Value Creation by Innovation
Daimler-Benz is the world leader in innovative,
high quality transportation products, Systems and Services.
Innovations drive growth. This is why they are a central
element in our value-based management. Innovative
products, technologies, and Services are decisive for market
success. But they also form the basis for secure and
attractive Jobs as well as productive and long-term relations
with our suppliers (page 46).
Daimler-Benz generates four fifths of its revenues with
products that are less than five years old.
The photographs in this annual report show some of the
Group's most outstanding innovations and the employees
behind them.
Chairman's Letter to the Shareholders and Friends
of
our
Company
Board of Management
Business Review
The Daimler-Benz Share
Outlook
Daimler-Benz Worldwide
Passenger Cars
Commercial Vehicles
Vehicle Sales Organization
Aerospace
Services
Directly Managed Businesses
Research and Technology
Value Creation by Innovation
Daimler-Benz and the Environment
Human Resources
Analysis of the Economic Situation
Financial Statements
Major Differences between German and
U.S. Accounting Principles
Supervisory Board
Report of the Supervisory Board
Major Subsidiaries of Daimler-Benz AG
Figures of the Decade 1988-1997
Addresses and International Representation Offices
2
6
8
10
12
14
16
22
28
30
35
39
44
46
50
52
55
67
104
105
106
108
110
112
1997 was a successful year for your company. We have
made further progress. The strategies are working.
We are dedicated to creating value for our sharehold
ers, our customers and our employees. The results
demonstrate
this:
increase from
Total revenues rose 19% to DM 124 billion
Operating profit in
creased 79% to DM 4.3
billion
Net income
increased
15% to DM 3.2 billion
excluding one-time
tax
effects
Correspondingly earn
ings per share also
increased 15% to
DM 6.15
We have proposed a
dividend
DM 1.10 to DM 1.60 per 5-DM share, the highest
ever for Daimler-Benz
And we have also proposed a DM 10.3 billion
extraordinary payout or DM 20 per share. In a
second move the equity capital is to be raised again
by a capital increase in the amount of DM 7.4 billion
to the level reached prior to the extraordinary
payout
We have completed the refocusing of the group
portfolio. With today's 23 business units your
company is well positioned for the future
At the same time, growth enabled us to create
12,000 jobs in 1997
Capital expenditures grew from DM 6.2 billion to
DM 6.9 billion
We increased market shares and achieved all-time
highs in sales of passenger cars, commercial vehi
cles, commercial aircraft and aeroengines
measured by return on their capital employed (ROCE),
and each has its achievements benchmarked against the
best of its competitors worldwide. In the short term, we
have set a target of a minimum 12%.
In 1997 we exceeded our expectations for Daimler-
Benz. ROCE almost doubled from 5.8% last year to 10.2%
and our target of 12% ROCE
for the company as a whole
is now in reach.
This performance is the
result of firm management
action and reflects the new
entrepreneurial spirit that is
taking hold in your compa
ny. Our people around the
world have done a tremen
dous job.
We are also demonstrat
ing our commitment to
create value for our shareholders with
extraordinary payout of DM 10.3 billion,
distributing retained earnings and unlocking tax credits
for our shareholders.
the proposed
thereby
In 1997, we were pioneers in the following areas in
our efforts
• We enabled many of our employees to participate
implement value-based management:
to
the company's financial performance and
directly in
I am delighted to say that today our people see
operating profit as a measure of their contribution.
• We extended our stock option plan to all 1,400
senior managers.
Efficiency and Transparency Pay Off
We have been working hard to make your company more
efficient. In 1997, we put in place a new management
structure,
trimmed our head offices and merged Mer
cedes-Benz AG and Daimler-Benz AG. As a result we
became leaner, faster and more flexible.
And we have boosted your company's earning power
substantially. The performance of our business units is
In addition, we examined all our work processes and
focused on value creation at every level of the business.
Management reporting systems were simplified and
the
decision making processes were dramatically shortened.
As a result, we have substantially cut costs and have
much greater transparency - internally as well as
externally.
This is due not only to our new controlling, reporting
and planning systems but also to the introduction of
knowledge management so as to make our worldwide
know-how accessible throughout the group. The exten
sion of our intranet and the standardization of electron
ic communication systems are key elements. The in
crease in speed and quality resulting from all these
measures is improving our responsiveness in the market.
You will see evidence of our greater transparency in
this report. For the first time, we show each division's
operating profit, capital employed, and return on capital
employed. You will also see projections of revenues,
sales, capital investments and research and development
outlays to the year 2000.
Today, your company has exciting growth opportuni
ties in each of the markets we serve. Our target is to
double our turnover in ten years' time. We are stronger
and in a better position than ever before to take advan
tage of these opportunities.
Where Are We Going?
We are dedicated to helping move people and products
by road, rail, in the air and on water - efficiently,
comfortably, affordably and
ways. We therefore will be a world leader in high
quality,
services.
transportation products, systems and
in environmentally-friendly
innovative
In everything we do, we want to be among the
world's best. It is the market leaders that set the stand
ards, set the rules of the game, and open up new market
segments.
How Will We Do This ?
Our strategy for growth embraces three core elements.
These are
•
•
•
value-based management
innovation
globalisation
regionalisation
through
through Value-Based Management
Growing
Value-based management simply means setting as our
primary goal the creation of value for
•
our customers - great products, systems and services
that delight them and address their needs
our employees - a great company to work for
and for you, our shareholders - great results and
world class returns
•
•
Our job is to unleash the huge energy, creativity and
intellectual potential of our people.
In each business unit we are identifying the most
important value and cost drivers that can be directly
influenced by management. Then we link them to
specific incentive schemes. This encourages every
manager to think and act like an entrepreneur and be
rewarded like one. This also involves convincing our
employees that capital and assets are not available for
free and that they,
therefore, have a responsibility for
helping us to manage them profitably.
At Daimler-Benz we have one of the most creative
and skilled workforces. We are also fortunate to have
works committees
that only businesses
that understand
that are flexible and create real value can also provide
job security and better prospects for all employees.
Following the positive results of more than a dozen
agreements at shop floor level, in March 1998 we
established a forward-looking agreement with our
unions in the service industry. This includes a unique
new package of flexible working hours, performance-
based remuneration and training. Here again, Daimler-
Benz and its unions took a lead in Germany.
Performance-based remuneration
is just one of the
the achievements within each business.
steps taken
throughout the company to make every
employee aware that they have a direct stake in the
successes of their company. Employee bonuses are now
dependent on
Currently, nearly 200,000 of our active and former
employees are shareholders. In concert with our works
councils and unions, we will build on these achieve
ments and will strive to offer staff even further opportu
nities to participate as shareholders in the future of this
company.
Value-based management also requires a new
in our management philosophy:
approach
we want people to be entrepreneurs and to create
value
we encourage them to take risks
and in doing so we accept that making mistakes is
unavoidable.
Take our Mercedes-Benz A-Class as an example. This
is one of the most innovative cars ever produced. Our
engineers developed 25 major innovations for the A~
Class, which was recognized by the automotive world as
an extraordinary achievement in vehicle design.
When
the now-famous "moose-test" revealed defects
in the car's stability, we acknowledged the problem and
moved swiftly to correct it. Everyone in the company
rallied around to get the A-Class back on track and the
team spirit during this crisis was amazing.
We fixed the problem. Today the A-Class sets new
safety standards in its class and research shows our
brand Mercedes-Benz is stronger as a result of the way
we handled the situation. Instead of looking for a
scapegoat, we analysed and improved our processes.
This is what we mean by a learning organisation.
Innovation Drives Growth
Having great products and excellent know-how today is
not enough to secure our success tomorrow. Innovation
is what drives growth further. Only companies with a
culture of innovation from top to bottom are price-value
leaders, stay ahead of competitors, capture market
share, earn a premium return on their products and
services and are able to both finance expansion and
appropriately reward shareholders and employees.
What do we mean by innovation? We mean establish-
ing a corporate environment where everyone is thinking
creatively. Challenging the way things are done because
they can always be done better, quicker, more economi
cally. Connecting people across organisational bounda
ries. And it has to be continuous.
The enemy of creativity is complacency. In fast-
leadership can soon be lost to
changing global markets,
more agile marketers, more imaginative designers and
to those able to leapfrog over today's technology into
tomorrow's.
But Innovation does not only mean research and
lower-cost
development. It also means more efficient,
and more productive work processes. It means finding
ways to bring new products to market more quickly so
that we are always ahead of the competition.
Let me give you just some examples of how innova
tion drives growth in Daimler-Benz.
80% of our products were introduced in the last five
years.
We used to bring out three car models every ten
years - now we introduce ten new models in three
years.
We have introduced 15 new aircraft and helicopter
models in the last five years, compared with 10 new
models in the previous 10 years.
In 1997 we have applied for more than 5.700 new
patents worldwide.
We have introduced a completely new range of com
mercial vehicle models which will help to win market
share and make profits, particularly in Europe.
We have renewed our complete range of trains and
rail systems.
We installed the world's first dynamic route-finder
system in Tokyo.
We are leading the world in the development of the
fuel cell car, and are well-positioned to be the first
with a vehicle in the market in a few years' time.
We led the market with our electronic stability
program (ESP) specially developed for our cars. We
will offer ESP as standard in all of our cars by the
year 2000.
Last year we spent DM 9.8 billion in research and
development, and we plan to keep up this pace.
through
Globalisation
Daimler-Benz is firmly rooted in Germany with a proud
tradition of engineering quality and
Regionalisation
innovation.
But today, we serve customers in more than 200
countries around the world. More than two thirds of our
revenues come from outside Germany and more than one
third of our stock is held internationally.
And the key to further growth is to tap new markets
for our products. So we have to be where the markets are.
their respective
For example, we have said that we aim to increase
our group revenues in Asia from 8% in 1997 to between
20 and 25% in 10 years' time. We have now put in place
a new structure by which five CEOs have responsibility
for all Daimler-Benz businesses in
region. Our people are working at full steam on some
exciting projects.
Globalisation
is about regional development. Just as
we are a corporate citizen of Germany, so we are also a
corporate citizen wherever we have major plants and
investments. And we exercise the same care and concern
for our employees and their communities wherever we
are.
In 1997 we inaugurated new plants in Tuscaloosa,
USA, in Hambach, France, in Bad Cannstatt, Germany
and in Rastatt, Germany. In 1998 we will open a new
facility in Brazil. In each location we have far-reaching
programs
and environmental responsibility
to demonstrate and communicate our social
these communities.
to
Concern for the environment is an integral part of
the way we do things at Daimler-Benz.
We have developed solutions for problems of urban
mobility and logistics. Our products are designed with
the potential environmental impact they will have
throughout their lifecycle in mind - and this includes
the recycling phase at the end of each product's life. Our
factories worldwide have been built to the most modern
environmental standards. And we have
extensive research
breaking
launched
that will translate into ground
environmental
technologies.
We act on the environmental issue. We don't just talk
about it: With the fuel cell we are working to significant
ly reduce the C02-output of future vehicles. The Airbus
adaptive wing technology saves up to 10% of fuel
consumption in aircraft. Our common rail diesel engines
combined with direct injection
in eco-efficiency.
benchmarks
technology set new
Only People Create Value
In a changing world of work, where lifetime contracts
are a thing of the past and continous change and
flexibility are the name of the game, building and
retraining teams of high quality people is no easy task.
But we are doing it.
Greater international awareness will be critical as we
grow Daimler-Benz into a truly global company and
more of our managers face the challenge of operating in
societies very different from their own. So they need to
develop an
international mind-set.
We fast-track young managers from around the
world, and this year the Daimler-Benz corporate univer
sity will be fully operational. This will help our people
attain
the highest international standards of manage
ment.
Daimler-Benz is a company on the move. We are
setting the pace in our industries. We are setting stand
ards. We know where we want to go. Our people under
their profession
stand this. We are securing their skills,
alism and their commitment and we reward them
exceptionally when our performance
is exceptional.
The results are there to see. Their ideas, their
initiatives and their energy are transforming our
products, systems and services and enabling us to win
market shares against the trend in a competitive global
environment.
We want Daimler-Benz to be an exciting place to
work.
Your Company Is an Excellent Growth Opportunity
Innovation, Globalisation, Value. The strategies are
working. The stage is set for growth and an increase in
the value of your company. But we know that there are
still great challenges ahead of us. And we also know
that we will face set-backs. But our objective is clear:
• We will continue to be the benchmark for quality and
innovation
• We will be a world leader in each of our businesses
• We will further extend the global reach of the
company
We are on the right track. We know what we have to do.
But at the end of the day, the best measurement of our
investors.
performance
is your continued confidence as
Thank you for your support.
Dr.-Ing. Dieter Zetsche
born 1953 in Istanbul, Member of the Board of
Management since 1997, responsible for Sales and
Marketing, under contract until 2002.
Jürgen Hubbert
born 1939 in Hagen, member of the Board of
Management since 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 1997, responsible for the
Commercial Vehicles Division, under contract
until 2002.
Heiner Tropitzsch
born 1942 in Hannover, member of the Board of
Management since 1997, responsible for Human
Resources, under contract until 2002.
Klaus-Dieter Vöhringer
born 1941 in Dessau, member of the Board of
Management since 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 2000.
Dr. rer. pol. Manfred Bischoff
born 1942 in Calw, member of the Board of
Management since 1995, responsible for the
Aerospace Division, under contract until 2000.
Retired from
the Board of
Management:
Helmut Werner
(on 01/31/1997)
Dr. rer. pol. Eckhard Cordes
born 1950 in Neumünster, member of the Board of
Management since 1996, responsible for Corporate
Development and Directly Managed Businesses,
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, under contract until 2000.
accounting
Earning Power Substantially Strengthened
In 1997, Daimler-Benz increased its operating profit, the
standard for measuring the earning power of operating activ
ities, to DM 4.3 billion (1996: DM 2.4 billion). The Group's
return on capital employed rose to 10.2% (1996: 5.8%). This
means we have taken a big step closer to the 12% we set as a
minimum return for the Group. We have continued to expand
the instruments of our value-oriented management at all
corporate levels. Net income
determined in accordance with
standards
U.S.
reached DM 8.0 billion (1996:
DM 2.8 billion). Adjusted for
extraordinary tax effects, the
respective figure totaled DM
3.2 billion. Due to the signifi
cantly improved operating prof
it we recommend to our share
holders that the dividend for
fiscal 1997 be increased from
DM 1.10 to DM 1.60 per share.
(Page 58)
Special Distribution of
DM 20 Per Share
As a result of the mandatory re
classification of stockholders'
equity at year-end 1998 we pro
pose to our shareholders that
DM 7.4 billion of the retained
earnings of Daimler-Benz AG
be distributed. Including the re
sulting DM 2.9 billion reduc
tion in corporate income tax,
the total distribution would be DM 10.3 billion, or DM 20 per
share. The funds drawn from retained earnings would be re
stored to the Company by a subsequent capital increase.
(Page 62)
Consolidated Revenues Up 19%
When comparably calculated, consolidated revenues rose by
19% in 1997 to DM 124.1 billion. Growth was especially pro
nounced in the USA (+26%) and in Germany's partner coun
tries in the European Union (+21%). Revenues generated in
Germany increased by 5%. (Page 56)
Corporate Portfolio Enhanced
We continued to strengthen the core activities of the Group
with new acquisitions. The takeover of the heavy trucks busi
ness from Ford in North America was especially important,
as was the acquisition of the defense electronics business
from Siemens, which is still awaiting approval of the cartel
authorities. We withdrew from our involvement in Cap Gemi
ni, and TEMIC's Semiconductor unit was sold to the U.S. com
pany Vishay in early 1998.
(Page 56)
Twelve Thousand New Jobs
Thanks to the market success of
our products and services and
the significantly improved com
petitiveness of the individual
business units, we were once
again able to create new jobs
throughout
in
1997. The number of employees
within the Group rose by 4%,
when comparably calculated, to
a
total of 300,068 persons.
(Page 57)
the Company
Passenger Cars:
Success with New Models
The Passenger Car Division re
corded new record highs in
sales and revenues as a result
of the market success of the
new models we introduced in
1996 and 1997. Despite large
investments made for innova
tive new models, operating profit slightly exceeded the previ
ous year's level. The introduction of the M-Class in the USA
was among the most important events in the year under re
view. With this new off-road vehicle Mercedes-Benz is now
present in the world's largest passenger car market with a
locally produced series.
After suspending deliveries shortly after its market
debut, we resumed delivering the A-Class to our customers in
February 1998 with a new chassis configuration and ESP
(Electronic Stability Program) as a standard feature. (Page 16)
Commercial Vehicles: Dynamic Growth
We sold 417,400 commercial vehicles in 1997; this means
that we beat the record set in the previous year by another
20%. We managed to steadily increase our market share in
Western Europe with the Actros heavy truck series, which we
expanded by introducing construction and special applica
tion vehicles in September 1997. The division's revenues
rose by 22% and reached DM 39.1 billion. We recorded vigor
ous growth in North and South America as well as in Western
Europe. Due to favorable busi
ness developments and
the
measures to improve productiv
ity the division was profitable.
(Page 97)
Aerospace: Incoming
Orders at an All-Time High
The Aerospace Division experi
enced a dynamic boost in earn
ings in 1997 as a result of the
successfully implemented com
petition drive. When compara
bly calculated, revenues rose
20% to DM 15.3 billion, and in
coming orders reached a new
high at DM 19.4 billion. De
mand for civil aircraft and air
craft propulsion systems was
especially brisk. We will deci
sively improve our international
competitive position with our
collaboration with Matra-BAe
Dynamics and the acquisition
of the defense electronics business from Siemens. The deci
sion of the German government and the German Bundestag
to procure the Eurofighter was of major importance for the
future of the Military Aircraft unit. (Page 30)
Upward Trend in Services Continues
As in previous years, debis succeeded in improving its busi
ness volume and operating profit in 1997. The Financial Serv
ices unit remained the most significant source of revenues.
But the IT Services and Telecommunications and Media Serv
ices units also contributed appreciably to the 22% increase in
revenues to DM 15.5 billion. We continued to pursue our glo
balization strategy by establishing new companies in nearly
every field of activity and penetrating additional markets.
The focus was primarily on Eastern Europe and the Asia Pa
cific region.
After only three years of construction, the new debis ad
ministrative headquarters on Potsdamer Platz in Berlin was
ready for occupation on October 24, 1997. (Page 35)
Directly Managed Businesses:
Revenues Continue to Rise
The Rail Systems, Microelec
tronics, and MTU/Diesel En
gines units developed favorably
in 1997 on the whole. Incoming
orders for Adtranz, our rail sys
tems joint venture, were 30%
the previous
higher than in
year. Extensive
restructuring
measures were introduced in
the interest of generating prof
itable results in the future. The
revival of business within TEM-
IC was especially pronounced
in the automotive electronics
sector, where revenues rose by
52% and incoming orders were
up 64%. The Diesel Engines
unit continued the gratifying
upward trend of the past few
years. (Page 39)
Investments Reach
DM 6.9 Billion
We increased our investments
in property, plant, and equipment to DM 6.9 billion in 1997
(1996: DM 6.2 billion). The emphasis was on preparations for
new passenger car and commercial vehicle models, the new
engine plants in Bad Cannstatt and Untertürkheim, and the
expansion of production capacities and the product program
at Airbus. (Page 57)
DM 9.8 Billion for Research and Development
We spent DM 9.8 billion on research and development in
1997 (1996: DM 8.8 billion). Of this amount, DM 4.1 billion
(1996: DM 3.3 billion) was allocated to contract-dependent
development services, which were primarily provided in the
Aerospace Division. The majority of the funds for Group
projects was once again invested in the automotive business.
(Page 58)
The Daimler-Benz share was off to a good start in 1997, and in the course of the year reached a new all-time high.
In the second half of the year its performance lagged that of the German stock index. After a survey regarding
the shareholder structure completed in March 1998 Daimler-Benz has some 550,000 shareholders.
About 37% of our issued shares are held by foreign investors, 10% are held in the USA.
Stock Markets Rally
The stock markets in Western Europe
and North America improved on the
favorable performance of 1996 yet
again in 1997. However, the collapse
of the Asian stock markets led to dra
matic fluctuations in the last quarter.
In New York the Dow Jones still mana
ged to increase by 23% in the course
of the year, while the London FTSE-
100 Index gained 25%. In contrast, the
Japanese Nikkei Index experienced a
21% setback.
The German Stock Index (DAX)
rose 53% to 4,406 points by the end of
July as compared to year-end 1996.
This development was largely tied to
the steep rise of the U.S. dollar. The ef
fects of the financial crisis in Asia in
particular prompted consolidation ef
forts in the remaining part of the year.
At year-end the DAX closed with a
47% increase at 4,224 points.
The prevailing mood of the Ger
man stock exchanges remained up
beat in the first three months of 1998
as well.
The Daimler-Benz Share
The Daimler-Benz share consistently
outperformed the DAX for the first six
months of 1997. On February 4 it
broke the record of DM 122.07 that
was set more than ten years ago, and
on July 31 the Daimler-Benz share rea
ched another new high at DM 161.85.
Following the publication of our inte
rim report for the first six months of
1997, which was perceived with some
reservation due to very optimistic
market expectations,
the develop
ment of our share price was more res
trained than the overall market for the
rest of the year. At year-end, the listed
price for the Daimler-Benz share was
DM 126, or 19% higher than it had
been twelve months earlier. When
viewed over the course of fiscal 1997,
the development of our share was
nearly equivalent to the international
ly compiled M.S.C.I. Automobiles In
dex on the whole. On March 25, 1998
our share price reached another all-
time high at DM 175.30.
Our stock remains one of the most
actively traded in Germany; in 1997
1.8 billion shares were traded on the
German stock exchanges. On the Ger
man Futures Exchange, options on
Daimler-Benz shares were also among
the most heavily traded values at
some 927,000 contracts. A total of 216
million Daimler-Benz shares changed
hands on foreign stock exchanges in
1997. Trading in London and New
York was especially brisk.
The DAX weighted the Daimler-
Benz share at 6.58% at the end of Feb
ruary. In the new European stock in
dex Dow Jones Stoxx 50, our share
was weighted at 1.99%.
Capital Stock
The capital stock of Daimler-Benz AG increased by DM 6.8
million in 1997 and reached DM 2,584 million. Of this
amount, DM 6.3 million were used for the issuance of shares
to employees; another DM 0.5 million resulted from the exer
cise of stock options and conversion
rights from the 1996 option issue and
the 1997 bond issue with mandatory
conversion.
With a market value of DM 83.5
billion and more than 500,000 share
holders, Daimler-Benz AG is among the
largest public companies in Germany.
Some two thirds of our shares are wide
ly held. Major shareholders include
Deutsche Bank with some 22% and the
Republic of Kuwait with about 13%.
Development of
a Daimler-Benz Portfolio
The return on stock investments is
closely tied to the share price when
the stock is purchased and sold.
Foreign investors also have to take
the effects related to changing cur
rency parities into account, which
means that their return can vary considerably from the re
turn in German marks.
An investment for about ten years in Daimler-Benz
shares would have resulted in an average annual return of
13.1% for a shareholder; for a five-year investment the return
would have been 25.2% p. a. These calculations are based on
the assumption that the proceeds from subscription rights
and dividends (without tax credit) were consistently rein
vested in Daimler-Benz shares.
Investor Relations Intensified
We responded in 1997 to the increa
sing need for information in the inter
national financial markets by continu
ing to
intensify our contact with
investors and financial analysts. As
part of this effort, we have begun to in
volve representatives from operational
management more actively in investor
relations than before. We presented
the Passenger Car Division at the
Frankfurt International Motor Show
(IAA). To acknowledge the special in
terest of the financial community in
the strategic alignment of the Com
mercial Vehicle Division we held a se
parate presentation on this division in
Frankfurt. We expanded our regular
communication after the annual and
semi-annual reports as well as in con
junction with ad-hoc publicity by in
troducing telephone and video confe
rences designed to provide explanatory information to
analysts and institutional investors. And we were also pre
sent in the most important financial markets with our roads
hows in 1997. The corporate presentations we held in May
1997 in connection with the issuance of the mandatory con
vertible bond issue were a key focus.
