPETITION
During 1998, Chrysler Financial Services financed or leased approximately
941,000 new and used vehicles at retail in the United States, including
approximately 718,000 new Chrysler, Plymouth, Jeep and Dodge
19
<PAGE>
passenger cars and trucks, representing 29 percent of DaimlerChrysler
Corporation's U.S. retail and fleet deliveries. During 1998, it financed or
leased approximately 155,000 vehicles at retail in Canada, including
approximately 131,000 new Chrysler, Plymouth, Jeep and Dodge cars and trucks,
representing 49 percent of DaimlerChrysler Corporation's Canadian retail and
fleet deliveries. The average monthly payment for new vehicle retail installment
sale contracts acquired in the United States was [EURO] 339 in 1998. The average
new contract balance was [EURO] 18,638 and the average original term was 55
months. Chrysler Financial Services also financed approximately 1,777,000 new
Chrysler, Plymouth, Jeep and Dodge passenger cars and light-duty trucks at
wholesale in the United States and 179,000 in Canada, representing 70% and 68%
of DaimlerChrysler Corporation's U.S. and Canadian vehicle shipments,
respectively, in 1998.
Chrysler Financial Services' principal competitors are financial
institutions not affiliated with automotive manufacturers. Its retail and lease
products compete with similar offerings from banks, savings institutions, and
other leasing companies. For dealer wholesale financing, Chrysler Financial
Services competes with national and regional banks. The market for Chrysler
Financial Services' financing products and services may become more competitive
as large banks in the United States continue to merge.
Chrysler Insurance Company competes with national and regional property and
casualty insurance programs offered by other insurance companies.
Services
DaimlerChrysler Services (debis) provides financial services supporting the
sale of Group products. It also engages in insurance brokerage, trading, IT
services and telecommunications services. debis contributed approximately 6% of
the Group's revenues in 1998.
The following table sets forth the revenues generated by debis since 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
([EURO] in millions)
<S> <C> <C> <C>
Financial Services.................................................. 5,834 5,085 4,464
IT Services......................................................... 2,167 1,548 1,200
Telecom Services.................................................... 1,498 1,178 820
Marketing Services(1)............................................... -- -- 201
Real Estate Management.............................................. 74 113 35
--------- --------- ---------
Total........................................................... 9,573 7,924 6,720
--------- --------- ---------
--------- --------- ---------
</TABLE>
- - ------------------------
(1) debis withdrew from its marketing services activities in 1996.
--------------------------
In 1998, the growth of the services sector once again exceeded the rate of
economic expansion in most industrialized countries. In particular, the market
for corporate services continued to exhibit signs of long-term growth. debis was
able to take advantage of these developments which resulted in a further
increase in total revenues. debis Financial Services continued to be the largest
contributor to debis' revenues, accounting for approximately 61%. See "Item 9.
Management's Discussion and Analysis of Results of Operations and Financial
Condition."
BUSINESS UNITS AND SERVICES
FINANCIAL SERVICES. debis offers customized financing and leasing packages
in Europe, the NAFTA region, South America and Asia, primarily in connection
with the sale of DaimlerChrysler automotive products. It also offers
product-related and customer-oriented financial services relating to sales of
certain non-automotive
20
<PAGE>
products of the DaimlerChrysler Group, such as the sale of Airbus aircraft,
helicopters and marine vessels powered by engines manufactured by MTU
Friedrichshafen.
debis Assekuranz provides insurance and reinsurance brokerage, risk
consulting and risk management services to companies within the Group and to
third party industrial customers worldwide.
debis Trading, which was integrated into the Financial Services business
unit effective as of January 1, 1999, offers trading and consulting services to
promote exports to countries with low foreign currency reserves. debis Trading
conducts trading transactions in Eastern Europe, the Middle East, East and
Central Asia and Latin America.
In January 1999, the Group announced that it will combine the financial
services activities of debis with Chrysler Financial Services. The new combined
business entity will be the fourth largest financial services provider in the
world outside the banking and insurance sector. It will also be responsible for
debis' insurance and trading activities.
IT SERVICES. debis Systemhaus is Germany's largest independent provider of
comprehensive IT services, including computer centers, software development and
applications and consulting services. Approximately 69% of its 1998 revenues was
generated outside the DaimlerChrysler Group. IT Services concentrates on IT
solutions for specific industries, such as the automotive, electrical, financial
services and telecommunications industries.
TELECOM SERVICES. Telecom Services operates principally through debitel, a
company jointly owned by debis and the Metro group. debitel markets mobile
telephone services and provides access to digital mobile telecommunication
networks, satellite communications and an inter-company cellular communication
network. debitel is the leading independent, non-network provider of mobile
telecommunication services in the European market. It offers mobile
telecommunication services primarily in Germany, France, the Netherlands,
Belgium and Denmark. Following the liberalization of the German
telecommunications market effective as of January 1, 1998, debitel began to
offer fixed network services in Germany. Additional activities of Telecom
Services include traffic reporting and information (telematic) services and
electronic commerce. In January 1999, DaimlerChrysler and the Metro group
jointly announced a public offering of debitel shares in which they expect to
sell shares representing at least 20% of the total shares outstanding.
REAL ESTATE MANAGEMENT. Real Estate Management Services provides real
estate related services to the Group. Real Estate Management Services is engaged
in the management of a new 340,000 square meter (3.7 million square foot) real
estate development at Potsdamer Platz in Berlin. The complex consists of 19
buildings and, in addition to debis' new headquarters, includes offices, shops,
apartments, several theaters and a five star hotel. The project was officially
inaugurated in October 1998.
MARKETS, SALES AND COMPETITION
The following table sets forth the distribution of revenues by geographic
market since 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
([EURO] in millions)
Germany......................................................... 4,636 4,020 3,726
European Union(1)............................................... 1,585 1,218 771
NAFTA region.................................................... 2,780 2,348 1,956
Other markets................................................... 572 338 267
--------- --------- ---------
Total....................................................... 9,573 7,924 6,720
--------- --------- ---------
--------- --------- ---------
</TABLE>
- - ------------------------
(1) Excluding Germany.
21
<PAGE>
debis generated approximately 48% of its total 1998 business volume in
Germany, 17% in other European Union countries, 29% in the NAFTA region and 6%
in other markets. The growth in revenues in 1998 was the result of increased
business activity in the areas of IT services, financial services and telecom
services. In 1998, debis Financial Services processed approximately 435,000 new
leasing and finance contracts with a total value of [EURO] 14.8 billion, an
increase of approximately 24% in new contract value compared to 1997 when it
processed 345,000 new contracts with a total value of [EURO] 11.9 billion. This
increase was attributable to the continued growth of the Group's automotive
businesses and an improved and more extensive range of services.
In 1998, the average monthly payment for new vehicle installment sale
contracts was [EURO] 895. The average new contract balance amounted to [EURO]
31,644 and the average original term was 40 months. The following table sets
forth the number and total value of new contracts and the total number and value
of contracts outstanding in the most important geographic markets in which debis
Financial Services provided financial services in 1998:
<TABLE>
<CAPTION>
Value Value
New ([EURO] in Total ([EURO] in
Contracts millions) Contracts millions)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Germany........................................... 157,034 4,193 320,136 7,057
United States(1).................................. 146,070 6,258 317,220 12,052
Canada............................................ 8,516 412 20,053 696
France............................................ 13,377 375 35,954 752
Italy............................................. 21,080 540 42,880 707
United Kingdom(1)................................. 27,218 916 73,118 1,734
Switzerland....................................... 6,950 273 12,542 391
Spain............................................. 5,645 159 12,241 244
Netherlands....................................... 10,078 302 23,013 698
Belgium........................................... 4,274 145 9,925 231
Japan(1).......................................... 17,466 540 45,619 935
Mexico............................................ 4,104 167 8,884 258
Brazil............................................ 6,985 266 13,299 350
Australia......................................... 5,775 259 10,524 399
</TABLE>
- - ------------------------
(1) Includes portfolios of activity conducted by debis Financial Services which
have been included in several asset-backed receivables financings by that
business unit in these countries.
--------------------------
In the field of IT services, which are primarily provided by debis
Systemhaus, principal competitors include IBM, datev, Electronic Data Systems
Corporation and Andersen Consulting. Competitors in the leasing and financial
services area include leasing and finance subsidiaries of banks and savings
institutions and of other automobile manufacturers to the extent they do not
limit their leasing and financial services activities to their own automobile
brands. debis Assekuranz competes primarily with Jauch & Huebner, Gradmann &
Holler (Marsh McLennan Group) and Gerling Risk. In the market for mobile
telecommunications services, debitel's principal competitors are Mannesmann
Mobilfunk, Deutsche Telekom MobilNet and E-Plus. As a fixed network services
provider debitel primarily competes with Deutsche Telekom, MobilCom and
Mannesmann Arcor.
CAPITAL EXPENDITURES
Capital expenditures for fixed assets, largely data processing equipment,
increased 48% in 1998 to [EURO] 285 million (1997: [EURO] 193 million).
Additions to leased equipment increased 17% to [EURO] 4.3 billion (1997: [EURO]
3.7 billion).
22
<PAGE>
Aerospace
Principal Aerospace activities include the development, production and sale
of commercial aircraft and helicopters, defense and civil systems, aero engines,
military aircraft, satellites, and space infrastructure. DaimlerChrysler
Aerospace is the German partner (with a 37.9% share) in the European Airbus
consortium Airbus Industrie. Aerospace contributed approximately 7% of the
Group's revenues in 1998.
The following table sets forth the revenues generated by the Aerospace
business units since 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
([EURO] in millions)
Commercial Aircraft/Helicopters.................................... 3,508 2,966 2,225
Defense and Civil Systems.......................................... 1,687 1,409 1,347
Aero Engines....................................................... 1,655 1,513 1,180
Military Aircraft.................................................. 765 659 665
Satellites......................................................... 629 725 566
Space Infrastructure............................................... 526 544 484
Other.............................................................. -- -- 207
--------- --------- ---------
Total.......................................................... 8,770 7,816 6,674
--------- --------- ---------
--------- --------- ---------
</TABLE>
------------------------
Aerospace revenues for 1998 were [EURO] 8.8 billion, an increase of 12% over
1997. This increase was primarily due to the continued expansion of the market
for commercial aircraft which had significant positive effects on the Group's
commercial aircraft and aero engines businesses. See "Item 9. Management's
Discussion and Analysis of Results of Operations and Financial Condition."
BUSINESS UNITS AND PRODUCTS
COMMERCIAL AIRCRAFT/HELICOPTERS. The commercial aircraft/helicopter
business includes the activities of DaimlerChrysler Aerospace Airbus GmbH and
its subsidiaries and the production of helicopters for military and civil
applications by the Eurocopter group.
COMMERCIAL AIRCRAFT. DaimlerChrysler Aerospace Airbus conducts the German
activities within Airbus Industrie. These activities include the final assembly
of the Airbus A321 and the A319 which is performed in Hamburg. DaimlerChrysler
Aerospace Airbus also manufactures a variety of fuselage sections and vertical
stabilizers for all Airbus models, installs interior furnishings and is
responsible for the wing integration of all widebody Airbus aircraft.
Airbus Industrie is responsible for sales, marketing and product support of
all Airbus aircraft. DaimlerChrysler Aerospace Airbus and the French aerospace
company, Aerospatiale, each have a 37.9% interest in the consortium; British
Aerospace plc of the United Kingdom owns 20%; and the Spanish aerospace company,
Construcciones Aeronauticas S.A. (CASA), holds 4.2%. DaimlerChrysler Aerospace
Airbus contributes on average one-third to the value of the aircraft produced by
the European Airbus program. In order to improve the competitive position of
Airbus aircraft, the partners of the Airbus consortium plan to implement a new
structure for the Airbus activities with the goal of forming a single corporate
entity. The new entity would comprise all important functions of the Airbus
partners.
The product line of Airbus Industrie includes the following models:
- A340. The A340 is a four engine, long range aircraft currently offered in
three sizes between 245 and 280 passenger seats with a range between 7,500
and 8,000 nautical miles. Airbus Industrie is developing two new versions
of the A340, the A340-500 and the A340-600. These versions will have up to
380 passenger
23
<PAGE>
seats and a range of up to 9,500 nautical miles. Deliveries of these new
models are expected to commence in the year 2000.
- A330. The A330 is one of the world's largest twin-engine medium/long haul
aircraft seating between 295 and 440 passengers with a range of 4,700
nautical miles. The A330-200 is a shorter version with a longer range and
lower operating costs.
- A320. The A320, a two-engine 150-seat aircraft with a range of 3,150
nautical miles, is the most successful Airbus aircraft program to date.
- A321. The A321 is a stretched version of the A320 that typically seats 185
passengers and is designed as a short/medium haul aircraft with a range of
2,650 nautical miles. The A321 is being assembled in Hamburg by
DaimlerChrysler Aerospace Airbus. It is complemented by the A321-200, a
version with a longer range and a higher payload.
- A319. The A319 is a reduced-size version of the A320, seating
approximately 124 passengers. It has a range from 1,900 to 3,150 nautical
miles. The A319 is also being assembled in Hamburg by DaimlerChrysler
Aerospace Airbus. A business jet version of the A319 has been added to the
lineup in 1997. The development of a new short-range version, the A318, is
currently under consideration.
- A310. The A310 is a two-engine aircraft with a range of 5,200 nautical
miles that seats between 191 and 279 passengers depending on its layout.
- A300-600. This model was designed as a medium-range two-engine aircraft
accommodating between 267 and 361 passengers. It has a range of
approximately 4,300 nautical miles. There is also a cargo version of this
model, the A300-600F.
- A300-600ST BELUGA. The A300-600ST Beluga is a high-volume transporter that
was primarily developed for the transportation of Airbus components.
Airbus Industrie is engaged in the predevelopment of the A3XX, an all-new
high-capacity aircraft capable of carrying between 480 and 650 passengers. If a
decision is made to proceed with this project, the participants in Airbus
Industrie expect to add other revenue and risk sharing partners to the project
venture.
HELICOPTERS. The product line of the Eurocopter group includes
single-engine light helicopters, as well as twin-engine light- and medium-weight
helicopters. The Eurocopter group participates in the development of the Tiger
escort helicopter and has a 66% share of the program for the development of the
NH90 tactical transport and naval helicopter. The third prototype of the NH90
began in-flight testing in November 1998. The first production model of the
EC120, a single-engine light helicopter developed in cooperation with Singapore
Aerospace and Catic China National Aero-Technology Import and Export
Corporation, was delivered in January 1998 to Nozaki Aerospace in Japan.
DEFENSE AND CIVIL SYSTEMS. This business unit is active in the areas of
defense and dynamics systems, radar and radio systems, command and information
systems and systems technology. Its principal activities include development and
manufacture of products in the categories of radar technology, radio
communications and electronic warfare; reconnaissance, command, control and
information systems, mission planning systems, digital map systems, telescopic
antenna tower systems, mobile field hospitals and simulation and training
systems; antitank and ground-to-air missiles, surface missile systems and
standoff weapons. The activities of this business unit also include Nortel Dasa
Network Systems, a joint venture with Northern Telecom which is engaged in the
development of network components, including systems for the integration of
mobile and landline telecommunication networks. In the first half of 1998
DaimlerChrysler Aerospace acquired the German defense electronics activities of
Siemens AG.
AERO ENGINES. The Aero Engines business unit is involved in the
development, production and product support of propulsion systems for aircraft
through MTU Motoren- und Turbinen-Union Muenchen GmbH ("MTU-Muenchen") and its
subsidiaries. In the area of engines for commercial and executive aircraft, MTU
Muenchen
24
<PAGE>
primarily cooperates with the engine manufacturers Pratt & Whitney, a subsidiary
of United Technologies, Inc. ("P&W"), and General Electric in the United States
and with Pratt & Whitney Canada Inc. in Canada. In certain limited areas MTU
Muenchen also cooperates with Rolls-Royce plc, SNECMA and Japanese aircraft
engine manufacturers.
MTU Muenchen is cooperating with P&W in the development and production of
the PW4000 turbofan engine family, the PW2000 jet engine series, the PW305 and
PW306 jet engines and the PW500 turbofan engine family. In the V2500 jet engine
program, MTU Muenchen cooperates with P&W, Rolls-Royce plc and Japanese Aero
Engines Corporation. MTU Muenchen also manufactures parts for the General
Electric CF6 engine family. Major development projects include the PW4000 and
PW500 engine programs for commercial aircraft, the EJ200 engine for the
Eurofighter/Typhoon and the MTR390 engine for the Tiger escort helicopter. MTU
Muenchen is one of the leading providers of maintenance and repair services for
jet engines.
MILITARY AIRCRAFT. DaimlerChrysler Aerospace is the only remaining German
military aircraft manufacturer. Because of the technical complexity and the high
development costs of the products, most projects in this area are undertaken on
a joint venture basis with other European and United States companies. Military
Aircraft is focusing primarily on the Eurofighter/Typhoon (EF2000) program.
Production of the Eurofighter began in 1998 and deliveries are expected to
commence in 2002. Germany intends to acquire 180, the United Kingdom 232, Italy
121 and Spain 87 aircraft. The Military Aircraft business unit also continues to
be involved in the Tornado program (modernization and servicing of Tornado
aircraft) and the manufacturing of certain Airbus components.
DaimlerChrysler Aerospace is also involved in other aircraft programs,
including the Experimental Program Vector, a follow-up program of the X-31A, and
it is actively engaged in programs involving design, development and
implementation of capability upgrades and maintenance, technological and
logistical support relating to the F4 Phantom, the Breguet Atlantique, the NATO
Awacs E-3A, the Transall C-160 and the MiG-29. Other programs involve
reconnaissance systems, training and flight simulation systems and maintenance
and overhaul of military aircraft.
SATELLITES. The Satellites business unit is focusing on several satellite
programs and projects commissioned by the European Space Agency (ESA):
Envisat-1, a successor program to the ERS-2 (European Remote Sensing Satellite);
the Horizon 2000 scientific satellite program consisting of the Cluster
satellites; the XMM (X-Ray Multi-Mirror Mission), the largest scientific x-ray
satellite to date; and Rosetta, a satellite program designed to explore the
origin of the solar system. Other projects include the development and
production of three meteorological satellites as part of the Meteosat program,
and the participation in Globalstar, a worldwide mobile communications satellite
system consisting of 64 low earth orbit satellites of which 16 have already been
positioned.
SPACE INFRASTRUCTURE. Space Infrastructure concentrates on the development
and production of orbital systems, including programs involving space stations
and the development of new technologies, and launcher systems. Specific projects
include participations in the space laboratory COF (Columbus Orbital Facility)
for the International Space Station (ISS), the space transporter ATV (Automated
Transfer Vehicle), the ERA (European Robotic Arm) program and ongoing work in
connection with the Ariane 4 and 5 launcher programs.
MARKETS, SALES AND COMPETITION
Demand for commercial aircraft continued to rise in 1998. Orders for jet
aircraft with more than 100 seats increased to 1,212 units (1997: 1,035 units).
Deliveries in 1998 reached 792 aircraft compared to 557 units in 1997. Orders
for commercial aircraft engines benefited from the high demand for new aircraft.
In spite of the continued budget constraints in Germany and other countries of
the Western hemisphere, demand for defense products was higher than in the
previous year. Public spending for space programs stagnated in 1998.
25
<PAGE>
The following table sets forth the distribution of Aerospace revenues by
geographic market since 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
([EURO] in millions)
Germany......................................................... 2,604 2,207 2,123
European Union(1)............................................... 4,126 3,806 3,064
United States and Canada........................................ 1,496 1,239 917
Asia............................................................ 244 208 94
Africa.......................................................... 34 30 60
Other Markets................................................... 266 326 416
--------- --------- ---------
World....................................................... 8,770 7,816 6,674
--------- --------- ---------
--------- --------- ---------
</TABLE>
- - ------------------------
(1) Excluding Germany.
--------------------------
The Airbus aircraft built by the partners of Airbus Industrie compete
worldwide, primarily with aircraft produced by Boeing. In the international
military aircraft market, DaimlerChrysler Aerospace competes primarily as a
member of the Panavia and Eurofighter/Typhoon consortia. Competitors of these
consortia are Boeing, Lockheed Martin, Dassault and certain manufacturers in the
Commonwealth of Independent States. Major competitors of the Eurocopter group
include Sikorsky, Boeing, Westland, Agusta, Bell Textron and, with respect to
certain special applications, helicopter manufacturers from Poland and the
Commonwealth of Independent States.
In the German defense systems market, the Defense and Civil Systems business
unit competes in some areas with Diehl and STN Atlas. Outside of Germany,
Defense and Civil Systems functions exclusively through international
cooperations. These cooperations, which operate primarily in the missile area,
compete with Thomson-CSF, British Aerospace, Hughes, Raytheon, Matra BAe
Dynamics, Lockheed Martin and Boeing.
Space Systems competes exclusively in the civilian market. In the area of
communications satellites, its competitors are Matra Marconi Space and Alenia
Spazio in Europe and Hughes Space and Lockheed Martin in the United States.
Competitors in the launcher area are Lockheed Martin and Boeing in the United
States and certain manufacturers in the Commonwealth of Independent States,
China and Japan.
Through MTU Muenchen DaimlerChrysler Aerospace participates in several
international aircraft engine cooperations which compete in certain areas with
Pratt & Whitney, General Electric, SNECMA, Rolls-Royce plc, Volvo Aero and
FiatAvio SpA.
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
Capital expenditures for fixed assets were [EURO] 326 million during 1998
(1997: [EURO] 255 million), primarily for capacity increases in the Commercial
Aircraft/Helicopters and Aero Engines businesses in order to meet the high
demand for commercial aircraft.
Research and development expenditures decreased in 1998 to [EURO] 2.0
billion (1997: [EURO] 2.2 billion). Of this amount, [EURO] 367 million was
attributable to projects funded by the Group (1997: [EURO] 316 million). In
1998, 82% of DaimlerChrysler Aerospace's total research and development
expenditures was customer-funded (1997: 86%). Research and development projects
of Commercial Aircraft/Helicopters included the Airbus programs and new
helicopter models. The primary research and development projects of the Defense
and Civil Systems business unit included missile systems; radar systems;
control, command and communications systems; and civilian products. The Aero
Engines business unit emphasized the EJ200 engine program, additional
development work on the Tornado RB199 engine and research work directed at
engine technologies leading to lower emissions, reduced noise and lower fuel
consumption. Military Aircraft continued to perform development work on the
Eurofighter/ Typhoon, the Tornado upgrade program and on Airbus components; the
Satellites and Space Infrastructure business units focused on the various ESA
programs and the Ariane program.
26
<PAGE>
The capital expenditures for fixed assets and the research and development
expenditures of Aerospace during the last three years are shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
([EURO] in millions)
Capital expenditures for fixed assets............................... 326 255 311
Research and development............................................ 2,047 2,233 1,882
of which: Company funded projects............................... 367 316 364
Third party projects.................................... 1,680 1,917 1,518
</TABLE>
INTERNATIONAL COOPERATIONS
In addition to the Airbus consortium, the comprehensive cooperation with P&W
and the Eurofighter/Typhoon consortium, DaimlerChrysler Aerospace participates
in a number of other cooperative efforts. DaimlerChrysler Aerospace and Nortel
Ltd. of the United Kingdom, a subsidiary of the Canadian company Northern
Telecom Ltd., cooperate in a joint venture which provides products and services
in the telecommunications field. The Group is also involved in three joint
ventures with Thomson-CSF S.A. in the areas of weapons components, missile
propulsion systems and gallium arsenide technology and in a joint venture with
China Aerospace Corporation in the area of satellites for communication and
earth observation. In 1998, Matra BAe Dynamics acquired a 30% equity interest in
LFK-Lenkflugkoerpersysteme GmbH through which DaimlerChrysler Aerospace conducts
its guided missile activities. In 1998, a subsidiary of MTU Muenchen entered
into a joint venture with Canadian Airlines in the area of aircraft engine
repair and maintenance.
In December 1998, DaimlerChrysler Aerospace, General Electric Company p.l.c.
of the United Kingdom, the Lagardere group of France and the Finmeccanica group
of Italy reached a preliminary agreement to establish a European space company
into which the partners would contribute their respective space activities.
MBB ACQUISITION AND MINORITY INTERESTS
In connection with its 1989 acquisition of Messerschmitt-Boelkow-Blohm GmbH
("MBB"), which included DaimlerChrysler Aerospace Airbus (then known as Deutsche
Airbus), the Group undertook a variety of obligations to the Federal Republic of
Germany, including a contingent obligation to make annual payments equal to 40%
of the pretax profits of DaimlerChrysler Aerospace Airbus beginning in 2001 and
royalty payments to be accrued on a per aircraft basis. During 1998 and 1997
DaimlerChrysler Aerospace Airbus settled these obligations with the Federal
Republic of Germany for payments of [EURO] 895 million and [EURO] 716 million,
respectively. The 1998 settlement resulted in the complete discharge of all
remaining obligations to the Federal Republic of Germany in respect of the MBB
acquisition. Approximately [EURO] 229 million and [EURO] 369 million of these
payments were expensed in 1998 and 1997, respectively. The remaining amounts of
the settlement payments were capitalized and are being amortized over future
deliveries of those aircraft to which the settlements relate.
The helicopter business of Aerospace is conducted through the Eurocopter
group. The Eurocopter group comprises the combined helicopter business of
DaimlerChrysler Aerospace and Aerospatiale. DaimlerChrysler Aerospace and
Aerospatiale hold 40% and 60%, respectively, of the capital stock of Eurocopter
Holding, S.A. which holds 75% of the operating company Eurocopter S.A. The
remaining 25% of the capital stock of Eurocopter S.A. is owned by Aerospatiale.
At December 31, 1998, DaimlerChrysler AG owned 93.8% of the capital stock of
Daimler-Benz Luft- und Raumfahrt Holding Aktiengesellschaft, which is the
holding company of DaimlerChrysler Aerospace. The remaining outstanding shares
of capital stock are owned almost entirely by the State of Hamburg which,
subject to certain conditions and procedures, may require that DaimlerChrysler
AG purchase such shares.
27
<PAGE>
Other
This segment includes the operating businesses Rail Systems, Automotive
Electronics and MTU/Diesel Engines. The Rail Systems activities are conducted by
Adtranz, a joint venture company in which DaimlerChrysler AG and ABB Asea Brown
Boveri Ltd. each hold a 50% interest. In January 1999 DaimlerChrysler announced
that it had agreed to acquire the 50% interest owned by ABB.
In 1998 this segment contributed approximately 2% of the DaimlerChrysler
Group's total revenues. The following table sets forth, by business unit, the
revenues generated since 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
([EURO] in millions)
Rail Systems(1).............................................................. 1,658 1,631 1,450
Automotive Electronics....................................................... 754 557 346
MTU/Diesel Engines........................................................... 921 878 825
Other Businesses(2).......................................................... 93 830 1,477
--------- --------- ---------
Total.................................................................... 3,426 3,896 4,098
--------- --------- ---------
--------- --------- ---------
</TABLE>
- - ------------------------
(1) The revenues generated by this business unit represent 50% of the revenues
of Adtranz.
(2) The 1997 and 1996 revenues in this category represent primarily the Group's
recognition and sorting systems business and the Group's semiconductor
activities which were sold in 1997 and 1998, respectively. The 1998 revenues
derive from the real estate project Potsdamer Platz.
--------------------------
The decline in 1998 revenues is due to the sale of the Group's semiconductor
business in March 1998. In 1997, revenues of [EURO] 0.8 billion were
attributable to this business. For a discussion of revenues of this segment see
"Item 9. Management's Discussion and Analysis of Results of Operations and
Financial Condition."
RAIL SYSTEMS. The Rail Systems activities of the Group are conducted by
Adtranz. DaimlerChrysler has reached an arrangement with ABB Asea Brown Boveri
whereby DaimlerChrysler will purchase ABB's 50% interest in Adtranz for $472
million and ABB's right to put its interest to DaimlerChrysler under the joint
venture agreement will be extinguished. Adtranz is one of the leaders in the
global rail transportation market. Its products and services include people
movers, light rail vehicles, metros, diesel and electric regional and intercity
multiple units, electric and diesel locomotives, high speed trains, signaling
systems, fixed installations, and customer support.
AUTOMOTIVE ELECTRONICS. The Automotive Electronics activities conducted
through TEMIC TELEFUNKEN microelectronic GmbH and its subsidiaries include the
product areas powertrain and chassis, antilock braking systems, occupant safety,
sensor systems, vehicle comfort (body) electronics and electric motors.
MTU/DIESEL ENGINES. The Group conducts its MTU/Diesel Engines business
through MTU Friedrichshafen, one of the world's leading suppliers of high-grade
propulsion systems for land, marine and rail-bound vehicles as well as
energy-supply applications based on diesel engines, gas engines or gas turbines
and the new technologies of high-temparature fuel cells and electrolysis. MTU
Friedrichshafen also produces drive shafts for passenger cars and lightweight
commercial vehicles. Its subsidiary L'Orange manufactures injection systems for
high-power diesel engines.
28
<PAGE>
MARKETS, SALES AND COMPETITION
The following table sets forth the distribution of revenues of this segment
by geographic market since 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
([EURO] in millions)
Germany............................................................ 1,312 1,420 1,457
European Union(1).................................................. 886 1,099 1,028
Other Europe....................................................... 225 238 242
North and South America............................................ 488 450 699
Asia/Australia..................................................... 485 649 632
Africa............................................................. 30 40 40
--------- --------- ---------
World.......................................................... 3,426 3,896 4,098
--------- --------- ---------
--------- --------- ---------
</TABLE>
- - ------------------------
(1) Excluding Germany.
--------------------------
The decline in 1998 revenues is due to the sale of the Group's semiconductor
business in March 1998. In 1997, revenues of [EURO] 0.8 billion were
attributable to this business. See "Item 9. Management's Discussion and Analysis
of Results of Operations and Financial Condition."
Principal competitors of Adtranz are Siemens, Alstom and Bombardier. TEMIC
competes with Bosch, Siemens, TRW and Nippondenso. Principal competitors of
MTU/Diesel Engines in the diesel engines business include Caterpillar, Cummins
and Ruston.
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
In 1998, the Group spent [EURO] 0.8 billion on fixed assets of the
businesses included in this segment (1997: [EURO] 0.6 billion). These
investments consisted primarily of funding for increased production capacity at
TEMIC and production equipment for new engine series at MTU/Diesel Engines.
During 1998, research and development activities focused primarily on
MTU/Diesel Engines' new engine series 2000 and 4000 and the development of new
vehicle concepts and standardized designs at Adtranz in order to respond to
customer demands for highly efficient and reliable vehicles. Research and
development work at TEMIC was primarily directed at motor management systems and
electronic systems designed to enhance vehicle safety and comfort. The Group's
research and development expenditures for these activities in 1998 were [EURO]
185 million, slightly more than in 1997.
29
<PAGE>
SUPPLIES AND RAW MATERIALS
In 1998, the DaimlerChrysler Group purchased goods and services from
suppliers around the world with a total value of [EURO] 79.6 billion (1997:
[EURO] 75.8 billion). Passenger Cars and Trucks Chrysler, Plymouth, Jeep and
Dodge accounted for 47% of this volume, Passenger Cars Mercedes-Benz, smart for
22%, Commercial Vehicles Mercedes-Benz, Freightliner, Sterling, Setra for 19%,
Aerospace for 6%, Services for 3% and Other for 3%.
DaimlerChrysler has identified quality, cost, cycle time and technology as
key value drivers that will shape the Group's future purchasing and supply
activities. The Group seeks to optimize these areas in close cooperation with
its supply chain partners. DaimlerChrysler's Procurement and Supply vision
"Shaping the World's Most Effective Supply Chains" forms the basis for the
Extended Enterprise-TM- concept. This concept is an integrative approach
designed to maximize the leverage of the supply base's resources by involving
not only the finished component supplier but also the whole supply chain,
including sub-suppliers and raw material suppliers.
In working with its suppliers DaimlerChrysler expects to use a variety of
tools, including complementary programs already employed by Daimler-Benz and
Chrysler before they combined their respective businesses. The Tandem program,
which strives for better quality, lower cost and shorter R&D cycles in
cooperation with suppliers, has contributed to the technological and innovative
leadership enjoyed by many Mercedes-Benz products. The Supplier Cost Reduction
Effort (SCORE) initiated by Chrysler ten years ago encourages suppliers to
identify unnecessary supply chain costs by sharing the resulting cost savings.
Other tools will be common commodity and supplier strategies and the creation of
a worldwide procurement organization using common operative processes. For the
short-term, DaimlerChrysler has established joint task forces or Cost
Opportunity Teams (COTs) charged with identifying and realizing potential cost
savings following from the combination of Daimler-Benz and Chrysler.
The global procurement and supply function will work to preserve the strong
identity of the Group's distinctive automobile brands.
RESEARCH AND DEVELOPMENT
Innovation in products and production systems and shortening lead times in
research and development are essential for the DaimlerChrysler Group to be
competitive in its principal markets and to secure technological leadership.
The Research and Technology department of DaimlerChrysler maintains an
"Integrated Innovations and Technology Management" process as a systematic and
comprehensive approach for formulating a joint technology strategy together with
the Group's business units. The mission of the Research and Technology
department is to function as a hub for new technologies and concepts in order to
support and secure the Group's leading technological position. The Research and
Technology department works closely with the business units on projects
commissioned by the specific units. Also, a number of research projects funded
on the corporate level address the need for long-term research with a Group-wide
scope.
DaimlerChrysler Group research projects are conducted in the following
areas: internal combustion engines and power trains; alternative propulsion
systems; systems, structures and modules for vehicles, aerospace and defense;
cabin interior design, comfort and safety; electronic control systems for
vehicles, aerospace and defense; information, communication and traffic systems;
materials, manufacturing processes and design principles; markets, customers and
future business environment; and new services.
Through cooperations with world-renowned research institutes and exchange
programs for scientists and employees, DaimlerChrysler actively participates in
the international exchange of new ideas and concepts. DaimlerChrysler maintains
a research and technology center in Palo Alto, California, a vehicle systems
technology center in Portland, Oregon, and a research center for information and
communication technology in Bangalore, India. DaimlerChrysler has established
internal research audit procedures to ensure the quality, efficiency and
effectiveness of its research programs.
30
<PAGE>
In 1998, the DaimlerChrysler Group spent a total of [EURO] 6.7 billion on
research and development (1997: [EURO] 6.5 billion). Research and development
costs (including costs reimbursed by third parties) as a percentage of revenues
was 5% in 1998. Research performed for and funded by third parties, which
occurred primarily at DaimlerChrysler Aerospace, accounted for [EURO] 1.7
billion (1997: [EURO] 2.1 billion). Approximately 37,000 people are employed
worldwide in the research, development and testing sectors of DaimlerChrysler.
The following table sets forth the research and development expenditures
funded by the Group and expenditures funded by third parties, principally the
German government and ESA:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
([EURO] in millions)
Research and development
Group funded projects................................................ 4,971 4,408 4,081
Third party projects................................................. 1,722 2,093 1,670
--------- --------- ---------
Total............................................................ 6,693 6,501 5,751
--------- --------- ---------
--------- --------- ---------
</TABLE>
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The DaimlerChrysler Group is subject to laws in various jurisdictions
regulating the levels of pollutants generated by its plants and the emission
levels, fuel economy, noise, and safety of its products. The Group has incurred
significant costs complying with these regulations and expects to incur
significant compliance costs in the future. However, DaimlerChrysler management
recognizes leadership in environmental protection as an increasingly important
competitive factor in the marketplace.
VEHICLE EMISSIONS
U.S. STANDARDS. FEDERAL. The federal Clean Air Act imposes emission control
standards on cars and light trucks through model year 2003. Manufacturers are
obligated to recall vehicles that fail to meet those standards for ten years or
100,000 miles, whichever occurs first. The Environmental Protection Agency (EPA)
is expected to propose regulations in 1999 that set increasingly stringent
standards for model years beyond 2003.
CALIFORNIA STANDARDS. In addition, the State of California has established
its own, more stringent emission control standards for cars and light trucks
through model year 2010. These standards were established by the California Air
Resources Board in its Low Emission Vehicle Program. The program also initially
required that a specified percentage (2% in 1998 increasing to 10% in 2003) of a
manufacturer's light-duty vehicles sold in California be zero-emission vehicles
producing no emissions of regulated pollutants. The Board subsequently
eliminated the zero-emission vehicles mandate for model years before 2003.
DaimlerChrysler and other vehicle manufacturers entered into an agreement
with the California Air Resources Board that calls for, among other things, a
more market-based introduction of zero-emission vehicles, zero-emission vehicle
demonstrations in California through the 2002 model year and continued research
and development of battery technology. DaimlerChrysler is currently
participating in a consortium with other vehicle manufacturers, electric
utilities and the U.S. Department of Energy to develop new battery technology
for electric vehicles that would qualify as zero-emission vehicles. Development
of a commercially viable electric vehicle will require further intensive
research. Electric vehicles powered with existing battery technology would have
a range of less than 100 miles between recharges, require up to eight hours for
recharging and substantial infrastructure improvements nationwide to support
recharging and cost significantly more than conventional vehicles.
OTHER STATES. Twelve northeastern states and the District of Columbia are
members of the Ozone Transport Commission. That Commission recommended that its
member states adopt California's Low Emission Vehicle Program, although an EPA
ruling requiring the adoption was invalidated in federal court in 1997.
Individual states are free to adopt California's program, including
zero-emission vehicle mandates.
31
<PAGE>
The states of New York and Massachusetts adopted the California program for
model years 1996 and beyond, including zero-emission vehicle mandates for model
years 1998 and beyond. Federal courts invalidated the zero-emission vehicle
mandates of both states for model years before 2003 upon challenge by the
automotive industry. However, an appeal of the Massachusetts ruling is pending
before the U.S. Court of Appeals for the First Circuit. The states of Maine and
Vermont have also adopted California standards.
The U.S. automotive industry proposed a National Low Emissions Vehicle
program as an alternative to the Ozone Transport Commission recommendation. The
program requires vehicle manufacturers to sell low emission vehicles within
participating jurisdictions beginning with the 1999 model year, and nationwide
beginning with the 2001 model year. The EPA has issued a rule under which
manufacturers and members of the Ozone Transport Commission may adopt the
National Low Emissions Vehicle program rather than the California program. All
manufacturers and Ozone Transport Commission members have chosen to participate
in the national program except Maine, Massachusetts, New York and Vermont.
EUROPEAN STANDARDS. Current vehicle emission control standards in the
European Union are generally no more restrictive than U.S. standards. However,
the European Council and the European Parliament have adopted a directive that
establishes increasingly stringent emission standards for passenger and light
commercial vehicles for model years 2000-2005. Under the directive,
manufacturers will be obligated to recall vehicles that fail to meet those
standards for five years or 80,000 kilometers, whichever occurs first. Standards
for heavy commercial vehicles have been submitted to the European Parliament and
the EU Commission for approval.
CANADIAN AND MEXICAN STANDARDS. Canada and Mexico have also established
vehicle emission control standards. Canadian standards are comparable to U.S.
federal standards, while Mexican standards are generally less stringent.
However, Mexico is likely to adopt standards similar to those applicable in the
United States.
Compliance with new emission control standards will present significant
technological challenges to vehicle manufacturers and will likely require
significant expenditures. Examples of these challenges would include the
development of improved battery, catalytic converter, and flexible or
alternative fuel technologies. Manufacturers who are unable to develop
commercially viable technologies within the time frames established by the new
standards will be limited in the number and types of vehicles and engines they
are able to sell in their principal markets.
VEHICLE FUEL ECONOMY
U.S. STANDARDS. Under the federal Motor Vehicle Information and Cost
Savings Act, a manufacturer is subject to substantial penalties if for each
model year its vehicles do not meet Corporate Average Fuel Economy standards,
commonly referred to as the CAFE standards. CAFE standards for passenger cars
and light-duty trucks are currently 27.5 miles per gallon and 20.7 miles per
gallon, respectively. A manufacturer earns credits by exceeding CAFE standards.
Credits earned for the three preceding model years and credits projected to be
earned for the next three model years can be used to meet CAFE standards in the
current model year, except that credits earned in respect of cars may not be
used for trucks.
Concern over the effect that "green house gas" carbon dioxide emissions may
have on global warming has focused attention on the need for reducing fossil
energy use, in part by increasing vehicle fuel economy. In December 1997, the
United States signed the Kyoto Protocol to the United Nations Framework
Convention on Climate Change. This protocol, which is non-binding unless
ratified by the U.S. Senate and adopted by the United Nations, calls for the
United States to reduce its fossil energy use substantially during years
2008-2012.
DaimlerChrysler expects to meet current U.S. domestic fleet CAFE standards
for both passenger cars and light-duty trucks, although it will likely use
credits to meet the standard for light-duty trucks. However, increased demand
for larger light-duty trucks could jeopardize DaimlerChrysler's ability to
comply with that standard and require it to take additional costly steps,
including the sale of ethanol flexible fuel vehicles. Further, the U.S. is
currently considering ways to achieve the reductions called for under the Kyoto
Protocol, including more stringent CAFE standards, higher fuel costs and
restrictions on fuel usage. If implemented, these actions would be costly to
32
<PAGE>
DaimlerChrysler and could result in significant restrictions on the products
DaimlerChrysler is able to offer in the United States.
In addition, the Energy Tax Act of 1978 imposes a "Gas Guzzler" tax on
automobiles with a fuel economy rating below specified levels. DaimlerChrysler
manufactures flexible fuel vehicles capable of operating on both gasoline and
ethanol blend fuels, and in Europe is offering vehicles capable of operating on
compressed natural gas, liquid petroleum gas or electricity.
EUROPEAN STANDARDS. The European Union also signed the Kyoto Protocol and
agreed to reduce carbon dioxide emissions substantially during years 2008-2012.
In early 1999, the European Union entered into a voluntary agreement with the
European automotive manufacturers association which establishes an emission
target of 140 grams of carbon dioxide per kilometer for the average new car sold
in the European Union in 2008. That target represents an average reduction in
passenger vehicle fuel usage of 25 percent, measured from 1995 levels. The
European Union has reaffirmed its goal of reducing carbon dioxide emissions from
new passenger cars to an average of 120 grams per kilometer by 2010. Vehicle
manufacturers have agreed to reexamine in 2003 whether further reductions are
possible by 2010. Achievement of these reductions will require European vehicle
manufacturers, including DaimlerChrysler, to improve engine and overall
efficiency and reduce vehicle weight.
VEHICLE SAFETY
The U.S. National Traffic and Motor Vehicle Safety Act of 1966 requires
vehicles and equipment sold in the United States to meet various safety
standards issued by the National Highway Traffic Safety Administration (NHTSA).
These standards include those relating to passenger restraint systems, fuel
systems and collision impact protection. The Safety Act also authorizes NHTSA to
investigate complaints relating to vehicle safety and to order manufacturers to
recall and repair vehicles found to have safety related defects. The cost of
such recalls can be substantial depending on the nature of the repair and the
number of vehicles affected.
Vehicle safety regulations in Canada are similar to those in the United
States. Vehicles sold in Europe are subject to separate vehicle safety
regulations established by the European Union or by individual countries.
Countries in South America and Asia have also established vehicle safety
regulations.
In response to an increase in air bag related fatalities in low speed
crashes, NHTSA issued a rule in 1997 that permits manufacturers to reduce the
speed at which air bags inflate in future model year vehicles. DaimlerChrysler
offers "de-powered" passenger side air bags for 1998 and current model year
vehicles. Further, DaimlerChrysler has undertaken a separate child-oriented
educational air bag safety campaign. In addition, NHTSA proposed a new air bag
rule in 1998 which would impose numerous and potentially costly testing
requirements.
STATIONARY SOURCE REGULATION
DaimlerChrysler's assembly, manufacturing and other operations in the United
States are subject to substantial environmental regulation under the Clean Air
Act, the Clean Water Act, the Resource Conservation and Recovery Act, the
Pollution Prevention Act of 1990 and the Toxic Substances Control Act, as well
as a substantial volume of state legislation paralleling and, in some cases,
imposing more stringent obligations than the federal requirements. These
regulations impose severe restrictions on air and water-born discharges of
pollution from DaimlerChrysler facilities, the handling of hazardous materials
at DaimlerChrysler facilities and the disposal of wastes from DaimlerChrysler
operations. DaimlerChrysler is faced with many similar requirements in its
operations in Europe and Canada and is facing increased governmental regulation
and environmental enforcement in Mexico. For example, in Germany automobile
manufacturers are now required to accept old vehicles and batteries for
recycling, and manufacturing facilities are subject to enhanced noise
restrictions.
Moreover, the EPA recently promulgated more stringent National Ambient Air
Quality Standards for Ozone and Particulate Matter and is defining strategies
needed to attain the new standards. Increased pressure to further
33
<PAGE>
control emissions from motor vehicles and manufacturing facilities is expected.
Implementation is likely to occur over the next several years.
ENVIRONMENTAL MATTERS
In the United States, the EPA and various state agencies have notified
DaimlerChrysler Corporation that it may be a potentially responsible party (a
"PRP") for the cost of cleaning up hazardous waste storage or disposal
facilities pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") and other federal and state environmental laws. A
number of lawsuits allege that DaimlerChrysler Corporation violated CERCLA or
other environmental laws and seek to recover costs associated with remedial
action. In most instances, DaimlerChrysler is only one of a number of PRPs who
may be found to be jointly and severally liable for remediation costs at the 104
sites involved in the foregoing matters at December 31, 1998. DaimlerChrysler
Corporation may also incur remediation costs at an additional 55 of its active
or deactivated facilities.
Pollution remediation is also a significant issue in Germany in some older
sites, including plants and the Group's own service outlets. These remediation
issues principally involve only nine sites.
Estimates of future costs of such environmental matters are inevitably
imprecise due to numerous uncertainties, including the enactment of new laws and
regulations, the development and application of new technologies, the
identification of new sites for which DaimlerChrysler may have remediation
responsibility and the apportionment and collectibility of remediation costs
among responsible parties. DaimlerChrysler establishes reserves for these
environmental matters when the loss is probable and reasonably estimable. It is
possible that final resolution of some of these matters may require
DaimlerChrysler to make expenditures in excess of established reserves, over an
extended period of time and in a range of amounts that cannot be reasonably
estimated. Although final resolution of any such matters could have a material
effect on DaimlerChrysler's consolidated operating results for the particular
reporting period in which an adjustment of the estimated reserve is recorded,
DaimlerChrysler believes that any resulting adjustment should not materially
affect its consolidated financial position.
In order to address these environmental issues, DaimlerChrysler has
installed environmental management systems in both its plant operations and its
development departments. Environmental effects are now considered at the
planning stage of a new manufacturing process or product. The A-Class and the
smart are two examples of the Group's efforts to minimize the burden on the
environment. Both vehicles have received environmental accolades. In a recent
comparison of over 1,000 automobiles conducted by the German environmental
institute OEKO-TREND, which applied criteria such as fuel consumption, exhaust
emissions, noise pollution and production related environmental issues, the
A-Class ranked highest overall. In addition, only five different types of
thermoplastic materials account for more than 85% of all thermoplastics used
throughout the vehicle. This facilitates recycling of the vehicle at the end of
its life.
DaimlerChrysler is committed to reducing the environmental impact of its
operations and products beyond currently applicable regulatory requirements
where this is technically and financially feasible. DaimlerChrysler's policy is
environmental protection in pursuit of sustainable development. This policy is
designed to further minimize the environmental effects generally associated with
the type of manufacturing operations conducted by DaimlerChrysler.
DaimlerChrysler publishes annual environmental reports summarizing the use of
resources and measures undertaken to minimize further the environmental impact
of the Group's products and operations.
34
<PAGE>
EMPLOYEES AND LABOR RELATIONS
At December 31, 1998, the DaimlerChrysler Group employed a workforce of
441,502 people worldwide, which represented an increase of 3.7% from year-end
1997. Of the total number of employees, 233,030 employees were based in Germany
and 117,048 in the United States. The following table sets forth the number of
employees at December 31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
Employees at December 31, 1998 Employees at December 31, 1997
------------------------------------------ -------------------------------
Total Germany U.S. Other Total Germany U.S.
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Corporate.................................... 10,010 6,374 3,636 -- 9,462 5,925 3,537
Passenger Cars Mercedes-Benz, smart.......... 95,158 90,963 1,731 2,464 91,753 88,920 1,366
Passenger Cars and Trucks Chrysler, Plymouth,
Jeep, Dodge................................ 123,180 215 90,347 32,618 118,639 -- 88,301
Commercial Vehicles Mercedes-Benz,
Freightliner, Sterling, Setra.............. 89,711 45,201 13,216 31,294 85,071 44,355 10,187
Sales Organization for Mercedes-Benz
Passenger Cars and Commercial Vehicles..... 31,280 22,308 1,352 7,620 30,518 21,887 1,266
Chrysler Financial Services.................. 3,513 -- 3,328 185 3,405 -- 3,144
Services..................................... 20,221 13,519 1,292 5,410 14,898 10,849 916
Aerospace.................................... 45,858 42,525 -- 3,333 43,521 39,935 572
Other(1)..................................... 22,571 11,925 2,146 8,500 28,382 13,395 1,974
--------- --------- --------- --------- --------- --------- ---------
DaimlerChrysler Group.................... 441,502 233,030 117,048 91,424 425,649 225,266 111,263
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
Other
---------
<S> <C>
Corporate.................................... --
Passenger Cars Mercedes-Benz, smart.......... 1,467
Passenger Cars and Trucks Chrysler, Plymouth,
Jeep, Dodge................................ 30,338
Commercial Vehicles Mercedes-Benz,
Freightliner, Sterling, Setra.............. 30,529
Sales Organization for Mercedes-Benz
Passenger Cars and Commercial Vehicles..... 7,365
Chrysler Financial Services.................. 261
Services..................................... 3,133
Aerospace.................................... 3,014
Other(1)..................................... 13,013
---------
DaimlerChrysler Group.................... 89,120
---------
---------
</TABLE>
- - --------------------------
(1) Including holding companies.
--------------------------
Almost all the Group's employees in Germany who are members of labor unions
belong to the metalworkers' union. None of the Group's facilities in Germany is
operated on a "closed shop" basis. In Germany, collective bargaining agreements
for blue collar workers and for white collar employees below management level
are generally negotiated between the regional association of the companies
within a particular industry and the respective unions. The most recent
agreement for "metalworkers," which covers most of the Group's employees in
Germany (including both white collar and blue collar workers), was signed in
February 1999. The agreement, which became effective as of January 1, 1999,
provides for lump sum payments for the months of January and February of 1999, a
3.2% salary increase effective as of March 1, 1999, and an additional one-time
payment for 1999 equaling 1% of an individual's annual salary.
In the United States and Canada, substantially all of DaimlerChrysler
Corporation's hourly employees and 24% of its salaried employees are represented
by unions. Of these represented employees, 98% of hourly and 92% of salaried
employees are represented by the United Automotive, Aerospace, and Agricultural
Implement Workers of America ("UAW") or the National Automobile, Aerospace and
Agricultural Implement Workers of Canada ("CAW"). In 1996, DaimlerChrysler
Corporation negotiated three-year national agreements with the UAW and CAW in
the United States and Canada, respectively, without an interruption of
production. The UAW and CAW contracts provide for essentially the same level of
wages and benefits as DaimlerChrysler Corporation's major U.S. competitors. Both
agreements expire in September 1999.
In March 1997, Daimler-Benz AG, the predecessor company of DaimlerChrysler
AG, concluded a concession agreement with the joint works council of its
automotive operations in Germany. Fundamentally, the agreement provided that
Daimler-Benz would refrain from making layoffs until December 31, 2000, in
return for which the joint works council agreed that any percentage wage
increases negotiated with the unions during that time period would only apply to
the wages determined by applicable union agreements and not to individually
agreed wage components. Daimler-Benz also agreed it would offer jobs to all
apprentices who completed their training program prior to December 31, 2000. The
agreement further provided that there will be more flexibility for the company
to
35
<PAGE>
increase or decrease the number of work hours per week. The works councils also
accepted a variety of cost-saving measures, including the reduction of overtime
pay during peak production times.
