Daimler AG
Annual Report 1993

Plain-text annual report

DAIMLERBENZ Positioning for the future We encounter products of the Daimler-Benz group every day. Their identity, however, is not always as apparent as that of the cars bearing the Mercedes star. Usually it would take a look behind the scenes to recognise AEG Daimler-Benz Industrie's microelectronics, rail systems, energy systems technology or automation technology; the same applies to the products and systems of Deutsche Aerospace and the services of debis. We often make use of them without realizing who is behind them. Daimler-Benz is an integrated technology group with extensive competence in the field of transportation and traffic systems. We are also active in fields interlinked by common technologies and system structures. The common foundations of the corporate units, their structures and the forms of cooperation are part of the distinctive corporate identity of Daimler-Benz. Similar to some of our products, our corporate units do not always draw attention to themselves. To give you more of an insight into "your" company than mere statistics and balance sheets can provide and, above all, to show you how we are positioning for the future - we have given our annual report a new look. Contents 2 The Corporate Principles of Daimler-Benz 3 Daimler-Benz Highlights 4 Letter to the Stockholders and Friends of our Company 6 Board of Management 8 Report of the Board of Management 8 Business Review 14 Operating Activities of the Group 42 Central Corporate Functions 62 The Daimler-Benz Share 65 Discussion and Analysis of the Financial Situation 74 Financial Statements 95 Proposal for the Allocation of Unappropriated Profit 96 Supervisory Board 98 Report of the Supervisory Board 99 Directors and Daimler-Benz Group Representatives 100 Principal Subsidiaries and Affiliated Companies 102 Daimler-Benz in Figures The Corporate Principles of Daimler-Benz Our work at Daimler-Benz serves people and their environment. We aim to offer the world's most advanced products, systems and ser vices. This requires a continual committ ment to technical, business, and social innovation as well as a corporate cul ture characterized not by compla cency, but by creative unrest. In a world increasingly complex, with promising opportunities - but also risks - even minor events can take on consequences of major propor tions. Therefore, we must carefully weigh our every action. We owe it to future generations to use our natural resources prudently and sparingly. This sense of respon sibility must be reflected in all our thoughts and activities throughout the Group. Our customers are the focus of our efforts. We must strive not just to meet their expectations, but to exceed them. Cooperation and the open exchange of know-how through out all areas of our companies are cen tral to meeting this goal. Just as we are accountable to our customers, we are equally responsible to the companies' owners as well as to the public. This means we must be willing to provide feedback to others and to assess ourselves openly and honestly. We aim to learn better and faster than our competitors. To achieve this, we need not only flexible organ izational structures but also em ployees who think entrepreneurially. Key to our success are employees with a sense of responsibility, inde pendence, creativity, drive, teamwork, and openness to new ideas. We there fore promote every employee's per sonal development to the best of our abilities. i Daimler-Benz does business in all corners of the globe. We are convinced of the advantages to every one of open trade borders throughout the world. Therefore, we view competi tion as a welcome proving ground. The measure of our success is the recogni tion our work receives, and economic success is an undeniable part of this recognition. Inherent to our philosophy is re spect for other cultures. As an interna tional company, we reject all forms of discrimination. This principle applies, moreover, to the filling of management positions, where we will extend equal opportunities to every employee regardless of nationality. Daimler-Benz is an integrated technology group. This means that our various business areas are linked by cross cutting technologies and system structures. We place a special emphasis on our know-how and experience in traffic management systems and transportation technolo gies. Our core businesses include vehicles for passenger and freight transportation, rail systems, aerospace, propulsion systems, defense systems, automation, energy systems tech nology, and information-technology services. In these areas, Daimler-Benz strives to be a world leader. Furthermore, we are active in cer tain specialized areas, such as applied microelectronics, selected financial services, and countertrading, where we aim to be highly competitive. To a great extent, these activities interlink our core business areas. Each of our business areas falls under the responsibility of one of our four corporate units. Thus, Mercedes- Benz, AEG Daimler-Benz Industrie, DASA, and Daimler-Benz InterServices (debis) work together under the um brella of Daimler-Benz, the managing holding company of our group. Our cooperation aims to: Combine know-how and experi ence to create new dimensions - Responsibly promoting prog ress for everyone We are proud to continue a distin guished tradition guided by these prin ciples. 2 The Corporate Principles of Daimler-Benz Daimler-Benz Highlights Daimler-Benz Highlights 3 It is our intention to set new stand ards in the quality and content of our company reports. As an international corporation, we wish to provide our investors, customers and suppliers the world over, as well as our employees, with the highest possible standard of information. Accordingly, we submit this annual report to all those who have links with our company and un derscore why those links will continue to be rewarding. 1993 was an extremely difficult year, not only for Daimler-Benz. Moreover, while the first signs of the end of the deep economic recession are beginning to appear, we cannot expect a significant upturn in most of our main markets before the end of this year at the earliest. The role which the unsatisfactory development of wages, and monetary policy have played in this is largely undisputed. Conditions have not improved in other areas as well. This also applies to government policy on purchasing as well as on the public sponsorship of research and development, especially in defense technology and the aero space industry. This is despite the fact that these key technologies for the fu ture are needed more than ever if we are to secure competitiveness - and therefore also jobs - both in Germany and throughout Europe. We do, however, expect the eco nomic recovery, which began taking shape during the last quarter of 1993, to continue in 1994. During the last four years, we have built the right foundations to benefit from this up turn. In view of the declines suffered in nearly all our fields of business dur ing 1993, this may seem presump tuous. However, my colleagues and I are convinced that these difficult times have confirmed just how healthy the basic substance of Daimler-Benz really is. We possess the vitality and potential to assure a healthy future for our company in spite of the difficulties we have all endured. We have decided to propose the payment of a dividend in the amount of DM 8. Against the background of business trends, and in view of the considerable burdens we have placed on our employees, many people may consider it more appropriate not to pay a dividend this year. However, we believe our proposal to be appropriate because we want our sharholders to benefit from the long-term earnings potential of Daimler-Benz which con tinues to be very promising. Productivity and efficiency in the entire group, with regard to both labor and capital, have increased signifi cantly. The extensive and continuing improvements made in all areas, espe cially during the latter half of 1993, have allready been reflected in sub stantial success. We are optimistic that this decidedly positive trend will continue as we broaden and renew our product ranges; particulary at the car and commercial vehicle divisions of Mercedes-Benz, we are very convinced that we can, through internal growth, reach our demanding goals using our own resources. This is consistent with the fact that, like other industrial manufac turers, we are reviewing possible areas of cooperation with both compet itors and suppliers in sectors periph eral to our core production activities. Indeed alliances, joint ventures and new forms of cooperation will remain on the agenda not just in this year but also in the years to come. Proud as we are of increasing pro ductivity, we are not blind to the fact that our competitors are also devoting enormous effort, to improving effi ciency and lowering costs. This means that we must, and will, take further measures. At times, these steps may seem unconventional, and will involve labor, and increasingly, capital. It also means that we must continuously re view the locations of our operations to determine if they are compatible with an internationally competitive produc tion structure. The first consequences of this scrutiny, such as the closure and amalgamation of individual loca tions, have already been widely reported. 4 Letter to the Stockholders and Friends of our Company We will resolutely continue to globalize our activities to attain the best positions on the world markets of tomorrow. We shall also continue to focus the core capabilities of our inte grated technology group on the mo bility of people and products. This ap proach is exemplified by the strategic restructuring of AEG Daimler-Benz In dustrie. The future main focus of this company will go well beyond electrical and electronic engineering. Our corpo rate unit's traditional areas of busi ness will, in the future, be comple mented by a Diesel Engines field of ac tivity, uniting certain activities of MTU Friedrichshafen and of Mercedes-Benz AG. AEG Daimler-Benz Industrie will also assume central responsibilities in the area of microelectronics, which is of paramount importance for the inte gration of the group. In the other fields of activity of this corporate unit, we have built the platform to strengthen competitiveness through industrial partnerships and divestitures. Addi tional details are contained in this report. We will continue to work reso lutely and rapidly to ensure an optimal alignment of our areas of operation. This can be accomplished with a high degree of precision, now that we have improved and refined our internal planning and control mechanisms. In the future, it will enable us to incorporate some important aspects of the shareholder value concept. This does not represent a break with our long-term philosophy of re sponsibility to our employees and to the worldwide community. Your com pany is strong because of its resolute ness in pursuing its strategic goals while at the same being able to take quick and effective action wherever necessary. More changes will take place in the future. We have taken the initial offensive not with isolated measures, but with a coherent, overall plan which we are putting into effect reso lutely, step by step. Some important successes have already been achieved, others will follow. This is a primary reason why we have decided to broaden your company's equity base which will give us the financial security for our further growth. Due to a high level of non recurrent expenditures again this year, 1994 will not be easy. Even so, we are expecting a significant im provement. By 1995, we will once again be able to speak of an overall satisfactory trend in our earnings. We are convinced that you, our stockholders, will not be disappointed. You can place your trust in this com pany, because it is well prepared for the future. Through our work over the last few years, and thanks to the re sources and motivation of the men and women working for your company, we have created the potential for world wide growth, potential which others can only envy. This is true not only of our areas of individual activity, but also - and increasingly - of our capa bility to combine the knowledge at our disposal and to provide integrated systems solutions. Letter to the Stockholders and Friends of our Company 5 The Board of Management of Daimler-Benz AG EDZARD REUTER Stuttgart Chairman DR. JUR. HANS-WOLFGANG HIRSCHBRUNN Stuttgart Personnel DR. RER. POL. GERHARD LIENER Stuttgart Finance and Materials PROF. DR.-ING. HARTMUT WEULE Stuttgart Research and Technology Retired from the Board of Management: (on May 26, 1993) PROF. DR.-ING. E.H. DR. H.C. Werner Niefer Stuttgart, Deputy Chairman President and Chief Executive Officer of Mercedes-Benz AG, (Deceased September 12, 1993). EDZARD REUTER born 1928 in Berlin, Member of the Board of Management since 1973, until 1979 responsible for Corporate Planning and Organization, from 1980 to 1987 responsible for Finance, since 1987 Chairman, under contract until 1995. DR. JUR. MANFRED GENTZ born 1942 in Riga, Member of the Board of Management since 1983, until 1990 responsible for Personnel, since 1990 responsible for the corporate unit Daimler-Benz InterServices (debis), under contract until 1995. DR. RER. POL. GERHARD LIENER born 1932 in Stuttgart, Member of the Board of Management since 1982, until 1987 responsible for Subsidiaries and Affiliated Companies, since 1987 responsible for Finance and Materials, under contract until 1997. JÜRGEN E. SCHREMPP born 1944 in Freiburg, Member of the Board of Management since 1987, until 1988 responsible for the Commercial Vehicle Division, since 1989 responsible for the corporate unit Deutsche Aerospace (DASA), under contract until 1999. DR. JUR. HANS-WOLFGANG HIRSCHBRUNN born 1933in Offenburg, Member of the Board of Management since 1990, responsible for Personnel, under contract until 1996. ERNST G. STOCKL born 1944 in Sulzburg, Member of the Board of Management since 1991, responsible for the corporate unit AEG Daimler-Benz Industrie, under contract until 1996. HELMUT WERNER born 1936 in Köln, Member of the Board of Management since 1987, until 1992 responsible for the Commercial Vehicle Division, since 1992 responsible for the corporate unit Mercedes-Benz, under contract until 1997. PROF. DR.-ING. HARTMUT WEULE born 1940 in Bitterfeld, Member of the Board of Management since 1990, responsible for Research and Technology, under contract until 1996. Board of Management 7 Report of the Board of Management Business Review Consolidated 1993 revenues of Daimler-Benz declined by 4% on a comparable basis to DM 97.7 billion. The decrease in business was caused by adverse world economic conditions. In all areas of the group, action has been taken to reduce costs and improve produc tion processes on a long-term basis. We shall continue to take this action to ensure that the group remains profitable. problems hindering production in Ger many caused companies to reduce in vestments. This also hurt economic re construction in the new Federal states, where both the speed and the quality of economic growth lagged far behind the high expectations. Disappointing Economic Trends Economic conditions were unfa Daimler-Benz: Revenues of DM 98 Billion vorable to the Daimler-Benz group in virtually all parts of the world in 1993. Although modest improvements in the USA and the United Kingdom contin ued, hopes of an upturn in the other Western European industrial countries and Japan were not met. Even the strong growth in various newly indus trializing countries of Asia and Latin America failed to stimulate the global economy to any significant extent. In Germany, the economic trend was particularly disappointing. The recession which began in the second half of 1992, became worse during 1993, sparked by the low level of do mestic demand and the decline in Ger man exports due to adverse conditions in major markets. Also, the strength ening of the Deutschmark, against most other European currencies, made German export products more expen sive. The reduced spending by German consumers is attributable to the grow ing burden of taxes and levies, cou pled with rising unemployment. At the same time, idle capacity and structural The trend in business of the Daimler-Benz group reflects the diffi cult economic climate. Consolidated 1993 revenues totaled only DM 97.7 billion, which was 4% below 1992 when comparably calculated. Reve nues in the European Union were also reduced by 11 % to DM 58.4 billion, while those in Germany also declined by 11% to DM 38.3 billion. However, in the US market business volume in creased by 11 % to DM 16 billion and in other markets by 7% to DM 23.4 billion. Consolidated shared revenues of the business units of Mercedes-Benz, AEG, DASA and debis were 63%, 11 %, 19% and 7% respectively. Mercedes-Benz Cars: Successful Start for New C-Class As a result of the recession pas senger car sales declined in nearly all Western European markets including Japan. The positive market trend in North America and various newly in dustrializing countries overseas was not able to compensate for the reces sion, and accordingly worldwide de mand for cars was reduced by 4%. Note: The Business Review is the combined audited Business Review of Daimler-Benz AG and the Daimler-Benz group. 8 Business Review Even under these conditions, passenger car sales of the Mercedes- Benz corporate unit remained stable. Mercedes-Benz worldwide sales of cars in 1993 declined by just 2% to 508,100 units. The newly launched C-class and the updated E-class, im proved Mercedes-Benz' market condi tions, although, as a result of the first half of the year, annual registrations in Germany declined by 12% to 209,900 vehicles. Foreign sales, totalling 287,400 units, remained stable. In response to the generally unfa vorable 1993 market situation and in order to reduce inventory, Mercedes- Benz reduced passenger car produc tion by 9% to 480,600 vehicles. Mercedes-Benz Commercial Vehicles: Market Position Maintained Mercedes-Benz sold 253,900 com mercial vehicles worldwide which was a reduction of 8% from 1992. The de cline is attributable to the recession in Western Europe. Commercial vehicle registrations in Germany declined by 25% to 82,200 units. Significant de creases were also recorded in other Western European markets. However, Mercedes-Benz continues to maintain its position as the leading manufac turer of trucks over 6 tons, with a mar ket share in Western Europe of more than 30%. Significant growth was experi enced at Freightliner and most of the other overseas subsidiaries, however, even with this growth in foreign sales, total commercial vehicle production was reduced by 13% to 241,600 units. New Corporate Structure for AEG On December 8, 1993, the corpo rate unit AEG completed its new cor porate structure which will contribute track-bound products and systems to the core transportation business of the Daimler-Benz group. It will also include a microelectronics function, serving all sectors of the group, along with the traditional automation and power transmission and distribution business. The new structure will dis solve activities which do not have a strategic role within the group. Due to the acquisition of Kiepe Elektrik a significant increase in cus tomer purchase orders was recorded in the Rail Systems division. The same development of cus tomer purchase orders applied to the Microelectronics field of activity and to Postal Automation, while in Industrial Automation and Electrotechnical Sys tems and Components orders fell short of 1992 levels. Overall, customer pur chase orders rose slightly by 2% to DM 12.1 billion. Further Reduction in Capacity at Deutsche Aerospace The economic environment of the Deutsche Aerospace corporate unit continued to decline. Business in the Aircraft division as well as the De fense and Civil Systems division dete riorated significantly due to the struc tural crisis affecting the airlines and the drastic cuts in spending by the Federal Armed Forces. Incoming or ders are insufficient to allow for full utilization of capacity. Accordingly, Deutsche Aerospace has initiated a wide-range, cost-cutting and perfor mance improvement program to create a more efficient structure. The meas ures include a reduction in personnel through 1996 and also include plant closures. Effective January 1, 1993, the Fok- ker group, in which a majority owner ship was purchased on May 19, 1993, was merged into the Aircraft division. Incoming orders at Deutsche Aero space, amounting to DM 15.6 billion, were 8% below those of 1992. debis Continues to Increase Revenues The debis corporate unit increased its total output in 1993 by 20% to DM 9.5 billion. The primary markets were Germany and the USA. There was a sharp increase in business with customers outside the Daimler-Benz group, which increased from 79% to 83% as a proportion of total revenue. Although further acquisi tions were made during 1993, the in crease in output of debis was attributa ble to growth in existing areas of the company. The Financial Services divi sion experienced a substantial expan sion in business, resulting from an increase in international markets and an expansion of the range of services provided. Difficult Employment Situation At year-end, the Daimler-Benz group employed 366,736 people (com parably calculated including Fokker; employees in 1992: 388,888). By Janu- ary 1, 1994 the group workforce was Business Review 9 reduced further to total 362,190. From the end of 1993, 284,576 people (1992: 302,464) were employed in Germany. Mercedes-Benz employed a total of 209,933 people at the end 1993, AEG employed 58,921, DASA employed 86,086, and debis employed 8,812. Daimler-Benz AG employed 2,984, including 540 in group manage ment functions, 1,274 in group re search functions and 1,170 in service areas for the corporate units and the Mohringen location. In the corporate units of the group, the employment situation was occasionally strained. The unsatisfac tory market situation required reduc tion in the size of the workforce, with a view to safeguarding the competitive strength of Daimler-Benz. Reductions in personnel were necessary at the AEG and DASA corporate units in 1993, along with reduced work shifts in response to inconsistent production capacities. Purchasing Volume at approximately DM 57 Billion Despite reduced production in Germany and lower investments than in the previous year, the volume of purchases due to the first time inclu sion of Fokker, increased from 1992. Worldwide purchases of goods and services totalled DM 56.7 billion (1992: DM 55.7 billion). Of these pur chases, Mercedes-Benz accounted for 66%, 10% by AEG, 18% by Deutsche Aerospace and 6% by Daimler-Benz InterServices. During 1993, numerous cost re duction projects were initiated by the Company which resulted in substan tial efficiency gains at both the manu facturing plants as well as our suppliers. Global sourcing activities in creased during 1993. The "Purchasing Drive in the New Federal States" initi ated by West German companies dur ing 1992 had excellent results. Impor tant contributions were made by the companies of the Daimler-Benz group, who increased their purchases in the new Federal States to more than DM 800 million (1992: DM 600 million). Investment in Property, Plant and Equipment at DM 5.4 Billion Substantial funds continued to be deployed in 1993 to safeguard the fu ture of Daimler-Benz. Investment in property, plant and equipment totalled DM 5.4 billion. During 1992, invest ments totalled DM 8 billion. Also in 1993 additions to intangible assets totalled DM 0.2 billion, and deprecia tion and disposal of property, plant and equipment and intangible assets totalled DM 6.3 billion. In the Commercial Vehicle division, European investment focused on the introduction of environment-friendly engines and the light truck model up date. Over DM 1 billion was expended worldwide to maintain the compet itiveness of the Mercedes-Benz com mercial vehicle range and to take ac count of market-specific requirements. Investment in property, plant and equipment additions totalled DM 0.6 billion for AEG , DM 1.0 billion for DASA, DM 0.2 billion for debis, and DM 0.1 billion for the holding com pany. Additions to leased equipment to talled DM 5.9 billion (1992: DM 5.2 billion). Borrowing for leasing and sales financing activities totalled DM 13.7 billion (1992: DM 11.0 billion). Research and Development Projects amount DM 9 Billion A total of DM 9 billion (1992: DM 9.6 billion) was expended on research and development of which develop ment work for third parties, primarily at the Deutsche Aerospace corporate unit, accounted for DM 4.1 billion. The investment in property, plant On October 19, 1993, the Daimler- and equipment was for new produc tion technologies, new products and new strategies. The largest share of to tal investment, DM 2.6 billion (1992: DM 4.2 billion), was deployed by Mercedes-Benz. In the Passenger Car division, the preparations for produc tion of the new C-class and E-class, the introduction of 4-valve gasoline and diesel engines and the change-over to water-based paints consumed DM 1.3 billion of the total investment. Benz Ulm Research Center was com pleted at a cost of DM 270 million, which can accommodate 1,000 em ployees. At the center various re search projects for the corporate units and development on key technologies is performed. The spectrum of activ ities includes but is not limited to mi croelectronics, functional and struc tural materials, production research and the environment, energy research and information technology. The Mercedes-Benz corporate unit expended DM 3.2 billion (1992: DM 3.1 billion) on passenger car and com mercial vehicle development. 