Upward Trend in the World Economy Continues
We expect moderate growth in the world economy for 1998
and the following years. The upward trend will most likely
pick up speed in Western Europe and above all in Germany
while the U.S. economy may slow down to some extent. The
financial crisis in South East Asia will have a dampening ef
fect on the world economy in general, but will primarily im
pact the economic development of that region. Japan, too, will
only gradually overcome the present phase of stagnation. On
the other hand, the Latin American region, China, and, in
creasingly, certain countries in Eastern Europe could exhibit
above-average growth rates.
deavor as our programs to boost efficiency. On the whole we
expect to increase our operating profit yet again in the cur
rent year and reach the 12% minimum return on capital em
ployed we are striving for by no later than 1999. We have by
now positioned the Group in such a way that even under un
favorable currency conditions we will be able to generate fa
vorable results. However, should the German mark appreci
ate dramatically with respect to the U.S. dollar or other im
portant currencies, our revenue and
income projections
would have to be revised. The same would also apply if the
growth in the markets that are relevant for us fail to continue
in the coming years.
Expected Growth
in Revenues for
Daimler-Benz
The high volume of orders on
the hand, the favorable devel
opment of business in the first
three months of the year, and
the overall economic environ
ment lead us to believe that our
revenues will increase to some
DM 134 billion in 1998. By the
year 2000 we aim to generate a
business volume close to DM
160 billion.
Stronger Global Alignment
We will focus on enhancing the global alignment of Daimler-
Benz in a conscious effort to take better advantage of the po
tential of promising markets such as Asia and Latin America.
In Asia alone, we plan to expand its share of revenues signif
icantly in the next ten years from the present 8%. This effort
is supported by a new business structure that involves shift
ing functions and competencies and subdividing Asia into
four separate regions, each of which is headed by a person
who is responsible for all of the Group's business in that re
gion.
Value-Based Management and
Strengthening Earning Power
The objective of our value-based corporate management is to
improve the earning power of Daimler-Benz for the long term
and to grow in a profitable manner. Innovative and competi
tive products will be as effective in contributing to this en-
Passenger Cars
nations,
The newly
industrializing
countries in Asia, Latin Ameri
ca, and Eastern Europe will
probably exhibit the most rap
id growth in terms of volume
in the coming years. In the
industrialized
the
growth in passenger car de
mand will primarily be sup
ported by vehicles such as
minivans, off-road vehicles,
and convertibles.
roadsters,
The aim of the Passenger Car Division is to continue to ex
pand the Company's position in the market for luxury cars
worldwide and to open up new markets and market seg
ments. We intend to further improve our earnings by the year
2000 and increase our sales volume to more than one million
vehicles. Our new products such as the M-Class, the A-Class,
and the Smart will be instrumental in this effort. The new S-
Class will reinforce our leading position in the high-end mar
ket segment.
Commercial Vehicles
Worldwide demand for commercial vehicles will most likely
continue to rise in the coming years. By the year 2000 we
expect our sales of commercial vehicles to reach some
500,000 vehicles. In the Trucks Europe business unit the
new Atego distributor truck and the heavy-duty Actros
should provide for growing sales and higher market shares.
We plan to use our van series that are so successful in Europe
to focus more intensively on penetrating selected markets in
Latin America and Asia. In North America, the heavy-duty
truck segment we took over from Ford represents additional
sales potentials; we will be marketing these trucks under the
Sterling nameplate. The earnings of the Commercial Vehicle
Division will continue to rise thanks to the cost reduction
programs already implemented, the increasing interlinkage
of our international activities, and the improved cost position
of our vehicles and components.
Aerospace
The prospects of the Aerospace Division are determined by
the rapidly rising volume of orders on hand in civil aircraft
and helicopters and by the tight budgets of government
agencies.
Due to the high volume of
orders on hand, we expect pro
duction in the Airbus program
to increase from 184 aircraft in
1997 to more than 280 in 1999.
The Aeroengines business unit
is also profiting from the high
demand for civil aircraft. In
contrast, the growth potentials
of Space Systems, Military Air
craft, and Defense Technology
are
since
these units are largely depend
ent on public spending. On the
whole, we anticipate that the
division's earnings will contin
ue to increase.
restricted
rather
Services
Daimler-Benz will concentrate
on further expanding its range
of services and on opening up
additional markets, above all
from a regional perspective. This will create the basis for
above-average growth rates and increasing earnings to con
tinue. The Financial Services/Insurance Brokerage and Trad
ing business units will support the growth of the Group's in
dustrial business with innovative financing concepts. Since
withdrawing from Cap Gemini, the activities of the IT Servic
es unit have been centered around reinforcing the Compa
ny's position as a full-service provider in information technol
ogy both inside and outside Germany. In the Telecommunica
tions and Media Services unit, the entry into the fixed net
work services is connected with tremendous growth opportu
nities.
Directly Managed Businesses
After making adjustments for changes in the consolidated
group we also expect to generate rising revenues and income
in the directly managed businesses.
The emphasis of growth in the rail systems joint venture
Adtranz is on signaling systems, customer service and tech
nical support for rail systems, and innovative freight trans
port solutions. The largest proportion of revenues, though,
will still be contributed by rolling stock. In order to counter
the deteriorating prices in this market and improve the earn
ings position of Adtranz, we are speeding up the implementa
tion of the restructuring programs already initiated.
Following the sale of the
the
semiconductor business,
Microelectronics unit will fo
cus on automotive electronics
in the future. The continued
expansion of this business is
supported by new products
above all.
The MTU/Diesel Engines
business unit is expecting the
bulk of further growth to come
from commercial applications.
The new 2000 and 4000 series
will contribute to this develop
ment; both were greeted with
widespread customer interest
in 1997.
Investments
in the Future
Daimler-Benz will
expend
more than DM 40 billion in the
budget period from 1998 to
2000, or some DM 14 billion
each year, on research and development and on property,
plant, and equipment. Significant investment projects in
clude product startups in the Passenger Car Division, the de
velopment of the vehicle sales network in Asia, and the ex
pansion of the aeroengines maintenance business. Special
emphasis in research and development was put on new pas
senger car models and development projects related to the
Airbus A340-500/600 series.
The Passenger Car Division was once again very successful in 1997: we achieved record highs in revenue, sales,
and production. Attractive new products such as the A-Class, M-Class, and CLK also helped us to secure additional
market segments for the Mercedes-Benz brand, and we were able to strengthen our position of technological leadership
by various innovations. Despite substantial investments made in connection with our
product drive, the contribution of the passenger car business to the operating profit of the Daimler-Benz Group
slightly exceeded the high level of the previous year.
Upward Trend in Worldwide
Passenger Car Demand
Total passenger car demand contin
ued to increase worldwide in 1997, but
somehow less strongly than in the
previous year.
Growth focused on a number of
Western European countries, while
the passenger car market softened in
the USA, Japan, and most countries in
Southeast Asia.
In Western Europe new vehicle
registrations increased by 5% to 13.4
million passenger cars. Due to govern
ment intervention, however, trends
varied widely from market to market.
For instance, as a result of the pha-
seout of the scrapping premium in
France the market declined by 20%. In
contrast, government buying incen
tives in Italy and Spain led to a vigor
ous increase in new registrations of
39% and 11% respectively.
In Germany, numerous new mod
that after the first six
els meant
months weakness, 3.5 million new
registrations slightly exceeded the previous year's level.
While total passenger car sales in the USA were lower in
1997, despite favorable overall economic conditions, sales of
off-road vehicles, minivans, and pickups, which in the USA
are considered commercial vehicles, increased significantly.
In Japan a depressed economy
and higher value-added taxes reduced
new vehicle registrations to 4.5 mil
lion passenger cars (1996: 4.7 million
units). Luxury cars were specially
hard hit by the weak market.
In 1997 worldwide passenger car
production rose by 5% to 38.8 million
vehicles. As a result of numerous new
models in all market segments and
growing production capacities, com
petition intensified downward price
pressure.
Passenger Car Division:
Revenue and Production at an
Ail-Time Highs
Thanks to the success of our new pas
senger car models Daimler-Benz en
joyed a better year than industry aver
age. The Passenger Car Division's
revenue reached DM 53.9 billion in
1997 (1996: DM 46.7 billion), an all-
time height. Revenues increased most
noticeably in the USA, where they
rose by nearly 47% to DM 9.4 billion.
Aside from strong demand for our new models, an important
contributor was the upward valuation of the U.S. dollar
against the German mark. There was also vigorous growth in
Western Europe ex-Germany (+18% to DM 12.5 billion) and Ja
pan (+10% to DM 3.3 billion). In Germany, sales volume totaled
DM 21.7 billion, surpassing the previous year's level by 4%.
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By selling 715,100 passenger cars and off-road vehicles in
1997 (1996: 645,000 units), we achieved the largest sales vol
ume in the Company's history. At the same time, production
set a new record of 726,700 passenger cars (1996: 645,200
units).
In Germany, unit sales of Mercedes-Benz vehicles totaled
276,500 passenger cars and were 5% higher than in 1996.
The market share of Daimler-Benz rose to 8.5% (1996: 8.2%).
We also managed to expand our position in the upper market
segment.
Operating Profit Increased
to DM 3.1 Billion
large
Despite
investments
made in the development, pro
duction, and marketing of our
new A-Class, M-Class, and
smart models, the contribution
of the Passenger Car Division
to the operating profit of Daim
ler-Benz totaled DM 3.1 billion,
and thus slightly exceeded the
high level of the previous year.
This was due primarily to the
market success of our vehicles,
helped by the programs
to
boost productivity and favor
able exchange rates.
in
Market Position Improved
Worldwide
We were able to increase sales
of Mercedes-Benz passenger
cars significantly in nearly all
important markets and thus
enhance our position world
wide
the upper market
segment. Interest in our new
models was especially lively.
Examples: we sold 46,600 SLK roadsters in the model's first
full production year. With sales of 56,500 and 38,300 units
respectively, the C- and E-Class wagons were also highly suc
cessful. We sold 22,000 units of the new CLK coupe, which
was introduced in June 1997. The M-Class, which has been
delivered to customers in the USA since September 1997,
contributed 16,300 vehicles to the Group's sales.
Mercedes-Benz was also successful in Western Europe
outside Germany. We sold a to
tal 193,600 passenger cars in
that region, and were able to
exceed the high sales volume
of 1996 by 11%. We achieved
double-digit growth in each of
the volume markets U.K., Italy,
and Spain. However, due to the
weak passeger car market,
sales in France did not reach
the high level of the previous
year.
Our passenger car busi
ness performed well in Eastern
Europe, especially in the CIS
countries.
Significant Growth in
Overseas Markets
Overseas markets also contrib
uted to growth in 1997. In the
declining USA market we sold
more than 100,000 vehicles for
the first time. Total sales rose
by 35% to 122,300 vehicles. In
addition to the SLK roadster
and the CLK coupe, the new M-
Class contributed significantly
to the growth achieved. The M-Class successfully positioned
us in the extremely attractive market for all-wheel-drive
sport utility vehicles.
In Japan, too, business developed favorably for us despite
the difficult overall market situation. A total of 41,900 new
Mercedes-Benz vehicles were registered there in 1997,
surpassing the high level of the previous year by 2%. Our
share of the luxury class market increased nearly 2% to more
than 13%.
Furthermore, we achieved growth in sales in the markets
of Latin America, China, the Middle East, and Australia. In
some Far East countries, on the other hand, we faced set
backs because financial crises adversely affected sales of
higher-end passenger cars.
A-Class Moving Ahead at High Speed
In February 1998 we started delivering the A-Class to cus
tomers again with a new chassis configuration shortly after
its market introduction in October 1997. This model made
headlines in connection with the so-called "moose test".
In November 1997 we had decided to suspend delivery
because we only want to supply cars that even in extreme
tests meet the highest safety standards. Once we decided to
modify the chassis, we chose to suspend delivery so that all
vehicles delivered to customers would be properly equipped
from that point forward and so that we could introduce the
modifications to production early on. The A-Class models al
ready produced were retrofitted at specially equipped serv
ice centers.
Independent experts confirm that with the new chassis
configuration the A-Class car handles extreme situations
such as the "moose test" with flying colors. In addition, the
Electronic Stability Program (ESP) is standard since Febru
ary. With the ESP, we are setting a new safety standard in this
market segment.
Further, in terms of versatility and optimum use of space,
the A-Class offers features that were not possible with pas
senger cars of this size in the past. The fact that it was award
ed the Golden Steering Wheel in November 1997 confirms
the trendsetting concept of the vehicle. The number of or
ders, which by March 1998 totaled well over 120,000 vehi
cles, demonstrates that the innovative A-Class concept has
caught on with customers. Production of the A-Class in
Rastatt has been proceeding since February 1998 and to
work at full capacity is focused for July. In 1998 we plan to
produce about 150,000 vehicles.
CLK: Available as a Convertible in 1998
We launched the sporty and elegant CLK coupe in June 1997.
We have also developed an attractive convertible version,
that we introduced to the public at the Geneva Car Show in
March 1998. Aside from its innovative design, the converti
ble is distinguished by generous interior space and four full-
size seats. Its semi-automatic top can be opened and closed
with ease. The CLK convertible will be available in Europe in
June 1998 and in the USA and Japan in the fall of 1998.
M-Class: Mercedes-Benz Quality from Alabama
The M-Class is making an important contribution to the ex
pansion of our international activities in the passenger car
sector. Thanks to this new off-road vehicle built in Tuscaloo
sa, Alabama, we are now repre
sented with a locally produced
model in the USA, the world's
largest passenger car market.
In addition to its persua
sive price/performance
ratio
and exemplary safety features,
this innovative vehicle offers a
future-oriented design, excep
tional off-road mobility and se
dan-type on-road qualities.
We launched the M-Class
in North America in Septem
ber and by the end of 1997 had
sold 16,300 vehicles. Strong
demand and its distinction as
the Off-Road Vehicle of the Year 1998 are a convincing evi
dence of the attraction of the M-Class concept.
Since spring 1998, the M-Class has also been available in
Europe and other markets. Due to strong demand in the USA,
as of 1999 we will boost production capacity from the origi
nally planned 65,000 units to 80,000 units.
World Premiere of the Smart at the I AA
The smart city coupe was unveiled at the IAA in Frankfurt.
It is an entirely new type of vehicle; a mere 2.50 meters
long, it weighs only 680 kilograms. Two adults have as much
room in its one-box body as in a conventional mid-sized car.
The subcompact city coupe creates a wholly new vehicle
class and at the same time sets high standards in terms of
safety and comfort. As a new mobility concept, the smart will
help to overcome traffic problems in crowded urban environ
ments.
The Smart-Plus assembly plant in Hambach, France is
the hub of a novel production process. The system partners
deliver directly to the assembly line, where pre-assembled
modules are incorporated. Only some 4.5 hours are required
for the final assembly of the
smart; the vertical integration
of the smart manufacturing
venture is less than ten per
cent.
A total of about 110 Smart
centers are being established
in urban areas throughout Eu
rope, all of them favorably lo
cated for traffic.
We want to deliver superior
and fully-developed products
in every respect. Vehicle and
factory organization and coor
dination with systems suppli
ers still need more time to ma
ture. We have therefore postponed the market introduction,
originally planned for spring 1998, to October 1998.
Assembly Plant for the A-Class in Brazil
Daimler-Benz will soon begin producing the A-Class for the
Mercosur economic area in Juiz de Fora, some 250 kilom
eters north of Rio de Janeiro. Series production will most like
ly start in late 1998 for the market introduction in spring
1999. Annual production of 70,000 vehicles is planned in the
medium term. This project will expand our presence in Latin
America, a market that offers enormous potential for Mer
cedes-Benz passenger cars.
New Diesel Era with Common Rail Technology
In December 1997 Mercedes-Benz opened a new era in diesel
technology with the C 220 CDI. This innovative technology
makes considerable advances possible in performance, fuel
consumption, and noise suppression, making driving even
more enjoyable. Common rail injection is also suited to large
passenger car engines. This has been confirmed by studies
on the recently developed 8-cylinder diesel engine that
Daimler-Benz presented at the
1AA in 1997. (See page 48.)
Among the innovations in
drive technology are the V 6/
V8 double-spark ignition en
gines with three-valve technol
ogy,
in
1997 and that were well re
ceived by the market.
introduced
that we
An
intelligent all-wheel-
drive system was developed for
the E 280 and E 320 models.
Mercedes-Benz Maybach
Unveiled in Tokyo
At the Tokyo Motor Show in
October 1997 Daimler-Benz
unveiled a design study for the
Mercedes-Benz
Maybach.
Named after the German de
sign engineer Wilhelm May
bach, this vehicle is not only
remarkable for its advanced
design and technology, it is
also a prototype of the exclu
sive luxury car of the future.
The Mercedes-Benz May
bach is driven by a high-torque
V12 engine of magnesium alu
minum construction with ap
proximately six liters displacement and combines maximum
comfort with state-of-the-art technology.
The design of the Mercedes-Benz Maybach was devel
oped at the Japanese design center of Daimler-Benz.
Expansion of Our Presence in Asia
As part of our globalization strategy we plan to expand our
presence in the Asia Pacific region, an area that offers en
couraging growth prospects in the midrange future.
Our passenger car assembly plants in Malaysia, Indone
sia, India, Thailand, Singapore, Pakistan, Vietnam, and the
Philippines will play a key role in this effort.
We made progress in India in particular in the year under
review. We took over the man
agement of sales activities and
restructured them throughout
the country. Moreover, we
started manufacturing the lat
est E-Class at MB India. By do
ing so we are investing in a
promising future market.
A Successful Year in
Motorsports
1997 was the most successful
motorsports year in recent his
tory for Daimler-Benz; we had
18 victories at 45 races and in
three racing series.
the
In Formula One,
McLaren Mercedes Silver Ar
rows scored three victories, in
cluding the first double victory
in 42 years at the season finale
in lerez.
In
the CART Series, our
partner Penske and the cus
tomer teams PacWest and For-
sythe won nine out of 17 races,
making Mercedes-Benz
the
1997 CART Manufacturers'
Champion.
We were also very success
ful at the FIA GT, a championship that was held for the first
time. Bernd Schneider took the Drivers Championship at the
first go with the new Mercedes CLK-GTR, while our partner
AMG won the Team Championship.
In 1997 the Commercial Vehicle Division achieved a turnaround, thanks to successful new products and
extensive efforts to boost productivity; it contributed DM 481 million to the operating profit of the Daimler-Benz Group.
We recorded record highs in sales, revenues, and production. The acquisition of the heavy truck sector from
Ford Motor Co., which in future will be marketed under the new Sterling trademark, will expand
our position
in
the NAFTA region.
Market Growth in Western
Europe Confined to Light
Commercial Vehicles
The Western European commercial
vehicle market showed an increase in
1997, but development of the individ
ual market segments was countercy
clical. While new registrations of vans
under 6 tons rose by 8% to 1.5 million
vehicles, a slight decline to 246,800
vehicles was recorded in the market
segment for trucks over 6 tons. New
registrations of buses, at 28,000
units, nearly reached the same level
as the previous year.
After a weak year of 1996 the mar
ket situation in Germany improved
somewhat; 263,900 new commercial
vehicles were registered (+6%). But
because the investment climate is still
unsettled and the construction market
is soft, growth in the sector for trucks
over 6 tons, at 3% to 69,400 vehicles,
was still negligible. However, new reg
istrations of vans under 6 tons rose by
8% to 189,000 vehicles, which above all reflects brisk de
mand in the service industry.
Favorable Development of Overseas Markets
After a temporary slowdown in 1996, the U.S. market for
heavy trucks in Classes 6 to 8 (over 8.8 tons) gained speed
again during the year. Growth in orders was especially ro
bust, and with 310,400 trucks sold,
sales were gratifying as well, surpass
ing the 1996 level by 6% due to a
strong second half of the year.
As a result of Latin Americas eco
nomic upturn, demand for commer
cial vehicles grew significantly in
1997. The market situation improved
in Mexico and Brazil above all, while
sales in Argentina did not reach the
high volume of the previous year.
The downward trend in the Japa
nese commercial vehicle market in
tensified in the year under review. A l
though growth in China continued its
dynamic course, certain markets in
Southeast Asia were not able to con
tinue the vigorous upward trend of
the past years.
Dynamic Growth at
Daimler-Benz
The Commercial Vehicle Division at
Daimler-Benz increased its revenues
by 22% in 1997, reaching a new all-
time high of DM 39.1 billion. We achieved brisk growth in the
USA (+28% to DM 7.9 billion) and Latin America (+41% to DM
4.7 billion). In Western Europe outside Germany our reve
nues increased by 21% to DM 9.3 billion. In Germany our
business volume rose to DM 11.1 billion (+7%).
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Altogether we sold 417,400 commercial vehicles in 1997,
and thus once again outnumbered the high level of the previ
ous year (+20%). The growth was supported by all business
units. The development of sales was especially encouraging
in the vans segment and - contrary to the market trend - in
heavy trucks in Europe. The Sprinter van was especially in
strumental in the remarkable growth achieved in Latin Amer
ica; since late 1996 we have
been also producing this vehi
cle in Argentina.
Worldwide Daimler-Benz
produced
vans
195,300
(+28%), 181,800 trucks (+20%),
32,500 buses
(+25%), and
3,000 Unimogs (+6%) in 1997.
In addition, we produced 9,800
motor home chassis and walk-
in vans at Freightliner. Total
production increased by 24% to
422,400 commercial vehicles.
Earnings Clearly Profitable
The contribution of the Com
mercial Vehicle Division to the
operating profit of Daimler-
Benz rose to DM 481 million.
Most important sources of in
come were the Vans Europe
unit and the commercial vehi
cle business in North and Latin
America. But the other busi
ness units also noticeably
strengthened their earning power. Our new products were
especially conducive to this development; they can be more
cost-effectively produced across the board than their prede
cessors and are characterized by streamlined production
processes and optimized vertical integration. On the basis of
union shop agreements to secure jobs that we concluded
with the employee representatives in our German plants, we
will realize a savings volume of several hundred million Ger
man marks. Due to these agreements it is now possible to use
our production facilities more efficiently and to adjust work
ing times more flexibly to fluctuations in demand which are
common in the commercial vehicle industry.
Vans Europe Unit Still Very Successful
The Vito (2.6 tons), Sprinter (2.5 to 4.6 tons), and Vario (4.8 to
7.5 tons) models and the V-Class minivans were introduced
in 1995 and 1996; these new and extremely competitive
products made it possible for the Vans Europe business unit
to grow significantly faster than the market. The unit was
able to boost its sales by 21% to 182,000 vehicles in the year
under review. Aside from the
continued
the
success
Sprinter vans, of which we sold
106,200 units (1996: 103,600
units),
the V-
the Vito and
Class, produced at the plant in
Vitoria, Spain on the basis of a
shared platform, were able to
fully establish themselves in
the market
in 1997 with
65,800 vehicles sold (1996:
32,000).
of
Our market share of vans
from 2 to 6 tons reached 18.3%
in Western Europe including
the V-Class (1996: 15.6%); we
thus took over the leading po
sition for the first time. In Ger
many, our market share rose to
26.4% (1996: 24.8%). In over
seas markets, above all
in
South Africa and the Near and
Far East, 5,200 vans were sold
in 1997. The results of the Van
of the Year 1997 awards under
score the excellent acceptance
of our vans. In their respective segments, the Vario took the
3rd place, the Vito the 2nd place, while the Sprinter scored
1 st place with the best individual results within all classes.
New Products for the Trucks Europe Unit
The Trucks Europe business unit completed its product range
for the heavy-duty Actros truck by adding construction and
special application vehicles in September 1997. We first
launched the Actros as a road version in September 1996; it
was appointed Truck of the Year 1997.
We introduced the new Atego distributor truck to the
market in spring 1998.
As with the Actros, the Atego's most convincing feature
is its economic efficiency. Essential criteria include 60,000
kilometer service intervals for city driving and 100,000 kil
ometers for highway driving. The service costs are thus re
duced by up to 30% as compared to the predecessor models.
In addition, more production-friendly product concepts
and tighter production processes lead to considerable cost
advantages both for the Actros and the Atego.