During the course of 1997 Daimler-Benz AG continued to work with the works
councils regarding how to reduce cost, improve efficiency and maintain or
improve its competitive position in the marketplace. These discussions resulted
in an agreement with the works councils to reduce the automotive workforce at
selected locations by approximately 5,700 over the period 1998 through 2000. The
agreement contemplates that the reductions will be effected in a manner which is
least disruptive to the workforce, and will be compensated by offering permanent
positions, primarily to current apprentices and to university graduates. In
addition, in the process of managing its workforce the Group will attempt to
strengthen its overall technical and specialty expertise competency. Through
December 31, 1998 approximately 2,000 of the 5,700 anticipated reductions had
been effected.
OPERATING ENVIRONMENT
Introduction of the Euro
On January 1, 1999, eleven member states of the European Union -- Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal and Spain -- introduced the euro as their common legal currency for
"paperless" transactions. Since then, funds denominated in the currency of one
participating member state are converted into the currency of another
participating member state based on a fixed conversion rate. It is anticipated
that by July 1, 2002, the euro will be the official legal tender for the
participating member states and that the national currencies of those member
states will be withdrawn from circulation.
DaimlerChrysler has adopted the euro as its corporate currency throughout
its operations beginning January 1, 1999. Recognizing its significant
manufacturing and transactional activity within Europe, management of
DaimlerChrysler believes that it will realize significant long-term benefits
from adoption of the euro by capitalizing on the greater transparency and market
efficiency resulting from the institution of a single European currency.
Management of DaimlerChrysler believes that since its productivity gains with
respect to products which it manufactures and markets in the eleven
participating member states will no longer be offset by exchange rate
fluctuations, the introduction of the euro should enhance the overall operating
results of the DaimlerChrysler Group to some degree. As sales and production
costs will both be calculated in euro, it will also be easier for
DaimlerChrysler to monitor its price competitiveness in the participating member
states. In addition, the introduction of the euro should, over varying periods
of time, produce the following effects:
BUSINESS AND COMPETITIVE IMPLICATIONS. It is expected that the euro will
result in greater market efficiency and will foster a more competitive
economic environment within and among the participating member states. This
is largely a function of the fact that the pricing of products and services
will be more transparent through the use of a single common currency within
the participating member states. Management of DaimlerChrysler believes
there will be significant opportunities as a result of these potential
developments of which it plans to take advantage by, for example, enhancing
its marketing strategies and reducing production costs. Costs of funds may
be relatively lower due to increased competition among financial
intermediaries resulting in downward pressure on fees and other transaction
costs due to the elimination of, for example, currency exchange and hedging
activities. There can be no assurance, however, whether and to what extent
the introduction of the euro will affect the business, financial condition
and results of operations of DaimlerChrysler, or whether it will be able to
realize any strategic or operational benefits from the introduction of the
euro.
SYSTEMS ANALYSIS. The introduction of the euro necessitated changes in
information technology and other systems in order to accommodate the use of
the euro in corporate transactions and in financial reporting.
DaimlerChrysler adapted all of its internal processes and systems to the
euro. It spent an aggregate amount of approximately [EURO] 100 million to
complete this project.
36
<PAGE>
CURRENCY AND FOREIGN EXCHANGE EXPOSURE. Transition to the euro with its
fixed exchange rates among national currencies of participating member
states has eliminated the need for exchange transactions in those
currencies. This should yield significant transaction cost savings to
companies, such as DaimlerChrysler, based in those states. The cost of
hedging activities should also be substantially reduced since there will be
no exchange rate exposure among the participating member states and it is
expected that the euro's introduction should contribute to stabilization of
exchange rates generally, thereby reducing foreign exchange rate exposure.
There can be no assurance, however, when and to what degree DaimlerChrysler
will ultimately realize these benefits from the euro's introduction. See
"Item 9A. Quantitative and Qualitative Disclosures About Market Risk."
Industry and Market Factors
Because of the global nature of its businesses DaimlerChrysler is affected
by a variety of social, political, economic and competitive developments and
conditions affecting the industries and markets in which it operates,
particularly in the United States, Germany and the European Union. Examples of
these developments and conditions include:
- The worldwide automotive industry is highly competitive in several
specific respects, including vehicle quality, pricing, development and
introduction time, reliability, safety, fuel economy, customer service and
financing terms. The influence of these factors may differ in various
geographical markets and often with respect to individual product
segments. During cyclical economic downturns overcapacity may intensify
competitive pressure within the industry.
- Incoming orders in the commercial aircraft industry are highly cyclical as
a result of the industry's dependency on the development of global air
traffic and the profitability and fleet renewal cycles of airlines
worldwide. The future success of Airbus Industrie, in which
DaimlerChrysler Aerospace is the German participant, will continue to be
affected by its ability to compete successfully in terms of price, product
quality and innovation.
- By virtue of its significant operations outside Germany and the United
States, DaimlerChrysler will be subject to the risks normally associated
with cross-border business transactions and activities, principally those
relating to delayed payments from customers in certain countries or
difficulties in the collection of receivables generally. In addition,
DaimlerChrysler will be exposed to the risk of changes in social,
political and economic conditions in the countries where it engages in
business, particularly in portions of Asia and Latin America and in
Eastern Europe. Political and economic instability could adversely affect
DaimlerChrysler's business activities and operations in these regions.
Unexpected changes in regulatory requirements, tariffs and other trade
barriers and price or exchange controls could limit operations and make
the repatriation of profits difficult. In addition, the uncertainty of the
legal environment could limit DaimlerChrysler's ability to enforce
effectively its rights in certain markets.
See "Item 9. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Item 9A. Quantitative and Qualitative Disclosures
About Market Risk."
Item 2. Description of Property.
At December 31, 1998, the DaimlerChrysler Group had 180 manufacturing
facilities worldwide. Approximately 50 of these are located in Germany and 40 in
the United States. Most of the remaining facilities are located in Argentina,
Brazil, Canada, Indonesia, Mexico, South Africa, Spain and Turkey. The Group
also has other properties, including office buildings, spare parts centers,
research laboratories, testing tracks and warehouses, mainly in Germany and in
the United States. The Group owns most of its manufacturing facilities and other
properties.
The following table sets forth a list of all principal production and other
facilities of the DaimlerChrysler Group throughout the world:
37
<PAGE>
PRODUCTION FACILITIES
<TABLE>
<S> <C>
Passenger Cars Mercedes-Benz, smart
GERMANY
- Berlin................................. Manufacturing plant for engines
- Bremen................................. Bodywork and assembly plant
- Hamburg................................ Manufacturing plant for chassis parts
- Rastatt................................ Bodywork and assembly plant
- Sindelfingen........................... Bodywork and assembly plant
- Stuttgart-Untertuerkheim............... Manufacturing plant for engines, axles and
gearboxes
UNITED STATES
- Tuscaloosa, Alabama.................... Bodywork and assembly plant
BRAZIL
- Juiz de Fora........................... Bodywork and assembly plant
FRANCE
- Hambach................................ Bodywork and assembly plant
Passenger Cars and Trucks Chrysler, Plymouth, Jeep-Registered Trademark-, Dodge
UNITED STATES
- Belvidere, Illinois.................... Bodywork and assembly plant
- Dayton, Ohio........................... Manufacturing plant for thermal products
- Detroit, Michigan...................... Bodywork and assembly plants,
manufacturing plants for engines and glass
- Fenton, Missouri....................... Bodywork and assembly plants
- Huntsville, Alabama.................... Manufacturing plant for automotive
electronics
- Indianapolis, Indiana.................. Foundry for engine blocks
- Kenosha, Wisconsin..................... Manufacturing plant for engines
- Kokomo, Indiana........................ Transmission plants,
aluminum die castings plant
- New Castle, Indiana.................... Forging, machining and assembly plant for
components
- Newark, Delaware....................... Bodywork and assembly plant
- Sterling Heights, Michigan............. Bodywork and assembly plant,
stamping and subassembly plant
- Toledo, Ohio........................... Bodywork and assembly plant,
machining plant for components
- Trenton, Michigan...................... Manufacturing plant for engines
- Twinsburg, Ohio........................ Stamping and subassembly plant
- Warren, Michigan....................... Bodywork and assembly plant,
stamping and subassembly plant
AUSTRIA
- Graz................................... Bodywork and assembly plants
CANADA
- Bramalea............................... Bodywork and assembly plant
- Windsor................................ Assembly plants
MEXICO
- Mexico City............................ Bodywork and assembly plant
- Saltillo............................... Bodywork and assembly plant
- Toluca................................. Bodywork and assembly plant
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
Commercial Vehicles Mercedes-Benz, Freightliner, Sterling, Setra
GERMANY
- Duesseldorf............................ Bodywork and assembly plant, manufacturing
plant for steering systems
- Gaggenau............................... Bodywork and assembly plant, manufacturing
plant for axles and transmissions
- Kassel................................. Manufacturing plant for axles
- Ludwigsfelde........................... Bodywork and assembly plant
- Mannheim............................... Bodywork and assembly plant, manufacturing
plant for engines
- Ulm/Neu-Ulm............................ Bodywork and assembly plant
- Woerth................................. Bodywork and assembly plant
UNITED STATES
- Cleveland, North Carolina.............. Bodywork and assembly plant
- High Point, North Carolina............. Bodywork and assembly plant
- Mt. Holly, North Carolina.............. Bodywork and assembly plant
- Portland, Oregon....................... Bodywork and assembly plant
ARGENTINA
- Buenos Aires........................... Bodywork and assembly plant
BRAZIL
- Sao Bernardo do Campo.................. Bodywork and assembly plant
CANADA
- St. Thomas............................. Bodywork and assembly plant
INDONESIA
- Wanaherang............................. Assembly plant
MEXICO
- Santiago Tianguistenco................. Assembly plant
SOUTH AFRICA
- East London............................ Bodywork and assembly plant
SPAIN
- Barcelona.............................. Manufacturing plant for engines,
transmissions and axles
- Vitoria................................ Bodywork and assembly plant
TURKEY
- Aksaray................................ Bodywork and assembly plant, manufacturing
plant for engines and axles
- Hosdere................................ Assembly plant
Aerospace
GERMANY
- Friedrichshafen........................ Manufacturing plant for space systems and
defense and civil systems
- Hamburg................................ Manufacturing plant for aircraft
- Manching............................... Manufacturing plant for military aircraft
- Muenchen............................... Manufacturing plant for aircraft engines
- Muenchen-Ottobrunn..................... Manufacturing plant for space systems
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
Other
GERMANY
- Friedrichshafen........................ Manufacturing plant for diesel engines
- Hennigsdorf............................ Manufacturing plant for rail systems
- Ingolstadt............................. Manufacturing plant for automotive
electronics
- Nuernberg.............................. Manufacturing plants for rail systems and
automotive electronics
UNITED STATES
- Pittsburgh, Pennsylvania............... Manufacturing plant for rail systems
HUNGARY
- Budapest............................... Manufacturing plant for automotive
electronics
MEXICO
- Cuautla................................ Manufacturing plant for automotive
electronics
SWEDEN
- Vasteras............................... Manufacturing plant for rail systems
SWITZERLAND
- Zurich................................. Manufacturing plant for rail systems
UNITED KINGDOM
- Derby.................................. Manufacturing plant for rail systems
OTHER FACILITIES
GERMANY
- Berlin................................. Potsdamer Platz real estate project,
including debis headquarters
- Stuttgart-Moehringen................... DaimlerChrysler headquarters
- Ulm.................................... Research center
UNITED STATES
- Auburn Hills, Michigan................. DaimlerChrysler headquarters and technology
center
</TABLE>
Some of the Group's principal facilities are subject to mortgages and other
security interests granted to secure indebtedness to certain financial
institutions. As of December 31, 1998, the total amount of indebtedness secured
by these facilities was [EURO] 1.2 billion, which related almost exclusively to
the Potsdamer Platz real estate project.
DaimlerChrysler believes that the Group's principal manufacturing facilities
and other significant properties are in good condition and that they are
adequate to meet the needs of the DaimlerChrysler Group.
Item 3. Legal Proceedings.
Various legal proceedings are pending against the Group. DaimlerChrysler
believes that such proceedings, including the product matters described below
relating primarily to its North American automotive operations, constitute
ordinary routine litigation incidental to its businesses. See also "Government
Regulation and Environmental Matters -- Environmental Matters" in "Item 1.
Description of Business" and Note 27 to the Consolidated Financial Statements.
Various legal proceedings pending against DaimlerChrysler Corporation,
formerly known as Chrysler Corporation, allege defects in various components
(including door and liftgate latches, occupant restraint systems, seats, brake
systems, and fuel systems) in several different vehicle models or allege design
defects relating to vehicle stability (rollover propensity), pedal
misapplication (sudden acceleration), or crashworthiness. Some of these
proceedings seek repair or replacement of the vehicles or compensation for their
alleged reduction in value,
40
<PAGE>
while others seek recovery for personal injuries. As of December 31, 1998, the
complaints filed in personal injury proceedings specify approximately $1.2
billion ([EURO] 1.0 billion) in compensatory and $700 million ([EURO] 597
million) in punitive damages in the aggregate. These amounts represent damages
sought by plaintiffs and, therefore, do not necessarily constitute an accurate
measure of the ultimate cost to resolve those complaints. Further, many of those
complaints do not specify a dollar amount of damages or specify only the
jurisdictional minimum. These amounts may vary significantly from one period to
the next depending on the number of new complaints filed or pending cases
resolved in a given period.
On October 8, 1997, a jury awarded $12.5 million ([EURO] 10.7 million) in
compensatory damages and $250 million ([EURO] 213 million) in punitive damages
against DaimlerChrysler Corporation in JIMENEZ VS. CHRYSLER CORPORATION, a case
filed in U.S. District Court in South Carolina. The complaint alleged that the
liftgate latch striker of a 1985 Dodge Caravan was defective and opened when the
Caravan was struck by another vehicle resulting in the ejection and death of an
occupant. A decision by the Court is pending on motions challenging the verdict
and the damage awards. A number of other complaints are pending involving
latches that were the subject of a service action for minivans built before the
1996 model year. These complaints represent approximately $495 million ([EURO]
422 million) of the compensatory and $380 million ([EURO] 324 million) of the
punitive damages specified above in the aggregate as of December 31, 1998. As
indicated above, these amounts represent damages sought by plaintiffs and,
therefore, do not necessarily constitute an accurate measure of the ultimate
cost to resolve these complaints.
On February 18, 1999, a jury awarded $54.75 million ([EURO] 46.66 million)
in compensatory damages and $3.7 million ([EURO] 3.2 million) in punitive
damages to the owners of approximately 75,000 1988 3/4 -1990 model year Chrysler
vehicles in CRAWLEY VS. CHRYSLER CORPORATION, a class action lawsuit tried in
the Court of Common Pleas, Philadelphia, Pennsylvania. The complaint alleged
that the air bags in those vehicles were defective because the vent hole
positions could cause hand burns when the air bags are deployed. DaimlerChrysler
Corporation intends to file motions challenging the verdict and the damage
awards, and pursue such motions vigorously.
In addition, as previously reported in Chrysler Corporation's annual report
on Form 10-K for the fiscal year ended December 31, 1997, a class action lawsuit
seeking costs of repair or replacement and attorneys' fees and costs for
allegedly defective air bags in 1993-1996 Chrysler minivans is pending in
Circuit Court in Coosa County, Alabama. Two other consolidated class actions
involving air bags in 1993-1996 minivans were dismissed by the U.S. District
Court for the Eastern District of Louisiana, and a third lawsuit was dismissed
by the U.S. District Court for the Western District of Texas.
Ten purported class action lawsuits are pending in various U.S. federal and
state courts that allege that the paint applied to 1982-1997 model year
Chrysler, Plymouth, Jeep and Dodge vehicles delaminates, peels or chips as the
result of defective paint, paint primer, or application processes. Plaintiffs
seek compensatory and punitive damages, costs of repair or replacement,
attorneys' fees and costs.
Litigation is subject to many uncertainties, and the outcome of individual
matters is not predictable with assurance. It is reasonably possible that the
final resolution of some of these matters may require DaimlerChrysler to make
expenditures, in excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated. Although the
final resolution of any such matters could have a material effect on
DaimlerChrysler's consolidated operating results for the particular reporting
period in which an adjustment of the reserve is recorded, DaimlerChrysler
believes that any resulting adjustment should not materially affect its
consolidated financial position.
Item 4. Control of Registrant.
The capital stock of DaimlerChrysler AG consists of ordinary shares, no par
value (STUECKAKTIEN), which are issued in registered form.
41
<PAGE>
Under the German Securities Trading Act (WERTPAPIERHANDELSGESETZ), holders
of voting securities of a listed German company must notify the company of the
level of their holding whenever it reaches, exceeds or falls below specified
thresholds. These thresholds are 5%, 10%, 25%, 50% and 75% of a company's
outstanding voting rights.
The table below sets forth, as of December 31, 1998, the number of
DaimlerChrysler ordinary shares held by holders of more than 10% of
DaimlerChrysler ordinary shares and their percentage ownership, and the total
number and percentage of DaimlerChrysler ordinary shares owned by members of
DaimlerChrysler AG's Supervisory Board and its Board of Management:
<TABLE>
<CAPTION>
Identity of Person or Group Shares Owned Percent
- - -------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
KARU Beteiligungsverwaltung GmbH & Co. KG,
a wholly owned subsidiary of Deutsche Bank AG............................. 119,818,714 12.0%
Members of the Supervisory Board and the
Board of Management of DaimlerChrysler AG as a group...................... 1,799,273 0.2%
</TABLE>
------------------------
In addition, DaimlerChrysler has been informed that the Emirate of Kuwait
holds approximately 7% of the outstanding DaimlerChrysler ordinary shares.
DaimlerChrysler AG believes, and it has been advised by Deutsche Bank AG it
believes, that Deutsche Bank AG does not control the business or affairs of
DaimlerChrysler AG. This is supported by the reduction in Deutsche Bank's
shareholding from 22% to 12% as a result of the business combination with
Chrysler.
See also "Item 12. Options to Purchase Securities from Registrant or
Subsidiaries."
Item 5. Nature of Trading Market.
The principal trading markets for DaimlerChrysler ordinary shares are the
Frankfurt Stock Exchange and the New York Stock Exchange. The ordinary shares
also trade on the other German stock exchanges in Berlin, Bremen, Duesseldorf,
Hamburg, Hannover, Munich and Stuttgart, on the Chicago Stock Exchange, the
Pacific Stock Exchange and the Philadelphia Stock Exchange, on the stock
exchanges in Montreal, Paris, Tokyo, Toronto and Vienna, on the Swiss Stock
Exchange and, through an electronic link with the Frankfurt Stock Exchange, on
the stock exchange in London. On the New York Stock Exchange the ordinary shares
trade under the symbol "DCX." Options on DaimlerChrysler ordinary shares trade
on Eurex, the German-Swiss derivatives market jointly owned and operated by
Deutsche Boerse AG and the Swiss Stock Exchange, and on the Chicago Board of
Trade.
The transfer agents for DaimlerChrysler ordinary shares are Deutsche Bank AG
in Germany, The Bank of New York in the United States and Montreal Trust Company
in Canada. As of March 15, 1999, DaimlerChrysler AG had more than 1.4 million
stockholders. Approximately 430,000 were U.S. holders, of which approximately
130,000 were record holders. Based on the share register, approximately 25% of
DaimlerChrysler ordinary shares were held by U.S. holders as of that date.
Trading on the Frankfurt Stock Exchange
The Frankfurt Stock Exchange, which is operated by Deutsche Boerse AG, is
the most significant of the eight German stock exchanges and accounted for
approximately 80% of the turnover in exchange-traded shares in Germany in 1998.
As of December 31, 1998, equity securities traded on the Frankfurt Stock
Exchange included the shares of 1,958 companies, of which 1,418 were non-German.
Trading on the floor of the Frankfurt Stock Exchange commences each business
day at 8:30 a.m. and continues until 5:00 p.m. Central European Time. Markets in
listed securities are generally of the auction type, but listed securities also
change hands in inter-bank dealer markets both on and off the stock exchange.
Price formation is by open outcry, as determined by state appointed specialists
(AMTLICHE KURSMAKLER) who are themselves exchange members, but who do not, as a
rule, deal with the public. Prices for active stocks, including those of larger
companies, are quoted continuously during stock exchange hours. For all other
stocks, a fixed price
42
<PAGE>
is determined by auction around mid-session of each trading day. Transactions
settle on the second business day following the day of their trade.
DaimlerChrysler ordinary shares are also traded on Xetra (Exchange
Electronic Trading), an integrated electronic exchange system operated by
Deutsche Boerse AG. Xetra is available daily from 8:30 a.m. to 5:00 p.m. Central
European Time to brokers and banks which are members of a German stock exchange.
Securities traded by this system include all stocks, warrants and the most
liquid bonds traded on the floor of the Frankfurt Stock Exchange. Xetra is
integrated into the Frankfurt Stock Exchange and is subject to its rules and
regulations.
Trading activities on the German stock exchanges are monitored by the
Federal Supervisory Authority for Securities Trading (BUNDESAUFSICHTSAMT FUER
DEN WERTPAPIERHANDEL). Following an amendment in 1995 of the German banks'
standard terms and conditions for securities transactions, all orders from
customers to buy or sell listed securities must be executed on a stock exchange
unless a customer gives specific instructions to the contrary.
The tables below set forth, for the periods indicated, the high and low
closing sales prices on the Frankfurt Stock Exchange for the ordinary shares of
Daimler-Benz AG, the predecessor company of DaimlerChrysler AG, and from
November 17, 1998, the first day on which DaimlerChrysler ordinary shares
officially traded on the Frankfurt Stock Exchange, the DaimlerChrysler ordinary
shares, in each case as reported by the exchange. Since January 4, 1999, the
first official trading day of 1999, the prices of shares traded on the German
stock exchanges, including the ordinary shares of DaimlerChrysler AG, have been
quoted in euros. In order to achieve comparability with the sales prices quoted
in marks during the relevant periods in 1997 and 1998, the sales prices
indicated for those periods have been converted into euros at the Official Fixed
Conversion Rate. The tables also show, for the periods indicated, the highs and
lows of the Deutsche Aktienindex ("DAX"), the leading index of trading on the
Frankfurt Stock Exchange. See the discussion under "Item 8. Selected Financial
Data" with respect to rates of exchange between the dollar and the mark
(translated into euros at the Official Fixed Conversion Rate) and the dollar and
the euro applicable during the periods set forth below.
43
<PAGE>
<TABLE>
<CAPTION>
Price Per
Daimler-Benz
Ordinary Share(1) DAX(2)
-------------------- --------------------
<S> <C> <C> <C> <C>
High Low High Low
--------- --------- --------- ---------
<CAPTION>
([EURO])
<S> <C> <C> <C> <C>
1997
First Quarter............................................. 66.92 52.47 3,460.59 2,848.77
Second Quarter............................................ 71.23 61.57 3,805.29 3,215.24
Third Quarter............................................. 79.91 63.96 4,438.93 3,819.85
Fourth Quarter............................................ 73.04 55.06 4,347.24 3,567.22
1998
First Quarter............................................. 87.43 59.64 5,102.35 4,087.28
Second Quarter(3)......................................... 103.31 83.95 5,915.13 5,018.67
Third Quarter............................................. 94.54 71.48 6,171.43 4,433.87
Fourth Quarter (through November 16, 1998)................ 71.84 54.09 4,841.72 3,896.08
</TABLE>
<TABLE>
<CAPTION>
Price Per
DaimlerChrysler
Ordinary Share DAX(2,4)
-------------------- --------------------
<S> <C> <C> <C> <C>
High Low High Low
--------- --------- --------- ---------
<CAPTION>
([EURO])
<S> <C> <C> <C> <C>
1998
Fourth Quarter (from November 17, 1998)................... 85.13 72.09 5,121.48 4,522.86
1999
First Quarter (through March 23, 1999).................... 92.50 80.10 5,443.62 4,678.72
</TABLE>
- - ------------------------
(1) Figures for 1997 and the first and second quarter of 1998 have been adjusted
to reflect the approximately 20% discount to market value at which
Daimler-Benz ordinary shares were sold in Daimler-Benz AG's rights offering
in June 1998. See "Item 8. Selected Financial Data."
(2) The DAX is a continuously updated, capital-weighted performance index of 30
German blue chip companies. In principle, the shares included in the DAX
were selected on the basis of their stock exchange turnover and their market
capitalization. Adjustments of the DAX are made for capital changes,
subscription rights and dividends.
(3) Holders of Daimler-Benz ordinary shares on May 27, 1998, the date of the
1998 annual general meeting, became entitled to receive a special
distribution of [EURO] 10.23 per share as of that date, and subsequent sales
of shares were priced excluding ("ex") such right. In addition, on June 12,
1998, the Daimler-Benz ordinary shares began to trade "ex" the rights which
were distributed to holders of Daimler-Benz ordinary shares in connection
with Daimler-Benz AG's rights offering in June 1998. See "Item 8. Selected
Financial Data."
(4) As of December 31, 1998, DaimlerChrysler AG represented approximately 12.2%
of the DAX.
--------------------------
Based on turnover statistics supplied by the Frankfurt Stock Exchange, the
average daily volume of DaimlerChrysler ordinary shares traded on the exchange
between November 17, 1998 and December 30, 1998 was 14,531,369.
On March 23, 1999 the closing sales price per DaimlerChrysler ordinary share
on the Frankfurt Stock Exchange was [EURO] 81.25, which was equivalent to $88.71
per ordinary share, translated at the Noon Buying Rate for euros on such date.
Trading on the New York Stock Exchange
Official trading of DaimlerChrysler ordinary shares on the New York Stock
Exchange commenced on November 17, 1998. From October 26, 1998 through November
16, 1998, the ordinary shares traded on the exchange on a when-issued basis.
Daimler-Benz ADSs traded on the New York Stock Exchange through November 6, 1998
under the symbol "DAI." Shares of common stock, par value $1.00 per share, of
Chrysler Corporation traded on the New York Stock Exchange through November 12,
1998 under the symbol "C."
44
<PAGE>
The following table sets forth, for the periods indicated, the high and low
sales prices per share of Chrysler common stock, the high and low sales prices
per Daimler-Benz ADS and the high and low sales prices per DaimlerChrysler
ordinary share, in each case as reported on the New York Stock Exchange
Composite Tape.
<TABLE>
<CAPTION>
Price Per Share
of Chrysler Price Per
Common Stock Daimler-Benz ADS(1)
-------------------- ---------------------
<S> <C> <C> <C> <C>
High Low High Low
--------- --------- ---------- ---------
1997
First Quarter......................................... $ 36.25 $ 29.00 $ 78.88 $ 66.00
Second Quarter........................................ 33.44 28.13 81.63 71.88
Third Quarter......................................... 38.56 32.38 85.50 71.06
Fourth Quarter........................................ 38.25 32.00 83.13 61.88
1998
First Quarter......................................... $ 44.19 $ 31.25 $ 94.06 $ 65.00
Second Quarter(2)..................................... 57.56 38.38 115.13 91.25
Third Quarter......................................... 61.00 44.50 105.00 81.25
Fourth Quarter(3) (through November 12, 1998 for
Chrysler Common Stock and through November 6, 1998
for Daimler-Benz ADSs) 52.00 35.13 87.31 62.94
</TABLE>
<TABLE>
<CAPTION>
Price Per
DaimlerChrysler
Ordinary Share
---------------------
<S> <C> <C>
High Low
---------- ---------
1998
Fourth Quarter (from November 17, 1998)(4)........................ $ 99.06 $ 82.38
1999
First Quarter (through March 23, 1999)............................ $ 108.63 $ 85.56
</TABLE>
- - ------------------------
(1) Figures for 1997 and the first and second quarter of 1998 have been adjusted
to reflect the approximately 20% discount to market value at which
Daimler-Benz ordinary shares and Daimler-Benz ADSs were sold in Daimler-Benz
AG's rights offering in June 1998. See "Item 8. Selected Financial Data."
(2) Holders of Daimler-Benz ordinary shares on May 27, 1998, the date of the
1998 annual general meeting, became entitled to receive a special
distribution of [EURO] 10.23 per share as of that date, and subsequent sales
of shares were priced excluding ("ex") such right. In addition, on June 12,
1998, and on June 15, 1998, the Daimler-Benz ordinary shares and the
Daimler-Benz ADSs, respectively, began to trade "ex" the rights which were
distributed to holders of Daimler-Benz ordinary shares and Daimler-Benz ADSs
in connection with Daimler-Benz AG's rights offering in June 1998. See "Item
8. Selected Financial Data."
(3) Shares of Chrysler common stock were suspended from trading beginning on
November 13, 1998 and Daimler-Benz ADSs were suspended from trading
beginning on November 9, 1998.
(4) Official "regular way" trading of DaimlerChrysler ordinary shares commenced
on November 17, 1998. DaimlerChrysler ordinary shares were traded on a
when-issued basis from October 26, 1998 through November 16, 1998.
On March 23, 1999, the closing sales price per DaimlerChrysler ordinary
share on the New York Stock Exchange as reported on the NYSE Composite Tape was
$86.00.
Item 6. Exchange Controls and Other Limitations Affecting Security Holders.
The mark and the euro are fully convertible currencies. There are, except in
limited embargo circumstances, no legal restrictions in Germany on international
capital movements and foreign exchange transactions. For statistical purposes
only, every individual or corporation residing in Germany (a "Resident") must
report to the German Central Bank (DEUTSCHE BUNDESBANK) any payment received
from or made to an individual or a corporation resident outside of Germany (a
"Non-resident") if the payment exceeds DM 5,000 ([EURO] 2,556) (or the
equivalent in a foreign currency). In addition, Residents must report any claims
against or any liabilities payable to Non-residents
45
<PAGE>
if such claims or liabilities, in the aggregate, exceed DM 3 million
(approximately [EURO] 1.5 million) (or the equivalent in a foreign currency) at
the end of any one month.
There are no limitations imposed by German law or the Memorandum and
Articles of Association (SATZUNG) of DaimlerChrysler AG on the right of
non-resident or foreign owners to hold or vote DaimlerChrysler ordinary shares.
Item 7. Taxation.
The following is a discussion of the material United States federal income
and German tax consequences to Qualified Holders holding DaimlerChrysler
ordinary shares. This discussion is based upon existing United States federal
income and German tax law, including legislation, regulations, administrative
rulings and court decisions, as in effect on the date of this Annual Report, all
of which are subject to change, possibly with retroactive effect. For purposes
of this discussion, in general, a "Qualified Holder" means a beneficial owner of
DaimlerChrysler ordinary shares that (1) is a resident of the United States for
purposes of the United States-Germany income tax treaty (the "Income Tax
Treaty"), which generally includes an individual United States resident, a
corporation created or organized under the laws of the United States, any state
thereof or the District of Columbia and a partnership, estate or trust, to the
extent its income is subject to taxation in the United States as the income of a
United States resident, either in its hands or in the hands of its partners or
beneficiaries, (2) does not hold DaimlerChrysler ordinary shares as part of the
business property of a permanent establishment located in Germany or as part of
a fixed base of an individual located in Germany and used for the performance of
independent personal services and (3) if not an individual, is not subject to
the limitation on benefits restrictions in the Income Tax Treaty. This
discussion assumes that the Qualified Holder holds DaimlerChrysler ordinary
shares as a capital asset. This discussion does not address all aspects of
United States federal income and German taxation that may be relevant to all
Qualified Holders in light of their particular circumstances, such as Qualified
Holders whose stock was acquired pursuant to the exercise of an employee stock
option or otherwise as compensation or Qualified Holders who are subject to
special treatment under United States federal income tax laws (for example,
financial institutions, insurance companies, tax-exempt organizations and
broker-dealers). This discussion also does not address any aspects of state,
local or non-United States (other than certain German) tax law.
EACH QUALIFIED HOLDER IS STRONGLY URGED TO CONSULT HIS OR HER TAX ADVISOR AS
TO THE UNITED STATES FEDERAL INCOME AND GERMAN TAX CONSEQUENCES OF HOLDING
DAIMLERCHRYSLER ORDINARY SHARES, INCLUDING THE PARTICULAR FACTS AND
CIRCUMSTANCES THAT MAY BE UNIQUE TO SUCH QUALIFIED HOLDER, AND AS TO ANY OTHER
TAX CONSEQUENCES OF HOLDING DAIMLERCHRYSLER ORDINARY SHARES.
Taxation of Dividends
Under German law, German corporations are required to withhold tax on
dividends in an amount equal to 25% of the gross amount paid to resident and
non-resident stockholders. A partial refund of this 25% withholding tax can be
obtained by Qualified Holders under the Income Tax Treaty (subject to certain
limitations). Qualified Holders are generally subject to United States federal
income tax on dividends paid by German corporations. Subject to applicable
limitations of United States federal income tax law, Qualified Holders may be
able to claim a foreign tax credit for certain German income taxes paid. The
amount of the refund of German withholding tax and the determination of the
foreign tax credit allowable against United States federal income tax generally
depend on whether or not the Qualified Holder is a United States corporation
owning at least 10% of the voting stock of DaimlerChrysler AG (a "10% Holder").
In the case of any Qualified Holder other than a 10% Holder, the German
withholding tax is partially refunded under the Income Tax Treaty, effectively
reducing the withholding tax to 15% of the gross amount of the dividend. In
addition, so long as the German imputation system provides German resident
individual stockholders with a tax credit in respect of dividends paid by German
corporations, the Income Tax Treaty provides that Qualified Holders
46
<PAGE>
(other than 10% Holders) are entitled to an additional refund equal to 5% of the
gross amount of the dividend. For United States federal income tax purposes, the
benefit resulting from this additional 5% treaty refund is treated as a refund
received by the Qualified Holder with respect to German corporate taxes equal to
5.88% of the gross amount of the dividend, subject to a German withholding tax
of 0.88% (15% of 5.88%). Qualified Holders will not be entitled to the dividends
received deduction with respect to dividends paid by DaimlerChrysler AG.
Thus, for each $100 of gross dividend paid by DaimlerChrysler AG to a
Qualified Holder (other than a 10% Holder), the dividend after partial refund of
the 25% withholding tax under the Income Tax Treaty will be subject to a German
withholding tax of $15. If the Qualified Holder also applies for the additional
5% treaty refund, German withholding tax is effectively reduced to $10; the cash
received per $100 of gross dividend is $90. For United States federal income tax
purposes, the Qualified Holder is generally treated as receiving a total
dividend of $105.88 (to the extent paid out of current or accumulated earnings
and profits of DaimlerChrysler AG as determined for United States federal income
tax purposes), consisting of the $100 gross dividend and the deemed refund of
German corporate tax of $5.88. The notional $105.88 dividend is deemed to have
been subject to German withholding tax of $15.88. Thus, for each $100 of gross
dividend, the Qualified Holder will include $105.88 in gross income and may be
entitled to a foreign tax credit of $15.88, subject to applicable limitations of
United States federal income tax law.
In the case of a 10% Holder, the 25% German withholding tax is reduced under
the Income Tax Treaty to 5% of the gross amount of the dividend. Such 10%
Holders may, therefore, apply for a refund of German withholding tax in the
amount of 20% of the gross amount of the dividend. Subject to applicable
limitations of United States federal income tax laws, a 10% Holder may be
entitled to a foreign tax credit for the 5% German withholding tax on dividends
and for the portion of the total income taxes (trade income tax and corporation
income tax, including any surtax) paid by DaimlerChrysler AG attributable to
distributed profits.
Dividends paid in marks (or euros) to a Qualified Holder of DaimlerChrysler
ordinary shares will be included in income in a dollar amount calculated by
reference to the exchange rate in effect on the date the dividends (including
any deemed refund of German corporate tax) are received or treated as received
by such holder. If dividends paid in marks (or euros) are converted into dollars
on the date received or treated as received, Qualified Holders generally should
not be required to recognize foreign currency gain or loss in respect of each
dividend.
A surtax on the German withholding tax is currently levied on dividend
distributions paid by a German resident company. Effective January 1, 1998, the
rate of this surtax has been reduced from 7.5% to 5.5%. Based on the new rate,
the surtax amounts to 1.375% (5.5% X 25%) of the gross dividend amount. Under
the Income Tax Treaty, Qualified Holders are entitled to a full refund of this
surtax.
Under Section 904(g) of the Code, dividends paid by a foreign corporation
that is treated as more than 50% owned by United States person may be treated as
United States source income (rather than foreign source income) for foreign tax
credit purposes, to the extent the foreign corporation earns United States
source income. Such treatment may adversely affect Qualified Holders' ability to
use foreign tax credits. It is possible that DaimlerChrysler AG may be treated
as more than 50% owned by United States persons for purposes of Section 904(g)
of the Code.
Refund Procedures
To claim the refund reflecting the reduction of the German withholding tax
from 25% to 15%, the additional 5% treaty refund and the refund of the 5.5%
German surtax, when applicable, a Qualified Holder must submit (either directly
or, as described below, through a depositary) a claim for refund to the German
tax authorities, with the original bank voucher (or certified copy thereof)
issued by the paying entity documenting the tax withheld within four years from
the end of the calendar year in which the dividend is received. Claims for
refunds are made on a special German claim for refund form, which must be filed
with the German tax authorities: Bundesamt fuer Finanzen, 53221 Bonn-Beuel,
Germany. The German claim for refund forms may be obtained from the German tax
authorities at the same address where the applications are filed, from the
Embassy of the Federal Republic of
47
<PAGE>
Germany, 4645 Reservoir Road, N.W., Washington, D.C. 20007-1998 or from the
Office of International Operations, Internal Revenue Service, 1325 K Street,
N.W., Washington, D.C. 20225, Attention: Taxpayer Service Division, Room 900.
Qualified Holders must also submit to the German tax authorities
certification (IRS Form 6166) of their last filed United States federal income
tax return. Such certification is obtained from the office of the Director of
the Internal Revenue Service Center by filing a request for certification with
the Internal Revenue Service Center in Philadelphia, Pennsylvania, Foreign
Certificate Request, P.O. Box 16347, Philadelphia, PA 19114-0447. Requests for
certification are to be made in writing and must include the Qualified Holder's
name, social security number or employer identification number, tax return form
number and tax period for which certification is requested. The Internal Revenue
Service will send the certification directly to the German tax authorities. This
certification is valid for three years and need only be resubmitted in a fourth
year in the event of a subsequent application for refund.
In accordance with arrangements made with the U.S. transfer agent,
DaimlerChrysler ordinary shares held by certain Qualified Holders will be
registered with the U.S. transfer agent, which will receive and distribute
dividends to Qualified Holders of DaimlerChrysler ordinary shares and perform
administrative functions necessary to claim the refund reflecting the reduction
in German withholding tax from 25% to 15% (to 5% for 10% Holders), the
additional 5% treaty refund and the refund of the 5.5% German surtax, when
applicable, for such holders. These arrangements may be amended or revoked at
any time in the future.
The U.S. transfer agent will prepare the German claim for refund forms on
behalf of certain of the Qualified Holders of DaimlerChrysler ordinary shares
and file them with the German tax authorities. In order for the U.S. transfer
agent to file the claim for refund forms, the U.S. transfer agent will prepare
and mail to these Qualified Holders, and the holders will be requested to sign
and return to the U.S. transfer agent, (1) a statement authorizing the U.S.
transfer agent to perform these procedures and agreeing that the German tax
authorities may inform the IRS of any refunds of German taxes and (2) a written
authorization to remit the refund of withholding to an account other than that
of the Qualified Holder. Qualified Holders must also submit to the U.S. transfer
agent certification (IRS Form 6166) of their last filed United States federal
income tax return. The U.S. transfer agent will attach the signed statement, the
IRS Form 6166 and the documentation issued by the paying agency documenting the
dividend paid and the tax withheld to the claim for refund form and file them
with the German tax authorities.
To the extent Qualified Holders own DaimlerChrysler ordinary shares
registered with brokers participating in the Depository Trust Company, it is
expected that such brokers will assist the U.S. transfer agent in performing the
procedures described above and, in particular, prepare and forward the German
claim for refund forms together with the required documentation to the U.S.
transfer agent. The U.S. transfer agent will then file the German claim for
refund forms and any attachments thereto with the German tax authorities.
The German tax authorities will issue refunds denominated in marks (or
euros). In the case of DaimlerChrysler ordinary shares held by certain Qualified
Holders, the refunds will be issued in the name of the U.S. transfer agent,
which will convert the refunds to dollars and issue corresponding refund checks
to those Qualified Holders and to brokers. The brokers, in turn, will remit
corresponding refund amounts to the Qualified Holders holding DaimlerChrysler
ordinary shares registered with such brokers. Qualified Holders of
DaimlerChrysler ordinary shares who receive a refund attributable to reduced
withholding taxes under the Income Tax Treaty may be required to recognize
foreign currency gain or loss, which will be treated as ordinary income or loss,
to the extent that the dollar value of the refund received or treated as
received by the Qualified Holder differs from the U.S. dollar equivalent of the
refund on the date the dividend on which such withholding taxes were imposed was
received or treated as received by the Qualified Holder.
Taxation of Capital Gains
Under the Income Tax Treaty, a Qualified Holder will not be liable for
German tax on capital gains realized or accrued on the sale or other disposition
of DaimlerChrysler ordinary shares.
48
<PAGE>
Upon a sale or other disposition of DaimlerChrysler ordinary shares, a
Qualified Holder will recognize capital gain or loss for United States federal
income tax purposes equal to the difference between the amount realized and the
Qualified Holder's adjusted tax basis in the DaimlerChrysler ordinary shares. In
the case of an individual Qualified Holder of DaimlerChrysler ordinary shares,
any such capital gain will be subject to a maximum United States federal income
tax rate of 20%, if the individual Qualified Holder's holding period in the
DaimlerChrysler ordinary shares is more than 12 months.
German Gift and Inheritance Taxes
The United States-Germany estate tax treaty provides that an individual
whose domicile is determined to be in the United States for purposes of such
treaty will not be subject to German inheritance and gift tax (the equivalent of
the United States federal estate and gift tax) on the individual's death or
making of a gift unless the DaimlerChrysler ordinary shares (1) are part of the
business property of a permanent establishment located in Germany or (2) are
part of the assets of a fixed base of an individual located in Germany and used
for the performance of independent personal services. An individual's domicile
in the United States, however, does not prevent imposition of German inheritance
and gift tax with respect to an heir, donee or other beneficiary who is
domiciled in Germany at the time the individual died or the gift was made.
The United States-Germany estate tax treaty also provides a credit against
United States federal estate and gift tax liability for the amount of
inheritance and gift tax paid in Germany, subject to certain limitations, in a
case where the DaimlerChrysler ordinary shares are subject to German inheritance
or gift tax and United States federal estate or gift tax.
German Capital Tax (VERMOEGENSTEUER)
The Income Tax Treaty provides that a Qualified Holder will not be subject
to German capital tax (VERMOEGENSTEUER) with respect to the DaimlerChrysler
ordinary shares. As a result of a judicial decision, the German capital tax
(VERMOEGENSTEUER) presently is not imposed.
Other German Taxes
There are no German transfer, stamp or other similar taxes that would apply
to Qualified Holders upon receipt, purchase, holding or sale of DaimlerChrysler
ordinary shares.
United States Information Reporting and Backup Withholding
Dividends on DaimlerChrysler ordinary shares, and payments of the proceeds
of a sale of DaimlerChrysler ordinary shares, paid within the United States or
through certain U.S.-related financial intermediaries are subject to information
reporting and may be subject to backup withholding at a 31% rate unless the
Qualified Holder (1) is a corporation or other exempt recipient or (2) provides
a taxpayer identification number and certifies that no loss of exemption from
backup withholding has occurred.
49
<PAGE>
Item 8. Selected Financial Data.
The selected consolidated financial data presented below as of and for each
of the years in the five-year period ended December 31, 1998, have been
excerpted from or are derived from the audited consolidated financial statements
of DaimlerChrysler as of December 31, 1998 and 1997 and for the years ended
December 31, 1998, 1997 and 1996, and in the case of the consolidated financial
data as of December 31, 1996, 1995 and 1994 and for the years ended December 31,
1995 and 1994 are derived from the combined financial statements of Daimler-Benz
AG and Chrysler Corporation. All of the consolidated financial data have been
prepared in accordance with U.S. GAAP except for the use of the proportionate
method of consolidation for certain joint ventures. Since the combination of
Chrysler and Daimler-Benz has been treated as a "pooling of interests" for
accounting purposes, the results of both companies have been restated as if they
had been combined for all periods presented. See Notes 1 and 3 to the
Consolidated Financial Statements.
The selected consolidated financial data set forth below should be read in
conjunction with, and are qualified in their entirety by reference to, the
Consolidated Financial Statements.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------
1998(1) 1998 1997 1996 1995 1994
--------- -------------- -------------- -------------- ------------- -------------
(in millions, except for ordinary share amounts)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues...................... $ 154,615 [EURO] 131,782 [EURO] 117,572 [EURO] 101,415 [EURO] 91,040 [EURO] 95,965
Net income (loss)............. 5,656 4,820 6,547(2) 4,022 (1,476) 3,499
Basic earnings (loss) per
ordinary share.............. 6.05 5.16 6.90(2) 4.24 (1.40) 3.84
Diluted earnings (loss) per
ordinary share.............. 5.91 5.04 6.78(2) 4.20 (1.36) 3.59
Balance Sheet Data (end of
period):
Total assets.................. 159,738 136,149 124,831 101,294 91,597 91,682
Short-term borrowings......... 24,023 20,475 17,341 12,855 10,226 9,448
Long-term borrowings.......... 23,412 19,955 17,034 11,788 11,658 11,180
Stockholders' equity.......... 35,629 30,367 27,960 22,355 19,488 23,316
Other Operating Data:
Ratio of earnings to fixed
charges and preferred stock
dividend requirements(3).... 3.59 3.59 3.23 3.47 --(4) 3.19
</TABLE>
- - ------------------------------
(1) The Consolidated Financial Statements have been prepared in marks and were
translated into euros at the Official Fixed Conversion Rate. Amounts in this
column are unaudited and have been converted from marks into dollars solely
for the convenience of the reader at an exchange rate of DM 1.6670 = $1.00,
the Noon Buying Rate on December 31, 1998.
(2) Net income for 1997 includes [EURO] 2,490 of special non-recurring tax
benefits. These tax benefits resulted from Daimler-Benz' special
distribution and the reversal of the remaining valuation allowances
previously established on deferred tax assets which resulted primarily from
net operating loss carryforwards of the Group's German companies that file a
combined tax return (ORGANSCHAFT). The special distribution tax benefit was
[EURO] 1,487 and the valuation allowance reversal tax benefit was [EURO]
1,003. Excluding these benefits, the basic and diluted earnings per ordinary
share in 1997 were [EURO] 4.28 and [EURO] 4.21, respectively.
(3) For purposes of calculating the ratio of earnings to fixed charges and
preferred stock dividend requirements, earnings consist of income from
operations before income taxes and fixed charges (excluding capitalized
interest). Fixed charges consist of interest expense (including capitalized
interest) plus one-third of rental expense under operating leases (the
portion that has been deemed by management to be representative of the
interest factor).
(4) For the year ended December 31, 1995, earnings were insufficient to cover
fixed charges by approximately [EURO] 1,304.
50
<PAGE>
Dividends
Dividends are proposed by the Supervisory Board and the Board of Management
of DaimlerChrysler AG, based on the year-end unconsolidated financial statements
of DaimlerChrysler AG, and are approved in respect of the prior year at the
annual general meeting of stockholders. The annual general meeting is usually
convened during the second quarter of each year. Holders of record of
DaimlerChrysler ordinary shares on the date of the general meeting of
stockholders at which a dividend is declared are entitled to receive the
dividend, less any amounts required to be withheld on account of taxes or other
governmental charges. Cash dividends payable to holders of ordinary shares will
be distributed by Deutsche Bank AG as paying agent. In Germany, the payment will
be made to the holder's depot bank or other institution holding the shares for
the stockholder which will credit the payment to the stockholder's account. For
purposes of distribution in the United States and Canada, the dividend will be
paid to The Bank of New York as U.S. transfer agent and, for Canadian holders,
transferred to Montreal Trust Company as Canadian transfer agent. At the
election of the stockholder, the payment will be converted from marks or euros
into U.S. dollars. The U.S. dollar amounts of dividends received by holders of
ordinary shares may be affected by fluctuations in exchange rates. See "Exchange
Rate Information."
The following table sets forth the annual dividends paid per Daimler-Benz
ordinary share for the years 1994, 1995, 1996 and 1997 and the dividend amount
per DaimlerChrysler ordinary share proposed by the Supervisory Board and the
Board of Management of DaimlerChrysler AG for 1998. The table shows the dividend
amounts in euro, together with the mark and dollar equivalents, for each of the
years indicated. The table does not reflect the related tax credits available to
German taxpayers. See "Item 7. Taxation."
<TABLE>
<CAPTION>
Dividend Paid
Per Ordinary Share(1)
---------------------------------------------
Year Ended
December 31,
- - ------------
<C> <S> <C> <C> <C>
1994 .............................. [EURO] 0.55 DM 1.08 $0.75
1995 .............................. -- -- --
1996 .............................. 0.55 1.08 0.75
1997 .............................. 0.80 1.57 0.87
</TABLE>
------------------------
<TABLE>
<C> <S> <C> <C> <C>
1998(2) .............................. [EURO] 2.35 DM 4.60 $2.57
</TABLE>
- - ------------------------
(1) The dividend amounts shown for the years 1997, 1996, 1995 and 1994 are the
dividend amounts paid by Daimler-Benz AG, the predecessor of DaimlerChrysler
AG, adjusted for the special distribution described in the paragraph below.
The mark dividend amounts shown for the years 1997, 1996, 1995 and 1994 are
translated solely for the convenience of the reader into dollars at the Noon
Buying Rate on the dividend payment date, which typically occurred during
the second quarter of the following year, and converted into euros at the
Official Fixed Conversion Rate.
(2) The dividend amount for the year ended December 31, 1998 is the amount
proposed by DaimlerChrysler AG's Supervisory Board and its Board of
Management and has not yet been approved by DaimlerChrysler AG's
stockholders. Prior to the payment of the dividend, a resolution approving
the amount must be passed by DaimlerChrysler AG's stockholders at the annual
general meeting to be held on May 18, 1999. The mark amount shown has been
converted into euros at the Official Fixed Conversion Rate and translated
into dollars solely for the convenience of the reader at an exchange rate of
[EURO] 1 = $1.0918, the Noon Buying Rate on March 23, 1999.
--------------------------
On June 15, 1998, Daimler-Benz AG paid a special distribution to holders of
its ordinary shares and ADSs which amounted to approximately [EURO] 5.3 billion
in the aggregate. The source of the funds for the special distribution was
Daimler-Benz' retained earnings, including [EURO] 1.5 billion attributable to a
German tax refund resulting from a 20% differential in the tax rates to which
Daimler-Benz was entitled by reason of the special distribution (i.e. the
difference between the 50% German tax rate (TARIFBELASTUNG) paid in prior years
on retained corporate earnings to be distributed and the current 30% tax rate
(AUSSCHUETTUNGSBELASTUNG) on distributed earnings). On June 8, 1998,
Daimler-Benz issued to holders of its ordinary shares, its Daimler-Benz ADSs and
its 5 3/4% Subordinated Mandatory Convertible Notes due June 14, 2002 rights to
acquire up to an aggregate of 52,379,675 newly issued Daimler-Benz ordinary
shares. Daimler-Benz raised approximately [EURO] 3.8 billion, net of expenses,
from the rights offering. The purpose of the rights offering was to raise the
funds necessary to restore to
51
<PAGE>
Daimler-Benz' paid-in capital the amount of the reduction in retained earnings
created by the special distribution. The special distribution amount per
Daimler-Benz ordinary share was [EURO] 10.23 ([EURO] 10.04 after adjustment to
reflect the approximately 20% discount to market value at which the Daimler-Benz
ordinary shares were sold in the rights offering).
