Daimler-Benz is well on the way to becoming a sustainably
profitable corporation again. By streamlining our portfolio,
we have created a sound economic basis for future growth.
Our new management organization gives our 23 business units
significantly more autonomy which will allow them
to respond flexibly to the challenges of worldwide competition
while emphasizing customer orientation.
The use of new controlling instruments and the preparation
of the financial statements in accordance with
the more investor-oriented U.S. accounting principles
mean improved disclosure both internally and externally.
A satisfactory return for our investors, attractive products
and services for our customers, and challenging and
secure jobs for our workforce:
These are the objectives we are pursuing with our
value-based management.
DAIMLERBENZ
AKTIENGESELLSCHAFT
PASSENGER CARS
S-, E-, C-, A- AND M-CLASS
SMART
TRUCKS EUROPE
COMMERCIAL VEHICLES NAFTA
VANS EUROPE
COMMERCIAL VEHICLES
DRIVE TRAINS EUROPE
BUSES EUROPE
COMMERCIAL VEHICLES LATIN AMERICA
UNIMOG
CIVIL AIRCRAFT AND HELICOPTERS
DEFENSE AND CIVIL SYSTEMS
AEROSPACE
AEROENGINES
MILITARY AIRCRAFT
SATELLITES
SPACE SYSTEMS INFRASTRUCTURE
FINANCIAL SERVICES/
INSURANCE BROKERAGE
IT SERVICES
SERVICES
TELECOMMUNICATIONS AND
MEDIA SERVICES
TRADING
REAL ESTATE MANAGEMENT
DIRECTLY
RAIL SYSTEMS
MANAGED
MICROELECTRONICS
BUSINESSES
M T U / D I E S EL ENGINES
CONTENTS
LETTER TO THE STOCKHOLDERS AND FRIENDS OF OUR COMPANY 2
BOARD OF MANAGEMENT 5
BUSINESS REVIEW 6
AUTOMOTIVE 13
AEROSPACE 20
SERVICES 25
DIRECTLY MANAGED BUSINESSES 29
RESEARCH AND TECHNOLOGY 34
PERSONNEL 36
DAIMLER-BENZ IN SOCIETY 38
DAIMLER-BENZ IN THE FINANCIAL MARKETS 41
VALUE-BASED MANAGEMENT, US GAAP AND NEW CONTROLLING INSTRUMENTS 44
DISCUSSION AND ANALYSIS OF THE FINANCIAL SITUATION 46
FINANCIAL STATEMENTS 51
SUPERVISORY BOARD 81
REPORT OF THE SUPERVISORY BOARD 82
ADDRESSES AND INTERNATIONAL REPRESENTATION OFFICES 84
MAIOR SUBSIDIARIES OF DAIMLER-BENZ AG 86
DAIMLER-BENZ IN FIGURES 88
MAIOR DIFFERENCES BETWEEN GERMAN AND U.S. ACCOUNTING PRINCIPLES 90
LETTER TO THE STOCKHOLDERS AND FRIENDS OF OUR COMPANY
• We have increased revenues by 10 per cent to DM
106.3 billion.
In my letter to you one year ago, I said our number
one goal was to return Daimler-Benz to profitability. I
referred to the difficult path that lay before us and to
the tough decisions and actions that we would have to
take to achieve our aim.
We have proposed a dividend of DM 1.10 per DM 5
share, which will be paid entirely from earnings gen
erated from our operating business, and at the same
time increases stockholders' equity as the basis for
future growth.
One year later, I am happy to report to you that we
have succeeded in this goal. The profit we achieved in
1996 represents a milestone in this effort. The measures
taken in 1995 and 1996 are beginning to pay off. And
we have created the basis for a further improvement of
earnings in the future.
Daimler-Benz is once more a profitable company.
We have refocussed our company on its traditional
strenghts and values. We have eliminated businesses
that either were not profitable or did not fit within our
strategy. We have set strict return on capital targets for
all our business units.
Today, Daimler-Benz is a provider of
transporta
technologically advanced
traffic systems and
tion products,
services, with a portfolio of 23 business
units with high growth and earnings
potential. This enables us to allocate
our resources to those projects that earn
the highest return.
Daimler-Benz is a company which
will continue on its course of increasing
shareholder value. The 1996 figures
speak for themselves:
• We have achieved an operating profit of DM 2.4
billion in 1996, after a large operating loss in 1995,
when we were streamlining.
But we could not have done this without our em
ployees who are largely responsible for our regained
profitability. We could not have achieved what we have
achieved without their commitment and dedication and
without the constructive approach taken by employee
representatives and management at every step of the
way during the past two years.
We recognize the contribution of our employees to
making production in Germany more competitive. We
have concluded numerous individual plant agreements
involving 135,000 employees in German factories which
include guarantees for permanent em
ployment for all apprentices in these
plants. Daimler-Benz presently offers
apprenticeships to approximately 9,200
young people in Germany.
However, despite this initial success,
we must remember that the 1996 results
represent only the first stage on the way
to restoring our company to its tradi
tional levels of profitability. In addition,
we have not yet achieved our goal of
being in a leading position in each of
our markets with high quality products
and services. Not only do we want to lead in terms of
the quality of our products, but we also want to be a
leader in terms of our return on capital.
• The figures reflect the streamlined portfolio as well
as operational improvements in nearly all business
units. The programs to boost efficiency have brought
down costs significantly and improved our competitive
position.
Therefore, our top priority continues to be the
achievement of a minimum return of 12 per cent on
capital employed. While we have recently come a good
deal closer to this goal, we cannot rest on our laurels.
The profitability of the world's best competitors set the
standard for the return targets in each respective
result The trebling of orders for Airbus in 1996 was
business unit. We are still some way short in this regard.
due in no small measure to this success. However, much
However, the fact that we occupy a leading position in
remains to be done to remain competitive in the ever-
many of our markets gives us confidence for the future.
changing aerospace industry. As the worldwide industry
We are especially confident about Mercedes-Benz
continues to consolidate, most notably in the United
States through the merger of Boeing and McDonnell
vehicles. Our strategy is to offer the best products in all
our market segments over the long term and we are Douglas; and as defense and space technology budgets
continue to decline, a European solution is the only way
well on our way to achieve that goal. Our current
the European aerospace industry can remain competi-
product drive and vehicle offerings are unprecedented
in the history of Mercedes-Benz passenger cars. In 1997, tive. Dasa is a driving force in this process.
we will launch three new models which we expect will
meet with great success: The A-class, the M-class and
the CLK; our whole range of vehicles will all have addi-
tional innovations. Overall, we plan to expand our sales
from 645,000 units in 1996 to more than 1 million
vehicles in 2000.
Daimler-Benz InterServ ices (debis), our services unit,
has become one of the leading companies in its sector
generating excellent results and creating new jobs. We
are very satisfied with its progress, debis will continue
to develop internationally with promising new busi-
nesses started in sectors such as telecommunications
New approaches to marketing and sales underpin
and media services.
our strategy. We have reinforced the position of a board Adtranz, the joint rail venture with Asea Brown
member in charge of Sales and Marketing. We have ex- Boveri (ABB), which is the market leader in this sector
growing by 8 per cent a year, is strategically well posi-
panded our resources in this area. In this context, the
tioned. The operational start-up problems of the first
decision to continue to use the star exclusively for the
year will be resolved this year. At TEMIC, we are focus-
Mercedes-Benz logo will also strengthen this division.
sing our growth on vehicle electronics, an activity which
is growing much faster than the market. MTU-Eriedrichs-
hafen - the Diesel Engines business unit - has consist-
ently succeeded with new products in new markets as
In commercial vehicles, we are world leader in terms
of sales. We have cut costs by between 20 and 30 per
cent and achieved a better price/performance ratio than
our competitors with our new products - the Sprinter,
the Vito, and the Actros, the latter of which was named well.
Truck of the Year. However, despite advances in pro-
ductivity, our earnings are still unsatisfactory. We will
pursue expansion of our market position, especially in
North and South America, and will continue our product
drive this year by focussing on the new light class in
Europe. We will also refocus ourselves and intensify our
efforts to achieve earnings in our European truck
business that meet our new, stringent requirements.
Daimler-Benz Aerospace (Dasa) introduced its major
initiative to improve competitiveness and has made
significant progress in enhancing its productivity as a
In conclusion, we have made good progress in our
operations. We have identified the major contributors
to earnings and have laid the groundwork for continued
profitable growth. But growth can be sustained only in
areas where we enjoy clear superiority over our corn-
petitors. That is why we are concentrating on the areas
where we excel on a worldwide basis. The acquisition
by our subsidiary Freightliner in North America of Ford's
heavy truck business is an example of this strategy. And
we are now embarking on efforts to further globalize
our activities, particularly in Asia and in Latin America.
cash flow have become part of the language of the entirt
company and part of our corporate philosophy.
In conclusion, we believe we have succeeded in wha
we set out to do. We have restored Daimler-Benz to pro)
itability, and we have laid the foundations for futurt
growth. Our central focus is the enhancement of long
term value-creation. We are fully aware that success
for the future will require that we are closer than ever
to our customers and to our markets. We must continue
to produce the best quality products in the markets ir
which we choose to do business. And we must occup)
the leading position in those markets. In the end, our
customers will decide whether we succeed or fail anc
therefore, the customer must be at the forefront of all
that we do. People - both inside the company and ir
the market place - are the key to our success.
At Daimler-Benz, we view the increase in the market
value of our company, as reflected in its stock price, as
an expression of the expectations that our shareholders
have of us and our work. We are encouraged by this
confidence and will continue to work to achieve new
levels of efficiency and profitability for Daimler-Benz
AG in the coming years.
In the interest of securing our competitive position
for the long term, we will continue to enhance our
position as a leader in research and development In
1996, we invested DM 5.6 billion in this area and were
among the leading German companies in terms of the
number of patent applications. As an example of our
leading position in this area, we presented the first zero-
emission vehicle in the world, a passenger car that runs
on fuel cell technology in everyday conditions.
But a great deal more has taken place in your
company to firmly establish a comprehensive concept
of value-based leadership. This concept of value-creation
requires different thinking on all decision levels; it not
only requires bottom-line orientation, but also efficient
structures, processes and - not least - a totally new
approach to personnel management.
With the group's new management structure which
has been in place since early April, we are shifting
responsibilities down the line to our managers in order
to encourage a new sense of entrepreneurship and
ownership within the company, thus making us more
efficient and quick to respond to the needs of the
market. Additional improvement in speed and efficiency
will be achieved by the end of 1997 by further organiz
ational streamlining.
We plan to involve employees more directly in the
effort to improve earnings; models are being developed.
Employees should be rewarded according to the con
tribution of value they make to the company. In addi
tion, at the annual shareholders' meeting we will pro
pose expansion of the value-based stock option incen
tive system to include the second level of management.
1996 marks the first time we have prepared our
accounts in accordance with U.S. accounting principles
which gives our investors worldwide the transparency
they require. This means that our success as well as
our shortcomings will be reported with new clarity. The
terms operating profit, return on capital employed, and
BOARD OF MANAGEMENT
from left to right:
Dr. rer. pol. Eckhard Cordes
born 1950 in Neumiinster, member of the Board of Management
since 1996, responsible for Corporate Development and Directly
Managed Businesses, under contract until 2002.
Dr. rer. pol. Manfred Bischoff
born 1942 in Calw, member of the Board of Management since 1995,
responsible for the Aerospace Division (Daimler-Benz Aerospace),
under contract until 2000.
Heiner Tropitzsch
born 1942 in Hannover, member of the Board of Management
since 04/01/1997, responsible for Human Resources, under contract
until 2002.
Dr. jur. Klaus Mangold
born 1943 in Pforzheim, member of the Board of Management
since 1995, responsible for the Services Division (Daimler-Benz
InterServices), under contract until 2000.
Jtirgen Hubbert
born 1939 in Hagen, member of the Board of Management
since 04/01/1997, responsible for the Passenger Car Division,
under contract until 2002.
Dr. phil. Kurt J. Lauk
born 1946 in Stuttgart, member of the Board of Management since
04/01/1997, responsible for the Commercial Vehicles Division, under
contract until 2002.
Dr.-Ing. Dieter Zetsche
born 1953 in Istanbul, member of the Board of Management since
04/01/1997, responsible for Sales and Marketing, under contract
until 2002.
Klaus-Dieter Vohringer
born 1941 in Dessau, member of the Board of Management since
04/01/1997, responsible for Research and Technology, under contract
until 2002.
Jiirgen E. Schrempp
born 1944 in Freiburg, member of the Board of Management since
1987. Chairman, under contract until 2000.
Dr. jur. Manfred Gentz
born 1942 in Riga, member of the Board of Management since 1983,
responsible for Finance and Controlling, under contract until ?ooo.
Retired from the Board of Management: Ernst G. Stöckl (on 09/20/1996), Helmut Werner (on 01/31/1997), Prof. Dr.-Ing. Hartmut Weule (on 12/31/1996)
BUSINESS REVIEW
Daimler-Benz concluded fiscal 1996 with a profit Consolidated net income according to United States generally
accepted accounting principles totaled DM 2.8 billion (1995: DM -5.7 billion); the operating profit - the standard for
measuring the success of our operational business - reached DM 2.4 billion (1995: DM 7.2 billion loss). We achieved
this pleasing growth in income by streamlining the group's portfolio. The market success of our new products and
our programs to enhance efficiency in all business units have contributed to the improved results, as have the
more favorable exchange rates. The new management structure that became effective on April 1, 1997 creates
the conditions for accelerating decision-making processes in the company. It extends greater autonomy to the
business units, allowing them to respond flexibly to the market while emphasizing customer orientation. Following
the encouraging development of business on the whole in the first three months of 1997, we expect our operating profit
to continue to grow this year. For the medium-term future, each individual business unit is to yield a return of more
than 12% on the capital employed, thus increasing the value of Daimler-Benz.
NET INCOME CLEARLY POSITIVE AGAIN
noticeably as compared to the 1995 figure. Services were able
Consolidated net income as determined using U.S.
to increase their share markedly to DM 0.3 billion. The Directly
generally accepted accounting principles reached DM 2.8
Managed Businesses contributed a total of DM -0.6 billion to
billion in 1996, an especially positive improvement following
the group's operating profit.
the heavy DM 5.7 billion loss in fiscal 1995.
On the whole, business was pleasing in the first three
We were also able to noticeably increase our operating
months of 1997. In view of the good order situation we expect
profit - the standard for measuring the success of our
this development to continue in the coming months as well.
operational business - to DM 2.4 billion.
This pleasing development of results was
primarily accomplished with the stream
lining of the group portfolio initiated in 1995
and continued in the year under review, by
which we eliminated sources of losses and
increased our earning power. In this con
nection, extensive non-recurring expend
itures that had to be taken into account
in the 1995 financial statements had a
significant impact on earnings in that year.
The growth in earnings in 1996 was not only
a result of the elimination of these expenses,
however, but was also achieved with the po
sitive development of our operational
business related to the market success of
our new products, the programs to boost
On this basis, and as a consequence of the
advantageous strength of the U.S. dollar, we
expect the operating profit to increase yet
again in 1997.
DM I.I0 DIVIDEND
In the financial statements of Daimler-
Benz AG prepared in accordance with Ger
man accounting principles for the year
1996, net income amounts to DM 1.3 billion
(1995: DM -6.6 billion). When comparing
this total with the previous year's result, it
should be taken into consideration that the
figure reported in 1995 contained an extra
ordinary loss of DM -5.1 billion resulting
from non-recurring expenditures arising
within the group and the full write-off of our
efficiency in all units, and the more favorable exchange rates.
interest in Fokker.
As in the previous years, our vehicle business played a
Considering that the result from our operational business
central role in the Company's operating profit, contributing a
is clearly positive once again, we propose to our shareholders
total of DM 2.7 billion. While the contribution of Aerospace
that a dividend in the amount of DM 1.10 per DM 5 par value
was still negative at DM -0.2 billion, it did improve quite
share be paid out of unappropriated retained earnings. With
growth in nearly all of the important markets. Revenues in
share capital totaling DM 2,577 million, the payout amount
the European Union totaled DM 65.3 billion; comparably
is DM 567 million.
calculated, this was 16% higher than in 1995. In the EU
countries outside of Germany, we achieved a 18% increase,
WORLD ECONOMY RELATIVELY FLAT
while our revenues in Germany were up 14% to DM 39.2 billion.
We were able to achieve this noticeable increase in
Our business volume in the USA rose to DM 19.1 billion (1995:
earnings despite the fact that the overall economic conditions
DM 17.4 billion). In the other markets, revenues reached DM
in the markets that are important for Daimler-Benz did not
22.0 billion, outperforming the previous year's level by 9%.
improve significantly. The economic growth in the indus
trialized countries, at 2%, was only slightly higher than in
VIGOROUS GROWTH IN ALL SEGMENTS
the previous year and varied considerably from region to
All of the Company's business segments contributed to
region.
the expansion of consolidated revenues. In the Automotive
Because of the weak development in the first half of the
business (Mercedes-Benz) our revenues grew 8% to DM 77.6
year, growth rate in Western Europe - and above all in
billion, above all due to the success of the many new vehicle
Germany - declined perceptibly. It was not until the second
types launched in 1995 and 1996.
half of the year that the lower interest rates, the stronger U.S.
When comparably calculated, the Aerospace Division
dollar, and the stabilization of exchange rates within Europe
(Daimler-Benz Aerospace) improved its revenues by 13% to
led to a more favorable economic climate in these important
DM 13.1 billion, while Services (Daimler-Benz InterServices)
markets.
recorded a 12% expansion; its revenues also totaled DM 13.1
The stable upward trend in the U.S.
economy continued to pick up speed. Cata
lysts included private consumption and
persistently brisk investment activity.
As a result of government spending
programs, the Japanese economy also ex
perienced vigorous growth in 1996.
The international economic significance
of the newly industrializing and developing
countries became more pronounced in the
year under review. Prominent factors in
cluded the stabilization of the economies in
the Latin American countries and the above-
average growth rates in certain Central and
Eastern European countries and the Asian
region.
billion. The external revenue of the Directly
Managed Businesses reached DM 8.0
billion.
Without internal deliveries, Mercedes-
Benz contributed 71% to the revenues of
Daimler-Benz, Daimler-Benz Aerospace
(Dasa) 12%, Daimler-Benz InterServices
(debis) 10%, and the Directly Managed Busi
nesses 7%.
CONCENTRATION ON CORE
COMPETENCIES
In the year under review, we continued
the review of our corporate portfolio that we
had first initiated in 1995. The most essen
tial criteria we referred to were the market
position of the individual activities, the
CONSOLIDATED REVENUES NOTICEABLY IMPROVED
competitive situation, the assessment of potential returns and
Against this economic background, we increased consoli
risks, future capital requirements, and the strategic import
dated revenues to DM 106.3 billion in 1996, surpassing the
ance within the group. By focusing on our core competencies
previous year's total of DM 96.5 billion (adjusted for changes
we reduced the number of businesses we maintain to 23
in the consolidated group) by 10%. We recorded significant
instead of the 35 we had in mid-1995.
We completed the reorganization of the business activities commercial vehicles, aerospace, services, rail systems, micro-
electronics, and diesel engines.
of AEG Daimler-Benz Industrie in 1996. Upon the recording
of the change in the Commercial Registry in September 1996,
AEG AG merged with Daimler-Benz AG with retroactive effect NEW MANAGEMENT ORGANIZATION IN THE
as of January 1,1996. The assets of AEG AG had already been DAIMLER-BENZ GROUP
In tandem with the strategic development of the group,
spun off to EHG Elektroholding GmbH at that point. The
Energy Systems Technology and Systems and Automation we also reviewed our structures and processes. The result
Technology units were sold to companies specializing in these was the new organizational structure we presented in January
activities in the year under review. The Sorting and Recog-
1997, which has been in place since April 1, 1997. Its objective
is to make administrative and planning processes within the
nition Systems business unit was sold to Siemens AG with
economic effect as of January 1, 1997. Of the former activities group faster and more cost effective and efficient. The units
active in the market have been given significantly expanded
of AEG Daimler-Benz Industrie, the Daimler-Benz group is
autonomy, which will enable them to respond flexibly and
now concentrating on Rail Systems (Adtranz), Microelec-
effectively to the challenges of worldwide competition while
tronics (TEMIC), and Diesel Engines (MTU Friedrichshafen)
as Directly Managed Businesses. We had already transferred
emphasizing customer orientation.
Rail Systems to Adtranz, a 50:50 joint venture with ABB, on
An important element of the new corporate structure
is the merger of Mercedes-Benz AG with Daimler-Benz AG.
December 31, 1995. After the sale of Bayern-Chemie Airbag
GmbH at the end of 1996, TEMIC will focus increasingly on Consolidating the two headquarters eliminates one manage-
the automotive electronics and semiconductor sectors in the ment
level. At the same time, it underscores the fact that
the vehicle business will constitute the focus of the group's
future.
activities in the foreseeable future.
Following the discontinuation of our financial support for
Fokker in January 1996 and the transfer of Dornier Luftfahrt
Decision-making processes were greatly accelerated at
GmbH in June 1996 to a company in which the American Dasa when we dissolved the former intermediate levels
Fairchild Aircraft Inc. holds a majority share, Daimler-Benz Aircraft, Defense, and Space Systems. We consolidated the
information and reconnaissance systems product areas,
Aerospace withdrew from direct business with regional
aircraft. Due to the difficult competition conditions and our
together with sensor systems, within the Defense and Civil
position in this market, we no longer consider it justifiable to Systems business unit.
continue these activities. Within the context of our concen-
tration on core competencies, Dasa transferred its majority
share in Dornier Medizintechnik to Singapore Technologies archic
in January 1996. Singapore Technologies plans to intensify
its involvement in this sector.
Administrative expenses are also being noticeably reduced
in the central units at debis. We have streamlined the hier-
levels in this division. debis Financial Services and
debis Insurance Brokerage are being consolidated within one
unit.
Daimler-Benz InterServices stepped up its activities in the
telecommunications and media services sector in an effort to
STRENGTHENING EARNING POWER
In the year under review, we implemented targeted
take advantage of the opportunities of this growth market.
debis withdrew from the Marketing Services business unit measures to reinforce the earning power of the 23 business
units remaining in the group. In the medium-range future,
because this activity is not among the core competencies of
all units within the group are expected to yield a return above
the group and its market position was not able to join the
12% and thus higher than the cost of capital employed. This is
lead in each of the relevant sectors.