Due to the market success of the Actros, the Trucks Eu
rope business unit has increased its sales by 18% to a total of
77,500 vehicles despite the unfavorable development of im
portant markets. We were able to expand our position as mar
ket leader in Western Europe to a 24.6% share in the market
for trucks over 6 tons.
Within the Trucks Europe production network, which in
addition to the production facility in Worth also includes the
plants in Aksaray, Turkey, Arbon, Switzerland (added equip
ment), and Molsheim, France (retrofitting), a total of 78,800
trucks rolled off the assembly line in 1997 (1996: 62,600
units).
Unimog Sales Up
Despite strained budget situations in the public sector in Ger
many and the other Western European countries, sales of the
Unimog business unit reached 3,100 vehicles and were 12%
higher than in the previous year. The new compact tool
carrier UX 100, which we have been offering since 1996, was
instrumental in this pleasing development.
Drive Trains Unit: An Internationally
Competitive System Partner
The Drive Trains Europe unit develops and manufactures en
gines, axles, and powertrains, as well as other components
for commercial vehicles. So far these products were primarily
manufactured for European assembly plants of the Commer
cial Vehicle Division. We also plan to acquire more external
customers in the future in order to take advantage of addi
tional economies of scale.
Against this backdrop, we intensified efforts in 1997 on
significant improvements of the unit's cost position, which
was not yet satisfactory.
In revamping the product line, components for the Atego
were given the most attention. For instance, we developed a
new 6-cylinder version of the 900 engine series and a power-
train series that satisfies different torque requirements. With
its direct-drive system, the new rear axle of the Series 8
makes an important contribution toward reducing fuel con
sumption for the Actros and various buses produced by Evo-
Bus GmbH.
In its function as an internal system partner, the unit de
livered components valued at DM 5.3 billion to customers
within the Daimler-Benz Group in 1997. Revenues from ex
ternal customers totaled some DM 0.5 billion.
In the future, we intend to take greater advantage of our
international development and
production network for compo
nents from the Commercial Ve
hicle Division. Moreover, we
are continuing to expand our
sales and after sales service
networks.
EvoBus Reinforces Its
Market Position
While the Western European
market for buses over 8 tons
remained nearly constant in
1997 with a total of 20,600
new registrations (1996: 20,700 registrations), the number of
new registrations in the German market, which is especially
significant for EvoBus, declined by 8% to 4,800 vehicles.
In this environment, the Buses Europe unit increased its
sales by 8% to 7,900 buses. The total sales volume includes
4,500 buses of the Mercedes-Benz trademark, 2,300 Setra
buses, and 1,100 bus chassis. In Western Europe, the market
shares of Mercedes-Benz and Setra, at 15% and 10% respec
tively, were approximately equal to the previous year. In Ger
many, the Buses Europe unit produced 5,500 buses and bus
chassis (1996: 4,800 units); 430 buses were assembled in
France (1996: 460 units) and 2,300 city and tour buses at the
Davutpasa/Hosdere plant in Turkey (1996: 1,700 units).
Here, too, the product strategy is proceeding at full speed:
among the product innovations in 1997 are the Citaro city
bus, the Integra (a high-floor bus with the Mercedes-Benz
nameplate), and a 3-axle luxury tour bus of the Setra make.
As the first manufacturer worldwide, EvoBus launched the
NEBUS, an emission-free city bus using fuel-cell technology,
in 1997. On the basis of standardized bus platforms and a
modular product concept for buses of Mercedes-Benz and
Setra, the Buses Europe business unit will have revamped its
entire product line by the year 2000.
Continuous Growth in the NAFTA Region
In the financial year 1997, the Freightliner Corporation sold a
total of 80,200 commercial ve
hicles in North America (1996:
74,900 units), and thus contin
ued to improve its market posi
tion. Aside from the success of
our vehicles, contributing fac
tors
the unrivaled
service package offered by
business
Freightliner. The
with medium-duty trucks in
Classes 6 and 7 remained favo
rable; sales in this category
grew to a total of 11,400 vehi
cles (1996: 10,800 units). In
Class 8 trucks (over 15 tons), we achieved a 6% increase to
57,200 units, above all due to brisk demand for the new gen
eration of Century Class Trucks.
included
In the USA Freightliner reinforced its position as the
leading manufacturer of heavy-duty trucks by selling a total
of 70,500 commercial vehicles (1996: 69,300 units); its mar
ket share is 12% in the Classes 6 and 7 and 28% in Class 8.
Mercedes-Benz Mexico S.A., which like Freightliner is
part of the Commercial Vehicles NAFTA unit, profited from
the improved situation of the local market and nearly quadru
pled its production to 6,400 commercial vehicles.
Sterling as a Second Mainstay in North America
With the takeover of the heavy trucks sector of Ford Motor
Co. effective January 1, 1998, we are strengthening our posi
tion in the NAFTA region. The product range of this sector,
which in future will be marketed under the Sterling trade
mark via an independent network of more than 200 dealers
in the USA and Canada, con
sists of vehicles in Classes 6 to
8 for distributor, construction-
site, and long-haul applica
tions. It perfectly complements
the product range of Freight-
liner. With the Sterling as a
second trademark, Freightlin-
er intends to achieve an addi
tional sales volume of 20,000
units and expand its market
share in the segment of Class 8
trucks in the USA to nearly
40%. The Sterling trucks will
be manufactured
the
Freightliner production facility
in St. Thomas, Ontario, Cana
da.
at
Sprinter Spurs Growth in
Latin America
In order to consolidate our ac
tivities in Brazil and Argentina
and thus organize them more
efficiently, we created the busi
ness unit Commercial Vehicles
Latin America at the beginning
of the year under review.
The sales volume of this
sector grew by 23% in 1997 to
56,300 vehicles. Of this total,
3,100 vehicles were Sprinter vans, which since the end of
1996 have been produced at our Argentine plant for the Latin
American market. Because the rapidly rising demand for
commercial vehicles could not be fully satisfied due to limit
ed capacities, our market shares in the category of trucks
over 6 tons declined slightly. However, with a 34% share
(1996: 39%) in Brazil and 44% (1996: 46%) in Argentina, we
were able to maintain our leading position in this market seg
ment by far. In the bus sector, our share in the Brazilian mar
ket was somewhat lower than in the previous year at 63%.
The product range of the business unit was expanded in 1997
with another heavy truck, a
bus chassis with a natural gas
engine, and a low-floor bus.
Custom-Made Products for
the Asian Market
The Asia Pacific region is al
ready the largest commercial
vehicle market today and in
the coming years will also en
joy the most extensive growth.
In order to expand our position
in this region we will offer
more locally produced and de
veloped products there in fu
ture that are adapted to the
specific requirements of these
markets.
Such products include the
new MB 800, which we have
been producing in Indonesia
since 1997 and which was de
veloped locally.
A key project in China is
Yaxing-Benz Ltd., our 50/50
joint venture with Yangzhou
Motor Coach Manufacturer
General (YMCG) that started
operation in March 1997. Some
3,300 employees produce and
sell buses and chassis for the
Yaxing and Mercedes-Benz makes there as part of a double-
nameplate strategy. Our long-range plan is to achieve a lead
ing position in the Chinese market with this company.
In 1997, we restructured our sales organization both inside and outside of Germany striving to improve efficiency
and customer orientation. In addition, we set conditions for a much more conscientious management of the
Mercedes-Benz brand. The MB Spots we introduced in Italy and the A-Motion Tour open new opportunities for
customer contact. It is our aim to obtain world leadership not only within our products, but also within our services
and all aspects of customer care.
Restructuring the Sales Organization
In the year under review, we aligned our sales organization
even closer to the needs of our customers. We developed a
new structure for our sales network in Germany thereby tak
ing the geographic differences and required minimum vol
umes of our sales partners into consideration and ensuring
optimum customer care. We have already started implement
ing this structure with our partners in the interest of helping
them to build the strength and professionalism they need to
compete in the market. We have also introduced similar reor
ganization structures to our sales network in Europe outside
Germany.
Outside Europe we are strategically expanding our mar
ket presence with additional regional companies and sales
points. In Guatemala, for instance, we took over the majority
holding and corporate management of our general represent
ative, Europa Motors. Mercedes-Benz Latina, servicing the
Central American region, will start operations in 1998, and
regional offices will open in Dubai and South Africa.
The sales organization in Asia was also restructured.
From now on, these markets will be serviced directly on loca
tion by four newly established market performance centers.
Enhanced customer orientation and flexibility we achieved
are important conditions for more effectively exploiting mar
ket opportunities in Asia in future.
Brand Management in Sales
The distinctive Mercedes-Benz star, long considered a sym
bol for one of the world's strongest trademarks, may well be
the most important asset Daimler-Benz has in competing for
customers. We therefore established the new Brand Manage
ment unit in order to consolidate activities revolving around
the Mercedes-Benz brand. The new unit's task is to develop
strategies and standards from a brand perspective for the
gamut of activities ranging from vehicle development to sales
and promotion. The spectrum spans from positioning our ve
hicles in the market to marketing merchandising products
under the Mercedes-Benz name and establishing guidelines
for cooperative ventures.
A-Motion Tour
The A-Motion Tour introduced in 1997 represents a creative
new approach to initiating a dialogue with our customers,
communicating Mercedes-Benz brand awareness, and pre
senting the A-Class as a wholly new vehicle. The A-Motion
Tour was part of the 18-month publicity campaign leading up
to the market introduction of the A-Class; it homed in on the
centers of the most important cities of Germany and Europe.
With this innovative form of communication we have been
able to appeal to new customers for Mercedes-Benz and the
A-Class throughout Europe.
Present-Valued Parts Supply
Customer and market needs are changing in the parts busi
ness as well. In order to strengthen our competitive position
in the parts market, we started implementing marketing con
cepts in 1997 that pay special attention to the needs of our
individual customer groups. An example is our commitment
to make expendable parts available at prices that are based
on the present value of the vehicles. This not only increases
customer loyalty and satisfaction, it also creates conditions
for continued customer acquisition.
Star Diagnosis at Service Centers
Our service centers provide valuable opportunities for estab
lishing long-term customer loyalty. They can be a decisive
factor in setting us apart from the competition and in expand
ing our market position. The recently introduced Star Diagno
sis System enables Mercedes-Benz service centers to precise
ly locate malfunctions and to undertake appropriate repairs.
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Together with the recovery of important markets, programs for boosting efficiency introduced and successfully
implemented in previous years have noticeably improved the competitiveness and earnings of the Aerospace Division.
At DM 432 million profit (1996: DM 196 million loss), the division made an important contribution to the operating
profit of the Daimler-Benz Group in 1997. At the same time, significant advances were made in the restructuring of the
European aerospace
industry.
Revival of Demand
in Important Markets
Economic conditions for the Aero
space Division developed favorably
throughout 1997. Aside from brisk
demand for commercial aircraft and
helicopters, the upward valuation of
the U.S. dollar as compared to the
deutschmark was another important
factor.
In contrast, restricted public sec
tor budgets had a depressing effect.
Defense technology products and the
government-supported aerospace in
dustry were especially badly effected.
Thanks to the decision of the coun
tries involved to acquire the Euro-
fighter, it has been possible to secure
the continuation of this project, which
has tremendous strategic significance
for the European aerospace industry.
Due to skyrocketing demand for
new telecommunications services, the
upward trend in the commercial satel
lite and service provider markets continued worldwide.
Competitive Pressure Continued
Despite increasing demand in the commercial sector, the
aerospace industry remained embroiled in a bitter price war.
All manufacturers are therefore still vigorously imple
menting cost-cutting and rationalization measures. At the
same time, the trend towards concentration in the industry
reached a new dimension in 1997. In the USA, the merger of
Boeing and McDonnell Douglas cre
ated a company with a dominant
market position, high technological
competence, and a balanced portfolio
of products and services. Likewise
Europe, only an integrated aerospace
industry will be capable of surviving
over the long term.
Record-Breaking Revenue
and Incoming Orders
When comparably calculated,
the
Aerospace Division was able to in
crease revenue by 20% to DM 15.3 bil
lion in 1997. All business units gen
erated higher
the
previous year. The most important
contributions to the division's growth
came from the Civil Aircraft and the
Aeroengines unit.
revenues
than
At DM 19.4 billion, incoming or
ders also reached a record level and
after making adjustments for struc
the
tural changes,
previous year's level by 16%. Contributing factors included
booming orders for Civil Aircraft and Aeroengines, and for
the Military Aircraft and Defense and Civil Systems units.
they surpassed
Improved Earning Power
The division's earning power improved steadily. Its contribu
tion to the operating profit of the Daimler-Benz Group in
creased by DM 628 million to DM 432 million, even though
the early repayment of government development grants and
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advances for the Airbus program effected earnings. This in
creased contribution was above all due to a more favorable
dollar exchange rate and to our competitiveness drive, that
made it possible to reduce costs by almost 30%. All business
units were thus able to generate a profit in fiscal 1997. How
ever, the financial result was negatively influenced by hedg
ing measures, which have a long term effect, when they were
evaluated at year-end.
Further Steps Taken
Toward European
Structures
We reached several other im
portant milestones in 1997 in
our effort to promote European
cooperation in the aerospace
industry.
The French/British joint
venture, Matra BAe Dynamics
(MBD), acquired 30% of our
subsidiary LFK-Lenkflugkorp-
er GmbH, which creates new
possibilities for joint strategies in this sector. In the defense
electronics field, we acquired Siemens' defense electronics
business. This unit's product range complements our ex
isting line, and decisively improves our bargaining position
in negotiations toward European cooperative agreements.
In addition, we plan to establish an aerospace joint ven
ture with French/British Matra Marconi Space (MMS). MMS
and Dasa intend to contribute their entire space systems ac
tivities to this undertaking. Each is expected to hold a 50%
stake in the new joint venture.
In October 1997 we agreed with our three consortium
partners, Aerospatiale SNI, British Aerospace pic, and Con-
strucciones Aeronauticas S.A. (Casa), on additional steps to
convert the Airbus Consortium to a fully integrated European
corporation. "Airbus Single Company" is due to be realized by
early 1999. Its establishment is an important move to enter
the market for widebody jets larger than the A330/A340, a
segment previously monopolized by Boeing.
Capacity Expansion in Civil Aircraft
The Civil Aircraft and Helicopters unit essentially comprises
our activities within the Airbus Consortium and the Euro-
copter Group, in which we hold 37.9% and 40% stakes re
spectively.
Demand for civil aircraft and helicopters, which had al
ready risen briskly in 1996, led to significantly higher de
liveries in 1997. The unit's revenue increased by 30% to DM
6.0 billion. In the civil aircraft
sector,
in particular, orders
were also buoyant. At DM 9.0
billion, incoming orders sur
passed
the previous year's
level by 42%.
The Airbus Consortium
was able to book total orders
for 460 aircraft in 1997 (1996:
the most
326). That was
booked in the history of this
program. In the year under re
view 182 aircraft were de
(1996:
to customers
livered
126 units). The volume of orders on hand continued to rise
and reached 1,009 aircraft at year-end (1996: 753 units). To
ensure our ability to deliver aircraft on time, production is
gradually being ramped up, especially in the A319/A320/
A321 program. Airbus production was increased to a total of
16 aircraft per month in 1997 and will reach 25 units per
month in 1999. Annual production will thus grow by 100
units to more than 280 aircraft.
The Airbus family will become even more attractive for
customers in the future. The product range is continually be
ing widened with additional model versions, notably the
A321-200 and the A330-200. The decision to develop the
four-engine A340-500 and A340-600 jets was finalized in
December 1997. The new models will expand the A330/
A340 family, which will then cover the range from 250 seats
(A330-200) to 380 seats (A340-600).
In the helicopter segment, the revival of civil business
made it possible to more than offset the continued decline in
revenues from the military sector. Incoming orders were up
13% to DM 1.6 billion.
Eurofighter Enters Production Phase
The Military Aircraft business unit consolidates the Group's
capacities and competencies in development, production,
and servicing of combat aircraft as well as military transport
and mission aircraft. Among the unit's activities are aircraft-
supported reconnaissance and guidance systems, primary
trainers, and training systems.
About half the unit's revenues, which in 1997 rose by 4%
to DM 1.7 billion, was generated by the Tornado and Eu
rofighter programs and another 20% related to Airbus sub
assemblies developed and produced on behalf of the Civil
Aircraft unit.
Primarily as a result of an order for the modernization of
Greece's Phantom aircraft, as well as a significantly larger
volume of orders for Airbus subassemblies, the unit's in
coming orders rose by a remarkable 70% over the previous
year to reach DM 2.0 billion.
Now that the German Bundestag has decided in favor of
procuring the Eurofighter and the defense ministries of the
nations involved (Germany, U.K., Italy, and Spain) signed a
Memorandum of Understanding in December, series produc
tion for this program, important for both workforce and sys
tems capabilities of the Military Aircraft unit, has become
reality.
Ariane 5 Successfully Started
The Space Systems Infrastructure business unit is respon
sible for orbital systems and their application as well as for
booster and propulsion systems.
Revenues increased by 9% to DM 1.1 billion in 1997. Focal
points included our contributions to the Columbus Research
Station and Ariane programs.
Incoming orders had been extraordinarily high in 1996
due to the agreement to develop the COF (Columbus Orbital
Facility), a contract worth more than one billion German
marks. The financial year of 1997 shows that the situation
returned to normal and the value of incoming orders was
therefore significantly lower at DM 0.8 billion (1996: DM 2.3
billion).
The European booster rocket Ariane completed its one
hundredth take-off in September 1997. The second develop
ment booster in the Ariane 5 program was successfully
launched in October. Europe is the world leader with Ariane
5. It is presently designed for a 5.9 ton payload and will later
be expanded to 7.4 tons, that means it will not only be able to
transport large satellites into space but other loads, such as
the Automated Transfer Vehicle (ATV), as well.
Growth in Revenues in the Satellites Unit
The Satellites business unit develops and produces satellite
systems for applications ranging from science and remote
sensing to communications and safety policy. These activ
ities are essentially concentrated within our subsidiary Dorn-
ier Satellitensysteme GmbH (DSS).
In 1997, the unit's revenues increased by 23% to DM 1.5
billion. The Spacebus and Globalstar programs made signifi
cant contributions to earnings,
as did the scientific X-ray satel
lite XMM. At DM 1.1 billion
(1996: DM 1.4 billion), incom
ing orders were significantly
lower than
the previous
in
year, which benefited from
large orders relating to the En-
visat program and the XMM X-
ray satellite.
We have entered the highly
promising market for small
satellites with the newly devel
oped Flexbus concept. In addi
tion, we were able to complete
the Saturn probe Huygens in 1997 which was send into space
with the American Cassini orbiter.
Defense and Civil Systems:
Competitive Position Strengthened
Though still affected by limited budgets in the public sector
in 1997, the Defense and Civil Systems business unit was
able to take important steps toward consolidation and prep
aration for European integration. We have strengthened our
position in defense technology through the alliance with
Matra-BAe Dynamics in the guided missile sector and the
takeover of the defense electronics activities from Siemens.
Nortel Dasa Network Systems achieved a decisive market
breakthrough in Germany with a large order from Viag Inter
com.
Revenues were up 3% in 1997 and reached DM 2.8 billion.
A decline in revenues from guided missiles was offset by sub
stantial growth
in revenues for Nortel Dasa Network
Systems, Conventional Munitions Systems Inc. (CMS), and
Bayern-Chemie, as well as for Dornier GmbH in the recon
naissance and guidance systems sector. Incoming orders in
creased by 21% to DM 3.0 billion.
Vigorous Growth in Civil Propulsion Systems
In the Aeroengines business unit, our subsidiary MTU Mo-
toren- und Turbinen-Union Miinchen GmbH manufactures
propulsion systems for civil
and military aircraft, helicop
ters, and stationary applica
tions in cooperation with Euro
pean, American, and Japanese
partners. In addition, MTU
Miinchen is actively involved
in the maintenance of military
and civil propulsion systems.
The dynamic upward trend
of Aeroengines continued in
1997 with business volume of
DM 3.0 billion (+28%). Impor
tant contributions came from
civil propulsion systems and
maintenance services. Revenues from propulsion systems for
military aircraft, on the other hand, did not quite reach the
level of the previous year.
Incoming orders also rose briskly (27%) to DM 2.7 billion.
As with revenues, the orders relating to civil propulsion sys
tems played the most instrumental role here; they increased
by more than 50%.
The Services Division had a very successful financial year 1997, and continued the positive development
of previous years in all five business units. Revenues reached DM 15.5 billion, 22% higher than the
comparable value for the previous year. At the same time, the division's contribution to the operating profit
of the Daimler-Benz Group increased considerably from DM 288 million to DM 457 million.
Growth in Services
Remained Strong
In the industrialized nations the serv
ices sector was once again one of the
mainstays of economic growth and
one of the most important pillars of
the economy. In Germany, indications
of a long-term upswing intensified in
the corporate services sector, in which
our Services Division is active, with
the data processing sector growing at
an above-average rate of 5.5%.
Earnings Noticeably Improved
The division's contribution to the op
erating profit of the Daimler-Benz
Group increased by a remarkable 59%
to DM 459 million. All business units
contributed to this success, and the
favorable trend in exchange rates had
a positive effect on operating profit.
Once again,
important
source of income was the Financial
Services/Insurance Brokerage unit.
The operating profit of IT Services
also expanded significantly.
the most
Business Volume
Considerably Higher
1997 was a highly successful year for
the Services Division. Revenues in
creased to DM 15.5 billion and were
thus 22% higher than the comparable
value for the previous year. Growth in
the IT Services and Telecommunica
tions and Media Services business
units was especially pronounced at
32% and 44% respectively. In absolute
terms, growth was the strongest in the
Financial Services/Insurance Brokerage unit, with an in
crease in volume of 15% to DM 9.5 billion. But the other busi
ness units also expanded revenues. The development varied
from market to market, but was particularly pleasing in the
member countries of the European Union, where we were
able to increase revenues to DM 2.4 billion (1996: DM 1.5
billion). Revenues in Germany grew by 8% to DM 7.9 billion.
In 1997 we generated 51% of our business volume in Germa
ny, 15% in the other EU member countries, 30% in the North
America, and 4% in other markets.
More Than
3,400 New Employees
The number of employees rose mark
edly once again in 1997. At year-end
debis employed 14,898 people world
wide (1996: 11,500 employees). Of
this number, 4,049 worked for our for
eign companies, nearly twice as many
as in the previous year. We created
new jobs in the three largest business
units: Financial Services/Insurance
Brokerage, IT Services, and Telecommunications and Media
Services. In addition to existing trainee programs, we created
20 new apprenticeship positions in various IT professions.
Continued Internationalization of Services
The Services Division continued its systematic international
ization drive in 1997. New companies were established and
new markets tapped by almost all business unit. Above all we
see good opportunities in the Asia Pacific region and Eastern
Europe to take advantage of these markets' growth potential.
Stake in Cap Gemini Sold
In July 1997 debis ended its partnership with Cap Gemini
due to the incompatible strategic orientations of the two com
panies. After all, the partnership, which had existed since
1991, turned out to be very successful for both parties. How
ever, the restrictions of the U.S. Bank Holding Company Act
did not permit our IT Services unit the unrestricted pursuit of
business activities in the USA, which is an important market
for information technology, debis AG sold its 24.4% stake in
Cap Gemini to Compagnie generate d'industrie et de partici
pation (CGIP) and at the same time reacquired the shares
held by Cap Gemini in debis
Systemhaus. The IT Services
unit will now focus on gradual
ly expanding its international
presence, particularly in Eu
rope, and will utilize funds for
acquisitions.
Financial Services/
Insurance Brokerage: More
Markets Tapped in the
Asia Pacific Region
As part of its internationaliz
ation strategy, the Financial Services/Insurance Brokerage
business unit established 15 new companies and is now do
ing business with 73 companies in 28 countries. We expand
ed our presence in the Asia Pacific region in particular. In
1997 we were able to increase both our new business and
our contract volume considerably: new business reached
363,000 vehicles, while contract volume rose by 36% to
801,400 vehicles. Business volume picked up noticeably in
Germany due to the expansion of our range of services. The
new services we offer include innovative products such as
Salesman on Demand (see page 49). In other European coun
tries we significantly improved efficiency by establishing an
internal European IT Service Center. Business was very en
couraging in the USA as well where Mercedes-Benz Credit
Corporation was able to expand new business by 21% to
95,000 new contracts.