The dividend amount proposed by the Supervisory Board and the Board of
Management of DaimlerChrysler AG for the year ended December 31, 1998 reflects
the dividend level enjoyed by former Chrysler stockholders over the past several
years and is significantly higher than the dividends previously received by
former stockholders of Daimler-Benz. DaimlerChrysler AG expects to continue to
pay dividends, although there can be no assurance as to the particular amounts
that would be paid from year to year. The payment of future dividends will
depend upon DaimlerChrysler AG's earnings, financial condition (including its
cash needs), future earnings prospects and other factors. See "Item 9.
Management's Discussion and Analysis of Results of Operations and Financial
Condition."
Dividends paid to owners of DaimlerChrysler ordinary shares who are United
States residents will be subject to German withholding tax. See "Item 7.
Taxation."
Exchange Rate Information
In order to comply with the requirements of the German Commercial Code
(HANDELSGESETZBUCH), DaimlerChrysler has prepared its consolidated financial
statements in marks. DaimlerChrysler is presenting the Consolidated Financial
Statements in this Annual Report in euros. Accordingly, the Consolidated
Financial Statements have been translated into euros for each period presented
using the Official Fixed Conversion Rate.
The prices of shares on German stock exchanges have been quoted in euros
since January 4, 1999. Fluctuations in the exchange rate between the euro and
the dollar will affect the dollar equivalent of the euro price of
DaimlerChrysler ordinary shares reported for trades on the German stock
exchanges. For this reason they will also be likely to affect the market price
of the shares on the New York Stock Exchange, as well as the dollar amounts
received by holders of ordinary shares upon conversion of cash dividends paid in
marks or euros into dollars.
After the introduction of the euro on January 1, 1999, the Federal Reserve
Bank of New York ceased to quote a Noon Buying Rate for the mark. Accordingly,
the following table sets forth, for the periods and dates indicated, the
average, high, low and period-end Noon Buying Rates for the mark (shown
converted into euros at the Official Fixed Conversion Rate and expressed as
dollars per [EURO] 1) and, for the first quarter of 1999 through March 23, the
average, high, low and period-end Noon Buying Rates for the euro expressed in
dollars per [EURO] 1.
<TABLE>
<CAPTION>
Year Average(1) High Low Period-End
- - ------------------------------------------------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1994 ................................................ $ 1.2134 $ 1.3109 $ 1.1096 $ 1.2622
1995 ................................................ 1.3715 1.4418 1.2528 1.3634
1996 ................................................ 1.2978 1.3626 1.2493 1.2711
1997 ................................................ 1.1244 1.2689 1.0398 1.0871
1998 ................................................ 1.1120 1.2178 1.0548 1.1733
1999 (First Quarter through March 23, 1999)........... 1.1095 1.1812 1.0824 1.0918
</TABLE>
- - ------------------------
(1) The average of the Noon Buying Rates on the last business day of each month
during the relevant period.
--------------------------
On March 23, 1999, the Noon Buying Rate was [EURO] 1 = $1.0918.
For a discussion of the effect exchange rate fluctuations have on the
business and operations of DaimlerChrysler as well as the hedging techniques
used to manage the Group's exposure to such fluctuations, see "Item 9.
Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Item 9a. Quantitative and Qualitative Disclosure About Market
Risk."
52
<PAGE>
Item 9. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
OVERVIEW
1998 was an extraordinary year as Daimler-Benz and Chrysler joined together
in a "merger-of-equals" to create DaimlerChrysler. Since the combination has
been treated as a "pooling-of-interests" for accounting purposes, the results of
both companies have been restated as if they had been combined for all periods
presented. The benefits of rigorous cost-controls, new product programs and
targeted high returns on investment implemented by Chrysler and Daimler-Benz
over the past several years are reflected in the results for 1998: revenues of
[EURO] 131.8 billion; operating profit of [EURO] 8.6 billion; net income
excluding merger costs -- [EURO] 5.2 billion. See also "Outlook" in "Item 1.
Description of Business."
RESULTS OF OPERATIONS
Accounting Principles
U.S. GAAP
The Consolidated Financial Statements have been prepared in accordance with
U.S. GAAP except for the use of the proportionate method of consolidation for
certain joint ventures. Under U.S. GAAP, joint ventures would be accounted for
using the equity method of accounting. DaimlerChrysler has received permission
from the United States Securities and Exchange Commission to prepare its
consolidated financial statements with this departure from U.S. GAAP. See Note 3
to the Consolidated Financial Statements.
OPERATING PROFIT
In 1997 the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 131 entitled "Disclosures about Segments of
an Enterprise and Related Information." In response the Group adopted a
definition of "Operating Profit" as the measurement standard for performance of
its business segments. Segment Operating Profit is defined as income before
financial income and income taxes included in the consolidated statement of
income, modified to exclude certain pension and post-retirement benefit costs
and merger costs and to include certain financial income, net. The prior
definition used for Operating Profit in the presentation of the Group's business
segments was that prescribed in Statement of Financial Accounting Standards No.
14, with certain modifications. See Note 30 to the Consolidated Financial
Statements.
THE EURO
Beginning January 1, 1999 DaimlerChrysler has adopted the euro as its
corporate currency. The Consolidated Financial Statements have been prepared
using marks as the reporting currency and have been restated in euros for each
period presented using the Official Fixed Conversion Rate. Accordingly, the
Consolidated Financial Statements depict the same trends that would have been
presented had they been presented in marks. However, because they were
originally prepared using marks, they are not necessarily comparable to
financial statements of a company which originally prepared its financial
statements in a European currency other than the mark and restated them in
euros. See Note 1 to the Consolidated Financial Statements. See also "Operating
Environment -- Introduction of the Euro" in "Item 1. Description of Business."
Inflation
The rates of inflation in Germany during 1998, 1997 and 1996 were 0.9%, 1.8%
and 1.5%, respectively. The inflation rates in the United States for those years
were 1.6%, 2.3% and 2.9%, respectively. The effects of inflation on the Group's
operations have not been significant in recent years.
53
<PAGE>
Year 2000
Many existing computer systems will not be able to properly recognize the
year "2000" and future years because they were initially programmed to use only
the last two digits to refer to a year. If not corrected, many computer
applications could fail or produce erroneous results on and after January 1,
2000. This "Year 2000" or "Y2K" problem threatens to disrupt the business
operations and financial condition of companies throughout the world, including
DaimlerChrysler.
In response, DaimlerChrysler's Y2K Project Teams in Stuttgart and Auburn
Hills are coordinating the compliance efforts initiated by Daimler-Benz and
Chrysler before their business combination. The Y2K Project Teams are
responsible for developing a comprehensive compliance program to assess
potential problems within the Group and its key suppliers, implement and verify
remedial action, and devise contingency plans. The Teams have allocated
resources to address Y2K compliance issues based on internal assessments of the
potential impact of non-compliance on the Group's operations and financial
condition. The Teams report to the Board of Management of DaimlerChrysler AG.
STATE OF READINESS
The compliance program includes assessment, testing, remediation, and
contingency planning in the areas described below. DaimlerChrysler has engaged
outside consultants, programmers and technicians to assist in various phases of
the program.
BUSINESS COMPUTER SYSTEMS. These systems include computer hardware and
applications and system software used for product design and engineering,
manufacturing, materials purchasing, financial reporting, treasury, human
resources and other functions. As of December 31, 1998, the remediation of these
systems was substantially completed.
PLANT FLOOR EQUIPMENT. Substantially all of the equipment and machinery in
DaimlerChrysler's manufacturing and assembly plants have been inventoried and
corrective action to repair or replace critical non-compliant items is underway
with the assistance of its vendors. Increased emphasis has been placed on
testing and remediation at manufacturing and assembly facilities in order to
meet the internal target date (September 1999) set for compliance. Some of these
systems may not be remediated by the target date, but DaimlerChrysler believes
that substantially all of the systems will be compliant by the end of 1999.
SUPPLIERS. DaimlerChrysler participates in automotive industry trade
associations in both North America and Germany (the Automotive Industry Action
Group and the VERBAND DER AUTOMOBILINDUSTRIE). Each group has developed a common
approach to Y2K compliance among its members, which includes offering Y2K
seminars to first, second, and third tier production and non-production
suppliers, and confirming their Y2K compliance status through questionnaires and
on site auditing. Questionnaires have been sent to those suppliers and a
majority have responded. DaimlerChrysler offers a Y2K Remediation Assistance
Program to suppliers without adequate compliance programs, and is auditing key
suppliers on a selective basis for compliance.
VEHICLE COMPONENTS. The onboard computer systems in DaimlerChrysler's
vehicles are not affected by the Y2K problem because they function in relation
to engine cycles or time elapsed rather than a particular date.
END-USER COMPUTING. Non-compliant desktop computers and related software
used by employees will be repaired or replaced. Self-diagnostic Y2K compliance
kits and questionnaires have been distributed to U.S. based employees with
desktop computers, and a majority have responded. A similar process is underway
for employees in Europe.
DEALERS. DaimlerChrysler is working with its dealers to test the vehicle
ordering systems it developed for use by its dealers for Y2K compliance. It is
also monitoring dealer compliance efforts with respect to third party software.
54
<PAGE>
The following timetable shows DaimlerChrysler's internal target dates for
compliance and the estimated compliance status as of December 31, 1998, by area,
and includes each of the seven business segments in which DaimlerChrysler
operates.
Y2K Program Timing
<TABLE>
<CAPTION>
Planned Target Date for Status of
100% Compliance Compliance
----------------------- -------------
<S> <C> <C>
Critical Business Computer Systems.......................... 12/98 99%
Critical Plant Floor Equipment.............................. 9/99 65%
Production and Critical
Non-Production Suppliers.................................. 6/99 67%(1)
Vehicle Components.......................................... 9/99 100%
End-User Computing.......................................... 9/99 33%
Dealers..................................................... 9/99 65%
</TABLE>
- - ------------------------
(1) Based on information provided by key suppliers which indicates that they
have a comprehensive Y2K program in place and a plan designed to achieve
compliance before January 1, 2000.
In addition, the European Airbus consortium, Airbus Industrie G.I.E., has
issued a report indicating that date-sensitive embedded systems in Airbus
Industrie products will not be materially adversely affected by the Y2K problem.
COSTS
DaimlerChrysler estimates that it has spent approximately [EURO] 167 million
in connection with Y2K compliance through December 31, 1998, and expects to
spend an additional [EURO] 73 million in 1999.
DaimlerChrysler does not expect its Y2K remediation costs to be material to
its results of operations or financial condition. However, there can be no
assurance that the remedial actions undertaken by DaimlerChrysler will be
completed successfully by the time necessary to avoid dating systems problems,
or that the cost of such remedial actions will not be material.
RISKS
DaimlerChrysler's most reasonably likely worst case Y2K scenario is the
temporary disruption of its manufacturing operations due to the inability of one
or more suppliers to ship parts because of a Y2K problem. Such disruption could
result in lost sales and profits by impairing DaimlerChrysler's ability to
obtain the materials and services, including energy, necessary to produce
vehicles. A prolonged disruption at one or more facilities, as well as the cost
of avoiding such disruption, could have a material adverse effect on
DaimlerChrysler's financial condition and results of operations.
CONTINGENCY PLANS
The Y2K Project Teams have evaluated various business disruption scenarios
as well as pre-existing "crises management plans" within the Group, and expect
to have Y2K contingency plans for critical operations developed by September
1999. These plans will likely include a combination of actions including
stockpiling of components and selective resourcing of materials to Y2K compliant
suppliers.
Various statements in this section about DaimlerChrysler's Y2K program,
including its implementation schedule, expected costs, anticipated results, and
most reasonably likely worst case scenario constitute forward-looking
information. The impact of the Y2K problem on DaimlerChrysler is subject to many
uncertainties, including its ability to remediate systems on a timely basis and
the successful remediation of systems controlled by third parties. Accordingly,
the costs of remediation and the effect that Y2K related disruptions could have
on DaimlerChrysler's results of operations and financial condition could vary
materially from those described above.
55
<PAGE>
Business Segment Information
Since the business combination of Chrysler and Daimler-Benz became effective
in the fourth quarter of 1998, the DaimlerChrysler Group has been conducting its
business activities through seven business segments: (1) Passenger Cars
Mercedes-Benz, smart; (2) Passenger Cars and Trucks Chrysler, Plymouth, Jeep,
Dodge; (3) Commercial Vehicles Mercedes-Benz, Freightliner, Sterling, Setra; (4)
Chrysler Financial Services; (5) Services; (6) Aerospace; and (7) Other. The
information and discussion below regarding the seven business segments should be
read in conjunction with Notes 2 and 30 to the Consolidated Financial Statements
included in Item 18. The following table sets forth revenues and operating
profit (loss) for each of the seven business segments during the last three
fiscal years:
DaimlerChrysler Group
Business Segment Revenues And Operating Profit (Loss)(1)
([EURO] in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1998 1997 1996
-------------------------- -------------------------- --------------------------
Operating Operating Operating
Profit Profit Profit
Revenues (Loss) Revenues (Loss) Revenues (Loss)
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Passenger Cars Mercedes-Benz, smart............. 32,587 1,993 27,554 1,716 23,853 1,796
Passenger Cars and Trucks Chrysler, Plymouth,
Jeep, Dodge................................... 56,340 4,212 51,942 3,368 45,208 4,321
Commercial Vehicles Mercedes-Benz, Freightliner,
Sterling, Setra............................... 23,162 946 20,012 342 16,439 (61)
Chrysler Financial Services..................... 2,877 652 2,407 586 1,960 471
Services........................................ 9,573 392 7,924 246 6,720 160
Aerospace....................................... 8,770 623 7,816 284 6,674 25
Other........................................... 3,426 (146) 3,896 (225) 4,098 (561)
Eliminations.................................... (4,953) (79) (3,979) (87) (3,537) 61
----------- ----- ----------- ----- ----------- ------
Total....................................... 131,782 8,593 117,572 6,230 101,415 6,212
----------- ----- ----------- ----- ----------- ------
----------- ----- ----------- ----- ----------- ------
</TABLE>
- - ------------------------
(1) For additional segment information see Note 30 to the Consolidated Financial
Statements.
56
<PAGE>
1998 Compared With 1997
DAIMLERCHRYSLER GROUP
Group revenues in 1998 increased 12% from [EURO] 117.6 billion to [EURO]
131.8 billion. The increase was primarily due to higher revenues in the three
vehicle segments. Passenger Cars Mercedes-Benz, smart and Passenger Cars and
Trucks Chrysler, Plymouth, Jeep, Dodge rose 18% and 8% to [EURO] 32.6 billion
and [EURO] 56.3 billion, respectively. Revenues of Commercial Vehicles
Mercedes-Benz, Freightliner, Sterling, Setra went up 16% to [EURO] 23.2 billion.
In 1998, cost of sales reached [EURO] 103.7 billion, an increase of 12%.
Cost of sales was higher in all segments and was commensurate with revenue
improvements achieved by the segments. Cost of sales as a percentage of revenues
was 79% in both 1998 and 1997.
Selling expenses were [EURO] 10.1 billion in 1998 compared to [EURO] 9.7
billion in 1997, a 5% rise. The increase was somewhat less than the percentage
change in Group revenues for 1998. General administrative expenses in 1998 rose
11% over 1997 to [EURO] 5.2 billion.
Research and development funded by the Group amounted to [EURO] 5.0 billion
in 1998 compared to [EURO] 4.4 billion in 1997. In addition, the Group undertook
research and development projects for third party customers funded by such
parties (mainly the German government and ESA) in the amount of [EURO] 1.7
billion in 1998 (1997: [EURO] 2.1 billion).
In 1998, the Group had a substantially enhanced operating profit of [EURO]
8.6 billion compared to [EURO] 6.2 billion in the previous year. The percentage
increase from 1997 to 1998 was 38%. The business segment contributions to the
Group operating profit are shown in the table on page 56. The increase in the
operating profit of the Group was primarily attributable to higher revenues in
all segments and the absence of certain negative effects on operating profit in
1997, including the 29-day strike at a Chrysler plant and higher warranty costs
at Chrysler related to several voluntary customer service actions and recalls.
Overall profitability benefited substantially from volume increases in the three
vehicle segments, particularly in Europe and the NAFTA region. All three
segments in the vehicle business benefited from the recent renewal and expansion
of model ranges and cost-reduction programs. Operating profit in 1998 also
reflected a [EURO] 229 million expense relating to DaimlerChrysler Aerospace
Airbus' obligations to the Federal Republic of Germany. This was the 1998
expense portion of DaimlerChrysler Aerospace Airbus' [EURO] 895 million payment
to the Federal Republic of Germany in complete discharge of all remaining
obligations relating to the acquisition of DaimlerChrysler Aerospace Airbus in
1989. In 1997, DaimlerChrysler Aerospace Airbus paid the Federal Republic of
Germany [EURO] 716 million in complete discharge of its obligations relating to
the Airbus A320 program. Of this amount, [EURO] 369 million was expensed in
1997. 1998 operating profit was also affected by a substantial loss arising from
operations and charges taken at the Rail Systems unit included in the Other
segment.
Group net income before nonrecurring items (principally merger costs and tax
benefits) increased from [EURO] 4.1 billion in 1997 to [EURO] 5.2 billion in
1998. Net income including the effects of non-recurring items ([EURO] 0.4
billion of after-tax merger costs in 1998 and [EURO] 2.5 billion of special
non-recurring German tax benefits in 1997) was [EURO] 4.8 billion in 1998 and
[EURO] 6.5 billion in 1997. As indicated, the extremely favorable year-over-year
comparison resulting from improvements in operating profit was obscured somewhat
by the effect of the merger expenses in 1998 and the transition from a year --
1997 -- in which there were enormous reported tax benefits resulting from the
special distribution and from the reversal of valuation allowances on deferred
tax assets, to a year -- 1998 -- in which the Group is reporting income tax
expense more reflective of German and United States statutory income tax rates.
Net income benefited from [EURO] 0.8 billion of financial income in 1998 (1997:
0.6 billion). Financial income consists mainly of interest income, results of
unconsolidated subsidiaries and other affiliates and gains and losses on
securities and foreign exchange contracts. Excluding the effect of merger costs,
basic and diluted earnings per ordinary share in 1998 were [EURO] 5.58 and
[EURO] 5.45, respectively. Basic and diluted earnings per ordinary share before
extraordinary item as reported in 1998 were [EURO] 5.16 and [EURO] 5.04.
57
<PAGE>
PASSENGER CARS MERCEDES-BENZ, SMART
Revenues of the Passenger Cars Mercedes-Benz, smart division rose 18% to
[EURO] 32.6 billion, resulting mainly from the very strong performance of the
M-Class, the A-Class and the C-Class in the division's largest markets. Total
unit sales rose 29% from 715,100 cars in 1997 to an all-time high of 922,800 in
1998. At [EURO] 12.7 billion, revenues in Germany were 14% higher than in 1997.
Germany remains the most important market for the Passenger Cars Mercedes-Benz,
smart division with unit sales of 355,200 in 1998 representing 38% of worldwide
passenger car unit sales (1997: 39%).
In the other European Union member states, revenues of the Passenger Cars
Mercedes-Benz, smart division were 28% higher reaching [EURO] 7.5 billion, while
unit sales jumped 42% to 255,000 units. These increases were primarily due to
significantly higher demand for passenger cars in all major markets. In the
United States, revenues increased sharply by [EURO] 1.9 billion or 39% to [EURO]
6.7 billion, while unit sales were accelerating 40% to 172,300 units, setting a
record for the second consecutive year for the highest sales volume ever
achieved by the Group in this market. Despite difficult market conditions,
revenues in Japan were only 3% lower at [EURO] 1.6 billion, with unit sales up
slightly (+2%) at 40,200. In Asia (excluding Japan) revenues fell 28% to [EURO]
1.1 billion reflecting a similar magnitude of unit sales decline to 26,300
units.
In 1998, the Passenger Cars Mercedes-Benz, smart division had an operating
profit of [EURO] 2.0 billion (1997: [EURO] 1.7 billion). The principal reason
for this increase was the record level of unit sales for the entire division
with a minor assist from positive currency fluctuations. These beneficial
effects were partially offset by increases in expenses largely related to the
changeover to the new S-Class and the market introduction of the smart.
PASSENGER CARS AND TRUCKS CHRYSLER, PLYMOUTH, JEEP-REGISTERED TRADEMARK-,
DODGE
The Passenger Cars and Trucks Chrysler, Plymouth, Jeep, Dodge division
reported revenues of [EURO] 56.3 billion compared with [EURO] 51.9 billion for
1997. The increase in revenues primarily reflects an increase in unit sales.
Average revenue per unit in 1998 was comparable to 1997, with improvements in
product mix and pricing offset by increased sales incentives.
Worldwide unit sales in 1998 were 3.1 million units, an increase of 206,700
units or 7% compared with 1997. Worldwide unit sales increased as a result of
the strong performance of the Dodge Durango, the Dodge Ram pickup trucks and the
division's full-size sedans, partially offset by lower shipments of Jeep Grand
Cherokees. The increase in sales of full-size sedans was primarily due to the
introduction of the all-new Chrysler and Dodge full-size sedans in the third
quarter of 1997. Lower unit sales of Jeep Grand Cherokees resulted from a model
changeover to the all-new Jeep Grand Cherokee beginning in the second quarter of
1998 and substantially completed in the third quarter. Unit sales outside of the
NAFTA region dropped to 188,200 in 1998, a decline of 49,200 units or 21%. The
reduction in unit sales outside the NAFTA region was primarily caused by
economic difficulties in Asian and Latin American markets.
The division's operating profit improved by 25%, climbing to [EURO] 4.2
billion in 1998 versus [EURO] 3.4 billion in 1997. This improvement resulted
from higher unit sales and lower warranty costs, partially offset by increases
in sales incentives and higher depreciation and amortization. The reduction in
warranty costs was primarily related to several voluntary customer service
actions and recalls that occurred in 1997. The higher sales incentives were
required in 1998 to respond to an even more intensely competitive U.S.
automotive environment. Operating profit for 1997 reflected the 29-day strike
which reduced profits by an estimated [EURO] 0.5 billion after considering
partial recovery of production losses from the strike.
Revenues and operating profit of the Passenger Cars and Trucks Chrysler,
Plymouth, Jeep, Dodge segment derive principally from the U.S. and Canada
automotive marketplaces. Retail industry sales (including fleet sales) of new
cars and trucks in the U.S. and Canada were 17.4 million units in 1998, compared
with 16.9 million units in 1997, an increase of 3%.
58
<PAGE>
The U.S. and combined U.S. and Canada retail sales and market share data for
the Passenger Cars and Trucks Chrysler, Plymouth, Jeep, Dodge division in 1998
and 1997 are set forth below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
<S> <C> <C> <C>
1998 1997 Increase
----------- ----------- ---------
U.S. Retail Market(1)
Car sales.................................................................... 739,217 736,530 2,687
Car market share............................................................. 9.1% 8.9% 0.2%
Truck sales (including minivans)............................................. 1,770,794 1,567,258 203,536
Truck market share........................................................... 22.6% 21.7% 0.9%
Combined car and truck sales................................................. 2,510,011 2,303,788 206,223
Combined car and truck market share.......................................... 15.7% 14.9% 0.8%
U.S. and Canada Retail Market(1)
Combined car and truck sales................................................. 2,779,207 2,559,950 219,257
Combined car and truck market share.......................................... 16.0% 15.1% 0.9%
</TABLE>
- - ------------------------
(1) All retail sales and market share data include fleet sales.
--------------------------
The increase in the 1998 U.S. car market share was primarily the result of
higher retail sales of Chrysler and Dodge full-size sedans. The increase in the
1998 U.S. truck market share was primarily the result of increased retail sales
of Dodge Durangos and Dodge Ram pickup trucks, partially offset by lower sales
of the Jeep Grand Cherokee resulting from a model changeover to the all-new Jeep
Grand Cherokee.
COMMERCIAL VEHICLES MERCEDES-BENZ, FREIGHTLINER, STERLING, SETRA
Revenues of the Commercial Vehicles Mercedes-Benz, Freightliner, Sterling,
Setra division rose 16% to [EURO] 23.2 billion and unit sales grew 17% to
489,700 vehicles in 1998. Strong demand for vans and trucks, particularly in
Europe and the NAFTA region, was largely responsible for this favorable
development. Revenues in Germany were 12% higher at [EURO] 6.4 billion, while
unit sales increased 11% in 1998 to 107,500 vehicles. In the rest of the
European Union market revenues were up 15% reaching [EURO] 5.1 billion while
unit sales rose 12% to 139,600 units in 1998. In the European Union (including
Germany) the division maintained market leadership in the category of vans
between 2t and 6t GVW with a market share of 19% (1997: 18%). In the category of
trucks over 6t GVW the Commercial Vehicles Mercedes-Benz, Freightliner,
Sterling, Setra division maintained its position as the market leader in Germany
with a market share of 47% compared to 48% in the previous year. The division's
market share for trucks above 6t GVW in the European Union (excluding Germany)
remained unchanged at 15%.
Revenues of the Commercial Vehicles Mercedes-Benz, Freightliner, Sterling,
Setra division outside of the European Union improved 18% to [EURO] 11.7 billion
in 1998 while unit sales rose by 24% to 242,600 units. The growth in revenues
came primarily from the United States, Canadian, Mexican and Argentinian
markets. In the United States revenues were 48% higher than in 1997, and unit
sales were up 49% to 107,800 units. This significant improvement reflected
continued strong demand for Freightliner's high-end Century Class and its
successful ramp-up of production and distribution of the new Sterling brand in
the United States.
In 1998, the Commercial Vehicles Mercedes-Benz, Freightliner, Sterling,
Setra division contributed an operating profit of [EURO] 946 million (1997:
[EURO] 342 million). This was a major improvement over 1997 and a significant
turnaround in operating performance following the loss experienced in 1996. In
the short term this recovery was primarily due to higher sales of vans and
trucks in Western Europe and the United States, a model mix improvement and
favorable currency exchange rates. Over the longer term it resulted from the
division's model renewal efforts and expansion programs and its cost reduction
efforts.
59
<PAGE>
CHRYSLER FINANCIAL SERVICES
Chrysler Financial Services reported revenues and operating profit of [EURO]
2.9 billion and [EURO] 652 million, respectively, in 1998 as compared with
[EURO] 2.4 billion and [EURO] 586 million, respectively, in 1997. The
improvements in 1998 primarily reflect growth in gains and servicing fees from
sales of receivables, larger numbers of vehicles leased, and lower credit loss
provisions.
Chrysler Financial Services' automotive volume totaled [EURO] 80.1 billion
in 1998 compared with [EURO] 73.7 billion in 1997. The 1998 increase in
automotive volume compared with 1997 reflects higher retail and lease
penetration due to the full-year impact of marketing programs to customers and
dealers initiated during 1997. Financing support provided in the United States
by Chrysler Financial Services for new vehicle retail deliveries (including
fleet sales) and wholesale vehicle sales to dealers and the number of vehicles
financed were as follows:
<TABLE>
<CAPTION>
Year Ended December
31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
U.S. Penetration
Retail............................................................................. 29% 27%
Wholesale.......................................................................... 70% 70%
Number of New DaimlerChrysler Corporation Vehicles Financed in the U.S. (in thousands):
Retail............................................................................. 718 611
Wholesale.......................................................................... 1,777 1,625
</TABLE>
SERVICES
In 1998, debis had revenues of [EURO] 9.6 billion, a 21% improvement over
1997 ([EURO] 7.9 billion). This increase was primarily generated by the
Financial Services business, mainly in the United States and Germany. It also
received substantial support from IT Services and Telecom Services. Revenues of
Financial Services went up 15% to [EURO] 5.8 billion, contributing 61% of debis'
total revenues in 1998 (1997: 64%). Overall, Financial Services processed
approximately 435,000 new leasing and finance contracts in 1998 (1997: 345,000)
with a total value of [EURO] 14.8 billion, an increase of 24% in new contract
value compared to 1997. IT Services increased revenues by 40% to [EURO] 2.2
billion. Its revenues from goods and services provided to customers outside the
Group accounted for 69% of total revenues in 1998 (1997: 64%).
In 1998, debis' revenues generated in Germany were [EURO] 4.6 billion (1997:
[EURO] 4.0 billion), or 48% of total revenues (1997: 51%). The NAFTA region
contributed [EURO] 2.8 billion in 1998 (29% of total revenues), while [EURO] 1.6
billion or 17% of total revenues originated in the European Union (excluding
Germany).
Services enjoyed a [EURO] 392 million operating profit in 1998, a 59% jump
from 1997 ([EURO] 246 million). The primary sources of this significant increase
were Financial Services and IT Services. Both business units benefited from a
major expansion in business volume, especially Financial Services in the United
States.
AEROSPACE
Aerospace revenues rose 12% to [EURO] 8.8 billion in 1998 compared to [EURO]
7.8 billion in 1997. Approximately half of the increase resulted from higher
DaimlerChrysler Aerospace Airbus shipments for Airbus and another [EURO] 200
million of the increase came with the acquisition of the German defense
electronics activities of Siemens AG.
Commercial Aircraft/Helicopters was again the largest contributor to 1998
Aerospace revenues, with a share of 40% (1997: 38%). The revenues of this
business unit climbed from [EURO] 3.0 billion in 1997 to [EURO] 3.5 billion in
1998 primarily as a result of healthy demand for Airbus aircraft. Aero Engines
revenues increased from [EURO] 1.5 billion in 1997 to [EURO] 1.7 billion in
1998, mainly because of significantly greater commercial aircraft and aircraft
engine purchasing and maintenance activities.
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<PAGE>
The German market contributed 30% ([EURO] 2.6 billion) of the Aerospace
division's total revenues in 1998 compared to a 28% contribution in 1997.
In 1998, incoming orders at the Aerospace segment rose 40% to [EURO] 13.9
billion (1997: [EURO] 9.9 billion). A very substantial portion of this
improvement resulted from orders received in connection with the
Eurofighter/Typhoon program. The jump was also fueled by a further rise of
incoming orders at Airbus Industrie, which reflected even further improved
market conditions for commercial aircraft over 1997 conditions which were
already quite strong. New orders for Airbus aircraft climbed to 556 in 1998,
compared to 460 aircraft in 1997. There were 27 order cancellations in 1998
(1997: 22) and Airbus Industrie delivered 229 aircraft during 1998 versus 182 in
1997. As a consequence, at December 31, 1998, the Airbus Industrie firm order
backlog(1) was 1,309 aircraft, 30% higher than at the end of 1997 (1,009
aircraft). Incoming orders in Aero Engines rose 88% to [EURO] 2.6 billion
compared to [EURO] 1.4 billion in 1997.
Research and development expenditures decreased 8% to [EURO] 2.0 billion in
1998 compared to [EURO] 2.2 billion in 1997. Of this amount, [EURO] 0.4 billion
was attributable to projects funded by the Group (1997: [EURO] 0.3 billion). In
1998, 82% of Aerospace's total research and development expenditures was
customer-funded (1997: 86%).
In 1998, the Aerospace division achieved an operating profit of [EURO] 623
million (1997: [EURO] 284 million). All business units of the Aerospace segment
were able to contribute to this considerable improvement, aided by expanded
business volume in almost all areas, further cost reductions and the continued
strength of the dollar in relation to the mark. The operating result in 1998 was
burdened by an expense of [EURO] 229 million relating to DaimlerChrysler
Aerospace Airbus obligations to the Federal Republic of Germany. This was the
1998 expense portion of DaimlerChrysler Aerospace Airbus' [EURO] 895 million
payment to the Federal Republic of Germany in complete discharge of all
remaining obligations relating to the acquisition of DaimlerChrysler Aerospace
Airbus in 1989. In 1997, DaimlerChrysler Aerospace Airbus paid the Federal
Republic of Germany [EURO] 716 million in complete discharge of its obligations
relating to the Airbus A320 program. Of this amount, [EURO] 369 million was
expensed in 1997.
OTHER
Revenues of the Other segment declined in 1998 to [EURO] 3.4 billion from
[EURO] 3.9 billion in the previous year. The decline was exclusively due to the
sale of the segment's semiconductor business in March 1998. This effect was
partially offset by an increase in Automotive Electronics revenues.
In 1998, the Other segment contributed an operating loss of [EURO] 146
million. This result was the product of a substantial negative contribution at
Rail Systems which was partially offset by the remaining operating activities of
the segment and the gain on the sale of the semiconductor business of TEMIC.
1997 Compared With 1996
The amounts discussed under this caption have been restated from prior
disclosures to give effect to the pooling-of-interests accounting for the
combination with Chrysler and to the change in the definition of "Operating
Profit" in accordance with Statement of Financial Accounting Standards No. 131.
See "Overview" and "Results of Operations -- Accounting Principles" above in
this Item 9.
DAIMLERCHRYSLER GROUP
Group revenues in 1997 increased 16% from [EURO] 101.4 billion to [EURO]
117.6 billion. The increase was due to higher revenues in the Passenger Cars
Mercedes-Benz, smart and Passenger Cars and Trucks Chrysler, Plymouth, Jeep,
Dodge segments which rose 16% and 15% to [EURO] 27.6 billion and [EURO] 51.9
billion, respectively. The increase in revenues of the Passenger Cars and Trucks
Chrysler, Plymouth, Jeep, Dodge segment was mainly the result of the
considerable appreciation of the dollar against the mark. Commercial Vehicles
Mercedes-Benz, Freightliner,
- - --------------------------
(1) Purchase options, announced orders for which definitive contracts have not
been executed and orders from customers which have filed for bankruptcy are
excluded from firm order backlog.
61
<PAGE>
Sterling, Setra revenues went up 22% from [EURO] 16.4 to [EURO] 20.0 billion. On
a comparable year-over-year basis, revenues of Chrysler Financial Services
increased 23% and revenues of the Services segment rose 18%. Revenues of the
Aerospace division improved by 17% in 1997, and revenues of the Other segment
decreased by 5%.
In 1997, cost of sales reached [EURO] 93.0 billion, up 18% from [EURO] 79.0
billion in 1996. Cost of sales was higher in all segments and was commensurate
with revenue improvements achieved by the segments. Cost of sales as a
percentage of revenues was 79% in 1997 compared to 78% in 1996. Selling expenses
were [EURO] 9.7 billion in 1997 compared to [EURO] 8.4 billion in 1996, a 15%
rise. General administrative expenses in 1997 rose 14% to [EURO] 4.7 billion
compared to [EURO] 4.1 billion in 1996.
Research and development funded by the Group amounted to [EURO] 4.4 billion
in 1997 compared to [EURO] 4.1 billion in 1996. In addition, the Group undertook
research and development projects for third party customers funded by such
parties (mainly the German government and ESA) in the amount of [EURO] 2.1
billion in 1997 (1996: [EURO] 1.7 billion).
In 1997 the Group had a slightly increased operating profit of [EURO] 6,230
million compared to [EURO] 6,212 million in the previous year. The business
segment contributions to the Group operating profit are shown in the table on
page 56. The increase in the operating profit of DaimlerChrysler was primarily
attributable to higher revenues in all segments, the significant depreciation of
the mark against the dollar and certain major European currencies and the
one-time effect of the sale of the recognition and sorting systems business.
Operating profit in 1997 was negatively affected by expenses related to
suspension of deliveries of A-Class passenger cars, a delay in introducing the
smart, and a charge in connection with the agreement between Daimler-Benz AG and
its works councils to reduce the automotive workforce at selected locations by
approximately 5,700 over the period 1998 through 2000. The 1997 operating profit
at the Passenger Cars and Trucks Chrysler, Plymouth, Jeep, Dodge division in
1997 decreased primarily as a result of an increase in average sales incentives
per vehicle, a decrease in unit sales due to model changeovers and the impact of
a 29-day strike, and an increase in warranty costs, partially offset by lower
profit-based employee compensation costs and translation effects resulting from
a significant depreciation of the mark against the dollar. The operating result
in 1997 was also affected by DaimlerChrysler Aerospace Airbus' payment to the
Federal Republic of Germany of [EURO] 716 million in complete discharge of its
obligations relating to the Airbus A320 program. Of this amount, [EURO] 369
million was expensed in 1997. In 1996, the operating result included one-time
income items and charges taken or expensed in connection with winding up the
remaining activities of the former corporate unit AEG Daimler-Benz Industrie and
additional structural measures taken in Aerospace, Microelectronics and Rail
Systems which resulted in a net reduction of operating profit of [EURO] 0.6
billion.
The Group had net income of [EURO] 6.5 billion in 1997, of which [EURO] 2.5
billion consisted of special non-recurring German tax benefits. These tax
benefits resulted from the special distribution of [EURO] 10.23 per Daimler-Benz
ordinary share/ADS and the reversal of remaining valuation allowances previously
established on deferred tax assets which resulted primarily from net operating
loss carryforwards of Daimler-Benz' German group companies that file a combined
tax return (ORGANSCHAFT). The special distribution tax benefit was [EURO] 1.5
billion and the valuation allowance reversal tax benefit was [EURO] 1.0 billion.
Basic and diluted earnings per ordinary share in 1997 were [EURO] 6.90 and
[EURO] 6.78, respectively. Excluding the effects of the tax benefit contribution
of [EURO] 2.5 billion in 1997, net income would have been [EURO] 4.1 billion and
basic and diluted earnings per ordinary share would have been [EURO] 4.28 and
[EURO] 4.21, respectively. As a result of DaimlerChrysler's recognition in 1997
of the majority of the income tax benefits previously not recognized, beginning
in 1998, the Group believes that it will incur income tax expense which will be
more reflective of German and United States statutory income tax rates.
Excluding the tax benefit contributions, net income was [EURO] 4.1 billion
in 1997 (1996: [EURO] 4.0 billion). Net income benefited from [EURO] 0.6 billion
of financial income in 1997 (1996: [EURO] 0.4 billion). Financial income, which
consists mainly of interest income, results of unconsolidated subsidiaries and
other affiliates and gains and losses on securities and foreign exchange
contracts, was positively affected by the disposition of the Group's 24% equity
interest in Cap Gemini and negatively affected by foreign exchange contracts.
Basic and diluted earnings per ordinary share before extraordinary item in 1996
were [EURO] 4.24 and [EURO] 4.20, respectively.
62
<PAGE>
PASSENGER CARS MERCEDES-BENZ, SMART
Revenues of the Passenger Cars Mercedes-Benz, smart division rose 16% to
[EURO] 27.6 billion, mainly as a result of higher sales of the C-Class and the
excellent performance of the new car models, primarily the SLK, the CLK and the
M-Class. The growth of revenues was also supported by the appreciation of the
dollar and the British Pound. Total unit sales in the division climbed 11% from
645,000 cars in 1996 to 715,100 in 1997. At [EURO] 11.1 billion, revenues in
Germany were 4% higher than in 1996. Unit sales in Germany increased 5% to
276,500. Germany remains the most important market for Mercedes-Benz passenger
cars with unit sales in 1997 representing 39% of worldwide passenger car unit
sales (1996: 41%).
In the other European Union member states, revenues of the Passenger Cars
Mercedes-Benz, smart division were 19% higher, reaching [EURO] 5.9 billion
versus [EURO] 5.0 billion in 1996, while unit sales rose 10% from 162,400 units
to 179,200 units. These increases were primarily due to significantly higher
demand for passenger cars in Italy and the United Kingdom. The relatively larger
growth in revenues resulted from the appreciation of those currencies against
the mark. In the United States, revenues improved by [EURO] 1.5 billion or 47%
to [EURO] 4.8 billion, while unit sales were accelerating 41% to 123,400 units,
the highest sales volume ever in this market. Despite difficult market
conditions, revenues in Japan were 10% higher at [EURO] 1.7 billion and unit
sales reached 39,400 cars (+6%). In Asia (excluding Japan) revenues increased 4%
to [EURO] 1.5 billion but unit sales fell 7% to 38,200 units.
In 1997, the Passenger Cars Mercedes-Benz, smart division had an operating
profit of [EURO] 1.7 billion (1996: [EURO] 1.8 billion). Most of the benefit of
the revenue increases was offset by start-up costs incurred in preparation for
the market introduction of new passenger car models, primarily the M-Class and
the new S-Class, expenses related to suspension of deliveries of the A-Class, a
delay in introducing the smart, and a charge in connection with the agreement
between Daimler-Benz AG and its works councils to reduce the workforce at
selected locations by approximately 5,700 over the period 1998 through 2000. The
agreement contemplates that the reductions will be effected in a manner which is
least disruptive to the workforce, and will be compensated by offering permanent
positions, primarily to current apprentices and to university graduates.
PASSENGER CARS AND TRUCKS CHRYSLER, PLYMOUTH, JEEP-REGISTERED TRADEMARK-,
DODGE
The Passenger Cars and Trucks Chrysler, Plymouth, Jeep, Dodge segment
reported revenues of [EURO] 51.9 billion in 1997 as compared with [EURO] 45.2
billion in 1996. This increase was solely caused by the effect of the
appreciation of the dollar against the mark. On a dollar basis, revenues
decreased slightly from $58.8 billion in 1996 to $58.6 billion in 1997,
primarily as a result of decreased unit sales, partially offset by an increase
in average revenue per unit, net of sales incentives. Worldwide unit sales in
1997 were 2,887,000 units, a decrease of 71,800 units or 2% compared with 1996
levels. The decrease in unit sales for 1997 was primarily due to the
introduction of Chrysler's all-new Dodge Intrepid and Chrysler Concorde sedans
and the unfavorable impact of a 29-day strike. The division's shipments outside
of the NAFTA region in 1997 were 237,400 units, an increase of 13,700 units or
6% compared with 1996 levels.
The Passenger Cars and Trucks Chrysler, Plymouth, Jeep, Dodge division
reported operating profits of [EURO] 3.4 billion in 1997 as compared with [EURO]
4.3 billion in 1996. Operating profit decreased in 1997, as compared with 1996,
primarily as a result of an increase in average sales incentives per vehicle, a
decrease in unit sales and an increase in warranty costs, partially offset by
the translation effects of the appreciation of the dollar against the mark and
by lower profit-based employee compensation costs. The increase in average sales
incentives per vehicle reflects an increasingly competitive automotive
environment in 1997 resulting primarily from new product offerings from
competitors and greater flexibility in vehicle pricing by Japanese manufacturers
who benefited from favorable currency exchange rate changes between the Japanese
Yen and the dollar. The decrease in shipments for 1997 was primarily due to the
introduction of the all-new Dodge Intrepid and Chrysler Concorde sedans and the
unfavorable impact of a 29-day strike. The 29-day strike reduced operating
profit by an estimated [EURO] 0.5 billion. The increase in warranty costs was
primarily related to customer service and recall actions, partially offset by
lower average warranty costs on 1997 and 1998 model-year vehicles.
63
<PAGE>
COMMERCIAL VEHICLES MERCEDES-BENZ, FREIGHTLINER, STERLING, SETRA
Revenues of the Commercial Vehicles Mercedes-Benz, Freightliner, Sterling,
Setra division rose 22% to [EURO] 20.0 billion and unit sales grew 20% to
417,400 vehicles in 1997. The increase in unit sales was primarily caused by
strong demand for vans and trucks. Revenues in Germany were 7% higher at [EURO]
5.7 billion, while unit sales increased 12% in 1997 to 96,600 vehicles. In the
remaining European Union market, revenues and unit sales were up 22% reaching
[EURO] 4.4 billion and 124,600 units, respectively, in 1997. In the European
Union (including Germany), the Commercial Vehicles Mercedes-Benz, Freightliner,
Sterling, Setra division has achieved market leadership in the category of vans
between 2t and 6t GVW with a market share of 18% (1996: 16%). In the category of
trucks over 6t GVW, the division was able to strengthen its position as the
market leader in Germany with a market share of 48% compared to 46% in the
previous year. This increase was primarily due to the successful introduction of
the new Actros line in the heavy-duty market segment. The division's market
share for trucks above 6t GVW in the European Union (excluding Germany) also
rose to 15%.
Revenues of the Commercial Vehicles Mercedes-Benz, Freightliner, Sterling,
Setra division outside of the European Union jumped 32% to [EURO] 9.9 billion in
1997 and unit sales increased 23% to 196,200 units. The substantial increase in
revenues was primarily attributable to the United States, Mexican, Brazilian and
Argentinian markets. In the United States revenues were 28% higher than in 1996,
while unit sales rose 4% to 72,400 units. The disparity between the rise in
revenues and unit sales was primarily due to a more favorable dollar exchange
rate and strong demand for Freightliner's high-end Century Class. The
improvements in the Latin American markets resulted from significantly improved
economic conditions and the introduction of new models in certain key markets.
In 1997, the Commercial Vehicles Mercedes-Benz, Freightliner, Sterling,
Setra division contributed an operating profit of [EURO] 342 million (1996: an
operating loss of [EURO] 61 million). The substantial increase in operating
profit resulted primarily from higher sales of vans and trucks in Western
Europe, the United States and certain Latin American markets, partially offset
by a charge in connection with the agreement between Daimler-Benz AG and its
works councils to reduce the workforce at selected locations by approximately
5,700 over the period 1998 through 2000. The agreement contemplates that the
reductions will be effected in a manner which is least disruptive to the
workforce, and will be compensated by offering permanent positions, primarily to
current apprentices and to university graduates.
CHRYSLER FINANCIAL SERVICES
Chrysler Financial Services reported revenues and operating profits of
[EURO] 2.4 billion and [EURO] 586 million, respectively, in 1997 as compared
with [EURO] 2.0 billion and [EURO] 471 million, respectively, in 1996. The
increase in revenues and operating profits in 1997 primarily reflects an
increase in gains and servicing fees from sales of receivables, higher levels of
vehicles leased, and lower operating expenses, partially offset by higher credit
loss provisions.
Chrysler Financial Services' automotive volume totaled [EURO] 73.7 billion
for 1997 compared with [EURO] 60.2 billion in 1996. The increase in automotive
volume in 1997 compared with 1996 reflects higher retail and lease penetration
due to new marketing programs to customers and dealers initiated during 1997.
SERVICES
In 1997 debis had revenues of [EURO] 7.9 billion, an 18% increase compared
to 1996 ([EURO] 6.7 billion). This increase was primarily the result of a
significant growth in business volume of Financial Services, IT Services and
Telecom Services. Excluding the effect of debis' sale in 1996 of its marketing
services activities, 1997 revenues represent a 22% improvement over comparable
1996 revenues.
Revenues of Financial Services went up 14% to [EURO] 5.1 billion,
representing 64% of debis' total revenues in 1997 (1996: 66%). Growth of the
Financial Services business was particularly strong in the United States and in
certain member states of the European Union due to favorable demand for
Mercedes-Benz passenger cars. Overall,
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<PAGE>
Financial Services processed approximately 345,000 new leasing and finance
contracts in 1997 (1996: 292,000) with a total value of [EURO] 11.9 billion, an
increase of 28% in new contract value compared to 1996.
IT Services increased revenues by 29% to [EURO] 1.5 billion. Revenues from
goods and services provided to customers outside the Group accounted for 64% of
total revenues in 1997 (1996: 58%).
In 1997, the Services segment generated [EURO] 4.0 billion (1996: [EURO] 3.7
billion), or 51% of total revenues in Germany (1996: 55%). The NAFTA region
accounted for [EURO] 2.3 billion in 1997 (30% of total revenues), while [EURO]
1.2 billion or 15% of total revenues originated in the European Union (excluding
Germany).
Services contributed [EURO] 246 million to DaimlerChrysler's operating
profit in 1997, a 54% jump from 1996 ([EURO] 160 million). The primary sources
of this significant increase were Financial Services and IT Services. Both
business units benefited from a considerable expansion in business volume and
higher margins. The financial services business was especially successful in the
United States.
AEROSPACE
Aerospace revenues rose 17% to [EURO] 7.8 billion in 1997 compared to [EURO]
6.7 billion in 1996. Excluding the effects of the disposition of the regional
aircraft business of Dornier in 1996 and certain other activities, comparable
revenues increased by 20% in 1997.
Commercial Aircraft/Helicopters was the largest contributor to 1997
Aerospace revenues, with a share of 38% (1996: 33%). The revenues of this
business unit climbed from [EURO] 2.2 billion in 1996 to [EURO] 3.0 billion in
1997 as a result of healthy demand, primarily for Airbus aircraft. Its revenues
were also positively affected by the substantial improvement in the dollar/mark
exchange rate in 1997. Aero Engines revenues increased from [EURO] 1.2 billion
in 1996 to [EURO] 1.5 billion in 1997, mainly as a result of significantly
higher commercial aircraft and aircraft engine purchasing and maintenance
activities.
The German market contributed 28% ([EURO] 2.2 billion) of the Aerospace
division's total revenues in 1997 compared to a 32% contribution in 1996.
In 1997 incoming orders at the Aerospace segment rose 14% to [EURO] 9.9
billion. Excluding the effect of business disposals, the increase was 16%.
Incoming orders at Commercial Aircraft/Helicopters forged ahead 38% to [EURO]
5.3 billion in 1997. This jump was fueled by a very substantial rise of incoming
orders at Airbus Industrie, which reflected the significantly improved market
conditions for commercial aircraft and the further improvement in the
dollar/mark exchange rate. New orders for Airbus aircraft climbed to 460 in
1997, compared to 326 aircraft in 1996. There were 22 order cancellations in
1997 (1996: 25) and Airbus Industrie delivered 182 aircraft during 1997 compared
to 126 in 1996. As a consequence, at December 31, 1997, the Airbus Industrie
firm order backlog(1) was 1,009 aircraft, 34% higher than at the end of 1996
(753 aircraft). Incoming orders at Aero Engines rose 27% to [EURO] 1.4 billion
compared to [EURO] 1.1 billion in 1996.
Research and development expenditures increased 19% to [EURO] 2.2 billion in
1997 compared to [EURO] 1.9 billion in 1996. Of this amount, [EURO] 0.3 billion
was attributable to projects funded by the Group (1996: [EURO] 0.4 billion). In
1997, 86% of this segment's total research and development expenditures was
customer-funded (1996: 81%).
In 1997, the Aerospace division achieved an operating profit of [EURO] 284
million (1996: [EURO] 25 million). All business units of the Aerospace segment
were able to contribute to this considerable improvement, aided by expanded
business volume in almost all areas, further cost reductions and a more
favorable dollar/mark exchange rate. The 1997 improvement was impeded by
DaimlerChrysler Aerospace Airbus' payment to the Federal Republic of Germany of
[EURO] 716 million in complete discharge of its obligations relating to the
Airbus A320 program. Of this amount, [EURO] 369 million was expensed in 1997.
- - --------------------------
(1) Purchase options, announced orders for which definitive contracts have not
been executed and orders from customers which have filed for bankruptcy are
excluded from firm order backlog.
65
<PAGE>
OTHER
Revenues of Other declined in 1997 to [EURO] 3.9 billion from [EURO] 4.1
billion in 1996. The 1996 revenues included [EURO] 0.6 billion from the
recognition and sorting systems business that was sold in early 1997 and [EURO]
0.2 billion of TEMIC Bayern-Chemie Airbag GmbH which was sold in 1996. Excluding
the effects of the disposition of these businesses, revenues increased 17%.
Total 1997 revenues consisted of Rail Systems -- [EURO] 1.6 billion (up 12% over
1996); Microelectronics -- [EURO] 1.4 billion (up 31% over 1996 on a comparable
basis); and MTU/Diesel Engines -- [EURO] 0.9 billion (up 6% over 1996). The
Group sold its semiconductor business in early 1998. The remaining automotive
electronics business contributed revenues of [EURO] 0.6 billion in 1997.
In 1997, Other contributed an operating loss of [EURO] 225 million. This
result was the product of a profitable year in Diesel Engines and a one-time
gain realized in connection with the sale in 1997 of the recognition and sorting
systems business, more than offset by a rather significant negative contribution
of Rail Systems.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This Standard requires companies to record derivatives
on the balance sheet as assets and liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. This Standard is effective for fiscal years beginning
after June 15, 1999. DaimlerChrysler plans to adopt this accounting
pronouncement on January 1, 2000.