Following the realignment of the portfolio, Daimler-Benz meant to ensure that the contribution of each individual
is now active in the following businesses: passenger cars,
business unit enhances the value of our Company.
Above all at TEMIC and Adtranz and in the business units
Trucks Europe, Unimogs, and Drive trains Europe, we have
decided to pursue vigorous campaigns to lead these busines
ses to produce the 12% minimum return on capital employed.
Notwithstanding the significantly improved orders situation
and the revaluation of the U.S. dollar as compared to the
German mark, we continued the programs we had introduced
at Dasa in 1995 to promote competitiveness. It is still our goal
to generate a profit even if the dollar were to remain at a low
rate for long periods.
increased on a permanent basis. At the end of December 1996,
Daimler-Benz Aerospace employed a total of 44,936 persons
(comparably calculated for 1995: 46,892 persons). Daimler-
Benz InterServices increased its workforce by 1,304 to 11,500
employees. If the previous year's total is adjusted to reflect
structural changes, the number of employees at the Directly
Managed Businesses remained nearly unchanged at 31,005
persons.
GLOBALIZATION OF PURCHASING ACTIVITIES
The Daimler-Benz group purchased goods and services
EMPLOYMENT SITUATION STABILIZED
worldwide worth a total of DM 66.9 billion in 1996.
Employees by Segments
At Year-End
Thanks to the success of the pro
grams to boost efficiency we had already
implemented and the encouraging pros
pects for all business units on the whole,
the employment situation at Daimler-
Benz stabilized again following the per
sonnel cuts in the previous years. Con
tributing factors included the internal
agreements for most of our German
factories concluded with the employee
representatives, which make it possible
for us to greatly reduce personnel ex
penses while increasing the flexibility
and efficiency of our workforce. We thus
improved the conditions for competitive
production in Germany and safeguarded
jobs there.
At December 31,1996, we employed
Just under three quarters of the pur
chases were for the Automotive busi
ness, 10% for Daimler-Benz Aerospace,
8% for Daimler-Benz InterServices, and
8% for the Directly Managed Businesses.
It remains a high priority of our ac
tivities to continue to tap internatio
nal purchasing markets. Our objective
is to make use of cost advantages while
at the same time limiting currency risks.
We are concentrating our efforts on the
Asian and Pacific growth markets above
all.
As always, however, we are still com
mitted to cooperating with our German
partners, whose quality consciousness
and innovation potential is respected
around the world.
a total of 290,029 employees worldwide (1995: 310,993
persons), of which 222,821 worked in Germany (1995: 242,086
persons). The lower number of employees as compared to the
previous year is primarily related to structural changes such
as the disinvestment of businesses at AEG and Dasa.
A total of 199,099 persons were employed by Mercedes-
Benz at year-end 1996 (1995: 197,164 persons). The layoffs at
Daimler-Benz Aerospace were not as heavy as originally
planned, predominantly because the order situation at Air
bus picked up remarkably and production volume could be
We are continuing our purchasing drive in Eastern Ger
many; at this point we are concentrating on stabilizing the
business relations we have already established.
CAPITAL EXPENDITURES INCREASED TO DM 6.2 BILLION
The investments of the Daimler-Benz group in property,
plant, and equipment (excluding effects from first consolida
tions) climbed to DM 6.2 billion in 1996 (1995: DM 4.8 billion).
Once again, the majority of our capital expenditures went
toward securing the future of our Automotive business with a
total of DM 4.5 billion (1995: DM 3.3 billion).
In the Passenger Car Division, the engine plant in Stutt
gart-Bad Cannstatt, the preparations for production of the
A-Class in Rastatt, and the transition to new paint technologies
were among the most important investments. The most
important project outside of Germany was the preparation for
production of the M-Class in the USA.
The capital expenditures made in the Commercial Vehicle
Division were also primarily focused on the production of new
vehicles and assemblies. Priorities included the heavy-duty
Actros truck, the new light class, and the
new engines, drive trains, and axles.
Purchasing Volume
DM 66.9 Billion (1995: DM 66.9 Billion)
DM 0.6 billion were invested at Dasa
in 1996; one of the most important pro
jects was the expansion of production
capacities for the planned volume run
up in the Airbus program, debis invested
DM 0.2 billion, and the Directly Managed
Businesses a total of DM 0.5 billion. The
investment volume of Daimler-Benz AG
reached nearly DM 0.5 billion, of which
DM 0.4 billion were spent on the Pots-
damer Platz real estate project.
As a consequence of the growing
leasing business, capital expenditures
for leased equipment were once again
on a high level at DM 6.1 billion.
Daimler-Benz expects to invest near
ly DM 20 billion in property, plant and
equipment in the 1997 to 1999 planning period. Here, too,
the emphasis will be on the Passenger Car and Commercial
Vehicle divisions. Because of the product drive, another
noticeable expansion in the automotive sector is on the horizon
in fiscal 1997; the investment volume will therefore tend to
decrease in the following years. In the financial services sector,
we expect business volume and hence capital expenditures
for leased equipment to continue to increase.
DM 8.8 BILLION SPENT ON RESEARCH
AND DEVELOPMENT
We spent a total of DM 8.8 billion on research and develop
ment projects in 1996 (1995: DM 8.9 billion). Of this amount,
DM 3.3 billion (1995: DM 3.6 billion) were allocated to contract
development services rendered almost exclusively by Daim
ler-Benz Aerospace.
As in the past, the majority of the funds allocated to our
own research and development was spent on securing the
future of our vehicle business, because customer-oriented
innovations form the basis of our product drive. Of a total of
DM 4.0 billion (1995: DM 3.7 billion), DM 2.9 billion were
related to passenger cars and DM 1.1
billion to the commercial vehicle sector.
The focus of our activities remained
developing new-generation vehicles
and assemblies to the production stage.
We have become significantly more
efficient in research and development
for the automotive sector thanks to new
forms of interdisciplinary teamwork
and the intensified involvement of the
supplier industry. These factors alone
made it possible to develop so many
attractive products within such a short
time at competitive costs.
A total of DM 3.7 billion was spent
at Daimler-Benz Aerospace on research
and development (comparably calcu
lated for 1995: DM 4.0 billion), of which
DM 3.0 billion were related to projects
completed under contract for third parties (comparably cal
culated for 1995: DM 3.3 billion). Among the most important
projects in the aircraft sector were the expansion of the Air
bus program with new model versions, the Eurofighter, and
the Tiger and NH90 Eurocopter programs. In the Propulsion
Systems business unit, the EJ200 engines, PW4000 growth,
and PW500 were chief pursuits, and in the Defense unit the
sensor and information systems product areas. Research and
development in the space systems infrastructure and space
systems satellites areas, which in the year under review
reached a volume of more than DM 2.0 billion, predominantly
concerned third-party contracts.
Adtranz used its research and development expenditures,
totaling DM 316 million, on a new generation of track-bound
vehicles with tilt technology, on fully automated passenger
transport systems, and on innovative solutions in the operation
control technology sector among other products.
TEMIC primarily concentrated on innovative products in
the automotive electronics sector, spending DM 324 million
on R&D in 1996. Key areas included airbag systems, electronic
stability programs, and sensory systems for automotive
applications.
Research and Development
Expenditure
DM 8.85 Billion (1995: DM 8.94 Billion)
MTU Friedrichshafen developed the
new 2000 and 4000 engine series to the
production phase in cooperation with
Detroit Diesel Corporation (DDC). More
over, work on fuel cell technology con
tinued and development efforts were
initiated for the commercial high-end
engine series. MTU Friedrichshafen
spent a total of DM 106 million (1995:
DM 99 million) on research and develop
ment.
In the period from 1997 to 1999, the
funds we use in the Daimler-Benz group
in connection with our own research and
development projects will remain at the
present high level of more than DM 5
billion per year. We will continue to focus
more than 70% of total expenditures on
the group's automotive business.
OUTLOOK
We expect the subdued upward trend in the world econ
omy to continue in the coming years.
Based on the export business, an upswing is on the horizon
for the economies of Western Europe. But this development
will be limited as a result of the reserved spending policies
pursued by various EU member countries in order to comply
with the criteria for accession to the European monetary union.
The German economy will most likely pick up speed again
in 1997, with growth around 2%. Prominent factors will be
the export business above all, as well as investment activities
to a limited extent, while the expansion of private consumption
will probably be below average.
The upward trend in the U.S. economy related to brisk
domestic demand will continue its seventh consecutive year
in 1997, although presumably somewhat weaker than before.
The economy in Japan, on the other hand, may lose a great
deal of vitality again as a result of a more restrictive fiscal
policy.
Growth prospects for the Pacific Rim countries and various
countries in Central and Eastern Europe
remain better than average. The econ
omy is also expected to accelerate in the
Latin American countries in 1997.
Against the background of an overall
revitalization of the economy that is only
moderate at best, growth in the pas
senger car and commercial vehicle mar
kets will be limited in 1997. However,
we do expect the Automotive business
of Daimler-Benz to develop significantly
more favorably than the industry on the
whole in 1997.
The Passenger Car Division expects
to continuously increase its sales in the
coming years. We plan to expand our
position in the market for luxury cars
worldwide by introducing attractive new
models in the existing series while at
the same time tapping additional markets and customer
groups with new products.
In the Commercial Vehicle Division, the success of our
product drive will enable us to boost sales yet again. Aside
from the new Actros, the persistently encouraging van
business will be an especially beneficial factor in 1997. We
plan to systematically expand our truck business in North
America by taking over Ford's heavy truck activities.
By the turn of the millennium, Daimler-Benz will most
likely produce and sell in excess of one million passenger
cars and 450,000 commercial vehicles per year.
After making adjustments for structural changes, we ex
pect the business volume of our Directly Managed Businesses
to steadily increase.
With attractive new products and a competent, worldwide
service network, Adtranz has created the conditions to
reinforce its leading international position in rail systems.
TEMIC will concentrate its activities more decidedly on
the needs of the automotive industry in the future. Innova
tive products in the vehicle electronics and semiconductor
sectors are the basis for future growth in this respect.
MTU-Friedrichshafen is counting on revenue to expand
yet again in the next few years. New growth will be stimulated
by the market introduction of the new 2000 and 4000 engines
series in particular, which are specially designed to satisfy
the needs of commercial markets.
With the strategic realignment of the group and the new
organizational structure, we laid the foundation in 1996 for
sound growth for the Company.
But to a large extent, the development of business and
earnings in the coming years will also depend on how the
economic situation and above all the U.S. dollar progress in
the markets that are important to us. Another significant factor
will be the response to our new products in the international
markets.
We expect revenues in the Aerospace business to grow
markedly in 1997, above all because of the pleasing develop
ment of orders in the commercial jet sector. The Propulsion
Systems business unit will also be able to profit from the
revival of the commercial jet market. In the Space Systems
unit, revenues are likely to increase in conjunction with the
invoicing of major projects. In the Defense and Civil Systems
unit, Dasa is counting on a slight growth in revenues along
with the emerging upturn of business in the defense sector.
On the basis of the programs we have introduced to enhance
competitiveness and the strong U.S. dollar, the earning power
of the Aerospace Division will improve yet again in the
operational area.
The Airbus partners signed a memorandum of under
standing in January 1997 that stipulates the conversion of
the consortium to a corporation by the year 1999, marking
another important step toward the consolidation of the
European aerospace industry.
The service industry will be one of the world's most
dynamic growth sectors in 1997 as well. Daimler-Benz
InterServices will take advantage of the opportunities con
nected with this growth and expects to be able to sustain the
positive development of recent years. The internationalization
of activities in all business units will be instrumental in this
undertaking. We are projecting the high growth to continue
in all business units at debis, a development that will not
only be supported by internal transactions, but in an increasing
measure by our transactions with outside customers. We are
convinced that we will be able to improve our market share
in all units. The Financial Services/Insurance Brokerage and
Trading units will profit from the expansion of industrial
business at Daimler-Benz and the growing importance of these
services in connection with systems solutions. The IT Ser
vices unit will focus its service range more emphatically than
before on the needs of individual customer groups and
continue to expand its international presence.
AUTOMOTIVE
Fiscal 1996 was very successful for our vehicle business on the whole. Sales of passenger cars and commercial
vehicles as well as revenue reached an all-time high, and we were also able to increase our contribution to the
Daimler-Benz group's operating profit to DM 2.7 billion. The attractive product innovations we had launched in
1995 were primarily responsible for this success. We continued our product drive in 1996 with the SLK roadster, the
new T-Models of the C- and E~Class, the V-Class, the new Actros heavy trucks, and the Vito and Vario vans. We made
additional progress in the globalization of our activities,
thus creating the conditions for opening up new markets.
AUTOMOTIVE BUSINESS VARIES SIGNIFICANTLY
REVENUE SIGNIFICANTLY INCREASED
FROM MARKET TO MARKET
The development of our vehicle business was significantly
Against the background of slow growth in the world
more favorable than in the automotive industry in general,
economy, the development of the automotive markets that
above all because of the many successful new products we
are important to us was highly varied in 1996.
introduced to the market.
For instance, sales of new passenger cars in Western
Revenue was up 8% to DM 77.6 billion. We achieved double-
Europe rose by almost 7% to 12.8 million vehicles. In North
digit growth rates both in Europe and in Japan. At DM 30
America, a slight drop was recorded in the passenger car
billion, our revenue in Germany was 6% higher than in the
market despite the favorable economic situation, while sales
previous year and in the USA we also recorded a 6% increase,
in Japan were up 5%. The development in various countries of
to DM 12.6 billion.
Eastern Europe remained dynamic. Important markets in the
The foreign share in our business volume was unchanged
Asian region, on the other hand, were not
able to continue the brisk growth of the
previous years, especially in the sales of
luxury cars. Demand for passenger cars in
Mexico began to recover from the very low
level of activity, and slight growth was
recorded in the South American markets
as a whole.
All in all, the upward trend in the We
stern European commercial vehicle market
continued in 1996, but the truck sector
became a great deal more sluggish in the
second half of the year. The growth was
primarily contributed by vans under 6 tons,
while sales of trucks over 6 tons failed to
reach the previous year's level.
The development of the overseas mar
at 61%; the share contributed by Western
Europe outside of Germany was 23%. We
generated 16% of our earnings in the USA
and 4% in Japan.
Revenue in the Passenger Car Division
increased by 14% to DM 45.9 billion, while
earnings in the Commercial Vehicle Divisi
on stabilized at the 1995 level at DM 31.7
billion.
PASSENGER CAR DIVISION EXPANDS
MARKET POSITION
Sales of the Passenger Car Division
increased worldwide to 645,000 passenger
cars and off-road vehicles, setting a new
record in the company's history (1995:
590,200 units). We achieved double-digit
kets was characterized by a noticeable decline in demand for
growth rates in numerous important markets, and thus
medium- and heavy-duty trucks in North America. In Brazil,
noticeably improved our position worldwide in the market for
too, demand for commercial vehicles was weaker. In contrast,
luxury cars. The E-Class contributed the majority of this
the market situation in Mexico and Argentina achieved greater
growth; its sales increased by 46% to 291,500 vehicles.
stability again in 1996.
Sales of passenger cars in Germany, at 264,000 units, were
10% higher than in 1995. Because sales in the luxury car
segment increased by only 3%, our market share in this
category rose to 26%. Mercedes-Benz had an 8% share of the
overall market, which was also noticeably higher than in the
previous year (7.5%).
Outside of Germany, we sold nearly 381,000 Mercedes-
Benz passenger cars in 1996, surpassing the previous year's
record by 9%.
Business remained successful in the Western European
markets outside of Germany, where we increased sales by
10% to 174,000 vehicles and continued to expand our market
position.
In the United States, Mer
cedes-Benz once again came
close to the 1986 record. A total
of 90,800 passenger cars were
sold, which represents an 18%
increase over the previous year.
Since the market for luxury cars
rose by only 2% in the USA, our
share in this segment climbed
to 10.1% (1995: 8.7%).
In Japan, our new car sales
increased by 17%, reaching a
new high of 41,000 units. In the
process, our market share in the
luxury class rose to approximately 10%.
In Eastern and Southern Europe, Latin America, the Middle
East, Australia, South Africa, and Canada, our sales also
surpassed the previous year's level. In the important markets
in the Far East, however, we were not able to repeat the
remarkable volume of 1995 due to weak overall demand for
luxury cars.
In response to the growing demand for our passenger cars
and the successful production startup of the new T-Models of
the C- and E-Class and the SLK roadster, we were able to ramp
up our production output to 645,200 units (1995: 600,300
units) in 1996.
SALES REACH A RECORD LEVEL IN THE
COMMERCIAL VEHICLE DIVISION
The Commercial Vehicle Division sold a total of 348,100
vans, trucks, buses, and Unimogs in the year under review,
outdistancing the record level of 1995 by another 9%.
The development of the Vans Europe unit was especially
encouraging; its sales increased by 32% to a total of 151,100
units. This success was predominantly related to the new
Sprinter and Vito vans. Although we experienced temporary
bottlenecks in delivery because of the tremendous demand
for these vehicles, our share in the Western European van
market jumped from 12.7% to 15.5%.
Because of
the difficult
market conditions in Western
Europe, and, in particular, be
cause of buyer resistance in
anticipation of the model change
in the heavy-duty truck class,
sales of the Trucks Europe unit
dropped to 64,400 units in 1996
(1995: 70,000 units). While our
market share fell to 23% (1995:
25%), we were still able to assert
our position as the market leader
for trucks over 6 tons in Western
Europe. The new heavy Actros
truck, which we introduced at
the IAA commercial vehicle show in September 1996, was
named Truck of the Year 1997.
Our American subsidiaries, which we have consolidated
within the Nafta Commercial Vehicles and Latin American
Commercial Vehicles units, were not quite able to keep up
with the sales level of the previous year due to the challenging
situation in the local markets as a whole. The North and South
American facilities sold a total of 123,400 commercial vehicles.
The Freightliner Corporation, however, maintained the
record sales level of 1995 by selling nearly 75,000 vehicles in
North America. Because the overall market for trucks in
Classes 6 to 8 (over 8.8 tons) shrank by 12% in North America
after years of growth, Freightliner's market share climbed to
22% (1995: 19%).
The new CLK Coupe is distinguished by its dynamic
appearance and its numerous technical innovations.
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Not least because of the success of the new Century Class,
which was launched in October 1995, Freightliner was able to
significantly expand its market position in the heavy-duty
Class 8 (over 15 tons) to a 29% share (1995: 26%). However,
the dramatic setback in the market meant that even
Freightliner's sales dropped to 53,900 units (1995: 63,200
units). Nonetheless, the pleasing growth in Classes 6 and 7
compensated for the lower sales.
Thanks to its successful double-nameplate strategy,
EvoBus GmbH managed to increase its sales by 11% in 1996.
A total of more than 6,400 Mercedes-Benz and Setra buses in
the category over 8 tons were delivered, as well as 900
Mercedes-Benz chassis. In Germany, we were able to expand
our total market share slightly to 36% for Mercedes-Benz and
22% for Setra. Our market share in Western Europe remained
at 16% for Mercedes-Benz and 9% for Setra.
Mercedes-Benz do Brasil asserted its position in the
Brazilian market in the category of trucks over 6 tons, where
it now holds a 39% share (1995: 38%). In the bus sector, it
even expanded its share to 70% (1995: 67%), but suffered
noticeable declines in sales due to the weak condition of the
market in general.
We produced a total of 340,700 commercial vehicles
worldwide in 1996 (1995: 329,700 units). The lower production
volume in the trucks sector was more than offset by the
significantly higher volume of vans. Production of buses and
bus chassis reached another record level at 34,000 units (1995:
27,800 units).
Business was favorable on the whole for our companies in
Argentina and - albeit from a low previous level - in Mexico.
Primary factors included both the market situation in general
and the attractive new products we introduced in these
markets.
PRODUCT DRIVE PURSUED MORE INTENSIVELY
The year 1996 was marked by the introduction of numer
ous new products and assemblies.
Obligation to tradition: The T-Modet of the E-Class is a trendsetter in its
class. It has all of the characteristics of the successful sedan, including
attractive design, innovative technology, and customizable features, as well as
generous and versatile interior space for family needs and recreation.
The Sprinter is an example of maximum customer orientation. Its variety
and efficiency can hardly be beaten. Thanks to the market success of the
Sprinter, Mercedes-Benz managed to increase its market share in the
Western European van market from 12.7% to 15.5%.
In the Passenger Car Division, the new T-Models of the C-
and E-Class were launched in March 1996, followed by the
SLK roadster and the V-Class, a minivan produced on the same
platform as the Vito at our facility in Vitoria, Spain. We will
be expanding our product range in 1997 with the CLK coupe,
the compact A-Class, and the M-Class, an all-wheel-drive
sport/utility vehicle manufactured in the USA. We will also
launch the new V-engines, which will make our range of
drive assemblies significantly more attractive. The product
drive will be continued in 1998 with the introduction of the
Smart, a compact vehicle designed for urban traffic that will
be sold as an independent nameplate.
In the Commercial Vehicle Division we revamped our
entire van line in 1995 and 1996 and expanded it with vehicles
in the 2.0 to 2.7 ton range. The most important product
innovation in 1996 was the Actros, the new heavy-duty series
at Mercedes-Benz. Other new products in 1996 were the
Unimog UX 100, four new buses assembled by EvoBus GmbH,
the MB 800 light truck, which was developed in Turkey and
is now produced there;, and an updated truck manufactured
in Brazil. The Actros construction-site vehicles will be
introduced to the Western European truck market in fall 1997
and the new light truck class in 1998.
GLOBAL PRESENCE EXPANDED
We made new progress in the globalization of our activities
in 1996, thus creating the conditions for opening up new
markets. An important milestone for our intensified
involvement in South America was the decision to construct
a new passenger car plant in Juiz de Fora, Brazil. The A-Class
will be produced there for the Latin American market starting
in 1999. In the Commercial Vehicle Division, we began
assembling the Sprinter in Argentina and the Vito in Poland.
Moreover, a joint venture agreement was signed for the
production of Mercedes-Benz buses in China.