10 Business Review In the Passenger Car division, the At Deutsche Aerospace, DM 4.8 190 compact series was replaced in June 1993 by the new C-class. The C-class has been newly engineered throughout and offers significantly more leg room. In June 1993, the E-class was given a new look, incor porating styling features from the S-class and C-class. With a new genera tion of four-valve gasoline and diesel engines, we are giving our C-class and E-class customers noticeably more power and comfort, coupled with low fuel consumption. At the Frankfurt In ternational Motor Show, we presented our VISION A 93 study, with which we intend to enter a new market segment with high growth potential. VISION A is the foundation for development work on the new Mercedes-Benz A-class. The Mercedes-Benz Commercial Vehicle division presented new, environment-friendly engines in 1993 which are being successively phased into production. A variety of product improvements have made the vehicle range more attractive and even more closely tailored to customer require ments. billion (1992: DM 5.5 billion) was spent on research and development; of which projects carried out for third parties accounted for DM 3.9 billion. In the Aircraft division, development work in the Airbus and Fokker pro grams continued. Further areas of ac tivity included the EF 2000 European Fighter Aircraft and the Tiger helicop ter development program. In Space Systems, research and development focused on the Cluster, ERS-2, Polar Platform and Ariane programs. In the Defense and Civil Systems division, further development was carried out on anti-aircraft systems and the Milan and Hot anti-tank systems. In the non- military sector, digital transmitting technology was the focus in the Eu reka program. In Propulsion Systems, a considerable investment was ex pended on improving the efficiency and service life of the PW 2000 jet en gine range. In the field of medical sys tems, a completely new lithotripter system was introduced to the market. Consolidated Net Income Falls to DM 0.6 billion In 1993, AEG spent DM 764 mil The net income of the Daimler- lion (1992: DM 726 million) on re search and development. Central areas of research activity included systems engineering, postal automation sys tems, a new generation of rail cars, local public transport concepts and products, semiconductors and vehicle electronics. Benz group in 1993 totalled DM 0.6 billion (1992: DM 1.45 billion). The de cline of DM 0.8 billion was due to sig nificant declines in operating results in all the corporate units; however, there were also some promising devel opments. Adapting certain valuation and accounting methods to tax regula tions and US accounting standards led to an extraordinary income of DM 2.6 billion. Extraordinary results of DM 7.4 billion (1992: DM 4.5 billion) included, among others, a book profit of DM 1.7 billion from the sale of securities. Re sults from ordinary business activities were a loss of DM 3.3 billion (1992: DM 2.0 billion) is the fundamental basis for the profit/loss contributions of the operating units. Included in the results from ordinary business activ ities are costs arising from structural measures amounting to DM 3.5 billion. The automotive sector incurred a loss of DM 1.3 billion (1992: a profit of DM 2.3 billion). This was mainly due to decline in revenues in the first half of 1993 and substantial restructuring expenditures of DM 1.7 billion. The foreign companies in the automotive sector made a larger overall contribu tion than in the previous year. The contribution of AEG in 1993 fell sharply from the small positive re sult achieved in the previous year to a loss of DM 0.9 billion, as a conse quence of economic factors and struc tural expenditures of DM 0.6 billion. Particularly the fundamental restruc turing in the Rail Systems field of ac tivity, structural measures in Automat ion and in electric motors made large demands on resources. The negative result of Deutsche Aerospace increased further in 1993 to DM 1.0 billion and was considerably worse than the 1992 loss of DM 0.5 billion. The primary reasons for this negative result were due to declining revenues in Defense and in Space Sys tems, due to reductions in government budgets, and the recording of provi sions for structural adjustments of DM 1.1 billion. Further adverse influ ences were the reduction in deliveries to international airlines and the first-time inclusion of Fokker, where negative results were posted. debis made a positive contribution to the Daimler-Benz consolidated re sult of DM 0.4 billion (1992: DM 0.3 billion). Included in the positive contri bution was a negative contribution from Sogeti and additional restructur ing expenditures in the Systemhaus group. The net interest expense of the leasing and sales financing companies totalled DM 0.3 billion (1992: DM 0.4 billion). Consolidated net interest in come, excluding the above expenses, amounted to DM 0.8 billion (1992: 1.0 billion). The first-time inclusion of Fok ker and lower interest margins were the primary reasons for the decline in net interest income. Sound Balance Sheet Structure Due to the continued increase in leasing and financing business, the balance sheet total increased by al most 6% to DM 90.9 billion . On the asset side, both non-current and cur rent assets increased. Liabilities rose due to the first-time inclusion of Fokker and the higher financing re quirements of the financial services business, while stockholders' equity was reduced due to the inclusion of Fokker, having been valued according to Daimler-Benz accounting policies. Excluding the financial services busi ness, which is primarily financed by debt, the equity ratio declined from 28% to 26% and the proportion of non- current assets in relation to stock holders' equity was reduced from 81% to 78%. Long and medium-term capital amounted to 60% of the consolidated balance sheet total. Allocation of Earnings Net income of Daimler-Benz AG totalled DM 390 million (1992: DM 703 million excluding extraordinary income). This amount contains extra ordinary income of DM 1,722 million (1992: DM 4,490 million) which re sulted from adjustments to valuations for tax regulations and U.S. accounting principles, particularly relating to pro visions, inventories and receivables. The profit transfer agreement was slightly negative for Mercedes-Benz including extraordinary income, and debis, however, AEG and Daimler- Benz Luft- und Raumfahrt-Holding AG, the parent company of the DASA group, incurred considerable losses. At our Annual General Meeting on May 18, 1994, we shall propose that a dividend of DM 8 be paid per share of DM 50 par value (1992: DM 13). The total dividend payment will amount to DM 373 million. Outlook The first signs of a recovery in the global economy are visible at the beginning of the 1994 financial year. Although the upward trend of the US economy is continuing, for Europe - with the exception of the United Kingdom - a slight recovery is the most that can be expected. The same also applies to Japan, although the gov ernment is mounting large-scale eco nomic programs to stimulate the econ omy. In Germany, the recession has al ready bottomed out, but a significant upturn in 1994 is unlikely. The first impetus should come from exports, not the least due to the devaluation of the Deutschmark against major cur rencies in the first months of the year, while domestic demand will be slow to gain momentum. 12 Business Review Sales of Mercedes-Benz passenger cars in the first two months of 1994 significantly exceeded the low level of 1992. Commercial vehicle business in Europe was still unsatisfactory and in view of economic conditions will be very slow to rally. The growth of our markets in North America seems likely to continue. We do not expect vehicle demand to recover to any sig nificant extent in Japan. Prospects in the newly industrializing countries in Asia and Latin America continue to be promising. In order to maintain the compet itiveness of our German-based opera tions, the measures to increase pro ductivity will be accelerated. Mercedes-Benz will also be expanding its global market presence and its worldwide activities in the areas of purchasing, manufacturing, research and development. AEG Daimler-Benz Industrie expects its Rail Systems, Micro electronics and Automation fields of activity in particular to record in creased sales. However, the intended sale of the Domestic Appliances field of activity and the power meters and lighting systems sectors will mean that overall, incoming orders and sales of AEG will be lower than in 1993. In addition, the restructuring of the AEG group will involve further industrial activities of the Daimler-Benz group being transferred to AEG Daimler- Benz Industrie. Deutsche Aerospace expects to hold its revenues at the low level of 1993 in the current financial year. A considerable increase is expected in the Space Systems division and a small increase in the Propulsion Sys tems division. In the Aircraft division, positive results can be expected only from deliveries of the Dornier 328, which began at the end of 1993. In the Defense and Civil Systems division, increase of production in the Stinger program to the target volume will offset declines in other projects. The comprehensive program to cut costs and improve performance launched by Deutsche Aerospace in 1993 will continue through to 1996. Daimler-Benz InterServices ex pects favorable development prospects in the services sector and anticipates an increase in its total output and the share of business with customers out side the group. In those areas adver sely affected by the recession, debis will take measures aimed at stabiliz ing business. Cost-cutting and effi ciency improvement programs will continue in 1994. Our joint ventures will achieve cost savings by concentrating on their core areas of activity. Increased tech nology transfer with other companies, new marketing strategies and develop ment of solutions to transport prob lems through traffic management sys tems are focal activities of these joint ventures. Despite the prevailing adverse economic conditions, we believe the Daimler-Benz group will achieve an in crease in business as well as signifi cantly improve the earnings trend. Business Review 13 Even our youngest ''customers" can rely on us because the engineers of Mercedes-Benz have always worked hard for safety. Always one step ahead, the Mercedes-Benz safety engineers invented the crash test and such trend-setting safety features as the crumple zone and the safety passenger cell. New Mercedes passenger cars continue to set new standards in the field of active and passive safety. Corporate Unit Mercedes-Benz Consolidated sales of Mercedes-Benz for the 1993 financial year totalled DM 64.7 billion (- 3%). We took the opportunity in the diffi cult business environment which characterized this year to make key decisions for the company. Bold measures were implemented to make our organizational structures and processes more efficient in order to safeguard the competitiveness of our German-based operations. We expanded the global presence of our company and laid the foundation for future growth by carrying out a strategic restructuring of our product policy. Sales Crisis in West European Automotive Sector The automotive sector was one of the areas hardest hit by the recession in Western Europe. Passenger car sales suffered in nearly all Western European markets as prevailing economic uncertainty de pressed consumer spending. This was not offset by the more positive market trend in the USA and various newly industrializing countries. With a pro nounced weakening in the Japanese market as well, the world wide de mand for passenger cars diminished by 4% and thus to its lowest level since 1987. Low investment confidence and growing surplus capacity in the truck ing industry have slowed the replace ment process in European commercial vehicle fleets. Replacement volume had been especially dynamic in pre vious years, due to European integra tion and German unification. During 1993, purchases were postponed due to the unfavorable overall economic outlook causing a sharp drop in sales in major European commercial vehicle markets. In contrast, the upturn in the USA grew stronger, especially the heavy duty trucks. Strong market growth was also achieved in various newly industrializing countries in South America and Asia. The Western European automotive sector, faced with unfavorable sales trends at home, was forced to notice ably cut production of both passenger cars and, to a greater extent, commer cial vehicles. Competition on prices and terms in the commercial vehicle sector inten sified further, and price pressure in creased sharply even in the luxury segment of world passenger car mar kets as a result of growing surplus ca pacity. The entire European automotive sector was forced to implement far- reaching measures to bring about last ing cost reductions. 1993 was marked by plummeting profits, reduced work ing hours and workforce reductions throughout the industry. Mercedes-Benz: Sales of DM 65 Billion With sales revenue of DM 64.7 bil lion (1992: DM 66.5 billion), Mercedes- Benz held its own in an extremely harsh business environment. While our volume of business in Western Europe fell by 12% to DM 38.3 billion as a result of the recession, we were able to boost sales revenue by 22% to DM 10.0 billion in the United States, thanks in part to a strengthening of the dollar against the Deutschmark. Growth was also achieved in South America, Eastern Europe and, above all, in the newly industrializing nations of Asia. In Japan, conversely, we could not avoid a drop in sales revenue of 10% to DM 2.5 billion. In the Passenger Car division, rev enues totalled DM 38.4 billion, down 3% from the previous year. Revenues of the Commercial Vehicles division were reduced by 2% to DM 26.2 billion. 16 Mercedes-Benz Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. The Mercedes-Benz range extends from sleek SL convertibles for the sporty individualist to E-class station wagons catering to the family. For all their diversity, the different models have in common the typical Mercedes-Benz qualities which are prized by our customers the world over. Children, in particular, appreciate the advantages of the practical and versatile E-class station wagon. Mercedes-Benz Passenger Cars: Market Position Strengthened by C and E-Classes The unit sales corresponding to the consolidated revenues fell during 1993 to 508,100 (1992: 520,200) pas senger cars. With the introduction of the new C-class and the updated E-class in mid-1993, we were able to increase our market position substantially in Germany. S-class sales were affected by the recession in Germany, although less than the rest of the market, the S-class therefore improving the mar ket share within its segment. Due to the weak first half of the year, new registrations of Mercedes-Benz cars, at 209,900, failed to reach the previous year's volume of 239,000 vehicles. We sold 289,300 passenger cars abroad and were able to maintain the strong volume of 287,400 unit sales, we achieved the previous year. While unit sales fell in Western Eu rope and Japan as a consequence of the recession, growth was seen in the Asian newly industrializing countries, Eastern Europe and Latin America. Since the new C-class could not be de livered to American customers until year's end, sales in the US market also fell to 61,900 (1992: 63,300) pas senger cars. In response to the generally unfavorable demand situation in the 1993 financial year and in order to reduce inventories, Mercedes-Benz cut passenger car production by 9% to 480,600 vehicles. Mercedes-Benz Commercial Vehicles: Market Position Maintained Our commercial vehicles also suf fered from the difficult business condi tions in Western Europe. Worldwide we sold 253,900 vehicles during 1993. This amounts to 21,200 fewer units than in the previous year, a drop of 8%. Following the excellent years of 1991 and 1992, our new registrations in Germany fell by 25% to 82,200 commercial vehicles. Double-digit declines were also posted in other Western European countries, with the result that unit sales in Western Europe outside Ger many lagged 14% behind the previous year's level. Despite greatly intensifed competition, we were able to maintain our position as the leading manufac turer of trucks over 6 tons, with a 30% market share in Western Europe. We achieved strong results in overseas markets. Our subsidiary, Freightliner, made a major contribu tion to that success. With sales of 36,800 (1992: 27,400) Class 8 trucks (upwards of 15 tons), Freightliner was able to improve the position of market leader which it attained the year be fore, with a share of almost 24% in this fiercely contested market. A total of 241,600 (1992: 277,300) commercial vehicles rolled off the as sembly lines at the 46 production sites of the Mercedes-Benz group. Produc tion volume in Germany had to be cut by 26% to 121,200 vehicles due to the market situation in Western Europe. Our foreign plants set a new produc tion record, of 120,400 vehicles, with an increase of 7%. Increased Competitiveness Through New Structures Faced with the difficult market sit uation worldwide, we had to intensify our efforts to improve competitiveness in all areas of the company. We have set up new performance centers throughout Mercedes-Benz AG which will help to achieve this goal. We have strengthened our internal management structures and organiza tion through extensive delegation of decision-making and responsibility. Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. As part of the vigorous restructuring which we implemented during 1993, the number of hierarchical levels and the number of positions at each level were sharply reduced. Accordingly processes and decision-making chains are both faster and more flexible. We will increase the capacity utili zation efficiency at our plants, thereby improving the productivity of the capi tal deployed, by new methods of de coupling working times from oper ating times. With the introduction of teamwork and the optimization of work processes, productivity and the quality of labor have increased. Reductions in the Workforce The weakness in important mar kets and growing pressure to reduce costs necessitated reductions in the workforce at Mercedes-Benz, as was the case throughout the industry. At year's end, the group had 209,933 (1992: 222,482) employees including 9,992 (1992: 10,752) trainees and apprentices. At Mercedes-Benz AG, the workforce fell by 9,982 to 159,098 employees. Re ductions affected the factories as well as the administrative headquarters and sales organization. Further reductions in the work force to protect the international com petitiveness of our German-based op erations are unavoidable. Given the continued high level of surplus capac ity in Western Europe, the Commercial Vehicle division will be most affected by future cutbacks. 20 Mercedes-Benz Signal for the Future At the end of 1993, the Board of Management and the labor council concluded an internal agreement re garding improved competitiveness and workforce reductions at Mercedes- Benz AG. This agreement opened the way both for economically viable pro duction of the new A-class at the Rastatt plant and for a socially accept able implementation of further neces sary reductions in personnel. This means that measures already initiated to boost productivity can be continued in 1994. This agreement will strengthen our production operations in Germany and the long-term profitability of the company. TANDEM - A New Concept for Relations with Suppliers We focused on relations with the supply industry using an innovative, comprehensive plan developed during 1993. This new plan is called TANDEM to reflect the joint goal of increasing the competitiveness of all parties. Within the framework of TANDEM we involve our partners more deeply than ever before in our company's internal processes. The experience and ideas of our suppliers are utilized even more intensively than in the past, for mu tual gain. Purchasing volume at DM 39 bil lion, was 4% below the previous year's level. As a result of our increased ac tivities in new purchasing markets, more purchases were made from out side Germany. Since some TANDEM projects led to significant cost savings in the year under review, price trends were slightly down. Customer satisfaction with Freightliner trucks is the foundation of our success in the newly emerging NAFTA region. Our Freightliner subsidiary widened its lead in the US market for Class 8 trucks (upwards of 15 tons) with an increase in its market share to 24%. During 1993 sales of Freightliner increased by approximately 40% to 45,800 trucks. (see following pages) DM 2.6 Billion Invested in Property, Plant and Equipment To protect our competitiveness in the automotive field well into the future, we pursued vigorously our planned investment projects despite the strained profit situation of the company. In the Passenger Car division the focus of our investment budget of DM 1.3 billion was on preparations for pro duction of the new C and E-classes, the gasoline and diesel engines with 4-valve technology and the conversion to water-based paints. In the Commercial Vehicle divi sion, our European investments were concentrated on converting our model range to environmentally compatible engines and the updating of the light duty trucks. Worldwide we spent over DM 1 billion to enhance our model range with even greater precision to the complex demands of the different markets. In order to maximize the sales potential for our passenger cars and commercial vehicles in Eastern Eu rope, the Commonwealth of Indepen dent States, China, South East Asia and South America, we have increased our efforts to set up sales and service organizations in those countries. New Passenger Car Plant in the USA In September, 1993, the decision was made to build a new Mercedes- Benz plant in Tuscaloosa, Alabama, in the southern United States. The plant will manufacture a sports utility vehi cle with 4-wheel drive. This will give us a foothold in a new market segment with exceptional growth prospects. This vehicle will represent a new se ries in the Mercedes-Benz range. The favorable sales prospects in the United States, as well as the intensity of the competition in this segment led us to choose this location. Expansion of Our Worldwide Sales Network Production of the A-class in Rastatt We further strengthened our sales organization with investments of DM 224 million (1992: DM 219 million). Approximately half of these funds were used to expand and modernize our sales and service organization in Germany, with special emphasis on the new Federal states. After long and difficult negotia tions with the labor council, the Board of Management decided to produce the new A-class in Rastatt beginning in 1997. The decision in favor of the loca tion in Germany was made possible by the volume of cost reductions agreed upon by the labor council and manage ment. The A-class concept offers com pact outer dimensions with extremely generous and variable use of interior space, as well as a level of safety un matched in its class. With this vehicle, Mercedes-Benz has redefined the seg ment of sub-compact cars. Mercedes-Benz 21 Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. R &D Expenditure DM 3.2 Billion In order to react even faster to the evolving demands of our customers worldwide, we have implemented new forms of interdisciplinary project man agement in our research and develop ment departments. The supply indus try, through the TANDEM plan, was also integrated in this process at a very early stage. The year's outstanding model in novation was the new C-class, which was presented to the public in June, 1993, in four different model versions. We also refined the E-class consid erably, with a model update in June. The Mercedes-Benz commercial vehi cle range was also upgraded during 1993 with new, environmentally com patible engines and various product improvements. Outlook There is no significant improve ment in sight in the business condi tions for our company in 1994. Although we expect continued growth in our United States markets, the economic weakness in Europe will improve at best, only gradually. Nor can any significant recovery in Japa nese automotive demand be expected, although the newly industrializing na tions in Asia and Latin America show good prospects. In order to keep our German based operations competitive, we must in crease the measures already imple mented to boost productivity. 