The leasing funds we set up were very much in demand,
making it possible to secure and place financing for ten
large-scale products through debis Aviation Leasing. As a re
sult, the funding volume managed rose to DM 4.3 billion
(1996: DM 2.5 billion).
In the insurance sector, we increased our premium rev
enues by 11% to DM 1,030 million, primarily by expanding
business with corporate and industrial customers. As part of
a reengineering project, we critically reviewed our processes
and
identified optimization potentials. We focused on
customer needs and demands and intensified sales activities
in the interest of improving the quality of our consulting
services.
IT Services: Focused on New Markets
The IT Services unit, debis Systemhaus, also expanded its
international operations signif
icantly in 1997. It was able to
enlarge its customer base con
siderably as a one-stop shop for
everything
from consulting
and the development of soft
ware solutions to the operation
of application systems and
communication networks. New
companies were established in
Spain, Denmark, South Africa,
Singapore, and
the United
States.
Aside from internationalization, a key focus was the de
velopment and implementation of innovative solutions in
areas such as electronic commerce and secure data transfer.
debis Systemhaus was also able to gain new customers for
redesigning their business processes in connection with the
introduction of the Euro and adapting systems to calendar
year 2000. Overall, the unit's business increased by 32% in
1997 and reached DM 3.2 billion. We generated 64% of rev
enue from customers outside the Daimler-Benz Group.
Telecommunications and Media Services:
Dynamic Growth Continued
The business unit Telecommunications and Media Services
profited from the growth in European telecommunications
markets in 1997. Revenues increased by 44% to DM 2.3 bil
lion. In Europe, debitel serviced 1.7 million customers by
year-end (1996: 1.1 million customers). Since the founding of
debitel Denmark, we have been represented in five European
countries and can offer customers the same services thanks
to a service concept that spans all five countries.
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We also expanded our activities in the traffic consulting
and planning sector. Thanks to our know-how in the design
and implementation of traffic and logistics systems, we were
able to tap markets in European countries outside Germany.
The navigation system implemented for the city of Tokyo is
an important project in this respect. In Germany, Tegaron
Telematics which offers precise traffic information for driv
ers, started operations.
In the online media sector we opened up new distribution
channels through Primus-On
line, our joint venture with
Metro AG. According to the lat
est market research, revenues
from the Internet are expected
to reach some DM 200 billion
by the year 2000. Our object is
to quickly gain a substantial
market share.
Trading: Business with
Eastern Europe Intensified
Thanks to its 103 employees,
all of whom have country-spe
cific expertise and the neces
sary language skills, in 1997
the Trading unit completed
numerous projects worldwide
using state-of-the-art
trading
methods. The main emphasis
was on significantly increasing
our involvement in the CIS
countries. By offering compre
hensive service packages we
were able to expand particularly the project business. Orjol
Wheat 2000 is a project that can serve as a model for other
efforts: debis Trading will organize the purchase and supply
of the latest agricultural machinery, logistics, and services.
This not only increases the wheat yield in Russia's Orjol re
gion, it will also modernize downstream warehousing and
production. In commodity trading we expanded our business
substantially with the Mercedes-Benz collection. In the mer
chandising sector we were able to win new contracts.
Real Estate Management: Construction
Management Extended to Include Other Projects
Construction management of the Potsdamer Platz project
was once again the focus of our
real estate management activi
ties in 1997. Schedules and
costs are on target, and one
year before completion of the
entire project, 60% of the usa
ble floor space had been sold
or rented. By the end of 1998
most of the 19 buildings will be
completed and occupied. In ad
dition, the Real Estate Manage
ment business unit took on
construction management re
sponsibilities for other exter
nal projects. Revenues tripled
to DM 220 million.
New Home for debis
Opened Its Doors at
Potsdamer Platz
The first construction phase
was completed at Potsdamer
Platz after only three years of
construction. The new admin
istrative headquarters for debis was inaugurated on October
24, 1997 and handed over to the Services Division. Some
1,000 debis employees have moved into new offices in the
heart of Berlin.
The directly managed businesses comprise three business units, Rail Systems (Adtranz joint venture),
Microelectronics, and MTU/Diesel Engines. In 1997, Adtranz generated revenues of DM 6.4 billion, a 13% increase
over the previous year. Incoming orders were up 30% and reached DM 7.5 billion. However, Adtranz recorded an
operating loss. At Microelectronics, revenues rose on a comparable basis by 25% to DM 2.6 billion and incoming
orders by 44% to DM 2.8 billion. Operating profit significantly improved and became positive. The MTU/Diesel
Engines unit was able to continue the upward trend that it enjoyed for several years and increased revenues to more
than DM 1.7 billion. Operating prof it also improved.
Rail Systems
Higher Revenues and Incoming
Orders
Adtranz, the joint venture of Daimler-
Benz and ABB, maintained its world
wide position as the leading and most
complete rail systems supplier, from
rolling stock and fixed installations to
signaling and customer support, via a
growing network of competent local
operations around the world.
1997 was characterized by new or
ders worth DM 7.5 billion (+30%) in a
growing, but highly competitive, mar
ket. Many of the contracts awarded in
previous years entered the delivery
phase. Revenues picked up in the last
quarter of 1997, above all in Germany,
indicating significant improvements
in delivery performance. Total rev
enues increased to DM 6.4 billion
(+13%) in the year under review.
Measures to Improve Earnings
In anticipation of increasing price
pressure and with continued over
in Europe,
capacity, particularly
Adtranz plans to speed up its restruc
turing programs in order to lower its
cost base and to improve its competitiveness. Considerable
provisions were made for the proposed restructuring meas
ures; as a consequence, the operating result for 1997 deterio
rated noticeably and was negative.
Major Projects and Contracts
Adtranz was awarded an order for
new generation high-speed trains and
fixed installations for the Oresund
project linking Sweden and Denmark.
Other major orders included turnkey
rail systems in Adana, Turkey and
Oporto, Portugal. Moreover, major or
ders were secured in Western, Cen
tral, and Eastern Europe as well as in
the USA.
After years of uncertainty the U.K.
rail market is prospering following
privatization. Adtranz won orders in
the U.K. for diesel and electrical mul
tiple units totaling over 400 vehicles
with options for more than 800 addi
tional cars and a major order for main
tenance.
The prospects for new orders look
promising. Despite delays in awarding
new infrastructure contracts due to fi
nancial turbulences in certain Asian
countries, significant growth of the
rail market in that region is antici
pated.
Technological Efforts
In 1997 Adtranz developed seven new
vehicle platforms ranging from the
new people mover, light rail vehicles, and metro trains to re
gional and intercity multiple units and electric locomotives.
All are based on modular and standardized designs, reflect
ing customer demand for highly efficient and reliable vehicles.
Investments in global development programs amounted to
more than DM 240 million in 1997.
Adtranz focuses on technology development to make rail
way operators competitive with other modes of transport.
Fundamental research in the area of vehicle dynamics is es
sential for vehicles capable of speeds up to, and in excess of,
250 km/h on existing infrastructure. As a consequence, a
new modularized cast bogie with superior running character
istics is being introduced as a basic component of Adtranz's
coming generation of high-speed multiple unit trains.
The Signaling unit at Adtranz is introducing a very im
portant function to enhance operating economy. It is based
on computerized systems on
board trains, radio-connected
to the operational system and
to control centers along the
track.
Important Acquisitions
and Capital Investments
Adtranz devoted considerable
efforts to modernize the pro
duction plant of its Polish
company, Pafawag. In 1997
Adtranz acquired the majority
share in Pafawag and has man
aged to turn it into an efficient
producer not only
the
Polish market, but also for low-cost standardized mechanical
components throughout the Adtranz group.
for
Adtranz acquired another 25.9% of Adtranz MAV Duna-
keszi, Hungary, in 1997, becoming the majority shareholder.
This company will become important in customer support
both in Hungary and surrounding European countries.
Effective January 1, 1998, Adtranz acquired the rolling
stock business of Schindler Waggon, Switzerland. With this
acquisition Adtranz Switzerland becomes a fully fledged
manufacturer of complete rail track vehicles.
In order to strengthen its presence in Asia, Adtranz es
tablished its fourth corporate center in Singapore in 1997
and opened a signaling center in Bangkok. In addition, a new
business segment was set up at Adtranz at the beginning of
1998 to coordinate activities in Asia for better market pen
etration.
Microelectronics
Growth in Automotive Electronics
and Semiconductors
In 1997, revenues, incoming orders, and earnings rose mark
edly in Microelectronics. In the automotive electronics and
semiconductor sectors, TEMIC was able to expand its rev
enues by 25% to DM 2.6 billion; orders increased by 44% and
reached DM 2.8 billion. TEMIC generated nearly half its rev
enues in Europe and 24% each in North America and the Far
East.
The automotive electronics sector recorded above-aver
age growth in revenues of 52%
to reach more than DM 1 bil
lion. At the same time, incom
ing orders were 64% higher
and totaled DM 1.2 billion. The
reco
semiconductor market
vered in 1997 after a difficult
1996; this development was
exceptionally profitable for our
semiconductor activities. In
coming orders for semiconduc
tors grew by 42% to DM 1.6 bil
lion, while revenues were up
18%, surpassing DM 1.5 billion.
Focus on Automotive
Electronics
Following the decision to concentrate on core activities, the
Semiconductor unit was sold in early 1998 to the U.S. com
pany Vishay Intertechnology, Inc., based in Malvern, Penn
sylvania.
TEMIC will now concentrate exclusively on the fast grow
ing activities of automotive electronics. In the year under re
view it comprised six product groups: engines and chassis,
safety, comfort, ABS, sensor systems, and electric motors.
TEMIC's product range covers the majority of automotive
electronics applications. The new structure will enable it to
access the market more quickly. Customers include all the
well-known automotive manufacturers in Europe, USA, and
Asia.
Worldwide Development and Production Network
Our global development and production network is designed
to further enhance productivity and thus secure a competi
tive edge. Capital-intensive production in Germany is allied
with production at low-cost locations in Asia, Eastern Europe,
and Central America.
Technological Competence
Usage of electronics in motor vehicles is steadily gaining
ground. As many as 90% of all innovations introduced to the
vehicle market today are based on electronic applications.
Electronics
facilitate driving and simultaneously offer
greater comfort and more safety. With its portfolio of elec
tronic control units and other products, TEMIC has estab
lished itself as one of the world's most important suppliers in
the industry. In certain market segments TEMIC is the tech
nological leader; for example, it has developed its compe
tence in ABS and airbag electronics over several decades,
and is a leader in sensor technology and modern distance
control systems.
A number of electronic components in automobiles rely
on sensors that measure environmental factors, recognize
changes, and trigger appropriate reactions. For example, ac
celeration sensors are a key element in every airbag system.
TEMIC has been manufacturing these sensors since 1997
using a new technology that replaces mechanical construc
tion with a micromechanic arrangement on a silicon basis.
The sensors can be produced much more efficiently and in
greater quantities.
Another innovation is the distance-warning radar devel
oped by TEMIC's subsidiary Automotive Distance Control
Systems (ADC). The system maintains a constant speed se
lected by cruise control, automatically decelerates if road
conditions change, and accelerates again when the car re
turns to the open road. The system will be ready for series
production in 1998 (see page 48).
Other potential improvements include taking antilock
braking systems a step further with Electronic Stability Pro
grams (ESP), a development that prevents cars from swerv
ing in critical situations. In addition, distance warning radar
helps to prevent accidents. In case of a crash, the related
airbag electronics system provides optimum protection for
driver and passengers. Innovative engine and powertrain so
lutions will continue to reduce fuel consumption without sac
rificing performance. Finally, linking functional units with a
car's on-board computer will provide diagnostic and service
functions in the future.
MTU/Diesel Engines
Revenues Continue to Rise
In the year under review the MTU/Diesel Engines business
unit, based in Friedrichshafen, was able to increase its rev
enue to more than DM 1.7 billion (+6%). At the same time,
incoming orders rose to nearly DM 1.8 billion. More than 60%
of the business volume was generated in export markets.
Aside from EU countries, Asia was the most important sales
region for MTU products. The way business developed in Ger
many was equally encouraging. Together with measures to
reduce costs, business expansion led to noticeably improved
earnings.
MTU has been continuously expanding its sales organi
zation to reinforce its excellent position in the world markets.
Aside from the new customer service center in Soochow near
Shanghai, China, the formation of a subsidiary in Thailand in
1997 represented another step toward establishing compre
hensive customer support. The development of a marketing
organization is also under way in the countries of the former
Soviet Union. Outlets in Russia, Ukraine, Georgia, Kazakstan,
and Azerbaijan will expand MTU's customer support net
work to 330 service centers in nearly 100 countries.
Gained Market Shares with Cooperative Ventures
On the basis of existing MTU diesel engines, our Magdeburg-
based partner SKL Motoren- und Systemtechnik GmbH will
develop a natural gas, in-line, and heavy fuel engine with an
output between 250 and over 2,000 kW. It is our aim to offer
competitive products in the promising natural gas engines
sector as early as 1999.
Series production of the 2000 and 4000 engines, devel
oped with our American partner Detroit Diesel Corporation,
started in 1997 as planned. The engines are used in yachts,
power generation units, rolling stock, and dump trucks. Brisk
demand suggests that revenues will continue to rise.
Market Leader in Marine Engines for High-Speed
Ferries and Government Ships
MTU has been a market leader in the high-speed ferry sector
for years. The trend toward using larger and faster ships for
important sea routes continued in 1997. Despite increasing
competition it was possible to expand the market share for
diesel-powered ships to nearly 70%. MTU engines, combined
with gas turbines, will power four 150 meter high-speed fer
ries operated by an Italian shipping company. These are the
largest high-speed ferries ever built. With this contract MTU
managed to gain entree to a type of ship that will set new
standards with respect to speed and hauling capacity.
The slight revival in procurement projects of navies and
government agencies has led to a steady rise in incoming or
ders in this segment as well, particularly from the Asian re
gion above all. Larger orders were received for the new 2000
series, which found rapid acceptance with government agen
cies and yachts.
Specialist in Complex System Solutions
In the field of decentralized energy systems we received sev
eral orders for facilities using fuel/water injection technology
after a number of pilot facilities were successful. At this time,
MTU is the only manufacturer offering this concept in mass
production. It significantly reduces engine emissions and al
ready meets future emission standards.
Incoming orders and revenues rose noticeably in the roll
ing stock segment as well, particularly from Germany, China,
Indonesia, and Greece. The increase in demand for diesel rail
cars was especially strong in Europe. MTU developed com
plete propulsion units for rail cars, which are preassembled
and installed into the vehicles.
In the heavy mine vehicles segment, the trend toward
larger dump trucks and excavators is continuing. Once again,
MTU achieved a market share for dump trucks of more than
40% in 1997. With the new 4000 series it also managed to tap
the market for large excavators.
Steady decline in defense budgets meant that demand for
diesel systems for military vehicles remained at a low level.
On the other hand increasing standardization of equipment
for NATO member states may have a favorable effect in the
future. MTU's EuroPowerPack is a universal diesel unit for
heavy tracklaying vehicles and represents an internationally
renowned product with tremendous market opportunities.
In drive shafts for passenger cars, vans, and light com
mercial vehicles, the positive trend of the past few years con
tinued. Deliveries for Mercedes-Benz vehicles once again
comprised the largest share of revenues. Business with
customers outside the Daimler-Benz Group also grew. For
example, a delivery contract was concluded with Volvo.
We are also conducting promising negotiations with other
automakers.
In the injection system sector our subsidiary L'Orange
had a very good year. Demand for medium-speed diesel en
gines boosted demand for injection systems. The develop
ment of innovative injection technologies helped us to pen
etrate additional markets. The common rail injection technol
ogy is especially noteworthy; we introduced it as standard for
large, high-speed diesel engines for the first time in 1997
(see page 48).
Hier gab es ein Produkt- oder Stimmungsbild ohne Text oder Zahlen.
Es wurde in der PDF-Datei weggelassen, um eine nutzerfreundliche Dateigröße zu erreichen.
Here was a product or mood picture without text or figures.
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The responsibilities of Research and Technology essentially are to support individual business units in the
development of technological strategies,
securing integrated
innovation and
technology management
through
networked and knowledge-based cooperation with
the units, and creating the foundations for product qualities
that
stand out against competitors.
The Hub of Technology
Research and Technology is the hub for securing the techno
logical future of the Group. Its new structure enables innova
tion to be more rapidly incorporated into products. In 1997,
1,300 patent applications were filed in Germany alone. Out
side Germany 4,400 new patents were filed, almost double
1996.
new weldable aluminum alloys. This innovative technology
represents a quantum leap in production technology and
could well revolutionize the assembly of aircraft. It makes
possible the replacement of conventional riveted joints in air
craft construction which could reduce weight by 20% and cut
production costs by 10%.
Such an extremely light aluminum/lithium alloy is likely
Here are some examples of key projects where we made
to be used in the A3XX widebody aircraft.
significant progress in 1997.
Trendsetting Vehicle Concept
We introduced the F300 Life Jet at the 1997 International
Motor Show in Frankfurt (IAA). It is a trendsetting concept
vehicle that combines the cornering dynamics and feel of a
motorcycle with the safety and comfort of a passenger car.
The vehicle is designed as a two-seater and has two front
wheels and one rear wheel. Its most important innovation is
called "active tilt control," which enables the front wheels
and the body to automatically lean into corners at the optimal
angle. As a result, the F300 achieves the ratings of a high-
performance motorcycle with respect to speed in curves and
radial acceleration.
We are currently investigating the market potentials of
this vehicle.
New Technologies and Materials for Aircraft
Construction
Together with Daimler-Benz Aerospace, the Research and
Technology division is working on the innovative construc
tion of an integral aircraft fuselage structure. The project in
volves the use of laser welding technology in connection with
Virtual Design of Passenger Cabins
Using the virtual cabin model, developed with Dasa for the
A3XX, airlines can create a customized layout for seating ar
rangements and service areas.
Even before the first prototypes, alternative cabin ver
sions can be presented in virtual reality and compared and
evaluated at the push of a button. This enables us to take
customer needs into consideration at a very early stage.
Roadside Assistance: Mobile Diagnosis on the Spot
The Daimler-Benz Research and Technology Center in Cali
fornia and the Vehicle Research Center in Stuttgart are devel
oping a Roadside Assistance Program in cooperation with
Mercedes-Benz North America. It is a mobile service sup
ported by satellite communications for all Mercedes-Benz ve
hicles in North America.
In the event of a breakdown, a service vehicle will be di
rected to the customer with the aid of central headquarters
and will conduct a detailed diagnosis so that in connection
with headquarters problems can be resolved on the spot.
A similar program for the European market is also being
developed.
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Innovation -
The Key to
Corporate Success
jobs for our employees as well as
successful, long-lasting relations
with our suppliers.
In consideration of the steady
Award of
"Deutscher Zukunftspreis"
intensifying competition it will be
Three of the five finalists in the
increasingly important for the future
competition for the 1997 Deutscher
to rapidly transform ideas and
Zukunftspreis were from the
concepts into marketable products.
Daimler-Benz Group. The winner of
This is why Research, Development,
this distinguished prize, that is
Production, and Sales joined forces
awarded by the German president
of an integrated process to develop
each year, for technical, engineer
product characteristics that will
ing, or scientific achievements, was
distinguish us in competition. The
Christhard Deter, head of develop
basis therefore are analyses of social
ment for our Laser Display Technol
trends, global technology monitoring,
ogy (LDT) joint venture project.
Promoting innovation is an essential
and technology strategies tailored to
Our other finalist projects were
element in Daimler-Benz's value-
the respective product segments.
the emission-free A-Class NECAR 3
oriented management: innovative
They are instrumental for the
and the HeliRadar helicopter
products play a major role in market
creation of innovative products and
radar system developed by Dasa
performance and thus in increasing
services that our customers demand
researchers.
corporate value. But they also form
and deserve. Here some examples of
The jury's decision honor our
the basis for secure and attractive
our innovations are given:
researchers' efforts and the
innovative strength of the Compa
ny. This strength is also apparent in
many other new products, services,
and organizational forms in all our
business units.
Future Outlines
The Laser Display Technology
(LDT) developed in a joint venture
with Schneider Rundfunkwerke AG
was presented at the Internationale
Funkausstellung in Berlin in August
1997. It is nothing less but a
quantum leap in the field of visual
picture display.
The new technology is based on
the deflection of a laser beam that
builds up an image line by line at
high speed; the laser point moves
along the projection surface at a
speed up to 90 kilometers per
second. The laser image always
appears needle sharp, even if the
projection intervals vary. There is
no need to re-adjust the image as
there is with slide projectors.
Because of its ability to project
television images on wall-size
formats in the same high quality,
Laser Display Technology is equally
suited for training and exhibition
shows as for large-scale events in
sports halls or at stadiums.
We also expect this technology
that is today still rather costly, to
become affordable for private
consumers in the medium-range
future.
shows hard-to-perceive objects
with methanol, at the IAA in
such as high-voltage lines even
Frankfurt. It is a two-seat concept
Good Visibility in Bad
under the most adverse visibility
car for the Mercedes-Benz A-Class.
Conditions
conditions.
Because it eliminates the need for a
The HeliRadar is the first
Start of series production of the
hydrogen tank, the NECAR 3 is
technology to make it possible for
HellRadar is estimated for the end
suited for everyday applications:
helicopters to fly at night or in
of 2001.
dense fog without any restrictions.
This ability is especially important
for rescue missions. In the past,
methanol does not require any
special safety measures while
Emission-Free Future by Fuel
Cell Technology
refueling. The emission-free A-Class
car runs 400 kilometers on a 40-
helicopters were only permitted to
Our research efforts in fuel cell
liter tank of methanol.
fly in visibility ranges of at least
technology are the most advanced
We also laid the foundation of a
1,500 meters; such limitations do
in the world. After introducing a
promising future in fuel cell tech
no longer apply to HeliRadar.
fuel cell city bus powered with
nology from an organizational point
The system works with four
hydrogen in May 1997, we unveiled
of view by centralizing the research
microwave cones that are synchro
the NECAR 3 (New Electric Car 3),
and development team at one
nized with the rotors. The cones
the first fuel cell vehicle powered
location in Nabern, and by increas
help to create a computer-animated
image that clearly and distinctly
ing the number of team members
up to 130. All activities are now
coordinated by the new Fuel Cell
Project organizational center.
In December 1997 we estab
ignition engines, and noticeably
improving engine braking character
istics.
lished a comprehensive partnership
series to the market in mid-1997.
Because the valves can be
with our existing research and
The new engines are used in ships,
controlled freely and independently
development partner Ballard Power
locomotives, large dump trucks,
from each other, the engine can
Systems Inc. and with Ford Motor
and power generators.
adapt to the relevant operating
Company concerning research,
Also CDI stands for new stand
conditions. In city traffic, for
development, and marketing of fuel
ards in direct diesel injection for
example, it is important to keep
cell propulsion. Together we plan to
passenger cars. Additional to its
emissions and fuel consumption at
develop the technology to produc
low emission levels and smooth
a minimum, while engine power,
tion maturity in order to deliver
running, the Mercedes-Benz
torque, and performance do count
complete systems for use in
C 220 CDI packs powerful perform
in passing maneuvers.
vehicles by the year 2004.
ance characteristics. The Common
We are testing the new technol
MTU Friedrichshafen sets new
Rail linked with turbocharging,
ogy in continuous operation on the
standards in stationary fuel cell
charge cooling, and four-valve
test rig in order to gain experience
applications. In cooperation with
technology makes it all possible.
with valve control applications.
different partners MTU develops
two innovative electrochemical
energy converters: high-tempera
ture fuel cells for power plant
applications and electrolyzers for
producing hydrogen close to
consumption as industrial gas or
fuel.
Common Rail Puts Pressure
on Diesel
Common Rail is an injection
method that distributes fuel to the
injection nozzles via a common rail.
At the same time it functions as an
One thing all of our Common
accumulator, this means that unlike
Rail engines have in common is
More Safety and Comfort
Thanks to Electronic Aids
At the 1997 IAA we presented a
number of groundbreaking elec
tronic systems that will make
driving safer and more comfortable
in the future.