TARGETED MEASURES TO INCREASE
EARNING POWER INTRODUCED
We introduced comprehensive measures to reduce costs
and boost productivity in order to reinforce our earning power
in the automotive business. We concentrated on the Trucks
Europe and Drivetrains Europe units as well as the Unimog
production in Gaggenau, Germany. Our new products - with
which we have achieved substantial cost advantages as
compared to the predecessor models - are a decisive part of
this effort. For instance, we have already significantly improved
our cost position in the Trucks Europe unit with the Actros,
primarily because of the more efficient overall concept with
its greatly reduced parts count and leaner production
processes. At EvoBus GmbH, the
production network between the
plants in Mannheim, Ulm/Neu-
Ulm, and Ligny is opening up
new potentials for cutting costs.
SUCCESS THROUGH
PARTNERSHIP WITH
SUPPLIERS
As part of the TANDEM co-
operation concept, we have in
tensified our cooperation with
supplier companies at all levels
in the past few years. Sup
pliers are now involved in the
development of new-generation
vehicles at a very early stage,
and we are also transferring
more and more responsibility
for the development and pro
duction of complete systems to
our suppliers.
Not least because of the
constructive cooperation with
the supplier industry, we have
succeeded in shortening the
product development process
by approximately 15%. But our
suppliers have also contributed
suppliers have also contributed
to the improvement of our cost position for existing and new
products.
Our purchasing structures were expanded worldwide in
connection with the globalization strategy of our automotive
business.
Our purchasing volume rose by 7% to DM 50.3 billion in
the year under review. The increase over the previous year
was primarily due to the higher production volume, but it
was also related to the lower degree of manufacturing
penetration.
i
F 200 IMAGINATION CONCEPT CAR
The idea of combining design with innovation inspired
the development of the F 200
Imagination concept car we
presented at the 1996 auto
motive salon in Paris. The two-
door coupe is equipped with
futuristic systems that will con
ceivably be used in high-end
Mercedes-Benz models in the
coming millennium. In addition,
the concept car demonstrates
how technical innovations can
open new perspectives for the
design of future high-end au
tomobiles. The
relationship
between form and function is
therefore especially close in this
concept car: it enables the for
mal and functional experience of
technological innovations.
Among the most important
innovations on board the F 200
Imagination is a trendsetting
driving dynamic system where
the driver controls all of the
movements of the car with de
vices called side-sticks that are
installed in the door trim panel
and central console of the
coupe concept car. The F 200 no
longer has any of the conventional control or linkage ele
ments such as a steering wheel, steering column, or pedals -
the driver's commands are transmitted exclusively through
electronic technology. Engineers call this system "drive-by-
wire."
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The Aerospace Division (Dasa) expanded its business volume by 13% to DM 13.1 billion. The recovery of the
aircraft market was confirmed by incoming orders for aircraft that were three times higher than in the previous
year. An encouraging revival of business activity was also observed for Propulsion Systems. In the Space Systems
sector we concluded contracts for major projects that will play a key role in the future. We have initiated
a restructuring of the Airbus consortium with our partners to reinforce our position in the commercial jet market.
The persistent implementation of our competition drive is intended to permanently strengthen earning power.
Dasa already managed to improve its contribution to the operating prof it of the Daimler-Benz group from
DM-7.2 billion to DM-0.2 billion in 1996.
A I R L I N ES B E G IN TO T A KE O FF
The growth of the air travel industry continued to stabilize
in 1996. In international passenger traffic, an 8% increase
was recorded, as in 1995, while growth in the Asia/Pacific
region was again above-average at close to 10%. Commercial
traffic in Europe continued to develop
favorably, rising by slightly more than 8%
(1995: 7.8%). In the USA, the increase was
comparable to the previous year at just
under 4% (1995: 3.5%).
Thanks to the expanding traffic vol
ume and the recognizable success of ra
tionalization measures, the airlines were
able to boost their income substantially
after the heavy losses experienced in the
period between 1991 and 1993 and the first
signs of recovery that had become apparent
in 1994. The improved earnings situation,
the increasing necessity to replace fleets,
and the renewed growth in traffic volume
led airlines to intensify their purchasing
activities significantly. In addition, the
aircraft manufacturers are still engaged in
fierce competition that is primarily focused
on pricing. The situation is advantageous
for the airline companies and caused orders
for commercial jets with more than one
hundred seats to jump to 1,088 units (1995:
562 units). The number of aircraft ordered was thus twice as
high as in the previous year, and was once again of a
magnitude last experienced at the beginning of this decade.
Due to persistent cost reduction measures, the European
Airbus partners were able to improve their position in inter
national competition with more favorable pricing and increase
their market share in the orders placed in 1996 to 39% (1995:
18%).
The downward trend in deliveries came
to a standstill. At a total of 397 aircraft, the
figure of the previous year was exceeded for
the first time in the last four years (1995:
380 units). Airbus Industrie delivered 32%
of this total (1995: 33%). In view of the
encouraging ordering situation, aircraft
manufacturers plan to increase deliveries
significantly in 1997.
At the same time as the positive de
velopment of the aircraft market, demand
for civil jet engines and replacement parts
began to recover. Price pressure for equip
ping new aircraft, however, remained high.
Procurement programs for military jet en
gines were delayed due to the persistently
strained situation affecting government
budgets. Engine manufacturers are there
fore concentrating increasingly on the civil
sector, which makes competitive pressure
here even higher.
P U B L IC S P E N D I NG P O L I CY R E S E R V ED
Government spending policy in Germany and other
western industrialized countries was again very reserved as
a result of the strained financial situation; delays and
cancellations of planned programs were necessary, above all
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in the guided missile sector, which is causing additional
SIGNIFICANT REVIVAL OF BUSINESS
adjustment pressure in that area. The defense budget may for
After making adjustments for substantial changes in the
the defense industry cannot be expected in the next few years.
consolidated group, the revenue of the Aerospace Division
To complicate matters in the European defense industry,
rose 13% to DM 13.1 billion (1995: DM 11.5 billion). Increasing
competitors in the USA are joining forces to form large and
revenues from the civil jet engine sector and high invoicing
capable organizations. The European industry's response to
for military jets and space projects contributed to this growth.
this new challenge can be only limited at best as long as
Revenue in Germany, which at DM 4.2 billion (1995: DM
national interests take precedence over sensible economic
3.6 billion) represented approximately 32% of total revenue,
measures.
was up 14%. Significant factors included extensive invoic
The government funds provided for space research
ing for services in the Eurofighter development program
remained below the previous
year's level. Due to financial
bottlenecks in France and Ger
many, no funding was available
for the satellite-based recon
naissance programs planned by
the two countries. The same ap
plies to the urgently needed
military transport jet for Eu
rope.
Because government fund
ing is still limited, aerospace
companies worldwide
have
been concentrating on commer
cial global satellite and carrier
markets. In commercial com
munications, the most impor
tant market for satellite applica
tions, the demand for satellites
increased yet again in response
to
the new communications
services, the deregulation of
and higher sales of jet engines.
Foreign revenue grew 13% to
DM 8.9 billion (1995: DM 7.9 bil
lion). The increase in revenue
from the USA was above average
(+35%) as a result of expanded
deliveries of engine components.
We
achieved
vigorous
growth
in
incoming orders;
when comparably calculated,
the increase was the equivalent
of 56% to DM 17.1 billion (1995:
DM 10.9 billion). What was de
cisive here was above all the
upward trend in the civil air
craft business, which was ac
companied by a brisk upsurge
in orders for commercial jets.
But in the helicopter segment,
too, incoming orders were sig
nificantly higher than in the
previous year. The Space Sys
the markets, and the opening up of additional regions.
Despite intensified harsh price competition, the European
tems unit booked several major contracts for long-term
projects, such as the COF space station module and the ERS
aerospace industry was able to expand its position in the
successor program Envisat 1.
commercial satellite and carrier market.
When comparably calculated, revenue in the Aerospace
The procurement of military helicopters is still highly
Division increased 14% to DM 6.0 billion (1995: DM 5.3 billion).
limited. In the civil market for helicopters, on the other hand,
While revenues from the Airbus program were below the
a recovery became apparent in 1996, but because of existing
previous year's level due to a different product mix, the
overcapacities competition in this sector remains fierce.
invoicing of services for the Eurofighter 2000 development
program and deliveries of Tornado subassemblies led to an
especially vigorous surge in revenue in the military aircraft
sector. Another significant growth factor was the helicopter
sector, where the revival of business with civil helicopters
more than offset the decline in military programs. Customer
orders in the Aircraft unit rose by 69% to DM 8.9 billion in
1996 (comparably calculated; 1995: DM 5.2 billion), primarily
as a result of the doubled contract volume at Daimler-Benz
Aerospace Airbus.
In the Space Systems unit, we recorded a gratifying 14%
increase in revenue to DM 2.1 billion (DM 1.8 billion) because
of invoicing for a number of large projects. Among the most
important contributions to this growth were the Envisat, COF
(Columbus Orbital Facility), Ariane, Globalstar, and Nahuel
space programs. Customer orders, at DM 3.6 billion (1995:
DM 2.0 billion), were 78% higher than in 1995. This was
primarily due to the contracts with a volume of over one billion
German marks concluded for the development of the Colum
bus research station.
In the Defense and Civil Systems unit, revenue remained
at the previous year's level at DM 2.6 billion. But the develop
ment was highly varied in individual areas. Customer orders
increased markedly by 21% to DM 2.4 billion (comparably
calculated for 1995: DM 2.0 billion). The information systems
and sensor systems segments made the most significant con
tribution to the expansion.
The revenue generated by the Propulsion Systems unit
was up 33% to DM 2.3 billion (1995: DM 1.7 billion). The higher
demand on the part of the airlines for jet engines, replacement
parts, and maintenance services caused revenue from the civil
sector to increase by 41%. In the military business, revenues
grew 27% due to the higher sales of replacement parts and
the delivery of RB199 engines for Tornado aircraft. Customer
orders rose 31% to DM 2.1 billion (1995: DM 1.6 billion).
Primarily because of another delay in the production con
tract for the EJ200 development program (engine for the
Eurofighter), we recorded lower orders in the military sec
tor. This was offset by higher orders for jet engines and
replacement parts in the civil market.
EARNING POWER STRENGTHENED
In February 1996, we sold our majority stake in Dornier
In the period from the founding of Dasa in 1989 until
Medizintechnik to Singapore Technologies, which plans to
1995, the U.S. dollar lost 24% of its value as compared to the
increase its involvement in this sector in the future. We
German mark, which weakened the competitiveness of the
transferred Extel Systems Wedel GmbH (ESW), a company
civil aircraft and jet engine construction business above all.
that is not one of our core businesses either, to management
Toward the end of the period, the dollar's impact was espe
and an investment group. The transfer was retroactively
cially dramatic. This led us to introduce a competition initia
effective January 1, 1996. Our fifty percent share in Ange-
tive in 1995 in order to restore the earning power of all corpo
wandte Solarenergie ASE GmbH went to our former partner
rate units active in the world market even at times when the
in this joint venture, Nukem.
dollar is weak. In 1996, we were able to conclude agreements
with the employee representatives at Daimler-Benz Aero
AIRBUS CONSORTIUM REORGANIZED
space Airbus and MTU in Munich that will allow us to suc
In a memorandum of understanding, we agreed with our
cessfully achieve the planned cost reductions by the end of
partners Aerospatiale, British Aerospace, and Casa that the
1997. Aside from the unavoidable personnel cutbacks, the
existing Airbus consortium will be converted to a corporation
agreed-upon package includes
the introduction of new organi
zational structures with shorter
reporting and decision-making
channels and the implementa
tion of location-specific, flexible
working time models. Moreo
ver, we divested the Peißenberg
plant and created an independ
ent corporation in anticipation
of the sale that was also decided
as part of the competition initia
tive. The Speyer plant became
an autonomous entity as well,
and effective January 1, 1997,
was taken over by its employ
ees.
by the year 1999.
Unlike the existing Airbus
consortium, which is prima
rily responsible for marketing,
sales, and product support for
the Airbus aircraft, the future
company - controlled by a
joint European management
structure - will have compre
hensive corporate responsibil
ity for all development, pro
duction, and sales activities of
the entire Airbus program, in
cluding profit responsibility.
In 1997, the four Airbus part
ners, who will also be the
shareholders of the new corporation, will review which of
After discontinuing our financial support for Fokker in
their activities should be included in the new entity.
lanuary 1996 and transferring the control of Dornier Luft-
This decision is at the same time an important step toward
fahrt GmbH to the American regional aircraft manufacturer
the consolidation of Europe's aerospace industry, an effort
Fairchild Aircraft Inc. in June 1996, we withdrew from direct
that in consideration of the latest development in the
business activities in the regional aircraft sector. Fairchild is
advancing process of concentration within this sector in the
globally established and manufactures the 19-seat Metro
USA is gaining special significance.
turboprop aircraft. The new partner sees an opportunity to
expand the worldwide market position of the Dornier 328 as
part of its product family.
SERVICES
Fiscal 1996 was highly successful for the Services Division (debis). As in the previous years, we succeeded
in substantially expanding our business volume in this division. The Financial Services, Insurance Brokerage,
IT Services, Telecommunications and Media Services, Trading, and Real Estate Management units generated
revenues totaling DM 13.1 billion (+12%). The results of this division continued to develop favorably as well.
Its contribution to the operating profit of the Daimler-Benz group rose to DM 288 million.
SERVICES: ENGINE OF ECONOMIC GROWTH
In the past few years, a far-reaching transition has shifted
the value-added structure in all of the industrialized coun
tries toward the service sector. In the coming years, the trend
toward a service-oriented society will be even more pro
nounced. Although the development of the overall economy
in Germany clearly failed to meet expectations and the only
encouraging trend was in exports, the service sector still pro
gressed satisfactorily on the whole. In the first half of 1996,
the value added in the service sector sur
passed the contribution of industrial un
dertakings. The potential for services is far
from exhausted. Compared to other indus
trialized countries, Germany still needs to
catch up in the service sector. While in
dustry contributes 35% to the German
gross national product, its share in the
overall economic value added in other ma
jor industrialized countries such as Japan,
the USA, and France is already signifi
cantly lower.
R E V E N UE I N C R E A S ED
SIGNIFICANTLY AGAIN
At debis, revenue rose 12% in 1996 to
DM 13.1 billion. As in the previous years, all of the business
units were able to substantially increase their revenues. The
Financial Services/Insurance Brokerage unit again contrib
uted the largest share to consolidated revenue. Due to the
first-time consolidation of newly acquired companies in the
IT Services unit and of the French leasing and financing com
pany Mercedes-Benz Financement, which in 1995 was still
included at equity in the Daimler-Benz consolidated financial
statements, revenue increased by approximately DM 400
million. This was offset by a reduction in revenue in roughly
the same order of magnitude as a result of the disinvestment
of the Marketing Services unit.
The development in the individual markets was quite
varied. The growth in the EU countries outside of Germany
was especially pleasing; we succeeded in boosting our revenue
in this region by 40% as compared to the previous year to DM
1.5 billion. Revenue in North America rose only slightly. We
generated 56% of our revenues in Germany, 11% in the EU
outside of Germany, 29% in North America, and 4% in the
other markets. The expanded range of
services offered in all business units and
the internationalization of our activities
formed the basis for this very favorable
development. The encouraging growth at
Mercedes-Benz had an advantageous effect
on the leasing and financing business for
vehicles.
POSITIVE DEVELOPMENT IN ALL
BUSINESS UNITS
The Financial Services/Insurance Bro
kerage unit had a highly successful year in
1996. We increased our contract volume
for financial services by another 27% to
more than DM 33 billion, and thus service
a total of 676,200 units worldwide (1995: 570,900 units). Our
companies in Germany, Great Britain, and the USA figured
especially prominently in this positive development, debis
Financial Services expanded its business base and laid the
groundwork for additional growth by opening up new mar
kets and targeting new customer groups, above all in Eastern
Europe and in the Asia/Pacific region. The debis leasing com
panies also played a decisive role in the overall expansion;
their focus was predominantly concentrated on financing so
lutions for corporate products in the non-automotive sector.
Business relations with Adtranz are becoming increasingly
significant as Adtranz is making increasing use of our know-
how and the services we offer in intelligent financing. We
also expanded our activities in financial engineering, most
importantly in the tax-oriented leasing fund. Businesses in
the public sector are also becoming more important to us.
In our insurance activities we achieved noticeable growth
in all sectors. Business with corporate customers, which makes
up 57% of total revenue, increased by 20% to DM 59 million.
We thus succeeded in securing our position in Germany as a
leading technology-based insurance brokerage for the trade.
We also expanded our business with private customers to DM
13 million. The premiums collected reached a total of DM 926
million by year-end.
In the IT Services business unit we continued the upward
trend of the previous years. Revenue and sales were up yet
again, with all divisions contributing to the 20% growth in
revenue to DM 2.4 billion. We succeeded in increasing
business with companies outside of the Daimler-Benz group,
and we now generate 58% of our revenue from non-group
customers. The expansion of our innovative, industry-specific
comprehensive solutions has proven to be extremely
successful. This meant we were able to greatly expand the
number of high-volume contracts in the past year. At the same
time, trendsetting new services were placed on the market,
including solutions for using the Internet as an electronic
marketing tool, for making the transition from the mark to
the euro, and for adjusting software programs to the year 2000.
We have also increased our offers of IT solutions for municip
alities, states, and federal governments, debis has, for instance,
become actively involved in the German lean government
project supervised by Prof. Dr. Scholz.
Our Telecommunications and Media Services unit is active
in a dynamic growth market. The positive trend in this unit
was supported by the development in the cellular com
munications sector, debitel succeeded in nearly doubling its
customer base to more than one million and taking the lead
among network-independent cellular communications
providers in Germany and Europe. The revenue of the group
climbed 73% to DM 1.6 billion.
As in the previous years, business developed favorably in
the Trading unit, which is primarily engaged in countertrade
activities. We were able to provide the means for exports
valued at DM 556 million in weak currency countries. Our 95
employees (1995: 90) generated revenue that rose 11% to DM
445 million. Aside from merchandise trading, commodities
trading was our second-most important source of revenue.
The primary focus of the Real Estate Management unit is
overseeing the construction of the Potsdamer Platz project in
Berlin. Because some of the first sections of the complex will
be completed and occupied as early as 1997, we have stepped
up marketing for the office facilities and residential units.
debis AG and nearly 600 of its employees will move into their
new headquarters on Potsdamer Platz in September 1997. We
have also provided construction management services for non-
group customers. This includes the Spittelmarkt project, also
in Berlin, the development of a residential community in the
Ahrensdorfer Heide region, and the supervision of other
projects in Germany.
NEW HOLDING STRUCTURE AT CAP GEMINI
In spring 1996, we agreed on changes in the holding
structure at Cap Gemini Sogeti together with the other prin
cipal shareholders, debis now holds a 24.4% share in the new
Cap Gemini and is directly involved in the company's deci
sion-making process via the management and supervisory
boards.
The new structure already had a positive effect on the
development of the company in the first year. The group's
revenue increased 15% to FRF 15.9 billion. But even more
importantly, Cap Gemini managed to improve its earnings
significantly in fiscal 1996. Because of our participation quota,
the company is included in the consolidated financial
statements at equity.
FOCUSING THE PORTFOLIO
In the course of reviewing the corporate portfolio, we have
decided to withdraw from our activities in the Marketing
Services unit because its focus is not among the core com
petencies of the Daimler-Benz group. In order for this unit
to secure its market position and catch up with the market
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leaders, substantial investments having no defensible relation
to the strategic significance of this business unit would have
been necessary.
In cooperation with management, which had been
successful in the past, we reorganized the operating units
as part of a management buyout. The existing jobs were
thus largely preserved and - as a result of staff continuity -
existing relations with customers were maintained.
debis is well-prepared for the tasks of the future with its
present business structure. The mainstays of debis are
Financial Services and Insurance Brokerage, IT Services,
and Telecommunications and Media Services. They are
complemented by the Trading and Real Estate Management
units.
GLOBALIZATION CONTINUED
In 1996, the Services Division vigorously pursued the
globalization of its activities that had been inaugurated in
the previous years. The increased international involvement
targets the growth markets of Southeast Asia as well as Eastern
Europe. We have continued to intensify our activities in the
CIS countries, most notably in Russia. The Trading unit
supports the CIS countries in financing projects and acquiring
investment goods. In the IT services sector, we have already
been active in St. Petersburg since 1994. We will develop
software for the Russian market in a joint effort with the
University of St. Petersburg.
We are also emphatically concentrating on opening up
markets in Southeast Asia. The Financial Services/Insurance
Brokerage unit has laid the groundwork for the additional
expansion of the leasing and financing business in the Asia/
Pacific region. We have established companies in Thailand,
Singapore, Hong Kong, Taiwan, and Australia to support the
sales of corporate products, in particular Mercedes-Benz
passenger cars and commercial vehicles. This region is a
strategically important market with substantial growth
potential for the Services Division and for the Daimler-Benz
group as a whole.
Even when it comes
to complex financing
solutions, debis
Financial Services
is a reliable and
competent partner.
There are two reasons
why our offers have
no limits:
First, because our
companies operate
on a worldwide basis,
and second, because
there is nothing that
cannot be financed -
from the SLK roadster
to a ferry which is pow
ered by MTU engines.
DIRECTLY MANAGED BUSINESSES
Adtranz, the joint venture for rail products in which ABB and Daimler-Benz each hold a 50 percent stake, completed
its first full fiscal year in 1996, with revenue totaling DM 5.7 billion. The Microelectronics business unit managed to
increase its revenue by 12% in 1996, reaching DM 2.5 billion. TEMIC profited from the high demand for vehicle
electronics applications related to the favorable automotive market. Net income was reduced by regressive pricing in
the semiconductor business and by start-up contracts in vehicle electronics. The MTU/Diesel Engines unit boosted its
revenue by 11% to DM 1.6 billion. Aside from the expansion of business, the improved cost structures led to a very
gratifying increase in earnings. The directly managed industrial affiliates contributed a total of DM-585 million to the
operating profit of the Daimler-Benz group.
R A IL S Y S T E MS
M A SS TRANSIT
In the mass transit sector, Adtranz took advantage of its
GROWING MARKET FOR RAIL SYSTEMS
wide product range and global presence to win important
Adtranz, the joint venture held by Daimler-Benz and ABB,
contracts in the promising Asian market. At the same time,
generated revenue totaling DM 5.7 billion in its first full fiscal
Adtranz reinforced its leading position in Europe and North
year. Customer orders reached DM 5.7 billion as well.