LIQUIDITY AND CAPITAL RESOURCES
1998 Compared With 1997 and 1996
In 1998, 1997 and 1996, DaimlerChrysler utilized funds from operations and
borrowings to finance capital expenditures and the continuing expansion of its
financial services activities. The main reason for the borrowings was the
growing leasing and sales financing business which is typically financed with a
high proportion of debt.
Cash provided by operating activities increased to [EURO] 16.7 billion in
1998 from [EURO] 12.3 billion in 1997 (1996: [EURO] 10.0 billion). The increase
primarily resulted from the Group's further improved results in 1998.
Net cash used for investing activities in 1998 was [EURO] 23.4 billion as
compared to [EURO] 14.5 billion in 1997 (1996: [EURO] 8.7 billion). The Group
used substantial amounts of cash for its growing leasing and sales financing
activities, net of disposals and repayments, (1998: [EURO] 11.8 billion; 1997:
[EURO] 6.8 billion; 1996: [EURO] 3.8 billion), the purchase of fixed assets,
principally property, plant and equipment (1998: [EURO] 8.2 billion; 1997:
[EURO] 8.1 billion; 1996: [EURO] 6.7 billion), the purchase of securities, net
of sales, (1998: [EURO] 1.9 billion; 1997: [EURO] 1.4 billion; 1996: [EURO]
(0.6) billion) and acquisitions of businesses (1998: [EURO] 0.9 billion; 1997:
[EURO] 0.6 billion; 1996: [EURO] 0.2 billion).
During 1998 the Group spent an aggregate of [EURO] 0.9 billion to complete a
number of smaller acquisitions, including Thomas Built Buses, Siemens
Sicherungstechnik, AMG Motorenbau und Entwicklungs GmbH and the Micro Compact
Car AG minority interest. In 1997 the Group purchased the outstanding 19.6%
minority equity interest in debis Systemhaus, a minority equity interest in
Ballard Power Systems Inc. and made several smaller acquisitions, for which
[EURO] 0.6 billion was expended in the aggregate. The Group paid [EURO] 0.1
billion for the outstanding minority of AEG Aktiengesellschaft in 1996.
Offsetting such expenditures, cash provided by investing activities mainly
included the proceeds from the disposal of fixed assets, other than leased
equipment (1998: [EURO] 0.5 billion, 1997: [EURO] 0.6 billion; 1996: [EURO] 0.7
billion). In 1998 the Group received proceeds of [EURO] 0.7 billion from the
sale of its semiconductor business, two real estate projects companies and other
smaller businesses. In 1997, [EURO] 1.3 billion of cash was received for the
disposal of businesses, principally the Group's 24.4% interest in Cap Gemini
Sogeti S. A. ([EURO] 0.7 billion) and its recognition and sorting systems
business ([EURO] 0.4 billion), and in 1996 [EURO] 1.1 billion was generated
mainly through disposition of companies included within the former AEG
Daimler-Benz Industrie.
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<PAGE>
The Group's financial liabilities, including commercial paper borrowings,
increased by [EURO] 7.9 billion in 1998 (1997: [EURO] 6.3 billion). As of
December 31, 1998, total Group debt was 29.7% of total stockholders' equity and
liabilities compared to 27.5% in 1997. At December 31, 1998, the Group had
financial liabilities due within one year of [EURO] 20.5 billion compared to
[EURO] 17.3 billion in 1997.
Cash as defined in the balance sheet consists of deposits in financial
institutions, cash on hand, deposits at the German Central Bank and deposits in
post office accounts. The Group's cash at December 31, 1998 and 1997 amounted to
[EURO] 6.6 billion and [EURO] 6.8 billion, respectively (1996: [EURO] 5.6
billion), of which amounts [EURO] 6.3 billion and [EURO] 6.6 billion (1996:
[EURO] 4.9 billion), respectively, had a maturity of three months or less. Cash
differs from the liquidity of the Group, which was [EURO] 19.1 billion in 1998
compared to [EURO] 17.3 billion in 1997 (1996: [EURO] 12.9 billion). See Note 18
to the Consolidated Financial Statements. Liquidity as a percentage of total
assets was 14.0% at December 31, 1998 compared to 13.9% at the end of 1997.
In 1998 total interest paid on behalf of the Group was [EURO] 2.6 billion
compared to [EURO] 2.0 billion in 1997 and [EURO] 1.8 billion in 1996. A very
substantial part of the interest paid was attributable to the Group's financial
services activities.
Expenditures for fixed assets in 1998, primarily for new products,
modernization of plant and equipment and, to a lesser extent, acquisition of
financial assets (but excluding leased equipment), increased to [EURO] 8.5
billion (1997: [EURO] 8.3 billion; 1996: [EURO] 6.9 billion). The following
table sets forth the Group's aggregate capital expenditures for property, plant
and equipment by business segment for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
<CAPTION>
([EURO] in millions)
<S> <C> <C> <C>
Passenger Cars Mercedes-Benz, smart................................. 1,995 1,885 1,479
Passenger Cars and Trucks Chrysler, Plymouth, Jeep, Dodge........... 3,920 4,501 3,545
Commercial Vehicles Mercedes-Benz, Freightliner, Sterling, Setra.... 832 601 797
Chrysler Financial Services......................................... -- -- --
Services............................................................ 285 193 120
Aerospace........................................................... 326 255 311
Other/Eliminations.................................................. 797 616 469
--------- --------- ---------
Total............................................................... 8,155 8,051 6,721
--------- --------- ---------
--------- --------- ---------
</TABLE>
Subject to developments affecting the Group which cannot be predicted or
controlled, management currently intends to maintain Group spending levels
generally in the range of the past three years and believes that funding for
such capital expenditures will be generated principally out of cash flow from
operations. The Group also continues to implement various techniques such as
securitization of financing and lease receivables to finance the growing leasing
and sales financing business. DaimlerChrysler is not currently subject to any
commitment for capital expenditures which individually is material to the Group
except as described below. Management believes that it has substantial
flexibility to accelerate or decelerate the pace of planned capital spending
programs as appropriate to address shorter term business conditions.
Expenditures for leased equipment in 1998 increased to [EURO] 8.3 billion
from [EURO] 5.9 billion in 1997 (1996: [EURO] 4.0 billion). As in 1997 and 1996,
the increase in expenditures for leased equipment in 1998 was due to the growth
of the leasing and sales financing business which, as a result, continues to
require additional capital. Receivables sales are a significant source of
funding for the Group, principally in the United States. Net proceeds from the
sales of automotive retail receivables were [EURO] 41.0 billion in 1998 compared
to [EURO] 44.3 billion in 1997 (1996: [EURO] 39.5 billion). The Group will
continue to review a variety of alternatives to provide funding for financial
services activities, including additional securitization transactions and sales
of pools of retail car loans and leases.
67
<PAGE>
In 1998 the Group had inventories (net of advanced payments received) of
[EURO] 11.8 billion, up from [EURO] 10.9 billion in 1997. In 1998 and 1997,
approximately 20% of the Group's inventories was financed through advance
payments received from customers, largely at Aerospace and Adtranz.
Group receivables, consisting of receivables from sales of goods and
services and other receivables, decreased slightly to [EURO] 18.4 billion in
1998 from [EURO] 18.6 billion in 1997. In 1997, receivables included a [EURO]
1.5 billion tax refund resulting from the special distribution of approximately
[EURO] 10 per ordinary share of Daimler-Benz AG which was not duplicated in
1998. Financing receivables, consisting of retail installment sales contracts
and finance leases secured by automobiles and commercial vehicles increased from
[EURO] 21.7 billion in 1997 to [EURO] 26.5 billion in 1998. As of December 31,
1998, these receivables were geographically dispersed primarily in the NAFTA
region ([EURO] 17.6 billion), in Germany ([EURO] 4.2 billion) and in the
European Union (excluding Germany) ([EURO] 2.6 billion).
The Group's total liabilities in 1998 were [EURO] 62.5 billion compared to
[EURO] 54.3 billion in 1997. The increase was primarily due to increased
financial liabilities resulting from the cash requirements of the leasing and
sales financing business and the change in exchange rates, especially the
dollar/mark rate. Group financial liabilities were [EURO] 40.4 billion in 1998
compared to [EURO] 34.4 billion in 1997. Financial liabilities of the financial
services entities in the Group on a stand-alone basis were [EURO] 36.8 billion
in 1998 and [EURO] 31.4 billion in 1997, which amounts included financial
liabilities to other members of the Group. These intercompany amounts are
eliminated upon consolidation into the Group financial statements. Financial
liabilities of the Group and the financial services entities closely
corresponded to the assets they finance (equipment on operating leases and
receivables from financial services) which aggregated [EURO] 41.1 billion and
[EURO] 32.8 billion, respectively, in 1998 and 1997. Accrued liabilities
decreased slightly to [EURO] 34.6 billion in 1998 (1997: [EURO] 35.8 billion).
Accrued liabilities at the end of 1998 included [EURO] 0.6 billion intended to
cover the costs associated with the Group's restructuring program. The 1997
total included [EURO] 0.7 billion for this purpose.
At year end 1998 and 1997, the Group had committed and uncommitted credit
lines (short- and long-term) available of [EURO] 27.6 billion and [EURO] 19.7
billion, respectively, of which [EURO] 8.7 billion and [EURO] 7.4 billion,
respectively, were utilized as of such dates. In 1998, the weighted average
interest rate payable under DaimlerChrysler's lines of credit was 5.6%.
The Group has a DM 2.0 billion commercial paper program in Germany, a $1.0
billion commercial paper program in Canada and, through DaimlerChrysler North
America Holding Corporation, a $7.5 billion commercial paper program in the
United States. Chrysler Financial Company L.L.C. has commercial paper programs
in the United States and Canada which do not have a preset limit. In addition,
the Group has commercial paper programs in Australia, Belgium, the Netherlands
and Portugal totaling AUD 0.5 billion, BEF 5.0 billion, NLG 0.1 billion and PTE
6.0 billion, respectively. As of December 31, 1998, [EURO] 11.0 billion was
outstanding under these programs, compared to [EURO] 9.0 billion as of December
31, 1997. The Group also has various short-term borrowing facilities in a number
of countries. The DM commercial paper of DaimlerChrysler AG is rated "A-1" by
Standard & Poor's Ratings Group, and the commercial paper of DaimlerChrysler
North America Holding Corporation is rated "Prime-1" by Moody's Investors
Service and "A-1" by Standard & Poors Ratings Group.
On June 15, 1998, Daimler-Benz AG paid a special distribution to holders of
its ordinary shares and ADSs which amounted to approximately [EURO] 5.3 billion
in the aggregate. The source of the funds for the special distribution was
Daimler-Benz' retained earnings, including [EURO] 1.5 billion attributable to a
German tax refund resulting from a 20% differential in the tax rates to which
Daimler-Benz was entitled by reason of the special distribution. On June 8,
1998, Daimler-Benz issued to holders of its ordinary shares, its ADSs and its
5 3/4% Subordinated Mandatory Convertible Notes due June 14, 2002, rights to
acquire up to an aggregate of 52,379,675 newly issued Daimler-Benz ordinary
shares. Daimler-Benz raised approximately [EURO] 3.8 billion, net of expenses,
from the rights offering. The purpose of the rights offering was to raise the
funds necessary to restore to the Group's paid-in capital the amount of the
reduction in the retained earnings created by the special distribution. The
special distribution amount per Daimler-Benz ordinary share was [EURO] 10.23
([EURO] 10.04 after adjustment to reflect
68
<PAGE>
the approximately 20% discount to market value at which the Daimler-Benz
ordinary shares were sold in the rights offering). See also the discussion under
the heading "Dividends" in "Item 8. Selected Financial Data."
Item 9A. Quantitative and Qualitative Disclosures About Market Risk.
The DaimlerChrysler Group is exposed to market risks from changes in
interest rates and foreign currency exchange rates which may adversely affect
its results of operations and financial condition. The Group seeks to minimize
these risks through its regular operating and financing activities and, when
deemed appropriate, through the use of derivative financial instruments. Any
exposures of the Group to equity price risks are not material. The Group does
not use financial instruments for trading or other speculative purposes.
Beginning January 1, 1999 DaimlerChrysler has adopted the euro as its
corporate currency. The Consolidated Financial Statements have been prepared
using marks and have been translated into euros for each period presented using
the Official Fixed Conversion Rate. DaimlerChrysler's consolidated financial
statements for 1999 and subsequent years will be presented in euros.
Exchange Rate Exposure
TRANSACTION RISK AND CURRENCY RISK MANAGEMENT
As a consequence of the global nature of DaimlerChrysler's businesses, its
operations and its reported financial results and cash flows are exposed to the
risks associated with fluctuations in the exchange rates between the euro, the
dollar and other major world currencies. The Group's businesses are exposed to
transaction risk whenever revenues are denominated in a currency other than the
currency in which the costs relating to those revenues are incurred. This risk
exposure primarily affects the Passenger Cars Mercedes-Benz, smart division and
the Aerospace segment. In the Passenger Cars Mercedes-Benz, smart division,
revenues are denominated in the currencies of the countries in which cars are
sold but manufacturing costs are denominated primarily in euros. Similarly,
Aerospace revenues resulting from the sale of aircraft and other aerospace
related products are principally denominated in dollars due to the requirements
of the marketplace but the products are manufactured almost exclusively in
Germany. An additional risk element associated with the operations of the
Aerospace division is that the sale contracts for its products, especially
aircraft, are generally made well in advance of the production and delivery of
the products. The Commercial Vehicles Mercedes-Benz, Freightliner, Sterling,
Setra division is also subject to transaction risk, although -- because of its
global production network -- to a lesser degree. Since the Passenger Cars and
Trucks Chrysler, Plymouth, Jeep, Dodge segment generates the vast majority of
its revenues and costs in dollars, the transaction risk of this segment is
relatively low.
Cash inflows and outflows of a division are netted if they are denominated
in the same currency. Therefore, only the unmatched amounts are subject to
transaction risk. In order to provide a natural hedge against the remaining
transaction risk exposure, DaimlerChrysler attempts to increase cash outflows in
the same currencies in which it has a net excess inflow, where possible and
appropriate. This is mainly achieved through increased procurement in foreign
currencies and by increasing production in those countries which are primary
markets for the Group's products. DaimlerChrysler also expects to benefit from
additional natural hedging potential created by the business combination of
Chrysler and Daimler-Benz. For example, dollar exposure of the Passenger Cars
Mercedes-Benz, smart and Aerospace divisions may find further offsets in the
euro exposure of the Passenger Cars and Trucks Chrysler, Plymouth, Jeep, Dodge
division.
In order to mitigate further the impact of currency exchange rate
fluctuations, DaimlerChrysler continually assesses its remaining exposure to
currency risks and hedges a portion of those risks through the use of derivative
financial instruments. Responsibility for managing the Group's currency
exposures and use of currency derivatives is centralized within the Group's
Currency Committee. The Currency Committee, which consists of two separate
sub-groups, one for the Group's vehicle businesses and one for Aerospace, is
comprised of senior managers from each of the respective businesses as well as
from the Finance Department of DaimlerChrysler AG. Decisions concerning foreign
currency hedging taken by the Currency Committee are implemented by the
Corporate Treasury Department. DaimlerChrysler's Board of Management is
regularly informed of the decisions of the Currency Committee as well as the
actions of Corporate Treasury. Corporate Treasury is responsible for assessing,
consolidating and managing foreign currency exposures through transactions with
international
69
<PAGE>
financial institutions. In addition to the currency exposure inherent in the
Group's operational business, exchange rate fluctuations can also affect the
conversion into euros of profits of subsidiaries located outside the European
Union member states which adopted the euro as their common currency.
The principal derivative financial instruments used by the Group to cover
foreign currency exposures are forward foreign exchange contracts and currency
options. The maturity dates of forward contracts are established according to
the anticipated cash flows of the Group. The policy of the Group is to use a
mixture of each instrument depending upon the Group's view of market conditions
which is based on fundamental and technical analyses. At December 31, 1998 and
1997 the Group had entered into forward foreign exchange contracts and currency
options with a nominal value of [EURO] 28.2 billion and [EURO] 22.9 billion,
respectively. The currencies in which the Group's derivative financial
instruments are denominated are in parallel with the currencies in which it is
subject to transaction risk. See Note 29 to the Consolidated Financial
Statements.
In 1997, the Group changed its policy for hedging transactions and began
designating certain derivative financial instruments as hedges of foreign
currency denominated assets, liabilities and firm commitments. To the extent a
derivative financial instrument is designated as hedging a committed foreign
currency transaction, unrealized gains and losses are deferred and recognized
concurrently with the effect of the underlying business transaction. To the
extent applicable accounting requirements do not permit hedge accounting, the
Group marks the derivative financial instruments to market which results in
unrealized gains and losses on financial instruments being recognized at each
reporting date. See Note 29 to the Consolidated Financial Statements for further
information with respect to the Group's foreign currency and financial
instruments accounting policies.
During 1998 the Group's aggregate direct transaction risk was approximately
[EURO] 15.9 billion which consisted primarily of dollars ([EURO] 5.8 billion),
British Pounds ([EURO] 2.4 billion) and Japanese Yen ([EURO] 1.0 billion). In
1999 and future years the Group will no longer be exposed to transaction risk in
the currencies of those member states of the European Union that adopted the
euro as their common currency. The 1998 transaction risk arising from these
currencies was [EURO] 4.4 billion. As a result of significantly higher revenues
in 1998 the Group's net transaction risk increased in 1998 by 18% compared to
1997. Although DaimlerChrysler was able to benefit to some degree from the
approximately 2% increase of the average exchange rates of the dollar and the
British Pound, the smoothing effect of hedging activities undertaken in prior
years diluted these benefits to some extent. The average exchange rate of the
Japanese Yen decreased by approximately 6%. The negative effect of this
development on the Group's results was more than offset by hedging activities
undertaken in prior years, as the Group's hedging rate exceeded the average
exchange rate by a large margin.
The effective exchange rates for the major world currencies achieved for the
Group through hedging transactions in contrast to the pure unhedged market
average rates for these currencies in 1998 and 1997, respectively, were as
follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------- ---------------------------------------
% Market % % Market
Currency Effective(1) Change(2) Average(3) Change(2) Effective(1) Change(2) Average(3)
- - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DM per currency unit)
U.S. Dollar........................... 1.68 2.4 1.76 1.7 1.64 7.7 1.73
British Pound......................... 2.73 11.0 2.91 2.5 2.46 8.8 2.84
Japanese Yen (JPY 100)................ 1.70 6.3 1.35 (6.3) 1.60 0.6 1.44
French Franc (FF 100)................. 29.96 2.2 29.83 0.4 29.32 1.6 29.71
Italian Lira (ITL 1,000).............. 0.99 2.1 1.01 (1.0) 0.97 5.4 1.02
<CAPTION>
%
Currency Change(2)
- - -------------------------------------- -----------
<S> <C>
U.S. Dollar........................... 15.3
British Pound......................... 20.9
Japanese Yen (JPY 100)................ 4.3
French Franc (FF 100)................. 1.0
Italian Lira (ITL 1,000).............. 4.1
</TABLE>
- - ------------------------
(1) The effective rates shown represent the average of all hedging transactions
for each specific currency which matured during the year shown including all
hedging effects such as swap prices and the net premium revenue and expense
resulting from option transactions.
(2) The percentage change shown is in comparison to the figure shown in the
comparable column in the prior year, except that percentage changes for 1997
are as compared to the 1996 figures which are not shown.
(3) The rates for the foreign currencies shown are calculated based on the
official rates fixed at the Frankfurt Currency Exchange (FRANKFURTER
DEVISENBOERSE).
70
<PAGE>
EXCHANGE RATE SENSITIVITY
Because the Group enters into foreign exchange transactions for a
significant portion of its contracted and forecasted foreign exchange exposures,
a significant increase or decrease in the exchange rate of the euro relative to
other major world currencies should not, in the short term, materially affect
the Group's cash flows. Over time, however, to the extent that such exchange
rate movements are unable to be reflected in the pricing of the Group's products
in local currency they could materially affect the Group's cash flows. In
general, appreciation of the euro in relation to another currency has an adverse
effect on the Group's reported revenues and results, and depreciation of the
euro has a positive effect. The tables below provide information about the
effect on the Group's pre-tax cash flow of a 10% appreciation of the euro
against foreign currencies. The figures shown in the tables were calculated as
of December 31, 1998.
<TABLE>
<CAPTION>
Japanese
Canadian British Yen
1999 U.S. Dollar Dollars Pound (JPY 100) Others(1)
- - ------------------------------------------------------------ ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
([EURO] equivalent in billions)
ESTIMATES OF:
Gross Amount of Foreign Currency Exposure................... 11.5 5.5 3.1 1.8 2.1
Gross Amount of Foreign Currency Netting.................... (4.3) (5.7) (0.2) (0.6) (0.4)
Net Transaction Exposure in Foreign Currency................ 7.2 (0.2) 2.9 1.2 1.7
Loss from a 10% Appreciation of the Euro After Hedging
Activities(2, 3)
Status as of December 31, 1997.......................... 0.37 -- 0.11 0.13 0.15
Status as of December 31, 1998.......................... 0.11 -- 0.05 -- 0.03
<CAPTION>
1999 Total
- - ------------------------------------------------------------ ---------
<S> <C>
ESTIMATES OF:
Gross Amount of Foreign Currency Exposure................... 24.0
Gross Amount of Foreign Currency Netting.................... (11.2)
Net Transaction Exposure in Foreign Currency................ 12.8
Loss from a 10% Appreciation of the Euro After Hedging
Activities(2, 3)
Status as of December 31, 1997.......................... 0.76
Status as of December 31, 1998.......................... 0.19
</TABLE>
<TABLE>
<CAPTION>
Japanese
Canadian British Yen
2000 U.S. Dollar Dollars Pound (JPY 100) Others(1)
- - ------------------------------------------------------------- ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
([EURO] equivalent in billions)
ESTIMATES OF:
Gross Amount of Foreign Currency Exposure.................... 11.6 5.7 3.3 1.7 3.4
Gross Amount of Foreign Currency Netting..................... (6.0) (5.9) (0.3) (0.3) (1.3)
Net Transaction Exposure in Foreign Currency................. 5.6 (0.2) 3.0 1.4 2.1
Loss from a 10% Appreciation of the Euro After Hedging
Activities(2, 3)
Status as of December 31, 1998........................... 0.24 -- 0.13 0.06 0.16
<CAPTION>
2000 Total
- - ------------------------------------------------------------- ---------
<S> <C>
ESTIMATES OF:
Gross Amount of Foreign Currency Exposure.................... 25.7
Gross Amount of Foreign Currency Netting..................... (13.8)
Net Transaction Exposure in Foreign Currency................. 11.9
Loss from a 10% Appreciation of the Euro After Hedging
Activities(2, 3)
Status as of December 31, 1998........................... 0.59
</TABLE>
- - ------------------------
(1) Following the introduction of the euro on January 1, 1999, the Group's
exposure to transaction risk in respect of currencies of participating
European member states has been eliminated. As a consequence, this category
no longer includes net exposure of the Group in those currencies. In 1998
the Group's net exposure in those currencies was approximately [EURO] 4.4
billion.
(2) Sensitivity is calculated based on net transaction exposure after
consideration of the Group's derivative financial instruments entered into
to offset such foreign currency exposure.
(3) In certain prior years, the mark fluctuated by more than 10% against some of
the currencies presented in the tables above. Anticipated losses from a more
than 10% appreciation of the euro against those currencies would increase
proportionately.
--------------------------
The relatively lower sensitivity shown for 1999 is explained by the Group's
policy to hedge relatively larger portions of short-term anticipated revenues.
As a general rule, the longer the expected revenues extend into the future, the
larger is the unhedged portion of such revenues. Derivative financial
instruments with maturity dates after 2000 are not material to the Group. In
addition, the transition to the euro and to fixed exchange rates among national
currencies of participating European Union member states has eliminated currency
risk exposure in relation to those currencies. Similarly, the euro has obviated
the need for exchange transactions in those currencies. This should lead to a
reduction in the cost of hedging activities since there will be no exchange rate
exposure among the participating member states.
71
<PAGE>
EFFECTS OF CURRENCY TRANSLATION
Many subsidiaries of DaimlerChrysler are located outside the group of
European Union member states that adopted the euro as their common currency.
Since the Group's financial reporting currency is now the euro, the income
statements of these subsidiaries are translated into euros for inclusion of the
results of these subsidiaries in the DaimlerChrysler consolidated financial
statements. Period-to-period changes in the average exchange rate for a
particular country's currency can significantly affect the translation into
euros of both revenue and operating income denominated in that currency. Unlike
the effect of exchange rate fluctuations on transaction exposure, the effect of
exchange rate translation exposure does not affect the Group's local currency
cash flows. See Notes 16, 17 and 23 to the Consolidated Financial Statements.
DaimlerChrysler has significant assets, liabilities and operations outside
of the European Union member states participating in the euro which are
denominated in local currencies, most importantly DaimlerChrysler Corporation
and the financial services companies. Although the long-term currency risk
inherent in these investments is subject to continuing assessment and
evaluation, foreign exchange transactions addressing this type of risk are
generally undertaken only in circumstances in which the Group is considering
withdrawal from a specific venture and the repatriation of the funds generated
by such withdrawal. However, effects from currency fluctuations on the
translation of net asset amounts into euros will be reflected in Group's equity
position.
Interest Rate Exposure
DaimlerChrysler holds a variety of interest rate sensitive financial
instruments to manage the liquidity and cash needs of its day-to-day operations.
The Group actively manages its interest rate exposure through risk management
and controlling functions which have a reporting line independent from Corporate
Treasury. In order to quantify the risk exposure of the Group on a continuous
basis, DaimlerChrysler employs value-at-risk calculation methods generally used
in the financial services and banking industries with respect to certain of its
portfolios. Several types of derivative financial instruments are used to manage
the risks arising from changes in interest rates.
The tables below provide information about the Group's principal financial
instruments, including derivative financial instruments, that are sensitive to
changes in interest rates. For primary financial instruments and swaps, the
tables present principal cash flows and related weighted average interest rates
by expected maturity dates. For other derivative financial instruments, the
tables present notional amounts as of December 31, 1997 and December 31, 1998,
respectively, and weighted average interest rates by expected (contractual)
maturity dates. Notional amounts are used to calculate the contractual payments
to be exchanged under the contract. Weighted average variable rates are based on
implied forward rates in the yield curve at the reporting date. The information
is presented in euro equivalents, which is now the Group's reporting currency.
72
<PAGE>
December 31, 1997
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 Thereafter Total
--------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
([EURO] equivalent in millions)
Primary Financial Instruments
CASH FLOWS:
Assets:
Receivables from financial services.......... 10,426 5,190 3,977 2,019 1,074 2,814 25,500
Weighted average interest rate (%)......... 8.79 8.85 8.96 9.06 9.27 9.82
Retained interest in sold receivables........ 795 1,122 1,116 713 74 -- 3,820
Weighted average interest rate (%)......... 9.13 9.13 9.13 9.13 9.13 --
Fixed interest rate securities............... 3,296 692 848 810 492 447 6,586
Weighted average interest rate (%)......... 7.41 6.34 6.17 5.93 5.95 6.13
Floating rate notes.......................... 224 7 25 15 57 82 409
Weighted average interest rate (%)......... 4.50 4.75 4.75 4.57 4.46 4.25
Debt based funds.............................
Liabilities:
Fixed rate obligations....................... 6,754 4,027 3,750 1,929 1,376 10,676 28,511
Weighted average interest rate (%)......... 6.29 6.31 6.27 6.29 6.23 7.37
Variable rate obligations.................... 9,118 985 520 82 186 1,557 12,447
Weighted average interest rate (%)......... 5.58 7.13 8.54 10.58 10.79 11.99
Derivative Financial Instruments
CASH FLOWS:
Swaps:
Receiver swaps (variable to fix)............. 41 46 14 6 2 15 123
Weighted average pay rate (%).............. 5.45 5.56 6.10 5.76 5.89 6.01
Weighted average receive rate (%).......... 5.93 6.04 6.46 6.16 6.21 6.31
Payer swaps (fix to variable)................ (43) 47 (7) (2) (16) 2 (19)
Weighted average pay rate (%).............. 5.66 5.60 5.91 6.05 6.23 6.99
Weighted average receive rate (%).......... 5.41 5.63 5.91 6.02 4.77 7.23
NOTIONAL AMOUNTS (as of December 31, 1997):
Forward rate agreements:
Buy.......................................... 190
Weighted average interest rate (%)......... 4.55
Sell......................................... 1,457
Weighted average interest rate (%)......... 4.06
Caps:
Buy.......................................... 2,621
Weighted average interest cap (%).......... 5.76
Sell......................................... 5,289
Weighted average interest cap (%).......... 7.45
Floors:
Buy.......................................... 211
Weighted average interest floor (%)........ 4.83
Sell......................................... 1,941
Weighted average interest floor (%)........ 4.01
<CAPTION>
Fair
Value
---------
<S> <C>
Primary Financial Instruments
CASH FLOWS:
Assets:
Receivables from financial services.......... 21,249
Weighted average interest rate (%).........
Retained interest in sold receivables........ 3,200
Weighted average interest rate (%).........
Fixed interest rate securities............... 6,242
Weighted average interest rate (%).........
Floating rate notes.......................... 366
Weighted average interest rate (%).........
Debt based funds............................. 3,752
Liabilities:
Fixed rate obligations....................... 20,536
Weighted average interest rate (%).........
Variable rate obligations.................... 11,226
Weighted average interest rate (%).........
Derivative Financial Instruments
CASH FLOWS:
Swaps:
Receiver swaps (variable to fix)............. (3)
Weighted average pay rate (%)..............
Weighted average receive rate (%)..........
Payer swaps (fix to variable)................ (127)
Weighted average pay rate (%)..............
Weighted average receive rate (%)..........
NOTIONAL AMOUNTS (as of December 31, 1997):
Forward rate agreements:
Buy.......................................... --
Weighted average interest rate (%).........
Sell......................................... 1
Weighted average interest rate (%).........
Caps:
Buy.......................................... 9
Weighted average interest cap (%)..........
Sell......................................... (4)
Weighted average interest cap (%)..........
Floors:
Buy.......................................... 1
Weighted average interest floor (%)........
Sell......................................... (15)
Weighted average interest floor (%)........
</TABLE>
73
<PAGE>
December 31, 1998
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total
--------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
([EURO] equivalent in millions)
Primary Financial Instruments
CASH FLOWS:
Assets:
Receivables from financial services.......... 14,018 5,591 4,246 2,073 1,114 3,078 30,120
Weighted average interest rate (%)......... 8.01 7.97 8.16 8.68 8.76 9.41
Retained interest in sold receivables........ 737 878 857 802 210 -- 3,486
Weighted average interest rate (%)......... 9.10 9.10 9.10 9.10 9.10 --
Fixed interest rate securities............... 4,371 607 488 470 1,029 926 7,892
Weighted average interest rate (%)......... 6.20 5.98 5.97 6.09 5.75 5.63
Floating rate notes.......................... 14 57 27 24 31 9 162
Weighted average interest rate (%)......... 4.83 4.92 5.42 5.87 6.30 10.01
Debt based funds.............................
Liabilities:
Fixed rate obligations....................... 7,620 4,746 3,566 2,049 851 10,955 29,787
Weighted average interest rate (%)......... 6.02 5.86 5.89 6.13 6.30 7.34
Variable rate obligations.................... 12,001 1,387 1,002 824 1,269 1,083 17,566
Weighted average interest rate (%)......... 5.18 5.48 5.58 5.66 5.79 10.19
Derivative Financial Instruments
CASH FLOWS:
Swaps:
Receiver swaps (variable to fix)............. 42 21 2 (2) 1 (4) 60
Weighted average pay rate (%).............. 4.24 4.58 4.97 5.43 5.55 11.24
Weighted average receive rate (%).......... 5.37 5.37 5.10 5.24 5.83 9.86
Payer swaps (fix to variable)................ (85) (60) (27) (22) (17) (46) (257)
Weighted average pay rate (%).............. 5.70 5.77 5.73 5.76 5.72 5.82
Weighted average receive rate (%).......... 4.74 4.74 4.77 4.80 4.82 4.59
NOTIONAL AMOUNTS (as of December 31, 1998):
Forward rate agreements:
Buy.......................................... 451
Weighted average interest rate (%)......... 4.69
Sell......................................... 1,825
Weighted average interest rate (%)......... 3.93
Caps:
Buy.......................................... 1,982
Weighted average interest cap (%).......... 5.85
Sell......................................... 6,063
Weighted average interest cap (%).......... 6.91
Floors:
Buy.......................................... --
Weighted average interest floor (%)........ --
Sell......................................... 542
Weighted average interest floor (%)........ 4.48
<CAPTION>
Fair
Value
---------
<S> <C>
Primary Financial Instruments
CASH FLOWS:
Assets:
Receivables from financial services.......... 26,142
Weighted average interest rate (%).........
Retained interest in sold receivables........ 2,879
Weighted average interest rate (%).........
Fixed interest rate securities............... 7,297
Weighted average interest rate (%).........
Floating rate notes.......................... 138
Weighted average interest rate (%).........
Debt based funds............................. 4,654
Liabilities:
Fixed rate obligations....................... 20,660
Weighted average interest rate (%).........
Variable rate obligations.................... 16,335
Weighted average interest rate (%).........
Derivative Financial Instruments
CASH FLOWS:
Swaps:
Receiver swaps (variable to fix)............. 103
Weighted average pay rate (%)..............
Weighted average receive rate (%)..........
Payer swaps (fix to variable)................ (192)
Weighted average pay rate (%)..............
Weighted average receive rate (%)..........
NOTIONAL AMOUNTS (as of December 31, 1998):
Forward rate agreements:
Buy.......................................... (1)
Weighted average interest rate (%).........
Sell......................................... 7
Weighted average interest rate (%).........
Caps:
Buy.......................................... 6
Weighted average interest cap (%)..........
Sell......................................... (15)
Weighted average interest cap (%)..........
Floors:
Buy.......................................... --
Weighted average interest floor (%)........
Sell......................................... (13)
Weighted average interest floor (%)........
</TABLE>
The information shown in the tables above does not include financial
instruments in currencies of highly-inflationary economies. The amounts of
financial instruments denominated in those currencies are not material to the
Group.
74
<PAGE>
Item 10. Directors and Officers of Registrant.
In accordance with the German Stock Corporation Law (AKTIENGESETZ),
DaimlerChrysler AG has a Supervisory Board (AUFSICHTSRAT) and a Board of
Management (VORSTAND). The two Boards are separate and no individual may
simultaneously be a member of both Boards. The following information is included
in respect of all members of DaimlerChrysler AG's Supervisory Board and its
Board of Management.
Supervisory Board
Under the German Stock Corporation Law, the German Co-determination Law
(MITBESTIMMUNGSGESETZ) and the Memorandum and Articles of Association of
DaimlerChrysler AG, the Supervisory Board of DaimlerChrysler AG consists of
twenty members. The stockholders elect ten members at the annual general meeting
and the employees elect the remaining ten members. All current stockholder
representatives on the Supervisory Board were elected in 1998 in connection with
the business combination of Chrysler and Daimler-Benz. The current employee
representatives were appointed by a court pursuant to Section 104 of the German
Stock Corporation Law.
Any member elected by the stockholders in a general meeting may be removed
by a majority of the votes cast by the stockholders in a general meeting. Any
member of the Supervisory Board elected by the employees may be removed by
three-quarters of the votes cast by the relevant class of employees. Under
normal circumstances the Supervisory Board acts by simple majority vote and the
Chairman, who is always a representative of the stockholders, has the deciding
vote in case of any deadlock.
The principal function of the Supervisory Board is to appoint and to
supervise the Board of Management and to approve the mid-term planning and
certain matters which are not in the ordinary course of business and are of
fundamental importance to DaimlerChrysler. There is no compulsory retirement age
for members of the Supervisory Board. The term of a Supervisory Board member
expires at the end of the general meeting of stockholders in which the
stockholders discharge Supervisory Board members for the fourth fiscal year
following the year in which such member was elected. The stockholders of
DaimlerChrysler AG will be asked to affirm the election of the current
stockholder representatives on the Supervisory Board at the annual general
meeting to be held on May 18, 1999.
75
<PAGE>
The incumbent members of the Supervisory Board of DaimlerChrysler AG, their
respective ages as of March 31, 1999, their principal occupation and the year in
which they were first elected or appointed to the Supervisory Board are as
follows:
<TABLE>
<CAPTION>
Year First
Elected/
Name Age Principal Occupation Appointed
- - ----------------------------------- --- ----------------------------------------------------- --------------
<S> <C> <C> <C>
Hilmar Kopper 64 Chairman of the Supervisory Board of Deutsche Bank AG 1998 (1990(2))
Chairman
Karl Feuerstein(1) 58 Retired Chairman of the Corporate Works Council, 1998 (1990(2))
Deputy Chairman DaimlerChrysler Group and the Central Works
Council, DaimlerChrysler AG
Robert E. Allen 64 Retired Chairman of the Board and Chief Executive 1998 (1994(3))
Officer of AT&T
Willi Boehm(1) 59 Senior Manager, Wage Office, Woerth Plant, 1998 (1993(2))
DaimlerChrysler AG
Sir John P. Browne 51 Chief Executive Officer of BP Amoco p.l.c. 1998 (1998(2))
Manfred Goebels(1) 57 Chairman of the Senior Managers' Committee, 1998 (1993(2))
DaimlerChrysler Group
Erich Klemm(1) 44 Chairman of the Central Works Council, 1998 (1988(2))
DaimlerChrysler AG
Rudolf Kuda(1) 58 Head of Department, Executive Council, German 1998 (1978(2))
Metalworkers' Union
Robert J. Lanigan 70 Chairman Emeritus of Owens-Illinois, Inc. 1998 (1984(3))
Helmut Lense(1) 47 Chairman of the Works Council, Untertuerkheim Plant, 1998 (1993(2))
DaimlerChrysler AG
Peter A. Magowan 56 Retired Chairman of the Board of Safeway, Inc.; 1998 (1986(3))
President and Managing General Partner of San
Francisco Giants
Herbert Schiller(1) 44 Chairman of the Corporate Works Council, 1998 (1996(2))
DaimlerChrysler Services (debis) AG
Dr. rer. pol. Manfred Schneider 60 Chairman of the Board of Management of Bayer AG 1998 (1993(2))
Peter Schoenfelder(1) 49 Member of the Works Council, Augsburg Plant, 1998 (1990(2))
DaimlerChrysler Aerospace AG
G. Richard Thoman 54 President and Chief Operating Officer of Xerox 1998 (1998(3))
Corporation
Bernhard Walter 57 Chairman of the Board of Managing Directors of 1998 (1998(2))
Dresdner Bank AG
Lynton R. Wilson 58 Chairman of the Board of BCE Inc. 1998 (1994(3))
Dr.-Ing. Mark Woessner 60 Chairman of the Supervisory Board of Bertelsmann AG 1998 (1998(2))
Bernhard Wurl(1) 54 Head of Department, Executive Council, German 1998 (1979(2))
Metalworkers' Union
Stephen P. Yokich(1) 63 President of International Union United Automotive, 1998
Aerospace, and Agricultural Implement Workers of
America (UAW)
</TABLE>
- - ------------------------
(1) Representative of the employees.
(2) Year first elected to the Supervisory Board of Daimler-Benz AG.
(3) Year first elected to the Board of Directors of Chrysler Corporation.
76
<PAGE>
Board of Management
The number of members of the Board of Management is determined by the
Supervisory Board, the minimum being two. Pursuant to the Memorandum and
Articles of Association of DaimlerChrysler AG, any two members of the Board of
Management or one member of the Board of Management and the holder of a
procuration (a special power of attorney) or two holders of a procuration may
bind DaimlerChrysler AG. Each member of the Board of Management is appointed by
the Supervisory Board for a maximum term of five years and is eligible for
reappointment thereafter. Under certain circumstances, such as a serious breach
of duty or a vote of no confidence by the stockholders in a general meeting, a
member of the Board of Management may be removed by the Supervisory Board prior
to the expiration of such term. A member of the Board of Management may not deal
with, or vote on, matters relating to proposals, arrangements or contracts
between himself and DaimlerChrysler AG and he is under a duty to disclose a
material interest in all matters relating to proposals, arrangements or
contracts between DaimlerChrysler AG and third parties. The normal retirement
age for members of the Board of Management is 65 although it is possible for a
member of the Board of Management to continue in office beyond this age with the
approval of the Supervisory Board.
77
<PAGE>
The current members of the Board of Management, their respective ages as of
March 31, 1999, their areas of responsibility, the year in which they were
appointed and the years in which their terms expire, respectively, are as
follows:
<TABLE>
<CAPTION>
Year
Year Term
Name Age Area of Responsibility Appointed Expires
- - ---------------------------------------- --- --------------------------------------- -------------- -----------
<S> <C> <C> <C> <C>
Juergen E. Schrempp 54 Chairman 1998 (1987(1)) 2003
Robert J. Eaton 59 Chairman 1998 (1992(2)) 2001
Dr. rer. pol. Manfred Bischoff 56 Aerospace & Industrial Non-Automotive 1998 (1995(1)) 2003
Dr. rer. pol. Eckhard Cordes 48 Corporate Development & IT-Management 1998 (1996(1)) 2003
(including responsibility for
MTU/Diesel Engines and Automotive
Electronics)
Theodor R. Cunningham 52 Sales and Marketing Latin America (all 1998 (1987(2)) 2003
automotive brands) and Chrysler Truck
Operations
Thomas C. Gale 55 Product Strategy, Design and Passenger 1998 (1985(2)) 2003
Car Operations Chrysler, Plymouth,
Jeep, Dodge
Dr. jur. Manfred Gentz 57 Finance and Controlling 1998 (1983(1)) 2003
James P. Holden 47 Brand Management Chrysler, Plymouth, 1998 (1993(2)) 2003
Jeep and Dodge & Sales and Marketing
North America (all automotive brands)
& Minivan Operations
Prof. Juergen Hubbert 59 Passenger Cars Mercedes-Benz, smart 1998 (1997(1)) 2003
Dr. phil. Kurt J. Lauk 52 Commercial Vehicles & Brand Management 1998 (1997(1)) 2003
Commercial Vehicles
Dr. jur. Klaus Mangold 55 Services 1998 (1995(1)) 2003
Thomas W. Sidlik 49 Procurement & Supply for the Chrysler, 1998 (1992(2)) 2003
Plymouth, Jeep and Dodge brands &
Jeep Operations
Thomas T. Stallkamp 52 Passenger Cars and Trucks Chrysler, 1998 (1990(2)) 2003
Plymouth, Jeep, Dodge
Heiner Tropitzsch 56 Human Resources & Labor Relations 1998 (1997(1)) 2003
Director
Gary C. Valade 56 Global Procurement and Supply 1998 (1990(2)) 2003
Prof. Klaus-Dieter Voehringer 57 Research and Technology 1998 (1997(1)) 2003
Dr.-Ing. Dieter Zetsche 45 Brand Management Mercedes-Benz, smart & 1998 (1997(1)) 2003
Sales and Marketing Europe, Asia,
Africa, Australia/ Pacific (all
automotive brands)
</TABLE>
- - ------------------------
(1) Year first appointed to the Board of Management of Daimler-Benz AG.
(2) Year first appointed as an officer of Chrysler Corporation.
78
<PAGE>
Item 11. Compensation of Directors and Officers.
The aggregate amount of compensation paid by the DaimlerChrysler Group
during the year ended December 31, 1998 to all members of the Supervisory Board
and the Board of Management, as a group, was [EURO] 43 million. This amount
includes compensation payments by DaimlerChrysler Corporation (formerly
Chrysler) made to persons in that group. This amount does not include one-time
payments caused by the Daimler-Benz/Chrysler business combination to officers
and directors of Chrysler upon closing of the transaction. Some of those
directors and officers are now members of either the Supervisory Board or the
Board of Management.
Prior to the merger of Daimler-Benz AG into DaimlerChrysler AG, several
members of the Supervisory Board served as members of the supervisory board of
Daimler-Benz AG. A portion of the remuneration paid to those individuals during
1998 was paid in accordance with provisions that were set forth in the articles
of association of Daimler-Benz AG and, accordingly, was determined by the amount
by which the aggregate dividend exceeded a specified threshold amount. For the
year ended December 31, 1998, 68% of the total remuneration paid to Supervisory
Board members as a group was paid in respect of this arrangement. Similarly, a
portion of the total remuneration paid to members of the Board of Management who
prior to the merger of Daimler-Benz AG and DaimlerChrysler AG served as members
of the board of management of Daimler-Benz AG was also determined based on the
annual dividend. Other members of the Board of Management served as directors
and officers of Chrysler Corporation and in that capacity received a portion of
their remuneration in 1998 in accordance with performance-based compensation
plans of Chrysler, including bonus, performance share and stock option
arrangements. For the year ended December 31, 1998, 74% of the total
remuneration paid to the members of the Board of Management as a group was paid
in respect of these dividend-related and bonus and performance share
arrangements.
The aggregate amount set aside or accrued by the Group during the year ended
December 31, 1998 to provide pension, retirement or similar benefits for the
members of the Supervisory Board and the Board of Management was [EURO] 24
million.
Pursuant to resolutions approved by stockholders in 1996 and 1997,
Daimler-Benz AG instituted stock option plans for management board members and
other executives in 1996, 1997 and 1998. For reasons of German law, the options
granted under the three plans took the form of convertible bonds, with the
principal amount corresponding to a stated value (or par value equivalent) of
the ordinary shares subject to the option -- which was [EURO] 2.56 per ordinary
share in all cases and which the optionee paid in cash at the time he or she
received the convertible bond (or option). Upon exercise of the option the
holder "converts" the bond, pays the balance of the option exercise price in
cash and receives the ordinary shares subject to the option. The holder is
entitled to receive simple interest on the bond until he or she exercises the
bond. Each of the three option plans prohibits exercise of an option unless
immediately prior to exercise the market price of the shares is 15% over the
price at which the option was granted (on an adjusted basis these exercise
thresholds are [EURO] 49.01 per ordinary share for the 1996 plan, [EURO] 75.78
per ordinary share for the 1997 plan and [EURO] 106.15 per ordinary share for
the 1998 plan). Options granted under all three plans were permitted to be
exercised only during four window periods of three weeks each specified in the
plans for each calendar year. Options granted under the 1996 plan were
immediately exercisable during any window period. Options granted under the 1997
and 1998 plans are only exercisable after the second anniversary of the option's
grant date. All options granted under all three plans expire 10 years from date
of grant. After the merger of Daimler-Benz AG into DaimlerChrysler AG options
under the three plans have been converted into DaimlerChrysler options using the
exchange ratio at which Daimler-Benz ordinary shares were converted into
DaimlerChrysler ordinary shares to adjust the number of shares subject to the
option and the related exercise and threshold prices. The aggregate borrowing
rate of DaimlerChrysler in respect of its outstanding indebtedness is 5.7%. For
information concerning outstanding options and option holdings of members of the
Board of Management of DaimlerChrysler AG see "Item 12. Options to Purchase
Securities from Registrant or Subsidiaries."
DaimlerChrysler plans to institute a stock appreciation rights ("SAR") plan
for DaimlerChrysler employees and members of its Board of Management who
presently hold options under the 1997 and 1998 stock option
79
<PAGE>
plans. Under the new SAR plan holders of convertible bond options pursuant to
those plans will be offered the opportunity to exchange their options for SARs
with all of the same terms and conditions as the stock option has, except that
the holder of the SAR will have the right to receive cash equal to the
difference between the option exercise price and the stock price on the date of
exercise. All other terms and conditions will be identical to the stock options
which are being replaced.
In connection with the Daimler-Benz/Chrysler business combination, Chrysler
established an SAR plan which was designed to replace the stock option plans
that had been in effect immediately prior to the combination. Under the plan
every outstanding option to purchase shares of common stock of Chrysler
Corporation was replaced by an SAR ("Initial SAR") nominally relating to the
number of DaimlerChrysler ordinary shares that would have been issued in the
combination in exchange for the number of Chrysler shares subject to the option
being replaced (using the exchange ratio of .6235 DaimlerChrysler shares for
each Chrysler share). The term of the Initial SAR is the same as the original
Chrysler option it replaced, and if the option was fully exercisable then the
Initial SAR is also fully exercisable. Initial SARs that replace options that
were not exercisable will become exercisable in two installments -- 50% on May
12, 1999, and the balance on November 12, 1999. The exercise price at which
Initial SARs were granted is $75.56, which was the price per DaimlerChrysler
ordinary share at the time of the combination. Upon exercise of an SAR, the
holder receives, as a cash payment, the amount by which the market value of a
DaimlerChrysler ordinary share on the New York Stock Exchange on the exercise
date exceeds the exercise price, multiplied by the number of SARs exercised.
At the time of the closing of the business combination Initial SARs were
granted to approximately 2,000 employees of DaimlerChrysler Corporation. Members
of the Board of Management received Initial SARs relating to 4,437,277 ordinary
shares.
Item 12. Options to Purchase Securities from Registrant or Subsidiaries.
The minority stockholders who own 42.4% of Dornier GmbH, a subsidiary of
DaimlerChrysler Aerospace, have the right, exercisable at any time, to exchange
their shareholdings in Dornier for holdings of equal value in Daimler-Benz Luft-
und Raumfahrt Holding Aktiengesellschaft or DaimlerChrysler AG. If this right
were exercised in full, the number of DaimlerChrysler ordinary shares which
would be issued would not be material to DaimlerChrysler or the stockholders of
DaimlerChrysler AG.
The following table sets forth, as of March 15, 1999, the aggregate number
of new DaimlerChrysler ordinary shares issuable upon conversion of convertible
bonds (exercise of outstanding options) under the former Daimler-Benz stock
option plans, the number of shares issuable to members of the Board of
Management as a group, the adjusted exercise price payable per share and the
applicable exercise periods:
<TABLE>
<CAPTION>
Number of
DaimlerChrysler Ordinary
Shares Subject to
Conversion as of Adjusted
March 15, 1999 Conversion Price
------------------------- per
Board of Exercise DaimlerChrysler Exercise
Aggregate Management Threshold Ordinary Share Period
----------- ------------ ---------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Daimler-Benz Stock Option Plan (1996)... 63,315 4,020 [EURO] [EURO] 42.62 July 19, 1996
49.01 through
July 12, 2006
1997 Stock Option Plan.................. 7,247,658 241,200 [EURO] [EURO] 65.90 July 26, 1999
75.78 through
July 16, 2007
1998 Stock Option Plan.................. 8,086,431 241,200 [EURO] [EURO] 92.30 July 24, 2000
106.15 through
July 17, 2008
</TABLE>
80
<PAGE>
Following the annual general meeting of stockholders of Daimler-Benz in May
1997, a stockholder commenced a legal action in the Stuttgart District Court
(LANDGERICHT STUTTGART) challenging the validity of the stockholder
authorization for the 1997 Stock Option Plan. Although Daimler-Benz did not
institute the 1998 Stock Option Plan until the following year, this lawsuit also
constituted a challenge to the authorization for that plan as well. Following
two court decisions in favor of Daimler-Benz on the merits, the case was settled
in March 1999. DaimlerChrysler plans to institute an SAR plan for
DaimlerChrysler employees and members of its Board of Management currently
holding options under the 1997 and 1998 plans and to offer each holder the
opportunity to substitute an SAR in exchange for each option currently held. All
terms and conditions will be identical to the stock options which are being
replaced, except that the holder of the SAR will have the right to receive cash
equal to the difference between the option exercise price and the stock price on
the date of exercise. See also "Item 11. Compensation of Directors and
Officers."