24 AEG Daimler-Benz Industrie We will actively expand the global market presence of our company, as well as the worldwide activities of Mercedes-Benz in the areas of pur chasing, manufacturing, research and development. All our efforts in the Passenger Car division are directed at strength ening our position as manufacturers of exclusive vehicles by expanding our range to include products for new, growing market segments. Our foremost goal in the Commer cial Vehicle division is to offer individ ualized solutions to the transportation needs of our extremely diverse world wide customer base. Corporate Unit AEG Daimler-Benz Industrie Adverse economic conditions had a substantial impact on business at AEG. Although incoming orders rose due to an increase in for eign business, sales revenue fell below the previous year's level. We intend to align future business policy at AEG more closely to the strategic position of the Daimler-Benz group and we have already launched wide-ranging structural programs. The goal of these measures is to close loss-making activities and to strengthen the strategic basis and earnings capability of the future fields of activity. Further Decline in Business in the West German Electrical Engineering Industry 1993 saw a fall of almost 7% in the output of the West German electri cal engineering industry. The decline was caused by the adverse conditions for foreign business, the fall in de mand in Germany and the economic problems facing customers in impor tant areas such as mechanical engi neering, road vehicle building and the chemical industry. Sales and incoming orders fell sharply from their levels of the previous year, by 5% and 6%, respectively. The fall in business was particularly marked in Germany, while AEG is playing its part in ensuring that Shanghai's school children are punctual. Constructed by the "German Shanghai Metro Group" consortium headed by AEG, the metro system will be extended in stages in the coming years. In May, 1993 operation commenced on the first seven- kilometer section of track. The metro project is a major milestone in the development of an efficient infrastructure for this fast-growing Southern Chinese metropolis. (see following pages) foreign business declined by almost 1 %. Further falls in capacity utilization made it necessary to cut back produc tion and drastically reduce workforce levels by almost 8%. High Level of Incoming Orders from Foreign Markets Incoming orders in the AEG group totalled DM 12.1 billion, 2% over the comparable figure for the previous year. The increase was generated solely by the foreign markets, where demand increased by 16% to DM 5.3 billion. Orders from Germany were down by 7%. The largest increase in orders of 25% was recorded in the Rail Sys tems field of activity. This was attribu table especially to large orders from abroad, for example for a city rail sys tem for Kuala Lumpur, Malaysia, a monorail system for Newark Airport in the USA, and a mass transit system for the City of Toronto in Canada. A positive trend was also recorded in the Microelectronics field of activ ity, largely due to a marked increase in orders at TEMIC TELEFUNKEN microelectronics. The Automation field of activity experienced a substantial loss of mo mentum, particularly in the area of in dustrial automation, due to weak do mestic demand. However, postal auto mation showed a positive trend due to a high level of incoming orders from foreign markets. Orders in the Electrotechnical Sys tems and Components field of activity failed to match the levels of the pre vious year. The components division was particularly hurt by the recession. Sales Down on the Previous Year Restructuring the Group Sales revenue of the AEG group at DM 11.0 billion were 3% less than the comparable figure for the previous year. In Germany revenues fell by 3% to DM 6.5 billion; revenues in foreign markets also fell by 3%, to DM 4.5 billion. The growth in sales in Rail Systems resulted largely from the in voicing of projects in Germany and from the first-time consolidation of Kiepe Elektrik GmbH. The increase in sales in the Micro electronics field of activity was based on the good performance by TEMIC TELEFUNKEN microelectronics in the area of semiconductors and vehicle equipment. In Automation, revenues fell slightly short of the previous year's level, since the recession led to a fall in business particularly in the indus trial systems division. The Electrotechnical Systems and Components field of activity presented a divided picture. While the Energy Systems Technology division achieved a slight growth in sales, business in the Components division was below the previous year's level due to the strong impact of the recession. In Domestic Appliances, falling foreign business resulted in a slight decline in sales from the 1992 level. The business goals of AEG will in future be aligned more closely to the strategic positioning of the Daimler- Benz group. AEG will in the future comprise only those business activities • which contribute track-bound products and systems to the core transport business of the Daimler- Benz technology group, which offer strategically important microelectronics technology to the group and the external market, < which are responsible for indus trial tasks within the group which do not strictly belong to the auto motive or aerospace sectors, along with those which have evolved from AEG's traditional business focus. The restructuring of the group will also involve divesting activities which lie outside the strategic core busi nesses of AEG and the Daimler-Benz group, such as domestic appliances, lighting systems and power meters. The joint venture formed with Electrolux in 1992 involving a joint production structure - initially for wet appliances - fulfilled the expectations of both partners. However, 1993 saw changes in the operating environment of AEG Hausgerate: the continuing concentration in the retail trade throughout Europe, the joining to gether of competitors as well as the appreciation of the DM relative to other currencies. AEG Daimler-Benz Industrie 25 Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. It was decided at the end of 1993 that AEG would withdraw from domes tic appliances. A preferential offer was given to Electrolux to acquire all opera tions in this field of activity. Structural Program for AEG Rail Systems The reorganization of the Rail Sys tems field of activity is a central ele ment in the overall AEG structural program. Acquisitions made over re cent years have caused revenues to increase. It is now necessary to com plete the integration of these activ ities. Postponement of orders by the German Federal Railways, surplus ca pacity in the German rail industry particularly in the mechanical sector, and increased access of Western Euro pean competitors to projects for the German core market have significantly depressed the profitability of revenues. Rationalization and cost-cutting programs have been started with a goal to strengthen competitiveness. Any remaining overlap between activ ities at different sites will be elimi nated and co-ordinating functions will be centralized at the Hennigsdorf site. The level of vertical integration will be reduced in all areas. Highly labor- intensive activities will be transferred to low-cost locations. This will lead to the closure of AEG's Berlin Nonnen- damm site. All programs are sched uled to be completed by the end of 1995. Investment in Modernization Programs Investment by the AEG companies in 1993, including the assets taken over from newly acquired companies, totalled DM 764 million (1992: DM 916 million). Investment activity concentrated on modernization at AEG Schienen- fahrzeuge in Hennigsdorf, projects in the Domestic Appliances field of activ ity and projects at TEMIC in Nurem berg. Outside Germany, AEG invested principally in the Pittsburgh Technogy Centre for Systems Electronics, in the USA, the administration and service premises in Greece and the TEMIC plants in South East Asia and Mexico. Systems-Oriented Research and Development At DM 764 million (1992: DM 726 million), research and development expenditure increased from the pre vious year and as a proportion of sales revenue increased to 7%. Principal areas of research and development activity included systems engineering, postal automation sys tems, a new generation of rail cars, local public transport concepts and products, semiconductors and vehicle electronics. More than 58,900 Employees Worldwide, AEG employed 58,921 people at the end of 1993, 44,591 of these in Germany. The reduction of ap proximately 3% in the total workforce from the prior year is largely attributa ble to capacity adjustments which were necessitated by the strained employment situation. 28 AEG Daimler-Benz Industrie Outlook AEG expects to see a slight expan sion in its business volume in 1994, with a slightly stronger increase in foreign markets than in Germany. Increased revenue is expected partic ularly in the Rail Systems, Micro electronics and Automation fields of activity. However, the intended dives titures from the Domestic Appliances field of activity and the power meters and lighting systems sectors will reduce consolidated revenues. The restructuring of the AEG group will involve additional industrial activities of the Daimler-Benz group being trans ferred to AEG. It is planned that AEG will take over the industrial manage ment. It is also intended to integrate the diesel engine and decentralized power supply activities of MTU Friedrichshafen into AEG. The goal of these measures and of the restructuring program is to close loss-making activities and to strengthen the strategic basis and earnings capability of the future fields of activity in Automation, Diesel Engines, Rail Systems, Energy Sys tems Technology, Microelectronics and Industrial Holdings. The process of separating strate gic group management tasks from operative business responsibilities, initiated in 1993, will continue. Staf fing in the central group functions was slashed in 1993 to approximately 25% of former levels. Effective January 1, 1994, the required central service functions are performed in indepen dent units, with a view to improved efficiency and more transparent costs and structures. Despite the first signs of a stabilizing economic environment in 1994, there have been no signs of improvement in the German electrical engineering industry, as stabilization means a continuation of extremely depressed revenues as well as the underutilization of capacities. This is also the case for AEG. Fur thermore, we have to continue our comprehensive restructuring program in 1994, which forms a necessary part of our new strategic direction. These restructuring programs will have a one time charge which will result in last ing cost reductions in future years. All of our measures to secure the future should turn around earnings in 1995. Corporate Unit Deutsche Aerospace (DASA) The operating environment of Deutsche Aerospace deteriorated further in 1993. The result was a decline in business in virtually all areas. We are reacting to these dramatic changes with a rigorous program to improve structures, adjust capacity and reduce costs. Greater efficiency is essential if we are to continue to have an ac tive role in global markets. We have also intensified our policy of partnerships with other companies to further strengthen our posi tion in the world markets. The comprehensive programs to improve profitability will continue. Crisis in the Aerospace Sector Necessitates Structural Changes Deutsche Aerospace was hurt si multaneously by worldwide economic weakness, the cancellation of long- term budgets and the structural crisis affecting the airlines. In addition, com petition in the world market is becom ing fiercer. Many competitors receive increasingly massive state support in the USA and Japan, and new competi tors are emerging from Eastern Europe and the Far East. Deutsche Aerospace 29 The fastest and safest mode of transport of our times must be serviced and refuelled before every take-off The four-engine A340 has been in use on regular services since April, 1993. On its record-breaking 48-hour flight around the world in June, 1993, all previous records for long- haul flights were shattered and new standards were set in international air travel. Deutsche Aerospace reacted to the dramatic changes in its economic envi ronment with a rigorous package of programs to make structures more ef ficient, adjust capacity and reduce costs. In addition, the international competitiveness of DASA will be pro tected and expanded through an ag gressive and targeted presence in the market. The Aircraft division needs to re organize production structures and eliminate excess capacity through con solidation. In the Space Systems and Propulsion Systems divisions, new structures were put into place during 1993. Considerable resources are being put into expanding non-military activities in the Defense and Civil Systems division. One key element of our ongoing effort to secure the company's future is our market offensive in China, South East Asia and America. International Partnerships to Safeguard the Core Business Through increased cooperation with international partners, a competi tive critical mass will be attained in a contracted market. Multilateral part nerships are inevitable, given the com plexity and growing financial costs of large aerospace projects, the globaliza tion of markets, the intensity of com petition and the reductions in public funds. Through numerous acquisi tions, joint ventures and partnerships at the national and international level, we have achieved a strategic position that improves our situation in the world market. The acquisition of a majority stake In South America we initiated in the Dutch aircraft manufacturer, Fokker, significantly improved our strategic position in the Aircraft division. We now have a complete product range from small turboprop aircraft to large jets. We are also, to gether with our Airbus partners Aero spatiale, British Aerospace (BAe) and Construcciones Aeronauticas (CASA), working with Boeing on a feasibility study for a very large commercial air craft. One promising development for the future came in the form of a "memorandum of understanding" signed by four aero-engine manufac turers, MTU, Snecma, Pratt & Whitney and General Electric to develop a new engine in the thrust range between 12,000 and 20,000 lbs. We intensified our activities in Eastern Europe and the People's Republic of China by concluding a number of cooperation agreements in various aerospace fields. Deutsche Aerospace (24.5% share), together with Deutsche Bun- despost Telekom (51%) and ANT Bosch Telekom (24.5%) founded Ro mantis GmbH. Now the activities of the partners in satellite communica tions will be together. Supported by lo cal companies, Romantis will offer lan guage (telephone), data and television services in Eastern Europe via the Intelsat VI satellite, and establish the link-up with Western telecommunica tions networks. Accordingly, Romantis is making an important contribution to infrastructural expansion in Eastern Europe. a further project to expand our com mercial satellite business. As the leader of a consortium with Aero spatiale and Alenia, we entered into a 24-year license contract with the Argentinian Comision Nacional de Telecomunicaciones (CNT) for the commercial satellite-based communi cations system, Nahuel. The operating company, Nahuelsat S.A., was formed in December, 1993. We also entered negotiations for the formation of a satellite-manufacturing joint venture. Sales Down in Almost Every Area At DM 18.6 billion, sales of the Deutsche Aerospace group, including the newly acquired Fokker group, were 10% below the comparable sales for the previous year. With only a few exceptions, business in all areas was down. Especially affected were the De fense and Civil Systems and the Pro pulsion Systems divisions. The Space Systems division also experienced substantially lower revenues due to in voicing factors. Business in Germany weakened by 16% to DM 5.8 billion (1992: DM 6.9 billion). Foreign sales fell by 7% to DM 12.8 billion (1992: DM 13.8 billion) and accounted for 69% of group sales. Military sales fell to 29% of total business volume, largely as a result of the disproportion ate decline in Military purchases and the first-time inclusion of Fokker. Incoming orders were also down, totalling DM 15.6 billion or 8% less than the orders for the previous year. However increases in customer orders were received by the Propulsion Sys tems division and by our joint venture with AEG, TEMIC Telefunken micro electronic GmbH. 30 Deutsche Aerospace Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. Satellite aerials undergo intensive tests before going into orbit. In the compact range test facility, the conditions in which aerials will be operating in space are simulated. Satellite aerials play a key role in space missions, functioning as the communication link between the satellite and the ground control center. Deutsche Aerospace and its subsidiary, Dornier, are the world's leading suppliers of aerials for communications and remote sensing satellites. Workforce Reductions and Reduced Working Hours Inevitable Deutsche Aerospace had 86,086 (1992: 94,293) employees at the end of 1993, including 3,560 trainees and apprentices. Deutsche Aerospace AG employed 17,363 (1992: 20,051) peo ple, including 843 trainees and ap prentices. The persistent worsening of economic conditions led to extensive underutilization of capacity in all areas of the group. This made further reductions in the workforce unavoid able. In addition, reduced working hours had to be implemented for over half of the workforce. 46,863 (comparably calculated for 1992: 51,781) people were employed in the Aircraft division, 4,463 (1992: 4,864) in Space Systems, 12,387 (1992: 14,369) in Defense and Civil Systems and 15,347 (1992: 16,338) in Propulsion Systems. In other business activities, which largely comprise the joint venture TEMIC, which is in cluded on a pro rata basis, and medi cal systems, 7,026 (comparably calcu lated for 1992: 6,941) were employed. Space Systems Influenced By Large Projects Sales revenue in the Space Systems division are influenced to a significant extent by large projects. In contrast to the previous year, no indi vidual major projects were invoiced in 1993, which resulted in a considerably lower sales level of DM 1.4 billion (1992: DM 1.9 billion). Large contribu tions, once again, came from ongoing invoicing in the Ariane and Columbus projects. Customer orders of DM 1.5 billion (1992: DM 1.7 billion) also failed to reach the high level of the previous year. Defense: Sales Now Sharply Down The downward trend in customer orders experienced by the Defense and Civil Systems divisions for a num ber of years was for the first time fully reflected in sales for 1993. At DM 2.8 billion (1992: DM 3.6 billion), revenues were 21% lower than in the previous year. The already very low level of customer orders de clined further by 6% to DM 2.3 billion (1992: DM 2.4 billion). Propulsion Systems: Decline in Sales in All Business Units Sales in the Propulsion Systems division dropped 13% from the pre vious year's level to DM 3.1 billion (1992: DM 3.6 billion). Especially hard hit was the Aircraft Propulsion Sys tems business unit. However, one major order for each of the business units Aircraft Propulsion Systems and Propulsion Systems Land/Marine Applications resulted in a considerable increase in customer orders to DM 3.2 billion (1992: DM 2.8 billion) after a low overall level the previous year. Renewed Emphasis on Aircraft Activities With the integration of Fokker, the Aircraft division now contributes more than half of the total consolidated sales. Revenues of DM 10.3 billion were slightly lower than the comparable figure of the previous year. The Deutsche Aerospace Airbus business unit was almost able to compensate for lower sales in other units. The first deliveries of the Dornier 328 did not, from a sales perspective, have an impact during 1993. Incoming customer orders fell again, to DM 7.6 billion (1992: DM 9.1 billion). While new orders in the Deut sche Aerospace Airbus business unit remained at the very low level of the year 1992, the Tornado contract from Saudi Arabia led to a marked increase in military aircraft orders. All other business units, however, experienced drastic declines in customer orders. 32 Deutsche Aerospace Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. Capital Expenditures Decreased Outlook During 1994, we expect a modest increase in sales revenue. In the Space Systems division, higher revenues can be expected particularly due to deliv ery of the ERS-2 satellite. We also an ticipate moderate growth in the Pro pulsion Systems division. In the Air craft division positive results can be expected only from deliveries of the Dornier 328, which began at the end of 1993. In the Defense and Civil Sys tems division, increase of production in the Stinger program to the target volume should offset declines in other projects. We will continue through to 1996 with the comprehensive program already initiated to cut costs and improve performance. Even with numerous programs to improve effi ciency and structures, a further reduc tion in capacity is essential. By the end of 1996, we must eliminate approximately 10,000 more jobs and close several plants. This will reduce overhead to be highly competitive and DASA's position in international com petition will be significantly enhanced. We have initiated an internally funded product development program to in crease market penetration which will provide a strong basis for future growth. Due to the difficult economic situa tion, we have limited our capital ex penditures to the minimum necessary level. As a result and despite the first- time consolidation of Fokker, capital expenditures were lower than in the previous year. We invested DM 1.0 bil lion (1992: DM 1.2 billion) in property, plant and equipment in the group and DM 100 million (1992: DM 200 mil lion) in Deutsche Aerospace AG. Pro duction was reorganized to accommo date new technological and structural challenges and non-military products. We also put considerable funds into expanding the production of airbags. Commissioned Research and Development Expenditures on research and de velopment projects for third parties also fell as a result of overall weak business conditions to DM 3.9 billion (1992: DM 4.5 billion), representing 21% of sales revenue. Our in-house research and development funding to protect our future operations was at the previous year's level of approx imately DM 0.9 billion or 5% of sales revenue. Total research and develop ment expenditures amounted to DM 4.8 billion (1992: DM 5.5 billion). In the Aircraft division, expenditures were concentrated on the Airbus A330/A340, Dornier 328 and Euro- fighter (EF 2000) programs. In Space Systems, the main emphasis was on the ERS-2 (European Remoted Sensing Satellite), Cluster, Columbus, Polar Platform and Ariane. In the Defense and Civil Systems division, we concen trated particularly on the Pars 3 pro gram and also expanded activities in non-military sectors. In the Propulsion Systems division we focused on the EJ 200 engine for the EF 2000, devel opment of non-military engines and two new diesel engine series. Corporate Unit Daimler-Benz InterServices (debis) debis increased its total 1993 revenue by 20% to DM 9.5 billion. In tensified competition on prices and terms caused us to initiate a vigorous campaign in 1993 to reduce costs and increase efficiency. The international emphasis of our activities was further increased in all divisions. Services sector also affected by the recession The services sector was affected by the adverse world economic situa tion in differing degrees. Suppliers of information technology services for in dustry suffered from the reduction of project orders. Investment in standard software also declined sharply. How ever some service sectors were un affected by the recession. In Germany, vehicle leasing acquisition reached, to a large extent, the high level of the previous year, despite reduced vehicle sales due to the low level of economic activity. In the USA, leasing was popu lar and led to an increase in demand for capital goods. Demand for mobile communication services greatly increased. debis: Continued Growth debis increased its consolidated revenues during 1993 by 20% to DM 9.5 billion. 