America.
The worldwide market for rail systems and products
Adtranz supplies automated turnkey transit systems for
developed positively on the whole. Economic and environ
driverless operation to Singapore and the Malaysian capital
mental considerations mean that the growth in passenger
Kuala Lumpur. In Shanghai, China, Adtranz received a follow-
volume for both local and long-distance traffic cannot be
up order to develop the first phase of the municipal subway
accommodated by individual travel alone. Because the
system. The deliveries comprise 35 trains with five cars each,
operation of rail systems is relatively energy efficient and
together with the relevant traction current and signal systems.
therefore environmentally friendly, this sector has extremely
Adtranz supplies tramways to numerous cities in Europe and
high growth potential. In Europe, for example, high-speed
North America with a light-weight construction that improves
trains are increasingly being put into service. The dynamically
passenger comfort and reduces operating costs.
developing urban areas represent a growing market for
turnkey rail systems.
REGIONAL AND INTERCITY TRAFFIC
Adtranz continued to expand its position in key markets
The growing demand for reliable and cost-efficient regio
in fiscal 1996. Joint ventures were founded in China with
nal high-speed trains connecting urban centers with the
Shenyang Railway Signal Factory and Changchun Car Com
surrounding areas and with important regional junction points
pany. In addition, companies in the signal systems and track-
provides attractive market opportunities for Adtranz. We
bound products sectors were acquired in Great Britain, Ger
received orders from Germany, Great Britain, the Scandinavian
many, India, Poland, Hungary, and various African countries.
countries, and Australia for regional vehicles with high-
Adtranz has created the conditions for profitable growth
powered traction systems and flexible vehicle construction
in the coming years with its strong global network and
and for signal systems equipped with telecommunications
technological expertise, and with the active support of its two
technology.
parent companies, ABB and Daimler-Benz.
High-speed trains with top speeds of over 250 km/h are
an interesting alternative to air travel for quick intercity
connections. In this sector, Adtranz is maintaining its long
standing cooperative ventures with regard to the German ICE
and the Italian ETR500. Adtranz also delivers trains with tilt
technology that can handle curves in the existing railway
network some 30 percent faster than trains with non-tilting
cars. Adtranz manufactures the VT 611 railcar train with active
electric tilt technology for Deutsche Bahn AG. Some technical
problems were experienced when the vehicles were first put
into operation. Following an intensive joint review by Adtranz
and Deutsche Bahn AG, the trains will start regular operation
in May 1997, in time for the schedule change. Adtranz also
received contracts from Sweden and Switzerland, and in
Southern China, Adtranz concluded a leasing agreement for
a tilting train that will be delivered in 1998.
In order to meet the market demand to improve service
on non-electrified lines, Adtranz in a joint venture with
General Electric in USA have designed and built a light weight
locomotive, the "Blue Tiger". An order for 30 locomotives was
placed from Pakistan Railways.
In the important electric locomotive sector, Adtranz won
a contract from Italy for the delivery of state-of-the-art three-
phase electric locomotives. Electric locomotives from the new
101 Class are being delivered to Deutsche Bahn.
SIGNAL SYSTEMS AND CUSTOMER SERVICE
Train operators using the latest signaling and operation
control systems from Adtranz are able to react optimally to
changes in rail travel, and this is an essential prerequisite for
the competitiveness of any carrier. Major contracts were
secured for signal systems in Sweden, Great Britain, Germany,
Spain, Russia, India, and Brazil.
For many train operators, extending the service life of
existing track-bound vehicles is a cost-effective alternative to
purchasing new equipment. For these customers, Adtranz has
established an efficient, worldwide technical service network
that offers comprehensive services for upgrading and
retrofitting trains. Major contracts for this sector came from
Eastern Europe and Africa in particular.
DEVELOPMENT WORK INTENSIFIED
Driverless and wholly automated vehicles for transporting
passengers are gaining increasing importance in rail travel.
Together with Daimler-Benz Research, Adtranz North America
is developing new vehicle concepts featuring enhanced
passenger comfort, higher transportation capacity, and
contemporary design. When combined with advanced elec
tronic lane guidance systems, significantly lower mileage
costs can be achieved. In the development and testing phase,
moreover, expenses are reduced significantly with the use of
high-performance models and simulation technologies.
Rail travel costs have been reduced by shifting operation
control functions from the rails to the train and by using radio
as a signaling medium. Adtranz is a key player in Europe
in the exploration and realization of this technology. In
collaboration with European railroad companies and Daim
ler-Benz Research, Adtranz is testing key technologies for
future operation control systems, such as cost-efficient
satellite-based tracking and navigation, automated materials-
handling technology, and model-based process management.
Pilot operation together with Deutsche Bahn AG featuring the
new radio-controlled operation control systems is planned for
startup in 1998.
MICROELECTRONICS
REVENUE 12% HIGHER
The Microelectronics business unit, which consists of the
Semiconductors, Vehicle Electronics, and Gas Generators
units, received customer orders totaling DM 2.3 billion in 1996,
and was thus able to maintain the high level experienced in
the previous year. Revenue increased 12% to DM 2.5 billion.
Although business in the semiconductor sector was mar
ked by a sharp fall in prices in connection with the overall
contraction of this market, TEMIC succeeded in slightly
increasing its revenues in this unit thanks to strong volume
growth. The Vehicle Electronics unit profited from the brisk
activity in the automotive business and was able to expand
its earnings dramatically by 30%. The Gas Generators unit
also achieved double-digit growth.
Because of the changing market situation in the gas
generator sector, which is characterized by an increasing
number of manufacturers who are joining together, we decided
at the end of 1996 to divest this mechanics and pyrotechnics
unit and concentrate our vehicle equipment efforts even
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more than previously on vehicle electronics. A modified
INNOVATIVE VEHICLE ELECTRONICS PRODUCTS
management concept was chosen for the Microsystems unit;
We expect the strong growth in the Vehicle Electronics
the change entails the partial withdrawal from this activity
unit to continue in the future. This growth will primarily be
and the allocation of the remaining activities to the Vehicle
supported by innovative products for drive systems, comfort
Electronics unit.
enhancement, chassis systems, as well as ABS and airbag
systems. They are being developed with external partners and
MICROELECTRONICS COMPETENCY CENTER
with the Passenger Car and Commercial Vehicle divisions at
In order to meet the challenges of the global market,
Daimler-Benz. The products include state-of-the-art diesel
TEMIC positioned itself in attractive markets early on and
injection systems, electronic stability programs, airbag
shifted capacities to regions where production costs are
deployment systems, and sensor technology. The innovative
competitive or established new facilities there. For instance,
competency of this unit is underscored by the fact that for
for more than twenty years TEMIC has been operating its
three years the majority of its revenue has been generated
largest production facility in Manila, Philippines, where
with products that are not yet available on the market. In the
semiconductor chips are installed and tested and various
year under review, we founded the two subsidiaries TEMIC
electronic motor vehicle components are produced. TEMIC
Automotive Electric Motors GmbH, in Oldenburg and Berlin,
has been supplying the NAFTA market with vehicle electronics
and Automotive Distance Control Systems GmbH (ADC), in
manufactured at the Cuautla plant in Mexico since 1995.
Heerbrugg. The new companies develop and manufacture
TEMIC is the competency center for microelectronics
electric motors for the automotive industry and automotive
within the Daimler-Benz group. TEMIC's contribution is vital
distance control systems using radar and infrared technology.
in our effort to be ahead of our competitors in launching vehicle
electronics innovations in the passenger car and commercial
M T U / D I E S EL E N G I N ES
vehicle sectors. At the same time, TEMIC is present in the
free market as an independent company. More than 80% of
PRESENTATION OF THE NEW ENGINE SERIES
its revenue is generated from outside customers. Around half
The MTU/Diesel Engines unit consists of MTU Motoren-
of TEMIC's business volume comes from Europe and just under
und Turbinen-Union Friedrichshafen GmbH with its sub
a quarter each from Asia and North America.
sidiaries. MTU is a leading manufacturer of compact high-
performance diesel engines for ships, track-bound products,
NEW STRUCTURE IN THE SEMICONDUCTOR UNIT
off-highway vehicle applications, and decentralized energy
A new structure was introduced in the Semiconductor unit
systems. Moreover, the MTU group manufactures drive shafts
in 1996, which has made it possible to differentiate clearly
for passenger cars and light commercial vehicles and injection
between the two product areas integrated circuits (ICs) and
systems for large diesel engines. Fiscal 1996 was dedicated
discrete components. The objective of the new structure is to
to the preparations for the market introduction of the 2000
establish even greater customer proximity. We plan to achieve
and 4000 series developed together with the American partner
double-digit growth rates each year in the future. Because of
Detroit Diesel Corporation. At the same time, MTU expanded
high demand for power MOS semiconductors, which until
its regional market presence. An important facility for sales
now TEMIC has manufactured exclusively in Santa Clara,
and service activities in the dynamic Chinese growth market
California, we will open a new production facility in Itzehoe
was added to the sales network with the newly established
in the first of 1997. We have strengthened our presence in the
sales subsidiary in Suzhou, Shanghai.
Chinese growth market with additional joint ventures in
By expanding business in Germany as well as in the
Shanghai.
growth markets in Asia and North America, the Diesel Eng-
ines unit managed to increase its revenue by 11% to DM 1.6
Decentralized electric supply companies are increasingly
billion and also achieved noticeable growth in customer orders.
depending on environmentally compatible, low-emission
We introduced focused efforts to continue to reduce costs in
diesel-engine and gas-turbine systems. MTU delivered a gas-
response to the persistent price pressure of our competitors.
turbine system for Gottingen University that generates steam
These efforts were instrumental in achieving the significant
and hot water from the turbine's exhaust gas using combined
improvement of earnings.
heat and power generation technology.
Budget cuts and export restrictions were responsible for
GROWTH COURSE CONTINUED WITH PROPULSION
stagnant demand in the military vehicle sector. Nonetheless,
SYSTEMS FOR SHIPS
MTU achieved higher market shares with the newly developed
Propulsion systems for ships contributed more than half
880 engine series thanks to a large contract from the German
of the revenue generated by the Diesel Engines unit. Demand
Army among other things.
for large, high-speed ferries was especially brisk in 1996. The
The brisk demand for injection systems produced by our
MTU group achieved a worldwide market share of over 60%
subsidiary L'Orange continued, with most orders coming from
in this segment. More than 130 large engines and gas turbines
outside of Germany. The development of common rail
having a total output of 800,000 kW were already sold in this
technology is highly important; in 1997 it was used on a large
segment. Business in Asia was particularly successful. MTU
scale for the first time worldwide. Deliveries of drive shafts
managed to gain access to the Japanese market for the first
grew dynamically, especially to Mercedes-Benz AG for
time with two contracts for large engines.
passenger cars, vans, and light commercial vehicles. MTU
Worldwide demand for navy and government ships again
expects another increase in this sector following production
failed to revitalize in 1996. Revenue and customer orders
startup for new vehicle models.
remained at the level of the previous year. An important
contract was the complete propulsion system including mari
S O R T I NG A ND R E C O G N I T I ON S Y S T E MS
ne sets for the new F 124 frigate generation of the German
Navy. MTU expects another slight recovery worldwide in
AEG ELECTROCOM DIVESTED
procurement programs for navy and government ships in the
In the course of focusing the group portfolio on core
coming years.
competencies, we sold our wholly-owned subsidiaries AEG
Electrocom GmbH, Konstanz, and AEG ElectroCom Interna
OTHER APPLICATIONS ALSO SUCCESSFUL
tional Inc., Irving, Texas, to the Automation Technology unit
We experienced a noticeable revival in business with
at Siemens AG, Nuremberg. Siemens will take over these
diesel-powered track-bound vehicles. In addition to the mo
activities with retroactive effect as of January 1, 1997.
torization of new vehicles, the updating and retrofitting of
AEG Electrocom, which was last managed by Daimler-Benz
old vehicles is also gaining importance. MTU received sig
AG, is a leading supplier of sorting and recognition systems
nificant follow-up contracts from Deutsche Bahn AG and
for postal automation. At year-end 1996, it employed 3,400
from Asia.
persons worldwide and generated revenues totaling DM 1.1
In the dump truck sector, the trend toward increasingly
billion (1995: DM 0.6 billion).
larger vehicles with higher payloads continued in 1996. To
handle the special power requirements, the MEGA dump
trucks with up to 310-ton loading capacity are equipped with
MTU engines, which guarantees high availability and
reliability even under extreme weather conditions.
RESEARCH AND TECHNOLOGY
Shorter development times, lower production costs, and better product quality are the most important objectives in
product development. We therefore plan to continue to boost efficiency in these areas by establishing and expanding
integrated processes as well as a global network of research, development, and production sites. In this regard, we are
increasingly relying on computer-assisted development methods such as theoretical simulation and virtual reality
technologies. To integrate the virtual reality tools used group-wide, the Virtual Reality Competence Center was
established at the Daimler-Benz Research Center in Ulm in 1996.
In design applications, wooden or clay models are steadily
being replaced with virtual reality technologies. Shapes can
now be modified within seconds at little to no additional
cost. Virtual reality technologies can also be used to explore
ergonomic conditions in work environments in the design
stage. This is how we optimized the driver's cabin in Adtranz's
new commuter train and the control cabin in Dasa's anti
aircraft system among other projects. Applications for this
technology in vehicle development include the simulation of
crash events and cross-wind sensitivity.
COMPETENCE CENTER FOR VIRTUAL REALITY
In September 1996, the Competence Center for Virtual
Reality started its operation at the Research Center in Ulm,
Germany. It will support all of the business units within the
group as both a research lab and a service center for questions
relating to virtual reality technology. The objective is to jointly
develop innovative solutions to overcome the gaps between
the services offered by commercial virtual reality suppliers
and industry-specific requirements. Moreover, the Center will
identify problems that recur frequently within the Daimler-
Benz group, develop tools that solve problems as universally
as possible, and support professional suppliers in software
development.
WORLDWIDE DEVELOPMENT NETWORK
In the future, product development will be handled
increasingly by a worldwide production, development, and
research network. The cooperation between research, advance
development, development, production, marketing, and sales
in the definition and planning of products is also becoming
more complex. It is therefore necessary to take conscious
advantage of the potentials of sophisticated information
technology in the product development phase.
In this connection we use various data, video, and audio
communication methods and systems in ongoing product
projects to enable the simultaneous development of a vehicle
at different locations. At the same time we also explore how
development partners who do not have access to our
centralized systems can be included in the data network.
COMPUTER-ASSISTED PRODUCT DEVELOPMENT
The Daimler-Benz group is increasingly treating its
customers as co-producers in the development of new pro
ducts. We are entering new realms of communication with
our customers by using virtual auto shows on the Internet
and virtual showrooms. The possibilities range from purchas
ing and consulting to the active involvement of customers in
the development of new products. Customers can now
interactively choose the features they want in a vehicle and
experience the product with their specifications on the fly,
albeit virtually.
By using a system for the virtual design of vehicle interiors
in conjunction with an ergonomics bench test, we are able to
study how our customers respond to the interior space, color,
and configuration of our vehicles. This tool is meant to provide
pointers for the next steps in the development of the product
during the planning phase.
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PERSONNEL
In a year marked by extensive changes within the corporate structure, the success of the Daimler-Benz group and the
realization of its goals depend on the capabilities and commitment of our workforce more than ever. Our personnel
efforts are therefore focused on persuading employees to identify themselves with the objectives of the Company and
to emphatically support them. To this end, we need and want to harmonize the interests of the staff and the Company
as effectively as possible.
TRAINING AND QUALIFICATION A HIGH PRIORITY
In light of the globalizing markets and increasingly inter
national competition, we need to maintain and strengthen
our potential with qualified and capable employees. Training
and qualification programs therefore remain a high prior
ity in the Daimler-Benz group. At year-end 1996, the group
employed a total of 12,600 trainees and interns. We have also
consciously developed the programs designed to expand the
scope for making decisions and taking action for all employees.
And we are emphatically pursuing our objective to make our
personnel cost structure competitive on an international scale.
COMPENSATION SYSTEMS ENHANCED
We are continuously improving the compensation systems
for our employees to make them more attractive and align
them more closely to the competition. Performance and
success orientation will be given more emphasis than before.
Beyond individual variable income factors, we are also
interested in involving our workforce more effectively in
the development and success of the Company. We are also
exploring concepts for new forms of social security benefits
based on our employees' personal initiative and the related
potentials for individualized provisions. In doing so, we hope
to maintain the effectiveness and attractiveness of the benefits
system within the Daimler-Benz group and at the same time
ensure that costs remain manageable.
STOCK OPTIONS INTRODUCED
In many international companies it is customary to offer
stock options to management staff. The objective of this type
of offer is to give executive personnel a special incentive for
performance by involving them in increasing the Company's
value, which is generally expressed by the value of its stock.
Since 1996, we have offered top management stock options
that can be acquired with a convertible bond subscribed from
the executive's net income. The response to this offer was
extremely positive. We have therefore decided to offer stock
options to an expanded group of management staff in the
future.
INTERNATIONAL EXPERIENCE GAINS IMPORTANCE
We plan to utilize the competitive advantages associated
with our management potential more efficiently than in the
past. Job rotation and foreign assignments are the prere
quisites for vertical development. In consideration of the
increasing globalization of our business activities, internatio
nal experience is to become an integral part of long-term,
individualized personnel and promotion planning. Personnel
development has also become a key element in the strategic
management of the group's divisions. The quality of manage
ment meetings, capabilities assessment, promotion plans, and
training programs was further improved by developing our
existing management planning system.
STABLE EMPLOYMENT SITUATION IN THE
DAIMLER-BENZ GROUP
At December 31, 1996, we employed a total of 290,029
employees worldwide, of which 222,821 worked in Germany.
Compared to the total workforce at year-end 1995, the number
of employees dropped by some 21,000 persons, primarily as
a result of the disinvestments at AEG and Dasa. Without these
structural changes, the number of employees remained nearly
unchanged. Along with the positive business prognosis in all
corporate units since the second half of 1996, the employment
situation has also become more stable on the whole.
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DAIMLER-BENZ IN SOCIETY
Two important events defined the development of environmental policy in 1996: the implementation of the Eco Audit
Ordinance in all operations and the enforcement of the Recycling and Waste Law. The Daimler-Benz group spent a
total of DM 960 million on environmental protection in 1996; our investment volume totaled DM 185 million. In the
coming years a key focus of our efforts will be to increase the integration of environmental protection in our product
and production planning processes. As part of its social involvement, Daimler-Benz is deeply committed to promoting
the younger generation. We take our social responsibility seriously and endorse concrete projects and programs to
inspire the younger members of our society to expand their horizons.
Eco AUDIT AND ENVIRONMENTAL COMMUNICATION
In December 1995, the Eco Audit Ordinance effective
throughout the EU was transferred to German law. This
legislative act specifically defined the scope within which
individual facilities of a company can voluntarily submit to
an environmental audit and publish the result in the form of
an environmental statement. In the Daimler-Benz group, en
vironmental audits, like quality audits, are largely performed
by in-house specialists; the environmental statement intended
for the public and the environmental program are validated
by external experts. We have already trained more than 50
experts from various locations and corporate units to qualify
them for professionally performing internal audits. By the end
of 1996 a total of 13 plants within the Daimler-Benz group
had submitted to the eco audit, and other plants are about to
undergo the process.
Daimler-Benz has been publishing a comprehensive en
vironmental report each year since 1994. Because of our
openness in communicating about environmental issues in
the report, the response it has generated has been unusually
positive, and this was also confirmed by the results of a
questionnaire we included in the 1996 report.
INCREASED PRODUCT RESPONSIBILITY
The new Recycling and Waste Law increases the re
sponsibility of companies for the residual materials they
generate in the production, disposal, and recycling of their
products. The ordinances on taking back electronics scrap
and used cars are especially prominent issues. Daimler-Benz
had already taken various measures several years ago in
anticipation of these regulations.
As an example, Daimler-Benz Research developed a
process for recycling electronics scrap that sets new standards
both in terms of efficiency and environmental compatibility.
Printed and bare board assemblies are stripped down to their
component parts and recycled or disposed of separately.
We set other examples in recycling residual materials from
the vehicle sector. Since 1991, Mercedes-Benz has been buying
back retired Mercedes cars at market conditions as the first
automotive manufacturer in Germany to initiate this kind of
program. And since March 1993 we have also been taking
back used parts from repair and service stations - including
bumpers, batteries, electronic parts, and mixed plastics -
through the Mercedes-Benz Recycling System free of charge
and recycling them. In 1996 alone, we collected some 11,000
tons of residual materials, of which more than 7,000 tons could
be recycled.
We have predefined the relevant specifications to ensure
that our vehicles comply with the necessary degree of re-
cyclability. Some 85% of the component parts of a passenger
car can already be recovered at this point. In the new Actros
nearly 80% of all raw materials, coolants, and lubricants can
be easily recycled while another 15% are also capable of being
recycled. As another important contribution to recycling, we
used an increased proportion of recyclates in the E-Class and
the Actros, for instance in the trunk and firewall paneling
and for acoustic insulation.
We also made new progress in production processes in
1996. By employing minimum lubrication in processing
aluminum integral components for aircraft, Daimler-Benz
Research succeeded in drastically reducing the volume of
the necessary but problematic cooling lubricants used in
conventional processes. Compared to conventional proces
sing, the volume of coolants consumed was reduced from
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approximately 3,000 liters per hour to 0.02 liters per hour.
AZUBI POWER
The new lubricant is environmentally compatible and is in
Trainees participating in the Daimler-Benz trainee project
fact even approved for the use in food processing. Because
"Azubi Power" demonstrate just how much fantasy, initiative,
coolants can now be avoided almost entirely, the shavings
and innovative drive young people have. In addition to their
generated in the process can be routed to metals recycling
professional training, the trainees, who in Germany are called
without any additional pretreatment.
by the acronym Azubis, spend nine months working on a
project exploring a topic they select from the fields economics,
EMISSIONS REDUCED YET AGAIN
ecology, technology, and social policy. The result and the
We made important headway in the reduction of motor
proposed solutions are then presented at a grand finale event
vehicle emissions in fiscal 1996. The new natural gas engine
to invited guests from the Company, politics, and the media.
specially developed for the Sprinter and now also sold on the
The project takes place in a different region each year. After
market achieves significantly improved combustion with
Munich in 1995, the ongoing 1996/97 project is under way in
extremely low emissions thanks to a new gas injection sys
Saxony/Saxony-Anhalt.
tem. The new gas engine currently has the lowest pollutant
emissions of any vehicle using fossil-fuel drive technology,
STRUCTURAL SUPPORT IN MANNHEIM
and in terms of fuel consumption is comparable to diesel
After more than five years of successful work, Daimler-
engines.