In 1996, DaimlerChrysler Luxembourg Capital S.A., formerly known as
Daimler-Benz Capital (Luxembourg) AG, a DaimlerChrysler subsidiary, issued
4 1/8% bearer notes with appertaining warrants due July 5, 2003 with a nominal
amount of DM 1,000 per note. Each note has warrants attached that originally
entitled the noteholder to receive 10.254 Daimler-Benz ordinary shares,
consisting partially of shares already issued and partially of newly issued
shares. In accordance with Section 23 of the German Transformation Act
(UMWANDLUNGSGESETZ) these warrants are now DaimlerChrysler AG warrants which
entitle the noteholder to receive 10.30527 DaimlerChrysler ordinary shares. As
of March 15, 1999, there were outstanding warrants for approximately 2.1 million
new DaimlerChrysler ordinary shares.
In 1997 Daimler-Benz AG issued 5 3/4% subordinated mandatory convertible
notes due June 14, 2002 convertible into newly issued Daimler-Benz ordinary
shares on or before June 4, 2002. In accordance with Section 23 of the German
Transformation Act these notes, including notes represented by American
Depositary Notes and DM Book Entry Securities, are now notes of DaimlerChrysler
AG, convertible into DaimlerChrysler ordinary shares. If they are not converted
by June 4, 2002, the notes will be mandatorily converted into DaimlerChrysler
ordinary shares at a conversion rate to be determined on the basis of the
average official quotation for the shares on the Frankfurt Stock Exchange during
a specified window period. As of March 15, 1999, the maximum number of ordinary
shares that would be issued upon exercise of all outstanding conversion rights
was approximately 9.5 million.
Pursuant to the Memorandum and Articles of Association of DaimlerChrysler
AG, the Board of Management is empowered, subject to the prior approval of the
Supervisory Board, (a) until April 30, 2003, to issue new ordinary shares for
cash up to an aggregate nominal amount of [EURO] 256 million (100 million
ordinary shares), with the authorization to exclude the preemptive rights of the
DaimlerChrysler stockholders only (1) to the extent that residual amounts are to
be offset, (2) to the extent it is necessary to extend preemptive rights to
warrant or convertible bond or note holders after exercise of warrant or
conversion rights or after fulfillment of conversion obligations, or (3) when
the German Stock Corporation Law so permits; and (b) until April 30, 2003, to
increase the capital of the Company for use in its employee share purchase
program up to an aggregate nominal amount of [EURO] 25.6 million (10 million
ordinary shares), with the exclusion of the preemptive rights of existing
stockholders of DaimlerChrysler. At March 15, 1999, the full amount of unissued
share capital remained available from these authorities.
Under the Memorandum and Articles of Association, DaimlerChrysler and its
wholly owned subsidiaries are also authorized, until April 30, 2003, to issue or
guarantee convertible bonds or bonds with warrants. The Articles of Association
provide that the capital of DaimlerChrysler shall be conditionally increased up
to an aggregate nominal amount of [EURO] 102.3 million for future issuance of
ordinary shares in satisfaction of options or conversion privileges resulting
from the bond authorization. At March 15, 1999, the full amount of the [EURO]
102.3 million conditional share capital remained available for future issuance
of up to an aggregate of 40 million ordinary shares.
See also Note 20 to the Consolidated Financial Statements.
81
<PAGE>
Item 13. Interest of Management in Certain Transactions.
Not applicable.
PART II
Item 14. Description of Securities to be Registered.
Not applicable.
PART III
Item 15. Defaults Upon Senior Securities.
None.
Item 16. Changes in Securities and Changes in Security for Registered
Securities.
None.
PART IV
Item 17. Financial Statements.
Not applicable.
Item 18. Financial Statements.
See pages F-1 through F-53 and page S-1, incorporated herein by reference.
82
<PAGE>
Item 19. Financial Statements and Exhibits.
(a) The following consolidated financial statements and related schedule,
together with the reports of KPMG Deutsche Treuhand-Gesellschaft AG thereon, are
filed as part of this Annual Report:
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Index to Consolidated Financial Statements................................................................. F-i
Independent Auditors' Report............................................................................... F-1
Consolidated Financial Statements:
Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996................. F-2
Consolidated Balance Sheets at December 31, 1998 and 1997.............................................. F-3
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996............. F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1998, 1997
and 1996.............................................................................................. F-5
Consolidated Fixed Assets Schedule for the year ended December 31, 1998................................ F-6
Notes to the Consolidated Financial Statements......................................................... F-8
Financial Statement Schedule:
Allowance for Doubtful Accounts........................................................................ S-1
</TABLE>
All other schedules are omitted because they are not applicable or because
the required information is contained in the Consolidated Financial Statements
or Notes thereto.
(b) Documents filed as exhibits to this Annual Report:
1.1 Memorandum and Articles of Association (SATZUNG) of DaimlerChrysler AG
as amended to date (English translation included).
2.1 The total amount of long-term debt securities of DaimlerChrysler AG
authorized under any instrument does not exceed 10% of the total assets of the
Group on a consolidated basis. DaimlerChrysler AG hereby agrees to furnish to
the Commission, upon its request, a copy of any instrument defining the rights
of holders of long-term debt of DaimlerChrysler AG or of its subsidiaries for
which consolidated or unconsolidated financial statements are required to be
filed.
23.1 Independent Auditors' Report on Schedule and Consent of KPMG Deutsche
Treuhand-Gesellschaft AG.
23.2 Independent Auditors' Consent of Deloitte & Touche LLP.
99.1 Independent Auditors' Report of Deloitte & Touche LLP on the
consolidated financial statements of DaimlerChrysler Corporation.
83
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Annual Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: March 31, 1999
<TABLE>
<CAPTION>
DAIMLERCHRYSLER AG
<S> <C> <C>
By: /s/ ROBERT J. EATON
---------------------------------------
Robert J. Eaton
Chairman of the Board of Management
By: /s/ JUERGEN E. SCHREMPP
---------------------------------------
Juergen E. Schrempp
Chairman of the Board of Management
By: /s/ DR. MANFRED GENTZ
---------------------------------------
Dr. Manfred Gentz
Member of the Board of Management
Finance and Controlling
</TABLE>
84
<PAGE>
DAIMLERCHRYSLER AG
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Independent Auditors' Report............................................................................... F-1
Consolidated Financial Statements:
Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996................. F-2
Consolidated Balance Sheets at December 31, 1998 and 1997.............................................. F-3
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996............. F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1998, 1997
and 1996.............................................................................................. F-5
Consolidated Fixed Assets Schedule for the year ended December 31, 1998................................ F-6
Notes to the Consolidated Financial Statements......................................................... F-8
Financial Statement Schedule:
Allowance for Doubtful Accounts........................................................................ S-1
</TABLE>
F-i
<PAGE>
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of
DaimlerChrysler AG and subsidiaries ("DaimlerChrysler") as of December 31, 1998
and 1997, and the related consolidated statements of income, cash flows, and
changes in stockholders' equity for each of the years in the three-year period
ended December 31, 1998. These consolidated financial statements are the
responsibility of DaimlerChrysler's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
did not audit the consolidated financial statements of DaimlerChrysler
Corporation and consolidated subsidiaries ("DaimlerChrysler Corporation"), a
wholly-owned subsidiary of DaimlerChrysler AG, which statements reflect total
assets constituting 43 percent and 44 percent at December 31, 1998 and 1997, and
total revenues constituting 45 percent, 46 percent and 47 percent for the years
ended December 31, 1998, 1997 and 1996, of the related consolidated totals.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for
DaimlerChrysler Corporation, is based solely on the report of the other
auditors.
We conducted our audits in accordance with German and United States
generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors, provide a reasonable basis for our opinion.
DaimlerChrysler has accounted for certain joint ventures in accordance with
the proportionate method of consolidation as is permitted under the Seventh
Directive of the European Community and the Standards of the International
Accounting Standards Committee. In our opinion, United States generally accepted
accounting principles require that such joint ventures be accounted for using
the equity method of accounting. The United States Securities and Exchange
Commission has stated that it would not object to DaimlerChrysler's use of the
proportionate method of consolidation as supplemented by the disclosures in Note
3.
In our opinion, based on our audits and the report of the other auditors,
except for the use of the proportionate method of accounting, as discussed in
the preceding paragraph, the financial statements referred to above present
fairly, in all material respects, the financial position of DaimlerChrysler as
of December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with United States generally accepted accounting principles.
KPMG DEUTSCHE TREUHAND-GESELLSCHAFT AG
Frankfurt am Main
March 15, 1999
F-1
<PAGE>
DAIMLERCHRYSLER AG
Consolidated Statements of Income
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Consolidated
------------------------------------------------ Financial Services
Year ended December 31, ----------------------------
------------------------------------------------ Year ended December 31,
1998 ----------------------------
Note (Note 1) 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------------------
[EURO] [EURO] [EURO] [EURO] [EURO] [EURO]
Revenues 30 $ 154,615 131,782 117,572 101,415 7,908 6,545 5,548
- - -------------------------------------------------------------------------------------------------------------------------------
Cost of sales 5 (121,692) (103,721) (92,953) (78,995) (6,157) (5,075) (4,347)
- - -------------------------------------------------------------------------------------------------------------------------------
Gross margin 32,923 28,061 24,619 22,420 1,751 1,470 1,201
- - -------------------------------------------------------------------------------------------------------------------------------
Selling, administrative and other
expenses 5 (19,041) (16,229) (15,621) (13,902) (921) (760) (652)
- - -------------------------------------------------------------------------------------------------------------------------------
Research and development (5,833) (4,971) (4,408) (4,081) -- -- --
- - -------------------------------------------------------------------------------------------------------------------------------
Other income 6 1,425 1,215 957 848 106 82 58
- - -------------------------------------------------------------------------------------------------------------------------------
Merger costs 1 (803) (685) -- -- -- -- --
- - -------------------------------------------------------------------------------------------------------------------------------
Income before financial income and
income taxes 8,671 7,391 5,547 5,285 936 792 607
- - -------------------------------------------------------------------------------------------------------------------------------
Financial income, net 7 896 763 633 408 23 4 --
- - -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and
extraordinary item 9,567 8,154 6,180 5,693 959 796 607
- - -------------------------------------------------------------------------------------------------------------------------------
Tax benefit relating to a special
distribution 1,487(1)
- - -------------------------------------------------------------------------------------------------------------------------------
Income taxes (1,005)(2)
- - -------------------------------------------------------------------------------------------------------------------------------
Total income taxes 8 (3,607) (3,075) 482 (1,547) (361) (307) (234)
- - -------------------------------------------------------------------------------------------------------------------------------
Minority interest (153) (130) (115) 23 (2) (1) (2)
- - -------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 5,807 4,949 6,547 4,169 596 488 371
- - -------------------------------------------------------------------------------------------------------------------------------
Extraordinary item: loss on early
extinguishment of debt, net of taxes 9 (151) (129) -- (147) -- -- --
- - -------------------------------------------------------------------------------------------------------------------------------
Net income 5,656 4,820 6,547(3) 4,022 596 488 371
- - -------------------------------------------------------------------------------------------------------------------------------
Earnings per share 31
- - -------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share
- - -------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 6.05 5.16 6.90 4.24 -- -- --
- - -------------------------------------------------------------------------------------------------------------------------------
Extraordinary item (0.16) (0.13) -- (0.15) -- -- --
- - -------------------------------------------------------------------------------------------------------------------------------
Net income 5.89 5.03 6.90(3) 4.09 -- -- --
- - -------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share
- - -------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 5.91 5.04 6.78 4.20 -- -- --
- - -------------------------------------------------------------------------------------------------------------------------------
Extraordinary item (0.16) (0.13) -- (0.15) -- -- --
- - -------------------------------------------------------------------------------------------------------------------------------
Net income 5.75 4.91 6.78(3) 4.05 -- -- --
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects the tax benefit relating to a special distribution (see Note 20).
(2) Includes non-recurring tax benefits of [EURO] 1,003 relating to the decrease
in valuation allowance as of December 31, 1997, applied to the domestic
operations that file a combined tax return.
(3) Excluding non-recurring tax benefits, 1997 net income would have been [EURO]
4,057 and basic and diluted earnings per share would have been [EURO] 4.28
and [EURO] 4.21, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS USING THE
EXCHANGE RATE AS OF JANUARY 1, 1999.
F-2
<PAGE>
DAIMLERCHRYSLER AG
Consolidated Balance Sheets
(in millions)
<TABLE>
<CAPTION>
Financial Services
Consolidated
--------------------------------- -------------------
At December 31, At December 31,
--------------------------------- -------------------
1998
Note (Note 1) 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------------------------
Assets
- - -----------------------------------------------------------------------------------------------------------------------
Intangible assets 10 $ 3,004 [EURO]2,561 [EURO]2,422 [EURO]104 [EURO]51
- - -----------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 10 34,649 29,532 28,558 53 39
- - -----------------------------------------------------------------------------------------------------------------------
Investments and long-term financial assets 16 3,344 2,851 2,397 632 631
- - -----------------------------------------------------------------------------------------------------------------------
Equipment on operating leases, net 11 17,203 14,662 11,092 12,001 9,571
- - -----------------------------------------------------------------------------------------------------------------------
Fixed assets 58,200 49,606 44,469 12,790 10,292
- - -----------------------------------------------------------------------------------------------------------------------
Inventories 12 13,840 11,796 10,897 654 505
- - -----------------------------------------------------------------------------------------------------------------------
Trade receivables 13 8,922 7,605 7,265 654 761
- - -----------------------------------------------------------------------------------------------------------------------
Receivables from financial services 14 31,054 26,468 21,717 26,460 21,658
- - -----------------------------------------------------------------------------------------------------------------------
Other receivables 15 12,642 10,775 11,376(1) 5,936 6,214
- - -----------------------------------------------------------------------------------------------------------------------
Securities 16 14,267 12,160 10,180 597 418
- - -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 17 7,731 6,589 6,809 681 702
- - -----------------------------------------------------------------------------------------------------------------------
Current assets 88,456 75,393 68,244 34,982 30,258
- - -----------------------------------------------------------------------------------------------------------------------
Deferred taxes 8 5,885 5,016 5,688 17 14
- - -----------------------------------------------------------------------------------------------------------------------
Prepaid expenses 19 7,197 6,134 6,430 133 71
- - -----------------------------------------------------------------------------------------------------------------------
Total assets (thereof short-term 1998: [EURO] 57,953;
1997: [EURO] 54,370) 159,738 136,149 124,831 47,922 40,635
- - -----------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
- - -----------------------------------------------------------------------------------------------------------------------
Capital stock $ 3,005 [EURO] 2,561 [EURO] 2,391
- - -----------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 8,534 7,274 2,958
- - -----------------------------------------------------------------------------------------------------------------------
Retained earnings 24,091 20,533 21,892(1)
- - -----------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income (1) (1) 1,143
- - -----------------------------------------------------------------------------------------------------------------------
Treasury stock -- -- (424)
- - -----------------------------------------------------------------------------------------------------------------------
Preferred stock -- -- .
- - -----------------------------------------------------------------------------------------------------------------------
Stockholders' equity 20 35,629 30,367 27,960 4,639 4,379
- - -----------------------------------------------------------------------------------------------------------------------
Minority interests 810 691 782 17 28
- - -----------------------------------------------------------------------------------------------------------------------
Accrued liabilities 22 40,629 34,629 35,787 412 508
- - -----------------------------------------------------------------------------------------------------------------------
Financial liabilities 23 47,436 40,430 34,375 36,810 31,381
- - -----------------------------------------------------------------------------------------------------------------------
Trade liabilities 24 15,074 12,848 12,026 242 90
- - -----------------------------------------------------------------------------------------------------------------------
Other liabilities 25 10,851 9,249 7,912 2,366 1,610
- - -----------------------------------------------------------------------------------------------------------------------
Liabilities 73,361 62,527 54,313 39,418 33,081
- - -----------------------------------------------------------------------------------------------------------------------
Deferred taxes 8 4,886 4,165 2,502 2,665 2,366
- - -----------------------------------------------------------------------------------------------------------------------
Deferred income 26 4,423 3,770 3,487 771 273
- - -----------------------------------------------------------------------------------------------------------------------
Total liabilities (thereof short-term 1998: [EURO]
58,181; 1997: [EURO] 50,918) 124,109 105,782 96,871 43,283 36,256
- - -----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 159,738 136,149 124,831 47,922 40,635
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes a tax receivable/tax benefit of approximately [EURO] 1.49 billion
relating to the special distribution (see Note 20).
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS USING THE
EXCHANGE RATE AS OF JANUARY 1, 1999.
F-3
<PAGE>
DAIMLERCHRYSLER AG
Consolidated Statements of Cash Flows
(in millions)
<TABLE>
<CAPTION>
Consolidated
----------------------------------------------- Financial Services
-----------------------------------
Year ended December 31,
----------------------------------------------- Year ended December 31,
1998 -----------------------------------
(Note 1) 1998 1997 1996 1998 1997 1996
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income $ 5,656 [EURO]4,820 [EURO]6,547 [EURO]4,022 [EURO]596 [EURO]488 [EURO]371
- - --------------------------------------------------------------------------------------------------------------------------------
Income (loss) applicable to minority
interests 153 130 115 (22) 2 1 2
- - --------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
- - --------------------------------------------------------------------------------------------------------------------------------
Tax benefit relating to a special
distribution -- -- (1,487) -- -- -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Gain on disposals of businesses (347) (296) (569) (182) -- -- 7
- - --------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization of
equipment on operating leases 2,314 1,972 1,456 1,159 1,784 1,429 1,215
- - --------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization of fixed
assets 6,287 5,359 4,847 4,233 38 27 23
- - --------------------------------------------------------------------------------------------------------------------------------
Change in deferred taxes 2,298 1,959 (706) 112 399 288 83
- - --------------------------------------------------------------------------------------------------------------------------------
Extraordinary item: loss on early
extinguishment of debt 151 129 -- 147 -- -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Change in financial instruments (224) (191) 146 200 -- -- 2
- - --------------------------------------------------------------------------------------------------------------------------------
(Gain) loss on disposal of fixed
assets/securities (432) (368) (204) (65) (51) 13 --
- - --------------------------------------------------------------------------------------------------------------------------------
Change in trading securities 294 251 (387) (171) -- -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Change in accrued liabilities 1,665 1,419 840 1,416 44 3 21
- - --------------------------------------------------------------------------------------------------------------------------------
Change in current assets and
liabilities:
- - --------------------------------------------------------------------------------------------------------------------------------
- inventories, net (1,145) (976) (744) (427) 64 (140) (49)
- - --------------------------------------------------------------------------------------------------------------------------------
- trade receivables (807) (688) (555) 53 124 23 4
- - --------------------------------------------------------------------------------------------------------------------------------
- trade liabilities 2,144 1,827 1,709 231 159 1 (30)
- - --------------------------------------------------------------------------------------------------------------------------------
- other assets and liabilities 1,564 1,334 1,329 (750) 1,107 1,187 (369)
- - --------------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 19,571 16,681 12,337 9,956 4,266 3,320 1,280
- - --------------------------------------------------------------------------------------------------------------------------------
Purchases of fixed assets:
- - --------------------------------------------------------------------------------------------------------------------------------
- - -Increase in equipment on operating
leases (9,733) (8,296) (5,914) (4,045) (7,238) (4,889) (3,458)
- - --------------------------------------------------------------------------------------------------------------------------------
- - -Purchases of property, plant and
equipment (9,568) (8,155) (8,051) (6,721) (37) (24) (12)
- - --------------------------------------------------------------------------------------------------------------------------------
- - -Purchases of other fixed assets (358) (305) (264) (215) (60) (38) (13)
- - --------------------------------------------------------------------------------------------------------------------------------
Proceeds from disposals of equipment on
operating leases 3,466 2,954 2,632 1,730 2,270 1,905 1,794
- - --------------------------------------------------------------------------------------------------------------------------------
Proceeds from disposals of fixed assets 604 515 576 660 15 21 6
- - --------------------------------------------------------------------------------------------------------------------------------
Payments for acquisitions of businesses (1,006) (857) (607) (236) (43) (64) (83)
- - --------------------------------------------------------------------------------------------------------------------------------
Proceeds from disposals of businesses 804 685 1,336 1,105 3 -- 283
- - --------------------------------------------------------------------------------------------------------------------------------
Additions to receivables from financial
services (95,264) (81,196) (70,154) (56,880) (81,259) (71,221) (58,126)
- - --------------------------------------------------------------------------------------------------------------------------------
Repayments of receivables from financial
services:
- - --------------------------------------------------------------------------------------------------------------------------------
- Finance receivables collected 39,638 33,784 22,257 15,892 33,784 23,114 17,042
- - --------------------------------------------------------------------------------------------------------------------------------
- Proceeds from sales of finance
receivables 48,046 40,950 44,336 39,474 40,950 44,336 39,474
- - --------------------------------------------------------------------------------------------------------------------------------
Acquisitions of securities (other than
trading) (5,418) (4,617) (5,190) (4,024) (2,602) (1,701) (1,475)
- - --------------------------------------------------------------------------------------------------------------------------------
Proceeds from sales of securities (other
than trading) 3,208 2,734 3,828 4,649 2,487 1,763 2,382
- - --------------------------------------------------------------------------------------------------------------------------------
Change in other cash (1,926) (1,641) 685 (134) (187) (739) (656)
- - --------------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (27,507) (23,445) (14,530) (8,745) (11,917) (7,537) (2,842)
- - --------------------------------------------------------------------------------------------------------------------------------
Change in commercial paper borrowings
and short-term financial liabilities 2,937 2,503 1,781 2,828 3,639 1,679 1,389
- - --------------------------------------------------------------------------------------------------------------------------------
Additions to long-term financial
liabilities 11,135 9,491 9,057 2,440 9,169 7,037 3,174
- - --------------------------------------------------------------------------------------------------------------------------------
Repayment of financial liabilities (4,841) (4,126) (4,612) (5,228) (5,073) (3,844) (3,035)
- - --------------------------------------------------------------------------------------------------------------------------------
Dividends paid (Financial Services:
incl. profit transferred from
subsidiaries) (7,572) (6,454) (1,267) (746) (589) (491) (479)
- - --------------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of capital stock 4,782 4,076 231 231 515 176 248
- - --------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (198) (169) (1,888) (1,570) -- -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Proceeds from special distribution tax
refund 1,744 1,487 -- -- -- -- --
- - --------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing
activities 7,987 6,808 3,302 (2,045) 7,661 4,557 1,297
- - --------------------------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes
on cash and cash equivalents up to 3
months (466) (397) 646 351 (28) 36 24
- - --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents up to 3 months (415) (353) 1,755 (483) (18) 376 (241)
- - --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents (up to 3
months):
- - --------------------------------------------------------------------------------------------------------------------------------
At beginning of period 7,783 6,634 4,879 5,362 699 323 564
- - --------------------------------------------------------------------------------------------------------------------------------
At end of period 7,368 6,281 6,634 4,879 681 699 323
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS USING THE
EXCHANGE RATE AS OF JANUARY 1, 1999.
F-4
<PAGE>
DAIMLERCHRYSLER AG
Consolidated Statements of Changes in Stockholders' Equity
(in millions of [EURO])
<TABLE>
<CAPTION>
Accumulated other
comprehensive income
-----------------------------------------
Additional Cumulative Available- Minimum
Capital paid-in Retained translation for-sale pension Treasury
stock capital earnings adjustment securities liability stock
<S> <C> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1996 2,525 5,596 13,335 (2,006) 74 (36) --
- - ----------------------------------------------------------------------------------------------------------------------------
Net income -- -- 4,022 -- -- -- --
Other comprehensive income -- -- -- 1,034 38 16 --
- - ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive income
- - ----------------------------------------------------------------------------------------------------------------------------
Issuance of capital stock 5 68 -- -- -- -- --
Purchase and retirement of
capital stock (93) (1,477) -- -- -- -- (53)
Dividends -- -- (808) -- -- -- --
Other 7 23 32 -- -- -- 53
- - ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 2,444 4,210 16,581 (972) 112 (20) --
- - ----------------------------------------------------------------------------------------------------------------------------
Net income -- -- 6,547 -- -- -- --
Other comprehensive income -- -- -- 1,865 157 1 --
- - ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive income
- - ----------------------------------------------------------------------------------------------------------------------------
Issuance of capital stock 4 85 -- -- -- -- --
Purchase and retirement of
capital stock (59) (1,430) -- -- -- -- (462)
Dividends -- -- (1,276) -- -- -- --
Other 2 93 40 -- -- -- 38
- - ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,391 2,958 21,892 893 269 (19) (424)
- - ----------------------------------------------------------------------------------------------------------------------------
Net income -- -- 4,820 -- -- -- --
Other comprehensive income
(loss) -- -- -- (1,402) 259 (1) --
- - ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive income
- - ----------------------------------------------------------------------------------------------------------------------------
Issuance of capital stock 163 3,913 -- -- -- -- --
Purchase and retirement of
capital stock -- -- -- -- -- -- (169)
Re-issuance of treasury stock -- 538 -- -- -- -- 482
Dividends -- -- (1,086) -- -- -- --
Special distribution -- -- (5,284) -- -- -- --
Other 7 (135) 191 -- -- -- 111
- - ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 2,561 7,274 20,533 (509) 528 (20) --
- - ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Preferred
stock Total
<S> <C> <C>
- - -----------------------------
Balance at January 1, 1996 . 19,488
- - -----------------------------
Net income -- 4,022
Other comprehensive income -- 1,088
- - -----------------------------
Total comprehensive income 5,110
- - -----------------------------
Issuance of capital stock -- 73
Purchase and retirement of
capital stock -- (1,623)
Dividends -- (808)
Other . 115
- - -----------------------------
Balance at December 31, 1996 . 22,355
- - -----------------------------
Net income -- 6,547
Other comprehensive income -- 2,023
- - -----------------------------
Total comprehensive income 8,570
- - -----------------------------
Issuance of capital stock -- 89
Purchase and retirement of
capital stock -- (1,951)
Dividends -- (1,276)
Other . 173
- - -----------------------------
Balance at December 31, 1997 . 27,960
- - -----------------------------
Net income -- 4,820
Other comprehensive income
(loss) -- (1,144)
- - -----------------------------
Total comprehensive income 3,676
- - -----------------------------
Issuance of capital stock -- 4,076
Purchase and retirement of
capital stock -- (169)
Re-issuance of treasury stock -- 1,020
Dividends -- (1,086)
Special distribution -- (5,284)
Other . 174
- - -----------------------------
Balance at December 31, 1998 -- 30,367
- - -----------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS USING THE
EXCHANGE RATE AS OF JANUARY 1, 1999.
F-5
<PAGE>
DAIMLERCHRYSLER AG
Consolidated Fixed Assets Schedule
(in millions of [EURO])
<TABLE>
<CAPTION>
Acquisition or Manufacturing Costs
--------------------------------------------------------------------------------
Balance at Acquisitions/
January 1, Currency disposals of Reclassi-
1998 change businesses Additions fications Disposals
<S> <C> <C> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------------------
Other intangible assets 654 (8) 10 216 19 154
Goodwill 3,253 (150) 148 329 -- 16
- - -------------------------------------------------------------------------------------------------------------------------------
Intangible assets 3,907 (158) 158 545 19 170
- - -------------------------------------------------------------------------------------------------------------------------------
Land, leasehold improvements and buildings
including buildings on land owned by others 16,918 (497) 69 851 1,170 493
Technical equipment and machinery 26,376 (972) (471) 2,761 268 1,717
Other equipment, factory and office equipment 16,285 (649) 2 2,922 183 1,608
Advance payments relating to plant and
equipment and construction in progress 5,016 (263) (44) 1,681 (1,640) 211
- - -------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 64,595 (2,381) (444) 8,215 (19) 4,029
- - -------------------------------------------------------------------------------------------------------------------------------
Investments in affiliated companies 414 (3) (16) 407 2 86
Loans to associated and affiliated companies 5 (2) 8 18 1 1
Investments in associated companies 217 (10) 8 91 93 41
Investments in related companies 1,249 (50) (1) 154 (94) 80
Loans to associated and related companies 52 -- (1) 22 (1) 1
Long-term securities 523 (.) -- 159 -- 6
Other loans 374 (3) (196) 49 (1) 28
- - -------------------------------------------------------------------------------------------------------------------------------
Investments and long-term financial assets 2,834 (68) (198) 900 -- 243
- - -------------------------------------------------------------------------------------------------------------------------------
Equipment on operating leases(2) 13,846 (842) 31 10,245 -- 5,151
- - -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Balance at
December 31,
1998
<S> <C>
- - ---------------------------------------------
Other intangible assets 737
Goodwill 3,564
- - ---------------------------------------------
Intangible assets 4,301
- - ---------------------------------------------
Land, leasehold improvements and buildings
including buildings on land owned by others 18,018
Technical equipment and machinery 26,245
Other equipment, factory and office equipment 17,135
Advance payments relating to plant and
equipment and construction in progress 4,539
- - ---------------------------------------------
Property, plant and equipment 65,937
- - ---------------------------------------------
Investments in affiliated companies 718
Loans to associated and affiliated companies 29
Investments in associated companies 358
Investments in related companies 1,178
Loans to associated and related companies 71
Long-term securities 676
Other loans 195
- - ---------------------------------------------
Investments and long-term financial assets 3,225
- - ---------------------------------------------
Equipment on operating leases(2) 18,129
- - ---------------------------------------------
</TABLE>
(1) Currency translation changes with period end rates.
(2) Excluding initial direct costs. See Note 11.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
DAIMLERCHRYSLER AG
Consolidated Fixed Assets Schedule (Continued)
(in millions of [EURO])
<TABLE>
<CAPTION>
Depreciation/Amortization Book Value(1)
- - ------------------------------------------------------------------------------------------------- ----------------------------
Balance at Acquisitions/ Balance at Balance at Balance at
January 1, Currency disposals of Reclassi- December 31, December 31, December 31,
1998 change businesses Additions fications Disposals 1998 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------- ----------------------------
341 (6) 2 137 -- 88 386 351 313
1,144 (6) -- 227 -- 11 1,354 2,210 2,109
- - ------------------------------------------------------------------------------------------------- ----------------------------
1,485 (12) 2 364 -- 99 1,740 2,561 2,422
- - ------------------------------------------------------------------------------------------------- ----------------------------
8,245 (174) 21 561 6 237 8,422 9,596 8,673
16,845 (531) (291) 2,185 -- 1,449 16,759 9,486 9,531
10,945 (440) 25 2,191 (5) 1,492 11,224 5,911 5,340
2 -- -- -- (2) -- -- 4,539 5,014
- - ------------------------------------------------------------------------------------------------- ----------------------------
36,037 (1,145) (245) 4,937 (1) 3,178 36,405 29,532 28,558
- - ------------------------------------------------------------------------------------------------- ----------------------------
83 (2) -- 32 -- 21 92 626 331
-- -- 4 -- -- -- 4 25 5
-- -- -- 10 -- 2 8 350 217
254 (8) -- 13 1 46 214 964 995
37 -- -- 1 -- -- 38 33 15
3 (1) . -- -- 1 1 675 520
60 -- (41) 2 (1) 3 17 178 314
- - ------------------------------------------------------------------------------------------------- ----------------------------
437 (11) (37) 58 -- 73 374 2,851 2,397
- - ------------------------------------------------------------------------------------------------- ----------------------------
2,832 (118) -- 1,972 1 1,124 3,563 14,566 11,014
- - ------------------------------------------------------------------------------------------------- ----------------------------
</TABLE>
ALL BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS USING THE
EXCHANGE RATE AS OF JANUARY 1, 1999.
F-7
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements
(in millions of [EURO], except per share amounts)
BASIS OF PRESENTATION
1. The Company and the Merger
DaimlerChrysler AG ("DaimlerChrysler" or the "Group") was formed through the
merger of Daimler-Benz Aktiengesellschaft ("Daimler-Benz") and Chrysler
Corporation ("Chrysler") in November 1998 ("Merger"). The consolidated financial
statements of DaimlerChrysler have been prepared in accordance with United
States Generally Accepted Accounting Principles ("U.S. GAAP"), except that the
Group has accounted for certain joint ventures in accordance with the
proportionate method of consolidation (see Note 3). DaimlerChrysler has
previously prepared and reported its consolidated financial statements in
Deutsche Marks ("DM"). With the introduction of the euro ("[EURO]") on January
1, 1999, DaimlerChrysler has elected to present the accompanying consolidated
financial statements in euro. Accordingly, the Deutsche Mark consolidated
financial statements for each period presented have been restated into euro
using the Deutsche Mark/euro exchange rate as of January 1, 1999 of [EURO] 1 =
DM 1.95583. DaimlerChrysler's restated euro financial statements depict the same
trends as would have been presented if it had continued to present its
consolidated financial statements in Deutsche Marks. The Groups' consolidated
financial statements will, however, not be comparable to the euro financial
statements of other companies that previously reported their financial
information in a currency other than Deutsche Marks. All amounts herein are
shown in millions of euros ("[EURO]") and for the year 1998 are also presented
in U.S. dollars ("$"), the latter being unaudited and presented solely for the
convenience of the reader at the rate of DM 1.6670 = $1, the Noon Buying Rate of
the Federal Reserve Bank of New York on December 31, 1998.
Pursuant to the amended and restated business combination agreement dated
May 7, 1998, 1.005 Ordinary Shares, no par value ("DaimlerChrysler Ordinary
Share"), of DaimlerChrysler were issued for each outstanding Ordinary Share of
Daimler-Benz and .6235 DaimlerChrysler Ordinary Shares were issued for each
outstanding share of Chrysler common stock, stock options and performance
shares. DaimlerChrysler issued 1,001.7 million Ordinary Shares in connection
with these transactions.
The Merger was accounted for as a pooling of interests and accordingly, the
historical results of Daimler-Benz and Chrysler have been restated as if the
companies had been combined for all periods presented. Adjustments were made to
the restated consolidated financial statements to record the tax effects of
anticipated earnings distributions from the Group's foreign subsidiaries.
Certain reclassifications were made to Chrysler's financial statements to
conform them with DaimlerChrysler's presentation. Prior to the Merger, there
were no material transactions between Daimler-Benz and Chrysler.
The following information reconciles total revenues, income before taxes and
extraordinary item and net income for the separate companies with amounts
presented in the accompanying consolidated statements of income for the years
ended December 31, 1997 and 1996, and for the nine months ended September 30,
1998 (the operating period of Daimler-Benz and Chrysler prior to the Merger).
F-8
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
<TABLE>
<CAPTION>
Nine months
ended Year ended December
September 30, 31,
------------- --------------------
1998 1997 1996
------------- --------- ---------
<S> <C> <C> <C>
(unaudited)
Revenues:
Daimler-Benz......................................................... 52,610 63,426 54,371
Chrysler............................................................. 44,364 54,146 47,044
------ --------- ---------
Total.............................................................. 96,974 117,572 101,415
------ --------- ---------
------ --------- ---------
Income before income taxes and extraordinary item:
Daimler-Benz......................................................... 3,251 2,173 1,002
Chrysler............................................................. 3,988 4,059 4,710
Restatement for exchange rate effects of withholding taxes........... 26 (52) (19)
------ --------- ---------
Total.............................................................. 7,265 6,180 5,693
------ --------- ---------
------ --------- ---------
Net income:
Daimler-Benz......................................................... 1,678 4,112 1,412
Chrysler............................................................. 2,507 2,487 2,715
Restatement for withholding taxes.................................... 26 (52) (105)
------ --------- ---------
Total.............................................................. 4,211 6,547 4,022
------ --------- ---------
------ --------- ---------
</TABLE>
In connection with the Merger, [EURO] 685 of merger costs ([EURO] 401 after
tax) were incurred and have been charged to expense in 1998. These costs
consisted primarily of fees for investment bankers, attorneys, accountants,
financial printing, accelerated management compensation and other related
charges.
Commercial practices with respect to the products manufactured by
DaimlerChrysler necessitate that sales financing, including leasing
alternatives, be made available to the Group's customers. Accordingly, the
Group's consolidated financial statements are significantly influenced by
activities of a number of "captive" financing entities. To enhance the readers'
understanding of the Group's consolidated financial statements, the accompanying
financial statements present, in addition to the consolidated financial
statements, information with respect to the financial position, results of
operations and cash flows of the Group's financial services business activities.
Such information, however, is not required by U.S. GAAP and is not intended to,
and does not represent the separate U.S. GAAP financial position, results of
operations or cash flows of the Group's financial services business activities.
Amounts with respect to the financial services business are presented prior to
intercompany eliminations of transactions with other Group companies.
2. Summary of Significant Accounting Policies
CONSOLIDATION -- All material companies in which DaimlerChrysler has legal
or effective control are consolidated. Significant investments in which
DaimlerChrysler has a 20% to 50% ownership ("associated companies") are
generally accounted for using the equity method. For certain investments in
joint ventures, DaimlerChrysler uses the proportionate method of consolidation
(see Note 3). Other investments are accounted for at cost ("affiliated
companies").
Except for the Merger, the Group has accounted for its business combinations
under the purchase accounting method. As such, all assets acquired and
liabilities assumed are recorded at fair value. An excess of the purchase
F-9
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
price over the fair value of net assets acquired is capitalized as goodwill and
amortized over the estimated period of benefit on a straight-line basis.
The effects of intercompany transactions have been eliminated.
FOREIGN CURRENCIES -- The assets and liabilities of foreign subsidiaries
where the functional currency is other than the DM are generally translated
using period end exchange rates while the income statements are translated using
average exchange rates during the period. Differences arising from the
translation of assets and liabilities in comparison with the translation of the
previous periods are included as a separate component of stockholders' equity.
The assets and liabilities of foreign subsidiaries operating in highly
inflationary economies are remeasured into DM on the basis of period end rates
for monetary assets and liabilities and at historical rates for non-monetary
items, with resulting translation gains and losses being recognized in income.
Further, in such economies, depreciation and gains and losses from the disposal
of non-monetary assets are determined using historical rates.
The exchange rates of the more important currencies used in preparation of
the consolidated financial statements were as follows:
<TABLE>
<CAPTION>
Exchange rate(1) at Annual average exchange rate
December 31,
-------------------------------- -------------------------------
1998 1997 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Currency: DM DM DM DM DM
--------------- --------------- --------- --------- ---------
Brazil............................. 1 BRL 1.37 1.61 1.51 1.61 1.50
France............................. 1 FRF 0.30 0.30 0.30 0.30 0.29
Great Britain...................... 1 GBP 2.80 2.98 2.91 2.84 2.35
Italy.............................. 1000 ITL 1.01 1.02 1.01 1.02 0.98
Japan.............................. 100 JPY 1.45 1.38 1.35 1.44 1.38
Spain.............................. 100 ESP 1.18 1.18 1.18 1.18 1.18
USA................................ 1 USD 1.67 1.79 1.76 1.73 1.50
</TABLE>
- - ------------------------
(1) Official rates fixed at the Frankfurt Currency Exchange.
REVENUE RECOGNITION -- Revenue is recognized when title passes or services
are rendered net of discounts, sales incentives, customer bonuses and rebates
granted. Sales under which the Company conditionally guarantees the minimum
resale value of the product are accounted for as operating leases with the
related revenues and costs deferred at the time of title passage. Revenue on
long-term contracts is generally recognized under the percentage-of-completion
method based upon contractual milestones or performance. Revenue from finance
receivables is recorded on the interest method. Operating lease income is
recorded when earned on a straight-line basis.
The Group sells significant amounts of automotive retail and wholesale
receivables in transactions subject to limited credit risk. The Group generally
sells its receivables to a trust and remains as servicer, for which it is paid a
servicing fee. Servicing fees are earned on a level-yield basis over the
remaining term of the related sold receivables. In a subordinated capacity, the
Group retains residual cash flows, a limited interest in principal balances of
the sold receivables and certain cash deposits provided as credit enhancements
for investors. Gains and losses from the sales of finance receivables are
recognized in the period in which such sales occur. In determining the gain or
loss for each qualifying sale of finance receivables, the investment in the sold
receivable pool is allocated between the portion sold and the portion retained
based upon their relative fair values.
F-10
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
PRODUCT-RELATED EXPENSES -- Expenditures for advertising and sales promotion
and for other sales-related expenses are charged to expense as incurred.
Provisions for estimated costs related to product warranty are made at the time
the related sale is recorded. Research and development costs are expensed as
incurred.
EARNINGS PER SHARE -- Basic earnings per share is generally calculated by
dividing net income by the weighted average number of shares outstanding.
Diluted earnings per share reflects the potential dilution that would occur if
all securities and other contracts to issue Ordinary Shares were exercised or
converted (see Note 31). Net income represents the earnings of the Group after
minority interests. Basic and diluted earnings per Ordinary Share have been
restated to reflect the conversion of Daimler-Benz and Chrysler shares into
DaimlerChrysler Ordinary Shares (see Note 1) and the dilutive effect resulting
from the discount to market value at which the Daimler-Benz Ordinary Shares were
sold in the rights offering (see Note 20).
INTANGIBLE ASSETS -- Purchased intangible assets are valued at acquisition
cost and are amortized over their respective useful lives (3 to 40 years).
Goodwill derived from acquisitions is capitalized and amortized over 3 to 40
years. The Group periodically assesses the recoverability of its goodwill based
upon projected future cash flows. Intangible assets also include intangible
pension assets.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is valued at
acquisition or manufacturing costs less accumulated depreciation. Depreciation
expense is recognized either using the declining balance method until the
straight-line method yields larger expenses or the straight-line method. Special
tooling costs are capitalized and amortized over the years that a model using
that tooling is expected to be produced and within each year based on the units
produced. The costs of internally produced equipment and facilities includes all
direct costs and allocable manufacturing overhead. Costs of the construction of
certain long-term assets include capitalized interest which is amortized over
the estimated useful life of the related asset. The following useful lives are
assumed: buildings--17 to 50 years; site improvements--8 to 20 years; technical
equipment and machinery--3 to 30 years; and other equipment, factory and office
equipment--2 to 15 years.
LEASING -- The Group is a lessee of property, plant and equipment and lessor
of equipment, principally passenger cars and commercial vehicles. All leases
that meet certain specified criteria intended to represent situations where the
substantive risks and rewards of ownership have been transferred to the lessee
are accounted for as capital leases. All other leases are accounted for as
operating leases. Equipment on operating leases, where the Group is lessor, is
valued at acquisition cost and generally depreciated over the assets' useful
lives, generally three to seven years, using the straight-line method.
CURRENT ASSETS -- Current assets represent the Group's inventories,
receivables, securities and cash, including amounts to be realized in excess of
one year. In the accompanying footnotes, the portion of assets and liabilities
to be realized and settled in excess of one year have been disclosed.
MARKETABLE SECURITIES AND INVESTMENTS -- Securities are accounted for at
fair values, if readily determinable. Unrealized gains and losses on trading
securities, that is, securities bought principally for the purposes of selling
them in the near term, are included in income. Unrealized gains and losses on
available-for-sale securities are included in accumulated other comprehensive
income, net of applicable deferred income taxes. All other securities are
recorded at cost. Unrealized losses on all marketable securities and investments
that are other than temporary are recognized in earnings.
INVENTORIES -- Inventory is valued at the lower of acquisition or
manufacturing cost or market, cost being generally determined on the basis of an
average or first-in, first-out method ("FIFO"). Certain of the Group's U.S.
inventories are valued using the last-in, first-out method ("LIFO").
Manufacturing costs comprise direct material and labor and applicable
manufacturing overheads, including depreciation charges.
F-11
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
FINANCIAL INSTRUMENTS -- DaimlerChrysler uses derivative financial
instruments for hedging purposes. Financial instruments, including derivatives
(especially currency futures and currency options, security options, interest
rate swaps and currency swaps), which are not designated as hedges of specific
assets, liabilities, or firm commitments are marked to market and any resulting
unrealized gains or losses are recognized in income. If there is a direct
connection between a derivative financial instrument and an underlying
transaction and a derivative is so designated, a valuation unit is formed. Once
allocated, gains and losses from these valuation units, which are used to manage
interest rate and currency risks of identifiable assets, liabilities, or firm
commitments, do not affect income until the underlying transaction is realized
(see Note 29 d).
ACCRUED LIABILITIES -- The valuation of pension liabilities and
postretirement benefit liabilities is based upon the projected unit credit
method in accordance with Statement of Financial Accounting Standards ("SFAS")
87, "Employers' Accounting for Pensions" and SFAS 106. An accrued liability for
taxes and other contingencies is recorded when an obligation to a third party
has been incurred, the payment is probable and the amount can be reasonably
estimated. In determining other accrued liabilities--including warranties and
estimated future losses on open contracts--all applicable costs are taken into
consideration including price increases. The effects of accrued liabilities
relating to personnel and social costs are valued at their net present value
where appropriate.
USE OF ESTIMATES -- The preparation of financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent amounts at the date of the
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS -- On January 1, 1998, the Group adopted SFAS
130, "Reporting Comprehensive Income." SFAS 130 establishes standards for the
reporting and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income consists of net income,
foreign currency translation adjustments, net unrealized gains (losses) on
available-for-sale securities and additional minimum pension liability
provisions and is presented in the consolidated statements of changes in
stockholders' equity. The Standard requires only additional disclosure in the
consolidated financial statements and does not affect the Company's financial
position or results of operations. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
Effective January 1, 1998, the Group adopted SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." Segment data for 1997 and
1996 has been restated to conform with the new requirements. See Note 30.
On January 1, 1998, the Group adopted SFAS 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS 132 revises employers'
disclosures about pensions and other postretirement benefit plans. SFAS 132 does
not change the method of accounting for such plans. See Note 22a.
Effective January 1, 1998, DaimlerChrysler adopted Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." This SOP requires that entities capitalize certain
internal-use software costs once certain criteria are met. Adoption of the
standard did not have a material effect on DaimlerChrysler's consolidated
financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
SOP 98-5, "Reporting on the Costs of Start-Up Activities." DaimlerChrysler is
required to adopt the provisions of SOP 98-5 effective January 1, 1999. SOP 98-5
provides, among other things, guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred.
F-12
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Adoption of this accounting pronouncement is not anticipated to have a material
effect on DaimlerChrysler's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." This Standard
requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. This Standard is
effective for fiscal years beginning after June 15, 1999. DaimlerChrysler plans
to adopt this accounting pronouncement by January 1, 2000.
3. Scope of Consolidation
SCOPE OF CONSOLIDATION -- DaimlerChrysler comprises 481 foreign and domestic
subsidiaries (1997: 494) and 82 joint ventures (1997: 92); the latter are
generally accounted for on a pro rata basis. 27 subsidiaries are accounted for
in the consolidated financial statements using the equity method of accounting.
During 1998, 54 subsidiaries and 6 joint ventures were included in the
consolidated financial statements for the first time. A total of 67 subsidiaries
and 16 joint ventures were no longer included in the consolidated group.
Significant effects of changes in the consolidated group on the consolidated
balance sheets and the consolidated statements of income are explained further
in the notes to the consolidated financial statements. A total of 313
subsidiaries (1997: 285) are not consolidated as their combined influence on the
financial position, results of operations, and cash flows of the Group is not
material. The effect of such non-consolidated subsidiaries for all years
presented on consolidated assets, revenues and net income of DaimlerChrysler was
less than 2%. In addition, 7 (1997: 7) companies administering pension funds
whose assets are subject to restrictions have not been included in the
consolidated financial statements. The consolidated financial statements include
127 associated companies. At December 31, 1998, 17 associated companies are
accounted for in the consolidated financial statements using the equity method
of accounting. The remaining associated companies are recorded under investments
in related companies in as much as these companies are not material for the
respective presentation of the financial position, results of operations and
cash flows of the Group.
INVESTMENT IN ADTRANZ -- The Group accounts for its investment in Adtranz, a
rail systems joint venture between the Group and Asea Brown Boveri Ltd. ("ABB"),
including its 65 (1997: 63) subsidiaries, using the proportionate method of
consolidation. Accordingly, DaimlerChrysler reports its 50% interest of the
assets and liabilities, revenues and expenses and cash flows in Adtranz. The
Group believes that such method of financial statement presentation, which is
permitted by the regulations of the Seventh Directive of the European Community
and represents a benchmark treatment encouraged by the Standards of the
International Accounting Standards Committee, better illustrates its
consolidated financial position, results of operations and cash flows to the
readers of the Group's consolidated financial statements.
Under U.S. GAAP, DaimlerChrysler's investment in Adtranz is required to be
accounted for using the equity method of accounting. The differences in
accounting treatment between the proportionate and equity methods would not
affect reported stockholders' equity or net income of DaimlerChrysler. Under the
equity method of accounting, DaimlerChrysler's net investment in Adtranz would
be included within investments in the balance sheet and its share of the net
income or loss of Adtranz together with the amortization of the excess of the
cost of its investment over its share of the investment's net assets would be
reported as a net amount in financial income, net in the Group's statement of
income. Additionally, Adtranz impacted the Group's reported cash flows only to
the extent of the investing cash outflow in 1998 of [EURO] 159 resulting from a
capital contribution by DaimlerChrysler. For purposes of its United States
financial reporting obligation, DaimlerChrysler has requested and received
F-13
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
permission from the United States Securities and Exchange Commission to prepare
its consolidated financial statements with this departure from U.S. GAAP.
Summarized consolidated financial information of Adtranz follows. The
amounts represent those used in the DaimlerChrysler consolidation, including
goodwill resulting from the formation of Adtranz. Other companies included in
the consolidation according to the proportionate method are not material.
Balance sheet information
<TABLE>
<CAPTION>
At December 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Fixed assets(1)........................................................... 728 808
Current assets............................................................ 842 941
--------- ---------
Total assets.............................................................. 1,570 1,749
--------- ---------
--------- ---------
Stockholders' equity...................................................... 385 712
Minority interests........................................................ 7 6
Accrued liabilities....................................................... 542 496
Liabilities............................................................... 636 535
--------- ---------
Total liabilities and stockholders' equity................................ 1,570 1,749
--------- ---------
--------- ---------
</TABLE>
- - ------------------------
(1)Includes net goodwill resulting from the formation of Adtranz of
[EURO] 348 and [EURO] 435 in 1998 and 1997, respectively.
Statement of income information
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues............................................................ 1,658 1,631 1,450
Operating loss(1)................................................... (322) (222) (69)
Net loss............................................................ (316) (154) (49)
</TABLE>
- - ------------------------
(1)The operating losses for 1998 and 1997 include impairment charges on
goodwill of [EURO] 64 and [EURO] 61, respectively.
F-14
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Cash flow information
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1998 1997 1996
--------- ----- ---------
<S> <C> <C> <C>
Cash flows from:
Operating activities............................................ (130) 72 (231)
Investing activities............................................ (84) (12) 64
Financing activities............................................ 161 (50) 41
Effect of foreign exchange on cash................................ (2) . 4
--- --- ---
Change in cash (up to 3 months)................................... (55) 10 (122)
Cash (up to 3 months) at beginning of period...................... 155 145 268
--- --- ---
Cash (up to 3 months) at end of period............................ 100 155 146
--- --- ---
--- --- ---
</TABLE>
Cash up to 3 months includes [EURO] 30 (1997: [EURO] 51; 1996: [EURO] 59)
held by DaimlerChrysler AG in connection with internal cash concentration
procedures.
The Group and ABB entered into an option agreement, in connection with the
formation of Adtranz, whereby, for certain periods during 1998 through 2005, the
Group has the right (call option) to purchase ABB's 50% interest in Adtranz for
U.S. $1,800 plus a premium calculated on the basis of Adtranz' meeting or
exceeding certain future earnings thresholds. In addition, for certain periods
during 1998 through 2005, ABB has the right (put option) to require the Group to
purchase ABB's 50% interest in Adtranz at prices calculated in accordance with
the same criteria except that the price for the put option is lower than the
price for the call option assuming the same future earnings.
In January 1999, DaimlerChrysler agreed to acquire ABB's 50% interest in
Adtranz for $472. The acquisition cancels the call and put option discussed
above. The transaction is expected to be completed in the second quarter of
1999. Consummation of the merger is subject to various conditions, including
among others, approval of certain governmental authorities.
4. Acquisitions and Dispositions
In March 1998, the Group's semiconductor business was sold to an American
company, Vishay Intertechnology, Inc., for a gain of [EURO] 143 (before taxes).