The Auto Pilot System (APS),
which is already available for many
Mercedes-Benz models, will take
up-to-the-minute traffic reports and
congestion alerts into consideration
for recommending individual
routes. A comparable system is
already installed in Tokyo.
with conventional technologies the
their low fuel consumption. The
The automatic emergency call
injection pressure does not have to
C 220 CDI can travel some 1,000
system TELEAID automatically calls
be generated anew for each cycle.
kilometers on a full 62-liter tank.
the police and ambulance to the
Together with its subsidiary
scene of accident.
L'Orange, MTU Friedrichshafen
Free and Independent Valves
Mercedes drivers may operate
developed a Common Rail injection
Our research team also devel
their car phones with Linguatronic,
system, and as the first manufac
oped a technology called Electrohy-
a voice-activation system that is
turer in the world introduced it in
draulic Valve Control. It
unprecedented around the world.
the form of the 4000 diesel engine
is capable of reducing fuel con
sumption by up to 10%, reducing
emissions in diesel and spark
comprehensive technological
campaign, that may well cut fuel
consumption of large commercial
aircraft in half within the next
twenty years.
Development target include flaps
with variable shapes that optimize
the ratio between upwind and air
resistance depending on flight
conditions. Our researchers have
developed such a concept for the
flexible trailing edge of a landing
flap. It is stable enough to withstand
aerodynamic forces, but resists the
desired distortion with minimal
elastic forces only. We have already
been able to prove the functioning
of the concept with a full-scale
model of a A340 wing section.
Our electronic distance and
A total of three monitors are
Service at the Press of a Button
cruise control system uses a radar
installed in the vehicle: one on the
Service providers are mainly
sensor in the radiator grille to
dashboard and two on the back of
measured by the quality of their
detect vehicles ahead within a
the front seats.
consulting abilities, but getting this
range of up to 150 meters. In
The car's unique Internet
quality across largely dependents on
fractions of a second it calculates
address also opens up new oppor
the consulting staff.
the distance and relative speed to
tunities for maintenance. At the
In future, to ensure the highest
the next car and adjusts the vehicle
driver's request the service center
standards, Mercedes-Benz custom
speed accordingly.
can call up technical information,
ers will be able to call immediately
make remote diagnoses, trouble-
consultants from MB Lease Finance.
Multimedia@Mercedes
shoot problems online, and transfer
A multimedia terminal will be
The Daimler-Benz Research and
software updates to the onboard
installed in each Mercedes-Benz
Technology Center in Palo Alto,
California presented the first
multimedia Mercedes car in
September 1997.
The Internet Multimedia on
Wheels Concept Car - a silver
electronic system. But other
showroom and a financial consult
applications such as constant road
ant will be available for matters of
and traffic updates are conceivable
concern by video conference over
as well.
ISDN lines. The customer will see
It will probably take another five
both the consultant and the monitor
years or so until this technology is
mask. The Salesman on Demand can
Mercedes-Benz E 420 - is equipped
ready for mass production.
respond to customer requests at
with a communication system that
allows Internet access on the road.
The driver is connected with the
Adaptive Aircraft Wing
Reduces Fuel Consumption
world at the press of a button or
The Adaptive Wing concept
with a voice-activated command.
jointly developed by Dasa, the
any time and can prepare a custom
ized offer that the customer may
print out.
German Research Institution for
Aerospace, and Daimler-Benz
Research is the beginning of a
Environmental protection
is an important corporate objective for Daimler-Benz. Our efforts focus on continually
reducing the environmental disadvantages connected with
the development, production, usage, and recycling of our
products. In order to integrate environmental protection even better within our development activities, we appointed
a
liaison for each development area being responsible for environmentally compatible product development.
The Group's environmental activities are coordinated by the environmental spokesperson.
New Approaches to Environmental Reporting
In 1997 we presented the Daimler-Benz Environmental Re
port in two parts for the first time. In the facts and data sec
tion, we responded to the desire for greater intelligibility
voiced by environmental associations. In addition, we are in
viting young journalists to test our environmental protection
efforts when they report on our protection measures in the
environmental newsletter. In a competition organized by the
Bavarian Communication Association, our environmental re
port won the distinction of being the best in that category.
The following examples show the progress that we have
made in environmental protection.
Environmental Protection and the A-Class
Environmental considerations play a major role in the A-
Class. The A-Class sets new standards in fuel consumption
and emissions. Measured according to the new European
driving cycle, fuel consumption is as much as 13% lower than
that of competing products. We have also reduced the
number of different plastics used; 86% of the thermoplastic
parts now consist of no more than five materials, which
means scrap vehicles can be utilized more efficiently. In or
der to accelerate the materials cycle, the use of recycled plas
tics has already been approved for 19 components, or 9% of
the total number of parts. In production-related environmen
tal protection, the paint structure represents a special tech
nological advance; we use water-based paints for the first few
layers. Our new clear paint process is also very environment
friendly. Our powder slurry clear paint has significantly low
er solvent emissions than the maximum allowed.
Mercedes-Benz Recycling System
We documented our contribution to resource conserving
when we introduced the Mercedes-Benz Recycling System
(MeRSy) in 1993, long before the new materials recycling or
dinance was enacted in Germany in 1996. As part of our recy
cling system, dealers and authorized service centers in Ger
many, Switzerland, Austria, and Luxembourg take back parts
such as bumpers, side paneling from passenger cars, tires,
window glass, brake fluid, and catalytic converters for reuse
or recycling. In Germany more than 95% of our outlets and
authorized dealers participated in MeRSy in 1997. Among
other things, we took back some 366,000 scrap tires,
449,000 individual parts, and 630 tons of bulk material in
connection with the MeRSy program. Our aim is to re-use the
recyclates in the automotive sector. We have already succeed
ed in reusing the material recovered from bumpers, hubcaps,
and brake pads. It is our intention to expand this system to
include all of Europe.
Environmental Prize for
Minimum-Quantity Lubrication
Cooling lubricants are used in many machining production
processes in order to reduce friction and remove the filings
produced. But cooling lubricants represent a potential haz
ard for human beings and the environment.
Using the new technology of minimum-quantity lubrica
tion (MMS), we can successfully prevent the tooling from get
ting clogged up. At the end of 1995 we were able to produce
an integral aircraft component using MMS technology (20
ml/h) in a test for the first time; the amount of lubricant used
until then was as high as 3,000 1/h. Because a maximum of
one liter of cooling lubricant is needed for one hundred bil
lion shavings, the filings stay dry and can be directly recycled
without any additional treatment. The lubricant used in MMS
technology is classified as an edible oil and thus complies
with the strictest environmental requirements. MMS has
been used in series production at the Dasa plant in Augsburg
since mid-1996. Our researchers were awarded the 1997
Environmental Prize of the City of Ulm for this innovative
process.
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Agreements, which we concluded with employee representatives at various locations in 1997, make an
important contribution to increasing the Group's earning power over the long term and safeguarding jobs in Germany.
Adjusted for changes in the consolidated Group, we created a total of some 12,000 new jobs. We introduced modern
new remuneration and profit sharing models in order to involve employees even more
actively in the success of the Company. Other focal points included international junior
personnel efforts and employee qualification programs.
Positive Employment Situation
At December 31, 1997 we had
300,068 (1996: 290,029) employees
worldwide, of whom 225,266 worked
in Germany alone. Adjusted for chang
es in the consolidated Group, work
force was 12,000 employees larger
than one year before. Daimler-Benz
thus set a positive example at a time
of high unemployment.
Profit Sharing and Equity
Participation Expanded
By directly involving employees in
the Group's success we intend to
strengthen their identification with
the Group, reinforce the idea of per
formance, and make each member of
the workforce more aware of his or
her contribution to the Group's earn
ings.
To achieve this, we introduced a
profit sharing scheme for all employ
ees that is directly tied to corporate
earnings. This means that in financially successful periods
employees will receive higher payments than in the past; if
earnings are less satisfactory payments they receive will be
correspondingly lower.
As compared to the previous year, we were able to make
the conditions for acquiring employee shares more flexible
and thus more attractive. During 1997, 75,000 employees
acquired shares at a tax-favored preferred price.
For upper management, we re
peated the offer to subscribe for stock
options as introduced in 1996. Due to
the' very positive response, we ex
tended the group of allottees in 1997
to include the second management
level.
New Approaches to Company
Pension Schemes
The Company pension plan forms the
core of our social benefits program. In
the year under review, a total of DM
488 million was paid to some 65,000
retirees, surviving spouses, and chil
dren. In 1997 the Group's expenses
for pensions as determined in accord
ance with U.S. accounting principles,
amounted to DM 1.5 billion. The high
priority we attach to Company pen
sion benefits is reflected in the 1997
financial statements for Daimler-Benz
AG prepared in accordance with the
German Commercial Code. They in
clude extraordinary additions to pension provisions amount
ing to no less than DM 1.3 billion. We are thus adapting the
pension provisions of Daimler-Benz AG to the evaluation of
the Group, which in accordance with U.S. accounting stand
ards has a higher valuation and therefore shows the appro
priate value of obligations.
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Our attractive offer to convert the non-salary portion of
our employees' bonus payments to an equivalent contribu
tion to their Company pension makes it possible for our em
ployees to supplement their future pensions by making sepa
rate contributions.
Improving Competitiveness
We concluded a number of agreements with the Labor Coun
cil in 1997 that further improve our cost position and may
significantly strengthen our competitive edge as a conse
quence. These agreements represent an important step to
ward increasing the Company's long-term earning power as
well as job security.
International Orientation for Human Relations
Since 1997, we have been using a new procedure for planning
and developing executives that offers considerably greater
transparency with respect to assessing their potential. The
new system, which involves some 12,000 employees, forms
the basis for the continued intensification of worldwide per
sonnel rotation and the targeted development of executive
management.
In order to support the increasing globalization of our
business we continued to internationalize our human rela
tion efforts in the past year. By promoting juniors in regional
groups in the USA, Central and Eastern Europe, South Amer
ica, and Asia we contribute to cover our growing need for in
ternationally employable managers.
In addition, the Group's
globalization drive was sup
ported with intercultural quali
transnational
fication offers,
project assignments, and tar
geted foreign rotation. More
than 1,700 employees
from
German locations were on for
eign assignments in 1997.
Thanks to Our Employees
Our employees' expertise, high
level of commitment, and crea
tivity were instrumental in the
success achieved by the Company in 1997. We would like to
thank all of them for their efforts and dedication. We would
like to extend the same thanks to the Labor Council and man
agement committees at all levels of the Company.
than 3,000
Securing the Company's
Future by Training Juniors
In the fall of 1997 we employed
trainees
more
throughout
the Group; 10%
more than in the previous year.
Daimler-Benz recognizes
its
social responsibility to offer ca
reer prospects to young peo
ple. At the same time, this
gives an employee a secure
base for the years ahead. High
ly qualified and committed
strengthen
junior personnel
our position in international competition and guarantee the
future success of the Group. Visible signs of our effort to give
junior personnel job security include various offers to study
at the Vocational Academy and our junior staff groups in Ger
many and abroad.
Daimler-Benz Academy
The Daimler-Benz Academy, founded in the summer of 1997
as a "corporate university", promotes the qualification and
enhanced professionalism of our executives, supports great
er understandig of the strategic alignment of the Group, and
encourages innovation and technology transfer.
On the basis of the encouraging business development in 1997 we strengthened the sustained earning power of
Daimler-Benz. The operating profit rose to DM4.3 billion (1996: DM 2.4 billion), and the previous year's 5.8% return
on capital employed rose to 10.2%. We are thus significantly closer to the Group's minimum return of 12%, the target
we set in the context of our value-based management. Balance sheet ratios continued to improve during 1997, and
cashflow from operating activities reached a new high.
Global Economic Environment
Slightly Improved
The upward trend of the world econo
my continued in 1997. Most decisive
factors were the vigorous economic
growth in North America and the U.K.
and the export-driven revival of the
economy in Germany and other mem
ber states of the European Union.
However, due to lower domestic de
mand, Japan's economy experienced a
phase of pronounced weakness. In a
number of the ASEAN states the eco
nomic situation was seriously
im
paired in the latter half of 1997 by the
financial and monetary crises. Over
all, economic developments were positive in Latin America,
where the upswing gained strength while inflation rates de
clined. In Russia and other CIS countries first signs of eco
nomic stabilization appeared in 1997, while the economic
upturn in the countries of Central Europe temporarily lost
some speed.
On the whole, the world economy grew by 3.0% in 1997
(1996: 2.9%). Calculated on the basis of their shares in con
solidated revenues, average growth in the selling markets of
Daimler-Benz was significantly higher at 2.9% than the previ
ous year (1996: 2.1%).
Favorable Exchange Rate
Development
The devaluation of the German mark
against important currencies in Eu
rope and overseas had a positive ef
fect in general on the Group's busi
ness during 1997. In particular, it sub
stantially improved the competitive
pricing of our German-made products.
Average exchange rate for the U.S.
dollar in 1997 was at DM 1.73, 23
pfennigs higher than in 1996. Within
the European Union,
the British
pound was one of the strongest cur
rencies; it gained 21% against the Ger
man mark.
Daimler-Benz: Value-Based Management Instruments
Introduced Company-Wide
Following the introduction of new control instruments and
the conversion of our accounting to the principles of U.S.
GAAP in 1996, our activities in 1997 were above all focused
on consistently implementing the new instruments of our
value-based management throughout the Group. We also
concentrated on familiarizing our employees with these in
struments through training seminars and a comprehensive
information program. In addition, we began identifying man
agement's potential leverage in each of our 23 business units
in order to gain intelligence on the significant drivers of val
ue and costs. These parameters, which differ from unit to
unit, can essentially be broken down into growth-oriented,
efficiency-oriented, and financially-oriented value drivers.
On this basis, our intent is to develop a business-specific
value enhancement strategy and to establish a clear alloca
tion of responsibilities in order to make the responsible indi
viduals in our business units aware of the prerequisites for
profitable future growth.
Operating Profit Noticeably Improved
In 1997 we succeeded in significantly increasing the earning
power of Daimler-Benz in all of its divisions and in nearly all
of its business units. This pleasing development is manifest
ed, both in the growth in operating profit from DM 2.4 billion
to DM 4.3 billion and in the substantially higher return on
capital employed at 10.2% as compared to the previous year
(1996:5.8%).
Consolidated Revenues Up 19%
Our consolidated revenues rose to DM 124.1 billion in 1997
(1996: DM 106.3 billion). Adjusted for structural changes this
corresponds to a 19% expansion. Growth was especially
strong in the USA (+26% to DM 24.0 billion) and in partner
countries of the European Union (+21% to DM 31.5 billion). In
Germany our business volume reached DM 41.1 billion (+5%).
Summing up, other markets recorded an increase of 25% to
DM 27.5 billion.
Growth in revenues was supported by all divisions. The
Passenger Car and Commercial Vehicle divisions achieved
revenues of DM 53.9 billion (+16%) and DM 39.1 billion
(+22%), respectively new highs. The Aerospace Division in
creased its revenues, by a comparable figure, 20% to DM 15.3
billion; in the Services Division revenues climbed to DM 15.5
billion (+22%), and in the Directly Managed Businesses to
DM 7.6 billion (+17%).
Excluding deliveries within the Group, Passenger Cars
contributed 41% to consolidated revenues, Commercial Vehi
cles 30%, Aerospace 12%, Services 11%, and the Directly Man
aged Businesses 6%.
Further Development of Group Portfolio
After initiating review and streamlining our group portfolio
in 1995, that led to our present concentration on 23 business
es, we continued our systematic development of the Daimler-
Benz portfolio in 1997. Units that are capable of attaining
leading market positions by international standards and
above-average returns in their industry were strengthened
with appropriate partnerships and acquisitions. At the same
time, we backed off from activities that are not capable of
making significant medium term contribution to increase
corporate value.
The Commercial Vehicle Division expanded its leading
position in the North American market for heavy trucks by
acquiring Ford's heavy truck business. In September 1997
our share in Micro Compact Car AG, responsible for develop
ing, producing, and marketing the smart city coupe, rose to
81% in September 1997 caused by an increase in capital.
Dasa was able to improve its international competitive
position in the areas of defense technology and space sys
tems through its partnership with the French Lagardere
Group. The same objective prompts the intended takeover of
Siemens' defense electronics business. This company spe
cializes in communication and guidance systems as well as
equipment and systems for integrated air defense. Its reve
nues in 1997 totaled DM 1.2 billion and its workforce consist
ed of some 3,800 employees. This acquisition will enable
Dasa to strengthen its market power and will put it in a posi
tion to shape future structures in the European defense in
dustry.
In June 1997 debis ended its partnership with the French
software company Cap Gemini.
We sold the semiconductor activities of TEMIC to the
American company Vishay Intertechnology Inc. with retroac
tive effect as of January 1, 1998.
Together with our partner ABB we have decided to in
crease capital stock of Adtranz in the interest of ensuring
longterm competitiveness and growth strategy of the Rail
Systems unit.
New Management Organization Implemented
New management organization, implemented since April
1997, has enabled us to realize greater efficiency and more
favorable costs for administrative and planning processes in
the headquarters and in all units of the Group. Through con
solidation of central units and elimination of reporting levels,
decision-making channels within the Group have been short
ened significantly. This has given greater latitude for action
to operating units which are actively involved in the markets,
and it enables them to compete more flexible and to be closer
to the customer.
12,000 New Jobs in the Daimler-Benz Group
Thanks to the market success of our products and the
significantly improved competitive position of the business
units, we were once again able to create new jobs in 1997. The
number of persons employed within the Group rose to
300,068 (1996: 290,029 persons). Adjusted for changes in
the consolidated group, we created an total of some 12,000
new jobs. Contributing factors were the agreements between
employees and management to secure jobs, which enable us
to reduce labor costs and to increase flexibility and efficiency
in allocating labor. Additional employ
ees were needed due to the favorable
business developments in the Pas
senger Car, Commercial Vehicle and
Services divisions above all. At Dasa it
was chiefly the expansion of capacity
in the Airbus program that helped
stabilize the employment situation;
when comparably calculated, employ
ment levels in the Directly Managed
Businesses rose slightly as compared
to the previous year.
Cooperation with Suppliers
Intensified
In 1997 the Daimler-Benz Group pur
chased goods and services worldwide
valued at DM 78.0 billion (1996: DM
66.9 billion).
We continued to make progress in
opening nw ways for global sourcing in 1997. Our intention is
to better utilize potentials for reducing costs while at the
same time reducing the Group's foreign currency exposure.
As an independent effort, the close cooperation with our
German suppliers continues to be a high priority for us; their
product quality, innovative capability, and reliability in terms
of processing and supply are indispensable to us. In the con
text of the "Tandem Cooperation Concept", which we are now
applying more intensively to our overseas sourcing, we are
continuing to expand our cooperation with the supplier in
dustry. The improvements in quality and costs made pos
sible by these measures are instrumental in permanently
strengthening our competitive position.
Capital Expenditures Significantly Increased
Investments in property, plant and equipment (excluding the
effects of first-time consolidations) increased throughout the
Group to DM 6.9 billion in 1997 (1996:
DM 6.2 billion).
In the Passenger Car Division, our
product drive as well as structural im
provements in production and devel
opment required capital investments
of DM 3.7 billion (1996: DM 2.9 bil
lion). Expenditures in Germany con
cerned preparations for production of
the A-Class and the next-generation
S-Class, new engines, paint technolo
gy developments, and the Develop
ment and Preparation Center (EVZ)
in Sindelfingen. Important projects
abroad were
for
launching the M-Class in Tuscaloosa,
Alabama (USA) and the production of
the A-Class in Brazil.
the preparations
The investments in the Commer
cial Vehicles Division of DM 1.2 bil
lion (1996: 1.6 billion) were primarily related to plant mod
ernization projects, the Actros and Atego product projects,
and investments in connection with the acquisition of the
heavy truck line from Ford in North America.
In the Aerospace Division we spent DM 0.5 billion (1996:
DM 0.6 billion) on investments, with emphasis on ramping
up production capacities in the Airbus program. The invest
ments in the Services Division, which rose to DM 0.4 billion
(1996: DM 0.2 billion) were primarily allocated to the IT Serv
ices unit. The Directly Managed Businesses invested a total
of DM 0.5 billion (1996: DM 0.5 billion). Corresponding to
construction progress, capital investments in the Potsdamer
Platz real estate project rose to DM 0.8 billion (1996: DM 0.4
billion).
Because of continued growth in the leasing business, ad
ditions to leased equipment in the amount of DM 7.6 billion
were significantly higher than the
previous year (DM 6.1 billion).
Of the total of DM 4.4 billion (1996: DM 3.7 billion) spent
on research and development in the Aerospace Division,
projects totaling DM 3.7 billion (1996: DM 3.0 billion) were
commissioned by third parties. The focus continued to be on
expanding the Airbus program with new versions, on the
Eurofighter, and on new engines. Research and development
expenditures in the Space Systems Infrastructure and Satel
lites units, which reached a total of nearly DM 2.2 billion in
1997, chiefly concerned third party contracts.
In the Directly Managed Businesses, expenditures for re
search and development projects included DM 0.4 billion at
Adtranz (1996: DM 0.3 billion), DM 0.3 billion in the Microe-
lectronics unit (1996: DM 0.3 billion),
and DM 0.1 billion in the Diesel En
gines unit (1996: DM 0.1 billion).
DM 9.8 Billion Spent on
Research and Development
Worldwide more than 29,000 per
sons were employed in research and
development of
the Daimler-Benz
Group in 1997. Research and develop
ment expenses rose to a total of DM
9.8 billion (1996: DM 8.8 billion). Of
that amount, DM 4.1 billion (1996:
DM 3.3 billion) was spent on projects
commissioned by third parties. New
forms of interdisciplinary cooperation
and the increased involvement of the
supplier industry made it possible to
improve efficiency of fund utilization
in our research and development
units throughout the Group.
A major part of the funds invested in our own projects
was once again used to secure the future of the automotive
business. We spent DM 3.1 billion (1996: DM 2.9 billion) in
the Passenger Car Division and DM 1.2 billion (1996: DM 1.1
billion) in our Commercial Vehicles Division. Important auto
mobile projects were the new S-Class, the CLK convertible,
and work on new engine series. In the Commercial Vehicles
Division, the emphasis of development activities was on the
Atego light truck series, the Actros trucks for construction
and special applications, and the Citaro city bus.
Essential projects relating to the
Diesel Engines unit included natural
gas and in-line engines based on the
4000 series; in addition, development
started on the large medium-speed
"Mega" engine. In the Automotive
Electronics unit at TEMIC the focus
was on the new and continuing devel
opment of electronic vehicle and se
curity components. At Adtranz, activi
ties centered on the next generation
of super-high-speed trains, rail guid
ance systems, and a new concept for
an automated elevated rail system in
the USA.
Earning Power Strengthened
Including other income, the total earnings of the group
grew by 17% in 1997 and reached DM 125.7 billion.
At the same time, cost of sales also grew by 17%, and sell
ing, administrative and other expenses rose by 9%. The share
of these two cost factors in revenues thus declined from 95%
in the previous year to less than 94%.
The funds expended for the Group's own research and
development projects increased by DM 0.1 billion to DM 5.7
billion; their share in revenues remained unchanged at 5%.
The consolidated operating profit can be derived from the
income before financial income and income taxes as reported
in the income statements and shown in the table below.
The most important source of income continued to be the
passenger car business (see table, page 60). The Commercial
Vehicle and Aerospace Divisions both made significant posi
tive contributions to the operating profit of the Group follow
ing losses in 1996. The Services Division increased its oper
ating profit substantially. The operating loss from the Direct
ly Managed Businesses declined significantly. In this seg
ment the profits from the Microelectronics and Diesel En
gines units were offset by a heavy loss in Rail Systems, pri
marily caused by the introduction of restructuring measures
and an extraordinary write-down of goodwill.
Operating profit by region is illustrated in the following
table.
Major factors in the rise of operating profit from DM 2.4
billion to DM 4.3 billion included our new vehicle products,
the streamlining of the Group's portfolio, cost reduction pro
grams implemented in all business units, and significantly
improved exchange rates as compared to the previous year.