Benz continued its structural support campaign in Mann
Daimler-Benz underscored its leading role in fuel-cell
heim in 1996. The tangible assistance provided above all
technology with the introduction of the second-generation
to unemployed youth from the Rhine/Neckar region in
NECAR II fuel-cell car. While NECAR I was still the size of a
cooperation with municipal, regional, and employment ad
rolling laboratory, the fuel cell in NECAR II is small enough
ministrations and private sponsors has become known as
to fit into the trunk. The fuel-cell vehicle does not produce
the Mannheim Model. Daimler-Benz plays a leading role in
any emissions other than water. If this technology can be
this effort. The experiences gathered in projects such as the
marketed in a mass-produced vehicle in the first decade of
bicycle workshop are now being transferred to other cities
the next century, it will represent a substantial contribution
like Berlin. Although this type of model support cannot solve
to the improvement of our air quality as it is twice as efficient
structural problems in general, it does provide sensible
as combustion engines.
incentives for the re-employment of the unemployed.
AWARD OF EXCELLENCE
EUROPEAN YOUTH CONGRESSES
As part of its social involvement, Daimler-Benz organizes
In connection with the Mannheim Model, several Euro
the Daimler-Benz Award of Excellence youth project together
pean youth congresses are organized each year on Re
with the Goethe Institute. Since 1991, about a quarter million
unification Day, most recently in Berlin. Topics include xeno
students from high schools in the USA and Canada participate
phobia, youth unemployment, and political disenchantment.
in an essay competition about Germany. The fifty best essays
The organizer is the Child and Youth Foundation, in which
are rewarded with a study trip to Germany to explore German
Daimler-Benz is a member. Tangible support projects for un
geography, history, culture, and music, but above all to learn
employed youth were developed at the congresses in Hoyers-
the language and develop mutual understanding through
werda and Rostock.
contact with their peers. The Daimler-Benz Award of
Excellence is thus a bridge across the Atlantic to promote
understanding among young people.
In the course of 1996 and in the first few months of 1997, the increase in value of the Daimler-Benz share clearly
outperformed the German Stock Index (DAX), which proves that it is a worthwhile investment for our shareholders.
We are securing the financial independence of the Company with our broadly diversified activities in the corporate
treasury and in refinancing while at the same time taking advantage of the potentials of the international financial
markets with innovative financial instruments.
THE INTERNATIONAL STOCK MARKETS
The development of the international stock markets was
reached DM 122.75 (comparably calculated in consideration
of the capital increases since implemented).
for the most part encouraging in 1996. This
was primarily because of low interest rates
and the high liquidity of investors. The
American Dow Jones Index and the FTSE
100 in Great Britain recorded 26% and 12%
growth respectively, reaching new all-time
highs. The German stock market was also
in very good shape in the year under
review. Above all in the second half of 1996,
higher profit forecasts - not least as a
consequence of the noticeable devaluation
of the German mark as compared to other
important currencies - and the continued
decline of interest rates in the bond mar
ket stimulated the price performance of
German companies. The German Stock In
dex (DAX) reached 2,889 points by year-
end, which was 28% higher than at the end
of 1995. The positive trend continued in the
first few months of 1997.
THE DAIMLER-BENZ SHARE
The Daimler-Benz share outperformed
the German Stock Index in 1996. In the last
three months of the year in particular, the
officially quoted price of our share climbed
at an above-average rate and reached DM
105.50 by year-end. Our shareholders thus
recorded a 46% capital appreciation. The
Daimler-Benz share continued to climb
until end of February 1997, gaining another
16.1% since the end of 1996. On February
11, 1997, the all-time high of December 5,
1986 was surpassed when our share's value
Daimler-Benz shares were also among
the volume leaders on the German stock
exchanges in 1996. With 2.1 billion shares
and a market value of DM 176 billion, our
stock was in the second place in terms of
trade volume, which represents 8% of the
volume of all German shares. Aside from
being listed on the German stock exchanges
and in the electronic trading system IBIS,
options for our shares are traded on the
German Futures Exchange DTB. In fiscal
1996 some 1.2 million contracts were
concluded for Daimler-Benz shares. Daim
ler-Benz was thus among the three highest-
volume shares on the DTB.
The trading volume of our share on the
foreign exchanges increased by 58% to 257
million units. The increase in volume was
especially pronounced in London.
CAPITAL STOCK
The capital stock of Daimler-Benz AG
increased by DM 8.5 million to DM 2,577
million in 1996. Of this amount, DM 5.3
million pertained to the issuance of em
ployee shares. The remaining increase in
capital stock resulted from the exercise
of stock options that had been issued to
members of the Board of Management and
Supervisory Board in the summer of 1996.
With an officially quoted value of DM 63
billion (as of the end of February 1997)
and more than 450,000 shareholders,
Daimler-Benz is among the largest public
corporations on the German stock exchange. Nearly two-thirds
of our capital stock is widely held. Deutsche Bank is currently
holding a share of about 23%. Kuwait is the second-largest
shareholder at just under 13%.
C O N V E R S I ON TO T HE DM 5 S H A RE
Effective July 1, 1996, the par value of
the Daimler-Benz share was converted from
DM 50 to DM 5, thus making our share
even more attractive to private investors.
The threshold for participating in variable
trading was raised from 50 to 100 shares,
but in consideration of the lower price as a
result of the change in par value, private
investors now have access to this form of
trading with significantly lower invest
ments as well. In New York, where our
share is traded in the form of American
Depository Shares (ADS), the value of each
interim certificate is now the equivalent of
one common share having a nominal value of DM 5. The same
applies to our Singapore Depository Shares (SDS) listed on
the Singapore exchange.
T HE D E V E L O P M E NT OF A D A I M L E R - B E NZ
S T O CK P O R T F O L IO
The yield of a share is largely dependent on the share's
price when it is purchased and sold. Because of the high degree
of fluctuation characterizing the price of the Daimler-Benz
share in the past few years, its performance can vary greatly
for German shareholders. For foreign investors, the additio
nal effects of changing currency parities also apply, which
means the return can differ significantly from the yield in
German marks.
Shareholder who invested in Daimler-
Benz shares for approximately six years
yielded a 16.9% return in German marks
per annum; the return on a twelve-year
investment was 9.7%. These calculations
are based on the assumption that the
proceeds from subscription rights and
dividends (without a tax credit) were
consistently reinvested in Daimler-Benz
shares.
I N V E S T OR R E L A T I O NS
In connection with the value-oriented
corporate policy of Daimler-Benz, we inten
sified our contact with the financial mar
kets in 1996. Aside from the regularly
published annual reports and interim reports in which we
address all of our existing and potential shareholders, per
sonal contact is a high priority in relations with institutional
investors and financial analysts. As a result of the active
interest in our Company, the number of such contacts has
increased considerably. Moreover, the corporate presentations
given in our most important stock markets in Germany and
abroad have helped reinforce investor confidence in our
Company.
At our Annual General Meeting on May 22, 1996, we
recorded a record attendance of 10,000 shareholders and
guests. Nearly 70% of the capital stock was represented, which
is as high as in previous years.
BROADLY DIVERSIFIED REFINANCING
The refinancing needs of the Daimler-Benz group are
primarily defined by the financial services sector and its
dynamic growth. In principle, we refinance this need in the
relevant local currency. To optimize costs we take advantage
of a highly diversified blend of market segments, currencies,
and financial instruments. Moreover, we made use of asset
backed securities in 1996 as well.
FINANCING INSTRUMENTS
As a rule, short-term borrowing is accomplished by taking
up credit lines with banks. To optimize costs, we have also
established local commercial paper programs in some
markets. For instance, our North American holding company
has a U.S. dollar commercial paper program, which was
increased from USD 4.5 billion to USD 6.0 billion in August
1996.
We predominantly cover the capital needs of the com
panies within the group that exceed short-term requirements
with capital market financing. To this end, we resort to both
Euro Bonds and our Euro Medium-Term Note Program (EMTN).
In addition, we offered a U.S. MTN program totaling more
than USD 1 billion for subscription in September 1996, which
allows us to access the largest capital market in the world. In
particular, it also gives us an opportunity to negotiate loans
having a very long maturity. Within the scope of this pro
gram, Daimler-Benz North America Corp. issued a ten-year
Yankee Bond worth more than USD 500 million. Finally, in
June 1996 we issued a warrant bond for the first time in the
Daimler-Benz group. With the issuance of a total amount of
DM 1.2 billion, we were able to take advantage of the favorable
capital market conditions and at the same time secure an
entirely new investor base for the Company.
INTEREST AND CURRENCY MANAGEMENT
The allocation of the assets available within the group to
money market and capital market investments forms the
foundation of our interest management policy. The short-term
funds available in the money market serve to maintain the
Company's liquidity at all times. Available funds are con
solidated on a daily basis by way of cash concentration for the
purpose of uniform liquidity management. In Germany, this
is accomplished through the corporate treasury, and abroad
through the financial and regional holding companies allo
cated to it.
We invest the majority of our liquidity in fixed-interest
bearing securities and stocks by resorting the instruments of
modern portfolio management. To minimize risks we adhere
to a limit determined by the Board of Management using the
value-at-risk method.
Within the scope of our currency management program,
we account for foreign exchange risks in the operational sector
and align the relevant hedging strategies in accordance with
continuously monitored exchange rate forecasts. Hedging is
becoming increasingly important to us in light of our growing
business volume in newly industrializing countries. Deriva
tive instruments are used exclusively to hedge against market
risks within the scope of interest and currency management.
In order to ensure efficient control, the individual trading
sectors are kept separate from the administrative functions
of management, financial bookkeeping, and financial control
ling; this separation extends to organizational and physical
aspects as well as to systems management.
CREDIT RATING
Daimler-Benz AG has been rated by the international
agencies Moody's Investor Services and Standard & Poor's
for both short-term and long-term bonds. The ratings supplied
by the two agencies for long-term debt, A1 and A+ respectively,
and Prime-1 and A -l for short-term paper, are on a high level
within an international context. The Prime-1 short-term rating
assigned by Moody's is in fact among the best of the categories
available. Because Daimler-Benz AG generally guarantees the
bonds issued by companies within the group, they also profit
from the high ratings.
With our listing on the New York Stock Exchange (NYSE) in October 1993, Daimler-Benz was the first German company
to establish direct access to the world's largest and most important capital market. In so doing, we initiated a process
that not only permanently affects our external reporting, but also our accounting and our internal controlling
instruments. The objective of this process is to increase the transparency and efficiency of our external and internal
reporting while at the same time improving the methodological basis for a corporate management attuned to the
returns expected by our investors without neglecting the entitled interests of our employees, customers, and society
on the whole.
U N D E R S T A N D I NG V A L U E - B A S ED M A N A G E M E NT
The permanent and continuous expansion of our com
pany's value is only possible when the interests of all groups
that contribute to our success are given the appropriate degree
of consideration. Our economic performance and satisfactory
returns for our shareholders depend on motivated employees,
first German company to present an entire year's financial
statements in accordance with U.S. GAAP while at the same
time complying with the provisions of the German Law to
Facilitate Equity Borrowing. The report thus also conforms
with EU guidelines and European accounting principles.
satisfied customers, and reliable and innovative suppliers. On
IMPROVED EXTERNAL DISCLOSURE
the other hand, only a profitable company is in a position to
Instead of providing various figures concerning the
obtain the funds required for securing the future from the
economic performance of the Company that are derived using
capital market at relatively favorable terms and to offer its
the HGB and U.S. GAAP but that in some instances differ
employees secure and challenging jobs and thus earn their
significantly from each other because of the distinct account
long-term commitment. Management at Daimler-Benz is
ing philosophies, we supply a complete set of figures in
therefore dedicated to increasing the value of the Company
conformance with U.S. GAAP for our shareholders, the
for the benefit of everyone involved.
financial analysts, and the interested public. In so doing, we
The new controlling instruments in the Daimler-Benz
fulfill accounting standards of the highest reputation
group to support this objective include preparing the balance
worldwide, and we believe our approach more clearly and
sheet in accordance with American accounting principles
accurately reflects the economic performance, financial
(generally accepted accounting principles or U.S. GAAP) and
situation, and net worth of the Company than any other
reporting that is both internally and externally informative,
accounting system available at this time. This is not least due
topical, and transparent.
to the fact that U.S. accounting principles focus on investor
information rather than creditor protection, which is the do
1996 F I N A N C I AL S T A T E M E N TS P R E P A R ED E N T I R E LY IN
minant concern under German accounting principles.
A C C O R D A N CE W I TH U.S. G A AP F OR T HE F I R ST T I ME
Discretionary valuation is greatly limited, and the allocation
Since our listing on the New York Stock Exchange we have
increasingly aligned our external reporting in accordance with
the information requirements of the international financial
world. Important stages in the process included reconciling
the result and equity capital according to German accounting
principles (HGB) to conform with net income and stockholders'
equity as defined by U.S. GAAP and providing additional
information on the individual corporate segments. For the
period between January and June 1996, we then presented
the interim report prepared in accordance with U.S. GAAP
for the first time. With our 1996 annual report, we are the
of income and expenses to the individual accounting periods
is based on strict economic considerations.
A D V A N T A G ES F OR A LL S H A R E H O L D E RS
Using U.S. accounting principles makes it significantly
easier for internationally active financial analysts or
experienced institutional investors to accurately asses the
financial situation and development of the Company. Moreover,
it improves disclosure at Daimler-Benz as well as comparability
on an international scale. This also helps promote the
worldwide acceptance of our stock.
accordance with the interest requirements of the stockholders'
equity and external funds tied to the capital employed. For
stockholders' equity, we assume an interest requirement of
14%, which is in agreement with market standard returns on
risk-free investments and a risk premium derived from the
capital market. The average interest rate for external funds is
8%. In this instance, we assume that the ratio of stockholders'
equity to external funds is 2:1.
I N S T R U M E N TS F OR V A L U E - O R I E N T ED C O R P O R A TE
M A N A G E M E NT
The activities that exceed the minimum interest require
ment of 12% increase the value of the Company because their
income exceeds the costs for the capital employed. Conversely,
activities that fail to achieve the 12% minimum over the long
term decrease the value of Daimler-Benz. The standard for
measuring an activity is thus not the return generated in a
single period; what is decisive is whether in the course of the
entire product life cycle the return on the capital employed is
adequate from a corporate and market perspective. This
applies in particular to startup businesses, which cannot gene
rate satisfactory earnings until the product begins to mature.
A return is adequate from a market perspective when it
at least covers the costs of the capital employed, which is our
minimum return of 12%. Moreover, we are committed to achiev
ing the value that good competitors realize with comparable
activities. We therefore regularly carry out benchmarks and
best-practice comparisons to establish the strategic target
returns for our business units. As a result, the medium- and
long-term requirements for many business units are noticeably
higher than the 12% minimum return requirement.
The operating profit in accordance with U.S. GAAP thus
forms the instrumental basis for value-oriented corporate
management. In addition, we assess the longer-term earning
power of a given activity on the basis of the expected cash
flow and the resulting earnings value for the reporting period.
O P E R A T I NG P R O F IT AS A C E N T R AL V A L UE
The operating profit will be the primary focus of our
performance analysis in the future. It is a key figure for
measuring the operating performance of the Company and
its individual units. Based on the profit and loss statement
prepared under U.S. GAAP, the operating profit is essentially
made up of revenues and other income minus the cost of sales
and other expenditures. The difference is adjusted to
accommodate a few positions. Other important figures
included in our external reporting are the net earnings per
share and the liquidity statistics provided in the cash flow
statement on page 55 of this report.
I N T E R N AL C O N T R O L L I NG ON T HE B A S IS OF B A L A N CE
S H E ET V A L U ES IN A C C O R D A N CE W I TH U.S. G A AP
The U.S. GAAP not only made Daimler-Benz more trans
parent from an external perspective. Because the earnings
figures as derived with American accounting principles
accurately reflect the economic performance of the Company,
we are now able to use figures from our external reporting for
the internal controlling of the Company and its individual
business units rather than relying on the internal operating
profit used in the past. We thus make use of the same figures
both internally and externally to measure the economic
performance of the Company and the business units.
M I N I M UM R E T U R N: 12%
In order to do justice to the interest requirements of the
capital market, we have established a minimum return for all
business units. The criterion that defines this minimum return,
and at once the essential control figure for our operational
business, is the operating profit, which we relate to the capital
used for the operational output of goods and services. The
capital employed for operational purposes is defined as the
capital employed by the industrial activities on the basis of
book values under U.S. GAAP minus trade accounts payable.
For the financial services business, however, which is a bank
like activity, we use stockholders' equity rather than capital
employed as the reference figure for the operating profit. This
approach is in accordance with standard practice. The pre
tax interest rate of 12% that we expect from each of our
business units on a medium-term basis is determined in
DISCUSSION AND ANALYSIS OF THE FINANCIAL SITUATION
Significantly higher earnings in the operational business and substantially lower non-recurring expenditures as
compared to the previous year have led consolidated net income under U.S. GAAP to increase from DM-5.7 billion
to DM 2.8 billion in 1996, and instead of the DM 7.2 billion loss in 1995, we achieved a DM2.4 billion operating
profit. The favorable earnings trend picked up speed in the second half of the year. Due to the profitable results,
we were not only able to strengthen stockholders' equity; the ratio between most balance sheet items is consistently
improving, as are the financial indicators.
ADVANCES IN THE OPERATIONAL BUSINESS AND FEWER
SPECIAL EXPENDITURES
The streamlining of our portfolio at AEG alone and our
withdrawal from Fokker resulted - under U.S. GAAP - in
expenditures of DM 3.8 billion in 1995. Other expenses were
Consolidated net income under U.S. GAAP reached DM
connected to the special depreciation taken in the U.S.
2.8 billion in fiscal 1996, and thus was positive again after
the DM 5.7 billion loss of the previous year. The growth in
financial statements and the amortization of goodwill totaling
operating profit was within the same order of magnitude, DM 2.9 billion of which DM 2.6 billion were attributed to Dasa.
totaling DM 2.4 billion after the DM 7.2 billion loss in 1995. There were also structural expenditures of DM 1.4 billion,
This pleasing development of earnings was related to the most of which had to do with the competition initiative at
improved results in the operational business; contributing Dasa. Non-recurrent expenditures in 1995 had thus totaled
factors included the market success of new products and the DM 8.1 billion.
programs to boost efficiency in all business units, as well as
the more favorable exchange rate situation. In the 1995
financial statements, we had to carry considerable non-
recurring expenditures in connection with the restructuring
of various activities. The volume of these expenditures was
significantly lower in the year under review.
But special factors impacted the operating profit in 1996
as well; they reached some DM 1.1 billion. For the most part,
these expenses were generated in conjunction with the
liquidation of the remaining activities at AEG and additional
structural measures that were necessary in Aerospace,
Microelectronics, and Rail Systems.
It should be taken into consideration in this respect that
in accordance with U.S. GAAP, unlike under German com-
mercial law, such non-recurring expenditures are not treated
as an extraordinary loss and had thus impacted the 1995 (U.S.
GAAP) operating profit.
IMPROVED STRUCTURE OF THE STATEMENT OF INCOME
Consolidated revenues reached DM 106.3 billion in 1996,
surpassing the 1995 total of DM 103.0 billion by 3.3%. After
adjusting the previous year's figure for changes in the
consolidated group, the increase was 10%.
The growth in revenues was primarily achieved with the
substantial expansion of business volume in the Automotive
business by some DM 5.5 billion. But in Services we also
managed to boost revenues by DM 1.4 billion. Revenues in
Aerospace, on the other hand, were DM 2 billion lower. After
making adjustments for changes in the consolidated group,
above all with respect to Fokker and Dornier Luftfahrt,
revenues in this division actually increased by 13%. The
revenues of the Directly Managed Businesses totaled DM 8.0
billion; the previous year's figure, DM 10.2 billion, represents
the revenues from the former corporate unit AEG DBI and is
thus not comparable.
Including other income, which predominantly relates to
the disposal of assets and currency translation gains from
open payments and deliveries, revenues and other income
increased by DM 3.0 billion to DM 107.7 billion.
In contrast, the cost of sales decreased by DM 1.9 billion
to DM 84.7 billion, and selling expenses, general administra
tive costs, and other expenses fell by DM 4.9 billion to DM
16.0 billion. In relation to revenues, the two largest cost
elements thus dropped from a total of 104% in 1995 to 95%.
Key factors were the improved utilization of production
capacities as a result of the revitalization of business and our
withdrawal from loss-making business units. The substantially
lower non-recurring expenditures, which had been included
in these positions in the income statement in 1995, also had
an effect.
The funds spent on our own research and development
projects increased by DM 0.2 billion to DM 5.6 billion; their
share in revenues remained unchanged at 5%.
OPERATING PROFIT SUBSTANTIALLY HIGHER
Based on the gross profit before the financial results and
income taxes, which is reported at DM 1.5 billion in the
statement of income as compared to the DM 8.2 billion loss
in 1995, the operating profit for the Daimler-Benz group was
DM 2.4 billion in 1996 (1995: DM 7.2 billion loss).
Our Automotive business contributed DM 2.7 billion, once
again the highest share in the group's operating profit (1995:
DM 2.1 billion). The growth in sales in the passenger car and
vans sectors and the currency development were decisive
factors for the renewed increase in earnings; in certain
segments of the Commercial Vehicle Division, on the other
hand, we experienced a noticeable decline in revenues. The
units involved were for the most part Trucks Europe, Trucks
Nafta, and Commercial Vehicles Latin America.
While the contribution of Aerospace was still negative at
DM -0.2 billion, it did improve markedly from the previous
year's total of DM -7.2 billion. In this case, the reduction of
non-recurring and structural expenditures was a key element.
Moreover, as a result of the measures already implemented
within the context of our programs to boost productivity, most
of the units generated profits on an operational level as well.
Services expanded their contribution to DM 0.3 billion
(1995: DM 0.1 billion). The Financial Services/Insurance
Brokerage unit remained the primary source of income here,
but IT Services and Telecommunications and Media Services
also generated significantly higher earnings.