Moreover, during 1998 the Group sold further interests, including the sale of
30% of its interests in LFK-Lenkflugkoerpersysteme GmbH and 100% of its
interests in CMS, Inc. and two real-estate-project-companies for a total gain of
approximately [EURO] 153.
In January 1997, DaimlerChrysler sold its interests in AEG Electrocom GmbH
and AEG ElectroCom International, Inc. (sorting and recognition systems) to
Siemens AG resulting in a gain of [EURO] 110 (before taxes).
In July 1997, debis AG, a subsidiary of DaimlerChrysler, terminated its
strategic relationship with Cap Gemini Sogeti S.A. through the sale of its 24.4%
interest resulting in a gain of [EURO] 420.
During December 1997, DaimlerChrysler completed an initial public offering
("IPO") of its common stock in Dollar Thrifty Automotive Group, Inc. ("DTAG"),
formerly Pentastar Transportation Group, Inc., for net proceeds of [EURO] 343
($387). The IPO of the common stock interest resulted in a pretax and after-tax
gain of [EURO] 65 ($73). The gain was deferred and will be recognized over the
remaining term of the vehicle supply agreements with DTAG, which end in 2001.
The tax effect on this transaction reflects the difference between the book and
tax basis of the Group's stock interest in DTAG for which deferred taxes were
not provided, in accordance with SFAS 109,
F-15
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
"Accounting for Income Taxes." In addition, the 1997 earnings include the
recognition of [EURO] 86 ($97) ([EURO] 53 or $60 after taxes) of previously
deferred profits from the sale of vehicles from DaimlerChrysler to DTAG.
In 1996, the Group committed to a plan of disposal for Thrifty, a subsidiary
of DTAG, and recognized a [EURO] 50 ($65) pretax loss ([EURO] 77 or $100 after
taxes) to write down Thrifty's carrying value to estimated fair value less costs
to sell. The after tax loss includes the effect of not being able to claim a tax
deduction for the capital loss on DaimlerChrysler's investment in Thrifty.
In January 1996, DaimlerChrysler announced that it would discontinue
financial support for NV Koninklijke Nederlandse Vliegtuigenfabriek ("Fokker"),
a Dutch aircraft manufacturer. Subsequent to the announcement, Fokker requested
and received, in accordance with Dutch law, protection from its creditors. In
connection therewith, control of Fokker was placed with a third-party
administrator. On March 15, 1996, Fokker formally filed for bankruptcy under the
laws of The Netherlands. The Group recorded a charge in the 1995 statement of
income for discontinuing such investment. During 1996, the Group realized gains
of approximately [EURO] 51 from the proceeds of sales of certain inventories in
excess of the inventories' previously written-down value.
In June 1996, the shareholders of AEG approved the merger of AEG with
DaimlerChrysler and in September 1996, effective January 1, 1996, such merger
was formally registered in the commercial register. As part of the merger, the
Group purchased the outstanding minority interest of AEG. In connection with the
foregoing transactions, the Group recorded charges to 1996 operations of
approximately [EURO] 153.
During 1996, the Group contributed its Dornier aircraft business into a
newly formed holding company 80% owned by Fairchild Industries Corporation, an
American aircraft manufacturer. In connection therewith, the Group recorded
charges in 1996 of approximately [EURO] 222, of which a portion included the
businesses' loss from operations up to the date of contribution. The Group is
accounting for its 20% investment in the holding company using the equity method
of accounting.
In 1996, the Group sold Electrospace Systems, Inc. ("ESI") and Chrysler
Technologies Airborne Systems, Inc. ("CTAS") for net proceeds of [EURO] 366
($476). ESI and CTAS were engaged principally in the manufacture of defense
electronics and aircraft modification, respectively, and represented
substantially all of the operations of Chrysler Technologies Corporation
("CTC"), a wholly owned subsidiary of the Group. The sale resulted in a pretax
gain of [EURO] 78 ($101) ([EURO] 67 or $87 after taxes). In 1996, the Group
signed an agreement to sell Pentastar Electronics, Inc. ("PEI") for net proceeds
of [EURO] 13 ($17), which resulted in the recognition of a pretax loss of
[EURO] 59 ($77) ([EURO] 39 or $51 after taxes) to write down PEI's carrying
value to estimated fair value less costs to sell. PEI represented the remaining
operations of CTC. The sale of PEI was completed on January 10, 1997.
F-16
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
NOTES TO THE CONSOLIDATED STATEMENTS OF INCOME
5. Functional Costs and Other Expenses
Selling, administrative and other expenses are comprised of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Selling expenses................................................ 10,100 9,663 8,383
Administration expenses......................................... 5,217 4,709 4,125
Goodwill amortization and writedowns............................ 227 210 135
Other expenses.................................................. 685 1,039 1,259
--------- --------- ---------
16,229 15,621 13,902
--------- --------- ---------
--------- --------- ---------
</TABLE>
Expenses amounting to [EURO] 229 and [EURO] 369 related to the repayment of
development cost subsidies were recorded under other expenses in 1998 and 1997,
respectively (see Note 28).
Personnel expenses included in the statement of income are comprised of:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Wages and salaries.............................................. 19,982 18,656 17,143
Social levies................................................... 2,990 2,817 2,527
Net periodic pension cost (see Note 22a)........................ 1,126 1,076 1,228
Net periodic postretirement benefit cost (see Note 22a)......... 866 755 673
Other expenses for pensions and retirements..................... 69 66 77
--------- --------- ---------
25,033 23,370 21,648
--------- --------- ---------
--------- --------- ---------
</TABLE>
Number of employees (annual average):
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Hourly employees............................................ 268,764 261,426 262,048
Salaried employees.......................................... 152,415 147,882 146,006
Trainees/apprentices........................................ 12,760 12,353 11,704
--------- --------- ---------
433,939 421,661 419,758
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1998, 36,024 people (1997: 34,448 people; 1996: 34,655 people) were
employed in joint venture companies.
In 1998, the total remuneration paid by Group companies to the members of
the Board of Management of DaimlerChrysler AG amounted to [EURO] 41, and the
remuneration paid to the members of the Supervisory Board of DaimlerChrysler AG
totaled [EURO] 2. Additionally, members of the Board of Management subscribed
for convertible bonds at a notional amount of [EURO] 0.6 within the 1998 Stock
Option Plan. Options totalling 1,755,000 and 12,000 to purchase Chrysler common
stock were granted to members of the Board of Management and the Supervisory
Board, respectively (see Note 21).
F-17
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
To determine the fair value of the option rights, option pricing models may
be used. As such, the resulting fair values can fluctuate significantly based
upon the underlying assumptions. Accordingly, uniform and consistent values are
generally not available. See Note 21 with respect to the valuation of the option
rights including the underlying assumptions and conditions of converting the
option rights in accordance with SFAS 123, "Accounting for Stock-Based
Compensation."
As of December 31, 1998, no advances and loans existed to members of the
Board of Management of DaimlerChrysler AG.
6. Other Income
Other income includes gains on sales of property, plant and equipment
([EURO] 99, [EURO] 95 and [EURO] 130 in 1998, 1997 and 1996, respectively),
gains on sales of companies ([EURO] 389, [EURO] 117 and [EURO] 197 in 1998, 1997
and 1996, respectively), rental income ([EURO] 138, [EURO] 87 and [EURO] 52 in
1998, 1997 and 1996, respectively), foreign currency exchange gains ([EURO] 116,
[EURO] 109 and [EURO] 21 in 1998, 1997 and 1996, respectively), and reductions
in certain accruals ([EURO] 199, [EURO] 154 and [EURO] 114 in 1998, 1997 and
1996, respectively).
7. Financial Income, net
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Income (loss) from investments of which from affiliated companies [EURO] (20)
(1997: [EURO] 17; 1996: [EURO] 20)................................................ (111) 66 217
Gains (losses), net from disposals of investments and shares in affiliated and
associated companies.............................................................. 37 459 (9)
Write-down of investments and shares in affiliated companies........................ (55) (76) (55)
Income (loss) from companies included at equity..................................... 59 36 (68)
--------- --------- ---------
Income (loss) from investments, net................................................... (70) 485 85
--------- --------- ---------
Other interest and similar income of which from affiliated companies [EURO] 13
(1997: [EURO] 10; 1996: [EURO] 12)................................................ 1,409 1,595 1,161
Interest and similar expenses....................................................... (702) (640) (581)
--------- --------- ---------
Interest income, net.................................................................. 707 955 580
--------- --------- ---------
Income from securities and long-term receivables.................................... 17 16 9
Gains from sales of securities...................................................... 132 85 57
Write-down of securities and long-term receivables.................................. (10) (10) (3)
Realized and unrealized gains (losses) on financial instruments..................... 145 (794) (390)
Other, net.......................................................................... (158) (104) 70
--------- --------- ---------
Other financial income (loss), net.................................................... 126 (807) (257)
--------- --------- ---------
763 633 408
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Group capitalized interest expenses related to qualifying construction
projects of [EURO] 186 (1997: [EURO] 207; 1996: [EURO] 145).
F-18
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
8. Income Taxes
Income before income taxes, extraordinary items and minority interests
amounted to [EURO] 8,154 (1997: [EURO] 6,180; 1996: [EURO] 5,693), of which
[EURO] 2,229 was generated by the Group's operations in Germany (1997:
[EURO] 1,450; 1996: [EURO] 594).
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Current taxes:
Germany...................................................... (267) (1,472) 207
Foreign...................................................... 1,383 1,695 1,228
Deferred taxes
Germany...................................................... 967 (910) (654)
Foreign...................................................... 992 205 766
--------- --------- ---------
3,075 (482) 1,547
--------- --------- ---------
--------- --------- ---------
</TABLE>
German corporate tax law applies a split-rate imputation with regard to the
taxation of the income of a corporation and its shareholders. In accordance with
the tax law in effect for fiscal 1998, retained corporate income is initially
subject to a federal corporate tax of 45% plus a solidarity surcharge of 5.5%
(1997 and 1996: 7.5%) on federal corporate taxes payable. Including the impact
of the surcharge, the federal corporate tax rate amounts to 47.475% (1997 and
1996: 48.375%). Upon distribution of certain retained earnings to stockholders,
the corporate income tax rate on the earnings is adjusted to 30%, plus a
solidarity surcharge of 5.5% (1997 and 1996: 7.5%) on the distribution corporate
tax, for a total of 31.65% (1997 and 1996: 32.25%), by means of a refund for
taxes previously paid. Upon distribution of retained earnings in the form of a
dividend, stockholders who are taxpayers in Germany are entitled to a tax credit
in the amount of federal income taxes previously paid by the corporation.
For German companies, the deferred taxes for 1998 and 1997 are calculated
using an effective corporate income tax rate of 47.475% plus the after federal
tax benefit rate for trade tax of 8.525%. The effect of the tax rate reduction
on year-end 1997 deferred tax balances is reflected in the reconciliation of
1997 presented below.
F-19
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
A reconciliation of income taxes determined using the German corporate tax
rate of 47.475% plus the after federal tax benefit rate for trade taxes of
8.525% for a combined statutory rate of 56% in 1998 (1997 and 1996: 57%) is as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Expected provision for income taxes............................. 4,566 3,522 3,245
Change in tax rate for deferred taxes, domestic................. -- 68 --
Credit for dividend distributions............................... (515) (1,624) (85)
Foreign tax rate differential................................... (985) (797) (993)
Release of valuation allowances on Groups German deferred tax
assets as of December 31, 1997................................ -- (1,003) --
Changes in valuation allowances on German deferred tax assets... 112 (465) (533)
Write-downs of investments, different for tax purposes.......... (18) (240) (106)
Amortization of non-tax-deductible goodwill..................... 78 55 29
Other........................................................... (163) 2 (10)
--------- --------- ---------
Actual provision (benefit) for income taxes..................... 3,075 (482) 1,547
--------- --------- ---------
--------- --------- ---------
</TABLE>
The 1998 income tax credit from dividend distributions amounted to
[EURO] 515 and reflected mainly the tax benefit from the dividend distribution
of [EURO] 2.35 per Ordinary Share/ADS.
The 1997 income tax credit from dividend distributions amounted to
[EURO] 1,624 and reflected primarily a tax benefit of [EURO] 1,487 from the
special distribution. This benefit resulted from the refund of taxes previously
paid on undistributed profits at a rate of 50% in excess of the effective tax
rate of 30% on distributed profits.
In 1997, the decrease in the consolidated domestic valuation allowances was
due in part to [EURO] 465 utilization of tax loss carryforwards. Additionally,
[EURO] 1,003 was due to the reversal of the remaining valuation allowances as of
December 31, 1997 for the German companies included in the filing of a combined
tax return ("Organschaft") on the basis that the current and the expected
results of operations supported a conclusion that it was more likely than not
that the deferred tax assets would be realized.
During 1997, the Group sold its investment in Cap Gemini Sogeti S.A. and
realized a gain of [EURO] 420 in its consolidated financial statements which was
not taxable since write-downs were previously not recognized for tax purposes.
During 1996, the Group's consolidated valuation allowances on deferred tax
assets decreased by [EURO] 538. In 1996, the Group realized income tax benefits
from the utilization of loss carryforwards of [EURO] 344 relating to entities in
the Aerospace division. The tax benefits of such loss carryforwards had been
fully reserved as of December 31, 1995 since the entities had a history of
operating losses prior to 1996 and such losses were limited as to their use. Tax
benefits recognized from other changes to the valuation allowances in 1996
included the merger of the former AEG Aktiengesellschaft into DaimlerChrysler AG
during 1996, after which the German loss carryforwards of AEG Aktiengesellschaft
could be utilized by the Group's German Organschaft. Prior to the merger such
net operating losses ("NOLs") were limited as to their use, and accordingly were
fully reserved for in the amount of [EURO] 118. In addition, during 1996 the
Group realized tax benefits of [EURO] 207 related to investments written down in
previous years.
F-20
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
Deferred income tax assets and liabilities are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Property, plant and equipment............................................. 2,063 484
Equipment on operating leases............................................. 1,068 992
Inventories............................................................... 1,328 1,259
Receivables............................................................... 527 700
Net operating loss and tax credit carryforwards........................... 1,056 3,367
Retirement plans.......................................................... 3,880 4,601
Other accrued liabilities................................................. 4,166 3,761
Liabilities............................................................... 846 774
Deferred income........................................................... 1,144 1,049
Other..................................................................... 549 504
--------- ---------
16,627 17,491
Valuation allowances...................................................... (411) (268)
--------- ---------
Deferred tax assets....................................................... 16,216 17,223
--------- ---------
Property, plant and equipment............................................. 2,743 2,541
Equipment on operating leases............................................. 4,252 3,601
Inventories............................................................... 483 504
Receivables............................................................... 3,645 3,257
Prepaid expenses.......................................................... 450 908
Retirement plans.......................................................... 2,069 1,891
Other accrued liabilities................................................. 367 410
Foreign withholding taxes................................................. 297 390
Other..................................................................... 1,059 535
--------- ---------
Deferred tax liabilities.................................................. 15,365 14,037
--------- ---------
Deferred tax assets, net.................................................. 851 3,186
--------- ---------
--------- ---------
</TABLE>
In 1998, DaimlerChrysler entered into an intercompany transaction to absorb
the Group's Organschaft NOLs in a manner which resulted in no net tax effect.
The transaction resulted in an increase in deferred tax assets mainly for
property, plant and equipment in an amount equal to the decrease in deferred tax
assets for the German NOLs.
At December 31, 1998, the Group had corporate tax NOLs and credit
carryforwards amounting to [EURO] 1,724 (1997: [EURO] 6,141) and German trade
tax NOLs amounting to [EURO] 2,156 (1997: [EURO] 6,346). The corporate tax NOLs
and credit carryforwards mainly relate to losses of domestic and foreign
non-Organschaft companies and are partly limited in their use to the Group. The
Group's consolidated valuation allowances on deferred tax assets of domestic and
foreign operations increased in the balance sheet by [EURO] 143. In future
periods, depending upon the Group's financial results, management's estimate of
the amount of the deferred tax assets considered realizable may change, and
hence the valuation allowances may increase or decrease.
F-21
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
Net deferred income tax assets and liabilities in the consolidated balance
sheets are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
thereof thereof
Total non-current Total non-current
--------- ------------- --------- -------------
Deferred tax assets............................... 5,016 3,979 5,688 4,400
Deferred tax liabilities.......................... 4,165 2,884 2,502 1,609
--------- ----- --------- -----
Deferred tax assets, net.......................... 851 1,095 3,186 2,791
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>
DaimlerChrysler provided foreign withholding taxes of [EURO] 297 (1997:
[EURO] 390) on [EURO] 5,948 (1997: [EURO] 7,789) in cumulative undistributed
earnings of foreign subsidiaries because these earnings are not intended to be
permanently reinvested in those operations. The Group did not provide income
taxes or foreign withholding taxes on [EURO] 6,016 (1997: [EURO] 4,907) in
cumulative earnings of foreign subsidiaries because these earnings are intended
to be indefinitely reinvested in those operations. It is not practicable to
estimate the amount of unrecognized deferred tax liabilities for these
undistributed foreign earnings.
Including the items charged or credited directly to related components of
shareholders' equity, the provision (benefit) for income taxes consists of the
following:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Provision (benefit) for income taxes before extraordinary items... 3,075 (482) 1,547
Income tax benefit of extraordinary items......................... (78) -- (90)
Stockholders' equity for employee stock option expense in excess
of amounts recognized for financial purposes.................... (212) (39) (32)
Stockholders' equity for items of other comprehensive income...... 296 176 64
--------- --- ---------
3,081 (345) 1,489
--------- --- ---------
--------- --- ---------
</TABLE>
9. Extraordinary Item
In December 1998, DaimlerChrysler extinguished [EURO] 257 ($ 300) of the
outstanding principal amount of its Auburn Hills Trust Guaranteed Exchangeable
Certificates due 2020 (the "Certificates") at a cost of [EURO] 454 ($ 530). The
extinguishment of the Certificates resulted in an extraordinary after tax loss
of [EURO] 129 ($ 143) (net of income tax benefit of [EURO] 78 ($ 87)). At
December 31, 1998, [EURO] 214 ($ 250) of the Certificates remained outstanding.
The remaining Certificates are not redeemable prior to maturity and carry a
current interest rate of 12 percent.
In December 1996, DaimlerChrysler extinguished [EURO] 437 ($ 550), or 50
percent, of the outstanding principal amount of its Auburn Hills Trust
Guaranteed Exchangeable Certificates due 2020 at a cost of [EURO] 683 ($ 859).
The extinguishment of the Certificates resulted in an extraordinary after tax
loss of [EURO] 147 ($191) (net of income tax benefit of [EURO] 90 or $118).
NOTES TO CONSOLIDATED BALANCE SHEETS
10. Intangible Assets and Property, Plant and Equipment, net
Information with respect to changes to the Group's intangible assets and
property, plant and equipment is presented in the Consolidated Fixed Assets
Schedule included herein. Intangible assets represent principally goodwill from
the formation of Adtranz and the acquisition of American Motors Corporation.
Intangible assets also include intangible pension assets.
F-22
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
Property, plant and equipment include buildings, technical equipment and
other equipment capitalized under capital lease agreements of [EURO] 394 (1997:
[EURO] 376). Depreciation expense on assets under capital lease arrangements was
[EURO] 38 (1997: [EURO] 29; 1996: [EURO] 44).
11. Equipment on Operating Leases, net
Information with respect to changes to the Group's equipment on operating
leases is presented in the Consolidated Fixed Assets Schedule included herein.
Of the total equipment on operating leases, [EURO] 14,078 represent automobiles
and commercial vehicles (1997: [EURO] 10,496).
Noncancellable future lease payments due from customers for equipment on
operating leases at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999................................................................. 3,166
2000................................................................. 1,933
2001................................................................. 952
2002................................................................. 286
2003................................................................. 98
thereafter........................................................... 151
---------
6,586
---------
---------
</TABLE>
12. Inventories
<TABLE>
<CAPTION>
At December 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Raw materials and manufacturing supplies............................... 2,278 1,911
Work in process thereof relating to long-term contracts and programs in
process [EURO] 919 (1997: [EURO] 705)................................ 4,568 4,414
Finished goods, parts and products held for resale..................... 7,631 6,789
Advance payments to suppliers.......................................... 312 337
--------- ---------
14,789 13,451
--------- ---------
Less: Advance payments received thereof relating to long-term contracts
and programs in process [EURO] 578 (1997: [EURO] 769)................ (2,993) (2,554)
--------- ---------
11,796 10,897
--------- ---------
--------- ---------
</TABLE>
Certain of the Group's U.S. inventories are valued using the LIFO method. If
the FIFO method had been used instead of the LIFO method, inventories would have
been higher by [EURO] 549 (1997: [EURO] 547).
F-23
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
13. Trade Receivables
<TABLE>
<CAPTION>
At December 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Receivables from sales of goods and services............................... 8,020 7,841
Long-term contracts and programs, unbilled, net of advance payments
received................................................................. 442 243
--------- ---------
8,462 8,084
Allowance for doubtful accounts............................................ (857) (819)
--------- ---------
7,605 7,265
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1998, [EURO] 399 of the trade receivables mature after
more than one year (1997: [EURO] 440).
14. Receivables from Financial Services
<TABLE>
<CAPTION>
At December 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Receivables from:
Sales financing.......................................................... 20,635 17,015
Finance leases........................................................... 9,542 8,151
--------- ---------
30,177 25,166
Initial direct costs..................................................... 96 85
Unearned income.......................................................... (4,245) (4,003)
Unguaranteed residual value of leased assets............................. 804 870
--------- ---------
26,832 22,118
Allowance for doubtful accounts.......................................... (364) (401)
--------- ---------
26,468 21,717
--------- ---------
--------- ---------
</TABLE>
Sales financing and finance lease receivables consist of retail installment
sales contracts secured by automobiles and commercial vehicles. Contractual
maturities applicable to receivables from sales financing and finance leases
maturing in each of the years following December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999.............................................................. 12,903
2000.............................................................. 6,019
2001.............................................................. 4,599
2002.............................................................. 1,996
2003.............................................................. 1,059
thereafter........................................................ 3,601
---------
30,177
---------
---------
</TABLE>
Actual cash flows will vary from contractual maturities due to future sales
of finance receivables, prepayments and charge-offs.
As of December 31, 1998, [EURO] 14,733 of the financing receivables mature
after more than one year (1997: [EURO] 12,336).
F-24
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
15. Other Receivables
<TABLE>
<CAPTION>
At December 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Receivables from affiliated companies.................................... 480 375
Receivables from related companies(1).................................... 804 717
Other receivables and other assets....................................... 10,740 11,490
--------- ---------
12,024 12,582
Allowance for doubtful accounts.......................................... (1,249) (1,206)
--------- ---------
10,775 11,376
--------- ---------
--------- ---------
</TABLE>
- - ------------------------------
(1) Related companies include entities which have a significant
ownership in DaimlerChrysler or entities in which the Group holds a
significant investment.
Other receivables and other assets includes retained interests in sold
receivables and subordinated asset backed certificates of [EURO] 3,046 (1997:
[EURO] 3,357) and, in 1997, a tax refund of approximately [EURO] 1,500 relating
to a special distribution.
As of December 31, 1998, [EURO] 4,199 of the other receivables mature after
more than one year (1997: [EURO] 4,305).
16. Securities, Investments and Long-Term Financial Assets
Information with respect to the Group's investments and long-term financial
assets is presented in the Consolidated Fixed Assets Schedule included herein.
Securities included in current assets are comprised of the following:
<TABLE>
<CAPTION>
At December 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Debt securities.......................................................... 4,565 4,259
Equity securities........................................................ 971 1,131
Equity based funds....................................................... 1,970 1,038
Debt based funds......................................................... 4,654 3,752
--------- ---------
12,160 10,180
--------- ---------
--------- ---------
</TABLE>
Carrying amounts and fair values of debt and equity securities included in
securities and investments for which fair values are readily determinable are
classified as follows:
<TABLE>
<CAPTION>
At December 31, 1998 At December 31, 1997
-------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized Unrealized
Fair ---------------------- Fair -----------
Cost value Gain Loss Cost value Gain Loss
--------- --------- --------- --- --------- --------- ----- ---
Available-for-sale.................. 10,501 11,183 706 24 8,603 8,952 356 6
Trading............................. 934 977 44 1 1,218 1,228 10 --
-- -
--------- --------- --------- --------- --------- ---
Securities.......................... 11,435 12,160 750 25 9,821 10,180 366 6
-- -
--------- --------- --------- --------- --------- ---
Investments and long-term financial
assets available-for-sale......... 278 675 397 -- 282 520 238 --
-- -
--------- --------- --------- --------- --------- ---
11,713 12,835 1,147 25 10,103 10,700 604 6
-- -
-- -
--------- --------- --------- --------- --------- ---
--------- --------- --------- --------- --------- ---
</TABLE>
F-25
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Aggregate cost, fair values and gross unrealized holding gains or losses per
security class are the following:
<TABLE>
<CAPTION>
At December 31, 1998 At December 31, 1997
-------------------------------------------- ----------------------
Unrealized
--------------------
Cost Fair value Gain Loss Cost Fair value
--------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Equity securities................................. 1,116 1,623 513 5 693 1,063
Debt securities isssued by the German government
and its agencies................................ 93 93 -- -- -- --
Municipal securities.............................. 418 418 -- -- 59 59
Debt securities issued by foreign governments..... 892 893 5 3 1,360 1,362
Corporate securities.............................. 1,459 1,478 32 12 1,404 1,412
Equity based securities........................... 1,761 1,970 208 -- 834 1,038
Debt based securities............................. 4,309 4,654 345 -- 3,750 3,752
Asset-backed securities........................... 597 595 -- 3 761 761
Other marketable securities....................... 134 134 -- 1 24 25
--------- ----------- --------- --- --------- -----------
Available-for-sale................................ 10,779 11,858 1,103 24 8,885 9,472
--------- ----------- --------- --- --------- -----------
Trading........................................... 934 977 44 1 1,218 1,228
--------- ----------- --------- --- --------- -----------
11,713 12,835 1,147 25 10,103 10,700
--------- ----------- --------- --- --------- -----------
--------- ----------- --------- --- --------- -----------
<CAPTION>
Unrealized
-------------
Gain Loss
----------- -----------
<S> <C> <C>
Equity securities................................. 371 1
Debt securities isssued by the German government
and its agencies................................ -- --
Municipal securities.............................. -- --
Debt securities issued by foreign governments..... 5 2
Corporate securities.............................. 10 3
Equity based securities........................... 205 --
Debt based securities............................. 2 --
Asset-backed securities........................... -- --
Other marketable securities....................... 1 --
--- ---
Available-for-sale................................ 594 6
--- ---
Trading........................................... 10 --
--- ---
604 6
--- ---
--- ---
</TABLE>
The estimated fair values of investments in debt securities, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalty.
<TABLE>
<CAPTION>
At December 31,
--------------------
Available-for-sale 1998 1997
- - ---------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Due within one year........................................................................... 975 930
Due after one year through five years......................................................... 2,122 1,839
Due after five years through ten years........................................................ 129 355
Due after ten years........................................................................... 385 495
--------- ---------
3,611 3,619
--------- ---------
--------- ---------
</TABLE>
Proceeds from sales of available-for-sale securities were [EURO] 2,734
(1997: [EURO] 1,432; 1996: [EURO] 1,237). Gross realized gains from sales of
available-for-sale securities were [EURO] 98 (1997: [EURO] 92; 1996: [EURO] 11),
while gross realized losses were [EURO] 8 (1997: [EURO] 1; 1996: [EURO] 3).
DaimlerChrysler uses the specific identification method as a basis for
determining cost and calculating realized gains or losses.
Other securities classified as cash equivalents were approximately [EURO]
4,600 and [EURO] 3,900 at December 31, 1998 and 1997, respectively, and
consisted primarily of purchase agreements, commercial paper and certificates of
deposit.
17. Cash and Cash Equivalents
Cash and cash equivalents include [EURO] 308 (1997: [EURO] 175) of deposits
with original maturities of more than three months.
F-26
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
18. Additional Cash Flow Information
Liquid assets recorded under various balance sheet captions are as follows:
<TABLE>
<CAPTION>
At December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash and cash equivalents available within 3 months................................. 6,281 6,634 4,879
Cash and cash equivalents which mature after 3 months............................... 308 175 683
Securities.......................................................................... 12,160 10,180 7,031
Other............................................................................... 324 336 258
--------- --------- ---------
19,073 17,325 12,851
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following represents supplemental information with respect to cash
flows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest paid........................................................................... 2,553 1,953 1,773
Income taxes paid....................................................................... 993 1,699 1,211
</TABLE>
19. Prepaid Expenses
Prepaid expenses are comprised of the following:
<TABLE>
<CAPTION>
At December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Prepaid pension cost............................................................................ 5,309 4,696
Other prepaid expenses.......................................................................... 825 1,734
----- -----
6,134 6,430
----- -----
----- -----
</TABLE>
As of December 31, 1998, [EURO] 5,280 of the total prepaid expenses mature
after more than one year (1997: [EURO] 4,511).
20. Stockholders' Equity
NUMBER OF SHARES ISSUED AND OUTSTANDING (ADJUSTED FOR THE MERGER)
At December 31, 1998, DaimlerChrysler had issued and outstanding
1,001,733,220 registered, Ordinary Shares of no par value. However, each share
represents [EURO] 2.56 of capital stock.
SPECIAL DISTRIBUTION
On May 27, 1998 the Daimler-Benz shareholders approved, and on June 15, 1998
Daimler-Benz paid, a special distribution of [EURO] 10.23 ([EURO] 10.04 after
adjustment to reflect the approximately 20% discount to market value at which
the Daimler-Benz Ordinary Shares and ADS were sold in the rights offering) per
Ordinary Share/ADS.
F-27
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
RIGHTS OFFERING
In June 1998, Daimler-Benz issued to holders of Daimler-Benz Ordinary
Shares, ADS's and convertible debt securities, rights to acquire up to an
aggregate of 52.4 million newly issued Daimler-Benz Ordinary Shares and on June
25, 1998, Daimler-Benz issued and sold 52.4 million Daimler-Benz Ordinary Shares
for net proceeds of [EURO] 3,827. The rights issued by Daimler-Benz entitled the
holders to purchase Daimler-Benz Ordinary Shares at approximately a 20% discount
to the market price of Daimler-Benz Ordinary Shares. Basic and diluted earnings
per Ordinary Share have been restated to reflect the dilutive effect resulting
from the discount to market value at which the Daimler-Benz Ordinary Shares were
sold in the rights offering.
TREASURY STOCK
In November 1998, Chrysler contributed 23.5 million shares of its common
stock to the Chrysler Corporation Retirement Master Trust, which serves as a
funding medium for and holds the assets of various pension and retirement plans
of Chrysler.
PREFERRED STOCK
On July 24, 1998, Chrysler redeemed all of the outstanding Chrysler
Depositary Shares representing its Series A Convertible Preferred Stock.
AUTHORIZED AND CONDITIONAL CAPITAL (DAIMLERCHRYSLER AG)
Through April 30, 2003, the Board of Management is authorized, upon approval
of the Supervisory Board, to increase capital stock by a total of up to [EURO]
256 (authorized capital (i)) and to issue shares of up to [EURO] 26 to employees
(authorized capital (ii)). Up to December 31, 1999, and upon approval of the
Supervisory Board, the Board of Management may issue capital stock of up to
[EURO] 77 for the subscription of shareholders of the former Daimler-Benz
Aktiengesellschaft (authorized capital (iii)).
With respect to the 4.125% convertible notes and the 5.75% subordinated
mandatory convertible notes described below, capital stock may be conditionally
increased by up to [EURO] 43.7 in the period from July 1, 1998, up to the time
the merger with Daimler-Benz Aktiengesellschaft became effective (conditional
capital (iv)) and [EURO] 43.7 for conversions after this date (conditional
capital (i)). A contingent increase of capital stock may also result upon
conversions related to the 1996, 1997 and 1998 Stock Option Plans as described
in Note 21. For this purpose, amounts of up to [EURO] 40.0 each are reserved for
the period from July 1, 1998, up to the time the merger with Daimler-Benz
Aktiengesellschaft became effective (conditional capital (v)) and for
conversions after this date (conditional capital (ii)). In addition,
DaimlerChrysler is authorized for future issuances of shares equaling up to
[EURO] 102 of capital stock in connection with convertible bonds or bonds with
warrants issued or guaranteed by April 30, 2003 (conditional capital (iii)).
CONVERTIBLE NOTES
During 1996, DaimlerChrysler Luxembourg Capital S.A. (formerly: Daimler-Benz
Capital (Luxembourg) AG), a subsidiary of DaimlerChrysler, issued 4.125% bearer
notes with appertaining warrants due July 5, 2003, in the amount of [EURO] 383
with a nominal value of [EURO] 511 each, including a total of 7,690,500 options
which, on the basis of the option agreement, entitled the bearer of the option
to subscribe for shares of Daimler-Benz AG. The option price per share (adjusted
for the Merger) is [EURO] 42.67 in consideration of exchange of the notes or
[EURO] 44.49 in cash. During 1998, options for the subscription of 5,027,002
(1997: 1,785; 1996: 36) newly issued Daimler-Benz Ordinary Shares have been
exercised.
F-28
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
In June 1997, DaimlerChrysler issued 5.75% subordinated mandatory
convertible notes due June 14, 2002 with a nominal amount of [EURO] 66.83 per
note. These convertible notes represent a nominal amount of [EURO] 508 including
7,600,000 notes which may be converted (adjusted for the Merger) into 0.86631
newly issuable shares before June 4, 2002. Notes not converted by this date will
be mandatorily converted at a conversion rate between 0.86631 and 1.25625
Ordinary Shares per note to be determined on the basis of the average market
price for the shares during the last 20 trading days before June 8, 2002. During
1998, 3,713 (1997: 156) Daimler-Benz Ordinary Shares were issued upon exercise.
COMPREHENSIVE INCOME
The changes in the components of other comprehensive income (loss) are as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996
--------------------------------- ------------------------------------- -----------
<CAPTION>
Pretax Tax effect Net Pretax Tax effect Net Pretax
--------- ----------- --------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Unrealized gain (loss) on securities:
Unrealized holding gain (loss)..... 659 (354) 305 439 (230) 209 105
Reclassification adjustments....... (103) 57 (46) (106) 54 (52) (13)
--------- --- --------- ----- --- --------- -----
Net unrealized gain (loss)........... 556 (297) 259 333 (176) 157 92
Foreign currency translation
adjustment......................... (1,402) -- (1,402) 1,865 -- 1,865 1,034
Minimum pension liability
adjustment......................... (2) 1 (1) 1 (.) 1 26
--------- --- --------- ----- --- --------- -----
Other comprehensive income (loss).... (848) (296) (1,144) 2,199 (176) 2,023 1,152
--------- --- --------- ----- --- --------- -----
--------- --- --------- ----- --- --------- -----
<CAPTION>
<S> <C> <C>
Tax effect Net
------------- ---------
<S> <C> <C>
Unrealized gain (loss) on securities:
Unrealized holding gain (loss)..... (60) 45
Reclassification adjustments....... 6 (7)
--
---------
Net unrealized gain (loss)........... (54) 38
Foreign currency translation
adjustment......................... -- 1,034
Minimum pension liability
adjustment......................... (10) 16
--
---------
Other comprehensive income (loss).... (64) 1,088
--
--
---------
---------
</TABLE>
MISCELLANEOUS
Minority stockholders of Dornier GmbH have the right to exchange their
interest in Dornier for holdings of equal value in Daimler-Benz Luft- und
Raumfahrt Holding AG or Ordinary Shares of DaimlerChrysler AG and such options
are exercisable at any time.
Under the German corporation law (Aktiengesetz), the amount of dividends
available for distribution to shareholders is based upon the earnings of
DaimlerChrysler AG (parent company only) as reported in its statutory financial
statements determined in accordance with the German commercial code
(Handelsgesetzbuch). For the year ended December 31, 1998, DaimlerChrysler
management has proposed a distribution of [EURO] 2,356 ([EURO] 2.35 per share)
of the 1998 earnings of DaimlerChrysler AG as a dividend to the stockholders.
21. Stock-Based Compensation
The Group currently has variable stock option plans, which were originally
approved by Daimler-Benz and have been converted to options for DaimlerChrysler
Ordinary Shares and a Stock Appreciation Rights plan. Prior to the Merger,
Chrysler had both fixed stock option and performance-based stock compensation
plans. These plans were terminated as a result of the Merger and all outstanding
options and awards were vested and converted to DaimlerChrysler Ordinary Shares.
The Group accounts for all stock-based compensation plans in accordance with APB
Opinion No. 25 and related interpretations.
F-29
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
VARIABLE STOCK OPTION PLANS
DaimlerChrysler established the 1998, 1997 and 1996 Stock Option Plans,
which provide for the granting of options ("Stock Options") for the purchase of
DaimlerChrysler Ordinary Shares to certain members of management, based on the
shareholders' approvals of 1996 and 1997. The options granted under the Plan are
evidenced by non-transferable convertible bonds with a principal amount of
[EURO] 511 per bond due ten years after issuance. During certain specified
periods each year, each convertible bond may be converted into 201
DaimlerChrysler Ordinary Shares, if the market price per share on the day of
conversion is at least 15% higher than the predetermined conversion price and
the options have been held for a 24 month waiting period. The specific terms of
these plans (adjusted for the Merger) are as follows:
<TABLE>
<CAPTION>
Bonds
granted in Due Stated interest rate Conversion price
- - ----------- ---------- --------------------- ----------------
<S> <C> <C> <C>
1996 July 2006 5.9% [EURO] 42.62
1997 July 2007 5.3% [EURO] 65.90
1998 July 2008 4.4% [EURO] 92.30
</TABLE>
In 1997, a stockholder challenged the approval of the 1997 Stock Option Plan
at the stockholders' meeting on May 28, 1997. A regional court in Stuttgart (the
Landgericht) dismissed this case and a higher court in Stuttgart (the
Oberlandesgericht) dismissed an appeal. The stockholder has subsequently
appealed these decisions. The conversion rights for the 1997 and 1998 Stock
Option Plans are exercisable only upon successful resolution of the stockholder
legal action.
Analysis of the Stock Options issued to management is as follows (shares in
millions; adjusted for the Merger):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Average Average
Number conversion Number conversion Number conversion
of Stock price per of Stock price per of Stock price per
Options share Options share Options share
----------- ------------- ----------- ------------- ----------- -------------
Balance at beginning of year..... 7.5 65.60 0.2 42.62 -- --
Bonds sold....................... 8.2 92.30 7.4 65.90 0.9 42.62
Converted........................ (.) 42.62 (0.1) 42.62 (0.7) 42.62
Repayment........................ (0.2) 72.22 (.) 65.90 (.) 42.62
--- ----- --- ----- --- -----
Outstanding at year-end.......... 15.5 79.63 7.5 65.60 0.2 42.62
--- ----- --- ----- --- -----
--- ----- --- ----- --- -----
Exercisable at year-end.......... 0.1 42.62 0.1 42.62 0.2 42.62
--- ----- --- ----- --- -----
--- ----- --- ----- --- -----
</TABLE>
At December 31, 1998, no additional convertible bonds may be subscribed
under these plans.
Compensation cost recognized in 1998 in connection with the variable stock
option plans amounted to [EURO] 38 (1997: [EURO] 0; 1996: [EURO] 0).
STOCK APPRECIATION RIGHTS
In conjunction with the consummation of the Merger, the Group implemented a
new Stock Appreciation Rights plan ("SARs"). SARs provide eligible employees of
the Group with the right to receive cash equal to the appreciation of
DaimlerChrysler Ordinary Shares subsequent to the date of grant. The initial
grant of SARs replaced Chrysler fixed stock options that were converted to
DaimlerChrysler Ordinary Shares as of the
F-30
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
consummation of the Merger. SARs which replaced stock options that were
exercisable at the time of the consummation of the Merger were immediately
exercisable at the date of grant. SARs related to stock options that were not
exercisable at the date of consummation of the Merger will become exercisable in
two installments; 50 percent on the six-month and one-year anniversaries of the
consummation date.
A summary of the activity related to the SARs as of and for the year ended
December 31, 1998 is presented below (shares in millions):
<TABLE>
<CAPTION>
1998
--------------------------
<S> <C> <C>
Weighted-avg.
Number exercise
of SARs price
----------- -------------
Granted.............................................................. 22.3 $ 75.56
Exercised............................................................ (0.1) 75.56
--- ------
Outstanding at year-end.............................................. 22.2 75.56
--- ------
--- ------
SARs exercisable at year-end......................................... 11.3 $ 75.56
--- ------
--- ------
</TABLE>
Compensation expense (benefit) is recorded based on changes in the market
price of DaimlerChrysler Ordinary Shares, the number of exercisable SARs and a
pro-rata portion of the unexercisable SARs. Compensation expense recognized
subsequent to the Merger for SARs was [EURO] 251 ($279).
CHRYSLER FIXED STOCK OPTION COMPENSATION PLANS
A summary of the status of fixed stock option grants under Chrysler's
stock-based compensation plans as of December 31, 1998, 1997 and 1996, and
changes during the years ending on those dates is presented below (shares in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Chrysler Weighted- Chrysler Weighted- Chrysler Weighted-
shares average shares average shares average
under exercise under exercise under exercise
option price option price option price
----------- ----------- ----------- ----------- ----------- -----------
Outstanding at beginning of year..................... 30.7 $ 27.71 28.5 $ 23.68 29.4 $ 19.40
Granted.............................................. 9.2 39.82 10.1 33.72 9.2 28.66
Exercised............................................ (3.8) 23.38 (7.8) 20.92 (7.2) 16.11
Forfeited............................................ (0.1) 30.60 (0.1) 26.70 (2.9) 14.79
Converted to Daimler Chrysler shares................. (36.0) 31.24 -- -- -- --
----- ----------- --- ----------- --- -----------
Outstanding at year-end.............................. -- -- 30.7 27.71 28.5 23.68
----- ----------- --- ----------- --- -----------
----- ----------- --- ----------- --- -----------
Options exercisable at year-end...................... -- -- 13.4 $ 23.43 13.3 $ 20.12
----- ----------- --- ----------- --- -----------
----- ----------- --- ----------- --- -----------
</TABLE>
No compensation expense has been recognized for Chrysler fixed stock option
grants since the options had exercise prices of not less than the market value
of Chrysler's common stock at the date of grant.
CHRYSLER PERFORMANCE-BASED STOCK COMPENSATION PLAN
Chrysler's stock-based compensation plans also provided for the awarding of
Performance Shares, which rewarded attainment of performance objectives.
Performance Shares were awarded at the commencement of a performance cycle (two
to three years) to each eligible executive (officers and a limited number of
senior
F-31
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
executives). At the end of each cycle, participants may earn no Performance
Shares or a number of Performance Shares, ranging from a set minimum to a
maximum of 150 percent of the award for that cycle, as determined by a committee
of Chrysler's Board of Directors based on the Chrysler's performance in relation
to the performance goals established at the beginning of the performance cycle.
Compensation expense recognized for Performance Share awards (since the
awards had no exercise price) was [EURO] 65 ($72), [EURO] 18 ($20) and [EURO] 23
($30) for 1998, 1997 and 1996, respectively. Unearned Chrysler Performance Share
awards outstanding at the date of the Merger and December 31, 1997 and 1996 were
1.9 million, 0.9 million and 0.8 million, respectively. As a result of the
Merger, all Performance Shares were vested and converted to DaimlerChryler
Ordinary Shares.
MISCELLANEOUS
If compensation expense for stock-based compensation had been based upon the
fair value at the grant date, consistent with the methodology prescribed under
SFAS 123, "Accounting for Stock Based Compensation," the Group's net income and
basic and diluted earnings per share would have been reduced by approximately
[EURO] 127 and [EURO] 25 (basic earnings per share: [EURO] 0.13 and [EURO] 0.03;
diluted earnings per share: [EURO] 0.13 and [EURO] 0.03) in 1998 and 1997,
respectively. The pro forma effect on the Group's consolidated net income and
basic and diluted earnings per share for 1996 was not material.
The fair value of the variable stock options was calculated at the grant
date based on a trinomial tree option pricing model which considers the terms of
the issuance. The underlying assumptions and the resulting fair value per option
are as follows (at grant date):
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Expected dividend yield............................................. 2.45% 0.83%
Expected volatility................................................. 35.2% 26.2%
Risk-free interest rate............................................. 4.09% 3.65%
Expected lives (in years)........................................... 2 2
[EURO] [EURO]
Fair value per option............................................... 19.38 11.76
</TABLE>
The fair value of each Chrysler fixed stock option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants and resulting fair values in 1998,
1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Expected dividend yield............................................. 4.0% 4.7% 4.8%
Expected volatility................................................. 29% 26% 31%
Risk-free interest rate............................................. 5.7% 6.2% 6.7%
Expected lives (in years)........................................... 5 5 5
Fair value per option............................................... $ 9.20 $ 6.79 $ 6.87
</TABLE>
Since Chrysler's fixed stock option grants did not vest, except upon
retirement or a change in corporate control, compensation expense was recognized
over the expected life of the option (i.e., five years).
The fair value of each Performance Share award was estimated at the date of
grant based on the market value of a share of Chrysler common stock on the date
of grant. Performance Share awards were recognized over performance cycles of
two to three years. However, because all outstanding fixed stock option and
Performance
F-32
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Share grants were vested as of the date of the Merger, for purposes of SFAS 123,
all remaining compensation expense was recognized in 1998.
22. Accrued Liabilities
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------
<S> <C> <C> <C> <C>
1998 1997
---------------------- ----------------------
<CAPTION>
Due after Due after
Total one year Total one year
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Pension plans and similar obligations
(see Note 22 a)................................... 16,618 15,714 17,821 16,963
Income and other taxes.............................. 1,122 246 1,006 302
Other accrued liabilities (see Note 22 b)........... 16,889 6,464 16,960 7,076
--------- ----------- --------- -----------
34,629 22,424 35,787 24,341
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
A) PENSION PLANS AND SIMILAR OBLIGATIONS
Pension plans and similar obligations are comprised of the following
components:
<TABLE>
<CAPTION>
At December 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Pension liabilities (pension plans)....................................... 9,148 8,739
Accrued postretirement health and life insurance benefits................. 7,020 8,818
Other pension liabilities................................................. 450 264
--------- ---------
16,618 17,821
--------- ---------
--------- ---------
</TABLE>
In 1998 the accrued postretirement benefits mainly decreased due to
contributions to a Voluntary Employees' Beneficiary Association ("VEBA") trust
in 1998, 1997 and 1996 totalling [EURO] 1,498 which are now designated for the
payment of postretirement health care benefits and therefore appropriated to
plan assets.
PENSION PLANS
The Group provides pension benefits to substantially all of its hourly and
salaried employees. Plan benefits are principally based upon years of service.
Certain pension plans are based on salary earned in the last year or last five
years of employment while others are fixed plans depending on ranking (both wage
level and position).
At December 31, 1998, plan assets were invested in diversified portfolios
that consisted primarily of real estate, debt and equity securities, including
14.4 million shares of DaimlerChrysler Ordinary Shares with a market value of
[EURO] 1,197 in a U.S. plan, which were contributed in connection with the
Merger (see Note 20).
Assets and income accruing on all pension trust and relief funds are used
solely to pay pension benefits and administer the plans.
The following information with respect to the Group's pension plans is
presented by U.S. Plans and Non-U.S. Plans which are principally comprised of
plans in Germany. The schedules are in accordance with SFAS 132 which does not
change the method of accounting for such plans.
F-33
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
In 1998 DaimlerChrysler used the rates of the new Heubeck mortality tables
for the valuation of the German pension liabilities. The mortality assumptions
reflect longer living expectations as well as lower levels of disability, which
resulted in a significant increase in actuarial losses for Non-U.S. Plans in
1998.
<TABLE>
<CAPTION>
At December 31, 1998 At December 31, 1997
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans
----------- -------------- ----------- ---------------
Change in projected benefit obligations:
Projected benefit obligations at beginning of year...... 14,235 13,048 11,430 11,881
Foreign currency exchange rate changes................ (1,001) (211) 1,757 178
Service cost.......................................... 378 309 261 277
Interest cost......................................... 931 834 899 817
Plan amendments....................................... 43 39 35 3
Actuarial losses...................................... 658 849 683 450
Effect of curtailments/settlements.................... -- 1 -- --
Acquisitions and other................................ (143) 132 2 (20)
Benefits paid......................................... (898) (595) (832) (538)
----------- ------ ----------- ------
Projected benefit obligations at end of year............ 14,203 14,406 14,235 13,048
----------- ------ ----------- ------
----------- ------ ----------- ------
Change in plan assets:
Fair value of plan assets at beginning of year.......... 16,231 4,521 12,608 3,947
Foreign currency exchange rate changes................ (1,220) (190) 1,957 192
Actual return on plan assets.......................... 2,254 526 2,445 591
Employer contributions................................ 1,300 5 33 60
Plan participant contributions........................ -- 20 15 1
Acquisitions and other................................ (115) 122 9 (60)
Benefits paid......................................... (897) (235) (836) (210)
----------- ------ ----------- ------
Fair value of plan assets at end of year................ 17,553 4,769 16,231 4,521
----------- ------ ----------- ------
----------- ------ ----------- ------
</TABLE>
F-34
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
A reconciliation of the funded status to the amounts recognized in the
consolidated balance sheets is as follows:
<TABLE>
<CAPTION>
At December 31, 1998 At December 31, 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
Non-U.S. Non-U.S.
U.S. Plans Plans U.S. Plans Plans
----------- ----------- ----------- -----------
Funded status(1).................................................. (3,349) 9,637 (1,996) 8,527
Unrecognized actuarial net gains (losses)......................... 344 (1,012) 130 (443)
Unrecognized prior service cost................................... (1,436) (102) (1,700) (130)
Unrecognized net obligation (net assets) at date of initial
application..................................................... (353) (4) (506) (6)
----------- ----------- ----------- -----
Net amount recognized............................................. (4,794) 8,519 (4,072) 7,948
----------- ----------- ----------- -----
----------- ----------- ----------- -----
Amounts recognized in the consolidated balance sheets
consist of:
Prepaid pension cost............................................ (4,816) (493) (4,074) (621)
Accrued pension liability....................................... 136 9,012 170 8,569
Intangible assets............................................... (94) -- (135) --
Accumulated other comprehensive income.......................... (20) -- (33) --
----------- ----------- ----------- -----
Net amount recognized............................................. (4,794) 8,519 (4,072) 7,948
----------- ----------- ----------- -----
----------- ----------- ----------- -----
</TABLE>
- - ------------------------------
(1) Difference between the projected benefit obligations and the fair value of
plan assets.
Assumed discount rates and rates of increase in remuneration used in
calculating the projected benefit obligations together with long-term rates of
return on plan assets vary according to the economic conditions of the country
in which the retirement plans are situated. The weighted-average assumptions
used in calculating the actuarial values for the principal pension plans were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- -------------
<S> <C> <C> <C> <C> <C>
Non-U.S. Non-U.S.
U.S. Plans % Plans % U.S. Plans % Plans % U.S. Plans %
------------- ------------- ------------- ------------- -------------
Weighted-average assumptions as of December 31:
Discount rate......................................... 6.5 6.0 6.8 6.5 7.3
Expected return on plan assets........................ 9.7 8.1 9.7 8.1 9.7
Rate of compensation increase......................... 5.9 3.3 6.0 3.7 6.0
<CAPTION>
<S> <C>
Non-U.S.
Plans %
-------------
Weighted-average assumptions as of December 31:
Discount rate......................................... 6.8
Expected return on plan assets........................ 8.1
Rate of compensation increase......................... 3.8
</TABLE>
F-35
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
The components of net periodic pension cost were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ -----------
<S> <C> <C> <C> <C> <C>
Non-U.S. Non-U.S.