Encumbering effects came once again from restructuring ex
penses and from the high investments needed for the prod
uct drive in the automotive sector. The technical optimization
and temporary suspension of deliveries in the A-Class as well
as the postponement of the market introduction of the smart
city coupe resulted in expenses totaling DM 0.4 billion in
1997. In the Aerospace Division charges of DM 0.7 billion
were related to the early repayment of development subsi
dies to the Federal Republic of Germany. However, this repay
ment was partly compensated by the release of therefore set
up accrued liabilities. A positive influence, though, was a DM
0.2 billion gain from the sale of the Recognition and Sorting
Systems. Comparing 1997 to the previous year it must also be
kept in mind that the income statement of 1996 included spe
cial negative effects amounting to DM 1.1 billion.
Significant Increase in Yield
Return on capital employed for the consolidated group,
calculated as the quotient of operating profit to annual aver
age of capital employed for operating purposes, rose to 10.2%
in 1997 (1996: 5.8%). This brought us significantly closer to
the .12% minimum yield we are targeting, debis' units Finan
cial Services/Insurance Brokerage and Trading are not in
cluded here, because in accordance with industry practice
we use stockholders' equity as a standard for measuring the
operating profit in these units rather than capital employed.
In these businesses we target a minimum yield of 14%.
The returns on capital employed/stockholders' equity
that are crucial for controlling our divisions developed as
shown in the above table.
We determine capital employed for operations on the ba
sis of US-GAAP book values. The opposite table shows how
these figures are derived from the Group.
Financial Income Influenced by
Exchange Rate Fluctuations
The financial income rose from DM 496 million in the pre
ceding year to DM 618 million. Financial income include in
come from the sale of our share in Cap Gemini amounting
DM 0.8 billion, which led to a significant increase in income
income
investments. Interest
from
was also higher than the previous
year, whereas other financial income
suffered from the devaluation of the
German mark against important cur
rencies. If it is not possible to assign
direct allocation between currency
hedging transactions and underlying
operational
Increase
changes in value of the hedging con
tracts are recorded in the financial in
come; at settlement the respective un
derlying transactions are accounted
for the operating profit at the current
daily rates. The burden on financial
results for 1997 caused by rising ex
change rates thus represents a loss of
potential profits resulting from the re
demption of the currency hedging in
struments. In 1997 the effects from
hedging transactions that were not
transactions,
tied to the underlying transaction for accounting purposes
and came due in 1997 impacted the financial results in the
order of DM 0.7 billion. They were however neutralized by
the more favorable settlement with respect to the corre
sponding underlying transactions in the operating profit.
Furthernore, the financial income included value adjust
ments amounting some DM 1.0 billion from market evalua
tion of currency hedging transactions not tied to the underly
ing business contract that had already been entered into in
earlier years for the Aerospace Division in particular. Assum
ing the exchange rate remains unchanged from December
31, 1997, this would also result in corresponding higher reve
nues increasing the operating profit. In order to avoid fluctu
ations in financial income connected with such valuation ad
justments, we have begun to allocate hedging contracts di-
rectly to the corresponding underlying transactions. If this
procedure is used the operating profit is no longer effected by
current daily rates, but by hedging rates.
Consolidated Net Income Continues to Improve
Net income according to U.S. GAAP increased from DM 2.8
billion to DM 8.0 billion in 1997. The
marked increase was influenced by
special tax effects in the amount of
DM 4.9 billion. A tax benefit in the
amount of DM 2.9 billion came about
through the proposal to the stockhold
ers that a special distribution should
be made from the retained earnings of
Daimler-Benz AG which were taxed at
50% in prior years. An additional tax
benefit of DM 2.0 billion resulted from
the fact that as of December 31, 1997
the write-off on the deferred tax as
sets of Daimler-Benz's German group
of companies that file a combined tax
return (Organschaft) had to be can
celed. The deferred tax asset came
about because according to U.S. GAAP
expected tax reductions due to loss
carryforwards had to be capitalised.
Since it was not certain in the past
whether and when the existing loss carryforward could be
used, we took a write-off on the deferred tax asset. Now that it
is foreseeable that Daimler-Benz will again be in a position to
consistenty post positive results, there is no longer any need
for this valuation adjustment. Excluding these special tax
effects, net income would have amounted to DM 3.2 billion.
Dividend Increased to DM 1.60
For Daimler-Benz AG, which now also includes the domestic
automotive business following the merger with Mercedes-
Benz AG with retroactive effect as of January 1, 1997, the fi
nancial statements according to German accounting princi
ples show a net income in the amount of DM 5.8 billion.
This includes the non-recurring tax benefit of DM 2.9 bil
lion relating to the special distribution salready mentioned
earlier.
Due to the gratifying development of earnings, we pro
pose to raise shareholders' dividend for 1997 to DM 1.60
(1996: DM 1.10) per DM 5.00 par value share. Since capi-
tal entitled to dividends
equals DM 2,584 million,
the amount of the distri
bution is increased to DM
827 million (1996: DM
567 million).
Special Distribution of
20 DM Per Share
German income law pre
scribes that as of the end
of 1998 retained earnings
taxed at a rate of 50%
(known as EK 50) have to
be reclassified as stock
holders' equity subject to
a tax rate of 45% (EK 45).
Therfore we propose to
our shareholders a spe
cial distribution of DM 20
per share. This distribu
tion will be paid out of re
tained earnings of Daim
ler-Benz AG that were pri
marily generated in the
highly profitable 1980s in the amount of DM 7.4 billion. As a
result of this distribution, the corporate income tax paid in
the past by the Company is reduced from 50% to 30%. The
resulting DM 2.9 billion tax reduction will be passed along to
the shareholders and is included in total distribution of DM
10.3 billion.
Some of the taxes yet paid by the Company in the amount
of 30% will be passed along to German shareholders as a tax
credit. German shareholders are now wholly liable for the tax
on retained earnings for which the Company was formerly
responsible. In the years to come passing on equivalent total
tax amounts to shareholders would entail a significantly
higher withdrawal from retained earnings.
After the special distribution, stockholders' equity of
Daimler-Benz is to be returned to the level prior to the distri
bution by means of increase in capital stock in order of DM
7.4 billion.
Balance Sheet Figures Increase Markedly
to
against
The balance sheet total of
the Daimler-Benz Group
at December 31, 1997 in
creased by DM 24.6 bil
lion as compared to year-
end 1996 to DM 137.1 bil
lion. In addition
the
appreciation of important
the
currencies
German mark and the re
sulting upward revalua
tion of our foreign assets
in DM-terms, the substan
tial increase in the bal
ance sheet total is due pri
marily to the expansion of
the leasing and sales fi
nancing business. On the
assets
therefore,
leased equipment and fi
nancial services receiva
bles rose by DM 3.0 bil
lion and DM 6.9 billion,
respectively, or by nearly
DM 10 billion together.
This increase is offset on the liabilities side by financial obli
gations that are DM 10.5 billion higher than the previous
year.
side,
Again on the assets side, fixed assets grew by 15% to DM
41 billion. In addition to growth in leased equipment, another
decisive factor was the higher figure for property, plant, and
equipment, which above all due to our investments in the
automotive business and in the Potsdamer Platz project was
DM 2.4 billion higher than in 1996.
Inventories are reported at DM 14.4 billion - less advance
payments received in the amount of DM 5.0 billion (1996:
DM 5.0 billion). Their share in the balance sheet total de
clined from 12% to 10%. The DM 0.8 billion increase is essen-
tially related to the higher overall production volume and to
product startups in the automotive business. Trade receiva
bles and other receivables increased by a combined total of
DM 4.4 billion to DM 24.3 billion. Significant rise in other
receivables is mainly due to the tax claim against the tax au
thorities in the amount of DM 2.9 billion related to the
planned special distribu
tion. Liquid funds which
contain
items cash
and cash equivalents, se
curities and the fixed-in
terest debt
instruments
reported under other re
ceivables, totaled DM 21.2
billion, more than DM 6.3
billion higher
than at
year-end 1996.
the
As explained above in
the remarks on net in
come, the increase in de
ferred taxes is primarily a
result of the release of the
write-off on deferred tax
assets.
On the liabilities side
of the consolidated bal
ance sheet, stockholders'
equity grew by DM 5.5
billion to DM 31.4 billion
(excluding the tax benefit in the amount of DM 2.9 billion
and adjusted for dividend payments of DM 0.8 billion for
1997 and DM 0.6 billion for 1996). Including the retained
earnings of DM 7.4 billion that will be paid out to share
holders as part of the special distribution and which are to be
restored to the Company by means of a subsequent capital
increase, equity ratio remained unchanged at 23%. Without
consideration of the financial services businesses, the equity
ratio was 31% (1996: 30%). The percentage of fixed assets
covered by stockholders' equity improved from 72% to 77%.
The increase in accrued liabilities by DM 1.7 billion to
DM 36.6 billion was lower than average. Pension provisions
grew by DM 1.0 billion to DM 17.2 billion. Overall, the propor
tion of accrued liabilities in the balance sheet total declined
to 27% (1996: 31%).
Financial liabilities increased at an above-average rate
once again and reached DM 39.3 billion (1996: DM 28.9 bil
lion). DM 29.4 billion, about three quarters of the financial
liabilities, are tied up in the financial services business.
The share of the financial liabilities in total capital is now
29% (1996: 26%).
Both, fixed assets (ex
cluding financial servic
es) and net inventories
continued to be covered
by stockholders' equity
and by long term and
medium term accrued lia
bilities.
Vigorous Growth in
Financial Services
Business
To make the special influ
ence of the financial serv
ices business on
the
structure of the consoli
dated balance sheet more
intelligible, a consolidat
ed statement of income, a
balance sheet, and a cash
flow statement of our fi
nancial services activities
are reproduced on pages
68 to 70. In the interest of comparability with other financial
services companies in the market, we have essentially pre
sented the financial services activities of Daimler-Benz as if
they were performed by an independent company (stand
alone approach). For instance, the vehicles included under
leased equipment are not reported at the Group's manufac
turing costs, but at market value.
Nevertheless, there are close relations between the finan
cial services business and other units within the Group; they
have a corresponding effect on the statements of income and
the balance sheets. For example, our financial services com
panies are not only financed by borrowing from third parties,
but also with funds from the Daimler-Benz Group. From the
perspective of the financial services business, these inter
company loans represent financial liabilities. These amounts
are eliminated upon consolidation with the balance sheet of
Daimler-Benz, because from the perspective of the Group
they are not liabilities vis-a-vis third parties. Similarly, inter
est on these loans reduces operating profit of the financial
services sector, while from the perspective of the Daimler-
Benz Group these interest charges are offset against interest
income earned by organizational
units that grant these intercompany
loans to the financial services compa
nies.
The operating profit reported in
the separate statement of income for
the financial services business (page
68) is DM 402 million. In this respect
it should be taken into consideration
that the separate statement of income
predominantly reflects the financial
services business of debis, but not ex
clusively; to a lesser extent it also en
compasses the financial services ac
tivities of other divisions in the Daim
ler-Benz Group. In addition, the oper
ating profit does not contain any ad
ministrative cost allocations for the
central offices of Daimler-Benz and
debis. The steep rise in the operating
profit from DM 264 million to DM 402
million is above all a result of growth
in new business of German compa
nies and in the USA.
On the whole, the balance sheet
total of the financial services business
increased by DM 10.0 billion to DM
44.5 billion as compared to year-end
1996. On the assets side, leased equipment rose from DM 2.3
billion to DM 15.1 billion and receivables from financial serv
ices from DM 6.9 billion to DM 26.0 billion. Significant ex
pansion of business was financed by financial liabilities,
which at DM 38.4 billion were DM 9.2 billion higher than in
1996 and which represent 86% of the balance sheet total.
Stockholders' equity used in the financial services business
was relatively low in comparison to the industrial business
and amounted to DM 2.6 billion at year-end; as in the previ
ous year it represents 6% of the balance sheet total.
Cash Flow from Operating Activities
Continues to Rise
Cash flow from operating activities grew by DM 1.0 billion to
DM 11.2 billion adjusted for changes in the consolidated
group and currency effects. This favorable development was
a result of the improved financial results (before non-cash
expenses and income), which more
than compensated for the lower de
cline in working capital as compared
to 1996. Cash flow from investment
activities in the amount of DM 16.6
billion (1996: DM 12.2 billion) was
still defined by the growing leasing
and sales financing business. At DM
7.6 billion (1996: DM 6.1 billion),
roughly one half of gross investment
was allocated to additions to equip
ment in operating lease; moreover,
there was a net increase in sales fi
nancing receivables of DM 5.5 billion
(1996: DM 3.1 billion). Subsidiaries
and affiliated companies developed in
the opposite direction: proceeds from
the disposal of businesses totaling
DM 2.6 billion (1996: DM 1.1 billion)
were offset by significantly lower pay
ments for acquisitions of businesses
at DM 1.2 billion (1996: DM 0.5 bil
lion). Cash flow from financing activi
ties rose by DM 5.1 billion to DM 7.3
billion and was largely determined by
higher net borrowing at DM 7.7 billion
(1996: DM 1.9 billion). Overall, devel
opment of individual cash flows led to
a DM 2.3 billion increase in cash (due in less than 3 months)
and to a DM 6.3 billion increase in liquid assets.
Financial Instruments Expanded
Refinancing needs of the group are marked by continuing
growth of the financial services business above all as well as
by the increasing globalization of Daimler-Benz. In order to
optimize cost of capital we primarily cover our financial
needs through international money and capital markets. To
make our acquisition of funds more flexible we revised the
Euro Medium Term Note program and designated Daimler-
Benz Coordination Center S.A., Brussels, and Daimler-Benz
(Australia) Pty. Ltd. as new issuing addresses.
In May 1997 we launched a bond issue with mandatory
conversion with a total volume of some DM 1 billion, making
us the first European company to issue convertible bonds
that will not be redeemed at maturity but will automatically
be converted to stock. With this capital market instrument we
succeeded in tapping new groups of investors who are look
ing for a combination of growth potential and safe, ongoing
returns.
Conversely, in the emerging market regions, which have
inadequately developed capital markets but where our busi
ness volume and the need for refinancing are growing rapid
ly, we are taking increasing recourse to local bank financing.
In 1997 we again used the instrument of asset backed
securities, thereby limiting the growth of indebtedness for
the Group.
Credit Rating at a High Level
The international agencies Moody's Investors Services and
Standard & Poor's rate Daimler-Benz AG both for short term
and for long term borrowing. The ratings awarded by the two
agencies, A1 and A+ in the long-term category and Prime-1
and A-1 in the short term category, are on a high level within
an international context. The Prime-1 short term rating as
signed by Moody's is in fact the best of the categories availa
ble. Since Daimler-Benz AG guarantees bonds issued by com
panies within the group, they, too, profit from the high credit
ranking.
Active Interest Management
With consideration both of the ability of the Group to pay at
any time and of an optimization of yield, liquid funds of the
Group are invested partly in the money market and to a larg
er extent in the capital market. Asset allocation between the
two types of investments forms the basis of our interest man
agement.
Investments in the capital market are controlled by an
established risk limit, calculated according to the value-at-
risk method. Using the instruments of modern portfolio man
agement, we invest liquid funds in fixed-interest securities
and stocks.
As a rule, derivative instruments are not used for trading
purposes, but only to hedge against market risks in asset and
foreign currency management. We engage in financial trade
transactions only with banks of first-class ratings. We use a
central front-end system in the Group Treasury for continu
ous determination and monitoring of holdings, market values
and results.
In conformity with the BIZ guidelines on risk manage
ment for banks, the trading units are separated organization
ally, physically, and in terms of system technology from the
functions of transaction processing, financial accounting,
and financial controlling.
Exchange Rate Risks Reduced by Hedging
International orientation of business activities in the Daim
ler-Benz Group results in flows of deliveries and payments of
various currencies. Since the exports from Germany exceed
the import flows and value added in other currencies, the
Company is exposed to currency exchange risks. Net expo
sure, derived from offsetting exports against imports in indi
vidual currencies, is registered regularly by the Group Treas
ury and hedged with appropriate financial instruments on
the basis of our continuously updated currency expectations.
While the proportion of anticipated payment flows covered
by hedging contracts is relatively high for the near future, it
declines steadily for the subsequent years. As a result there
is an increase in the risks and opportunities that may result
from changes in the exchange rates.
The table at page 66 shows for the reference date Decem
ber 31, 1997 the effects that a hypothetical 10% upward valu
ation of the German mark would have on cash flow before
taxes of the Daimler-Benz Group for the years 1998 and 1999,
thereby considering existing exchange rate hedging con
tracts.
needed. In addition, we are in close con
tact with our suppliers and sales partners
to identify and correct early on potential
data processing problems that could effect
our business processes at the turn of the
millennium. We are supported by our In
formation Technology Services unit, which
is also generating a great deal of business
from external customers. We expect that
the costs for adapting our data processing
systems will not have a major impact on
the Group's profit developement.
Risks for Further Developments
Daimler-Benz, an international company,
presented by a wide product range on var
ious markets, has to face numerous risks.
Wihin this chapter we described metholo-
gies and instruments, including our hedg
ing activities, that are used to reduce risks
of interest and currency developments.
Through spreading activities of supply, we
attempt to reduce risks of international
supplying markets. The company's devel
opment might also be effected by turbulences of economic
cycles in important selling markets and will depend on mar
ket acceptence of our product and service portfolio. In partic
ular, focused strengths and promotion on innovative forces
are our endeavors, in order to offer competitive products and
services of special value to our customers.
Events after the End of Fiscal 1997
Beyond the developments already described there are no
)ccurrences sofar that are of major significance for the Group
or could lead to a change in the assessment of the Company.
The course of business in the first months of 1998 confirms
the statements made in the "Outlook" chapter.
Intensive Preparation for the Euro
Because of our global business orientation we see definite
opportunities in the introduction of the Euro. We will intro
duce the Euro throughout the Group as our "house currency"
as early as January 1, 1999 and at the same time replace the
German mark as the accounting unit for all business activi
ties. We intend to produce the report for the first half of 1999
on the basis of the Euro.
The non-recurring costs of the conversion will be in the
order of more than DM 200 million. But this will be offset
over the long term by annual savings amounting to around
DM 100 million because of lower transaction and exchange
rate hedging costs.
Adaptation to the Year 2000
The adaptation to the year 2000 involves certain problems for
individual computing systems. To ensure a smooth transition
to the new millennium, all systems in use in the Daimler-
Benz Group are being reviewed and modified or replaced as
The Board of Management of Daimler-Benz AG is respon
sible for preparing the consolidated financial statements of
this annual report. They were prepared in accordance with
the accounting principles of the United States of America
(U.S. GAAP) for the first time. The other financial information
contained in this report was determined on the basis of these
financial statements and the evaluations undertaken in ac
cordance with the U.S. accounting principles.
We have installed effective internal controlling and moni
toring systems to guarantee compliance with the accounting
principles and the adequacy of reporting. They include the
use of uniform guidelines group-wide, the use of reliable soft
ware, the selection and training of qualified personnel, and
ongoing reviews by our internal auditing department. It en
sures the accurate presentation of the group's international
activities and puts the Board of Management in a position to
identify risks as early as possible and introduce appropriate
countermeasures.
KPMG Deutsche Treuhand-Gesellschaft Aktiengesell-
schaft Wirtschaftsprüfungsgesellschaft has audited the con
solidated financial statements in accordance with generally
accepted auditing standards in Germany and the United
States and has issued the following auditors' report.
Together with the independent auditors, the Supervisory
Board's Financial Audit Committee examined the con
solidated financial statements including the business review
and the auditors' report in depth. The entire Supervisory
Board subsequently reviewed the documentation related to
the financial statements.
To the Board of Directors and Stockholders
Daimler-Benz Aktiengesellschaft:
We have audited the accompanying consolidated balance
sheets of Daimler-Benz Aktiengesellschaft and subsidiaries
("Daimler-Benz") as of December 31, 1997 and 1996, and the
related consolidated statements of income, cash flows, and
changes in stockholders' equity for each of the years in the
three-year period ended December 31, 1997. These consoli
dated financial statements are the responsibility of Daimler-
Benz' management. Our responsibility is to express an opin
ion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards in Germany and the United
States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the fi
nancial statements are free of material misstatement. An au
dit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
Daimler-Benz has accounted for certain joint ventures in
accordance with the proportionate method of consolidation
as is permitted under the Seventh Directive of the European
Community and the Standards of the International Account
ing Standards Committee. In our opinion, United States gen
erally accepted accounting principles require that such joint
ventures be accounted for using the equity method of ac
counting. The United States Securities and Exchange Com
mission has stated that it would not object to Daimler-Benz'
use of the proportionate method of consolidation as supple
mented by the disclosures in Note 2.
In our opinion, except for the effects of the use of the
proportionate method of accounting, as discussed in the pre
ceding paragraph, the financial statements referred to above
present fairly, in all material respects, the financial position
of Daimler-Benz as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997, in
conformity with United States generally accepted accounting
principles.
Frankfurt am Main, March 17, 1998
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Basis of Presentation
1. Summary of Accounting Policies
General - The consolidated financial statements of Daimler-
Benz Aktiengesellschaft and subsidiaries ("Daimler-Benz" or
the "Group") have been prepared in accordance with United
States Generally Accepted Accounting Principles ("U.S.
GAAP"), except that the Group has accounted for certain joint
ventures in accordance with the proportionate method of
consolidation (see Note 2). A ll amounts herein are shown in
millions of Deutsche Marks ("DM" or "marks").
Certain prior year amounts have been reclassified to con
form to the 1997 presentation. Liabilities to affiliated compa
nies and liabilities from capital lease and residual value guar
antees have been reclassified to financial liabilities in the
consolidated balance sheets. The consolidated statements of
income have been reclassified to better conform to the Fourth
and Seventh Directives of the European Community and in
anticipation of the changes in German legal reporting re
quirements (Kapitalaufnahmeerleichterungsgesetz). These
changes had no impact on reported results of operations or
stockholders' equity.
Commercial practices with respect to certain of the prod
ucts manufactured by Daimler-Benz necessitate that sales fi
nancing, including leasing alternatives, be made available to
the Group's customers. Accordingly, the Group's consolidat
ed financial statements are significantly influenced by activ
ities of a number of "captive" financing entities. To enhance
the readers' understanding of the Group's consolidated fi
nancial statements, the accompanying financial statements
present, in addition to the consolidated financial statements,
information with respect to the financial position, results of
operations and cash flows of the Group's financial services
business activities. Such information, however, is not re
quired by U.S. GAAP and is not intended to, and does not
represent the separate U.S. GAAP financial position, results
of operations or cash flows of the Group's financial services
business activities. Amounts with respect to the financial
services business are presented prior to intercompany elimi
nations of transactions with other Group companies.
Consolidation - All material companies in which Daimler-
Benz has legal or effective control are consolidated. Signifi
cant investments in which Daimler-Benz has an ownership
interest in the range of 20% to 50% ("associated companies")
are generally included using the equity method of account
ing. For certain investments in joint ventures, Daimler-Benz
uses the proportionate method of consolidation (see Note 2).
Other investments are accounted for at cost ("affiliated com
panies").
The Group accounts for its' business combinations un
der the purchase accounting method. As such all assets ac
quired and liabilities assumed are recorded at fair value. An
excess of the purchase price over the fair value of net assets
acquired is capitalized as goodwill and amortized over the
estimated period of benefit on a straight-line basis.
The effects of intercompany transactions have been elim
inated.
Foreign Currencies - Currency translation is based upon
the Statement of Financial Accounting Standards (SFAS) 52
"Foreign Currency Translation", whereby the assets and lia
bilities of foreign subsidiaries where the functional currency
is the local currency are generally translated using period
end exchange rates while the income statements are translat
ed using average exchange rates during the period. Differ
ences arising from the translation of assets and liabilities in
comparison with the translation of the previous periods are
included as a separate component of stockholders' equity.
The assets and liabilities of foreign subsidiaries operat
ing in highly inflationary economies are remeasured into DM
on the basis of period end rates for monetary assets and lia
bilities and at historical rates for non-monetary items, with
resulting translation gains and losses being recognized in
income. Further, in such economies, depreciation and gains
and losses from the disposal of non-monetary assets are de
termined using historical rates.