The Directly Managed Businesses in total charged a loss
of DM 0.6 billion to the group's operating profit. Profits in the
Diesel Engines and Sorting and Recognition Systems units
were offset by losses in the Microelectronics unit and in rail
systems due to the amortization of goodwill allocated to this
sector. Other expenses were also related to the companies
included in this segment in which we are liquidating the
remaining activities of AEG AG following its merger with
Daimler-Benz AG. Because the previous year's figure of DM
-2.2 billion represents the result of the former AEG group,
these values cannot be compared.
NET INCOME POSITIVE AGAIN
other financial services companies in the market we have
The financial result fell by DM 0.4 billion to DM 0.5 billion
essentially presented the financial services activities of Daim
in 1996. This was predominantly due to expenditures from
ler-Benz as if they were operated by an independent company
the valuation of financial instruments following the revaluation
(stand-alone approach). For instance, the vehicles included
of the U.S. dollar and other currencies.
under leased equipment are not reported at the group's
Consolidated net income reached a total of DM 2.8 billion,
manufacturing costs, but at market value.
recovering from the high DM 5.7 billion loss in the previous
Nevertheless, there are close relations between the
year. The net income was noticeably affected by deferred
financial services business and the other units within the
taxes, which have to be included in accordance with U.S. law.
group, which have a corresponding effect on the statements
This meant that although tax payments actually totaled DM
of income and balance sheets. For instance, our financial
0.9 billion, additional tax revenue in the amount of DM 0.7
services companies are not only financed by borrowing from
billion had to be included
in the statement of income
due to various effects that
were for the most part non
recurring.
CONSOLIDATED BALANCE
SHEET STRONGLY
INFLUENCED BY THE
FINANCIAL SERVICES
BUSINESS
The balance sheet of
the Daimler-Benz group is
still influenced to a large
degree by the above-aver
age expansion in the finan
cial
services
business,
which we primarily utilize
third parties, but also with
funds from
the Daimler-
Benz group (intercompany
loans). From the perspec
tive of the financial serv
ices business,
the
latter
represent financial liabili
ties;
these amounts are
eliminated upon consolida
tion with the balance sheet
of Daimler-Benz because
from the perspective of the
group they are not liabili
ties vis-a-vis third parties.
Similarly, the interest on
these
loans
reduce
the
operating profit of the fi
nancial
services
sector
as a flexible instrument in connection with our worldwide
while from the perspective of the Daimler-Benz group the in
sales strategy. But our business with products not manu
terest charges are offset against the interest income arising to
factured by the Daimler-Benz group is also gaining increas
the organizational units granting the relevant intercompany
ing importance; in this respect the standards we apply to
loans to the financial services companies.
measure risks and profitability are just as stringent as for our
The operating profit shown in the separate statement
business with corporate products.
of income for the financial services business (cf. p. 52) is
In an effort to make the special influence of the financial
DM 264 million. In this instance it should be taken into
services business on the structure of the consolidated balance
consideration that although this figure predominantly
sheet more intelligible, we are including a separate
comprises the financial services business of debis, it also
consolidated statement of income, balance sheet and cash flow
pertains to such activities of other divisions within the Daim
statement for our financial services activities with this annual
ler-Benz group. In addition, the operating profit does not
report for the first time. In the interest of comparability with
contain any allocation to the administrative costs of Daimler-
Benz and debis. Accordingly, its comparability with the
and DM 4.8 billion respectively. On the liabilities side, the
segment contribution of Services (debis) shown on page 47 is
financial liabilities position alone was up nearly DM 4.9 billion,
limited at best.
above all in conjunction with refinancing for the financial
The dynamic increase in operating profit from DM 145
services business.
million to DM 264 million is largely related to the growth of
Again on the assets side, fixed assets totaled DM 35.7
new business for our companies in Germany, but certain
billion, or 12% higher than in 1995. Without the leased
European companies outside of Germany also improved their
equipment included in this figure, fixed assets grew 8% to
earnings significantly.
DM 23.7 billion. While the property, plant, and equipment
On the whole, the balance sheet total for the financial
position in the balance sheet, at DM 18.2 billion, was DM 1.6
services business at December 31,1996, was DM 34.5 billion.
billion higher than in the previous year, financial assets
This represents a DM 6.5 billion increase as compared to year-
decreased by DM 1.3 billion to DM 3.5 billion. This is especially
end 1995. Among the more
important changes on the
assets side, leased equip
ment jumped by DM 1.3 bil
lion to DM 12.7 billion and
financial services accounts
receivables by DM 4.8 billion
to DM 19.1 billion. This ad
ditional expansion of busi
ness was financed with the
financial liabilities, which
increased by DM 5.9 billion
to DM 29.2 billion and thus
made up nearly 85% of the
balance sheet total. The
proportion of stockholders'
equity used for the financial
services business is relative-
lv low in comparison to our
due to the fact that the Ad-
tranz joint venture reported
at equity in 1995 was now
included in the consolidated
financial statements along
with its prorated assets and
liabilities.
The gross inventories in
the balance sheet were up
from DM 17.9 billion to DM
18.6 billion. As a result of the
growth in advance payments
received from DM 3.6 billion
to DM 5.0 billion, net
inventories dropped from
DM 14.3 billion to DM 13.6
billion; their share in the
balance sheet total is now
12% (1995:14%). Inventories
industrial business, and at year-end 1996 totaled DM 2.1
mainly in the Automotive business were lower. Accounts
billion, or 6% of the balance sheet total.
receivable trade and other receivables fell slightly by DM 0.2
billion to a total DM 19.8 billion. Securities, on the other hand,
STRUCTURES OF THE CONSOLIDATED
jumped from DM 9.0 billion to DM 9.8 billion and cash from
BALANCE SHEET IMPROVED
DM 3.2 billion to DM 4.6 billion. Liquidity which is mainly
The balance sheet total of the Daimler-Benz group as at
shown in these positions increased by DM 2.5 billion to DM
December 31, 1996, increased by DM 10.4 billion over year-
14.8 billion. Prepaid expenses and deferred taxes, at DM 10.0
end 1995 to DM 112.5 billion. On the assets side, the growth
billion, were DM 0.4 billion higher than in the previous year.
in the balance sheet total is mainly influenced by the change
On the liabilities side, stockholders' equity rose by DM
in the leased equipment and leasing and sales financing
3.5 billion to DM 26.4 billion; its share in the balance sheet
accounts receivables positions, which rose bv DM 2.2 billion
total grew from 22% to 23% after the loss in the previous year
had led to a noticeable decline. In this respect, the allocation
making adjustments for changes in the consolidated group
of retained earnings from the group's net income was
and currency effects as well as the improved financial results
especially influential, but the more favorable exchange rates
(before expenses and income not affecting payments). In
in translating stockholders' equity from
the foreign companies to German marks
was also an important factor. The pro
portion of fixed assets covered by stock
holders' equity improved from 72% to 74%.
The increase in provisions reported in
the balance sheet was below average,
rising by DM 1.2 billion to a total of DM
34.9 billion. Pension provisions grew by
DM 0.7 billion to DM 16.2 billion, and other
provisions by DM 0.6 billion to DM 18.7
billion. The proportion of provisions in the
balance sheet total thus dropped from 33%
to 31%.
In contrast, financial liabilities again
surged upward at an above-average rate;
at DM 27.2 billion their share in total
capital is now 24% as compared to 22% in
the 1995 financial statements. DM 20.6
billion, or nearly three quarters of the
financial liabilities, are tied to the financial
services business alone.
As previously, both the fixed assets
(without taking the influence of the finan
cial services business into account) and
the net inventories are adequately covered
by stockholders' equity and long- and me
dium-term provisions.
INCREASE IN CASH FLOW FROM
OPERATING ACTIVITIES
The cash flow from operating activities
increased by DM 4.7 billion to DM 10.2
billion. This was predominantly related to
the development of working capital after
the previous year, more working capital
had been tied up due to the expansion
of inventories at Mercedes-Benz in par
ticular. The cash flow from investment
activities totaling DM 12.2 billion (1995:
DM 10.7 billion) was still influenced by
the growing leasing and sales financing
business. At DM 6.1 billion (1995: DM 5.2
billion), nearly half of the gross invest
ments were allocated to additions to leased
assets; an additional factor was the net
increase of sales financing receivables to
DM 3.1 billion (1995: DM 2.1 billion). The
development of the affiliated companies
had the opposite effect. In this respect,
proceeds from the sale of affiliated com
panies totaling DM 1.1 billion were off
set by significantly lower expenditures for
the acquisition of affiliated companies
totaling DM 0.5 billion (1995: DM 2.2
billion). The cash flow from financial
activities, at DM 2.2 billion (1995: DM 2.3
billion), remained nearly unchanged and
was largely influenced by the growth in
net borrowed funds to DM 1.9 billion.
Overall, the development of the individual
cash flows led to a DM 0.4 billion increase
in cash and cash equivalents up to 3
months and a DM 2.5 billion increase in
liquidity.
C O N S O L I D A T ED
S T A T E M E N TS
OF
I N C O ME
The accompanying notes are an integral part of these Consolidated Financial Statements.
C A SH
F L OW
S T A T E M E N TS
The accompanying notes are an integral part of these Consolidated Financial Statements.
N O T ES
TO
C O N S O L I D A T ED
F I N A N C I AL
S T A T E M E N TS
BASIS OF PRESENTATION
the period. The assets and liabilities of foreign subsidiaries
I. SUMMARY OF ACCOUNTING POLICIES
operating in highly inflationary economies are remeasured
into DM on the basis of period end rates for monetary assets
General - T he consolidated financial statements of Daim
and liabilities and at historical rates for non-monetary items,
ler-Benz Aktiengesellschaft and subsidiaries
("Daimler-
with resulting translation gains and losses being recognized
Benz" or the "Group") have been prepared in accordance
in income. Further, in such economies, depreciation and
with United States generally accepted accounting principles
gains and losses from the disposal of non-monetary assets is
("U.S. GAAP"), except that the Group has accounted for cer
determined using historical rates.
tain joint ventures in accordance with the proportionate
Revenue Recognition - Revenue is recognized when title
method of accounting (See note 2). All amounts herein are
passes or services are rendered net of discounts, customer
shown in millions of Deutsche Marks ("DM" or "marks").
bonuses and rebates granted. Revenue on long-term con
Commercial practices with respect to certain of the prod
tracts is generally recognized under the percentage-of-com-
ucts manufactured by Daimler-Benz necessitate that sales fi
pletion method based upon contractual milestones or per
nancing, including leasing alternatives, be made available to
formance. Revenue from finance receivables is recorded on
the Group's customers. Accordingly, the Group's consolidat
the interest method. Operating lease income is recorded
ed financial statements are significantly influenced by activ
when earned.
ities of a number of "captive" financing entities. To enhance
Product Related Expenses - Expenditures for advertising
the readers' understanding of the Group's consolidated fi
and sales promotion and for other sales related expenses are
nancial statements, the accompanying financial statements
charged to expense as incurred. Provisions for estimated
present, in addition to the consolidated financial statements,
costs related to product warranty are made at the time the
information with respect to the financial position, results of
products are sold. Research and development costs are ex
operations and cash flows of the Group's financial services
pensed as incurred.
business activities. Such information however is not required
Net Income Per Share - Net income per share has been
by U.S. GAAP and is not intended to, and does not, represent
calculated by dividing the net income by the weighted
the separate U.S. GAAP financial position, results of opera
average number of Ordinary Shares and common stock
tions or cash flows of the Group's financial services business
equivalents outstanding (See note 16). Net income is deter
activities. Amounts with respect to the financial services
mined after deducting the minority interests' share of earn
business are presented prior to intercompany eliminations of
ings of subsidaries.
transactions with other Group companies.
Intangible Assets — Purchased intangible assets are val
Consolidation -All material companies in which Daimler-
ued at acquisition cost and are amortized over their respec
Benz has legal or effective control are consolidated. Signifi
tive useful lives (3 to 10 years). Goodwill derived from acqui
cant investments in which Daimler-Benz has an ownership
sitions is capitalized and amortized over 5 to 20 years. The
interest in the range of 20% to 50% ("associated companies")
Group periodically assesses the recoverability of its goodwill
are generally included using the equity method of account
based upon projected future cash flows.
ing. For certain investments in joint ventures, Daimler-Benz
Property, Plant and Equipment - Property, plant and
uses the proportionate method of accounting (see note 2).
equipment is valued at acquisition or manufacturing cost
Other investments are accounted for at cost. The effects of
and subsequently depreciated using an accelerated deprecia
intercompany transactions have been eliminated.
tion method until such time that the straight-line method
Foreign Currencies - Based upon Statement of Financial
yields a larger expense, when the straight-line method is uti
Accounting Standard "SFAS 52", the assets and liabilities of
lized, over the assets' useful lives as follows: buildings - 17 to
foreign subsidiaries are generally translated into DM on the
50 years; site improvements - 8 to 20 years; technical facili
basis of period end exchange rates while the income State
ties and machinery - 3 to 20 years; and facilities, factory and
ments are translated using average exchange rates during
office equipment - 2 to 10 years.
Leasing - The Group is a lessee of property, plant and
equipment and lessor of equipment, principally passenger
cars and commercial vehicles. All leases that meet certain
specified criteria under U.S. GAAP intended to represent sit
uations where the substantive risks and rewards of owner
ship have been transferred to the lessee are accounted for as
capital leases. All other leases are accounted for as operating
leases. Equipment on operating lease, where the Group is
lessor, is valued at acquisition cost and generally depreciated
over the assets' useful lives, generally three to seven years,
using the straight line method.
Current Assets - Current assets represent the Group's in
including
receivables, securities and cash,
ventories,
amounts due in excess of one year.
Marketable Securities and Investments - Securities are
accounted for at fair values, if readily determinable. Unreal
ized gains and losses on trading securities, that is, securities
bought principally for the purposes of selling them in the
near term, are included in income. Unrealized gains and loss
es on available-for-sale securities are included in stockhold
ers' equity, net of applicable income taxes. Securities which
could be held until maturity are included in available-for-sale
as the Group does not have the positive intent to hold them to
maturity. All other securities are recorded at cost. Unrealized
losses on all marketable securities and investments that are
other than temporary are recognized in earnings.
Inventories - Inventory is valued at the lower of acquisi
tion or manufacturing cost or market, cost being generally
determined on the basis of an average or first-in, first-out
method. Certain of the Group's U.S. businesses' inventories
are valued using the last-in, first-out method. Manufacturing
costs comprise direct material and labor and applicable man
ufacturing overheads, including depreciation charges.
Financial Instruments - It is Daimler-Benz' policy not to
engage in trading activities. Financial instruments, including
derivatives, which are not designated as hedges of specific
assets, liabilities or firm commitments are marked to market
and any resulting unrealized gains or losses are recognized
in income. Gains and losses on financial instruments used to
manage interest rate and currency risks of identifiable as
sets, liabilities or firm commitments are deferred and recog
nized along with the effects of the related transaction.
Accrued liabilities - The valuation of pension liabilities is
based upon the projected unit credit method required by
SFAS 87. An accrued liability for taxes and other expenses is
recorded, when an obligation with third parties has been in
curred, its utilization is probable and the amount can be rea
sonably estimated.
Use of estimates - The preparation of financial statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent amounts at the date of the financial
statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Adtranz together with the amortization of the excess of the
cost of its investment over its share of the investment's net
assets would be reported as a net amount in financial in
come, net in the Group's statement of income. Additionally,
Adtranz would have an impact on the Group's reported cash
flows only to the extent the Group received cash dividends.
For purposes of its United States financial reporting obliga
tion, Daimler-Benz has requested and received permission
from the United States Securities and Exchange Commission
("SEC") to prepare its consolidated financial statements with
this departure from U.S. GAAP.
financial
Summarized consolidated
information of
Adtranz as of and for the year ended December 31, 1996 fol
lows. The amounts represent those used in the Daimler-Benz
consolidation, including goodwill resulting from the forma
tion of Adtranz. Other companies included in the consolida
tion according to the pro-rata method are not material.
2. A C Q U I S I T I ON A ND P RO R A TA C O N S O L I D A T I ON
In late December 1995 the Group and Asea Brown Boveri
Ltd. ("ABB") completed formation of a joint venture of their
rail systems businesses to be known as Adtranz. In connec
tion therewith, the Group contributed its rail systems busi
nesses to Adtranz and paid U.S. $900 to ABB in return for a
50% interest in the joint venture.
As part of the formation of Adtranz, the Group and ABB
also entered into an option agreement whereby, for certain
periods during 1998 through 2005, the Group has the right
(call option) to purchase ABB's 50% interest in Adtranz for
U.S. $1,800 plus a premium calculated on the basis of
Adtranz' meeting or exceeding certain future earnings
thresholds. In addition, for certain periods during 1998
through 2005, ABB has the right (put option) to require the
Group to purchase ABB's 50% interest in Adtranz at prices
calculated in accordance with the same criteria except that
the price for the put option is lower than the price for the call
option assuming the same future earnings.
At December 31, 1995 the Group's investment in Adtranz
was valued on the basis of the equity method of accounting
and included DM 1,094 representing the excess of the pay
ment, made by the Group to ABB, over the fair value of the
the Group's share of the net assets of Adtranz. Since January
1, 1996 the Group accounts for its investment in Adtranz us
ing the pro-rata method of consolidation. Accordingly, Daim
ler-Benz reports its 50% proportionate interest of the assets
and liabilities, revenues and expenses and cash flows in
Adtranz. The Group believes that such method of financial
statement presentation, which is permitted by the regula
tions of the Seventh Directive of the European Community
and the Standards of the International Accounting Standards
Committee, better illustrates its consolidated financial posi
tion, results of operations and cash flows to the reader of the
Group's consolidated financial statements.
Under U.S. GAAP, Daimler-Benz' investment in Adtranz
is required to be accounted for using the equity method of
accounting. The differences in accounting treatment be
tween the pro-rata and equity methods would not effect re
ported stockholders' equity or net income of Daimler-Benz.
Under the equity method of accounting, Daimler-Benz' net
investment in Adtranz would be included within investments
in the balance sheet and its share of the net income or loss of
3. BUSINESS REORGANIZATION MEASURES
During 1995 and extending into 1996 the Group imple
mented certain measures designed to increase the Group's
competitiveness and earnings. Such measures consisted
principally of:
(a) Beginning in 1995 and continuing in 1996 the Group
spun off certain non-core businesses and other net assets
of AEG Aktiengesellschaft ("AEG") into EHG Elektro
Holding GmbH, closed the AEG corporate headquarters
and merged AEG with Daimler-Benz AG. Thereafter the
divestitures of the Energy Systems Technology and Auto
mation Divisions were completed. In June, 1996 the
shareholders of AEG approved the merger of AEG with
Daimler-Benz AG and in September, 1996, effective Janu
ary 1, 1996, such merger was formally registered in the
trade register. As part of the merger, the Group pur
chased the outstanding minority interest of AEG. In con
nection with the foregoing transactions, the Group re
corded charges to operations of approximately DM 300
and DM 1,600 in 1996 and 1995, respectively. See note 25
for information regarding the sale of the recognition and
sorting systems business.
(b) In January 1996 Daimler-Benz announced that, effective
immediately, it would discontinue financial support for
NV Koninklijke Nederlandse Vliegtuigenfabriek ("Fok-
ker"), the Dutch aircraft manufacturer. Subsequent to the
announcement Fokker requested and received, in accord
ance with Dutch law, protection from its creditors. In con
nection therewith, control Of Fokker was placed with a
third-party administrator. On March 15, 1996 Fokker for
mally filed for bankruptcy under the laws of The Nether
lands. The Group recorded a charge in the 1995 statement
of income of DM 2,158 for discontinuing such investment.
During 1996 the Group realized gains of approximately
DM 100 from the proceeds of sales of certain inventories
in excess of the inventories' previously written-down value.
(c) Beginning in 1994 and accelerating in 1995, the DM ap
preciated significantly against the U.S. dollar, the curren
cy in which a significant percentage of the Aerospace di
visions revenues are denominated. An appreciation of
the DM relative to the U.S. dollar results in the Group
receiving, when converted to DM, less revenue (and cash
proceeds) from the sales of its products. In addition, Aer
ospace continued to suffer significant operating losses as
a result of continued low levels of demand in the aircraft
market and shrinking government budgets in the space
and defense sectors. As a result of the foregoing the
Group instituted comprehensive cost-cutting and restruc
turing measures, including personnel reductions of ap
proximately 4,000 employees in Germany and the sale of
three German production facilities. The Group recorded a
charge of DM 878 in the 1995 statement of income to cov
er the cost of such measures. In addition, Daimler-Benz
also recorded a charge to DM 2,558 in 1995 to write-off
goodwill relating to the acquisition of certain businesses
included within Aerospace and to write-down certain
long-term assets.
During 1996 the aerospace industry experienced a signif
icant increase in demand. As a consequence, higher pro-
duction requirements resulted, especially for Daimler-
Benz Aerospace Airbus GmbH, in a reduction of its provi
sion for restructuring measures by approximately DM 300.
d) During 1996 the Group contributed its Dornier aircraft
business into a newly formed holding company 80%
owned by Fairchild Industries Corporation, an American
aircraft manufacturer. In connection therewith, the
Group recorded charges of approximately DM 435, of
which a portion included the businesses' loss from opera
tions up to the date of contribution. The Group is account
ing for its 20% investment in the holding company using
the equity method of accounting.
At year end 34,655 people (1995: 12,365 people) were
employed in joint venture companies.
The total remuneration paid by Group companies to the
members of the Board of Management of Daimler-Benz AG
amounted to DM 14 in 1996. The remuneration paid to the
members of the Supervisory Board of Daimler-Benz AG totals
DM 2 in 1996. Disbursements to former members of the
Board of Management of Daimler-Benz AG and their survi
vors amounted to DM 16 in 1996. An amount of DM 105 at
December 31, 1996 has been accrued in the financial state
ments of Daimler-Benz AG and Mercedes-Benz AG for pen
sion obligations to former members of the Board of Manage
ment and their survivors. As of December 31, 1996, there
existed no advances and loans to members of the Board of
Management of Daimler-Benz AG.