U.S. Plans Plans U.S. Plans Plans U.S. Plans
----------- ----------- ----------- ----------- -----------
Service cost............................................ 378 309 261 277 246
Interest cost........................................... 931 834 899 817 721
Expected return on plan assets.......................... (1,391) (326) (1,265) (305) (1,001)
Amortization of:
Unrecognized net actuarial losses..................... 41 37 20 33 57
Unrecognized prior service cost....................... 165 22 176 18 120
Unrecognized net obligation........................... 124 2 123 2 105
Other................................................. 2 (2) 18 3 116
----------- --- ----------- --- -----------
Net periodic pension cost............................... 250 876 232 845 364
----------- --- ----------- --- -----------
----------- --- ----------- --- -----------
<CAPTION>
<S> <C>
Non-U.S.
Plans
-----------
Service cost............................................ 289
Interest cost........................................... 802
Expected return on plan assets.......................... (274)
Amortization of:
Unrecognized net actuarial losses..................... 23
Unrecognized prior service cost....................... 18
Unrecognized net obligation........................... 2
Other................................................. 4
---
Net periodic pension cost............................... 864
---
---
</TABLE>
The projected benefit obligations and fair value of plan assets for pension
plans with accumulated benefit obligations in excess of plan assets were [EURO]
13,391 and [EURO] 3,497, respectively, as of December 31, 1998 and [EURO] 12,048
and [EURO] 3,283 respectively, as of December 31, 1997.
OTHER POSTRETIREMENT BENEFITS
Certain DaimlerChrysler operations in North America provide postretirement
health and life insurance benefits to their employees. Upon retirement from
DaimlerChrysler the employees may become eligible for continuation of these
benefits. The benefits and eligibility rules may be modified periodically.
At December 31, 1998 plan assets were invested in diversified portfolios
that consisted primarily of debt and equity securities.
F-36
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
The following information with respect to the Group's postretirement benefit
plans is presented by U.S. Plans and Non-U.S. Plans; the latter concerning
Canadian companies. The schedules are in accordance with SFAS 132 which does not
change the method of accounting for such plans.
<TABLE>
<CAPTION>
At December 31, 1998 At December 31, 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
Non-U.S. Non-U.S.
U.S. Plans Plans U.S. Plans Plans
----------- ----------- ----------- -----------
Change in accumulated postretirement benefit obligations:
Accumulated postretirement benefit obligations at beginning
of year............................................................ 8,950 717 7,508 528
Foreign currency exchange rate changes............................. (713) (50) 1,157 81
Service cost....................................................... 173 16 153 11
Interest cost...................................................... 598 48 548 44
Plan participant contributions..................................... -- -- -- --
Plan amendments.................................................... 279 1 (302) 2
Actuarial losses................................................... 348 25 291 99
Acquisitions and other............................................. -- (52) 1 (27)
Benefits paid...................................................... (431) (23) (406) (21)
----- --- ----- ---
Accumulated postretirement benefit obligations at end of year........ 9,204 682 8,950 717
----- --- ----- ---
----- --- ----- ---
Change in plan assets:
Fair value of plan assets at beginning of year....................... 91 -- 66 --
Foreign currency exchange rate changes............................. (24) -- 11 --
Actual return on plan assets....................................... 13 -- 12 --
Employer contributions............................................. 1,498 -- 5 --
Benefits paid...................................................... (4) -- (3) --
----- --- ----- ---
Fair value of plan assets at end of year............................. 1,574 -- 91 --
----- --- ----- ---
----- --- ----- ---
</TABLE>
A reconciliation of the funded status to the amounts recognized in the
consolidated balance sheets is as follows:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------
<S> <C> <C> <C> <C>
1998 1997
------------------------ ------------------------
<CAPTION>
Non-U.S. Non-U.S.
U.S. Plans Plans U.S. Plans Plans
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Funded status(1)................................................... 7,629 682 8,859 717
Unrecognized actuarial net losses.................................. (800) (214) (494) (232)
Unrecognized prior service cost.................................... (269) (8) (25) (7)
----- --- ----- ---
Net amount recognized.............................................. 6,560 460 8,340 478
----- --- ----- ---
----- --- ----- ---
</TABLE>
- - ------------------------
(1) Difference between the accumulated postretirement obligations and the fair
value of plan assets.
The amount recognized in the consolidated balance sheets consists only of
accrued postretirement health and life insurance benefits.
F-37
<PAGE>
DaimlerChrysler AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Assumed discount rates and rates of increase in remuneration used in
calculating the accumulated postretirement benefit obligations together with
long-term rates of return on plan assets vary according to the economic
conditions of the country in which the retirement plans are situated. The
weighted-average assumptions used in calculating the actuarial values for the
postretirement benefit plans were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- -------------
<S> <C> <C> <C> <C> <C>
Non-U.S. Non-U.S.
U.S. Plans % Plans % U.S. Plans % Plans % U.S. Plans %
------------- ------------- ------------- ------------- -------------
Weighted-average assumptions as of December 31:
Discount rate......................................... 6.5 6.3 6.8 6.5 7.3
Expected return on plan assets........................ 10.0 -- 8.5 -- 8.5
Health care inflation rate in following (or "base")
year................................................ 6.0 5.1 6.5 5.9 6.0
Ultimate health care inflation rate (2002)............ 5.0 4.7 5.0 4.8 5.1
<CAPTION>
<S> <C>
Non-U.S.
Plans %
-------------
Weighted-average assumptions as of December 31:
Discount rate......................................... 6.5
Expected return on plan assets........................ --
Health care inflation rate in following (or "base")
year................................................ 6.0
Ultimate health care inflation rate (2002)............ 5.1
</TABLE>
The components of net periodic postretirement benefit cost were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- -------------
<S> <C> <C> <C> <C> <C>
Non-U.S. Non-U.S.
U.S. Plans Plans U.S. Plans Plans U.S. Plans
------------- ------------- ------------- ------------- -------------
Service cost.......................................... 173 16 153 11 147
Interest cost......................................... 598 48 548 44 489
Expected return on plan assets........................ (6) -- (5) -- --
Amortization of:
Unrecognized net actuarial losses (gains)........... 3 11 (1) -- (6)
Unrecognized prior service cost..................... 24 (1) 1 3 15
Unrecognized net asset.............................. -- -- (1) -- (24)
Other............................................... -- -- 2 -- 5
-- --
--- --- ---
Net periodic postretirement benefit cost.............. 792 74 697 58 626
-- --
-- --
--- --- ---
--- --- ---
<CAPTION>
<S> <C>
Non-U.S.
Plans
-------------
Service cost.......................................... 8
Interest cost......................................... 38
Expected return on plan assets........................ --
Amortization of:
Unrecognized net actuarial losses (gains)........... --
Unrecognized prior service cost..................... 3
Unrecognized net asset.............................. (1)
Other............................................... --
--
Net periodic postretirement benefit cost.............. 48
--
--
</TABLE>
The following schedule presents the effects of a one-percentage-point change
in assumed health care cost trend rates:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Increase Point Decrease
--------------- -----------------
<S> <C> <C>
Effect on total of service and interest cost components............................ 111 (91)
Effect on accumulated postretirement benefit obligations........................... 1,067 (876)
</TABLE>
F-38
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
PREPAID EMPLOYEE BENEFITS
In December 1998, DaimlerChrysler prepaid certain 1999 nonpension employee
benefits by contributing [EURO] 292 to a Voluntary Employees' Beneficiary
Association ("VEBA") trust for payment of postretirement health care benefits.
Also in 1998, [EURO] 1,206 of the amounts contributed to the VEBA in 1997 and
1996 were designated and restricted for the payment of postretirement health
care benefits. Therefore in 1998 the total of [EURO] 1,498 were assigned to the
plan assets of the postretirement health care and life insurance benefit plans.
In December 1997, Chrysler prepaid certain 1998 nonpension employee benefits by
contributing [EURO] 975 to a VEBA trust and other employee benefit plans. In
December 1996, DaimlerChrysler prepaid certain 1997 nonpension employee benefits
by contributing [EURO] 846 to a VEBA trust and other employee benefit plans.
B) OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
At December 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Accrued warranty costs and price risks........................................................ 6,386 6,363
Accrued losses on uncompleted contracts....................................................... 762 646
Restructuring................................................................................. 635 728
Accrued personnel and social costs............................................................ 2,263 2,035
Other......................................................................................... 6,843 7,188
--------- ---------
16,889 16,960
--------- ---------
--------- ---------
</TABLE>
Accruals for restructuring comprise certain employee termination benefits and
costs which are directly associated with plans to exit specified activities. The
changes in these provisions are summarized as follows:
<TABLE>
<CAPTION>
Termination Exit Total
benefits costs liabilities
------------- --------- -----------
<S> <C> <C> <C>
Balance at January 1, 1996....................................................... 832 226 1,058
Utilizations and transfers....................................................... (284) (26) (310)
Reductions....................................................................... (194) (17) (211)
Additions........................................................................ 216 180 396
----- --------- -----
Balance at December 31, 1996..................................................... 570 363 933
Utilizations and transfers....................................................... (269) (187) (456)
Reductions....................................................................... (45) (37) (82)
Additions........................................................................ 299 34 333
----- --------- -----
Balance at December 31, 1997..................................................... 555 173 728
Utilizations and transfers....................................................... (242) (110) (352)
Reductions....................................................................... (12) (19) (31)
Additions........................................................................ 259 31 290
----- --------- -----
Balance at December 31, 1998..................................................... 560 75 635
----- --------- -----
----- --------- -----
</TABLE>
In connection with the Group's restructuring, provisions were recorded for
termination benefits of [EURO] 259 (1997: [EURO] 299; 1996: [EURO] 216), in 1998
principally within the Automotive Business of the former Daimler-Benz Group and
DaimlerChrysler Aerospace, in 1997 principally within the Automotive Business of
the former Daimler-Benz
F-39
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Group and 1996 principally within the Automotive Business of the former
Daimler-Benz Group, AEG-DBI and DaimlerChrysler Aerospace. In connection with
these restructuring efforts, the Group effected workforce reductions of
approximately 7,100 employees (1997: 6,600; 1996: 11,800) and paid termination
benefits of [EURO] 413 (1997: [EURO] 503; 1996: [EURO] 381), of which [EURO] 242
(1997: [EURO] 269; 1996: [EURO] 284) were charged against previously established
liabilities. At December 31, 1998 the Group had liabilities for estimated future
terminations for approximately 9,500 employees.
During 1996, the aerospace industry experienced a significant increase in
demand. As a consequence, higher production requirements resulted, especially
for DaimlerChrysler Aerospace Airbus GmbH, in a reduction of approximately
[EURO] 153 in certain restructuring provision made in 1995.
Exit costs in 1998 and 1997 primarily result from the restructuring of
directly managed businesses. In 1996 they relate exclusively to the
restructuring of businesses of the former AEG-DBI.
23. Financial Liabilities
<TABLE>
<CAPTION>
Weighted At December 31,
average --------------------
interest rate (%) Maturities 1998 1997
------------------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Notes/Bonds.................................................... 5.8 3,207 3,030
Commercial paper............................................... 5.4 11,015 8,991
Liabilities to financial institutions.......................... 5.2 4,999 4,420
Liabilities to affiliated companies............................ 158 29
Loans, other financial liabilities............................. 319 406
Liabilities from capital lease and residual value guarantees... 777 465
--------- ---------
Short-term financial liabilities (due within one year)......... 20,475 17,341
--------- ---------
Notes/Bonds of which due in more than five years: [EURO] 2,605
(1997: [EURO] 3,472)......................................... 6.1 2000-2097 14,576 12,671
Liabilities to financial institutions of which due in more than
five years: [EURO] 2,185 (1997: [EURO] 1,492)................ 5.8 2000-2019 4,311 3,485
Liabilities to affiliated companies of which due in more than
five years: [EURO] 28 (1997: [EURO] 87)...................... 171 283
Loans, other financial liabilities of which due in more than
five years: [EURO] 36 (1997: [EURO] 35)...................... 64 55
Liabilities from capital lease and residual value guarantees of
which due in more than five years: [EURO] 228 (1997: [EURO]
307)......................................................... 833 540
--------- ---------
Long-term financial liabilities................................ 19,955 17,034
--------- ---------
40,430 34,375
--------- ---------
--------- ---------
</TABLE>
Commercial paper is denominated in [EURO] and U.S. dollars and includes
accrued interest. Bonds and liabilities to financial institutions are largely
secured by mortgage conveyance, liens and assignment of receivables of
approximately [EURO] 1,526 (1997: [EURO] 1,190).
F-40
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Aggregate amounts of financial liabilities maturing during the next five
years and thereafter are as follows:
<TABLE>
<CAPTION>
there-
1999 2000 2001 2002 2003 after
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Financial liabilities........................................ 20,475 5,749 4,226 3,358 1,541 5,081
</TABLE>
At December 31, 1998, the Group had unused short-term credit lines of [EURO]
7,984 (1997: [EURO] 11,027) and unused long-term credit lines of [EURO] 10,903
(1997: [EURO] 11,047).
24. Trade Liabilities
<TABLE>
<CAPTION>
At December 31, 1998 At December 31, 1997
----------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
Due after Due after Due after
Total one year five years Total one year
--------- ------------- --------------- --------- -------------
Trade liabilities............................... 12,848 54 1 12,026 32
<CAPTION>
<S> <C>
Due after
five years
---------------
Trade liabilities............................... 2
</TABLE>
25. Other Liabilities
<TABLE>
<CAPTION>
At December 31, 1998 At December 31, 1997
--------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
Due after Due after Due after
Total one year five years Total one year
--------- ------------- ------------- --------- -------------
Liabilities to affiliated companies......................... 349 -- -- 553 --
Liabilities to related companies............................ 665 20 11 956 19
Other liabilities........................................... 8,235 587 2 6,403 815
--
--------- --- --------- ---
9,249 607 13 7,912 834
--
--
--------- --- --------- ---
--------- --- --------- ---
<CAPTION>
<S> <C>
Due after
five years
---------------
Liabilities to affiliated companies......................... --
Liabilities to related companies............................ 12
Other liabilities........................................... 16
--
28
--
--
</TABLE>
Liabilities to related companies are primarily obligations of
DaimlerChrysler Aerospace Airbus GmbH to Airbus Industrie G.I.E., Toulouse.
Other liabilities include payroll obligations of the month of December and
related tax liabilities. As of December 31, 1998, tax liabilities include
employee withholding taxes of [EURO] 1,025 (1997: [EURO] 711) and social
benefits due of [EURO] 759 (1997: [EURO] 659).
26. Deferred Income
As of December 31, 1998, [EURO] 986 of the total deferred income mature
after more than one year (1997: [EURO] 1,321).
OTHER NOTES
27. Litigation and Claims
Various claims and legal proceedings have been asserted or instituted
against the Group, including some purporting to be class actions, and some which
demand large monetary damages or other relief which could result in significant
expenditures. Litigation is subject to many uncertainties, and the outcome of
individual matters is not predictable with assurance. It is reasonably possible
that the final resolution of some of these matters may require the Group to make
expenditures, in excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated. The term
"reasonably possible" is used herein to mean
F-41
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
that the chance of a future transaction or event occurring is more than remote
but less than likely. Although the final resolution of any such matters could
have a material effect on the Group's consolidated operating results for the
particular reporting period in which an adjustment of the estimated reserve is
recorded, the Group believes that any resulting adjustment should not materially
affect its consolidated financial position.
28. Commitments and Contingencies
Commitments and contingencies are presented at their contractual values and
include the following:
<TABLE>
<CAPTION>
At December 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Guarantees................................................................. 2,449 2,107
Notes payable.............................................................. 103 100
Contractual guarantees..................................................... 500 829
Pledges of indebtedness of others.......................................... 307 186
--------- ---------
3,359 3,222
--------- ---------
--------- ---------
</TABLE>
Contingent liabilities principally represent guarantees of indebtedness of
non-consolidated affiliated companies and third parties and commitments by Group
companies as to contractual performance by joint venture companies.
DaimlerChrysler Aerospace is also obligated to make certain guaranteed dividend
payments to minority shareholders.
DaimlerChrysler is subject to potential liability under government
regulations and various claims and legal actions which are pending or may be
asserted against DaimlerChrysler concerning environmental matters. Estimates of
future costs of such environmental matters are inevitably imprecise due to
numerous uncertainties, including the enactment of new laws and regulations, the
development and application of new technologies, the identification of new sites
for which DaimlerChrysler may have remediation responsibility and the
apportionment and collectibility of remediation costs among responsible parties.
DaimlerChrysler establishes reserves for these environmental matters when a
loss is probable and reasonably estimable. It is reasonably possible that the
final resolution of some of these matters may require DaimlerChrysler to make
expenditures, in excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated. Although the
final resolution of any such matters could have a material effect on
DaimlerChrysler's consolidated operating results for the particular reporting
period in which an adjustment of the estimated reserve is recorded,
DaimlerChrysler believes that any resulting adjustment should not materially
affect its consolidated financial position.
DaimlerChrysler periodically initiates voluntary service actions and recall
actions to address various customer satisfaction, safety and emissions issues
related to vehicles it sells. DaimlerChrysler establishes reserves for product
warranty, including the estimated cost of these service and recall actions, when
the related sale is recognized. The estimated future costs of these actions is
based primarily on prior experience. Estimates of the future costs of these
actions are inevitably imprecise due to numerous uncertainties, including the
enactment of new laws and regulations, the number of vehicles affected by a
service or recall action, and the nature of the corrective action which may
result in adjustments to the established reserves. It is reasonably possible
that the ultimate cost of these service and recall actions may require
DaimlerChrysler to make expenditures, in excess of established reserves, over an
extended period of time and in a range of amounts that cannot be reasonably
estimated. Although the ultimate cost of these service and recall actions could
have a material effect on DaimlerChrysler's consolidated operating results for
the particular reporting period in which an adjustment of the
F-42
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
estimated reserve is recorded, DaimlerChrysler believes that any such adjustment
should not materially affect its consolidated financial position.
In connection with the development of aircraft, DaimlerChrysler Aerospace
Airbus GmbH ("DA") is committed to Airbus Industrie to incur future development
costs. At December 31, 1998, the remaining commitment not recorded in the
financial statements aggregated [EURO] 316.
Airbus Industries G.I.E. ("Airbus consortium") has given a performance
guarantee to Agence Executive, the French government agency overseeing Airbus;
such performance guarantee has been assumed by DA to the extent of its 37.9%
participation in the Airbus consortium.
At December 31, 1998, in connection with DA's participation in the Airbus
consortium, DA was contingently liable related to the Airbus consortium's
irrevocable financing commitments in respect of aircraft on order, including
options, for delivery in the future. In addition, DA was also contingently
liable related to credit guarantees and participations in financing receivables
of the Airbus consortium under customer finance programs. When entering into
such customer financing commitments, the Airbus consortium has generally
established a secured position in the aircraft being financed. The Airbus
consortium and DA believe that the estimated fair value of the aircraft securing
such commitments would substantially offset any potential losses from the
commitments. Based on experience, the probability of material losses from such
customer financing commitments is considered remote.
DA's obligations under the foregoing financing commitments of the Airbus
consortium are joint and several with its other partners in the consortium. In
the event that Airbus, despite the underlying collateral, should be unable to
honor its obligations, each consortium partner would be jointly and severally
liable to third parties without limitation. Between the consortium partners, the
liability is limited to each partner's proportionate share in Airbus.
In 1989, the Group acquired Messerschmitt-Boelkow-Blohm GmbH ("MBB"), which
included DaimlerChrysler Aerospace Airbus GmbH (then known as Deutsche Airbus
GmbH) which was and continues to be the German participant in Airbus Industrie.
In connection with this acquisition, the Government of the Federal Republic of
Germany undertook responsibility for certain financial obligations of MBB and
DaimlerChrysler Aerospace Airbus GmbH and agreed to provide certain ongoing
limited financial assistance for development programs and other items. Such
undertakings, advances and assistance were to be repaid by DaimlerChrysler
Aerospace Airbus GmbH on a contingent basis equal to 40% of the prior year's
pretax profit, as defined in the agreement with the Government, beginning in
2001, and royalty payments based on sales of aircraft.
During 1998 and 1997, DaimlerChrysler Aerospace Airbus GmbH settled these
contingent obligations with the Federal Republic of Germany for payments of
[EURO] 895 and [EURO] 716, respectively. The 1998 settlement, which resulted in
the complete discharge of all remaining obligations to the German Federal
Government, related to the Airbus A300/310 and A330/340 series aircraft as well
as to financial assistance not related to development, while the 1997 settlement
related primarily to the A320 aircraft and derivatives. Of the foregoing
settlement payments, [EURO] 229 and [EURO] 369 were expensed in 1998 and 1997,
respectively. The remainder of the settlement payments were capitalized and are
being amortized over those aircraft to be delivered in the future to which the
settlements related.
In connection with certain production programs the Group has committed to
certain levels of outsourced manufactured parts and components over extended
periods at market prices. The Group may be required to compensate suppliers in
the event the committed volumes are not purchased.
F-43
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
In the normal course of business, the Group sells to third parties certain
of its receivables from financial services. During the year ended December 31,
1998 the Group sold financial receivables for proceeds of [EURO] 40,863 (1997:
[EURO] 44,336). In connection with such sales, the Group remained liable under
recourse provisions for [EURO] 182 (1997: [EURO] 161).
The Group is jointly and severally liable for certain non-incorporated
companies, partnerships, and project groups.
Total rentals under operating leases, charged as an expense in the statement
of income, amounted to [EURO] 984 (1997: [EURO] 910; 1996: [EURO] 826). Future
minimum lease payments under rental and lease agreements which have initial or
remaining terms in excess of one year at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating leases
-------------------
<S> <C>
1999......................................................................... 543
2000......................................................................... 371
2001......................................................................... 283
2002......................................................................... 218
2003......................................................................... 168
thereafter................................................................... 870
</TABLE>
29. Information About Financial Instruments
A) USE OF FINANCIAL INSTRUMENTS
In the course of day-to-day financial management, DaimlerChrysler purchases
financial instruments, such as financial investments, variable- and
fixed-interest bearing securities and stock, forward exchange contracts and
currency options. The Group also sells financial instruments such as eurobonds,
commercial paper and euro-medium-term-notes. As a consequence, the Group may be
exposed to risks from changes in interest and currency exchange rates as well as
share prices. DaimlerChrysler uses derivative financial instruments to reduce
such risks. Without the use of these instruments the Group's market risks would
be higher.
Based on regulations issued by regulatory authorities for financial
institutions, the Group has established guidelines for risk assessment
procedures and controls for the use of financial instruments, including a clear
segregation of duties with regard to operating financial activities and
settlement, accounting and controlling.
Market risk in portfolio management is quantified according to the
"value-at-risk" method which is commonly used among banks. Using historical
variability of market values, potential changes in value resulting from changes
of market prices are calculated on the basis of statistical methods. The maximum
acceptable market risk is established by senior management in the form of risk
capital, approved for a period not exceeding one year. Adherence to risk capital
limitations is regularly monitored.
B) NOTIONAL AMOUNTS AND CREDIT RISK
The contract or notional amounts shown below do not always represent amounts
exchanged by the parties and, thus, are not necessarily a measure for the
exposure of DaimlerChrysler through its use of derivatives.
F-44
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
The notional amounts of off-balance sheet financial instruments are as
follows:
<TABLE>
<CAPTION>
At December 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Currency contracts....................................................... 28,204 22,912
Interest rate contracts.................................................. 26,162 30,093
</TABLE>
Currency contracts include foreign exchange forward and option contracts
which are mainly utilized to hedge existing receivables and liabilities, firm
commitments and anticipated transactions denominated in foreign currencies
(principally U.S. dollars, Japanese Yen and major European currencies). The
objective of the Group's hedging transactions is to reduce the market risk of
its foreign denominated future cash flows to exchange rate fluctuations. The
Group has entered into currency contracts for periods of one to five years.
The Group enters into interest and interest rate cross-currency swaps,
interest rate forward and futures contracts and interest rate options in order
to safeguard financial investments against fluctuating interest rates as well as
to reduce funding costs, to diversify sources of funding, or to alter interest
rate exposures arising from mismatches between assets and liabilities.
The Group may be exposed to credit-related losses in the event of
non-performance by counterparties to financial instruments. Counterparties to
the Group's financial instruments represent, in general, international financial
institutions. DaimlerChrysler does not have a significant exposure to any
individual counterparty, based on the rating of the counterparties performed by
established rating agencies. The Group believes the overall credit risk related
to utilized derivatives is insignificant.
C) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the price at which one party
would assume the rights and/or duties of another party. Fair values of financial
instruments have been determined with reference to available market information
at the balance sheet date and the valuation methodologies discussed below.
Considering the variability of their value-determining factors, the fair values
presented herein may not be indicative of the amounts that the Group could
realize in a current market exchange.
F-45
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
The carrying amounts and fair values of the Group's financial instruments
are as follows:
<TABLE>
<CAPTION>
At December 31, 1998 At December 31, 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
Carrying Fair Carrying Fair
amount value amount value
----------- --------- ----------- ---------
Balance Sheet Financial Instruments:
Assets:
Financial assets.............................................. 912 912 1,485 1,485
Receivables from financial services........................... 26,468 26,460 21,717 21,818
Securities.................................................... 12,160 12,160 10,180 10,180
Cash and cash equivalents..................................... 6,590 6,590 6,809 6,809
Other......................................................... 261 261 336 336
Liabilities:
Financial liabilities......................................... 40,430 40,459 34,375 35,236
Off-Balance Sheet Financial Instruments:
Assets:
Currency contracts............................................ 338 744 173 367
Interest rate contracts....................................... 97 309 60 116
Liabilities:
Currency contracts............................................ 268 349 535 972
Interest rate contracts....................................... 19 303 48 222
</TABLE>
In determining the fair values of derivative financial instruments, certain
compensating effects from underlying transactions (e.g. firm commitments and
anticipated transactions) are not taken into consideration. At December 31, 1998
and 1997, the Group had deferred net unrealized gains (losses) on forward
currency exchange contracts and options of [EURO] 325 and [EURO] (243),
respectively, purchased against firm foreign currency denominated sales
commitments extending for varying periods between three and twenty-four months.
The carrying amounts of cash, other receivables and accounts payable
approximate fair values due to the short-term maturities of these instruments.
The methods and assumptions used to determine the fair values of other
financial instruments are summarized below:
FINANCIAL ASSETS AND SECURITIES -- Fair value of securities in the portfolio
was estimated using quoted market prices. The Group has certain equity
investments in related and affiliated companies not presented in the table, as
certain of these investments are not publicly traded and determination of fair
values is impracticable.
RECEIVABLES FROM FINANCIAL SERVICES -- The carrying amount of variable rate
finance receivables was estimated to approximate fair value since they are
priced at current market rates. The fair value of fixed rate finance receivables
was estimated by discounting expected cash flows using the current rates at
which comparable loans of similar maturity would be obtained made as of December
31, 1998 and 1997.
The fair values of residual cash flows and other subordinated amounts
arising from receivable sale transactions were estimated by discounting expected
cash flows at current market rates.
FINANCIAL LIABILITIES -- Fair value of publicly traded debt was estimated
using quoted market prices. The fair value of other long-term notes and bonds
was estimated by discounting future cash flows using rates currently available
for debt of similar terms and remaining maturities. The carrying amounts of
commercial paper and borrowings under revolving credit facilities were assumed
to approximate fair value due to their short maturities.
F-46
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
INTEREST RATE CONTRACTS -- The fair values of existing instruments to hedge
interest rate risks (e.g. interest rate swap agreements) were estimated by
discounting expected cash flows using market interest rates over the remaining
term of the instrument. Interest rate options are valued on the basis of quoted
market prices or on estimates based on option pricing models.
CURRENCY CONTRACTS -- The fair value of forward foreign exchange contracts
is based on average spot exchange rates that consider forward premiums or
discounts. Currency options are valued on the basis of quoted market prices or
on estimates based on option pricing models.
D) ACCOUNTING FOR AND REPORTING EARNINGS OF FINANCIAL INSTRUMENTS
The earnings of the Group's on-balance sheet financial instruments, with the
exception of receivables from financial services, are recognized in financial
income, net. Income on receivables from financial services are recognized as
revenues. The carrying amounts of the on-balance sheet financial instruments are
included in the consolidated balance sheets under their related captions. The
carrying amounts of off-balance sheet financial instruments are included under
other assets and accrued liabilities.
Financial instruments, including derivatives, purchased to offset the
Group's exposure to identifiable and committed transactions with price, interest
or currency risks are accounted for together with the underlying business
transactions ("hedge accounting"). Gains and losses on forward contracts and
options hedging firm foreign currency commitments are deferred off-balance sheet
and are recognized as a component of the related transactions, when recorded
(the"deferral method"). However, a loss is not deferred if deferral would lead
to the recognition of a loss in future periods.
In the event of an early termination of a currency exchange agreement
designated as a hedge, the gain or loss continues to be deferred and is included
in the settlement of the underlying transaction.
Interest differentials paid or received under interest rate swaps purchased
to hedge interest risks on debt are recorded as adjustments to the effective
yields of the underlying debt ("accrual method").
In the event of an early termination of an interest rate related derivative
designated as a hedge, the gain or loss is deferred and recorded as an
adjustment to interest income, net over the remaining term of the underlying
transaction.
All other financial instruments, including derivatives, purchased to offset
the Group's net exposure to price, interest or currency risks, but which are not
designated as hedges of specific assets, liabilities or firm commitments are
marked to market and any resulting unrealized gains and losses are recognized
currently in financial income, net.
Derivatives purchased by the Group under macro-hedging techniques, as well
as those purchased to offset the Group's exposure to anticipated cash flows, do
not generally meet the requirements for applying hedge accounting and are,
accordingly marked to market at each reporting period with unrealized gains and
losses recognized in financial income, net. At such time that the Group meets
the requirements for hedge accounting and designates the derivative financial
instrument as a hedge of a committed transaction, subsequent unrealized gains
and losses would be deferred and recognized along with the effects of the
underlying transaction.
30. Segment Reporting
Effective January 1, 1998, the Group adopted SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." Segment data for 1997 and
1996 has been restated.
F-47
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
Information with respect to the Group's industry segments follows:
PASSENGER CARS MERCEDES-BENZ, SMART. This segment includes activities
related mainly to the development, manufacture and sale of passenger cars and
off-road vehicles under the brand names Mercedes-Benz and Smart as well as
related parts and accessories.
PASSENGER CARS AND TRUCKS CHRYSLER, PLYMOUTH, JEEP, DODGE. This segment
includes the research, design, manufacture, assembly and sale of cars and trucks
under the brand names Chrysler, Plymouth, Jeep and Dodge and related automotive
parts and accessories.
COMMERCIAL VEHICLES MERCEDES-BENZ, FREIGHTLINER, STERLING, SETRA. This
segment is involved in the development, manufacture and sale of vans, trucks,
buses and Unimogs as well as related parts and accessories. The products are
sold mainly under the brand names Mercedes-Benz and Freightliner.
CHRYSLER FINANCIAL SERVICES. This segment is comprised primarily of
Chrysler Financial Company, L.L.C., which is engaged principally in retail and
lease financing for vehicles, dealer inventory and other financing needs, dealer
property and casualty insurance, and dealership facility development and
management, primarily related to the Chrysler, Plymouth, Jeep and Dodge brands.
SERVICES. The activities in this segment extend to the marketing of
services related to information technology, financial services (other than
Chrysler Financial Services), insurance brokerage, trading, telecommunications
and media, as well as real estate management.
AEROSPACE. This division comprises the development, manufacture and sale of
commercial and military aircraft and helicopters, of satellites and related
space transportation systems, defense-related products, including radar and
radio systems and propulsion systems.
OTHER. Represents principally the Directly Managed Businesses including
rail systems (50% interest in Adtranz), automotive electronics (up to December
31, 1997, microelectronics), recognition and sorting systems (up to December 31,
1996) and diesel engines. Other also contains corporate research, real estate
activities and holding and financing companies.
The Group's management reporting and controlling systems are substantially
the same as those described in the summary of significant accounting policies
(U.S. GAAP). The Group measures the performance of its operating segments
through "Operating Profit." Segment Operating Profit is defined as income before
financial income and income taxes included in the consolidated statement of
income, modified to exclude certain pension and postretirement benefit costs and
merger costs and to include certain financial income, net.
Sales and revenues related to transactions between segments are generally
recorded at values that approximate third-party selling prices.
Revenues are allocated to countries based on the location of the customer;
long-term assets, according to the location of the respective units.
Capital expenditures represent the purchase of property, plant and
equipment.
F-48
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
<TABLE>
<CAPTION>
Passenger Commercial
Cars and Vehicles
Passenger Trucks Mercedes-
Cars Chrysler, Benz,
Mercedes- Plymouth, Freightliner, Chrysler
Benz, Jeep, Sterling, Financial Aero- Elimi- Consoli-
Smart Dodge Setra Services Services space Other nations dated
----------- ----------- ------------- ----------- ----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
Revenues....... 30,859 56,278 22,374 2,726 7,817 8,722 3,006 -- 131,782
Intersegment
sales........ 1,728 62 788 151 1,756 48 420 (4,953) --
----------- ----------- ------ ----------- ----------- --------- --------- ----------- -----------
Total
revenues..... 32,587 56,340 23,162 2,877 9,573 8,770 3,426 (4,953) 131,782
Operating
Profit
(Loss)....... 1,993 4,212 946 652 392 623 (146) (79) 8,593
Identifiable
segment
assets....... 17,098 37,810 11,936 21,880 28,232 12,970 33,477 (27,254) 136,149
Capital
expenditures.. 1,995 3,920 832 -- 285 326 797 -- 8,155
Depreciation
and
amortization... 1,310 2,837 692 392 1,646 289 293 (168) 7,291
1997
Revenues....... 25,874 51,939 19,481 2,207 6,681 7,751 3,639 -- 117,572
Intersegment
sales........ 1,680 3 531 200 1,243 65 257 (3,979) --
----------- ----------- ------ ----------- ----------- --------- --------- ----------- -----------
Total
revenues..... 27,554 51,942 20,012 2,407 7,924 7,816 3,896 (3,979) 117,572
Operating
Profit
(Loss)....... 1,716 3,368 342 586 246 284 (225) (87) 6,230
Identifiable
segment
assets....... 15,003 38,699 11,000 17,867 24,434 11,174 23,823 (17,169) 124,831
Capital
expenditures.. 1,885 4,501 601 -- 193 255 635 (19) 8,051
Depreciation
and
amortization... 1,160 2,288 687 168 1,459 306 324 (170) 6,222
1996
Revenues....... 22,447 45,205 15,879 1,840 5,521 6,636 3,887 -- 101,415
Intersegment
sales........ 1,406 3 560 120 1,199 38 211 (3,537) --
----------- ----------- ------ ----------- ----------- --------- --------- ----------- -----------
Total
revenues..... 23,853 45,208 16,439 1,960 6,720 6,674 4,098 (3,537) 101,415
Operating
Profit
(Loss)....... 1,796 4,321 (61) 471 160 25 (561) 61 6,212
Identifiable
segment
assets....... 13,305 31,263 9,582 14,003 19,077 10,975 16,099 (13,011) 101,293
Capital
expenditures.. 1,479 3,545 797 -- 120 311 486 (17) 6,721
Depreciation
and
amortization... 917 1,760 625 91 1,311 277 357 (46) 5,292
</TABLE>
Capital expenditures for equipment on operating leases for 1998, 1997 and
1996 for Chrysler Financial Services amounted to [EURO] 2,935, [EURO] 1,211 and
[EURO] 297, respectively, and for Services amounted to [EURO] 4,303, [EURO]
3,678 and [EURO] 3,161, respectively.
F-49
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Income before financial income and income taxes............................... 7,391 5,547 5,285
Not allocated:
certain pension and postretirement benefit costs.......................... 688 721 770
merger costs.............................................................. 685 -- --
Allocated: certain financial income, net.................................... (171) (38) 157
--------- --------- ---------
Consolidated operating profit................................................. 8,593 6,230 6,212
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Other Other
European American Other Consoli-
Revenues Germany countries U.S. countries Asia countries dated
- - -------------------------------- ----------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1998............................ 24,918 23,550 65,300 11,519 4,311 2,184 131,782
1997............................ 21,317 20,798 56,615 10,576 5,587 2,679 117,572
1996............................ 20,316 16,954 49,485 7,152 5,058 2,450 101,415
</TABLE>
Germany accounts for [EURO] 12,953 of long-term assets (1997: [EURO] 12,040;
1996: [EURO] 11,160), the U.S. for [EURO] 25,344 (1997: [EURO] 22,632; 1996:
[EURO] 18,881) and other countries for [EURO] 11,309 (1997: [EURO] 9,797; 1996:
[EURO] 5,808).
F-50
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
31. Earnings per Share
Earnings per share are determined as follows:
<TABLE>
<CAPTION>
At December 31,
-------------------------------
<S> <C> <C> <C>
(in millions of [EURO] or millions of shares, except earnings per
share) 1998 1997 1996
--------- --------- ---------
Basic earnings per share:
Income before extraordinary item.................................. 4,949 6,547 4,169
Less: preferred stock dividends................................... -- (1) (3)
--------- --------- ---------
4,949 6,546 4,166
--------- --------- ---------
Weighted average number of shares outstanding..................... 959.3 949.3 981.6
--------- --------- ---------
Basic earnings per share.......................................... 5.16 6.90 4.24
--------- --------- ---------
Non-recurring items (1)........................................... 0.42 (2.62) --
--------- --------- ---------
Basic earnings per share excluding non-recurring items............ 5.58 4.28 4.24
--------- --------- ---------
--------- --------- ---------
Diluted earnings per share:
Income before extraordinary item.................................. 4,949 6,547 4,169
Interest expense on convertible bonds and notes (net of tax)...... 20 19 4
--------- --------- ---------
4,969 6,566 4,173
--------- --------- ---------
Weighted average number of shares outstanding..................... 959.3 949.3 981.6
Dilutive effect of convertible bonds and notes.................... 19.8 12.8 4.0
Shares issued on exercise of dilutive options..................... 18.3 17.7 16.5
Shares purchased with proceeds of options......................... (11.8) (13.5) (11.9)
Shares applicable to convertible preferred stock.................. 0.2 0.8 2.7
Shares contingently issuable...................................... 1.3 1.1 1.1
--------- --------- ---------
987.1 968.2 994.0
--------- --------- ---------
Diluted earnings per share........................................ 5.04 6.78 4.20
--------- --------- ---------
Non-recurring items (1)........................................... 0.41 (2.57) --
--------- --------- ---------
Diluted earnings per share excluding non-recurring items.......... 5.45 4.21 4.20
--------- --------- ---------
--------- --------- ---------
</TABLE>
- - ------------------------------
(1) Non-recurring items comprise merger costs of [EURO] 401 (net of tax)
in 1998 and tax benefits relating to a special distribution and to a
decrease of the valuation allowance of [EURO] 2,490 in 1997.
In 1997, convertible bonds issued in connection with the 1997 Stock Option
Plan were not included in the computation of diluted earnings per share because
the options' underlying target stock price was greater than the market price for
DaimlerChrysler Ordinary Shares on December 31, 1997. For the same reason,
convertible bonds issued in connection with the 1998 Stock Option Plan were not
included in the computation at December 31, 1998.
Unexercised employee stock options to purchase 0.2 million and 0.1 million
shares of DaimlerChrysler Ordinary Shares as of December 31, 1997 and 1996,
respectively, were not included in the computations of diluted earnings per
share because the options' exercise prices were greater than the average market
price of DaimlerChrysler Ordinary Shares during the respective periods.
F-51
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
32. Summarized Financial Information
Summarized financial information for DaimlerChrysler North America Holding
Corporation (formerly Daimler-Benz North America Corporation), DaimlerChrysler
Corporation and Chrysler Financial Company, L.L.C. and their respective
consolidated subsidiaries are set forth below (in millions of U.S. $):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
DaimlerChrysler North America Holding Corporation
and consolidated subsidiaries
Receivables, net.................................................................. 8,589 7,070 5,271
Equipment on operating leases, net................................................ 6,002 5,075 4,534
Property, plant and equipment, net................................................ 1,548 1,363 1,213
Other assets...................................................................... 3,138 2,447 2,267
--------- --------- ---------
Total assets...................................................................... 19,277 15,955 13,285
Current liabilities............................................................... 10,375 8,597 6,421
Non-current liabilities........................................................... 5,333 4,299 4,013
Stockholders' equity.............................................................. 3,569 3,059 2,851
Revenues:
Net sales of products........................................................... 16,655 12,595 9,759
Finance and lease income........................................................ 1,977 1,687 1,492
Operating costs................................................................... 16,962 13,338 10,560
Net income........................................................................ 650 305 177
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
DaimlerChrysler Corporation and consolidated subsidiaries(1)
Cash, cash equivalents and marketable securities.................................. 8,093 7,848 7,752
Finance receivables and retained interests in sold receivables.................... 17,179 13,518 12,339
Property and equipment, net....................................................... 21,555 17,968 14,905
Other assets...................................................................... 22,227 21,084 21,188
--------- --------- ---------
Total assets...................................................................... 69,054 60,418 56,184
Current liabilities............................................................... 30,989 25,708 24,057
Long-term debt.................................................................... 11,419 9,006 7,184
Other noncurrent liabilities...................................................... 13,491 14,342 13,372
Stockholder's equity.............................................................. 13,155 11,362 11,571
Revenues:
Sales of manufactured products.................................................. 61,749 56,986 57,587
Finance and insurance revenues.................................................. 2,062 1,636 1,746
Other revenues.................................................................. 2,060 2,525 2,064
Total expenses.................................................................... 60,776 56,590 55,305
Earnings before extraordinary item................................................ 3,231 2,805 3,720
Net earnings...................................................................... 3,088 2,805 3,529
</TABLE>
- - ------------------------
(1) Including Chrysler Financial Company, L.L.C. and consolidated subsidiaries.
F-52
<PAGE>
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Chrysler Financial Company, L.L.C. and consolidated subsidiaries
Finance receivables and retained interests, net................................... 17,307 14,037 14,311
Vehicles leased, net.............................................................. 4,133 1,736 614
Loans and other amounts due from affiliates....................................... 1,930 1,705 859
Other assets...................................................................... 1,940 1,843 1,749
--------- --------- ---------
Total assets...................................................................... 25,310 19,321 17,533
Current liabilities............................................................... 9,946 7,209 6,814
Non-current liabilities........................................................... 12,028 8,815 7,431
Shareholder's investment.......................................................... 3,336 3,297 3,288
Net margin and other revenues..................................................... 1,705 1,669 1,592
Total costs and expenses.......................................................... 1,012 1,032 1,006
Net earnings...................................................................... 457 419 376
</TABLE>
Separate full consolidated financial statements of DaimlerChrysler North
America Holding Corporation, DaimlerChrysler Corporation and Chrysler Financial
Company, L.L.C. and their respective consolidated subsidiaries are not presented
as management has determined that such information is not material to holders of
the outstanding debt securities.
33. Subsequent Events
In January 1999, DaimlerChrysler agreed to acquire ABB`s 50% interest in
Adtranz (see Note 3). The transaction is expected to be completed in the second
quarter of 1999. Consummation of the merger is subject to various conditions,
including among others, approval of certain governmental authorities.
DaimlerChrysler plans to institute an SAR plan for DaimlerChrysler employees
currently holding options under the 1997 and 1998 plans and offer each employee
the opportunity to substitute an SAR in exchange for each option currently held.
All terms and conditions will be identical to the stock options which are being
replaced, except that the holder of the SAR will have the right to receive cash
equal to the difference between the option exercise price and the stock price at
the date of exercise. See also Note 21.
F-53
<PAGE>
DaimlerChrysler AG
Allowance for Doubtful Accounts
(in millions of [EURO])
<TABLE>
<CAPTION>
Balance at Charged to Balance
beginning costs and Amounts at end
of 1998 expenses written off of 1998
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Receivables from financial services................................ 401 452 (489) 364
Trade receivables.................................................. 819 89 (51) 857
Other receivables.................................................. 1,206 104 (61) 1,249
----- --- --- -----
2,426 645 (601) 2,470
----- --- --- -----
----- --- --- -----
</TABLE>
<TABLE>
<CAPTION>
Balance at Charged to Balance
beginning costs and Amounts at end
of 1997 expenses written off of 1997
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Receivables from financial services................................ 346 562 (507) 401
Trade receivables.................................................. 743 121 (45) 819
Other receivables.................................................. 1,348 73 (215) 1,206
----- --- --- -----
2,437 756 (767) 2,426
----- --- --- -----
----- --- --- -----
</TABLE>
<TABLE>
<CAPTION>
Balance at Charged to Balance
beginning costs and Amounts at end
of 1996 expenses written off of 1996
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Receivables from financial services................................ 382 464 (500) 346
Trade receivables.................................................. 645 175 (77) 743
Other receivables.................................................. 1,523 79 (254) 1,348
----- --- --- -----
2,550 718 (831) 2,437
----- --- --- -----
----- --- --- -----
</TABLE>
S-1
<PAGE>
DAIMLERCHRYSLER AG
SATZUNG
I. ALLGEMEINE BESTIMMUNGEN
PARAGRAPH 1 FIRMA, SITZ
Die unter der Firma DaimlerChrysler AG bestehende Aktiengesellschaft hat ihren
Sitz in Stuttgart.
PARAGRAPH 2 GEGENSTAND
(1) Gegenstand des Unternehmens ist die unmittelbare oder mittelbare
Taetigkeit auf dem Gebiet der Entwicklung, der Herstellung und des
Vertriebs von Erzeugnissen und der Erbringung von Dienstleistungen,
insbesondere in folgenden Geschaeftszweigen:
- Landfahrzeuge,
- Wasser-, Luft- und Raumfahrzeuge sowie sonstige Erzeugnisse der
Verkehrs-, Luftfahrt-, Raumfahrt- und Meerestechnik,
- Motoren und andere technische Antriebe,
- Anlagen, Maschinen und Geraete fuer die Erzeugung, Uebertragung
und Nutzung von Energie,
- elektrische und elektronische Geraete, Anlagen und Systeme,
- Kommunikations- und Informationstechnik, Unternehmensberatung,
- Finanzdienstleistungen, Versicherungsvermittlungen, Media- und
<PAGE>
Messeaktivitaeten und
- Verwaltung und Entwicklung von Immobilien.
(2) Die Gesellschaft ist zu allen Handlungen und Massnahmen berechtigt, die
der Erreichung des Gesellschaftszwecks dienen.
(3) Die Gesellschaft kann Zweigniederlassungen im In- und Ausland errichten
sowie sich an anderen Unternehmen beteiligen. Die Gesellschaft kann
Unternehmen erwerben oder sie veraeussern, sie unter einheitlicher
Leitung zusammenfassen und Unternehmensvertraege mit ihnen schliessen
oder sich auf die Verwaltung der Beteiligung beschraenken. Sie ist
berechtigt, ihren Betrieb ganz oder teilweise in Beteiligungsunternehmen
auszugliedern.
(4) Die Gesellschaft darf genehmigungsbeduerftige Finanzdienstleistungen
sowie Bank- und Immobiliengeschaefte nicht unmittelbar selbst taetigen.
II. GRUNDKAPITAL UND AKTIEN
PARAGRAPH 3 GRUNDKAPITAL
(1) Das Grundkapital der Gesellschaft betraegt DM 5.008.666.100. Es ist
eingeteilt in 1.001.733.220 auf den Namen lautende Stueckaktien.
(2) Der Vorstand ist ermaechtigt, das Grundkapital in der Zeit bis zum 30.
April 2003 mit Zustimmung des Aufsichtsrats einmalig oder in
Teilbetraegen um insgesamt bis zu DM 500.000.000,- (genehmigtes
<PAGE>
Kapital I) durch Ausgabe neuer auf den Namen lautender Stueckaktien gegen
Bareinlagen zu erhoehen. Dabei ist den Aktionaeren ein Bezugsrecht
einzuraeumen. Das Bezugsrecht der Aktionaere kann ausgeschlossen werden,
soweit Spitzenbetraege auszugleichen sind. Das Bezugsrecht der Aktionaere
kann ferner ausgeschlossen werden, soweit es erforderlich ist, um
Inhabern von Optionsscheinen bzw. Inhabern von
Wandelschuldverschreibungen, die von der Daimler-Benz Aktiengesellschaft
oder ihren Tochtergesellschaften ausgegeben wurden oder zukuenftig von
der DaimlerChrysler AG oder deren Tochtergesellschaften ausgegeben
werden, ein Bezugsrecht auf neue Aktien in dem Umfang zu gewaehren, wie
es ihnen nach Ausuebung der Options- oder Wandlungsrechte bzw. nach
Erfuellung von Wandlungspflichten zustuende. Das Bezugsrecht kann
schliesslich ausgeschlossen werden, soweit der auf die neuen Aktien
entfallende Anteil am Grundkapital weder insgesamt zehn vom Hundert des
zum Zeitpunkt der Eintragung dieses genehmigten Kapitals bestehenden
Grundkapitals noch insgesamt zehn vom Hundert des im Zeitpunkt der
Ausgabe der neuen Aktien bestehenden Grundkapitals uebersteigt und der
Ausgabebetrag der neuen Aktien den Boersenpreis nicht wesentlich im Sinne
der Paragraphen 203 Abs. 1 und 2, 186 Abs. 3 Satz 4 AktG unterschreitet.
(3) Der Vorstand ist ermaechtigt, das Grundkapital in der Zeit bis zum 30.
April 2003 mit Zustimmung des Aufsichtsrats einmalig oder in
Teilbetraegen um insgesamt bis zu DM 50.000.000,- (genehmigtes Kapital
II) durch Ausgabe neuer auf den Namen lautender Stueckaktien gegen
Bareinlagen zum Zwecke der Ausgabe von Belegschaftsaktien zu erhoehen.
Dabei ist das Bezugsrecht der Aktionaere
<PAGE>
ausgeschlossen. Ueber den weiteren Inhalt der Aktienausgabe entscheidet
der Vorstand mit Zustimmung des Aufsichtsrats.
(4) Das Grundkapital ist um bis zu DM 200.000.000,-, eingeteilt in bis zu
40.000.000 Stueck auf Namen lautende Stueckaktien mit einem auf diese
Aktien entfallenden anteiligen Betrag des Grundkapitals von je DM 5,-,
bedingt erhoeht (bedingtes Kapital I). Die bedingte Kapitalerhoehung wird
nur insoweit durchgefuehrt, wie die Inhaber von Options- und
Wandlungsrechten, die den von der DaimlerChrysler AG oder deren 100%-igen
unmittelbaren oder mittelbaren Beteiligungsgesellschaften bis zum 30.
April 2003 auszugebenden bzw. zu garantierenden Options- oder
Wandelanleihen beigefuegt sind, von ihren Options- bzw. Wandlungsrechten
Gebrauch machen oder wie die zur Wandlung verpflichteten Inhaber der von
der DaimlerChrysler AG oder deren 100%-igen unmittelbaren oder
mittelbaren Beteiligungsgesellschaften bis zum 30. April 2003
auszugebenden bzw. zu garantierenden Wandelschuldverschreibungen ihre
Pflicht zur Wandlung erfuellen. Die neuen Aktien nehmen vom Beginn des
Geschaeftsjahres an, in dem sie durch Ausuebung von Options- und/oder
Wandlungsrechten oder durch Erfuellung von Wandlungspflichten entstehen,
am Gewinn teil.
(5) Der Vorstand ist ermaechtigt, das Grundkapital in der Zeit bis zum 31.
Dezember 1999 mit Zustimmung des Aufsichtsrats einmalig oder in
Teilbetraegen um insgesamt bis zu DM 150.000.000 durch Ausgabe neuer auf
den Namen lautender Stueckaktien gegen
<PAGE>
Sacheinlagen zu erhoehen (genehmigtes Kapital III). Die Aktien sind
jeweils fuer den auf die einzelne Stueckaktie entfallenden anteiligen
Betrag des Grundkapitals auszugeben, also fuer jeweils DM 5,00. Die neuen
Aktien nehmen vom Beginn des am 31. Dezember 1998 endenden ersten
Geschaeftsjahres am Gewinn teil; falls die Aktien erst nach der
ordentlichen Hauptversammlung der Gesellschaft im Jahr 1999 ausgegeben
werden, nehmen sie erst vom Beginn des Geschaeftsjahres 1999 an am Gewinn
teil.