51 % of total revenue was generated in Germany, 10% in other European Union (EU) countries, 31 % in the USA and 8% in other mar kets. Total revenue include sales reve nue of DM 8.7 billion and interest in come from sales financing receivables of DM 0.8 billion. Consolidated net in come of debis declined in 1993 to DM 18 million (1992: DM 122 million). There was a sharp increase in business with customers outside the Daimler-Benz group, which increased from 79% to 83% as a proportion of total revenue. In financial services and bartering, almost all business was with external customers; the share of external business in the other divi sions was in excess of 50%. Although additional acquisitions were made during 1993, the increase in revenues of debis was largely due to growth in existing areas of the com pany. The Financial Services division had a substantial expansion in busi ness, which was due to increasing internationalization as well as an expanded range of services offered. Large Investment in Leased Equipment Additions to leased equipment grew by 5% to DM 6.2 billion. Our investment in property, plant and equipment increased in 1993 by 16% to DM 200 million. As in the past, this largely comprised data processing equipment. Modern computer operat ing systems were installed in our for eign financial services companies. Daimler-Benz InterServices (debis) 35 To be able to receive calls anywhere at any time is now an essential requirement in business. In the private sector too, while still considered a luxury, mobile communication is becoming increasingly popular and, in 1993, was one of the few growing markets in Germany, debitel further improved its position in this promising industry and with 100,000 customers strengthened its role as the leading supplier of mobile communication services in Germany. 8,812 Employees in the debis group The consolidated companies of the debis group employed 8,812 people at the end of 1993, an increase of 7% from the previous year. 7,527 people were employed in Germany and 1,285 abroad. Of the total, 6,196 were em ployed in the Systemhaus division, 1,570 in Financial Services, 351 in In surance Brokerage, 84 in Trading, 319 in Marketing Services, 173 in debitel and 23 in dIM (debis Real Estate Man agement). 223 interns were receiving training at debis at year end. debis Systemhaus: debis Systemhaus increased its total revenue by 7% to DM 1.7 billion. This growth was contributed primarily by the CCS group. However, the Cap debis group suffered because of the difficult economic conditions which negatively affected the software prod ucts market. The results of this divi sion were further depressed by neces sary provisions for future restructur ing programs. Diebold, the third subdivision of debis Systemhaus, further increased its total revenue and profit in the mar ket for high technology and manage ment consulting services. Financial Services: Further Internationalization The Financial Services division in creased its total revenue - excluding the 50% owned subsidiary Solovam, which was not consolidated - by 18% to DM 6.7 billion. In Germany, the favorable trend was assisted by passenger car leasing programs in cooperation with Mercedes-Benz AG. In the USA, an increase in com mercial vehicle contracts compensated for declines in passenger car con tracts. The newly founded Mexican subsidiary made a positive contribu tion to sales and income on an operat ing basis. In the early part of 1993 we estab lished another leasing and sales financ ing company in Denmark. Now debis offers financial services in 13 coun tries. New business worldwide in creased by 22% to 195,000 acquisi tions, for a volume of DM 12.9 billion. At year-end, the total number of con tracts outstanding totalled 435,000, corresponding to a total value of DM 22.8 billion, debis Aviation Leasing supported the financing of four aircraft during 1993. Two operating type leases were completed, for an Airbus A 340 and another for an Airbus A 300. Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. Creativity is the name of the game: modern bartering methods offer many different possibilities for promoting trading relations between contrasting markets and opening up new sales channels. During 1993, debis Trading facilitated exports worth DM 500 million to countries weak in foreign currency. Particularly in the Asian region, substantial bartering transactions were concluded. Insurance Brokerage In a market characterized by large insurance claims, debis Assekuranz GmbH steadily expanded its volume of business; commission totalled DM 68 million on a premium volume of DM 0.6 billion. Trading: Successful Partnerships The services of the Trading divi sion facilitated exports totalling DM 500 million in 1993 to countries weak in foreign exchange. Total revenue amounted to DM 371 million (1992: DM 436 million). The decrease in 1993 is attributable largely to invoic ing factors. In December, 1993 debis AG pur chased the remainder of debis Interna tional Trading GmbH from the Treu- handanstalt. Marketing Services: Further Acquisitions In spite of the difficult economic environment, the Marketing Services division increased its 1993 revenues to DM 561 million (1992: 205 million). This is primarily due to the first time consolidation of GFMO, Gesellschaft fur Media Optimierung mbH, a com pany acquired in 1992. Mobile Communication Services: Dynamic Market Growth As a provider of mobile communi cation services, debitel profited from the dynamic market growth in Ger many which followed the entry into service of the 'D-networks'. Our joint venture with Metro is now the market leader among the carrier-independent service providers. Total customers served were 106,000 with a total revenue of DM 152 million. In May, 1993, 2 MTel, the French joint venture with Metro, commenced operation. Outlook debis is ready for the diverse demand trends and the intense com petition in the individual services markets. With our superior range of individual services and complete systems, we have excellent prospects to increase earnings and total revenues. Additionally, our business dealings with external customers will continue to increase. Joint V e n t u re Companies In its first full financial year, TEMIC focused on expanding its inter national structures in the fields of development, manufacturing and sales. Mercedes-Benz CharterWay swiftly became established in its markets; demand for long-term Mercedes-Benz commercial vehicle rental, which this company provides, is high. TEMIC Telefunken microelectronic GmbH - Reorganization and Expansion of Global Structures In TEMIC's first full financial year, the focus was on a reorganization of the various business activities and an expansion of the global development, production and distribution structures. The volume of business increased to DM 1.5 billion, although depres sed markets handicapped sales to the consumer goods and automotive industries. The semiconductors sector now unites five of the world's leading spe cialists in the field of application- specific, customer-oriented semicon ductor products: TELEFUNKEN in Heilbronn, Siliconix in Santa Clara, California, MATRA MHS in Nantes, France and Dialog Semiconductor in Joint Venture Companies 39 Long-term rental of Mercedes-Benz commercial vehicles under the trade name Mercedes-Benz CharterWay enjoys growing popularity with our customers. It is not difficult to see why: Mercedes-Benz CharterWay takes care of vehicle administrative duties, residual value risks, repair, maintenance, taxes and tolls and guarantees transport capacity at all times. CharterWay provides immediate assistance if a vehicle is out of commission. Mercedes-Benz CharterWay Since the start of business in early summer, 1992, long-term rental of Mercedes-Benz commercial vehicles under the tradename Mercedes-Benz CharterWay has become a vital tool of sales promotion. This is illustrated, among other things, by the numerous requests for information which have been received from markets where CharterWay is not yet offered. To date, CharterWay's activities are located in Belgium, Germany, France, the United Kingdom and the Netherlands. In these markets, rental contracts for ap proximately 3,000 vehicles had been initiated by the end of 1993, most of which in the second half of the year. Following the successful launch phase, we are confident that our CharterWay concept will become even more firmly established in the market. The striking benefits for the customer, who incurs no risk relating to the sale of the used vehicle, repair and maintenance and downtime provides a promising basis. The relief from administrative vehicle management tasks is also a great benefit. Munich and Swindon, United King dom, as well as EUROSIL in Hong Kong. This group is supported by the TEMIC Integrated Circuits Develop ment Center (EZIS) in Ulm, Germany. TEMIC's semiconductors and design ideas are sold around the world in the following target markets: computers, telecommunication, motor vehicles, entertainment electronics and indus trial applications. In order to remain abreast of technological development, we concluded a license agreement concerning development and manufac ture of a new 8-bit micro controller ar chitecture with the American semicon ductor manufacturer INTEL. In the framework of long-term cooperation, we concluded an agreement with Ja pan's Mitsubishi Electric Corporation, so that we will continue to be assured access to leading CMOS technology. We took our first step into the growing Chinese market with the formation of Simconix in Shanghai - a joint venture between Siliconix Inc., Santa Clara, and the Shanghai Institute of Metal lurgy - which will produce and test semiconductor components. In the microsystems field we develop, produce and market custom- made solutions consisting, for example, of sensors, hybrids and application- specific integrated circuits (ASICs). Micro-switch and foil switch systems provide the control interface between man and machine in a great many in dustrial products and systems. In this field, we recorded a growth in sales of vehicle electronics systems. In the vehicle equipment field we are developing innovative systems with a high electronics content and high quality standards. Our market po sition was significantly strengthened by the latest generation of control units for anti-lock braking systems (ABS) and the sensor systems and gas generators for airbags and belt- tensioners. Business in the field of fractional horsepower motors for in stallation in the exterior mirror and seat adjustment, window control and heating and ventilation systems of motor vehicles was static due to de pressed conditions in the automotive industry. However, sales of anti-theft systems are increasing. We are now suppliers to more than half of the world's largest auto motive manufacturers. These suc cesses prompted us to construct a new production facility at the TEMIC plant in Nabern and, at considerable invest ment cost, to expand capacity at the Aschau plant. We also opened a new production plant for microelectronics and vehicle equipment in Nuremberg and commenced construction of a plant in Mexico for the manufacture of electronic components and systems for the NAFTA markets. The cable harness activities of TEMIC Telefunken Kabelsatz GmbH (TKG) in Muhlheim, which specializes in development and manufacture of cable harnesses for wide-ranging ap plications in the automotive industry, were taken over on December 31, 1993, by the American company Electro-Wire Inc., of Dearborn, Michigan. 40 Joint Venture Companies Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. Central Corporate Functions within the Group Research and Technology Daimler-Benz has concentrated its research activities, which are acquiring increasingly international orientation, at its new Ulm Research Center. The research sectors carry out projects in close collaboration with the various corporate units and with diverse institutions within and outside Germany. An example of success fully implemented synergy is the interdisciplinary TRAFFONIC project for vehicle and transport research. Daimler-Benz Research Center in Ulm Completed The Daimler-Benz Research Cen ter on Oberer Eselsberg, to the north west of Ulm's city center, commenced operations with an opening ceremony on October 19, 1993. Building costs amounted to DM 270 million. The Re search Center, which can accommo date 1,000 employees, makes a signifi cant contribution to the scientific city of Ulm. Alongside the universities, the affiliated institutes run jointly by in dustry and the state and a "Science Park" geared to the needs of small and medium-sized companies. The existing and continually improving close con tact between the individual institutes is intended to promote exchange be tween academic and industrial re search both within and beyond the frontiers of the growing technological region of Ulm. At the new Daimler-Benz Re search Center, research projects are carried out for our corporate units and fields of activity. Additionally as a "hub of knowledge" for the group it also develops key technologies which provide an important basis for secur ing competitive advantages on the growing markets of tomorrow. The spectrum of activities includes: Microelectronics, Functional and structural materials, Production research and the environment, • Energy research and Information technology. 42 Research and Technology The increasing significance for the group of information technology was emphasized in 1993 with the estab lishment of a separate research sector. The information technology re searchers in Ulm develop new com puter applications, technologies and concepts. The Enterprising Researcher In a communication process en compassing the entire research divi sion, a new model of the "enterprising researcher" has been developed and incorporated into the Daimler-Benz research program. This model of "strategy-oriented entrepreneurial management" is based on the re searcher's displaying an "enterprising spirit within the enterprise". The en terprising researcher makes full use of the opportunities provided to him re garding visions, goals and resources within the overall strategy of his field of research. In order to deepen the knowledge required for this purpose in the fields of strategic competence and orienta tion towards the market and the cus tomer, the research and technology division, together with the training sec tor of Daimler-Benz AG, has developed a management skills program encom passing the topics of innovation man agement, strategy and marketing. Globalization of Research Activities in the field of research and technology are becoming increas ingly internationalized. The trends are towards co-operation with research in stitutes throughout the world, student and employee exchange programs with internationally renowned re search institutes and the involvement of scientists in the research and devel opment activities of group companies outside Germany. Examples of this are: Industrial cooperation with Aero spatiale (France), United Technol ogies (USA) and Mitsubishi (Japan), EU-subsidized European research and wordwide joint research projects and Research cooperation with compe tent research institutes in the CIS countries and in the USA. Such cooperation serves to incor porate international expertise and new impulses and experience into research work. Tangible results have already been achieved in the fields of mate rials and material technologies, both of which are crucial competitive factors in the design of future products. The AIT Program: Pan-European User Initiative A further example of interna tionalization is the pan-European in dustrial user initiative "Advanced In formation Technology in Design and Manufacturing" (AIT) launched by the Daimler-Benz research division. Advances in Vehicular and Transport Research The TRAFFONIC synergy program has been brought to a successful con clusion after a period of more than four years. Mercedes-Benz, Deutsche Aerospace and various Daimler-Benz research departments have jointly de veloped new vehicular functions. In terdisciplinary expertise across the group was indispensable for the note worthy successes achieved, especially in the fields of radar sensor technol ogy and speech processing in road transport. With the support of the cor porate unit Deutsche Aerospace and the TEMIC joint venture, many of the TRAFFONIC projects are now being further developed to production standard. Traffic Management by Intertraffic In 1993, Daimler-Benz AG ac quired all the shares in ITF Intertraffic Gesellschaft fur Integrierte Verkehrsmanagement-Systeme, which previously all corporate units of the Daimler-Benz group held shares. The company brings together the know- how of the Daimler-Benz group in the fields of traffic management systems, transport systems and information technology. The current situation in European ITF is playing a leading role in im industry shows that the suppliers of information technology (IT) do not ade quately cater to the needs of users. Headed by Daimler-Benz, 17 large Eu ropean IT users from the automotive and aviation industries have, accord ingly, devised a project which is be ing sponsored by the European Union (EU). The objective of which is to de termine future IT requirements in de velopment and production, so that IT suppliers can develop appropriate so lutions. plementation of the traffic manage ment system STORM. This project re quires the Daimler-Benz research divi sion, the Transport Ministry of Baden- Wurttemberg, the City of Stuttgart and various other major companies to jointly conduct trials of advanced traf fic information and advice systems in the Stuttgart region. Data linkage be tween public and private transport In the sound lab: in 26 thousandths of a second, the airbag inflates into a balloon-like safety cushion. Scientists in Ottobrunn measure the blast from the gas explosion in their efforts to make the inflation process still more efficient. The Daimler-Benz research department carries out continuous development work on the airbag with a goal to provide even greater safety for the customer. provides the basis for the following six pilot projects: traffic information system individual guidance system constantly updated park and ride information connections information fleet management and an aid call system. The STORM project infrastructure will be completed by the end of 1994 and will undergo trials through the end of 1995. Also, ITF will participate in a com pany which builds, operates and ar ranges financing for individualized traffic management systems. The Channel Tunnel Vehicle STTS in Operation Following the completion of the tunnel under the English Channel, the innovative inductive track guidance system, which we developed for the Service Tunnel Transport System (STTS), will commence operations. The track-guided special vehicles, devel oped by Mercedes-Benz AG in collab oration with the Daimler-Benz re search division and AEG, travel along the tunnel's 4.8 meter (approximately 16 feet) wide central shaft, which serves as a maintenance facility and an escape route. Tests by the tunnel operator confirmed the system's effi ciency and its robustness in the event of a malfunction. Psychological Analysis of Driver Errors Motor vehicles move in traffic more safely when they meet the needs and cater to the individual characteris tics of the driver. To make progress in this area, vehicle developers must be come familiar with, among other things, the mistakes made by the driver. With the help of psycholo gical fault analysis, Daimler-Benz researchers have compiled error profiles for various vehicle categories and driver groups. The influences of stress, experience and age on error frequency have been evaluated. It has been shown, for instance, that high stresses placed on the driver in traffic can lead to mistakes; however, there was no evidence that driving errors result in higher stress levels. The hypothesis that increased experience levels reduce the frequency of errors was con firmed. Another experiment disproved the commonly held belief that the fre quency of driving errors increases with age. Here, too, experience plays the decisive role: older drivers with a greater level of experience made the least errors of all groups in vestigated. Non-Contact Battery Charging in the Electrically Powered Vehicle The transmission and conversion of electrical energy is also showing technical advances. When power is transmitted at frequencies in excess of 20 kHz, the space and weight requirements of electromagnetic components along with losses occurring in them, are con siderably reduced. More importantly, electrical power can be transmitted at these high frequencies over an air gap, without direct contact. New, rapidly switching, economically operating semiconductor components are now making this frequency range viable. This opens up a broad spectrum of highly interesting product oppor tunities, such as: Contact-free charging devices for electric road vehicles, Contact-free vehicular drive mech anisms, High-voltage power supply for locomotives and On-board power supply for all types of vehicles. Daimler-Benz researchers from the automation field in Frankfurt are currently preparing the necessary technology and systems for the pro duction and operation of such medium-frequency power transmis sion units. Mobile Computing and the Automatic Reading of Handwriting Information is only of value when it is available at the right time, at the right place and in the right language. Accordingly "Mobile computing" is one of the most important require ments placed on modern information technology. In the field of "Mobile subscribers to networked systems", a basic infor mation and communication technology system is currently being created at the Daimler-Benz Research Center in Ulm. Mercedes-Benz branches are cur rently testing mobile computing for mobile recording of repair and inspec tion orders. In a different field of information technology, Daimler-Benz researchers have been achieving international ac claim and successfully applying their findings in automatic letter sorting systems of AEG Electrocom: on the basis of image and handwriting anal ysis and of speech and graphic recog nition, they have developed concepts and methods for the automatic reading of handwriting. With a recognition rate of over 80%, they have rapidly at tained a leading international position. 