6. INCOME TAXES
come is initially subject to a federal corporation tax of 45%
Income (loss) before income taxes and minority interest
plus a surcharge of 7.5% on the federal corporate tax payable.
for the years ending December 31, 1996 and 1995, amounted
After giving effect to the surcharge, the federal corporate tax
to DM 1,961 and DM (7,233), respectively, of which DM 1,200
rate increases to 48.375%. Upon distribution of retained earn
and DM (6,874), respectively, have been generated by the
ings to stockholders, the corporate income tax rate on the
Group's operations in Germany.
distributed earnings is adjusted to 30%, plus the surcharge of
The provisions for income taxes (credit) follow:
7.5% on the federal corporate rate for a total of 32.25%, by
receiving a refund for taxes previously paid on income in ex
cess of 30%. Upon distribution of retained earnings in the
form of a dividend, German stockholders are entitled to a tax
credit in the amount of federal income taxes previously paid
by the corporation.
A reconciliation of income taxes determined using the
German federal corporate rate of 48.375% plus the after fed
eral tax benefit rate for trade taxes of 8.625% for a combined
statutory rate of 57% is as follows:
German corporate tax law applies a split-rate imputation
system with regard to the taxation of the income of a corpora
tion and its stockholders. In general, retained corporate in-
agement's estimate of the amount of the deferred tax assets
considered realizable may change, and hence, the valuation
allowance may increase or decrease.
Deferred income tax assets and liabilities are summa
rized as follows:
During 1996 the Group's consolidated valuation allow
ances decreased by DM 1,052. In 1996 the Group realized
income tax benefits from the utilization of loss carryforwards
of DM 673 relating to entities in the Aerospace division. The
tax benefits of such loss carryforwards had been fully re
served as of December 31,1995 since the entities had a histo
ry of operating losses prior to 1996 and such losses were lim
ited as to their use. Tax benefits recognized from other
changes to the valuation allowances in 1996 included the
merger of the former AEG into Daimler-Benz AG during 1996
after which the German loss carryforwards of AEG could be
utilized by the Group's German group of companies that file
a combined tax return ("Organschaft"). Prior to the merger
such NOL's were limited as to their use and accordingly were
fully reserved for.
In addition, during 1996 the Group realized tax benefits
related to investments written-down in previous years. In
1995 the Group was unable to recognize the tax benefits of
DM 260 resulting from losses incurred by Fokker for which
financial support was discontinued.
The amount of the Group's deferred tax allowances estab
lished at December 31,1996 and 1995 were based upon man
agement's belief that it was more likely than not that not all
of the deferred tax assets would be realized. In future peri
ods, depending upon Daimler-Benz' financial results, man-
At December 31, 1996, the Group had net operating loss
es ("NOLs") and corporate tax credit carryforwards amount
ing to approximately DM 16,551 (1995: DM 17,591). The ma
jority of the NOLs relate to the German group of companies
which are included in the filing of a combined tax return
("Organschaft") and have an unlimited carryforward period
under German tax law. The remainder of the NOL's relate to
losses of non-Organschaft companies and are limited in their
use to the company or group which generated the loss.
Net deferred income tax assets and liabilities in the con
solidated balance sheets are as follows:
Deferred tax liabilities have not been recognized on unre
ber 31, 1996 and 1995, respectively. Determination of the
mitted earnings of non-German subsidiaries intended to be
amount of unrecognized deferred tax liabilities is not practi
indefinitely reinvested (DM 2,527 and DM 2,709 at Decem
cable.
NOTES TO THE CONSOLIDATED BALANCE SHEETS
ings and technical equipment capitalized under capital lease
agreements, of DM 498 and DM 683 at December 31, 1996
7. PROPERTY, PLANT AND EQUIPMENT, NET
and 1995, respectively. Depreciation expense on assets un
Information with respect to the Group's property, plant
and equipment is presented in the Fixed Assets schedule in
cluded herein. Property, plant and equipment include build-
der capital lease arrangements was DM 86 and DM 121 in
1996 and 1995, respectively.
8. EQUIPMENT ON OPERATING LEASES, NET
Noncancellable future lease payments due from custom
Information with respect to the Group's equipment on
ers for equipment on operating leases at December 31, 1996
operating lease is presented in the Fixed Assets schedule in
amounted to DM 6,573 and are due as follows:
cluded herein. Of the total equipment on operating lease DM
11,402 and DM 8,882 at December 31, 1996 and 1995, re
spectively, represent automobiles and commercial vehicles.
The amount for equipment on operating leases in 1996 and
1995 include initial direct costs of contracts of DM 118 and
DM 108, respectively.
Raw materials and manufacturing supplies
Work in process
thereof realting to long-term contracts
and programs in process DM 1,485
(1995: DM 371)
Finished goods, parts and goods
purchased for resale
Advance payments to suppliers
Less: Advance payments received
thereof relating to long-term contracts
and programs in process DM 582
(1995: DM 641)
Certain of the Group's U.S. businesses' inventories are
valued using the last-in, first-out method. If the FIFO method
had been used instead of the UFO method, inventories would
have been higher by DM 299 and DM 240 at December 31,
1996 and 1995, respectively.
Receivables from sales of goods and services
Long-term contracts and programs, unbilled,
net of advance payments received
n. RECEIVABLES FROM FINANCIAL SERVICES
Sales financing and finance lease receivables consist of
retail installment sales contracts secured by automobiles and
commercial vehicles. Contractual maturities applicable to re
ceivables from sales financing and finance leases maturing
in each of the five years following December 31, 1996 are as
follows:
As of December 31, 1996 and 1995 DM 11,098 and DJV
8,142 of the total financing receivables mature after mon
than one year.
Receivables from affiliated companies
Receivables from related companies ])
Other receivables and other assets
1) Related companies include entities which have a significant ownership in Daimler-Benz or entities in which the Group holds a significant
investment.
13. SECURITIES AND INVESTMENTS
Information with respect to the Group's investments and
long-term financial assets is presented in the Fixed Assets
schedule included herein. Securities included in current as
sets are comprised of the following:
Carrying amounts and fair values of debt and equity se
curities included in securities and investments for which fair
values are readily determinable are classified as follows:
Aggregate cost, fair values and gross unrealized holding
gains or losses per security class are the following:
The cost and estimated fair values of investments in debt
Proceeds from sales of available-for sale securities in
securities at December 31,1996 and 1995, by contractual ma
1996 and 1995 were DM 1,126 and DM 337, respectively.
turity, are shown below. Expected maturities may differ from
Gross realized gains in 1996 and 1995 from sales of available-
contractual maturities because borrowers may have the right
for-sale securities on a specific identification basis were DM
to call or prepay obligations with or without penalty.
22 and DM 6, respectively. Gross realized losses in 1996 and
1995 from sales of available-for-sale securities on a specific
identification basis were DM 6 and DM 1, respectively.
14. CASH AND CASH EQUIVALENTS
equivalents include DM 174 and DM 658 at December 31,
As of December 31, 1996 and 1995 cash and cash equiva
1996 and 1995, respectively, of amounts on deposit with a
lents include DM 1,337 and DM 283, respectively, of deposits
related party.
with maturities of more than three months. Cash and cash
15. ADDITIONAL CASH FLOW INFORMATION
The following information with respect to cash flows is
Liquid assets recorded under various balance sheet cap
provided:
tions as of December 31, 1996 and 1995 are as follows:
Cash and cash equivalents
available within 3 months
Deposits which mature after 3 months
Securities
Other
16. STOCKHOLDERS' EOUITY
amounts based upon a 5 DM per share nominal value. Due to
At December 31, 1995 the Group had issued and out
the issuance of shares to employees and the conversion of
standing 51,368,736 Ordinary Shares with a nominal (par)
options into shares the number of issued and outstanding
value of 50 DM per share. On May 22, 1996 the Group, upon
Ordinary Shares increased to 515,396,396 as of December
the approval of its shareholders, reduced the nominal value
31, 1996.
of its Ordinary Shares from 50 DM per share to 5 DM per
Daimler-Benz stockholders on June 26, 1991, authorized
share effective July 1, 1996. This resulted in an increase in
through June 30, 1996 the issuance of Ordinary Shares of up
the number of Ordinary Shares outstanding from 51,368,736
to DM 600 nominal value of which the remaining unutilized
shares to 513,687,360 shares. Per share information for all
portion of DM 367 expired in 1996. On May 22, 1996 the
periods presented has been adjusted to reflect per share
stockholders approved the issuance of Ordinary Shares up to
an aggregate amount of DM 500 nominal value through April
30,2001.
At the annual general meeting held on May 18, 1994
Daimler-Benz was authorized by its stockholders to issue Or
dinary Shares of DM 20 nominal value to employees of which
DM 9 are unissued and expire on April 30, 1999. In 1996 and
1995, 1,050,000 and 700,000 Ordinary Shares, respectively,
were issued to employees leading to increases of capital stock
and additional paid-in capital of DM 6 and DM 3 and DM 80
and DM 44, respectively.
Subject to preemptive rights of existing stockholders,
Daimler-Benz in the stockholders' meeting held on May 18,
1994 and May 22, 1996 has received the authority for future
issuances of Ordinary Shares up to DM 300 in connection
with convertible bonds and bonds with warrants. This au
thority, which limits the total nominal value of such convert
ible bonds and bonds with warrants to be issued to DM 2,000
and which expires on April 30, 1999, was used during 1996
for the issuance of convertible notes by Daimler-Benz Capital
(Luxembourg) AG. Convertible notes in the amount of DM
750 were issued with a nominal value of 1,000 DM each, in
cluding a total of 7,690,500 options which, on the basis of the
option agreement, entitle the bearer of the option to sub
scribe for Ordinary Shares of Daimler-Benz AG. The option
price per share is DM 95.07 in consideration of exchange of
the notes or DM 98.65 in cash. During 1996 options for the
subscription of 36 shares have been exercised. Proceeds
from issuance of the notes, net of expenses, were DM 711.
On May 22, 1996 the shareholders of Daimler-Benz ap
proved establishment of The Stock Option Plan of the Daim
ler-Benz Group (the "Plan") which provides for the granting
to certain members of management options for the purchase
of Daimler-Benz Ordinary Shares. Daimler-Benz has reserved
up to DM 40 of contingent authorized nominal capital for the
issuance of new Ordinary Shares under the Plan. The options
granted under the Plan are evidenced by non-transferable
5.9% convertible bonds due 2006 with a principal amount of
1,000 DM per bond (the "Convertible Bonds"). Each Convert
ible Bond entitles the holder thereof to convert the bond into
Ordinary Shares with an aggregate nominal value of 1,000
DM (equating to 200 shares). For convertible bonds sold in
1996 the conversion price per share was DM 83.77 (the stock
exchange price as of May 23, 1996), of which the remaining
DM 78.77 must be paid in cash. Every year the conversion
privilege under the bond can be exercised only within four
periods of three weeks each, if the stock exchange price per
Ordinary Share is at least 115 % of the predetermined conver
sion price. Activity during 1996 with respect to the Plan fol
lows:
As a consequence of the foregoing activity, capital stock
increased by DM 3 and additional paid-in capital by DM 52.
Daimler-Benz adopted the disclosure-only option under SFAS
No. 123, Accounting for Stock-Based Compensation, as of Ja
nuary 1, 19°6. If the accounting provisions of the new State
ment had been adopted, the effect on 1996 net income would
have been immaterial.
The minority stockholders of Dornier have the right to
exchange their interest in Dornier for holdings of equal value
in Daimler-Benz Aerospace or Ordinary Shares of Daimler-
Benz AG and such options are exercisable at any time. If such
rights were exercised in full, the number of Ordinary Shares
of Daimler-Benz AG which would be exchangeable for Dorni
er shareholdings would not be material to the Group or its
stockholders.
Under German corporation act, the amount of dividends
available for distribution to shareholders is based upon the
earnings of Daimler-Benz AG (parent company only) as re
ported in its statutory financial statements determined in ac
cordance with the German commercial code (Handelsgesetz-
buch). At December 31, 1996 Daimler-Benz AG had retained
earnings of DM 7,342. For the year ended December 31, 1996
Daimler-Benz management has proposed to distribute DM
567 of the 1996 earnings of Daimler-Benz AG as a dividend to
the stockholders.
A) RETIREMENT PLANS
Pension plans and similar obligations are comprised of
the following components:
The Group operates various defined benefit pension
plans all based upon years of service. Some pension plans
are based on salary earned in the last year of employment
and some are fixed DM-amount plans depending on ranking
(both wage level and position).
The funded status of the Group's major retirement plans
is as follows:
Plan assets consist primarily of investments in equity
and fixed interest securities and real estate.
Assumed discount rates and rates of increase in remu
neration used in calculating the projected benefit obligations
together with long-term rates of return on plan assets vary
according to the economic conditions of the country in which
the retirement plans are situated. The average factors used in
the principal retirement plans were as follows:
Certain of the Group's U.S. operations provide postretire-
ment medical benefits to their employees. The net periodic
pension cost for the years ended December 31, 1996 and
1995 was DM 26 and DM 25, respectively.
In connection with the Group's workforce reduction pro
gram the Group recorded in 1996 and 1995 provisions for
termination benefits of DM 423 and DM 842, respectively,
principally within Mercedes-Benz, AEG-DBI and Daimler-Benz
Aerospace. During 1996 and 1995 the Group effected work
force reductions of approximately 11,800 and 14,800 employ
ees, respectively. In this connection with certain of such re
ductions DM 745 and DM 1,489 in 1996 and 1995, respect
ively, of termination benefits were paid of which DM 556
and 1,132 in 1996 and 1995, respectively, were charged against
previously established liabilities. At December 31, 1996 the
Group had liabilities for estimated future terminations of ap
proximately 16,300 employees.
Exit costs in 1995 mainly result from plans to reduce the
production capacity of AEG-DBI and Daimler-Benz Aerospace
and in 1996 relate exclusively to businesses of the former
AEG DBI.
At December 31, 1996 and 1995, liabilities to financial
institutions include approximately DM 721 and DM 609, re
spectively, owed to related parties. Commercial paper is de
nominated in DM and U.S. dollars and includes accrued inter
est. Bonds and liabilities to financial institutions are largely
secured by mortgage conveyance, liens and assignment of
receivables of approximately DM 2,381 and DM 2,516, as of
December, 1996 and 1995.
Aggregate amounts of financial liabilities maturing dur
ing the next five years and thereafter are as follows:
At year end 1996 and 1995, the Group had unused non-
cancellable short-term credit lines of DM 14,255 and DM
13,581, respectively, and unused non-cancellable long-term
credit lines of DM 5,672 and DM 5,703, respectively.
Liabilities to related companies are primarily obligations
of Daimler-Benz Aerospace Airbus GmbH to Airbus Industrie
G.I.E., Toulouse.
ber 31, 1996 and 1995 tax liabilities include withheld em
ployee taxes of DM 972 and DM 985, respectively, and social
benefits due of DM 906 and DM 1,182, respectively.
Other liabilities mainly relate to payroll obligations of the
month of December and related tax liabilities. As of Decem
OTHER NOTES
21. LITIGATION AND CLAIMS
Various legal actions, governmental investigations, pro
ceedings and claims are pending or may be instituted or as
serted in the future against the Group. Litigation is subject to
many uncertainties; the outcome of individual litigated mat
ters is not predictable with assurance; and it is reasonably
possible that some of the matters could be decided unfavora
bly to the Group. Although the amount of liability at Decem
ber 31, 1996 with respect to these matters cannot be ascer
tained, the Group believes that the resulting liability, if any,
should not materially affect the consolidated financial posi
tion of the Group at December 31, 1996.
from such customer financing commitments is considered
remote.
The Group's obligations under the foregoing financing
commitments of Airbus consortium are joint and several
with its other partners in the consortium. In the event that
Airbus, despite the underlying collateral, was unable to hon
our its obligations, the Group is confident that each of its oth
er consortium partners would be responsible for their propor
tionate share of Airbus' obligations.
In connection with the Group's acquisition of Messer-
schmitt-Bolkow-Blohm GmbH ("MBB") in 1989 and the relat
ed indirect acquisition of all outstanding shares of DA and in
order to facilitate the complete privatisation of MBB and,
through DA, its activities as the German participant in Air
bus Industrie, the Government of the Federal Republic of Ger
many agreed to:
(i) assume responsibility for the repayment of certain bank
loans guaranteed by the Government in the past and, un
der certain conditions, further to assume responsibility
for certain additional loans which DA has since repaid,
(ii) continue funding a substantial portion of certain already
launched Daimler-Benz Aerospace Airbus development
programs,
(iii)continue to provide certain exchange rate guarantees for
1991, 1990 and 1989, and
(iv) defer its immediate rights to any repayment of develop
ment grants and other advances made to Daimler-Benz
Aerospace Airbus and its predecessor companies.
The development grants and other advances are repaya
ble by DA, on a contingent basis, through DA making annual
payments equal to 40% of the pretax profits as defined, if any,
of DA for the preceding fiscal year, beginning for the fiscal
year 2002 (subject to advance to the year 2000 under certain
conditions). Each annual payment is contingent on DA hav
ing earned pretax profits in the preceding year. Such pretax
profits are subject to reduction by application of any prior
years' (beginning with the year 2002) cumulative loss carry
forwards. DA may not pay dividends prior to the commence
ment date of the 40% profit sharing obligation; provided that
if it were to do so it would be required to commence profit
sharing payments at the same time. The payments of 40% of
annual pretax profits will be made on the foregoing contin
gent basis until all development grants and other advances
Contingent liabilities represent principally guarantees of
indebtedness of non-consolidated affiliated companies and
third-parties and commitments by Group companies as to
contractual performance by joint venture companies. Daim
ler-Benz Aerospace is also obligated to make certain guaran
teed dividend payments to minority shareholders.
As part of the government supported Airbus Develop
ment Program, the Group is committed to incur future devel
opment costs. At December 31, 1996 the remaining commit
ment aggregated DM 136. In addition the Group has pledged
the assets of Daimler-Benz Aerospace Airbus GmbH ("DA")
acquired with development funds, to the Federal Republic of
Germany.
Airbus Industries G.I.E. ("Airbus consortium") has given
a performance guarantee to Agence Executive, the French go
vernment agency overseeing Airbus; such performance guar
antee has been assumed by DA to the extent of its 37.9 %
participation in the Airbus consortium.
At December 31, 1996, in connection with DA's participa
tion in the Airbus consortium, the Group was contingently
liable related to the consortium's irrevocable financing com
mitments in respect of aircraft on order, including options,
for delivery through 2001 or later. In addition, the Group was
also contingently liable related to credit guarantees and par
ticipation in financing receivables of Airbus consortium un
der customer finance programs. When entering into such
customer financing commitments Airbus consortium has
generally established a secured position in the aircraft being
financed. Airbus consortium and the Group believe that the
estimated fair value of the aircraft securing such commit
ments would substantially offset any potential losses from
the commitments. As Airbus consortium has not, historically,
experienced a problem accessing such collateral, the proba
bility of Airbus consortium experiencing material losses
are repaid. Because the amount of these annual payments, if
any, will depend upon the profitability of DA beginning with
the year 2002 and because such profitability will be a func
tion of numerous unpredictable factors, including the then
prevailing dollar/mark exchange rate, the Group is unable to
predict with certainty how long DA will remain subject to the
contingent 40% profit sharing obligation. However, the Group
currently believes it likely that the repayment term will ex
tend over a period of decades from the year 2002. The Group
may not sell or transfer a majority of the capital stock of DA
without the consent of the German Federal Government.
In the normal course of business, the Group sells to third-
parties certain of its financial services assets. During the
years ended December 31, 1996 and 1995 the Group sold as
sets for proceeds of DM 1,774 and DM 817, respectively. In
connection with such sales, at December 31, 1996 the Group
remained liable under recourse provisions for DM 341.
23. INFORMATION ABOUT FINANCIAL INSTRUMENTS
A) USE OF FINANCIAL INSTRUMENTS
In the course of normal business Daimler-Benz uses fi
nancial instruments, including securities, bonds, commer
cial paper, and, as a consequence, may be exposed to risks
from changes in interest and currency exchange rates as well
as share prices. Daimler-Benz uses derivative financial in
struments as a means of hedging to reduce such risks. With
out the use of these instruments the Group's exposure to
market risks may be higher.
Based on regulations issued by regulatory authorities for
financial institutions, the Group has established guidelines
for risk assessment procedures and controls for the use of
financial instruments. They include a clear segregation of
duties with regard to trading on one side and execution, ac
counting and controlling on the other.
Market risk to which the portfolio of financial instru
ments of Daimler-Benz AG and its German subsidaries may
be exposed is quantified according to the "value-at-risk"
method which is commonly used among banks. Using histor
ical variability of market values, a potential loss resulting
from changes of market prices is calculated on the basis of
statistical methods. The maximum acceptable market risk
The Group is jointly and severally liable for certain non-
incorporated companies, partnerships and project groups.
The total rentals under operating leases, charged as an
expense in the statement of income amounted to DM 885 and
DM 878 in the years ended December 31, 1996 and 1995,
respectively.
The future minimum lease payments under rental and
lease agreements, that have initial or remaining terms in ex
cess of one year at December 31, 1996 are as follows:
has been fixed by management in the form of a risk capital
which has been approved for one year. The adherence to the
risk capital is regularly monitored. It is the Group's intention
to extend the "value-at-risk" approach to all subsidaries with
significant treasury activity.
B) NOTIONAL AMOUNTS AND CREDIT RISK
The contract or notional amounts shown below do not al
ways represent amounts exchanged by the parties and, thus,
are not necessarily a measure for the exposure of Daimler-
Benz through its use of derivatives.
The notional amounts of off-balance sheet financial in
struments are as follows:
Currency contracts include foreign exchange forward
and option contracts which are mainly utilized to hedge exist
ing assets and liabilities, firm commitments and anticipated
transactions denominated in foreign currencies (principally
U.S. dollars, Japanese Yen and major Euro-currencies). The
principal objective of the Group's hedging transactions is to
reduce the exposure of its foreign denominated future cash
flows to exchange rate fluctuations. The Group has entered
into currency contracts to cover foreign exchange risks on
certain anticipated foreign currency transactions relating to
sales and purchase transactions expected to occur within a
period of one to five years.
The Group enters into interest and interest rate cross-cur
rency swaps, interest rate forward and futures contracts and
interest rate options in order to reduce funding costs, to di
versify sources of funding, or to alter interest rate exposures
arising from mismatches between assets and liabilities.