The exchange rates of the more important currencies
used in preparation of the consolidated financial statements
were as follows:
Revenue Recognition - Revenue is recognized when title
passes or services are rendered net of discounts, customer
bonuses and rebates granted. Revenue on long-term con
tracts is generally recognized under the percentage-of-com-
pletion method based upon contractual milestones or per
formance. Revenue from finance receivables is recorded on
the interest method. Operating lease income is recorded
when earned. Revenues also include proceeds from the sale
of leased equipment.
Product-Related Expenses - Expenditures for advertising
and sales promotion and for other sales-related expenses are
charged to expense as incurred. Provisions for estimated
costs related to product warranty are made at the time the
products are sold. Research and development costs are ex
pensed as incurred.
Earnings Per Share - Effective December 31, 1997, the
Company adopted SFAS 128 "Earnings per Share". Accord
ingly, basic and diluted earnings (loss) per share for each
year presented have been determined in accordance with the
provisions of SFAS 128. Basic earnings (loss) per share has
been calculated by dividing net income (loss) by the weight
ed average number of shares outstanding. Diluted earnings
(loss) per share reflects the potential dilution that would oc
cur if all securities and other contracts to issue common
stock were exercised or converted (see Note 25). Net income
(loss) represents the earnings (loss) of the Group after minor
ity interests.
Intangible Assets - Purchased intangible assets are val
ued at acquisition cost and are amortized over their respec
tive useful lives (3 to 10 years). Goodwill derived from acqui
sitions is capitalized and amortized over 3 to 20 years. The
Group periodically assesses the recoverability of its goodwill
based upon projected future cash flows.
Property, Plant and Equipment - Property, plant and
equipment is valued at acquisition or manufacturing costs
less accumulated depreciation. Depreciation expense is rec
ognized using the declining balance method until the
straight-line method yields larger expenses. Depreciation ex
pense based exclusively on fiscal (tax) regulations is not rec
ognized. The costs of internally produced equipment and fa
cilities includes all direct costs and allocable manufacturing
overhead. Costs of the construction of certain long-term as
sets include capitalized interest which is amortized over the
estimated useful life of the related asset. The following useful
lives are assumed: buildings - 17 to 50 years; site improve
ments - 8 to 20 years; technical equipment and machinery -
3 to 20 years; and other equipment, factory and office equip
ment - 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 intended to represent situations where the
substantive risks and rewards of ownership have been trans
ferred to the lessee are accounted for as capital leases. All
other leases are accounted for as operating leases. Equip
ment 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 ac
counted for at fair values, if readily determinable. Unrealized
gains and losses on trading securities, that is, securities
bought principally for the purposes of selling them in the
near term, are included in income. Unrealized gains and loss
es on available-for-sale securities are included in stockhold
ers' equity, net of applicable deferred income taxes. All other
securities are recorded at cost. Unrealized losses on all mar
ketable securities and investments that are other than tem
porary 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 (FIFO). Certain of the Group's U.S. businesses' inven
tories are valued using the last-in, first-out method (LIFO).
Manufacturing costs comprise direct material and labor and
applicable manufacturing overheads, including depreciation
charges.
Financial Instruments - Daimler-Benz uses derivative fi
nancial instruments for hedging purposes. Financial instru
ments, including derivatives (especially currency futures
and currency options, security options, interest and currency
swaps), which are not designated as hedges of specific as
sets, liabilities, or firm commitments are marked to market
and any resulting unrealized gains or losses are recognized
in income. If there is a direct connection between a derivative
financial instrument and an underlying transaction and a
derivative is so designated, a valuation unit is formed. Once
allocated, gains and losses from these valuation units, which
are used to manage interest rate and currency risks of identi
fiable assets, liabilities, or firm commitments, do not affect
income until the underlying transaction is realized (see Note
23 d).
Accrued Liabilities - The valuation of pension liabilities is
based upon the projected unit credit method in accordance
with SFAS 87 "Employers' Accounting for Pensions". An ac
crued liability for taxes and other contingencies is recorded
when an obligation to a third party has been incurred, the
payment is probable and the amount can be reasonably esti
mated. In determining other accrued liabilities - including
warranties, contract costs and estimated future losses on
open contracts - all applicable costs are taken into considera
tion including price increases. The effects of accrued liabili
ties relating to personnel and social costs are valued at their
net present value where appropriate.
Use of Estimates - The preparation of financial state
ments requires management to make estimates and assump
tions that affect the reported amounts of assets and liabilities
and disclosure of contingent amounts at the date of the finan
cial statements and reported amounts of revenues and ex
penses during the reporting period. Actual results could dif
fer from those estimates.
Accounting Pronouncements Not Yet Applied - In June
1997, the Financial Accounting Standards Board issued SFAS
130 "Reporting Comprehensive Income" which is effective
for fiscal years beginning after December 15, 1997. SFAS 130
requires that changes in the amounts of certain items, in
cluding foreign currency translation adjustments and gains
and losses on certain securities be shown in the financial
statements. SFAS 130 does not require a specific format for
the financial statement in which comprehensive income is
reported, but does require that an amount representing total
comprehensive income be reported in that statement.
Also in June 1997, the Financial Accounting Standards
Board issued SFAS 131 "Disclosures about Segments of an
Enterprise and Related Information" which is effective for fis
cal years beginning after December 15, 1997. The Statement
provides guidance in the reporting of information about seg
ments of an entity's business in annual and interim financial
statements and also requires entity-wide disclosures about
products and services an entity provides, the material coun
tries in which it holds assets and reports revenues, and its
major customers. The Company is in the process of determin
ing the impact of SFAS 131 on its reported segments.
In February 1998, the Financial Accounting Standards
Board issued SFAS 132, "Employers' Disclosures about Pen
sions and Other Postretirement Benefits". SFAS 132 amends
the disclosure requirements of SFAS 87, SFAS 88, "Employ
ers' Accounting for Settlements and Curtailments of Defined
Benefit Pensions Plans and for Termination Benefits", and
SFAS 106, "Employers' Accounting for Postretirement Bene
fits Other Than Pensions". SFAS 132 standardizes the disclo
sure requirements of SFAS 87 and SFAS 106 to the extent
practicable and recommends a parallel format for presenting
information about pensions and other postretirement bene
fits. The Group will adopt the provisions of SFAS 132 in its
1998 consolidated financial statements.
Daimler-Benz reports its 50% interest of the assets and liabil
ities, revenues and expenses and cash flows in Adtranz. The
Group believes that such method of financial statement pres
entation, which is permitted by the regulations of the Sev
enth Directive of the European Community and the Stand
ards of the International Accounting Standards Committee,
better illustrates its consolidated financial position, results of
operations and cash flows to the reader of the Group's consol
idated 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 proportionate and equity methods would not affect
reported 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
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.
Summarized consolidated financial information of Adtranz
follows. The amounts represent those used in the Daimler-
Benz consolidation, including goodwill resulting from the for
mation of Adtranz. Other companies included in the consolida
tion according to the proportionate method are not material.
2. Scope of Consolidation
Scope of Consolidation - Daimler-Benz comprises 300 for
eign and domestic subsidiaries (1996: 297) and 92 joint ven
tures (1996: 82); the latter are generally accounted for on a
pro rata basis. 12 subsidiaries are accounted for in the consol
idated financial statements using the equity method of ac
counting. During 1997, 44 subsidiaries and 15 joint ventures
were included in the consolidated financial statements for the
first time. A total of 41 subsidiaries and 5 joint ventures left
the consolidated group. Significant effects of changes in the
consolidated group on the consolidated balance sheets and
the consolidated statements of income are explained further
in the notes to the consolidated financial statements. A total of
285 subsidiaries (1996: 315) are not consolidated as their
combined influence on the financial position, results of oper
ations, and cash flows of the Group is not material. The effect
of such non-consolidated subsidiaries on the 1997 consolidat
ed assets, revenues and net earnings of Daimler-Benz was
less than 2%. In addition, 6 (1996: 10) companies administer
ing pension funds whose assets are subject to restrictions
have not been included in the consolidated financial state
ments. The consolidated financial statements include 122 as
sociated companies. At December 31, 1997,11 associated com
panies are accounted for in the consolidated financial state
ments using the equity method of accounting. The remaining
associated companies are recorded under investments in re
lated companies in as much as these companies are not mate
rial for the respective presentation of the financial position,
results of operations and cash flows of the Group.
Investment in Adtranz-In 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. As part of the formation of Adtranz, the Group and
ABB 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's 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.
Since January 1, 1996 the Group accounts for its invest
ment in Adtranz, including its 63 (1997: 71) subsidiaries, us
ing the proportionate method of consolidation. Accordingly,
Cash up to 3 months includes DM 99 (1996: DM 116) held
by Daimler-Benz AG in connection with internal cash concen
tration procedures.
3. Business Reorganization Measures
During 1995 and extending into 1996, the Group implement
ed certain measures designed to increase the Group's com
petitiveness and earnings. Such measures consisted princi
pally 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
commercial register. As part of the merger, the Group
purchased the outstanding minority interest of AEG. In
connection with the foregoing transactions, the Group
recorded charges to 1996 operations of approximately
DM 300 (1995: DM 1,600).
(b) In January 1996, Daimler-Benz announced that, effective
immediately it would discontinue financial support
for NV Koninklijke Nederlandse Vliegtuigenfabriek
("Fokker"), a Dutch aircraft manufacturer. Subsequent to
the announcement Fokker requested and received, in ac
cordance with Dutch law, protection from its creditors. In
connection therewith, control of Fokker was placed with
a third-party administrator. On March 15, 1996, Fokker
formally filed for bankruptcy under the laws of The Neth
erlands. The Group recorded a charge in the 1995 state
ment of income of DM 2,158 for discontinuing such in
vestment. During 1996 the Group realized gains of ap
proximately DM 100 from the proceeds of sales of certain
inventories in excess of the inventories' previously writ-
ten-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 Aerospace reve
nues are denominated. An appreciation of the DM rela
tive 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, Aerospace con
tinued 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 de
fense sectors. As a result of the foregoing the Group insti
tuted comprehensive cost-cutting and
restructuring
measures, including personnel reductions of approxi
mately 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 of 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.
In January 1997, Daimler-Benz sold its interests in AEG
Electrocom GmbH and AEG ElectroCom International, Inc.
(sorting and recognition systems) to Siemens AG resulting in
a gain of DM 216.
In July 1997, debis AG, a subsidiary of Daimler-Benz AG,
terminated its strategic relationship with Cap Gemini Sogeti
S.A. through the sale of its 24.4% interest resulting in a gain
of DM 822.
During 1996, the aerospace industry experienced a sig
nificant increase in demand. As a consequence, higher
production requirements resulted, especially for Daim
ler-Benz Aerospace Airbus GmbH, in a reduction of the
provision made in 1995 for restructuring measures by ap
proximately 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.
the
Group recorded charges in 1996 of approximately DM
435, of which a portion included the businesses' loss
from operations up to the date of contribution. The Group
is accounting for its 20% investment in the holding com
pany using the equity method of accounting.
In connection
therewith,
Expenses arising in 1996 and 1995 from the reorganiza
tion of the Group relate exclusively to Fokker and the restruc
turing of the former AEG-DBI (see Note 3). Other expenses
primarily include charges not allocated to cost of sales, sell
ing expenses, and administration expenses. In addition, ex
penses amounting to DM 721 related to the repayment of de
velopment cost subsidies were recorded under other expens
es in 1997 (see Note 22).
Personnel expenses included in the statement of income
are comprised of:
In 1997, the total remuneration paid by Group companies
to the members of the Board of Management of Daimler-Benz
AG amounted to DM 20, and the remuneration paid to the
members of the Supervisory Board of Daimler-Benz AG to
taled DM 2. Additionally, the board subscribed for convertible
bonds within the 1997 Stock Option Plan at a notional
amount of DM 1.2.
To determine the fair value of the option rights of convert
ible bonds, option pricing models may be used. As such, the
resulting fair values can fluctuate significantly based upon
the underlying assumptions. Accordingly, generally uniform
and consistent values are not available. See Note 16 in re
spect for the valuation of the option rights including the un
derlying assumptions and conditions of converting the op
tion rights in accordance with SFAS 123 "Accounting for
Stock-Based Compensation".
Disbursements to former members of the Board of Man
agement of Daimler-Benz AG and their survivors amounted
to DM 18. An amount of DM 123 has been accrued in the
financial statements of Daimler-Benz AG for pension obliga
tions to former members of the Board of Management and
their survivors. Beginning in 1997, Daimler-Benz AG also rec
ognizes pension obligations in accordance with U.S. GAAP in
its German Statutory Financial Statements. As of December
31, 1997, there existed no advances and loans to members of
the Board of Management of Daimler-Benz AG.
In 1997, 34,448 people (1996: 34,655 people; 1995:
12,365 people) were employed in joint venture companies.
The Group capitalized interest expenses related to quali
fying construction projects of DM 69 (1996: DM 49; 1995:
DM 29).
6. Income Taxes
Income (loss) before income taxes and minority shares
amounted to DM 4,249 (1996: DM 1,961; 1995: DM (7,233)),
of which DM 2,936 was generated by the Group's operations
in Germany (1996: DM 1,200; 1995: DM (6,874) ).
The provisions for income taxes (credit) follow:
German corporate tax law applies a split-rate imputation
with regard to the taxation of the income of a corporation and
its shareholders. In accordance with the tax law in effect for
fiscal 1997, retained corporate income is initially subject to a
federal corporation tax of 45% plus a solidarity surcharge of
7.5% on the federal corporate tax payable. Including the im
pact of the surcharge, the federal corporate tax rate amounts
to 48.375%. Upon distribution of retained earnings to stock
holders, the corporate income tax rate on the earnings is ad
justed to 30%, plus a solidarity surcharge of 7.5% on the distri
bution corporate tax, for a total of 32.25%, by means of a re
fund for taxes previously paid. Upon distribution of retained
earnings in the form of a dividend, stockholders who are tax
payers in Germany are entitled to a tax credit in the amount
of federal income taxes previously paid by the corporation.
While the current taxes are calculated on the basis of the
tax rate in effect for 1997, calculation of the deferred taxes is
based on the rate in effect as of January 1, 1998. Effective
January 1, 1998, the solidarity surcharge on the federal cor
porate tax payable is reduced from 7.5% to 5.5%. As a result,
for German companies, the deferred taxes are calculated on
an effective corporate income tax rate of 47.475% plus the
after federal tax benefit rate for trade tax of 8.525%. Tempo
rary differences at December 31, 1997 of the Group's Ger
man operations have been tax effected at the reduced rate.
The effect of the tax rate reduction on year-end deferred tax
balances is reflected in the reconciliation presented below.
A reconciliation of income taxes determined using the
German corporate tax rate of 48.375% plus the after federal
tax benefit rate for trade taxes of 8.625% for a combined
statutory rate of 57% is as follows:
During 1995 the Group was unable to recognize the tax
benefits of DM 260 resulting from losses incurred by Fokker,
after the decision was made in January 1996 to discontinue
financial support for that company.
The amount of the Group's deferred tax valuation allow
ances is based upon management's belief that it is more like
ly than not that not all of the deferred tax assets will be real
ized. In future periods, depending upon the Group's financial
results, management's estimate of the amount of the de
ferred tax assets considered realizable may change, and
hence the valuation allowances may increase or decrease.
Deferred income tax assets and liabilities are summa
rized as follows:
The 1997 income tax credit from dividend distributions
amounts to DM 3,176 and reflects primarily a tax benefit of
DM 2,908 from the special distribution of DM 20 per Ordi
nary Share/ADS. This benefit results from the refund for tax
es previously paid on undistributed profits at a rate of 50% in
excess of the effective tax rate of 30% on distributed profits.
In 1997, the Group's consolidated valuation allowances
decreased by DM 2,855. Of this amount, a reduction of DM
2,871 applied to domestic operations and a slight increase of
DM 16 to foreign operations which is included in the foreign
tax rate differential. The decrease in the consolidated domes
tic valuation allowances is due in part to DM 909 utilization
of tax loss carryforwards during 1997. Additionally, DM 1,962
is due to the reversal of the remaining valuation allowances
as of December 31, 1997 for the German companies which
are included in the filing of a combined tax return ("Organ-
schaft") on the basis that the current and the expected re
sults of operations support a conclusion that it is more likely
than not that the deferred tax assets will be realized. The
valuation allowances which remain at December 31, 1997
apply primarily to the Group's foreign operations.
During 1997 the Group sold its investment in Cap Gemini
Sogeti S.A. and realized a gain of DM 822 in its consolidated
financial statements which was not taxable since write
downs were previously not recognized for tax purposes.
During 1996 the Group's consolidated valuation 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 Aktiengesellschaft into Daimler-
Benz AG during 1996, after which the German loss carryfor
wards of AEG Aktiengesellschaft could be utilized by the
Group's German "Organschaft". Prior to the merger such net
operating losses ("NOLs") were limited as to their use, and
accordingly were fully reserved for in the amount of DM 231.
In addition, during 1996 the Group realized tax benefits re
lated to investments written down in previous years.
At December 31, 1997, the Group had net operating loss
es ("NOLs") and corporate tax credit carryforwards amount
ing to DM 11,918 (1996: DM 16,551). The majority of the NOLs
relate to the German group of companies which are included
in "Organschaft" and have an unlimited carryforward period
under German tax law. The remainder of the NOLs relate to
losses of domestic and foreign non-"Organschaft" companies
and are partly limited in their use to the group.
Net deferred income tax assets and liabilities in the con
solidated balance sheets are as follows:
Deferred tax liabilities of DM 4,064 (1996: DM 2,527)
have not been recognized on unremitted earnings of non-Ger
man subsidiaries intended to be indefinitely reinvested. De
termination of the amount of unrecognized deferred tax lia
bilities is not practicable.
Notes to the Consolidated Balance Sheets
7. Intangible Assets and Property, Plant and
Equipment, net
Information with respect to changes to the Group's intangi
ble assets and property, plant and equipment is presented in
the Consolidated Fixed Assets Schedule included herein. In-
tangible assets represent principally the goodwill from the
formation of Adtranz. Property, plant and equipment include
buildings, technical equipment and other equipment capital
ized under capital lease agreements of DM 735 (1996: DM
498). Depreciation expense on assets under capital lease ar
rangements was DM 57 (1996: DM 86; 1995: DM 121).
8. Equipment on Operating Leases, net
Information with respect to changes to the Group's equip
ment on operating leases is presented in the Consolidated
Fixed Assets Schedule included herein. Of the total equip
ment on operating leases, DM 14,318 represent automobiles
and commercial vehicles (1996: DM 11,402). The amount for
equipment on operating leases includes initial direct costs of
contracts of DM 153 (1996: DM 118).
Noncancellable future lease payments due from custom
ers for equipment on operating leases at December 31, 1997
amounted to DM 8,451 and are due as follows:
Certain of the Group's U.S. businesses' inventories are val
ued using the last-in, first-out method. If the FIFO method
had been used instead of the LIFO method, inventories would
have been higher by DM 325 (1996: DM 299).
As of December 31, 1997, DM 852 of the total financing re
ceivables mature after more than one year (1996: DM 483).
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 years following December 31, 1997 are as fol
lows:
As of December 31, 1997, DM 15,226 of the total financ
ing receivables mature after more than one year (1996: DM
11,098).
As well as the tax reduction relating to the distribution of DM
1.60 per share, the tax reduction of approximately DM 2.9
billion relating to a special distribution of DM 20 per share is
included in other receivables and other assets.
As of December 31, 1997, DM 2,111 of the total other re
ceivables mature after more than one year (1996: DM 1,904).
13. Securities, Investments and
Long-Term Financial Assets
Information with respect to the Group's investments and
long-term financial assets is presented in the Consolidated
Fixed Assets Schedule included herein. Securities included
in current assets are comprised of the following:
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 estimated fair values of investments in debt securi
ties, by contractual maturity, are shown below. Expected ma
turities may differ from contractual maturities because bor
rowers may have the right to call or prepay obligations with
or without penalty.
14. Cash and Cash Equivalents
Cash and cash equivalents include DM 342 (1996: DM 1,337)
of deposits with original maturities of more than three
months. Cash and cash equivalents include DM 1,519 (1996:
DM 174) of amounts on deposit with a related party.
15. Additional Cash Flow Information
Liquid assets recorded under various balance sheet captions
are as follows:
Proceeds from sales of available-for-sale securities were
DM 1,677 (1996: DM 1,126; 1995: DM 337). Gross realized
gains from sales of available-for-sale securities on a specific
identification basis were DM 180 (1996: DM 22; 1995: DM 6),
while gross realized losses were DM 2 (1996: DM 6; 1995:
DM 1).
16. Stockholders' Equity
At December 31,1995, the Group had issued and outstanding
51,368,736 Ordinary Shares with a nominal (par) value of
DM 50 per share. On May 22, 1996 the Group, upon the ap
proval of its shareholders, reduced the nominal value of its
Ordinary Shares from DM 50 per share to DM 5 per share
effective July 1, 1996. This resulted in an increase in the
number of Ordinary Shares outstanding from 51,368,736
shares to 513,687,360 shares. Per share information for the
year 1995 has been adjusted to reflect per share amounts
based upon a DM 5 per share nominal value. Due to the issu
ance of shares to employees and the conversion of options
into shares the number of issued and outstanding Ordinary
Shares increased to 516,748,337 as of December 31, 1997
(1996:515,396,396).
Daimler-Benz stockholders on June 26, 1991 authorized
through June 30, 1996 the issuance of Ordinary Shares of up
to DM 600 nominal value of which the remaining unutilized
portion of DM 367 expired in 1996. On May 22, 1996, the
stockholders approved the issuance of Ordinary Shares up to
an aggregate amount of DM 500 nominal value through April
30, 2001. Through December 31, 1997, there was no utiliza
tion of the latter amount.
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 3 are unissued and expire on April 30, 1999. In 1997,
1996 and 1995, 1,250,000, 1,050,000 and 700,000 Ordinary
Shares, respectively, were issued to employees leading to in
creases of capital stock and additional paid-in capital of DM
6, DM 6 and DM 3, and DM 159, DM 80 and DM 44, respec
tively
Subject to preemptive rights of existing stockholders,
Daimler-Benz in the stockholders' meetings 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, a subsidiary of the Company. 4.125% con
vertible notes in the amount of DM 750 were issued with
a nominal value of DM 1,000 each, including a total of
7,690,500 options which, on the basis of the option agree
ment, entitle the bearer of the option to subscribe for Ordi
nary 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. Subject to excluded preemptive rights of the
subordinated mandatory convertible notes described below,
those prices were reduced DM .20 each beginning on May 14,
1997. During 1997, options for the subscription of 1,785
(1996: 36) newly issued shares have been exercised. Pro
ceeds from issuance of the notes, net of expenses, were DM
711.
In June 1997, the Company issued 5.75% subordinated
mandatory convertible notes due June 14, 2002 with a nomi
nal amount of DM 130.70 per note. These convertible notes
represent a nominal amount of DM 993 including 7,600,000
notes which may be converted into 0.862 newly issuable
shares before June 4, 2002. Notes not converted by this date
will be mandatorily converted at a conversion rate between
0.862 and 1.25 Ordinary Shares per note to be determined on
the basis of the average market price for the shares during
the last 20 trading days before June 8, 2002. During 1997,
156 shares have been issued upon exercise.
During May 1996, the stockholders of Daimler-Benz AG
approved the 1996 Stock Option Plan for certain members of
management. During May 1997, the stockholders approved
the 1997 Stock Option Plan which extended to additional lev
els of management. In conjunction therewith in 1996 the
stockholders reserved up to DM 40 of contingent authorized
capital which was subsequently increased in 1997 to DM 110.
The Plans provide for the granting of options for the purchase
of Daimler-Benz Ordinary Shares. As evidenced by non
transferable convertible bonds issued with a nominal value
of DM 1,000 each due ten years after issuance with stated
interest rates of 5.3% and 5.9% for the bonds issued in 1997
and 1996, respectively. Each convertible bond entitles the
holder thereof to convert the bond into Ordinary Shares with
an aggregate nominal value of DM 1,000 (equaling 200
shares with a nominal value of DM 5 per share). Every year
the conversion privilege under each bond can be exercised
only within four periods of three weeks each, if the stock ex
change price per Ordinary Share is at least 115% of the prede
termined conversion price.