44 Research and Technology Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. Microelectronics and Microsystems Technology Microelectronics research exper tise is not only of benefit to products of the future. The Ulm Research Cen ter incorporates a newly established "foundry" - a manufacturing center for gallium/ arsenide semiconductor com ponents - where transistors, circuits and other products for the Daimler- Benz group are produced. External customers are now supplied with tailor-made components; as a rule, these are small series of a few hun dred chips, the production of which would not be cost effective in a com mercial semiconductor production facility. In a wide range of corporate prod ucts such as passenger cars or rail ve hicles, in aviation and aeronautics or in drive systems and automation tech nology, intelligent sensor and actuator components known as smart-power circuits are incorporated (addressable, diagnosable and self-monitoring sys tem solutions), which are being devel oped by the research division in close contact with technological develop ments. Using this technology, a con trol circuit for reluctance motors used for positioning exterior mirrors on pas senger cars is being developed to gether with TEMIC TELEFUNKEN mi croelectronic GmbH, Heilbronn. Wheel and suspension accelera tion on road vehicles will, in the future, be measured by micro- mechanical sensors integrated on a single chip the size of a pinhead, which convey this data to control units. These new acceleration sensors, developed by researchers at the Munich-Ottobrunn site, are about to go into series production. Research and Technology New Materials - New Opportunities for Energy and the Environment The characteristics of new mate rials are opening up a variety of attrac tive applications to Daimler-Benz in the field of energy and the environ ment. A major focus of continuing devel opment for materials scientists at the Ulm Research Center is functional ma terials, for example for electrodes and membranes in batteries for electrically powered vehicles. For future genera tions of the "ZEBRA" sodium/nickel- chloride high-energy battery, jointly developed by the Anglo-American corporation, South Africa, and AEG, Daimler-Benz researchers are cur rently developing new materials with a goal to reduce operating tempera tures, costs and enhancing func tionality. Environmental compatibility is the supreme goal in the "solid oxide fuel cell" research objective. This cell pro duces electricity from any combustible gas, for example natural gas or hydro gen without a flame, steam or rotating turbine blades, to an efficiency factor of 60%. The development of appropri ate electro-ceramics, combinable flat cells and of integrating and connecting technology the Daimler-Benz re searchers are making the required know-how available for practical appli cation. Production Research for the Industrial Society of Tomorrow 1993 saw the initiation of the In telligent Manufacturing System (IMS) research program, designed on a global scale as a three-way alliance be tween the USA, Japan and Europe. IMS has the objective of standardizing in dustrial production and to carry out comprehensive data integration - from placement of orders, development and manufacture to ultimate distribution. As part of the "Rapid Product Develop ment" pilot project, Daimler-Benz is investigating a closed process chain from the CAD model via prototype pro duction, with such methods as stereo- lithography, with subsequent return of the measured prototype to CAD data. Future-Oriented Research - and the Searching Internal Review The Berlin "Research, Technology and Society" group processes non- technological future-oriented knowl edge in order to support the corporate units in operative and strategic pro cesses. On the basis of research re sults, investigations held to determine whether existing and planned prod ucts, services or organizational princi ples have a realistic future. The researchers have identified for example, the future trends that will be of relevance for the company and its products in the years to come. The interdisciplinary trend analyses are grouped according to the following observation fields: Economic framework data Socio-demography The environment Energy City planning and area develop ment Transport Society, values and behavior The working world and leisure time behavior Companies. This is complemented by a re search audit; carried out by internal and external experts of world renown. This procedure tests our own research activities for efficiency, effectiveness and quality. The customers of the Daimler-Benz research sector expect products which not only equal or, in most cases, exceed any comparison with the world's best in terms of tech nology, but also ensure competitive pricing. Environmental Protection As a result of amendments to waste legislation in Germany, more emphasis will be placed on residual materials from the manufacture of a product in the future. Together with newly implemented test audits at the production plants and product-based ecological records, the documentation of environmental protection has been further optimized by means of an environmental information system. The segregation and recycling of residual plastics as well as the use of natural materials have shown encouraging test results. New Waste Legislation An important focus of environ mental discussion in 1993 concerned the amendments to waste legislation, which focuses on the prevention of waste, through recycling. The new leg islation covers all residual materials arising from a product from the manu facturing stage up to disposal. The manufacturer's responsibility has been extended to include designing products which can be recycled sev eral times, produce minimal residual material and have a long service life. Additional significant changes in the field of waste policy are imminent in the form of the electronic waste and junked vehicle ordinances and the obligation on manufacturers to take back scrapped products; this will also affect the manufacturing and product development sectors. The recycling legislation and the two above ordi nances have not yet been passed into law at the present time. Environmental Information System Acquires Increasing Significance The central working group "Envi ronmental Protection", comprising all chief environmental officers within the Daimler-Benz group, decided in May, 1993 that the corporate unit, debis, should develop a group-wide environ mental information system, which was subsequently launched at the begin ning of 1994. The purpose of this in formation system is to coordinate the monitoring of facilities, processes and hazardous substances at the various plants and to ensure efficient docu mentation of environmental protection within the company. The information from the plants' data banks is cen trally coordinated to allow environ mental protection to be monitored on a group-wide basis. Environmental Audit for Company Operations Prior to the EC directive on the voluntary environmental auditing of production plants, test audits were previously performed at two of the group's plants, so that experience could be gained with this instrument. These tests revealed that the legisla tion, which has come into effect, is lacking detailed analysis criteria. Moreover, the directives reinforce na tional differences which put German plants, with their high environmental standards, at a disadvantage over foreign plants. The Product-Related Ecological Balance Sheet With the further development of environmental legislation, attention is focusing on the overall "balance sheet" of the burden a product places on the environment in manufacture, opera tion and disposal. The Daimler-Benz Environmental Protection 47 One recycling problem is solved: test facility at the Ulm Research Centre for categorized recycling of composite plastic materials on a purely mechanical basis. Synthetic waste is in this way turned into a new source of raw materials. Research Center in Ulm is placing more emphasis on this issue scien tifically sound criteria for measuring the environmental burden of a product must be recognized at an early stage and immediately incorporated into the manufacturing process. On the basis of material and energy balance sheets, ecological weak-point analyses have already been completed for various products of the company. Investments in Environmental Protection Investments in environmental pro tection declined to approximately DM 200 million which was less than that invested in the previous year. The pri mary reason for this is the high level of investments capitalized in 1992, re lating to the conversion to water based paints in car production. Additionally this also reflects the overall declining level of investments in property, plant and equipment. Recycling Synthetic Material Waste A further objective in corporate research is the development of pro cesses for the recycling of complex synthetic waste materials created in production. The Daimler-Benz Re search Center has succeeded for the first time in mechanically sorting com posite synthetic waste created in the manufacture of dashboards into the original materials and reusing these in a high-quality recycling process. As soon as the sorting unit, currently un dergoing endurance testing, is put into operation at the Worth plant, 1,500 tons of waste can be prevented annu ally and the pure plastic constituents reused in the manufacture of automo tive components. Cooperation with Mitsubishi In November, 1993, Daimler-Benz and Mitsubishi agreed to commence with two environmental protection projects. Within the framework of a joint re search and development project, the recycling of mixed synthetic waste and electronics waste is being re searched. In the second environmental cooperation project, it was agreed to work closer together in the recycling of metals from scrap vehicles. In addi tion, both corporations displayed a renown cross section of their environ mental know how at the 'New Earth Environmental Show' in Osaka in December, 1993. Conservation of Natural Resources In a joint venture involving var ious corporate units, UNICEF and the University of Para in Belem, Brazil, a variety of materials and methods are being tested for the industrial utiliza tion of natural fibers and other renew able raw materials. During 1993 approximately 6,000 tons of natural materials such as coconut fiber and caoutchouc were processed into parts at small-scale Brazilian production plants and installed in buses and trucks by Mercedes-Benz do Brasil. In addition to various technological ad vantages, such as a contribution to im proved interior climate and greater air permeability, natural fibers are also of considerable ecological advantage, because they dispense with the use of exhaustible resources and no prob lems are encountered in recycling or disposal. This project is also significant in terms of development policy. Farmers are able to replace roving cultivation with an environmentally compatible basis of existence as suppliers of fiber to the automotive Industry. Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. The five core topics of internationalization, concentration to the markets, innovative talent, entrepreneurship as the key to competitiveness and social responsibility were the focus of discussions at the Daimler-Benz Congress '93. The discussion of these issues by more than 2,000 senior managers of the company generated a mood of enthusiasm which is making a valuable contribution to the integration of the group. we have in the past. To keep these redundancies to a minimum, however, new methods of adjusting capacity will also be considered. Emphasis will be placed on the flexible structuring of working time. A further focus of our personnel work, especially in this difficult year, was the maintenance and further development of our human resource potential. Training in efforts to raise skills continued in the Daimler-Benz group during 1993. Basic vocational and advanced training are considered permanent tasks designed to protect the future of the company and its employees. Employment Situation At year-end the Daimler-Benz group employed a workforce of 366,736 (1992: comparably calculated 388,888), on January 1, 1994 employ ment in the group declined a further 4,546 to 362,190. 284,576 people (1992: 302,464) were employed at the end of 1993 in Germany. In the corpo rate units of the group the employ ment situation was extremely strained. Personnel Difficult economic conditions in 1993 created adjustments to the workforce not only at the operating units but also at the Daimler- Benz holding. Reduced working hours in response to fluctuations in activity was also necessary. The workforce of the Daimler-Benz group was reduced by 6% to 366,736; affected by the decline, in particular, were Mercedes-Benz, AEG and DASA. We continue to improve the skills of our employees through basic and advanced training, which is a critical factor in maintaining our international competitiveness. Strengthening Competitiveness in a Difficult Environment The difficult economic conditions of 1993 made it necessary for the Daimler-Benz group to reduce its workforce and personnel costs. Releas ing personnel, especially on the scale that is necessary, is always a painful step. The company not only loses knowledge and experience; the reduc tions also impair the age structure of the remaining workforce. In 1993, we tried to make the adjustments in a socially acceptable manner, particularly through normal attrition, early retirement and individ ual severance agreements. In addition, reduced working hours were used to a considerable extent to accommodate fluctuations in activity. In the corpo rate units of AEG and DASA, however, redundancies were unavoidable in 1993. It is our intention that future re ductions in personnel, which are nec essary if we are to secure our interna tional competitiveness, will be carried out in as socially compatible a manner as possible, though the room for flex ibility is more limited. The possi bilities for taking advantage of attri tion and early retirement have now been largely exhausted. Thus, we will not be able to avoid redundancies as 50 Personnel Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. The five core topics of internationalization, concentration to the markets, innovative talent, entrepreneurship as the key to competitiveness and social responsibility were the focus of discussions at the Daimler-Benz Congress '93. The discussion of these issues by more than 2,000 senior managers of the company generated a mood of enthusiasm which is making a valuable contribution to the integration of the group. we have in the past. To keep these redundancies to a minimum, however, new methods of adjusting capacity will also be considered. Emphasis will be placed on the flexible structuring of working time. A further focus of our personnel work, especially in this difficult year, was the maintenance and further development of our human resource potential. Training in efforts to raise skills continued in the Daimler-Benz group during 1993. Basic vocational and advanced training are considered permanent tasks designed to protect the future of the company and its employees. Employment Situation At year-end the Daimler-Benz group employed a workforce of 366,736 (1992: comparably calculated 388,888), on January 1, 1994 employ ment in the group declined a further 4,546 to 362,190. 284,576 people (1992: 302,464) were employed at the end of 1993 in Germany. In the corpo rate units of the group the employ ment situation was extremely strained. Personnel Difficult economic conditions in 1993 created adjustments to the workforce not only at the operating units but also at the Daimler- Benz holding. Reduced working hours in response to fluctuations in activity was also necessary. The workforce of the Daimler-Benz group was reduced by 6% to 366,736; affected by the decline, in particular, were Mercedes-Benz, AEG and DASA. We continue to improve the skills of our employees through basic and advanced training, which is a critical factor in maintaining our international competitiveness. Strengthening Competitiveness in a Difficult Environment The difficult economic conditions of 1993 made it necessary for the Daimler-Benz group to reduce its workforce and personnel costs. Releas ing personnel, especially on the scale that is necessary, is always a painful step. The company not only loses knowledge and experience; the reduc tions also impair the age structure of the remaining workforce. In 1993, we tried to make the adjustments in a socially acceptable manner, particularly through normal attrition, early retirement and individ ual severance agreements. In addition, reduced working hours were used to a considerable extent to accommodate fluctuations in activity. In the corpo rate units of AEG and DASA, however, redundancies were unavoidable in 1993. It is our intention that future re ductions in personnel, which are nec essary if we are to secure our interna tional competitiveness, will be carried out in as socially compatible a manner as possible, though the room for flex ibility is more limited. The possi bilities for taking advantage of attri tion and early retirement have now been largely exhausted. Thus, we will not be able to avoid redundancies as Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. Mercedes-Benz employed a total of 209,933 people at the end of 1993, including 160,175 in Germany. The workforce declined in Germany by 9,982 from the previous year to 159,098. Reduced working hours were agreed upon in both divisions, partic ularly the commercial vehicle sector. Generally, workforce reductions con formed to socially compatible meas ures such as extensive offerings of early retirement and severance agree ments. AEG had a total of 58,921 em ployees at the end of 1993, including 44,591 in Germany. The workforce de clined by 4%. The reductions affected particularly the Automation, Electro- technical Systems and Components, and Microelectronics fields of activity. At Deutsche Aerospace (DASA) 86,086 people were employed at year- end, including 69,373 in Germany. In comparison with the previous year, the workforce in Germany declined by 8%. Additionally approximately 50% of employees were affected by reduced working hours. The continued dra matic sales decline in the Aircraft, Space Systems and Defense Systems divisions led to the announcement in October, 1993 of significant changes in structure and employment at the DASA group. Daimler-Benz InterServices (debis) had a total workforce of 8,812 at the end of 1993, including 7,527 people in Germany. Primarily through acquisitions, the workforce increased by 600 from the previous year. Included in this net increase is a reduction of approximately 150 em ployees at debis Systemhaus due to the difficult business situation. At Daimler-Benz AG, the execu tive holding company, a total of 2,984 people were employed at December 31, 1993, of which 540 were in group management functions, 1,274 in group research functions and 1,170 in ser vice areas for the corporate units and the Mohringen location. The workforce declined by 156 employees from the previous year. Collective Agreements for 1993 In the old Federal states of Ger many, wages and salaries rose by 3% effective April 1, 1993, as a result of the pay agreements concluded for the metal-working and electrical indus tries in 1992. Additionally, the con tractually guaranteed special remu neration rose to 60% of a month's pay. The reduction in working hours to 36 hours per week without loss of pay, previously agreed to in 1990, also went into effect on this date. In the new Federal states, the 1991 agree ments on gradual adjustment of wage and salary contracts to the level in West Germany were changed only af ter a labor dispute. The decisive mate rial change consists in an extension of the phases of the time frame. As of De cember 1, 1993, pay rates were gradu ally raised to 80% of the West level. As of July 1, 1994 the ratio will be 87%. After a further increment to 94% on July 1, 1995, the level in the old Ger man states will be the same for all German states by July 1, 1996. Personnel and Social Welfare Expenditure Group personnel expenditures increased by 6% to DM 33.8 billion. In connection with the vigorous cost- cutting measures, social benefits were curtailed in all corporate units and in the holding company. The company pensions, a central element of social benefits in the Daimler-Benz group, remained un affected. Daimler-Benz AG and Mercedes-Benz AG paid DM 353 mil lion to approximately 53,200 retirees, widows and children in 1993. A total of DM 551 million was allocated to pension provisions at Daimler-Benz AG and Mercedes-Benz AG. AEG dis bursed DM 107 million in 1993 and DASA paid DM 113 million. A total of DM 1.4 billion were provided for company pensions in the group. Private Capital Formation Company Training Activities Particularly in difficult economic times, the Daimler-Benz group con siders the training of junior personnel an important strategic task to protect the future of the company. At year-end 1993, approximately 12,800 young people were undergoing vocational training in Germany, of which 3,200 young men and women commenced training in 1993. Over 100 of the jobs created by the Daimler- Benz group, in the new Federal states in 1993, exceeded the actual needs and is evidence of the company's strong sense of social responsibility. Training is offered in almost 60 techni cal trades and 10 different business professions. This training is supple mented by 15 special programs for high school graduates at professional academies. All corporate units offer advanced training in comprehensive programs consistent with the different fields of activity. The focus of training for se nior managerial staff in 1993 was the structural change in the group and its markets. Expenditures for basic vocational and advanced training was approx imately DM 800 million in 1993. Assistance in employee stock ownership programs was provided again in 1993 to the domestic group. Daimler-Benz AG, Mercedes-Benz AG, and a few companies belonging to debis participated in these programs. Every entitled employee had the opportunity to purchase a share of Daimler-Benz AG at a discounted price. Approximately 73,000 em ployees, or 41 % of those entitled, took advantage of this offer. Managerial Development and Planning Managerial development and plan ning is characterized by increasingly difficult economic conditions. Execu tives are also affected by the neces sary adjustments in staffing levels. The 1993 executive staff review reflected a sufficiently large number of qualified junior personnel to meet the expected future need of managerial staff. We are assisting our managerial staff through specially developed training programs to improve their in novative skills and acquiring greater general management competence with a more international profile. The expansion of networks for knowledge transfer, integration and communication within the group was assisted by the '93 Daimler-Benz Con gress in Berlin: in numerous working groups, approximately 2,000 senior managers from domestic and foreign companies of the group discussed issues of internationalization, market orientation, innovative strength, com petitiveness and responsibility toward society. The 1993IAAF World Championships in Athletics in Stuttgart drew nearly half a million spectators to the Gottlieb-Daimler Stadium. More than four billion people around the world followed the competitions on television. Daimler-Benz and Mercedes-Benz were active sponsors of this extremely successful event. Our sponsoring policy has two pri mary goals. First, it should yield tan gible benefits for society by concentrat ing on projects which would not have been possible, or not at the same high level, without the support of Daimler- Benz. Second, by coordinating spon sorship goals with company goals, positive effects should result for the company in the market, as well as specific benefits for our employees. The primary focus of sponsorship policy within Daimler-Benz AG is our international drive to promote the ad vancement of young people. In addi tion to contributing to better inter national understanding by bringing together young people from different nations and cultures as well as to im prove the image of Germany abroad, we are also securing the development of highly qualified, internationally ori ented management personnel for the future. The program "Award of Excel lence" in cooperation with the Goethe Institute provides an opportunity for selected students from the United States and Canada to live for several weeks with German host families - employees of our company - allowing them to become acquainted with our country and our company. The re sponse to this program within the company and the participants has been so positive Preventive Health Care and Occupational Safety Medical care for our employees is traditionally an essential part of our personnel and social policy. In the German group companies, approx imately 230 employees are in the medical care service to provide health care to their peers. Approximately 200 full-time safety experts ensured on-the-job safety. The success of their work is reflected in the further reduction in accidents in all corporate units. Thanks to Our Workforce We would like to express our grat itude to all our employees for their commitment and hard work in a year which was characterized by a very dif ficult economic situation and painful steps to optimize costs. We also ex tend our appreciation to the represen tatives of the labor councils and man agerial committees at all levels of our group. The Company's Role in Society - Public Relations' Promoted Activities Daimler-Benz sponsors a wide range of projects in social, cultural and ecological areas as well as sports. In addition to the positive benefits to society, our activities also achieve positive effects for the company. Particularly important are the international programs we have designed to promote the advancement of young people. The same strong sense of respon sibility which we feel toward our customers also extends to our share holders and to the general public. This sense of responsibility includes our permanent readiness to engage in critical exchanges of ideas with people outside, and inside the company. This dialogue and cooperation with various groups is assisted by a wide range of sponsoring projects in social, cultural and ecological areas as well as in sports. Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. In the sponsoring of cultural pro grams and sports, promoting a new generation plays an important role. This is also true of our support for young artists in which we offer spon soring through various methods. The Daimler-Benz Junior Cup, an international youth soccer tourna ment, held annually in Sindelfingen, in which employees of the Daimler-Benz group are among the participants, not only contributes to communication among young people across Europe, but also provides the SOS-Kinderdorf in Sarajevo with desperately needed financial support. that we plan to expand it in the com ing years. In the future, we will also invite young people from other coun tries and regions in which we have growing business interests to visit Germany for several months as guests of the Daimler-Benz group. Planned activities during 1994 for young Russian economists have been set at several locations within the group. These activities will give them a comprehensive insight into the busi ness practices of German industrial corporations as well as to build a net work of links with the future decision makers in Russia. Complementing this program are a number of specific activities at for eign locations, such as in the NAFTA region. There, we are offering unem ployed young people in Mexico positions as trainees at local group subsidiaries. The youth projects, which the Group is undertaking, in the new Ger man states are especially timely. Dur ing 1993 Daimler-Benz AG held a con ference in Hoyerswerda on the subject "Youth and Violence". The conference included the financing of work promo tion programs to benefit unemployed youth in cooperation with the Freuden- berg Foundation and the German Foundation for Children and Youth. Similar goals are being pursued by the Youth Projects in Mannheim, which has a long tradition of assisting young people. national and international markets and pass these funds to the operating com panies. This method enables the financ ing costs to be lower than through direct refinancing by the operating companies in the local markets Due to the continuing growth of the financial services business, we again used the various interna tional capital markets in connection with the central procurement of funds for financing. We focused on borrow ing under our Euro medium-term note program, and were able to support the needs of our leasing and sales financing companies very flexibly. Due to the scope of this borrowing we limited ourselves to a few activities involving the standard Eurocurrency loans. We performed a securitization of sales financing receivables in the USA for the first time, with the goal of extending our investor base and diver sifying our financial instruments. As part of our Treasury activities we also make use of derivative money and capital market instruments to limit the group's financial risk and improve financial results. Finance and Materials We have merged group-wide functions of the Finance and Materials division at the headquarters in Stuttgart-Mohringen. Important events in 1993, among other things, were the obtaining of a long- term rating by Standard & Poor's and Moody's Investors Service, the preparation and implementation of the New York Stock Exchange listing of the Daimler-Benz shares and the activities in connection with the Purchasing Drive in the New Federal States. Group Treasury During 1993 we continued to develop the concept and technical aspects of our central cash manage ment and included the European group companies in the cash concen tration process. In the area of cash management, flexibility and efficiency were further improved through increased use of commercial paper programs, espe cially in Germany and the USA. Through active portfolio management, we invested long-term funds primarily in fixed interest rate instruments of first-class issuers and, to a smaller extent, in investments in shares of other companies. As in the past, the task of foreign exchange management consisted of ascertaining and limiting, by foreign exchange hedging methods, the cur rency risks of the operative sectors, particularly with regard to USD and JPY and also for selected European currencies. We will continue in the future to be guided in our strategy by continually updating currency rate ex pectations and will employ the finan cial instruments individually depend ing on the currency and business field. The financing needs of the group are essentially handled by Daimler- Benz AG and its network of regional holding and finance companies. The networks, in their function as financial hubs, procure external funds on the The handling of financial transac tions and the use of the financial trad ing instruments in connection with central cash and foreign exchange management and the central refinanc ing tasks is governed by financial trad ing guidelines and thus subject to strict regulation. Accordingly, we employ electronic systems with defined financial control parameters which take functional distinctions into account. A hierarchically structured report ing system, which is steadily improved upon, shows us risk areas and poten tials very early on and provides us with up-to-date information on which to base decisions. Since we make extensive use of electronic data pro cessing systems in our cooperation with external associates, we give great importance to data security. Financial Planning and Control To minimize the cost of capital in financing group activities, we optimize the allocation of the existing funds in the group, along with the distribution channels through which the necessary capital from outside and inside the group, is provided to the users within the group. We view the maintenance and im Sales and Project Financing Supporting worldwide sales of group products increasingly requires specific product and customer related financing solutions in addition to the offering of standardized financing pro grams. We need innovative financing and hedging facilities for projects of units operating in the infrastructure sector. In traditional export financing we made use of the opportunities pro vided by the existing financing and hedging instruments. We also have fi nancings in which these methods are not utilized. For construction and as sembly projects in Eastern Europe and the Far East, tailored financing solu tions were developed. The further recovery of the econ omies of the countries of Latin Amer ica, Central Europe and in part, the Far East, contrasted with a partial de terioration of political stability and the economic climate in several countries of Africa, Eastern Europe and the CIS. Restrictive policies continued for the approval of credit risk insurance, and resistance by international banks were met within these regions. This required greater effort to structure financing solutions. provement of the financial flexibility of the group as an important goal. Our mobility shows itself, for example, ap propriate to the business needs, in the fact that gross liquid funds are avail able within the group (at year-end 1993 over DM 10 billion). Addi tionally, we finance less than two thirds of our financial services exter nally and the rest from group funds. An external refinancing level as high as 90% is customary in the industry. With a view to financial security, we always supply our foreign subsid iaries with enough equity so that they can refinance themselves on a stand alone basis regardless of the oppor tunities for fund procurement through our centrally controlled regional hold ing and finance companies. During 1993, there were larger re quirements for funds, above all in the domestic areas of the group. These were covered notably by freeing DM 3 billion in funds from inventories and by generally raising the efficiency of working capital management. In the 1993 financial year, Moody's Investors Service and the Standard & Poor's ratings group for the first time issued long-term ratings to bonds and issues under the Euro medium-term note program guaran teed by Daimler-Benz. Both agencies rated the good credit standing of Daimler-Benz with Aa3 and AA, and particularly stressed the group's favor able financial profile. These strong rat ings improve possibilities for borrow ing on the international debt markets. Programs of public institutions to For private shareholders, we organ aid the financing of delivery and in vestment projects are important not only for the newly industrializing and developing nations of Africa, Asia and Latin America, but increasingly also for the countries of Eastern Europe and the CIS. There are also oppor tunities in connection with technical assistance and rehabilitation programs which are used for the financing of products of our group. It will continue to be a central task of trade and project financing to minimize financing risks in order to support product sales and, at the same time, to maintain the group's latitude for financing. Investor Relations Activities As part of our investor relations activities we provide comprehensive information on our enterprise and its development, to financial analysts and institutional investors, as well as to our private shareholders and potential investors, both domestic and foreign. We address all our shareholders and the general public through our annual and interim reports. ized an Investor Relations Forum in the Stuttgart Liederhalle auditorium in June, 1993, together with DG Capital Management. We introduced our com pany to over 1,000 interested guests, giving them a survey of the activities of the Daimler-Benz group. In view of the exceedingly favorable response, we will stage further events in the fu ture specifically addressed to private investors. In addition, we take the informa tion requirements of institutional in vestors and financial analysts into ac count through round-table discussions and company presentations. The in creasing demand for round-table dis cussions, which we hold at our head quarters in Stuttgart-Mohringen, indi cates that this form of communication with the capital market has become indispensable. We hold company presentations in Germany and in major foreign finance centers, in close cooperation with renowned commercial and investment banks. The high point of these activ ities was an extended roadshow in the USA, where we conducted presenta tions and individual talks with inves tors in Los Angeles, San Francisco, Portland, Chicago, Boston and New York in preparation for our New York stock listing. To give US investors and financial analysts direct and timely access to company information, we es tablished an Investor Relations Office in New York parallel to introducing the stock there. Investments in Related Companies Mergers & Acquisitions It was again our policy in 1993 to adjust or round out the core business segments of the group through the for mation of joint ventures, divestitures, and selective acquisitions, and in this way to secure our competitive posi tion. As specific examples, a transac tion structure was developed; busi nesses were appraised and analyses of companies performed (due diligence) in connection with purchases; and concepts for investments in related companies and management concepts were elaborated. Beyond the consulting-related du ties we exercised the asset protection function for the group by evaluating the group's subsidiaries and affiliates as to performance and, where re quired, developing methods for im provement together with the corporate units. These ranged from optimization of capital employment to consideration of joint ventures and divestitures. In the framework of subsidiary and affiliate administration, we as sisted with and exercised Supervisory Board duties for the group companies, followed and assessed ongoing pro jects, and drafted decisions for the internal bodies. Purchasing Drive in the New Federal States Supports Upswing in the East The "Purchasing Drive in the New Federal States" initiated in 1992 by West German enterprises can look back on encouraging results in the first full year in which it was in effect. Important contributions were also made by the companies of the Daimler-Benz group. Purchases from the new Federal states were increased to over DM 800 million (1992: DM 600 million). Despite the continued diffi cult economic situation we expect that the purchasing goal of DM 1 billion in the new Federal states expected for the year 1995 can be achieved, if not exceeded. We want to assure as efficient a procedure as possible for making con tact with and selecting potential sup pliers from Eastern Germany. For this purpose we have created a special pro ject organization "Purchasing Drive in the New Federal States in the Daimler- Benz Group": with the Daimler-Benz holding company exercising overall coordination. Project officers have been appointed in every corporate unit who steer the activities of their partic ular company. To achieve optimum communica tion between potential suppliers and the companies of the Daimler-Benz group and to effectively support the existing links, "sponsorships" were in troduced in the fall of 1993. Ten expe rienced managers from the group are each responsible for ten companies. Information concerning potential suppliers, such as the range of products offered, financial data and previous talks with group companies are collected by the Materials sector of Daimler-Benz AG in an information data base to which all corporate units have access. To assist the purchasing sectors, a coordination office was opened in Ber lin on July 1, 1993. It serves the corpo rate units as an information and con tact point, and is the contact for poten tial suppliers and associations. The various parties are already making very active use of this liaison office. Global Sourcing Activities Our purchases from abroad have increased due to additional global sourcing activities. To further improve our cost structures, we are striving to raise the foreign share of purchasing in Germany to 25% in the medium term. Eight corporate offices have been established in the important and productive markets in Europe, North America, Asia and Australia to coordi nate purchasing. They support our do mestic purchasing departments with information on potential new suppliers and about market trends and poten tials in the respective countries and make purchases locally for the individ ual group companies. Additionally, up-to-date informa tion on the international markets is available to purchasers through a foreign supplier information system installed worldwide. On October 5, 1993, Daimler-Benz AG was the first German company to be listed on the New York Stock Exchange. The successful negotiations with the US Securities and Exchange Commission (SEC), have opened up a new epoch for us in capital procurement and financial disclosure. The Daimler-Benz Share The price of the Daimler-Benz share rose by 57% in 1 993, to DM 844, primarily due to the good atmosphere on the German stock markets as well as the very favorable reception regarding the introduction of our shares on the New York Stock Exchange. To increase the number of our shareholders in the USA, Deutsche Bank reduced its stake in Daimler-Benz AG to slightly more than 24% and placed just under 4% of our capital stock on the American market. Following the merger of Mercedes Aktiengesellschaft Holding with Daimler-Benz AG, we will have more flexibility in using the international capital markets. During the beginning of the sec ond half of the year, the German stock index DAX increased at an accelerated pace, climbing to a new record high of 2,267 points by the end of the year. At DM 844, the Daimler-Benz share attained a year-end price which it had last reached in early August, 1990. The 57% increase in 1993 was higher than the average increase for the 30 enterprises included in the DAX (47%). In the first months of 1994, the German stock market entered a phase of consolidation which coincided with the revision of the optimistic expecta tions in regard to the economy and profits, not least because of fears that interest rates would rise again. The Daimler-Benz share price fell, through the end of February, by 4% to DM 808.3, while the DAX average declined by 7%. Once again in 1993, our shares were among the most heavily traded securities on German stock exchanges. A total of 309 million shares, a third more than the previous year, were traded. This volume, with a market value of DM 204 billion, represented 11 % of the total trade in domestic stocks. On the German Futures Ex change, Daimler-Benz options also ranked among the most actively traded securities, with 1.6 million contracts traded. Stock Exchange Trend In 1993 almost all major stock exchanges reached new highs. The boom in the German stock market was nourished by declining interest rates and repeated rumors of additional in terest rate cuts. Other factors were the anticipation of medium-term profits now that numerous enterprises have instituted cost-cutting measures and that the new law to safeguard loca- tional advantages had been passed. Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen. Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen. Here was a product or mood picture without text or figures. It was omitted in the pdffile to improve the usability of the file size. Daimler-Benz on Foreign Stock Exchanges In October, 1993, we listed our shares on the New York Stock Exchange. Daimler-Benz is the first German company to have gained direct access to the largest and most important capital market in the world. The American Depositary Shares (ADS) traded there are denominated at a tenth of the par value of a Daimler- Benz share. The opening quotation was 47 1/8 dollars; the quotation on December 30, 1993, was 48 5/8 dollars. The Daimler-Benz share is now listed on eight foreign stock exchanges: MAH shares will be exchanged for Daimler-Benz stock at a ratio of 1 for 1, now that this has been noted in the register of corporations in Frankfurt/ Main and Stuttgart. MAH held a blocking minority of 25% of the Daimler-Benz capital stock. Following the merger, Daimler-Benz will be able to make more flexible use of the inter national capital markets. In the future it will be possible to increase capital stock depending on the market situa tion and to issue convertible bonds or options. In addition, our shares will be come accessible to a broader range of investors. 470,000 shareholders, Daimler-Benz is one of Germany's largest public corpo rations. Dividend Reduced For the financial year 1993, a divi dend of DM 8 (1992: DM 13) for each eligible share of DM 50 par value will be proposed at the Annual General Meeting taking place on May 18, 1994. For shareholders subject to income taxes in Germany, the gross dividend amounts to DM 11.43. The trading volume of our shares on foreign stock exchanges in 1993 increased by 44% to 24 million shares. Trading in London was partic ularly active. To further internationalize our financing activities and to strengthen our global presence, we intend to be the first German company to introduce our stock in Singapore in May, 1994. As soon as the necessary conditions are met, we also plan to go to the Shanghai stock exchange, where no foreign companies are presently listed. We want to underscore the growing significance of East Asia for our product range. Shares more widely held At the end of December, 1993, the Extraordinary General Meeting of Daimler-Benz AG and the Annual General Meeting of Mercedes Aktiengesellschaft Holding (MAH) resolved to merge the two companies. At the beginning of February, 1994, Deutsche Bank placed part of its holding, about 4% of our capital stock, on the American market. Deutsche Bank's interest in our company thereby declined to 24.4%. Our share holder base in the USA has thus been substantially broadened. The Government of Kuwait, with approximately 14%, is the second largest shareholder in Daimler-Benz after Deutsche Bank. Stella Automobil- Beteiligungsgesellschaft mbH will retain a share of 12.6%. When the merger of Mercedes Aktiengesell schaft Holding with Daimler-Benz AG takes effect, almost half of our capital stock will be widely held. With a mar ket value of DM 37.7 billion (at the end of February, 1994) and over Good Yield Opportunities A long-term investment in Daimler-Benz shares offers good yield opportunities, although a share price decline may produce a negative re turn. Investments made in currencies other than the D-Mark entail further opportunities and risks due to fluctua tions in currency exchange rates. A twelve-year investment in Daimler- Benz stock reflects an average return of 13.8% per annum; an investment of only three years reflects a return of 16.1%. In this calculation we have assumed that the proceeds from rights issues and cash dividends (excluding tax credits) were reinvested in Daimler-Benz stocks and that the investor has not purchased any additional amounts. Discussion and Analysis of the Financial Situation The 1 993 consolidated group net income is DM 0.6 billion (1992: DM 1.5 billion); it was supported by changes in valuation in which we adjusted certain accounting principles to the U.S. ac counting principles. Using U.S. accounting principles, results for 1993 amounted to a loss of DM 1.8 billion (1992: a profit of DM 1.4 billion). Due to the sharp decline in business operations, and extensive restructuring costs incurred of DM 3.5 billion, the net operating result was a loss of DM 3.3 billion DM (1992: a profit of DM 2.0 billion). Valuation in Consolidated Financial Statements Adjusted to U.S. Accounting Principles We began to conform our balance sheet accounting and valuation methods to international conventions with the 1989 consolidated financial statements, in order to simplify com parison with other companies as well as to improve our method of reporting. We were the first German company to list its stock on the New York Stock Exchange, and therefore reconciled net income and stockholders' equity to generally accepted accounting princi ples in the U.S. (U.S. GAAP). It became apparent that there were still substan tial differences between our account ing principles and the U.S. accounting principles, which have a decisive influence on financial reporting. In the 1993 consolidated financial statements, we have therefore adapted our methods of accounting and valua tion as closely as possible to U.S. GAAP. These measures, which at the same time achieve substantial align ment between the German commercial balance sheet and the German tax bal ance sheet, have generated a one-time income before tax of DM 2.6 billion in the German consolidated financial statements. This amount is classified as extraordinary income. The balance of the differences are from rules and regulations regarding obligatory ac counting and valuation procedures. Our annual report includes a reconciliation of the net income and stockholders' equity determined according to the principles of the Ger man "Handelsgesetzbuch" (Commer cial Code) to those amounts reported under U.S. GAAP. Consolidated Net Income of DM 615 Million Reported In addition to the changes in ac counting principles and valuation methods, the 1993 consolidated finan cial statements include special factors and the first-time inclusion of the Fok ker group. As a result of the recession ary weakness in the most important markets, sales revenue declined by 0.8% to DM 97.7 billion. On a comparable basis, i.e. taking Fokker's 1992 sales into account, the decrease was 3.8%. As a result of the reduction in inven tory at Mercedes-Benz (offset, how ever, by inventory increases at DASA and AEG), total revenue declined more sharply than sales revenue, down DM 1.4 billion to DM 99.3 billion. Costs of materials exceeded those of the pre vious year because of the first-time consolidation of Fokker; accordingly, the latter's share in the total revenue increased from 48.7% to 51.3%. Despite the reduction in employment, personnel expenses continued to rise, as a result of the inclusion of Fokker and of the high costs of structural per sonnel strategies, so that this compo nent now represents 34.0% (1992: 31.7%) of total revenue. Since the pre ceding years' high level of investment in property, plant and equipment and leased equipment continued during 1993, the depreciation increased by 13.7%, to DM 8.1 billion. The interest expense for our leas ing and sales financing companies, at DM 342 million, was significantly lower than that of the preceding year. Interest income of the leasing busi ness is included in the lease payments and therefore included in revenues. When the interest expense for financ ing leasing and sales are excluded, the net interest income for the group is DM 0.8 billion (1992: DM 1.0 billion). As in previous years we have reduced interest income by the inflationary effects, from highly inflationary countries. Balance Sheet Influenced by Financial Service Business Even greater than the effect on the income statement, is the effect of the continued strong growth of leasing and sales financing on the consoli dated balance sheet. Our leasing con tracts are primarily operating type leases. Leased equipment is valued at its acquisition or manufacturing cost less accumulated depreciation. It is listed separately as part of the non-current assets. The financing of sales is a install ment receivable, which increases the balance sheet due to the recording of such receivables and liabilities due to the financing of such receivables. Ad ditionally, prepaid customer operating lease payments are reported as a lia bility included in deferred income. We utilize the financial services business, within the Daimler-Benz group, as a flexible instrument of our world-wide sales strategy. The effects of this business on the consolidated balance sheet are shown in the follow ing table. It is assumed that the funds which are utilized by the financial service business are available for the payment of liabilities. The results from ordinary busi ness activities declined significantly, from DM 2.5 billion in 1992 to a loss of DM 1.1 billion in 1993. The 1993 net income of DM 615 million (1992: DM 1,451 million) was achieved only because of lower taxes on earnings and other taxes and certain accounting changes which had a considerable ef fect on the 1993 consolidated net in come. These changes in accounting principles influenced almost all areas of operations and the net income of Daimler-Benz AG. In addition to the one-time profit of DM 2.6 billion due to the change in certain accounting principles which we posted as extraordinary income, we had a gain of DM 1.7 billion from sales of securities. There were also