Zur Zeichnung der neuen Aktien sind ausschliesslich Aktionaere der
Daimler-Benz Aktiengesellschaft oder fuer Aktionaere der Daimler-Benz
Aktiengesellschaft handelnde Treuhaender zuzulassen. Dabei ist das
Bezugsrecht der Aktionaere ausgeschlossen.
Als Gegenleistung fuer die von ihnen gezeichneten Aktien haben die
Aktionaere der Daimler-Benz Aktiengesellschaft auf den Inhaber lautende
Stueckaktien der Daimler-Benz Aktiengesellschaft an die Gesellschaft zu
uebertragen. Fuer jede Stueckaktie der Daimler-Benz Aktiengesellschaft
mit einem auf sie entfallenden anteiligen Betrag des Grundkapitals von DM
5,00 erhaelt der Aktionaer der Daimler-Benz Aktiengesellschaft oder der
Treuhaender je 1,005 Stueckaktie der Gesellschaft.
Ueber den weiteren Inhalt der Aktienausgabe entscheidet der Vorstand mit
Zustimmung des Aufsichtsrats.
(6) Das Grundkapital ist weiter um bis zu DM 85.500.000, eingeteilt in bis zu
17.100.000 Stueck auf Namen lautende Stueckaktien mit einem auf diese
Aktien entfallenden anteiligen Betrag des Grundkapitals von je DM 5,-,
bedingt erhoeht (bedingtes Kapital
<PAGE>
II). Diese bedingte Kapitalerhoehung erfolgt zur Durchfuehrung der
Verschmelzung mit der Daimler-Benz Aktiengesellschaft. Sie wird nur
insoweit durchgefuehrt, als aufgrund der Ausuebung von Optionsrechten zum
Bezug von Aktien der Daimler-Benz Aktiengesellschaft aus der 4-1/8
%-DM-Optionsanleihe von 1996/2003 der Daimler-Benz Capital (Luxemburg) AG
("DM-Optionsanleihe 1996/2003") und der Ausuebung von Wandlungsrechten
und -pflichten zum Bezug von Aktien der DaimlerBenz Aktiengesellschaft
aus den nachrangigen 5-3/4%-DM-Inhaber-Teilschuldverschreibungen mit
Pflichtwandlung von 1997/2002 der Daimler-Benz Aktiengesellschaft
("DM-Pflichtwandelanleihe 1997/2002") in der Zeit vom 1. Juli 1998 bis
zum Wirksamwerden der Verschmelzung neue Stueckaktien der Daimler-Benz
Aktiengesellschaft ausgegeben werden, die nicht vor Wirksamwerden der
Verschmelzung in Aktien der Gesellschaft umgetauscht werden, und deshalb
ueber die durch die unbedingte Kapitalerhoehung zur Durchfuehrung der
Verschmelzung mit der Daimler-Benz Aktiengesellschaft geschaffenen
Stueckaktien hinaus weitere Stueckaktien der Gesellschaft benoetigt
werden, um alle bei Wirksamwerden der Verschmelzung vorhandenen Aktien
aussenstehender Aktionaere der Daimler-Benz Aktiengesellschaft in
Stueckaktien der Gesellschaft umzutauschen.
Die neuen Aktien aus dem bedingten Kapital II nehmen, soweit sie fuer
Aktien der Daimler-Benz Aktiengesellschaft aus der DM-Optionsanleihe
1996/2003 gewaehrt werden, vom Beginn des Geschaeftsjahres an am Gewinn
teil, in das der Ausuebungstag faellt, soweit sie fuer Aktien der
Daimler-Benz Aktiengesellschaft aus der DM-
<PAGE>
Pflichtwandelanleihe 1997/2002 gewaehrt werden, vom Beginn des
Geschaeftsjahres an, in dem diese Aktien der Daimler-Benz
Aktiengesellschaft ausgegeben werden. Falls die Verschmelzung mit der
Daimler-Benz Aktiengesellschaft erst nach der ordentlichen
Hauptversammlung der Daimler-Benz Aktiengesellschaft im Jahr 1999 in das
fuer die Gesellschaft zustaendige Handelsregister eingetragen wird, sind
die neuen Aktien abweichend von der vorstehenden Regelung erst ab dem 1.
Januar 1999 gewinnberechtigt. Bei einer weiteren Verzoegerung der
Eintragung ueber die ordentliche Hauptversammlung des Folgejahres hinaus
verschiebt sich der Beginn der Gewinnberechtigung entsprechend der
vorstehenden Regelung jeweils um ein Jahr.
(7) Das Grundkapital ist weiter um bis zu DM 78.300.000, eingeteilt in bis zu
15.660.000 Stueck auf Namen lautende Stueckaktien mit einem auf diese
Aktien entfallenden anteiligen Betrag des Grundkapitals von je DM 5,-,
bedingt erhoeht (bedingtes Kapital III). Diese bedingte Kapitalerhoehung
erfolgt zur Durchfuehrung der Verschmelzung mit der Daimler-Benz
Aktiengesellschaft. Sie wird nur insoweit durchgefuehrt, als Inhabern der
Wandelschuldverschreibungen aus der 5,9 %-DM-Wandelanleihe von 1996/2006
der Daimler-Benz Aktiengesellschaft, aus der 5,3 %-DM-Wandelanleihe von
1997/2007 der Daimler-Benz Aktiengesellschaft und der 4,4 % Wandelanleihe
von 1998/2008 der Daimler-Benz Aktiengesellschaft Wandlungsrechte zum
Bezug von Aktien der Daimler-Benz Aktiengesellschaft zustehen und
aufgrund der Ausuebung dieser Wandlungsrechte in der Zeit vom 1. Juli
1998 bis zum Wirksamwerden der Verschmelzung neue Stueckaktien der
Daimler-Benz
<PAGE>
Aktiengesellschaft ausgegeben werden, die nicht vor Wirksamwerden der
Verschmelzung in Aktien der Gesellschaft umgetauscht werden, und deshalb
ueber die durch die unbedingte Kapitalerhoehung zur Durchfuehrung der
Verschmelzung mit der Daimler-Benz Aktiengesellschaft geschaffenen
Stueckaktien hinaus weitere Stueckaktien der Gesellschaft benoetigt
werden, um alle bei Wirksamwerden der Verschmelzung vorhandenen Aktien
aussenstehender Aktionaere der Daimler-Benz Aktiengesellschaft in
Stueckaktien der Gesellschaft umzutauschen.
Die neuen Aktien aus dem bedingten Kapital III nehmen vom Beginn des
Geschaeftsjahres an am Gewinn teil, in dem die Wandlung in Aktien der
Daimler-Benz Aktiengesellschaft wirksam wird. Falls die Verschmelzung mit
der Daimler-Benz Aktiengesellschaft erst nach der ordentlichen
Hauptversammlung der Daimler-Benz Aktiengesellschaft im Jahr 1999 in das
fuer die Gesellschaft zustaendige Handelsregister eingetragen wird, sind
die neuen Aktien abweichend von der vorstehenden Regelung erst ab dem 1.
Januar 1999 gewinnberechtigt. Bei einer weiteren Verzoegerung der
Eintragung ueber die ordentliche Hauptversammlung des Folgejahres hinaus
verschiebt sich der Beginn der Gewinnberechtigung entsprechend der
vorstehenden Regelung jeweils um ein Jahr.
PARAGRAPH 4 AKTIENURKUNDEN
(1) Die Form und den Inhalt von Aktienurkunden, etwaigen Gewinnanteils- und
Erneuerungsscheinen setzt der Vorstand mit Zustimmung des Aufsichtsrats
fest. Das gleiche gilt fuer Schuldverschreibungen und
<PAGE>
Zinsscheine.
(2) Ein Anspruch der Aktionaere auf Verbriefung ihrer Aktien und
Gewinnanteile ist ausgeschlossen, soweit dies gesetzlich zulaessig und
nicht eine Verbriefung nach den Regeln einer Boerse erforderlich ist, an
der die Aktie zugelassen ist. Die Gesellschaft ist berechtigt,
Aktienurkunden auszustellen, die einzelne Aktien (Einzelaktien) oder
mehrere Aktien (Sammelaktien) verkoerpern.
III. DER VORSTAND
PARAGRAPH 5 ZUSAMMENSETZUNG
Der Vorstand besteht aus mindestens zwei Mitgliedern. Der Aufsichtsrat bestellt
die Vorstandsmitglieder nach den Bestimmungen des Aktiengesetzes und des
Mitbestimmungsgesetzes und bestimmt ihre Zahl.
PARAGRAPH 6 VERTRETUNG DER GESELLSCHAFT
Die Vertretung der Gesellschaft erfolgt durch zwei Vorstandsmitglieder oder ein
Vorstandsmitglied gemeinschaftlich mit einem Prokuristen.
IV. DER AUFSICHTSRAT
PARAGRAPH 7 ZUSAMMENFASSUNG, AMTSDAUER, NIEDERLEGUNG DES AMTS
(1) Der Aufsichtsrat besteht aus 20 Mitgliedern, von denen 10 Mitglieder
durch die Aktionaere und 10 Mitglieder durch die Arbeitnehmer gewaehlt
werden. Die Wahl erfolgt laengstens fuer die Zeit bis zur
<PAGE>
Beendigung der Hauptversammlung, die ueber die Entlastung fuer das vierte
Geschaeftsjahr nach dem Beginn der Amtszeit beschliesst. Hierbei wird das
Geschaeftsjahr, in dem die Amtszeit beginnt, nicht mitgerechnet. Die
Hauptversammlung kann fuer Mitglieder der Aktionaere bei der Wahl eine
kuerzere Amtszeit bestimmen.
(2) Jedes Mitglied des Aufsichtsrats kann sein Amt unter Einhaltung einer
vierwoechigen Frist auch ohne wichtigen Grund durch schriftliche
Mitteilung an den Vorsitzenden des Aufsichtsrats niederlegen. Der
Vorsitzende des Aufsichtsrats oder im Falle einer Amtsniederlegung durch
den Vorsitzenden sein Stellvertreter kann einer Kuerzung der Frist
zustimmen.
(3) Die Amtszeit des ersten Aufsichtsrats endet mit Eintragung dieser
Satzungsbestimmung in das Handelsregister der Gesellschaft.
PARAGRAPH 8 DER VORSITZENDE DES AUFSICHTSRATS UND SEINE STELLVERTRETER
(1) Im Anschluss an die Hauptversammlung, in der die zehn
Aufsichtsratsmitglieder der Aktionaere gewaehlt worden sind, findet eine
Aufsichtsratssitzung statt, zu der es einer Einladung nicht bedarf. In
dieser Sitzung waehlt der Aufsichtsrat nach dem Mitbestimmungsgesetz fuer
die Dauer seiner Amtszeit aus seiner Mitte einen Vorsitzenden und einen
Stellvertreter.
(2) Scheidet der Vorsitzende oder sein Stellvertreter vor Ablauf der Amtszeit
aus, wird unverzueglich ein
<PAGE>
Nachfolger des Ausgeschiedenen fuer dessen restliche Amtszeit gewaehlt.
PARAGRAPH 9 AUSSCHUESSE DES AUFSICHTSRATS
(1) Im Anschluss an die Wahl des Vorsitzenden des Aufsichtsrats und des
Stellvertreters bildet der Aufsichtsrat zur Wahrnehmung der in SECTION 31
Abs. 3 Mitbestimmungsgesetz genannten Aufgabe fuer die Dauer seiner
Amtszeit einen Ausschuss, dem der Vorsitzende des Aufsichtsrats, sein
Stellvertreter und zwei weitere Mitglieder angehoeren, von denen je eines
von den Aufsichtsratsmitgliedern der Arbeitnehmer und der Aktionaere mit
der Mehrheit der abgegebenen Stimmen gewaehlt werden.
(2) Scheidet eines der weiteren Mitglieder des in Abs. 1 genannten
Ausschusses vorzeitig aus, wird unverzueglich ein Nachfolger des
Ausgeschiedenen fuer dessen restliche Amtszeit gewaehlt.
(3) Fuer die Neuwahlen nach Abs. 2 gelten die gleichen Vorschriften wie fuer
die Wahlen nach Abs. 1.
(4) Der Aufsichtsrat kann aus seiner Mitte Ausschuesse fuer besondere
Aufgaben und Befugnisse bilden. Den Ausschuessen des Aufsichtsrats
koennen auch, soweit gesetzlich zulaessig, entscheidende Befugnisse des
Aufsichtsrats uebertragen werden. Fuer Beschlussfassungen in den
Ausschuessen gelten SECTION 10 Abs. 6 bis 8, soweit nicht zwingende
gesetzliche Vorschriften entgegenstehen; SECTION 10 Abs. 5 findet keine
Anwendung.
PARAGRAPH 10 SITZUNGEN, BESCHLUESSE UND WILLENSERKLAERUNGEN DES AUFSICHTSRATS
<PAGE>
(1) Der Vorsitzende des Aufsichtsrats - im Fall seiner Verhinderung sein
Stellvertreter -beruft die Sitzungen des Aufsichtsrats ein. Die
Einberufung hat unter Einhaltung einer Frist von zwei Wochen schriftlich
(auch per Telefax), fernschriftlich oder telegrafisch zu erfolgen. In ihr
sind die einzelnen Gegenstaende der Tagesordnung so eindeutig anzugeben,
dass bei der Sitzung abwesende Aufsichtsratsmitglieder von ihrem Recht
der schriftlichen Stimmabgabe Gebrauch machen koennen. In dringenden
Faellen kann die Einberufungsfrist bis auf drei Tage abgekuerzt werden.
(2) Ist ein Tagesordnungspunkt nicht ordnungsgemaess angekuendigt worden,
darf hierueber nur beschlossen werden, wenn kein Aufsichtsratsmitglied
widerspricht.
Abwesenden Aufsichtsratsmitglieder ist in einem solchen Fall Gelegenheit
zu geben, binnen einer vom Vorsitzenden festzusetzenden angemessenen
Frist der Beschlussfassung nachtraeglich zu widersprechen; der Beschluss
wird erst wirksam, wenn die abwesenden Aufsichtsratsmitglieder innerhalb
der Frist nicht widersprochen haben.
(3) Der Aufsichtsrat ist beschlussfaehig, wenn alle Mitglieder des
Aufsichtsrats unter der zuletzt bekanntgegebenen Anschrift eingeladen
wurden und mindestens zehn Aufsichtsratsmitglieder an der
Beschlussfassung teilnehmen.
(4) Der Vorsitzende des Aufsichtsrats - im Fall seiner Verhinderung sein
Stellvertreter - leitet die Sitzung des Aufsichtsrats und bestimmt die
<PAGE>
Reihenfolge der Verhandlungsgegenstaende sowie die Art der Abstimmung.
(5) Sind bei einer Beschlussfassung nicht saemtliche Aufsichtsratsmitglieder
anwesend und lassen die fehlenden Aufsichtsratsmitglieder nicht
schriftliche Stimmabgaben ueberreichen, ist die Beschlussfassung auf
Antrag von mindestens zwei anwesenden Aufsichtsratsmitgliedern zu
vertagen. Im Fall einer Vertagung findet die erneute Beschlussfassung,
sofern keine besondere Aufsichtsratssitzung einberufen wird, in der
naechsten turnusmaessigen Sitzung statt. Ein nochmaliges
Minderheitsverlangen auf Vertagung ist bei einer erneuten
Beschlussfassung nicht zulaessig.
Nimmt der Vorsitzende des Aufsichtsrats an der Sitzung teil oder befindet
sich ein anwesendes Aufsichtsratsmitglied im Besitz seiner schriftlichen
Stimmabgabe, findet der vorstehende Unterabsatz keine Anwendung, wenn bei
der Beschlussfassung die gleiche Anzahl von Aufsichtsratsmitgliedern der
Aktionaere und der Arbeitnehmer persoenlich anwesend ist oder durch
schriftliche Stimmabgabe an der Beschlussfassung teilnimmt oder wenn eine
etwaige Ungleichheit dadurch aufgehoben wird, dass sich einzelne
Aufsichtsratsmitglieder nicht an der Beschlussfassung beteiligen.
(6) Die Beschluesse werden mit einfacher Mehrheit der abgegebenen Stimmen
gefasst, soweit nicht gesetzlich andere Mehrheiten vorgeschrieben sind.
Bei Feststellung des Abstimmungsergebnisses werden Stimmenthaltungen
nicht mitgezaehlt.
<PAGE>
Ergibt eine Abstimmung Stimmengleichheit, so kann jedes
Aufsichtsratsmitglied die zweite Abstimmung verlangen. Der Vorsitzende
des Aufsichtsrats - im Fall seiner Verhinderung sein Stellvertreter -
bestimmt, wann die Abstimmung wiederholt wird. Ergibt sich auch bei der
zweiten Abstimmung Stimmengleichheit, hat der Vorsitzende des
Aufsichtsrats zwei Stimmen.
(7) Abwesende Aufsichtsratsmitglieder koennen dadurch an der
Beschlussfassung des Aufsichtsrats und seiner Ausschuesse teilnehmen,
dass sie schriftliche Stimmabgaben durch andere Aufsichtsratsmitglieder
ueberreichen lassen. Dies gilt auch fuer die zweite Stimme des
Vorsitzenden des Aufsichtsrats.
(8) Der Vorsitzende des Aufsichtsratsrats - im Fall seiner Verhinderung sein
Stellvertreter - kann einen Beschluss des Aufsichtsrats auch durch
schriftliche (auch per Telefax), fernschriftliche oder telegrafische
Abstimmung herbeifuehren, wenn kein Aufsichtsratsmitglied diesem
Verfahren innerhalb einer vom Vorsitzenden bestimmten angemessenen Frist
widerspricht.
(9) Der Vorsitzende des Aufsichtsrats - im Fall seiner Verhinderung sein
Stellvertreter - gibt die Willenserklaerungen des Aufsichtsrats und
seiner Ausschuesse ab und fuehrt deren Schriftwechsel.
(10) Ueber die Verhandlungen und Beschluesse des Aufsichtsrats sind
Niederschriften anzufertigen, die vom Vorsitzenden zu unterzeichnen
sind. Die Niederschrift ist allen Mitgliedern zuzuleiten.
<PAGE>
PARAGRAPH 11 GEHEIMHALTUNGSPFLICHT DER AUFSICHTSRATSMITGLIEDER
Die Aufsichtsratsmitglieder haben Stillschweigen zu bewahren ueber vertrauliche
Angaben und Geheimnisse der Gesellschaft, namentlich Betriebs- oder
Geschaeftsgeheimnisse, die den Aufsichtsratsmitgliedern durch ihre Taetigkeit im
Aufsichtsrat bekannt werden. Beabsichtigt ein Aufsichtsratsmitglied, Dritten
Angaben insbesondere ueber Inhalt und Verlauf von Aufsichtsratssitzungen sowie
vom Inhalt von Aufsichtsratsvorlagen und -beschluessen weiterzugeben, hat es
vorher den Vorsitzenden des Aufsichtsrats zu unterrichten, um etwaige
Meinungsverschiedenheiten ueber die Geheimhaltungspflicht zu beseitigen.
PARAGRAPH 12 AUFSICHTSRATSVERGUETUNG
Die Mitglieder des Aufsichtsrats erhalten neben dem Ersatz ihrer Auslagen -
einschliesslich einer ihnen fuer die Aufsichtsratstaetigkeit zur Last fallenden
Umsatzsteuer - eine feste, nach Ablauf des Geschaeftsjahres zahlbare Verguetung,
die sich fuer das einzelne Mitglied auf DM 100.000,-, fuer den Vorsitzenden auf
den 2-fachen, fuer den Stellvertreter des Vorsitzenden auf den 1,5-fachen und
fuer gewaehlte Mitglieder in Ausschuessen des Aufsichtsrats auf den 1,3-fachen
Betrag beziffert. Darueber hinaus erhalten die Mitglieder des Aufsichtsrats fuer
jede Aufsichtsratssitzung ein Sitzungsgeld von DM 2.000,-.
V. DIE HAUPTVERSAMMLUNG
PARAGRAPH 13 EINBERUFUNG DER HAUPTVERSAMMLUNG
(1) Die Hauptversammlung wird durch den Vorstand oder
<PAGE>
den Aufsichtsrat einberufen. Sie findet am Sitz der Gesellschaft oder an
jedem anderen rechtlich nicht ausgeschlossenen Ort statt.
(2) Die Einberufung ist mindestens einen Monat vor dem Tag, bis zu dessen
Ablauf sich die Aktionaere fuer die Versammlung anzumelden haben,
bekanntzugeben; der Tag der Einberufung und der letzte Tag der
Anmeldefrist sind hierbei nicht mitzurechnen.
PARAGRAPH 14 ORDENTLICHE HAUPTVERSAMMLUNG
Die Hauptversammlung, die ueber die Entlastung des Vorstands und Aufsichtsrats,
die Verwendung des Bilanzgewinns, die Wahl des Abschlusspruefers und
gegebenenfalls die Feststellung des Jahresabschlusses beschliesst (ordentliche
Hauptversammlung), findet innerhalb der ersten acht Monate eines jeden
Geschaeftsjahres statt.
PARAGRAPH 15 VORAUSSETZUNGEN FUER DIE TEILNAHME UND DIE STIMMRECHTSAUSUEBUNG
Zur Teilnahme an der Hauptversammlung und zur Ausuebung des Stimmrechts werden
die Aktionaere zugelassen, die am Tage der Hauptversammlung im Aktienbuch der
Gesellschaft eingetragen sind und die sich nicht spaeter als am dritten Tage vor
der Versammlung bei der Gesellschaft angemeldet haben.
PARAGRAPH 16 STIMMRECHT
Jede Aktie gewaehrt eine Stimme.
PARAGRAPH 17 VORSITZ IN DER HAUPTVERSAMMLUNG
<PAGE>
(1) Den Vorsitz in der Hauptversammlung fuehrt der Vorsitzende des
Aufsichtsrats oder im Fall seiner Verhinderung ein von ihm bestimmtes
Mitglied des Aufsichtsrats, in Ermangelung einer solchen Bestimmung das
von den Aufsichtsratsmitgliedern der Aktionaere gemaess Paragraph 27
Abs. 3 Mitbestimmungsgesetz gewaehlte Mitglied. Ist keiner von diesen
erschienen oder zur Leitung der Versammlung bereit, wird der
Versammlungsleiter durch den Aufsichtsrat gewaehlt.
(2) Der Vorsitzende leitet die Verhandlungen und bestimmt die Reihenfolge
der Verhandlungsgegenstaende sowie die Art und Form der Abstimmung.
PARAGRAPH 18 BESCHLUSSFASSUNG
(1) Die Beschluesse der Hauptversammlung werden, soweit nicht zwingende
Vorschriften des Aktiengesetzes etwas Abweichendes bestimmen, mit
einfacher Mehrheit der abgegebenen Stimmen gefasst. Soweit das
Aktiengesetz ausserdem zur Beschlussfassung eine Mehrheit des bei der
Beschlussfassung vertretenen Grundkapitals vorschreibt, genuegt, soweit
dies gesetzlich zulaessig ist, die einfache Mehrheit des vertretenen
Kapitals.
(2) Der Aufsichtsrat ist berechtigt, Aenderungen der Satzung, die nur die
Fassung betreffen, zu beschliessen.
VI. JAHRESABSCHLUSS UND VERWENDUNG DES BILANZGEWINNS
PARAGRAPH 19 GESCHAEFTSJAHR, RECHNUNGSLEGUNG
<PAGE>
(1) Das Geschaeftsjahr ist das Kalenderjahr.
(2) Der Vorstand hat in den ersten drei Monaten des Geschaeftsjahres den
Jahresabschluss und den Lagebericht fuer das vergangene Geschaeftsjahr
aufzustellen und dem Abschusspruefer vorzulegen. Unverzueglich nach
ihrer Aufstellung hat der Vorstand den Jahresabschluss nebst Lagebericht
dem Aufsichtsrat zugleich mit dem Vorschlag vorzulegen, den der Vorstand
der Hauptversammlung fuer die Verwendung des Bilanzgewinns machen will.
PARAGRAPH 20 ABSCHLAGSZAHLUNG AUF DEN BILANZGEWINN
Der Vorstand ist - mit Zustimmung des Aufsichtsrats - ermaechtigt, nach Ablauf
des Geschaeftsjahres auf den voraussichtlichen Bilanzgewinn einen Abschlag an
die Aktionaere zu zahlen, wenn ein vorlaeufiger Abschluss fuer das vergangene
Geschaeftsjahr einen Jahresueberschuss ergibt. Als Abschlag darf hoechstens die
Haelfte des Betrages gezahlt werden, der von dem Jahresueberschuss nach Abzug
der Betraege verbleibt, die nach Gesetz oder Satzung in Gewinnruecklagen
einzustellen sind. Ausserdem darf der Abschlag nicht die Haelfte des
vorjaehrigen Bilanzgewinns uebersteigen.
PARAGRAPH 21 MASSSTAB FUER DIE GEWINNBETEILIGUNG DER AKTIONAERE
(1) Die Gewinnanteile der Aktionaere bestimmen sich nach ihren Anteilen am
Grundkapital.
(2) Bei Ausgabe neuer Aktien kann eine andere Gewinnberechtigung festgesetzt
werden.
<PAGE>
VII. BEKANNTMACHUNGEN
PARAGRAPH 22
Die Bekanntmachungen der Gesellschaft erfolgen durch Veroeffentlichung im
Bundesanzeiger.
VIII. GRUENDUNGSAUFWAND
PARAGRAPH 23
Die mit der Gruendung der Gesellschaft und der Eintragung im Handelsregister
verbundenen Kosten und Steuern (insbesondere Notar- und Gerichtsgebuehren,
Kosten der Veroeffentlichung, Steuern, Rechts- und Steuerberatungskosten,
Gutachterkosten, Bankkosten) bis zum Betrag von insgesamt DM 10.000,- traegt die
Gesellschaft.
<PAGE>
Exhibit 1.1
DAIMLERCHRYSLER AG
Memorandum and Articles of Association
<PAGE>
-2-
I. General Provisions
SECTION 1 NAME, REGISTERED OFFICE
The name of the stock corporation is DaimlerChrysler AG. Its registered
office is situated in Stuttgart.
SECTION 2 OBJECTS
(1) The objects of the company are to pursue activities, directly or
indirectly, in the fields of development, production and sale of products
and rendering of services, in particular in the following lines of
business:
o vehicles for use on land,
o vehicles for use on water, in the air and in space and other
products in the fields of transport, aerospace and marine
technology,
o engines and other technological propulsion systems,
o plants, machinery and equipment for power generation, transmission
and utilization,
o electrical and electronic equipment, plants and systems,
communication and information technology, business consultancy,
o financial services , insurance brokerage and activities in the
fields of media and expositions and
o management and development of real property.
(2) The company is authorized to take all courses of action and measures which
serve the attainment of its objective.
(3) The company may set up domestic as well as foreign branches and acquire
interests in other enterprises. The company may purchase, dispose of,
bring under joint management and conclude inter-company agreements with
other enterprises, or limit itself to the management of its interest. The
company is authorized to, wholly or partly, drop-down its business into
subsidiaries.
(4) The company itself shall not carry out financial services and banking and
real property transactions requiring licenses.
II. CAPITAL STOCK AND SHARES
SECTION 3 CAPITAL STOCK
(1) The capital stock of the company amounts to DM 5,008,666,100 and is
divided up into 1,001,733,220 no par value registered shares.
(2) The Board of Management is authorized, subject to the approval of the
Supervisory Board, to increase the capital stock in the period up to April
30, 2003 by a total of up to DM 500,000,000 (authorized capital I) in a
lump sum or in partial amounts by issuing new no par value registered
shares in exchange for cash contributions. The shareholders shall thereby
be granted stock subscription rights. The stock subscription rights of the
shareholders may be excluded as far as residual amounts are to be offset.
Furthermore, the stock subscription rights of the shareholders may be
excluded as far as this is necessary in order to grant to holders of
warrants or of convertible bonds or notes issued by Daimler-Benz
Aktiengesellschaft or its subsidiaries, or to be issued by DaimlerChrysler
AG or its subsidiaries in the future, subscription
<PAGE>
-3-
rights for new shares in the volume to which they would be entitled after
exercising the warrants or conversion rights or after fulfilling
conversion obligations. Finally, the stock subscription rights may be
excluded as far as the share in capital stock allocated to the new shares
exceeds neither a total of ten percent of the capital stock existing at
the time when this authorized capital is registered nor a total of ten
percent of the capital stock existing at the time when the new shares are
issued, and providing the issue price of the new shares is not
significantly lower than the market price , as laid down in sections 203
sub-sections 1 and 2 and 186 sub-section 3 sentence 4 of the Stock
Corporation Act (Aktiengesetz).
(3) In order to issue employee shares, the Board of Management is authorized,
subject to the approval of the Supervisory Board, to increase the capital
stock in the period up to April 30, 2003 by a total of up to DM 50,000,000
(authorized capital II) in a lump sum or in partial amounts by issuing new
no par value registered shares in exchange for cash contributions.
Subscription rights of the shareholders shall thereby be excluded. The
Board of Management shall determine the additional conditions of issuance
of the shares subject to the approval of the Supervisory Board.
(4) The capital stock shall be conditionally increased by up to DM
200,000,000, divided up into up to 40,000,000 no par value registered
shares with a proportionate amount of the capital stock of DM 5 allotted
to each share (conditional capital I). The conditional increase of capital
shall be carried out only as far as the holders of option or conversion
rights attached to bonds or notes with warrants or convertible bonds or
notes to be issued or guaranteed by DaimlerChrysler AG or its wholly owned
direct or indirect subsidiaries by April 30, 2003, exercise their option
or conversion rights, or the holders obligated to convert convertible
bonds or notes to be issued or guaranteed by DaimlerChrysler AG or its
wholly owned direct or indirect subsidiaries by April 30, 2003, fulfill
their conversion obligations. The new shares shall participate in profits
as of the beginning of the financial year in which such shares are created
through the exercise of option and/or conversion rights or through the
fulfillment of conversion obligations.
(5) The Board of Management is authorized, subject to the approval of the
Supervisory Board, to increase the capital stock in the period up to
December 31, 1999 by a total of up to DM 150,000,000 in a lump sum or in
partial amounts by issuing new no par value registered shares in exchange
for contributions in kind (authorized capital III). The shares shall each
be issued for the proportionate amount of the capital stock allotted to
the individual no par value share, i.e. for DM 5 each. The new shares
shall participate in profits as of the beginning of the financial year
ending on December 31, 1998, however, if the shares are issued after the
company's annual general meeting in 1999, they shall only participate in
profits as of the beginning of the financial year 1999.
The new shares are exclusively for the subscription of shareholders of
Daimler-Benz Aktiengesellschaft or trustees acting on behalf of
shareholders of Daimler-Benz Aktiengesellschaft. Subscription rights of
the shareholders shall thereby be excluded.
As consideration for the shares subscribed by them, the shareholders of
Daimler-Benz Aktiengesellschaft have to transfer no par value bearer
shares of Daimler-Benz Aktiengesellschaft to the company. The shareholder
of Daimler-Benz Aktiengesellschaft or the trustee shall receive 1.005 no
par value shares of the company for each no par value share of
Daimler-Benz Aktiengesellschaft
<PAGE>
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with a proportionate amount of the capital stock of DM 5 allotted to such
a share.
The Board of Management shall determine the additional conditions of
issuance of the shares subject to the approval of the Supervisory Board.
<PAGE>
-5-
(6) Furthermore, the capital stock shall be conditionally increased by up to
DM 85,500,000 divided up into up to 17,100,000 no par value registered
shares with a proportionate amount of the capital stock of DM 5 allotted
to each share (conditional capital II). This conditional capital increase
shall be carried out in order to implement the merger with Daimler-Benz
Aktiengesellschaft. It shall be carried out only as far as, in the period
from July 1, 1998 up to the time when the merger becomes effective, new no
par value shares of Daimler-Benz Aktiengesellschaft, which are not
exchanged for shares of the company before the time when the merger has
become effective, are issued as a result of the exercise of option rights
to shares of Daimler-Benz Aktiengesellschaft attached to the 4-1/8 %
DM-notes with warrants of 1996/2003 of Daimler-Benz Capital (Luxembourg)
AG ("DM-notes with warrants 1996/2003") and of the exercise of rights to
conversion, and of the fulfillment of obligations to convert, into shares
of Daimler-Benz Aktiengesellschaft attached to the 5 3/4 %-DM-subordinated
mandatory convertible bearer notes of 1997/2002 of Daimler-Benz
Aktiengesellschaft ("DM-mandatory convertible notes 1997/2002"), and only
as far as, therefore, additional no par value shares of the company,
exceeding the no par value shares created for the implementation of the
merger with Daimler-Benz Aktiengesellschaft through the unconditional
capital increase, are required in order to exchange all shares of outside
shareholders of Daimler-Benz Aktiengesellschaft existing at the time when
the merger has become effective for no par value shares of the company.
The new shares of the conditional capital II, which are issued in order to
be exchanged for shares of Daimler-Benz Aktiengesellschaft created through
the DM-notes with warrants 1996/2003, shall participate in profits as of
the beginning of the financial year which includes the "day of exercise".
The new shares of the conditional capital IV, which are issued in order to
be exchanged for shares of Daimler-Benz Aktiengesellschaft created through
the DM-mandatory convertible notes 1997/2002, shall participate in profits
as of the beginning of the financial year in which they are issued.
However, the above provisions shall not apply and the new shares shall
only participate in profits as of January 1, 1999, if the merger with
Daimler-Benz Aktiengesellschaft is only registered in the Commercial
Register (Handelsregister), which is competent for the company, after the
annual general meeting of Daimler-Benz Aktiengesellschaft in 1999. If
there is a further delay of the registration until after the annual
general meeting of a following year, the commencement of the participation
in profits shall each time be postponed by one year analogous to the
provision set out above.
(7) Furthermore, the capital stock shall be conditionally increased by up to
DM 78,300,000 divided up into up to 15,660,000 no par value registered
shares with a proportionate amount of the capital stock of DM 5 allotted
to each share (conditional capital III). This conditional capital increase
is carried out in order to implement the merger with Daimler-Benz
Aktiengesellschaft. It shall be carried out only as far as the holders of
the convertible bonds attached to the 5.9 %-DM-convertible bonds of
1996/2006 of Daimler-Benz Aktiengesellschaft, the 5.3 %-DM-convertible
bonds of 1997/2007 of Daimler-Benz Aktiengesellschaft, and the 4.4
%-DM-convertible bonds of 1998/2008 of Daimler-Benz Aktiengesellschaft,
have rights of conversion into shares of Daimler-Benz Aktiengesellschaft,
and as far as, in the period from July 1, 1998 up to the time when the
merger has become effective, new no par value shares of Daimler-Benz
Aktiengesellschaft, which are not exchanged for shares of the company
before the time when the merger has become effective, are issued as a
result of the exercise of such conversion rights, and only as far as,
therefore,
<PAGE>
-6-
additional no par value shares of the company, exceeding the no par value
shares created for the implementation of the merger with Daimler-Benz
Aktiengesellschaft through the unconditional capital increase, are
required in order to exchange all shares of outside shareholders of
Daimler-Benz Aktiengesellschaft existing at the time when the merger has
become effective for no par value shares of the company.
The new shares of the conditional capital III shall participate in profits
as of the beginning of the financial year in which the conversion into
shares of Daimler-Benz Aktiengesellschaft has become effective. However,
the above provision shall not apply and the new shares shall only
participate in profits as of January 1, 1999, if the merger with
Daimler-Benz Aktiengesellschaft is only registered in the Commercial
Register, which is competent for the company, after the annual general
meeting of Daimler-Benz Aktiengesellschaft in 1999. If there is a further
delay of the registration until after the annual general meeting of a
following year, the commencement of the participation in profits shall
each time be postponed by one year analogous to the provision set out
above.
SECTION 4 SHARE CERTIFICATES
(1) The form and contents of share certificates, dividend coupons and renewal
coupons, if any, shall be determined by the Board of Management with the
approval of the Supervisory Board. The same shall apply to debentures and
interest coupons.
(2) To the extent legally permissible and unless required under the rules of a
stock exchange where the shares are listed, sShareholders' rights to share
certificates and dividend coupons are disallowed as far as it is legally
permissible and as far as they are not required under the rules of a stock
exchange where the shares are listed. The company is authorized to issue
share certificates representing single shares (Einzelaktien) or several
shares (Sammelaktien).
III. THE BOARD OF MANAGEMENT
SECTION 5 COMPOSITION
The Board of Management shall consist of no less than two members. The
Supervisory Board shall appoint the members of the Board of Management in
accordance with the provisions of the Stock Corporation Act and the
Co-determination Act (Mitbestimmungsgesetz) and shall determine their number.
SECTION 6 REPRESENTATION OF THE COMPANY
The company is represented by two members of the Board of Management or by one
member of the Board of Management together with one holder of a special power of
attorney (Prokura).
IV. THE SUPERVISORY BOARD
SECTION 7 COMPOSITION, TERM OF OFFICE, RETIREMENT
(1) The Supervisory Board shall consist of twenty members, ten of whom shall
be elected by the shareholders and ten by the employees. The appointment
is for a period ending no later than at the close of the General Meeting
in which a resolution is passed on the formal approval of the members'
actions during the fourth financial year following the commencement of
their term of office,
<PAGE>
-7-
excluding the financial year in which that term begins. At the election,
the General Meeting may determine a shorter period of office for the
shareholders' representatives.
(2) Any member of the Supervisory Board may retire from his office, even
without showing good cause, by giving four weeks' notice in writing to the
Chairman of the Supervisory Board. The Chairman of the Supervisory Board,
or in the event that the Chairman retires from office, his Deputy, may
consent to a reduction of the period.
(3) The term of office of the first Supervisory Board shall expire upon entry
of this provision in the Commercial Register which is competent for the
company.
SECTION 8 CHAIRMAN AND DEPUTY CHAIRMEN OF THE SUPERVISORY BOARD
(1) Following the General Meeting at which the ten shareholders'
representatives on the Supervisory Board are elected, a meeting of the
Supervisory Board shall take place, to which an invitation need not be
issued. At this meeting, the Supervisory Board shall, in accordance with
the Co-determination Act, appoint a Chairman and a Deputy Chairman from
its midst for the duration of its term of office.
(2) If the Chairman or the Deputy Chairman retire before the expiration of
their term of office, a successor shall promptly be elected for the
remainder of the term.
SECTION 9 COMMITTEES OF THE SUPERVISORY BOARD
(1) Following the election of the Chairman and Deputy Chairman of the
Supervisory Board, the Supervisory Board shall elect a committee for the
duration of its term of office which is to perform the duty set out in
section 31, sub-section 3 of the Co-determination Act. This committee
shall consist of the Chairman and the Deputy Chairman of the Supervisory
Board and two further members, one to be elected by the employees'
representatives on the Supervisory Board and one by the shareholders'
representatives, each by a majority of the votes cast.
(2) If one of the further members of the committee named in sub-clause 1
retires prematurely, a successor shall promptly be elected for the
remainder of that member's term of office.
(3) Elections under sub-clause 2 shall be subject to the same provisions as
elections under sub-clause 1.
(4) The Supervisory Board may form from among its members committees entrusted
with special tasks and powers. As far as the law permits, the Supervisory
Board's powers regarding decisions may also be exercised by the committees
of the Supervisory Board. For resolutions in the committees, clause 10,
sub-clauses 6 to 8 shall apply, unless otherwise required by binding
statutory provisions; clause 10, sub-clause 5 shall not apply.
SECTION 10 MEETINGS, RESOLUTIONS AND STATEMENTS OF INTENT OF THE
SUPERVISORY BOARD
(1) Meetings of the Supervisory Board shall be convened by the Chairman of the
Supervisory Board or his Deputy if the Chairman is prevented from doing
so. Meetings shall be called in writing (including by telefax), by telex
or by telegram, with two weeks' notice. In the notice, the individual
items on the agenda shall be
<PAGE>
-8-
stated with such clarity as to allow members of the Supervisory Board
absent from the meeting to make use of their right to a written vote. In
urgent cases, the notice period may be shortened to a minimum of three
days.
(2) If due notice has not been given of an item on the agenda, a resolution
may be passed only if no member of the Supervisory Board objects.
Absent members of the Supervisory Board shall, in such a case, be given
the opportunity to object to the resolution within a reasonable period to
be decided by the Chairman; the resolution shall only become effective if
the absent members of the Supervisory Board have not objected within the
specified period.
(3) A quorum of the Supervisory Board shall be constituted if invitations have
been issued to all its members at their last stated address and at least
ten members of the Supervisory Board participate in passing the
resolution.
(4) The Chairman of the Supervisory Board, or his Deputy if the Chairman is
unable, shall preside over the meeting of the Supervisory Board and shall
decide the order of items on the agenda and the manner of voting.
(5) If the members of the Supervisory Board are not present in their entirety
when a resolution is to be passed, and the absent members have not had
written votes submitted on their behalf, the resolution shall be postponed
should at least two of the members present so request. In the event of
postponement and if an extraordinary meeting of the Supervisory Board is
not convened, the resolution shall be passed in the next regular meeting.
On the second passing of a resolution, a renewed minority request for
postponement shall not be permissible.
If the Chairman of the Supervisory Board is present at the meeting or if
one of the members present is in possession of his written vote, the above
sub-clause shall not apply should equal numbers of shareholders'
representatives and of employees' representatives on the Supervisory Board
be present in person at the passing of the resolution or participate in
the passing of the resolution by casting a written vote, or, should an
inequality be offset by individual Supervisory Board members not
participating in the passing of the resolution.
(6) Resolutions shall be passed by a simple majority of votes cast unless
other forms of majority are required by law. In determining the result of
the vote, abstentions shall not be counted.
In the event of a parity of votes, any member of the Supervisory Board may
request that a second vote take place. The Chairman, or his Deputy if the
Chairman is unable, shall determine when the vote is to be repeated. If
the second vote also results in a parity of votes, the Chairman of the
Supervisory Board shall have a second, casting vote.
(7) Absent members of the Supervisory Board may participate in the passing of
a resolution of the Supervisory Board and its committees by submitting a
written vote via other members of the Supervisory Board. This shall also
apply to the second vote of the Chairman of the Supervisory Board.
(8) The Chairman of the Supervisory Board, or his Deputy if the Chairman is
unable, may also arrange for the vote on a resolution of the Supervisory
Board to take place in writing (including by telefax), by telex or by
telegram if no
<PAGE>
-9-
member of the Supervisory Board objects to this procedure within a
reasonable period to be determined by the Chairman.
(9) The Chairman of the Supervisory Board, or his Deputy if the Chairman is
unable, shall issue the statements of intent of the Supervisory Board and
its committees and conduct their correspondence.
(10) Minutes of the Supervisory Board's discussions and resolutions shall be
prepared and they shall be signed by the Chairman. The minutes shall be
forwarded to all members.
<PAGE>
-10-
SECTION 11 DUTY OF SECRECY OF MEMBERS OF THE SUPERVISORY BOARD
The members of the Supervisory Board shall be bound to secrecy with regard to
confidential information and company secrets, in particular business or trade
secrets which become known to the members of the Supervisory Board through their
engagement in activities on the Supervisory Board. If a member of the
Supervisory Board intends to pass on to third parties information, particularly
about the contents and events of a meeting of the Supervisory Board and the
contents of presentation documents and resolutions of the Supervisory Board, he
shall give prior notice to the Chairman of the Supervisory Board in order to
exclude any possible differences of opinion concerning the duty of secrecy.
SECTION 12 REMUNERATION OF THE SUPERVISORY BOARD
The members of the Supervisory Board shall receive a fixed remuneration which is
to be paid after the close of the financial year, in addition to the
reimbursement of their expenses (including the costs of any value added tax
incurred by them with regard to their office as Supervisory Board members). The
fixed remuneration shall amount to DM 100,000 for the individual member, twice
this amount for the Chairman, 1.5 times this amount for the Deputy Chairman and
1.3 times this amount for members elected to committees of the Supervisory
Board. Furthermore, the members of the Supervisory Board shall receive a meeting
fee of DM 2,000 for each meeting of the Supervisory Board.
V. THE GENERAL MEETING
SECTION 13 CONVENING OF THE GENERAL MEETING
(1) The General Meeting shall be convened by the Board of Management or the
Supervisory Board. It shall take place at the registered office of the
company or at any other location not excluded by law.
(2) Notice of the Meeting shall be given at least one month prior to the last
day on which the shareholders have to register for the Meeting. The term
of notice shall be calculated excluding the day on which notice is given
and the last day of the period of registration.
SECTION 14 THE ANNUAL GENERAL MEETING
The General Meeting which passes resolutions on the formal approval of the
actions of the Board of Management and the Supervisory Board, the disposition of
unappropriated profit, the appointment of the auditor and, if applicable, the
approval of the annual financial statements (Annual General Meeting), shall take
place within the first eight months of each financial year.
SECTION 15 REQUIREMENTS FOR PARTICIPATION AND THE EXERCISE OF VOTING RIGHTS
Those shareholders who are registered in the share register on the day of the
General Meeting, and who have notified the company of their intention to attend
no later than on the third day before the General Meeting, shall be entitled to
participate in the General Meeting and to exercise voting rights.
SECTION 16 VOTING RIGHTS
<PAGE>
-11-
Each share represents one vote.
<PAGE>
-12-
SECTION 17 CHAIRMANSHIP OF THE GENERAL MEETING
(1) The Chairman of the Supervisory Board shall preside as chairman at the
General Meeting. If he is unable, the Meeting shall be chaired by a member
of the Supervisory Board appointed by the Chairman or, failing such
appointment, the member elected by the shareholders' representatives on
the Supervisory Board in accordance with Section 27 sub-section 3 of the
Co-determination Act. If none of the above-mentioned is present or willing
to chair the meeting, the Chairman of the Meeting shall be elected by the
Supervisory Board.
(2) The Chairman shall preside over the proceedings and decide the order of
business and the manner and form of voting.
SECTION 18 PASSING OF RESOLUTIONS
(1) The General Meeting's resolutions shall be passed by a simple majority of
votes cast, unless otherwise required by binding provisions of the Stock
Corporation Act. If the Stock Corporation Act also requires that a
resolution be passed by a majority of the capital stock represented at the
passing of the resolution, a simple majority of the capital represented
shall suffice, provided this is permitted by law.
(2) Alterations to the Memorandum and Articles of Association which affect
merely the wording may be passed by resolution of the Supervisory Board.
VI. ANNUAL FINANCIAL STATEMENTS AND DISPOSITION OF THE UNAPPROPRIATED PROFIT
SECTION 19 FINANCIAL YEAR, ACCOUNTING
(1) The financial year is the calendar year.
(2) In the first three months of the financial year, the Board of Management
shall prepare the annual financial statements and the business review of
the previous financial year, and submit them to the auditor. The Board of
Management shall submit the annual financial statements and the business
review, together with the proposal for disposition of the unappropriated
profit which the Board of Management intends to put before the General
Meeting, to the Supervisory Board promptly after their preparation.
SECTION 20 INTERIM PAYMENT WITH RESPECT TO THE UNAPPROPRIATED PROFIT
After the end of the financial year, the Board of Management is - with the
approval of the Supervisory Board - permitted to make an interim payment to the
shareholders with respect to the expected unappropriated profit, if a
preliminary closing of the financial statements of the past financial year shows
a profit for the year. The interim payment shall not exceed one half of the
amount which remains of the profit for the year after deducting the amounts
which, pursuant to law or to the Memorandum and Articles of Association, must be
transferred to the disclosed reserves. Furthermore, the interim payment shall
not exceed one half of the previous year's unappropriated profit.
SECTION 21 CRITERIA FOR THE SHAREHOLDERS' PARTICIPATION IN PROFITS
(1) The dividends paid to shareholders shall be proportional to their shares
in the capital stock.
<PAGE>
-13-
(2) When new shares are issued, a different entitlement to profits may be
specified.
VII. ANNOUNCEMENTS
SECTION 22
Announcements of the company shall be published in the Federal Gazette
(Bundesanzeiger).
VIII. EXPENSES OF FORMATION
SECTION 23
Expenses and taxes incurred in connection with the formation of the company and
its registration in the Commercial Register (in particular notary and court
fees, expenses for announcements, taxes, legal and tax consultants' fees,
expenses for experts, bank fees) shall be borne by the company up to an amount
of DM 10,000 in total.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT
----------------------------------------------------
The Board of Directors and Stockholders
DaimlerChrysler AG:
The audits of DaimlerChrysler AG and subsidiaries (DaimlerChrysler) referred to
in our qualified report dated March 15, 1999, included the related financial
statement schedule for each of the years in the three-year period ended December
31, 1998, as contained in the DaimlerChrysler Annual Report on Form 20-F for the
year ended December 31, 1998. The financial statement schedule is the
responsibility of DaimlerChrysler's management. Our responsibility is to express
an opinion on the financial statement schedule based on our audits. In our
opinion, based on our audits and the report of other auditors, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Our auditors' report referred to above contains a qualification as a result of a
departure from United States generally accepted accounting principles for
DaimlerChrysler's accounting for certain joint ventures in accordance with the
proportionate method of consolidation. In our opinion, United States generally
accepted accounting principles require that such joint ventures be accounted for
using the equity method of accounting.
We consent to incorporation by reference in the registration statements on
Form F-3 (Nos. 333-5550 and 333-9328) of DaimlerChrysler North America
Holding Corporation, the registration statements on Form S-8 (Nos. 333-5074,
333-7082 and 333-8998) of DaimlerChrysler AG, and the registration statements
on Form S-3 (Nos. 33-64179 and 333-49647) of Chrysler Financial Company
L.L.C. of our report dated March 15, 1999, relating to the consolidated
balance sheets of DaimlerChrysler as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1998, and related financial statement schedule. Such consolidated
financial statements were prepared in accordance with United States generally
accepted accounting principles except for the use of the proportionate method
of consolidation with respect to certain joint ventures, as discussed above.
Our report with respect thereto appears in the DaimlerChrysler Annual Report
on Form 20-F for the year ended December 31, 1998, and was based in part on
the report of other auditors.
KPMG Deutsche Treuhand-Gesellschaft AG
Frankfurt am Main
March 31, 1999
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated January 22,
1999 (relating to the consolidated financial statements of DaimlerChrysler
Corporation not presented separately herein), included as Exhibit 99.1 of the
Annual Report on Form 20-F of DaimlerChrysler AG for the year ended December 31,
1998, in the following Registration Statements:
REGISTRATION
FORM STATEMENT NO. ISSUER
F-3 333-5550 DaimlerChrysler North America
Holding Corporation
F-3 333-9328 DaimlerChrysler North America
Holding Corporation
S-8 333-5074 DaimlerChrysler AG
S-8 333-7082 DaimlerChrysler AG
S-8 333-8998 DaimlerChrysler AG
S-3 33-64179 Chrysler Financial Company L.L.C.
(Post-Effective
Amendment No. 1)
S-3 333-49647 Chrysler Financial Company L.L.C.
(Post-Effective
Amendment No. 1)
Deloitte & Touche LLP
Detroit, Michigan
March 30, 1999
<PAGE>
[Deloitte & Touche LLP Letterhead]
INDEPENDENT AUDITORS' REPORT
Board of Directors
DaimlerChrysler Corporation
Auburn Hills, Michigan
We have audited the accompanying consolidated balance sheet of DaimlerChrysler
Corporation and consolidated subsidiaries (the "Company") as of December 31,
1998 and 1997, and the related consolidated statements of earnings and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of DaimlerChrysler Corporation and
consolidated subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Detroit, Michigan
January 22, 1999