The Group may be exposed to credit-related losses in the
event of non-performance by counterparties to financial in
struments. Counterparties to the Group's financial instru
ments represent, in general, international financial institu
tions. Daimler-Benz does not have a significant exposure to
any individual customer or counterparty, based on the rating
of the counterparties performed by established rating agen
cies. The Group believes the overall credit risk related to uti
lized derivatives is insignificant.
c) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current trans
action between willing parties. Fair values of financial instru
ments have been determined with reference to available mar
ket information and the valuation methodologies discussed
below. However, considerable management judgement is re
quired in interpreting market data to arrive at fair values.
Accordingly, the fair values presented herein may not be in
dicative of the amounts that the Group could realize in a cur
rent market exchange.
The carrying amounts and fair values of the Group's fi
nancial instruments are as follows:
The carrying amounts of the on-balance sheet financial
instruments in the table are included in the balance sheets
under the indicated captions. The carrying amounts of the
off-balance sheet financial instruments are included under
other assets and accrued liabilities. The carrying values of
cash, other receivables and accounts payable approximate
fair values due to the short-term maturities of these instru
ments.
In determing the fair values of derivative financial instru
ments certain compensating effects from underlying transac
tions (e.g. firm commitments and anticipated transactions)
are not taken into consideration. At December 31, 1996 and
1995 the Group had deferred net unrealized gains on forward
currency exchange contracts and options of DM 462 and DM
646, respectively, purchased against firm foreign currency
denominated sales commitments extending for varying peri
ods between three and twenty-four months.
The methods and assumptions used to determine the fair
values of financial instruments are summarized below:
Financial Assets and Securities - Fair value of securities in
the long-term portfolio was estimated using quoted market
prices. The Group has certain equity investments in related
and affiliated companies not listed in the table. Since certain
of these investments are not publicly traded, determination
of fair values is impracticable. The fair value of securities in
the short-term portfolio was estimated using quoted market
prices.
Receivables from Financial Services - The carrying value
of variable rate finance receivables was estimated to approxi
mate fair value since they are priced at current market rates.
The fair value of fixed rate finance receivables was estimated
by discounting expected cash flows using the current rates at
which loans of similar credit quality and maturity would be
obtained made as of December 31, 1996 and 1995.
Financial Liabilities - Fair value of publicly traded debt
was estimated using quoted market prices. The fair value of
other long-term notes and bonds was estimated by discount
ing future cash flows using rates currently available for debt
of similar terms and remaining maturities. The carrying val
ues of commercial paper and borrowings under revolving
credit facilities were assumed to approximate fair value due
to their short maturities.
Interest Rate Contracts - The fair values of existing inter
est rate and cross currency interest rate swap agreements
were estimated by discounting expected cash flows using
market interest rates over the remaining term of the instru
ment. Options are valued on the basis of quoted market pric
es or on estimates based on option pricing models.
Currency Contracts - The fair value of forward foreign ex
change contracts is based on quoted prices for contracts of
similar terms. Options are valued on the basis of quoted mar
ket prices or on estimates based on option pricing models.
Other Financial Guarantees - Because of the individual
nature of these guarantees estimation of the fair value is not
practicable.
24. SEGMENT REPORTING
• Services - services related to information technology, fi
Daimler-Benz operates in four divisions; a description of
nancial services, insurance brokerage, trading, telecom
the products and services from which each segment derives
munication and media and real estate management.
its revenues follows:
• Directly managed businesses (DMB) - In 1996 represents
• Automotive — design, manufacture, assembly and sale of
50% interest in Adtranz and microelectronics and auto-
passenger cars and commercial vehicles principally un
mation processing products and diesel engines. In 1995
der the trade mark Mercedes-Benz as well as related
represented the AEG-DBI corporate unit which included
parts and accessories.
each of the foregoing business activities plus other busi
• Aerospace - development, production and sale of com
nesses including products for the transmission and dis
mercial and military aircraft and helicopters, of satellites
tribution of electricity.
and related space transportation systems, defense related
Sales and revenues related to transactions between seg
products, including radar and radio systems, and propul
ments are generally recorded at values that approximate
sion systems.
commercial selling prices.
(1) In 1996 includes Adtranz accounted for using the proportionate
method of accounting. See Note 2.
(2) Includes DM 2,443 of automobiles leased to customers under oper
ating leases that have been sold to Group leasing and sales financ
ing entities with guarantees as to the residual value of the products
at the end of such leases.
(3) 1996 Aerospace operating loss includes charges of DM 435 related
to the aircraft business of Dornier offset by approximately DM 300
of reductions in provisions for restructuring measures. See Note 3.
(4) In 1995 the Aerospace operating loss includes DM 5,594 of charges
related to restructuring measures, goodwill and other write-offs and
the decision to discontinue financial support for Fokker. In 1995 the
DMB operating loss includes DM 1,596 of charges related to restruc
turing of AEG (see note 3) and write downs to fixid assets (DM 331).
(5) Includes Aerospace write-downs to fixed assets, including goodwill,
of DM 2,558 and DMB DM 331.
A reconciliation of income before financial income and
taxes to operating profit follows:
(1) 1996 operating profit includes charges of DM 435 related to the air
craft business of Dornier offset by approximately DM 300 of reduc
tions in provisions for restructuring measures. 1995 operating loss
includes DM 7,190 of charges related to restructuring measures,
goodwill and other write-offs, the decision to discontinue financial
support for Fokker and the restructuring of AEG. See note3.
Geographic information with respect to the Group's reve
nues, net income and identifiable assets follows:
25. SUBSEQUENT EVENTS
In January, 1997 the Group agreed to sell its interests in
AEG Electrocom GmbH and AEG/ElectroCom International,
Inc., the Group's recognition and sorting systems business,
to Siemens AG.
In addition, in February, 1997, the Group's U.S. commer
cial vehicle subsidiary, Freightliner Corporation, entered into
a letter of intent with Ford Motor Company ("Ford") providing
for the acquisition by Freightliner of certain of Ford' s heavy
duty truck businesses, principally in North America.
PROPOSAL FOR THE ALLOCATION OF
UNAPPROPRIATED PROFIT
The annual financial statements of Daimler-Benz AG as of
December 31, 1996, show an unappropriated profit of DM
648,875,451.55. It will be proposed at the Annual General
Meeting that this amount be applied as follows:
The financial statements of Daimler-Benz Aktiengesellschaft and the
consolidated financial statements prepared in accordance with German
GAAP were audited by KPMG Deutsche Treuhand-Gesellschaft Aktien
gesellschaft Wirtschaftsprufungsgesellschaft and an unqualified opinion
was rendered thereon. These financial statements will be published in
the Bundesanzeiger (federal registry) and filed at the County Court
House in Stuttgart. T he financial statements may be obtained from
Daimler-Benz AG, Poststelle, 70546 Stuttgart, Tel./Fax. 0711/17-92287.
SUPERVISORY BOARD
Hilmar Kopper
Frankfurt/Main
Member of the Board of Managing
Directors, Deutsche Bank AG
Chairman
Karl Feuerstein*)
Mannheim
Chairman of the Corporate Labor
Council, Daimler-Benz Group
Deputy Chairman
Willi Bohm*)
Worth
Member of the Labor Council of the
Mercedes-Benz Plant Worth
Erich Klemm*)
Sindelfingen
Chairman of the Labor Council of the
Mercedes-Benz Plant Sindelfingen
Peter Schonfelder*)
Augsburg
Member of the Labor Council,
Daimler-Benz Aerospace AG
Martin Kohlhaussen
Frankfurt/Main
Chairman of the Board of Managing
Directors, Commerzbank AG
Rudolf Kuda*)
Frankfurt/Main
Departmental Manager,
Office of the Board of Management,
Metalworkers' Union
Prof. Dr. jur. Johannes Semler
Kronberg/Taunus
Attorney at Law
Bernhard Wurl*)
Frankfurt/Main
Departmental Manager,
Office of the Board of Management,
Metalworkers' Union
Helmut Lense*)
Committees of the Supervisory
Dr. h.c. Birgit Breuel
Berlin
General Commissioner of EXPO 2000
Stuttgart
Chairman of the Labor Council of the
Mercedes-Benz Plant Unterturkheim
Prof. Hubert Curien
Paris
Former Minister of Research and
Technology of the Republic of France
Walter Riester*)
Frankfurt/Main
Second Chairman, Metalworkers' Union
Jiirgen Sarrazin
Frankfurt/Main
Chairman of the Board of Managing
Directors, Dresdner Bank AG
Dr. jur. Roland Schelling
Stuttgart
Attorney at Law
Herbert Schiller*)
Frankfurt/Main
Chairman of the Corporate Labor
Council, debis AG
(since 10/25/1996)
Dr. jur. Michael Endres
Frankfurt am Main
Member of the Board of Managing
Directors, Deutsche Bank AG
Manfred Gobels *)
Stuttgart
Chairman of the Senior Managers'
Committee, Daimler-Benz Group
Ulrich Hartmann
Diisseldorf
Chairman of the Board of Management
and CEO, VEBA AG
*) Employee representatives.
Dr. rer. pol. Manfred Schneider
Leverkusen
Chairman of the Board of Management,
Bayer AG
Outgoing Member of the
Supervisory Board:
Wolfgang Gabele*)
Bremen
(on 10/04/1996)
Board:
Committee pursuant to
§27 Sec. 3 MitbestG
Hilmar Kopper (Chairman)
Karl Feuerstein
Prof. Dr. jur. Johannes Semler
Bernhard Wurl
Executive Committee
Hilmar Kopper (Chairman)
Karl Feuerstein
Prof. Dr. jur. Johannes Semler
Bernhard Wurl
Audit Committee
Hilmar Kopper (Chairman)
Karl Feuerstein
Willi Bohm
Dr. h.c. Birgit Breuel
REPORT OF THE SUPERVISORY BOARD
In 1996, the Supervisory Board and the Board of
Management jointly reviewed
the development and
situation of the group at four regular meetings and one
extraordinary meeting. Individual issues were also
discussed.
The Executive Committee met twice during the course
of the year under review and among other things treated
matters relating to the Board of Management. The Audit
Committee also met twice, and together with the inde
pendent auditors discussed the 1995 financial state
ments and the interim report for the first six months of
1996 at length. The Committee formed pursuant to the
German Law on Codetermination did not need to meet.
At each of the meetings, the Board of Management
informed
in detail of the
development of business and the financial situation of
the Company and each individual business unit with a
management report and as part of its monthly reporting.
Special events beyond the scope of the individual
treatment of issues at the meetings were
reported in writing and by means of
oral reports. Moreover, the Chairman
of the Supervisory Board was continu
ously advised by the Board of Manage
ment in individual meetings.
the Supervisory Board
the business plan for
The regular items treated at the
Supervisory Board meeting in February
the
included
medium-range future together with the
investment, personnel, and earnings
planning and the Company's refinan
cing needs. The 1995 financial statements were re
viewed at the meeting in April. In addition, any matters
requiring approval as per the articles of incorporation
were also discussed.
The selection of the other items treated was governed
by the measures resulting from the review of the group's
portfolio initiated by the Board of Management in mid-
1995. The key topic at the special meeting in January
1996 was thus the discontinuation of financial support
for Fokker, and at the meeting in April the merger of
AEG AG with Daimler-Benz AG, which became legally
effective on September 20, 1996. The group's sub
stantial sources of loss were thus eliminated.
Several important activities were sold as part of the
earnings-oriented and strategic streamlining of the
portfolio, for instance the Industrial Automation, Po
wer Transmission, and Postal Automation units formerly
belonging to AEG. Noteworthy measures taken' at Dasa
included the sale of Dornier Medizintechnik and at
TEMIC the sale of Bayern-Chemie.
Other individual items the Supervisory Board at
tended to concerned the negotiations with the German
government about the realization of the Eurofighter
program at Dasa and the restructuring of Dornier re
gional jets with the sale of Dasa's majority interest to
Eairchild. At debis the Board of Management reported
in detail on the risk positions within the Financial Ser
vices business unit, the activities relating to the move
able property and real estate leasing fund, and the
successful restructuring at Cap Gemini.
Moreover, the Board of Management informed the
Supervisory Board in depth on developments at Adtranz
and the progress of the project on Pots-
latz in Berlin. On the basis of
damer
the reports described in the foregoing,
the Supervisory Board reviewed the
management activities of the Board of
Management.
In addition, the Board of Manage
ment presented the overall strategy of
Mercedes-Benz and the strategy for the
Asian and Latin American regions. With
respect to the commercial sector, the
Board of Management elucidated the
competitive situation and the cost position in Western
Europe and explained the new passenger car projects
Smart, A-Class, and M-Class.
At debis the Supervisory Board reviewed the overall
strategy and, in particular, the advancing globalization
in the financial services sector as well as strategic
projects in the Telecommunications and Media Services
unit.
The discussion of strategies at Dasa concentrated
for the most part on commercial aircraft and in this
regard on Dasa's position with respect to the corporate
restructuring of Airbus and the development of the A3 XX
wide-body jet. At TEMIC, the focus was on the restruc-
turing measures introduced and the streamlining of
activities.
In the second half of the year, the Supervisory Board
consulted the Board of Management at length about
the overall strategy and realignment of the corporate
structure including the merger of Mercedes-Benz AG with
Daimler-Benz AG, a topic that was ultimately dealt with
conclusively at the special Supervisory Board meeting
on January 23, 1997. With the new management struc
ture, the Board of Management has created a signifi
cantly leaner organization, which will enable the rele
vant business units to operate more expeditiously and
efficiently in the market.
The 1996 financial statements of Daimler-Benz AG,
the consolidated financial statements and the combined
business review according
to German accounting
principles were examined, along with the accounting
principles used, by KPMG Deutsche Treuhand-Gesell-
schaft AG Wirtschaftsprüfungsgesellschaft, Frankfurt/
Main, and endorsed with an unqualified audit certifi
cate. With restriction on the proportionate method of
consolidation for joint ventures which is used by Daim
ler-Benz and specifically allowed by the Securities and
Exchange Commission (SEC), this is also valid for the
consolidated financial statements according to U.S.
GAAP. These documents, together with the Board of
Management's proposed appropriation of earnings and
the independent auditors' audit report, were presented
to the Supervisory Board. They were reviewed by the
Audit Committee and
the Supervisory Board and
discussed together with the auditors. The Supervisory
Board noted and approved the results of the indepen
dent auditors' examination and following
its own
examination found no grounds for objection. In its
meeting on April 11, 1997, the Supervisory Board ac
knowledged the 1996 consolidated financial statements,
approved and ratified the 1996 financial statements of
Daimler-Benz AG, and agreed with the Board of Manage
ment's proposed appropriation of earnings.
Upon the completion of the merger of AEG AG with
Daimler-Benz AG on September 20, 1996, Mr. Stockl
resigned from the Board of Management of Daimler-
Benz AG.
The Supervisory Board mandate of Mr. Gabele,
Chairman of the Corporate Labor Council and the Joint
Labor Council of AEG AG, expired in the course of the
sale of AEG Anlagen- und Automatisierungstechnik
GmbH. Mr. Schiller, Chairman of the Corporate Labor
Council of debis AG, was appointed by the Stuttgart
District Court as his successor on October 25, 1996.
The Board of Management member responsible for
the Research and Technology department, Prof. Weule,
resigned from the Board of Management at his own
request upon the expiration of his contract on December
31, 1996. The Supervisory Board appointed Mr. Vohrin-
ger as his successor on January 23, 1997.
In the meeting on April 3, 1996, the Supervisory
Board appointed Dr. Cordes as a deputy member of the
Board of Management effective July 1, 1996 and on
January 23, 1997 as a regular member of the Board of
Management effective April 1, 1997. He is responsible
for corporate development and the Directly Managed
Businesses.
At his own request Mr. Werner resigned prematurely
from the Board of Management effective January 31,
1997
In the meeting on January 23, 1997, the following
additional changes in the Board of Management, to take
effect on April 1, 1997, were resolved in connection with
the new structure of Daimler-Benz AG: Dr. Gentz trans
ferred his responsibility for the Personnel department,
which until then he had directed in addition to the Fi
nance department, to Mr. Tropitzsch, who was ap
pointed as personnel director and was newly appointed
to the Board of Management alongside Mr. Hubbert
(Passenger Car Division), Dr. Lauk (Commercial Vehicle
Division), and Dr. Zetsche (Sales and Marketing).
We would like to extend our special thanks to the
departing board members for their successful efforts in
the Company and for their advice and commitment.
Stuttgart-Mohringen, April 1997
Tie Supervisory Board
ADDRESSES AND INTERNATIONAL REPRESENTATION OFFICES
ADDRESSES
DAIMLER-BENZ CORPORATE REPRESENTATIVE OFFICES
Daimler-Benz AG
D-70546 Stuttgart
Tel. (49) 711-17 1
Fax (49) 711-17 94022
Daimler-Benz Aerospace AG
D-81663 Munich
Tel. (49) 89-607 0
Fax (49) 89-607 26481
Daimler-Benz InterServices
(debis) AG
P. 0. Box 33 06 25
D-14176 Berlin
Tel. (49) 30-89787 260
Fax (49) 30-89787 393
Rail Systems
ABB Daimler-Benz
Transportation GmbH
P. 0. Box 13 01 27
D-13601 Berlin
Tel. (49) 30-3832 0
Fax (49) 30-3832 2000
Microelectronics
TEM1C TELEFUNKEN
microelectronic GmbH
P.O. Box 35 35
D-74025 Heilbronn
Tel. (49) 7131-67 0
Fax (49) 7131-67 2340
MTU/Diesel Engines
MTU Friedrichshafen GmbH
D-88040 Friedrichshafen
Tel. (49) 7541-90 0
Fax (49) 7541-90 5000
M A J OR SUBSIDIARIES OF DAIMLER-BENZ AG
MAJOR DIFFERENCES BETWEEN GERMAN AND U.S. ACCOUNTING PRINCIPLES
FUNDAMENTAL DIFFERENCES
This becomes most relevant in the calculation of un
German and U.S. accounting principles are based on
realized profits from the evaluation of foreign currency
fundamentally different perspectives. While accounting under
amounts as at the balance sheet date and from derivative
the German HGB emphasizes the principle of caution and
financial instruments.
creditor protection, the availability of relevant information for
According to German accounting regulations, securities
shareholder decision-making is the chief objective of U.S.
are to be valued at the lower of cost or market. American
accounting. The comparability of the financial statements -
regulations, on the other hand, call for securities to be reported
both from year to year and from company to company - and
at the higher market prices as well; the changes in the market
the determination of performance on an accrual basis therefore
value are either to be reflected directly in the profit and loss
rank higher under U.S. GAAP than under the HGB.
statement or in stockholders' equity.
PROVISIONS
booked in accordance with the realization principle, while
In U.S. accounting practice, provisions are not listed
under U.S. GAAP the percentage of completion method is used.
For long-term production, revenues and expenses are
separately as a rule, but under liabilities. In order to comply
with the stipulations of the EU guidelines, we still list
LEASING
provisions in the balance sheet notwithstanding the Ameri
Under U.S. GAAP, the accrual of leased equipment is not
can treatment. The possibilities to form provisions are
related to the legal owner, but the economic owner. In a capital
significantly more restrictive under U.S. GAAP than under
lease (sales financing) the risks and opportunities arising from
the HGB. Provisions can be formed when an obligation exists
the ownership of leased equipment are primarily realized by
towards a third party that is likely to be satisfied and when
the lessee, without the lessee simultaneously acquiring legal
the anticipated amount of the necessary provision can be
ownership. U.S. GAAP treat such a capital lease like a
reliably estimated. Provisions for expenses are not allowed
purchase, in other words, the lessee capitalizes the leased
under American regulations as a rule.
equipment and lists a relevant liability. The lessor, in turn,
Unlike in German accounting, pension provisions are
records a receivable from sales financing and revenue from
determined in consideration of anticipated wage and salary
the sale of the leased equipment.
increases. Rather than using the 6% discount rate employed
in German tax law, the relevant real interest rates of individual
DEFERRED TAXES
states define the U.S. value.
In accordance with U.S. GAAP, capitalized or accrued
deferred taxes have to be reported if they are derived from
GOODWILL
temporary differences between tax valuations and valuations
According to American accounting principles, goodwill
in the consolidated balance sheet. Tax losses carried forward
has to be capitalized and amortized over its expected period
represent an economic benefit because of the reduced tax
in use. The period in use in this instance depends on the type
payments in future balance sheets. At the time the loss arises,
of business acquired. Offsetting this value against stock
the future or deferred tax advantage is capitalized in relation
holders' equity, which is an option under the HGB, is not
to its realizability.
allowed.
UNREALIZED PROFITS
Under German law the imparity principle means that only
unrealized losses must be included in the balance sheet, while
under U.S. GAAP certain unrealized profits also have to be
recorded.
SHAREHOLDER INFORMATION
Publications for our shareholders:
Balance Sheet Press Conference:
Daimler-Benz Annual Report
(German, English and French)
Form 20-F
(English)
Mercedes-Benz Annual Report
(German and English)
Daimler-Benz Aerospace (Dasa) Annual Report
(German and English)
April 16, 1997
10:00 am
Kultur- und KongreBzentrum (Congress Centre)
Stuttgart, Germany
Annual General Meeting:
May 28, 1997
10:00 am
Daimler-Benz InterServices (debis) Annual Report
Hanns-Martin-Schleyer-Halle
(German and English)
Stuttgart, Germany
Daimler-Benz Interim Reports for 1st, 2nd and 3rd quarters
(German, English and French)
Disk with financial information
(English; editable MS EXCEL tables)
Daimler-Benz will be reporting on the first quarter of 1997
at the Balance Sheet Press Conference on April 16, 1997,
on the first six months with a semi-annual report
published on July 31, 1997, and on the first nine months
The above publications can be requested from:
at the beginning of November 1997.
Daimler-Benz AG
D-70546 Stuttgart
The information can also be ordered by phone (answering
machine) or fax under the following number:
(49)711-17 92287
Additional information on Daimler-Benz is available
on the internet at http://www.daimler-benz.com.
Investor Relations:
Tel: (49) 711-17 92283 or 17 92261
Fax: (49) 711-17 94109
Conception and content:
Daimler-Benz AG, RKB
Design:
Peter Schmidt Studios, Hamburg
Daimler-Benz AG, KOM
This report has been printed on the Igepa-paper
"Evergreen" produced with 100% chlorine-free bleached
flbves ItfiY