income of DM 1.0 billion from tax rebates and DM 237 million from the recapture of over-funded assets of the Daimler-Benz external pension funds to the provider companies Daimler- Benz AG and Mercedes-Benz AG, which thus was a tax free transaction. In contrast to these revenues were expenses of approximately DM 3.5 bil lion connected to the restructuring of technical capacities and the extensive reduction in personnel. There were also additional provisions resulting from write-downs of the portfolio of investments in affiliated and related companies and from the first-time inclusion of the Fokker group in the Daimler-Benz consolidated financial statements. The disappointing trend of busi ness in the year 1993 is more clearly evident in the operating results than in the reported net income. Following a profit of DM 2.0 billion in 1992, this (for an internal calculation) important figure took a significant turn to a loss of DM 3.3 bil lion in 1993. (see page 69) Results of Operations Allocation among the divisions: While the decline of business in the automobile and commercial vehi cle industry had a negative effect on the operating profit of Mercedes-Benz, the restructuring expenses, amounting to approximately DM 1.7 billion, also played a decisive role in reducing income. The operating loss at AEG includes restructuring expenses of DM 607 million. The results of DASA were im paired by the decline in demand in the areas of defense technology and space systems and by the first-time inclusion of Fokker. In addition there were pro visions for future restructuring ex penses amounting to DM 1.1 billion. The higher operating profit of debis is a result of lower net interest costs for the financing of leasing and sales, as well as improvements in the earnings of certain foreign leasing companies. The rent expense on operating leases for 1993 was DM 935 million. Future minimum rental payments under these operating leases as of December 31, 1993 are (in millions of DM) as follows: Future rental income, from con tractual agreements totalling DM 10,307 million, are distributed over the future years as follows (in millions of DM): Balance Sheet Total Increase for the Group The consolidated balance sheet to tal increased again in 1993 as a result of the first-time inclusion of Fokker and the further expansion of the leas ing and sales financing business by 5.5% to DM 90.9 billion. Including the leased equipment, non-current assets increased by 5.1 % to DM 35.4 billion. If the leased equipment is excluded, the non-current assets declined by DM 0.4 billion, to DM 23.5 billion. The net increase of DM 4.7 billion in prop erty, plant and equipment, including the acquisition of DM 0.8 billion of the Fokker group which is consolidated for the first time, is reduced by DM 5.2 billion in depreciation. The leased equipment continues to have above- average growth, increasing by 21.5% to DM 11.9 billion. Excluding the in ventory of lease vehicles, property, plant and equipment would be re duced from 27.7% to 25.8% of total assets. Receivables from the financing of sales increased by 42.2%, to DM 8.8 billion. Inventories, which increased only slightly in comparison to the previous year, were financed by approximately 33% through customer down pay ments. Despite the inclusion of Fok ker, "net inventories", after customer down payments, were reduced from DM 17.6 billion to DM 16.9 billion. The release of funds from inventories, together with more effective manage ment of working capital, helped meet the need for additional financial as sets, especially in Germany. Liquid funds had a net increase from DM 9.8 billion to DM 10.5 billion. The percent age of liquid funds to the total assets is 11.5%, which is consistent with that of the prior year. On the liabilities side, stock holders' equity, excluding the amount intended for dividend distribution, was reduced by DM 1.3 billion to DM 17.8 billion. With only a small amount - DM 0.2 billion - retained from 1993 net income, the amortization of good-will relating from the acqui sition of Fokker and the reduction in minority interest of shareholdings were the primary reason for this de crease. The percentage of stock holders' equity to total liabilities de clined from 22.2% to 19.5%. If we ex clude the financial service business, which is dependent on business vol ume and is largely financed from out side sources, the percentage of stock holders' equity to total liabilities is 26.0% (1992: 27.9%), the coverage of non-current assets (excluding leased equipment) by stockholders' equity decreased from 81.1% to 77.5%. Liabilities from the financing of leasing and sales increased by 24.5%, to DM 13.7 billion while allowances for losses increased by only 3.4%, to DM 35.9 billion. The income from the changes in accounting principles was reduced by the first-time inclusion of the Fokker group and the established provisions for the reduction in work force and the restructuring of capacity. Provisions amounted to 39.5% (1992: 40.3%) of the balance-sheet total. Stockholders' equity and long and medium-term provisions fully cover both the non-current assets (excluding leased equipment) and net inventories. Below we have reproduced the segment reporting, based on German accounting principles, as it appears in the Form 20-F report, which we file with the U.S. Securities and Exchange Commission. Statement of Financial Accounting Standards No. 95 "Statements of Cash Flows" (SFAS 95) The cash flow statement of the Daimler-Benz group included in the 1992 annual report, has been revised to completely conform to the U.S. Ac counting Standard, SFAS No. 95. Ac cordingly, the effects of foreign curren cies are eliminated, the additions to non-current assets are adjusted for significant changes in the consolida tion group, changes in stockholders' equity allocated, and the declaration of cash is based only on instruments of payment, rather than on total liquid assets. A reconciliation to the liquid assets is included in this report. In comparison to the previous year, the cash flow from operating ac tivities increased by 86% to DM 9.9 billion. This increase is primarily due to the significant reduction in inven tory assets, after adjustment for changes in the consolidation group. Cash flow from investing activities, of DM 10.5 billion, was also substantially higher than in 1992 (DM 7.5 billion). The primary reason for this increase was the first-time consolidation of Deutsche-Aerospace Airbus GmbH, Information on Derivative Financing Instruments in Accordance with US Standards Daimler-Benz uses derivative fi nancing instruments in order to hedge currency and interest rate exposure for normal business operations. We work only with banks which have strong long-term ratings. The financial instruments are written almost exclusively in the cur rencies of the large industrial coun tries. At December 31, 1993, the vol ume of positions in foreign currencies was DM 30.9 billion (1992: DM 19.1 billion), and that of interest rate contracts was DM 13.1 billion (1992: DM 8.6 billion). These gross amounts represent the base values of all buying and selling contracts, as they are required to be disclosed in ac cordance with Statement of Financial Accounting Standard No. 105. Differences in Accruals as a Result of the Change in the Treatment of Provisions, and Valuation Methods. U.S. accounting principles do not allow the formation of the extensive loss provisions as permitted by Ger man law. The excess German loss pro visions have to be dissolved, which has an effect on the net income as well as stockholders' equity. According to U.S. GAAP, the stockholders' equity and its large amount of cash (DM 2.0 billion) at the time of its initial consol idation. Since the surplus in financial assets from the industrial sector was not sufficient to fully cover the finan cial needs of the rapidly expanding leasing and sales financing business, we required additional debt of DM 1.3 billion in 1993 (1992: DM 3.7 billion). We are also anticipating a high level of capital expenditures in the Daimler-Benz group in the next few years. We are exploring the utilization of a variety of financing models for the leasing and sales financing business, which continues to expand. Addi tionally, we would like to support the anticipated growth of the companies by adding equity in the future. Additional Information in Accordance with the "U.S. Generally Accepted Accounting Principles" (U.S. GAAP) With the introduction of Daimler- Benz stock on the New York Stock Ex change, we are filing an annual report as a "Form 20-F" with the Securities and Exchange Commission (SEC). Much of the content of this filing is information taken from our annual report; however, additional data and financial information is provided deter mined on the basis of U.S. accounting principles. In the following sections we have set forth what we consider to be the most important information from the "Form 20-F." Since there are substantial differences, especially in the annual net income and stock holders' equity, the reconciliations are required to convert certain financial data from the German consolidated fi nancial statement to the values calcu lated by using U.S. generally accepted accounting principles (see page 73). increased by DM 5.8 billion during 1993 as a result of the dissolution of certain loss provisions which also changed the inventory and receivables value. We use the term "Appropriated Retained Earnings" to disclose to the American investors that such retained earnings are not available for distribu tion as dividends. This term also establishes a bridge between the two different accounting cultures. Long-Term Manufacturing Customer deposits and manufac turing costs are reported under Ger man law in accordance with the com pleted contract method, whereas U.S. principles generally require that the percentage of completion method be used. The majority of contracts within the group require partial prepayment as well as partial recognition of profits based upon payments received. Con tracts of this nature are also custom ary in the USA, and are recognized under its accounting regulations. The resulting differences therefore are not material. Goodwill and Acquisition of Investments in Businesses Currency Translation and Financial Instruments Under German accounting regula Unrealized exchange profits and losses on financial instruments are treated differently in the two account ing systems. Under German law, ac cording to the imparity principle, only unrealized losses are to be recorded, whereas under U.S. GAAP unrealized profits as well as losses must be recorded. Other Differences in Valuation Additional differences between German and American accounting methods may occur with respect to inventories, minority interests and leasing activities. Deferred Taxes Under German accounting regula tions, deferred tax assets are estab lished only for the elimination pro cesses in consolidation. Under U.S. ac counting principles deferred tax assets can also be recorded for valuation adjustments and existing tax loss carry-forwards. tions, goodwill can be allocated to stockholders' equity, or capitalized and amortized generally over the ex pected useful life, which in Germany ranges between 5 to 15 years. Under U.S. GAAP, the difference between ac quisition costs and market value must be capitalized and amortized over a period not exceeding 40 years. Disposal of Investments in Businesses Under German accounting princi ples, sales of subsidiaries and share holdings in businesses must be allocated to the period in which the contract is signed. According to U.S. GAAP, the gain or loss on invest ment cannot be recognized until after the actual monetary exchange of the investment. Pension Provisions According to U.S. accounting prin ciples, the determination of provisions for old-age pensions requires, among other things, a determination for antic ipated increases in wages and salaries. The calculation is not based on the dis count rate of 6% for unaccrued inter est, which is applicable under German tax law but incorporates the respective actual interest rates. Another differ ence is a result of the requirement that health care costs for retirees be actuarily calculated and accrued for in the USA. Accounting and Valuation Intangible assets are valued at ac quisition cost and are amortized on a straight-line basis over the respective useful lives. Goodwill resulting from capital consolidation is amortized over a period of five years, providing it re lates to the expansion of the Group. Where it relates to the 1989 restruc turing of the Group, it is charged to re tained earnings. Goodwill resulting from strategic alliances is split; the amount relating to the expansion of the Group is charged to earnings and the amount relating to restructuring is charged to retained earnings. Property, plant and equipment is valued at acquisition or manufacturing cost. Self-constructed assets include direct costs, materials, handling and production overhead which includes depreciation. Acquisition and capitalized manu facturing costs are depreciated. Where applicable, accelerated depreciation methods are used in Germany, pur suant to certain sections of the Ger man Tax Guidelines. Notes to the Consolidated Financial Statements Summary of Significant Accounting Policies The consolidated financial state ments have been prepared in accord ance with German generally accepted accounting principles ("German GAAP"). All amounts shown herein, unless separately stated, are in mil lions of German marks ("DM"). During 1993, Daimler-Benz made several changes in accounting policies in order to avoid or abandon taxed pro visions and to approach the account ing policies generally accepted in the United States. The change of account ing and valuation principles has in creased income by DM 2.6 billion as of January 1, 1993. For comparibility purposes, this amount has been re corded as extraordinary income in the statements of income (see Note 32). The significant changes in accounting policies affecting income are as follows: Inventories The accounts of subsidiaries operating in highly inflationary economies have been translated using historical exchange rates instead of year end rates as used in previous years. Receivables Only long-term non-interest or low-interest bearing receivables are present valued. The allowance for losses remains unchanged ex cept for the allowance for general risks which was previously re corded on a country-specific basis and is now recorded based upon company-specific considerations. Provisions for Employee Benefits and Social Costs The obligations for anniversary bonuses, previously calculated ratably without discounts, are now determined actuarially on the basis of an assumed interest rate of 5.5%, the entry age actuarial cost method and the consideration of employee turnover. Expense Provisions Pursuant to § 249 Par. 2 of the German Commercial Code The elective right for the valuation of expense provisions has not been exercised. For comparibility purposes, the extraordinary in come also includes the effects from reducing accruals that were not necessary upon adoption of the new method. Provisions for Deferred Repairs and Maintenance This provision, which was previ ously estimated, is now calculated based upon future plans for re pairs and maintenance. With the exception of the above, these changes in accounting and valuation principles have not resulted in any significant changes to income. At the beginning of 1993, Daimler-Benz changed the currency translation applied to the non-current assets of foreign subsidiaries, from historical exchange rates to year end exchange rates. Subsidiaries in highly inflationary countries (presently Brazil and Turkey) are excluded from the foregoing. The adjustment resulting from this accounting change is recorded in stockholders' equity. Property, plant and equipment is depreciated over the useful lives as follows: 17 to 50 years for buildings, 8 to 20 years for site improvements, 3 to 20 years for technical equipment and machinery and 2 to 10 years for factory, office and other equipment. If equipment is used in multiple-shift op erations, the useful life is reduced ac cordingly. Buildings are depreciated using the greater of the straight-line or the accelerated method of deprecia tion. Moveable property having a use ful life of four or more years is depreciated using the greater of the declining balance or the straight-line method. Depreciation on additions dur ing the first and second half of the year is calculated using full or half- year rates, respectively. Additional de preciation is recorded wherever deemed necessary. Items having an immaterial value are expensed when purchased. Investments and other financial as sets are valued at the lower of cost or market; long-term non-interest or low- interest bearing loans are recorded at present value. Investments in associ ated companies are generally recorded on the equity method. Leased equipment is valued at acquisition or manufactured cost and depreciated using the greater of the declining balance method or straight- line method. Where applicable, tax deductible depreciation methods provided in Section 35 of the Income Tax Guidelines are utilized. Raw materials, supplies and goods purchased for resale are valued at the lower of cost or market; finished goods are valued at manufacturing cost. Manufacturing costs include direct material, labor and applicable manu facturing overhead including deprecia tion. Loss provisions are recorded for inventories that have long periods of storage or changes in construction. Non-interest or low-interest bear ing receivables and other assets matu ring after more than one year are pre sent valued after taking into account all known risks. An allowance for doubtful accounts is deducted from the receivables. Other securities are valued at the lower of cost or market. Provisions for pensions and similar obligations, including postretirement medical benefits for retirees of U.S. subsidiaries, are actuarially deter mined on the basis of an assumed in terest rate of 6% using the entry age actuarial cost method. Provisions for taxes and other provi sions have been recorded using the principles of reasonable accounting valuation. The obligations in employee benefits and social costs have been recorded at the lower of the present value of future payments or at the pro rata amount, depending upon the respective benefits acquired. Liabilities are recorded at their repayment amounts. Consolidated Group In addition to Daimler-Benz AG, the consolidated Group consists of 305 domestic and foreign subsidiaries (1992: 271) and 12 joint ventures. The joint ventures are accounted for using the pro rata consolidation method. During 1993, 53 subsidiaries and 5 joint ventures were added to the consolidation and 19 subsidiaries were deleted. In May 1993, Deutsche Aerospace AG acquired a 78% majority share in Fokker-Holding B.V., which owns 51% of Fokker N.V. The effects of including this company in the consolidated fi nancial statements for the first time are explained in the notes to the finan cial statements. The loss for the short period arising prior to the acquisition, has been deducted from other operat ing expenses. At December 31, 1993, 271 sub sidiaries were not consolidated as their effect on the financial position and results of operations was not ma terial (their total revenues were less than 1 % of consolidated revenues). Ad ditionally, 11 other companies admin istering external pension funds, whose assets are subject to restrictions, were not included in the consolidation. The entire consolidated Group of Daimler- Benz AG is contained in the list of in vestment holdings filed in the Stut tgart Commercial Register as entry No. HRB 15 350. Consolidation Principles Capital consolidation is accom plished using the book value method by netting the acquisition cost and the pro rata share of stockholders' equity of the subsidiary at the time of its ac quisition or when it is first included in the consolidation. Joint ventures are also accounted for under this method. Significant investments in which Daimler-Benz has an ownership inter est in the range of 20% to 50% are generally accounted for using the eq uity method. Investments in which Daimler-Benz has an ownership inter est of less than 20% are accounted for at cost. These financial statements include references to affiliated, associated and related companies. Affiliated com panies include entities in which Daimler-Benz has majority ownership or an interest of 20% to 50% and which are not consolidated or ac counted for on the equity method, re spectively, as their effect would not be material. Associated companies repre sent entities in which Daimler-Benz owns between 20% and 50% and are accounted for using the equity method. Related companies include entities which have a significant own ership interest in Daimler-Benz or an entity in which a member of Daimler- Benz management is a board member. Wherever possible, the accrued differences arising from capital consol idation are shown under the respec tive consolidated balance sheet item and are amortized to income over the expected useful life. Goodwill is amor tized in accordance with the method discussed in "Accounting and Valua tion" above. The accrued difference of DM 841 million, remaining after the acquisition of Fokker, is valued in con junction with the restructuring of the Company and, accordingly, has been charged directly to retained earnings without affecting net income. A deferred difference arising from capital consolidation is shown sep arately under "Other provisions" as "Difference from capital consolidation with accrual character." Appropriated retained earnings of acquired subsidiaries are included in the Company's retained earnings. The 1993 unappropriated profit reported in the consolidated financial statements represents the unappropriated profit of Daimler-Benz AG. Accordingly, the proceeds from consolidation measures affecting operating income and the un appropriated profits of the subsidiaries have been offset against the retained earnings of the Company. Investments in 142 associated companies are recorded in the consoli dated financial statements. For the year ended December 31, 1993, 21 associated companies have been included in the consolidated fi nancial statements at equity using the book value method. The remaining associated com panies are reported as investments at acquisition cost net of applicable de preciation because the ownership is insignificant to the financial position of the Company. All material intercompany trans actions have been eliminated in con solidation. The deferred taxes shown in the consolidated balance sheet include the elimination procedures affecting net income. Currency Translation Foreign currency assets are trans lated at the lower of the entry date ex change rate or year end exchange rate; foreign currency liabilities are trans lated at the higher of the selling rate on the entry date or at the year end selling rate. The year end exchange rate is generally used to translate bal ance sheet items of foreign companies from the respective local currency to German marks. Excluded from this treatment are the non-current assets and inventories of companies in highly inflationary countries, where historical exchange rates are used. The difference resulting from the currency translation of the balance sheet items is charged or credited to stockholders' equity; for companies operating in highly inflationary coun tries translation gains or losses are ap plied to income. The currency translation of non- current assets at year end exchange rates reflect translation gains or losses in the property, plant and equipment analysis, and have been shown sep arately in the schedule. Such transla tion gains and losses were charged or credited to appropriated retained earn ings without affecting income. The readjustment of the values in the 1992 consolidated balance sheet to year end exchange rates results in a negative difference of DM 106 million, which was charged to appropriated retained earnings without effecting 1992 earn ings. Expense and income items are generally translated at the annual average exchange rate. Where such items concern non-current assets and inventories of companies in highly inflationary countries, the historical exchange rates are used. Net income, appropriated retained earnings and unappropriated profit are translated at the year end exchange rate. The differ ence between the annual average and year end exchange rates is included in "Other operating expenses" (included in other operating income in 1992). Notes to Consolidated Balance Sheet At December 31, 1993, included in intangible assets are DM 523 million of goodwill (1992: DM 611 million) from capital consolidation and from individual accounts, acquired computer software, patents and, to a lesser extent, advance payments. During 1993, additional amortization of goodwill amounted to DM 88 million. The decrease in property, plant and equipment by DM 333 million to DM 18,921 mil lion is a result of DM 5,432 million in additions, DM 210 million in currency translation gains, and their reclassifications of minus DM 15 million, DM 751 million in disposals and depreciation expense amounting to DM 5,209 million. Included in depreciation expense is accelerated depreciation of DM 76 million (1992: DM 163 million) which is allowed by German tax law and additional accelerated depreciation of DM 287 million (1992: DM 21 million) relating to certain revaluations of property, plant and equipment. As a result of subsidiaries consolidated for the first time, capital expenditures in creased by DM 1,854 million and depreciation by DM 909 million; of which capital expen ditures of DM 1,638 million and related depreciation of DM 833 million resulted from the acquisition of Fokker. Financial assets primarily represent investments in associated companies, other loans and investments. Loss provisions, amounting to DM 298 million (1992: DM 83 million) were recorded on investments with non-consolidated subsidiaries. As a result of the first-time consolidation of Fokker, acquisition costs were increased by DM 147 million and amortization increased by DM 70 million. The increase of DM 2,102 million of leased equipment - almost exclusively vehicles - to DM 11,879 million primarily is the result of lease acquisitions from Mercedes-Benz Credit Corporation, Norwalk, USA, and MBL Mercedes-Benz Leasing GmbH & Co OHG, Stuttgart and, for the first time consolidation of Fokker which amounted to DM 458 mil lion. In accordance with the provisions of tax law, additional depreciation has been re corded on leased equipment in the amount of DM 5 million (1992: DM 3 million). The majority of consolidated inventories is from Mercedes-Benz and Deutsche Aero space. The increase over 1992 amounting to DM 2,560 million, is primarily from the corpo rate unit DASA, of which DM 2,066 million is from the first-time consolidation of Fokker. Inventory decreases were recorded in the Mercedes-Benz division. Advance payments received in the amount of DM 7,317 million (1992: DM 5,549 mil lion) primarily represent projects and long-term contracts with AEG, DASA AG, Fokker, Dornier, Eurocopter and MTU. Such payments have been deducted from inventories. This item represents receivables from customers in the amount of DM 8,771 million (1992: DM 6,166 million), of which DM 5,569 million (1992: DM 2,804 million) are long- term receivables. An allowance for losses of DM 174 million has been recorded on these receivables. Approximately DM 0.4 billion (1992: DM 0.4 billion) of the receivables from related companies represent fixed interest rate debt instruments and securities. Tax refund claims and interest receivable are included in "Other assets." This item also includes liquid assets in non-marketable debt instruments amounting to DM 186 mil lion (1992: DM 437 million). An allowance for loss of DM 1,670 million has been provided for on receivables and other assets. In November, 1993, Daimler-Benz AG and the corporate units sold 72,945 shares (par value of DM 3.6 million, or 0.16% of equity) to employees at a discounted price of DM 337 per share. The remaining 49,357 shares of treasury stock were sold in the public market. Other securities primarily consist of fixed interest rate instruments. Certain current assets could have been increased by DM 27 million to their original values in accordance with German GAAP, however, the revaluation was not recorded due to a negative effect on currently payable income taxes. The balance of DM 2,954 million (1992: DM 2,968 million) includes cash in banks, cash on hand, cash in the German Bundesbank and Postbank, as well as deposits in tran sit. The liquid assets included in various balance sheet positions total DM 10.5 billion (1992: DM 9.8 billion). Deferred taxes generated from elimination procedures affecting income total DM 323 million (1992: DM 1,329 million). Among other things, the decrease is the result of minor inter-company profits from inventory reduction in the automotive sector. Additionally, a discount totalling DM 16 million has been included in this balance sheet position. The capital stock and additional paid-in capital pertain to Daimler-Benz AG. Daimler-Benz shareholders have approved, on June 26, 1991, through June 30, 1996, the issuance of up to DM 600 million (par value) of additional share capital. Retained earnings contain the German statutory provision of DM 160 million and other retained earnings of Daimler-Benz AG totalling DM 13,091 million. Retained earnings also include the group's share of the consolidated subsidiaries retained earnings and balance sheet results, provided the earnings were generated by such subsidiaries since joining the Company. Additionally, retained earnings include the cumulative effect resulting from the elimination of inter-company profits from the consolidation and foreign currency transla tion gains and losses. The interest held by third-parties in the stockholders' equity of the consolidated sub sidiaries primarily consists of Daimler-Benz Luft- und Raumfahrt Holding AG, AEG, Mercedes-Benz Mexico, Dornier, MTU and Eurocopter. In addition to the above a negative minority interest amounting to DM 758 million relates to Fokker. Pension accruals have increased by DM 542 million to DM 12,759 million (1992: DM 12,217 million) as a result of the annual increase in pension provisions.The pension accruals and the plan assets of the external pension plan, fully fund the Company's pen sion obligations. Accrued taxes amounting to DM 833 million (1992: DM 764 million), represent currently payable income taxes for Daimler-Benz, the balance of the accrued taxes is currently payable for all other consolidated companies. The difference from capital consolidation with accrual character represents the pur chase of two subsidiaries consolidated for the first time and an accrual for related start-up expenses. In addition, the company is liable for compensatory payments guaranteed by Deutsche Aerospace AG which cannot be reasonably estimated for 1994 and future years. For outside shareholders of AEG Aktiengesellschaft and Daimler-Benz Luft- und Raumfahrt Holding AG claims also exist for compensatory payments which cannot be reasonably estimated. Additionally, outstanding contractual performance guarantees exist for which future liability cannot be reasonably estimated. The other financial obligations are for future services from rental, leasehold and leasing agreements and amount to an average annual amount of DM 677 million over an average contractual period of 8 years. Other financial obligations due to non-consolidated subsidiaries, represent annual pay ments due of approximately DM 34 million over an average contractual period of 13 years. In connection with the fiduciary settlement by Deutsche Aerospace Airbus GmbH of the federally guaranteed serial credits, the effective amount cannot be determined until the beginning of 1995 when the federal government's last tranche of DM 1 billion is due; this also applies to the reorganization profit received in 1989. Within the scope of the government-supported Airbus-Development-Program, Deut sche Aerospace Airbus GmbH has agreed to assume performance portions itself. DM 199 million thereof relate to the time after the balance sheet date, to the extent that they are not already reflected in the annual accounts. All assets acquired by Deutsche Aerospace Airbus GmbH with subsidy funds have been conveyed to the Federal Republic of Germany as security. With reference to the development work for the Airbus program, Airbus Industrie G.I.E. has given a performance guarantee to Agence Executive (government office in charge of Airbus); this guarantee was taken over by Deutsche Aerospace Airbus GmbH - to the extent of its share interest - without restriction. Deutsche Aerospace Airbus GmbH considers the obligation fully covered by the relevant agreements for the financing and execution of the development work. Beginning in 2002, the profit sharing agreement provides that the federal government will share 40% in the profits of Deutsche Aerospace Airbus GmbH. This requirement, in its economic effect, stipulates the sequence of the government's repayment demands. The remaining financial obligations, particularly purchase order commitments for capi tal investments, are within the scope of normal business activities. The obligation arising from stock and capital subscriptions pursuant to Section 24 of the GmbH Act, amounts to DM 9 million. The company is jointly and severally liable for certain non-incorporated companies, partnerships and joint ventures. In addition, there exist performance and miscellaneous guarantees in connection with normal business transactions. Income from dissolved provisions is DM 2,348 million (1992: DM 1,519 million). Gains totalling DM 1,659 million were realized from the sale of securities. Additionally, the recapture of over-funded assets of Daimler-Benz Unterstützungskasse GmbH to Daimler- Benz AG resulted in income totalling DM 237 million. The source of such re-capture is the 1992 Tax Amendment Law, which limits the over-funding of such assets. Additional income resulted from the currency translation gains from countries outside of Germany relating to open payments and deliveries. Losses from open payments and deliveries are included in "Other operating expenses". Additionally, income was generated from subrental agreements. Other operating income in the amount of DM 3,581 million (1992: DM 2,226 million) is primarily related to reductions in estimated loss provisions. The cost of materials compared to the total output of DM 99,494 million (1992: DM 100,879 million) is 51% (1992: 49%), respectively. The wages and salaries also include personnel expenses of DM 3.1 billion for restruc turing in conjunction with workforce reductions; of this amount, DM 2.7 billion represent accruals for provisions. The number of employees also includes 11,575 people employed by Fokker. Addi tionally, 10,740 people are employed in joint ventures. The majority of the property, plant and equipment is owned by Mercedes-Benz. The increase of depreciation of leased equipment over the prior year results from the expanded leasing activities of the domestic and foreign financial service companies. Other operating expenses include increases to provisions, maintenance costs, adminis trative and sales costs including commissions for sales representatives, rental and leasing costs, currency exchange translation losses from open payments and deliveries, freight and packaging, and the losses from currency exchange translation of companies in highly inflationary countries. An accrual has been provided for future restructuring costs. Fok- ker's DM 94 million loss arising from the acquisition during the period from January 1 through May 18, 1993 has been deducted from other operating expenses. Additionally, included in other operating expenses are DM 224 million (1992: DM 161 million) which primarily relate to changes in estimated loss provisions. 1992 DM in millions DM in millions 1993 Interest paid to third parties from the leasing and sales financing business amounts to DM 342 million (1992: DM 421 million). The extraordinary income, amounting to DM 2,603 million, include non-recurrent in come from the new valuation methods and changes in accounting principles as explained in the "Summary of Accounting Policies". At January 1, 1993, provisions were reduced by DM 1,935 million; of this amount, DM 1,119 million were allocated to expenditure provisions, DM 548 million to provisions for employee benefits and social costs, and DM 268 million to provisions for maintenance costs. An additional reduction of DM 445 million resulted from a change in receivable valuation methods. Additional income of DM 223 million was realized from translating inventories of companies in highly inflationary countries using historical exchange rates for the first time. In addition to the economic slowdown of important markets, 1993 net income of DM 615 million was reduced by a one time charge of DM 3.5 billion, before income taxes, for the restructuring of capacities and reduction in workforce. Offsetting this one time charge was income from securities sold, from the new accounting and valuation methods utilized and reduced tax expenses. Statutory depreciation of financial and current assets had an insignificant effect on consolidated net income. Under the presumption that the proposed dividend is ratified by the shareholders at the Annual Meeting on May 18, 1994, the remuneration paid by the group companies to the members of the Board of Management and the Supervisory Board of Daimler-Benz AG amounts to DM 14,348,204 and DM 1,289,595 respectively. Disbursements to former members of the Board of Management of Daimler-Benz AG and their survivors amount to DM 9,790,261. An amount of DM 79,727,443 has been accrued in the financial statements of Daimler-Benz AG and Mercedes-Benz AG for pension obligations to former members of the Board of Management and their survivors. As of December 31, 1993, advances and loans to members of the Board of Management of Daimler-Benz AG amounted to DM 169,863. Home mortgages included herein are not subject to interest; other loans and advances bear interest averaging 5.5%. During 1993, DM 65,104 of outstanding loans was repaid. The terms for home mortgages are ten years and less than one year for loans and advance payments. Auditor's Report We rendered an unqualified opinion on the consolidated financial state ments and the business review report in accordance with § 322 HGB (German Commercial Code). The translation of our opinion reads as follows: "The consolidated financial statements, which we have audited in accordance with professional standards, comply with the legal provisions. With due regard to the generally accepted accounting principles, the consolidated financial state ments give a true and fair view of the assets, liabilities, financial position and results of operations of the Daimler-Benz group. The business review report, which summarizes the state of affairs of Daimler-Benz Aktiengesellschaft and that of the group, is consistent with the financial statements of Daimler-Benz Aktiengesellschaft and the consolidated financial statements." Frankfurt/Main, March 23, 1994 KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprufungsgesellschaft Zielke "Certified Public Accountant" Dr. Koschinsky "Certified Public Accountant" Proposal for the Allocation of Unappropriated Profit The annual financial statements of Daimler-Benz AG as of December 31, 1993, show an unappropriated profit of DM 390,387,317.00. It will be proposed at the Annual General Meeting that this amount be applied as follows: Stuttgart-Möhringen, March 8, 1994 The Board of Management Supervisory Board WOLFGANG GABELE*) Bremen Deputy Chairman of the Corporate Labor Council, Daimler-Benz Group Chairman of the Corporate Labor Council and the Joint Labor Council, AEG MANFRED GÖBELS*) Leonberg Senior Manager, Mercedes-Benz AG Chairman of the Senior Managers' Committee, Daimler-Benz Group Chairman of the Senior Joint Managers' Committee, Mercedes-Benz AG ERICH KLEMM*) Calw Chairman of the Labor Council, Sindelfingen Plant, Mercedes-Benz AG MARTIN KOHLHAUSSEN Frankfurt/Main Speaker for the Board of Management, Commerzbank AG RUDOLF KUDA*) Frankfurt/Main Departmental Manager within the Board of Management, Metal-Workers' Union HlLMAR KOPPER Frankfurt/Main Member of the Board of Management, Deutsche Bank AG Chairman KARL FEUERSTEIN*) Mannheim Chairman of the Corporate Labor Council, Daimler-Benz Group Chairman of the Joint Labor Council, Mercedes-Benz AG Deputy Chairman PROF. DR. RER. NAT. GERD BINNIG Munich Head of IBM Physics Group WILLI BÖHM*) Kandel Member of the Labor Council, Worth Plant, Mercedes-Benz AG BIRGIT BREUEL Berlin President of the Treuhandanstalt (Government Agency for Privatization) PROF. HUBERT CURIEN Paris Former Minister for Research and Technology of the Republic of France DR. JUR. MICHAEL ENDRES Frankfurt/Main Member of the Board of Management, Deutsche Bank AG HELMUT LENSE*) Stuttgart Member of the Labor Council, Untertürkheim Plant, Mercedes-Benz AG WALTER RIESTER**) Frankfurt/Main Vice-Chairman, Metal-Workers' Union (as of 10/26/1993) JÜRGEN SARRAZIN Frankfurt/Main Speaker for the Board of Management, Dresdner Bank AG DR. JUR. ROLAND SCHELLING Stuttgart Attorney at Law DR. MANFRED SCHNEIDER Leverkusen Chairman of the Board of Management, Bayer AG (as of 12/20/1993) PETER SCHÖNFELDER*) Augsburg Member of the Labor Council, Deutsche Aerospace AG PROF. DR. JUR. JOHANNES SEMLER Kronberg/Taunus Lawyer BERNHARD WURL*) Mainz Departmental Manager within the Board of Management, Metal-Workers' Union *) Elected by the employees. **) Judicially appointed as employee representative. Outgoing Members of the Supervisory Board: HERMANN I. ABS Frankfurt/Main Honorary Chairman, Deutsche Bank AG Honorary Chairman (deceased 02/06/1994) RICHARD BOLLMANN*) Mannheim Senior Manager, Deputy Chairman of the Senior Managers' Committee, Mercedes-Benz AG (on 05/26/1993) PROF. DR.-ING. E.H. WERNER BREITSCHWERDT Stuttgart (on 05/26/1993) DR. RER. POL. HORST J. BURGARD Frankfurt/Main Member of the Supervisory Board, Deutsche Bank AG (on 05/26/1993) HELMUT FUNK*) Stuttgart Chairman of the Labor Council, Untertiirkheim Plant and Main Office, Mercedes-Benz AG (on 05/26/1993) HUGO LOTZE*) Reinhardshagen Chairman of the Labor Council, Kassel Plant, Mercedes-Benz AG (on 05/26/1993) PROF. DR.-ING. E.H. DR. H.C. WERNER NIEFER Stuttgart (deceased 09/12/1993) DlPL.-lNG. HANS-GEORG POHL Hamburg Deutsche Shell AG (on 05/26/1993) DR. RER. POL. WOLFGANG RÖLLER Frankfurt/Main Chairman of the Supervisory Board, Dresdner Bank AG (on 05/26/1993) SIEGFRIED SAUTER*) Frankfurt/Main Deputy Chairman of the Corporate Labor Council, Daimler-Benz AG Chairman of the Joint Labor Council, AEG Aktiengesellschaft (on 05/26/1993) FRANZ STEINKÜHLER*) Frankfurt/Main First Chairman, Metal-Workers' Union (on 06/21/1993) HERMANN-JOSEF STRENGER Leverkusen Chairman of the Supervisory Board, Bayer AG (on 05/26/1993) *) Elected by the employees. Report of the Supervisory Board Hermann Josef Abs, Frankfurt/ Main, died on February 6, 1994. He served as Chairman of the Supervisory Board from 1955 to 1970 and subse quently as Honorary Chairman. During his service Mr. Abs greatly influenced the development of Daimler-Benz and we will always remember his achieve ments and exceptional personality with great admiration and respect. Professor Werner Niefer, a former member of the Board of Management from 1975 through May 26, 1993, died on September 12, 1993. On May 26, 1993, Mr. Niefer was elected to the Su pervisory Board. He was able to partici pate in the Board only for a very short period. We would have liked to draw on his energy and wealth of experience for a long time to come. As a replacement for Mr. Niefer, Dr. Manfred Schneider, Leverkusen, was elected to the Super visory Board on December 20, 1993. Mr. Herbert Lucy, Mannheim, died on January 15, 1994. From the year 1965 until leaving the company in No vember, 1989, he had been a member of the Supervisory Board as employee representative, and as of 1978 as dep uty chairman. His committed efforts on behalf of the employees, his consci entious cooperation and willingness to work together with trust and respect, earned him widespread appreciation and recognition - both within and out side the company. We will remember Mr. Lucy with great admiration. We would like to take this oppor tunity to express our sincere gratitude to the outgoing members of the Super visory Board, some of whom belonged to this Board for many years, for their active participation and their highly technical knowledge. In connection with the audit en gagement, the Supervisory Board and KPMG had no disagreement with the companys' records. We approved the 1993 consolidated financial statements of Daimler-Benz AG as prepared by the Board of Management; and such finan cial statements are hereby ratified. We concur with the proposal of the Board of Management regarding the alloca tion of unappropriated profit. The con solidated financial statements, the busi ness review and the external auditors' report were submitted to us. As s result of the regularly sched uled elections to the Supervisory Board, at the Annual General Meeting on May 26, 1993, a number of changes were made in the Supervisory Board. Departing the supervisory board were Prof. Dr.-Ing. Werner Breitschwerdt, Stuttgart, Dr. Horst Burgard, Frankfurt/Main, Hans-Georg Pohl, Hamburg, Dr. Wolfgang Röller, Frankfurt/Main and Hermann-Josef Strenger, Leverkusen. Elected to the supervisory board were Mrs. Birgit Breuel, Berlin, as well as Prof. Hubert Curien, Paris, Dr. jur. Michael Endres, Frankfurt/Main, Prof. Werner Niefer, Stuttgart and Jürgen Sarrazin, Frankfurt/Main. Also departing the Supervisory Board, at the close of the Annual Gen eral Meeting on May 26, 1993, were the following employee representa tives: Richard Bollmann, Mannheim, Helmut Funk, Stuttgart, Hugo Lotze, Reinhardshagen, and Siegfried Sauter, Frankfurt/Main. Elected to the Super visory Board were the following em ployee representatives: Willi Böhm, Kandel, Wolfgang Gabele, Bremen, Manfred Göbels, Leonberg, and Hel mut Lense, Stuttgart. Franz Stein- kiihler, Frankfurt/Main who resigned from the Supervisory Board on June 21, 1993 was replaced by Walter Ries- ter, Frankfurt/Main, on October 26, 1993, by the appropriate legal body. During 1993, the Supervisory Board held four formal meetings in which we were informed in detail con cerning the state of the company and essential matters of corporate policy. The Supervisory Board also discussed these issues with the Board of Man agement. Our discussions focused on medium-term corporate planning, in cluding but not limited to capital ex penditures, trends in employment and earnings and further developments in the structuring of the group. Addi tionally, we discussed major business transactions and made decisions concerning individual transactions which, by either law or company by-laws, required submission to the Supervisory Board for review and approval. The Supervisory Board examined the consolidated financial statements and the business review of Daimler- Benz AG and the group, as well as the proposal for the allocation of unap propriated profit. KPMG Deutsche Treuhand-Gesellschaft AG, Wirt- schaftsprufungsgesellschaft, Frankfurt/Main, audited the financial statements of Daimler-Benz AG and the consolidated financial statements of the group as of December 31, 1993, as well as the business review. The consolidated financial statements were in accordance with generally accepted accounting principles. The Supervisory Board approved the audit results of KPMG in a joint meeting with the Board of Management on April 7, 1994. Executive Management and Daimler-Benz Group Representatives Executive Management DR. JUR. BOY-JÜRGEN ANDRESEN Personnel Policy HANSJÖRG BAUMGART Daimler-Benz Art Possessions MARTIN BERGER Annual Accounts and Accounts Planning DR. RER. POL. ROLF A. HANSSEN*) Corporate Planning and Controlling MATTHIAS KLEINERT*) Public Affairs and Political - Economic Policy DR.-ING. MICHAEL KRÄMER Research 1 DR. RER. NAT. VOLKER LEHMANN Research 2 WERNER POLLMANN Technology, Environmental Officer Daimler-Benz PROF. DR. RER. NAT. ROLF SCHARWÄCHTER*)**) Directorate for Group Business in Emerging Markets JÖRG SEIZER Subsidiaries and Affiliated Companies KONRAD STRAUB Corporate Auditing DR. OEC. PUBL. PAUL WICK*) Finance and Taxes DR. IUR. SOLMS WITTIG*) Staff Lawyer GERD WORIESCHECK Personnel Development for Senior Group Executives *) With general power of procurement. **) Also deputy member of the Mercedes-Benz Board of Management without an own department. Daimler-Benz Group Representa tives Berlin PETER-HANS KEILBACH Englerallee 40 14195 Berlin Bonn ALFONS PAWELCZYK Friedrich-Ebert-Allee 26 53113 Bonn Brussels DR. HANNS R. GLATZ 133, RUE FOISSART - BTE. 29 B-l040 BRUSSELS BELGIUM JERUSALEM/TEL AVIV BENJAMIN NAVON Ramban Street 11 Jerusalem Israel Moscow LOTHAR GLEITZE Prosp. Vernadskogo 9/10, App. 602 Moscow 117311 Russia Tokyo RAINER JAHN Roppongi First Bldg. 9-9, Roppongi 1-chome Minato-ku, Tokyo 106 Japan Washington D.C. RICHARD H. IMUS Suite 800, 1350 I Street, N. W Washington D. C. 20005-3305 U.S.A. Executive Management and Daimler-Benz Group Representatives 99 Balance Sheet Press Conference: April 12, 1994 10.00 a.m. Haus der Wirtschaft Stuttgart Annual General Meeting: May 18, 1994 10.00 a.m. International Congress Center (ICC) Berlin Daimler-Benz reports on the first quarter of 1994 during the Balance Sheet Press Conference on April 12, 1994, on the first six months with an audited semi-annual report at the end of August, 1994 and during early November on the first nine months of 1994. Daimler-Benz AG IR 70546 Stuttgart Telephone: 49-711-1 79 22 87 Telefax: 49-711-1 79 41 09 This report has been printed on environment-friendly paper bleached without the use of chlorine. 

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