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. DM 5 per share have been paid already with the pur
chase of the convertible bond.
Effective July 23, 1997, Daimler-Benz AG issued converti
ble bonds of DM 37.1 (equaling 7,429,600 shares with a nom
inal value of DM 5 per share) subject to the 1997 Stock Op
tion Plan. The conversion price of these convertible bonds,
which may only be converted in certain periods between July
23, 1999 and July 23, 2007, is DM 132 per share (the stock
exchange price as of May 30, 1997).
On June 30, 1997, a stockholder challenged the approval
of the 1997 Stock Option Plan at the stockholders meeting of
May 28, 1997. On October 30, 1997, a regional court in Stutt
gart dismissed this case in the first instance, however the
stockholder has subsequently appealed this decision. The
conversion right is exercisable only upon successful resolu
tion of the stockholder legal action.
The Company applies Accounting Principles Board Opin
ion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its employee stock
compensation plans. Had compensation cost for the Compa
ny's stock compensation plans been determined based upon
the fair value at the grant date, consistent with the methodol
ogy prescribed under SFAS 123 the Company's net income
and basic and diluted earnings per share would have been
reduced by approximately DM 26 and DM .05 per share in
1997. The fair value of the options granted in 1997 was calcu
lated at the grant date at DM 23 per share based on a trinomi
al tree option pricing model which considers the terms of the
issuance. The underlying assumptions are as follows:
Daimler-Benz AG as a dividend to the stockholders. In addi
tion, a special distribution of DM 20 per share with an aggre
gate amount of approximately DM 10,300 will be proposed to
the Annual General Meeting of stockholders scheduled for
May 27, 1998. Subsequent to the special distribution, the
Company plans to increase Ordinary Shares and additional
paid-in capital by approximately DM 7,400. This amount ap
proximates the special distribution less the tax refund gener
ated by the special distribution of approximately DM 2,900
(see Note 6).
At December 31, 1997, Daimler-Benz AG had retained
earnings of DM 2,057.
At December 31, 1997 no additional convertible bonds
may be subscribed under the 1997 and 1996 plans.
The minority stockholders of Dornier GmbH have the
right to exchange their interest in Dornier for holdings of
equal value in Daimler-Benz Luft- und Raumfahrt Holding AG
or Ordinary Shares of Daimler-Benz AG and such options are
exercisable at any time.
Under the German corporation law (Aktiengesetz), the
amount of dividends available for distribution to sharehold
ers is based upon the earnings of Daimler-Benz AG (parent
company only) as reported in its statutory financial state
ments determined in accordance with the German commer
cial code (Handelsgesetzbuch). For the year ended December
31, 1997, Daimler-Benz management has proposed to distrib
ute DM 827 (DM 1.60 per share) of the 1997 earnings of
17. Accrued Liabilities
Accrued liabilities are comprised of the following:
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).
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 assumptions used in
calculating the actuarial values for 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 post retire
ment costs for the years were DM 29 (1996: DM 26; 1995:
DM 25).
Accruals for restructuring comprise certain employee ter
mination benefits and costs which are directly associated
with plans to exit specified activities. The changes in these
provisions are summarized as follows:
In connection with the Group's restructuring the Group
recorded provisions for termination benefits of DM 585
(1996: DM 423; 1995: DM 842), in 1997 principally within
Automotive, in 1996 and 1995 principally within Automotive,
AEG-DBI and Daimler-Benz Aerospace. In connection with
these restructuring efforts, the Group effected workforce re
ductions of approximately 6,600 employees (1996: 11,800;
1995: 14,800) and paid termination benefits of DM 983
(1996: DM 745; 1995 DM 1,489), of which DM 525 (1996: DM
556; 1995: DM 1,132) were charged against previously estab
lished liabilities. At December 31, 1997 the Group had liabil
ities for estimated future terminations for approximately
8,000 employees.
Exit costs in 1997 primarily result from the restructuring
of directly managed businesses. In 1996, they relate exclu
sively to businesses of the former AEG-DBI and in 1995 main
ly result from plans to reduce the production capacity of
AEG-DBI and Daimler-Benz Aerospace.
Liabilities to financial institutions include approximately
DM 851 (1996: DM 721) owed to related parties. Commercial
paper is denominated in DM and U.S. dollars and includes
accrued interest. Bonds and liabilities to financial institu
tions are largely secured by mortgage conveyance, liens and
assignment of receivables of approximately DM 2,249 (1996:
DM 2,381).
Aggregate amounts of financial liabilities maturing dur
ing the next five years and thereafter are as follows:
At December 31, 1997, the Group had unused short-term
credit lines of DM 17,982 (1996: DM 14,225), and unused
long-term credit lines of DM 6,194 (1996: DM 5,672).
Liabilities to related companies are primarily obligations
of Daimler-Benz Aerospace Airbus GmbH to Airbus Industrie
G.I.E., Toulouse.
Other liabilities mainly relate to payroll obligations of the
month of December and related tax liabilities. As of Decem
ber 31, 1997 tax liabilities include withheld employee taxes
of DM 1,318 (1996: DM 972), and social benefits due of
DM 1,143 (1996: DM 906).
Other Notes
21. Litigation and Claims
Various legal actions, governmental investigations, proceed
ings and claims are pending or may be instituted or asserted
in the future against the Group. Litigation is subject to many
uncertainties; the outcome of individual litigated matters is
not predictable with assurance, and it is reasonably possible
that some of the matters could be decided unfavorably to the
Group. Although the amount of liability at December 31,
1997 with respect to these matters cannot be ascertained, the
Group believes that the resulting liability, if any, should not
materially affect the consolidated financial position of the
Group at December 31, 1997.
22. Commitments and Contingencies
Commitments and contingencies are presented at their con
tractual values.
Commitments and contingencies include the following:
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.
In connection with the development of aircraft, Daimler-
Benz Aerospace Airbus GmbH is committed to Airbus Indus
trie to incur future development costs. At December 31, 1997,
the remaining commitment not recorded in the financial
statements aggregated DM 948. In addition, the Group has
pledged the assets of Daimler-Benz Aerospace Airbus GmbH
("DA") acquired with development funds, to the Federal Re
public of Germany.
Airbus Industries G.I.E. ("Airbus consortium") has given
a performance guarantee to Agence Executive, the French
government agency overseeing Airbus; such performance
guarantee has been assumed by DA to the extent of its 37.9 %
participation in the Airbus consortium.
At December 31, 1997, 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 in the future. In addition, the Group was also con
tingently liable related to credit guarantees and participa
tions in financing receivables of Airbus consortium under
customer finance programs. When entering into such cus
tomer financing commitments Airbus consortium has gener
ally established a secured position in the aircraft being fi-
nanced. 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. Based on experience, the probability of
material losses 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, should be unable to
honor its obligations, the Group is confident that each of its
other consortium partners would be responsible for their pro
portionate share of Airbus' obligations.
In 1989, the Group acquired Messerschmitt-Bölkow-
Blohm GmbH ("MBB") and thereby indirectly acquired Daim
ler-Benz Aerospace Airbus (then known as Deutsche Airbus)
which was and continues to be the German participant in Air
bus Industrie. As part of the acquisition and in order to facil
itate the complete privatization of MBB and the German par
ticipation in Airbus Industrie, the Government of the Federal
Republic of Germany undertook responsibility for certain fi
nancial obligations of MBB and Daimler-Benz Aerospace Air
bus and agreed to provide certain ongoing limited financial
assistance for development programs and other items. Such
undertakings, advances and assistance were to be repaid on
a contingent basis by Daimler-Benz Aerospace Airbus' ma
king annual payments equal to 40% of its pretax profits (as
defined), if any, beginning with the fiscal year 2001 (subject
to advance to the year 2000 under certain conditions). Each
annual payment is contingent on Daimler-Benz Aerospace
Airbus' having earned pretax profits in the prior year. Pretax
profits are subject to reduction by application of prior years'
cumulative loss carryforwards. Daimler-Benz Aerospace Air
bus also agreed to make certain payments in the nature of a
royalty with respect to the various Airbus aircraft programs.
Prior to specified dates between 2001 and 2004, these royal
ty payments, if earned, are accrued on a per aircraft basis
and added to the amount to be discharged through the 40%
profit-sharing obligation. Thereafter, they are to be made on a
per aircraft basis on terms keyed to the delivery date for each
aircraft.
The amount of the annual 40% profit-sharing obligation,
if any, will depend upon the profitability of Daimler-Benz
Aerospace Airbus in 2001 and beyond, which will be subject
to a variety of unpredictable factors. Accordingly, the Group
is unable to predict with certainty how long Daimler-Benz
Aerospace Airbus will remain subject to the contingent 40%
profit-sharing obligation, but it is likely to be a period of dec
ades. Daimler-Benz Aerospace Airbus may not pay dividends
prior to 2001, unless at the same time it commences making
the 40% profit-sharing payments. The Group may not sell or
transfer a majority of the capital stock of Daimler-Benz Aero
space Airbus without the consent of the German Federal
Government.
During 1997, Daimler-Benz Aerospace Airbus paid the
German Federal Government DM 1,400 in complete dis
charge of its obligations relating to the Airbus A320 and its
derivatives. Of this amount, DM 721 was expensed in 1997
and the remainder will be amortized over those A320 aircraft
and derivatives to be delivered in the future.
In connection with certain production programs the
Group has committed to certain levels of outsourced manu
factured parts and components over extended periods at mar
ket prices. The Group is subject to compensations in the case
the committed volumes are not purchased.
23. Information About Financial Instruments
a) Use of financial instruments
In the course of day-to-day financial management, Daimler-
Benz uses financial instruments, e.g. financial investments,
fixed-interest bearing securities and stock, forward exchange
transactions and currency options, and, as a consequence,
may be exposed to risks from changes in interest and curren
cy exchange rates as well as share prices. Daimler-Benz uses
derivative financial instruments to reduce such risks. With
out the use of these instruments the Group's market risks
would be higher.
Based on regulations issued by regulatory authorities for
financial institutions, the Group has established guidelines
for risk assessment procedures and controls for the use of
financial instruments. They include a clear segregation of
duties with regard to operating financial activities on one
side and settlement, accounting and controlling on the other.
In the normal course of business, the Group sells to third
parties certain of its financial services assets. During the
year ended December 31, 1997 the Group sold assets for pro
ceeds of DM 1,457 (1996: DM 1,774). In connection with such
sales, the Group remained liable under recourse provisions
for DM 314(1996:DM 341).
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 940
(1996: DM 885; 1995: DM 878). The future minimum lease
payments under rental and lease agreements which have in
itial or remaining terms in excess of one year at December
31, 1997 are as follows:
Market risk in portfolio management is quantified ac
cording to the "value-at-risk" method which is commonly
used among banks. Using historical variability of market val
ues, potential changes in value resulting from changes of
market prices is calculated on the basis of statistical meth
ods. The maximum acceptable market risk has been fixed by
senior management in the form of a risk capital which has
been approved for one year. The adherence to the risk capital
is regularly monitored.
b) Notional amounts and credit risk
The contract or notional amounts shown below do not always
represent amounts exchanged by the parties and, thus, are
not necessarily a measure for the exposure of 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
objective of the Group's hedging transactions is to reduce the
market risk of its foreign denominated future cash flows to
exchange rate fluctuations. The Group has entered into cur
rency contracts for 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 counterparty, based on the rating of the coun
terparties performed by established rating agencies. The
Group believes the overall credit risk related to utilized deriv
atives is insignificant.
c) Fair value of financial instruments
The fair value of a financial instrument is the price at which
one party would assume the rights and/or duties of another
party. Fair values of financial instruments have been deter
mined with reference to available market information at the
balance sheet date and the valuation methodologies dis
cussed below. Considering the variability of their value-deter
mining factors, the fair values presented herein may not be
indicative of the amounts that the Group could realize in a
current market exchange.
The carrying amounts and fair values of the Group's
financial instruments are as follows:
In determining the fair values of derivative financial in
struments certain compensating effects from underlying
transactions (e.g. firm commitments and anticipated transac
tions) are not taken into consideration. At December 31, 1997
and 1996, the Group had deferred net unrealized gains (loss
es) on forward currency exchange contracts and options of
DM (508) and DM 462, respectively, purchased against firm
foreign currency denominated sales commitments extending
for varying periods between three and twenty-four months.
The carrying amounts of cash, other receivables and ac
counts payable approximate fair values due to the short-term
maturities of these instruments.
The methods and assumptions used to determine the fair
values of other financial instruments are summarized below:
Financial Assets and Securities - Fair value of securities in
the portfolio was estimated using quoted market prices. The
Group has certain equity investments in related and affiliat
ed companies not presented in the table, as certain of these
investments are not publicly traded and determination of fair
values is impracticable.
Receivables from Financial Services - The carrying
amount of variable rate finance receivables was estimated to
approximate fair value since they are priced at current mar
ket rates. The fair value of fixed rate finance receivables was
estimated by discounting expected cash flows using the cur
rent rates at which comparable loans of similar maturity
would be obtained made as of December 31, 1997 and 1996.
The carrying amounts of receivables from finance lease
equal their fair values.
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
amounts of commercial paper and borrowings under revolv
ing credit facilities were assumed to approximate fair value
due to their short maturities.
Interest Rate Contracts - The fair values of existing instru
ments to hedge interest rate risks (e.g. interest rate swap
agreements) were estimated by discounting expected cash
flows using market interest rates over the remaining term of
the instrument. Interest rate options are valued on the basis
of quoted market prices or on estimates based on option pric
ing models.
Currency Contracts - The fair value of forward foreign ex
change contracts is based on average spot exchange rates
that consider forward premiums or discounts. Currency op
tions are valued on the basis of quoted market prices or on
estimates based on option pricing models.
d) Accounting for and reporting earnings of
financial instruments
The earnings of the Group's on-balance sheet financial in
struments, with the exception of receivables from financial
services, are recognized in financial income, net. Income on
receivables from financial services are recognized as reve
nues. The carrying amounts of the on-balance sheet financial
instruments are included in the consolidated balance sheets
under their related captions. The carrying amounts of off-bal
ance sheet financial instruments are included under other
assets and accrued liabilities.
Financial instruments, including derivatives, purchased
to offset the Group's exposure to identifiable and committed
transactions with price, interest or currency risks are ac
counted for together with the underlying business transac
tions ("hedge accounting"). Gains and losses on forward con
tracts and options hedging firm foreign currency commit
ments are deferred off-balance sheet and are recognized as a
component of the related transactions, when recorded (the
"deferral method"). However, a loss is not deferred if deferral
would lead to the recognition of a loss in future periods.
Interest differentials paid or received under interest rate
swaps purchased to hedge interest risks on debt are recorded
as adjustments to the effective yields of the underlying debt
("accrual method").
All other financial instruments, including derivatives,
purchased to offset the Group's net exposure to price, inter
est or currency risks, but which are not designated as hedges
of specific assets, liabilities or firm commitments are marked
to market and any resulting unrealized gains and losses are
recognized currently in financial income, net.
Derivatives purchased by the Group under macro-hedg
ing techniques, as well as those purchased to offset the
Group's exposure to anticipated cash flows, do not generally
meet the requirements for applying hedge accounting and
are, accordingly marked to market at each reporting period
with unrealized gains and losses recognized in financial in
come, net. At such time that the Group meets the require-
ments for hedge accounting and designates the derivative fi
nancial instrument as a hedge of a committed transaction,
subsequent unrealized gains and losses would be deferred
and recognized along with the effects of the underlying
transaction.
24. Segment Reporting
Daimler-Benz operates in four divisions; a description of the
products and services from which each segment derives its
revenues follows:
Automotive - development, manufacture and sale of pas
senger cars and commercial vehicles principally under
the trade mark Mercedes-Benz as well as related parts
and accessories.
Aerospace - development, manufacture and sale of com
mercial and military aircraft and helicopters, of satellites
and related space transportation systems, defense-relat
ed products, including radar and radio systems and pro
pulsion systems.
Services - services related to information technology, fi
nancial services, insurance brokerage, trading, telecom
munications and media and real estate management.
Directly managed businesses (DMB) - In 1997 and 1996
represents 50% interest in Adtranz and microelectronics
and automation processing products (up to December 31,
1996) and diesel engines. In 1995 represented the AEG-
DBI corporate unit which included each of the foregoing
business activities plus other businesses including prod
ucts for the transmission and distribution of electricity.
Sales and revenues related to transactions between seg
ments are generally recorded at values that approximate
third party selling prices.
Information with respect to the Group's industry seg
ments follows:
In 1997 and 1996 includes Adtranz accounted for using the
proportionate method of consolidation (see Note 2).
Includes DM 2,801 and DM 2,443 for 1997 and 1996,
respectively, of automobiles leased to customers under operating
leases that have been sold to Group leasing and sales financing
entities with guarantees as to the residual value of the products at
the end of such leases.
Aerospace operating loss includes charges of DM 435 in 1996
related to the aircraft business of Dornier offset by approximately
DM 300 of reductions in provisions for restructuring measures
(see Note 3).
A reconciliation of income (loss) before financial income
and income taxes to operating profit follows:
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 restructuring of AEG and write-downs to fixed
assets of DM 331 (see Note 3).
Includes Aerospace write-downs to fixed assets, including
goodwill, of DM 2,558 and DMB DM 331.
Operating profit in 1996 includes charges of DM 435 related to
the aircraft business of Dornier offset by approximately DM 300
of reductions in provisions for restructuring measures. Operating
loss in 1995 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 Note 3).
The convertible bonds of the 1997 Stock Option Plan are
not included in the computations of diluted earnings per
share because the options' underlying target stock price was
above market price of Daimler-Benz AG common stock on
December 31, 1997.
26. Subsequent Events
Following the decision to concentrate on core activities, the
Group's semiconductor business was sold to the American
company Vishay Intertechnology, Inc. in March 1998.
In January 1998 the Group sold two real-estate-project-
support the product line, and other minor assets. In addition,
Ford Motor Company will provide assistance in the product
launch and cost reduction efforts for this business as well as
engineering and systems services during 1998. A ll material
aspects of the acquisition will be consummated during 1998.
companies to Berliner Volksbank.
In May 1997, the Company entered into an agreement to
acquire the Heavy Truck Business of Ford Motor Company.
The transaction included: tooling, machinery and equipment
used to manufacture the product; spare parts inventory to
Fundamental differences
German and U.S. accounting principles are based on funda
mentally different perspectives. While accounting under the
German HGB emphasizes the principle of caution and credi
tor protection, the availability of relevant information for
shareholder decision-making is the chief objective of U.S. ac
counting. The comparability of the financial statements - both
from year to year and from company to company - and the
determination of performance on an accrual basis therefore
rank higher under U.S. GAAP than under the HGB.
Provisions
In U.S. accounting practice, provisions are not listed separ
ately as a rule, but under liabilities. In order to comply with
the stipulations of the EU guidelines, we still list provisions
in the balance sheet notwithstanding the American treatment.
The possibilities to form provisions are significantly more re
strictive under U.S. GAAP than under the HGB. Provisions
can be formed when an obligation exists towards a third
party that is likely to be satisfied and when the anticipated
amount of the necessary provision can be reliably estimated.
Provisions for expenses are not allowed under American regu
lations as a rule.
Unlike in German accounting, pension provisions are de
termined in consideration of anticipated wage and salary
increases. Rather than using the 6% discount rate employed
in German tax law, the relevant real interest rates of individ
ual states define the U.S. value.
Goodwill
According to American accounting principles, goodwill has
to be capitalized and amortized over its expected period in
use. The period in use in this instance depends on the type of
business acquired. Offsetting this value against stockholders'
equity, which is an option under the HGB, is not 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.
This becomes most relevant in the calculation of unrealized
profits from the evaluation of foreign currency amounts as at
the balance sheet date and from derivative financial instru
ments.
According to German accounting regulations, securities
are to be valued at the lower of cost or market. American regu
lations, on the other hand, call for securities to be reported at
the higher market prices as well; the changes in the market
value are either to be reflected directly in the profit and loss
statement or in stockholders' equity.
For long term production, revenues and expenses are
booked in accordance with the realization principle, while
under U.S. GAAP the percentage of completion method is used.
Leasing
Under U.S. GAAP, the accrual of leased equipment is not re
lated to the legal owner, but the economic owner. In a capital
lease (sales financing) the risks and opportunities arising from
the ownership of leased equipment are primarily realized by
the lessee, without the lessee simultaneously acquiring legal
ownership. U.S. GAAP treat such a capital lease like a pur
chase, in other words, the lessee capitalizes the leased equip
ment and lists a relevant liability. The lessor, in turn, records
a receivable from sales financing and revenue from the sale
of the leased equipment.
Deferred Taxes
In accordance with U.S. GAAP, capitalized or accrued deferred
taxes have to be reported if they are derived from temporary
differences between tax valuations and valuations in the con
solidated balance sheet. Tax losses carried forward represent
an economic benefit because of the reduced tax payments in
future balance sheets. At the time the loss arises, the future
or deferred tax advantage is capitalized in relation to its real-
izability.
Hilmar Kopper
Frankfurt/Main
Chairman of the Supervisory Board,
Deutsche Bank AG
Chairman
Karl Feuerstein*)
Mannheim
Chairman of the Corporate Labor
Council, Daimler-Benz Group
Deputy Chairman
Willi Böhm*)
Worth
Member of the Labor Council of the
Worth Plant, Daimler-Benz AG
Dr. h.c. Birgit Breuel
Berlin
General Commissioner of
EXPO 2000
Prof. Hubert Curien
Paris
Former Minister of Research and
Technology of the Republic of France
Dr. jur. Michael Endres
Frankfurt/Main
Member of the Board of Managing
Directors, Deutsche Bank AG
Manfred Göbels*)
Stuttgart
Chairman of the Senior Managers'
Committee, Daimler-Benz Group
Ulrich Hartmann
Düsseldorf
Chairman of the Board of
Management and CEO, VEBA AG
*) Employee representatives.
Erich Klemm*)
Sindelfingen
Chairman of the Labor Council of the
Sindelfingen Plant, Daimler-Benz AG
Peter Schönfelder*)
Augsburg
Member of the Labor Council,
Daimler-Benz Aerospace AG
Dr. h.c. 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*)
Stuttgart
Chairman of the Labor Council of the
Untertürkheim Plant, Daimler-Benz AG
Walter Riester*)
Frankfurt/Main
Second Chairman, Metalworkers'
Union
Committees of the Supervisory
Board:
Committee pursuant to
§27 Sec. 3 MitbestG
Hilmar Kopper (Chairman)
Karl Feuerstein
Prof. Dr. jur. Johannes Semler
Bernhard Wurl
Jürgen Sarrazin
Frankfurt/Main
Until December 31, 1997, Chairman of
the Board of Managing Directors,
Dresdner Bank AG
Executive Committee
Hilmar Kopper (Chairman)
Karl Feuerstein
Prof. Dr. jur. Johannes Semler
Bernhard Wurl
Audit Committee
Hilmar Kopper (Chairman)
Karl Feuerstein
Willi Böhm
Dr. h.c. Birgit Breuel
Dr. jur. Roland Schelling
Stuttgart
Attorney at Law
Herbert Schiller*)
Frankfurt/Main
Chairman of the Corporate Labor
Council, debis AG
Dr. rer. pol. Manfred Schneider
Leverkusen
Chairman of the Board of Management
Bayer AG
In 1997, the Supervisory Board and the Board of Manage
ment jointly reviewed the situation of the Group and the stra
tegic development of the individual divisions and business units
at four regular meetings and one extraordinary meeting. Individ
ual issues were also discussed.
The Executive Committee met four times during the course
of the year under review and in addition to matters relating to
the Board of Management discussed issues relating to subsidi
aries and affiliated companies and the issuance of employee
shares. The Audit Committee met twice, and together with the
independent auditors discussed at length the 1996 financial state
ments and the interim report for the first six
months of 1997. The Committee formed pur
suant to the German Law on Codetermina-
tion did not meet.
At the meetings and as part of its month
ly reporting the Board of Management in
formed the Supervisory Board in detail of the
development of business and the financial
situation of the Company and each individ
ual business unit. 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 Supervis
ory Board was continually advised by the Board of Manage
ment in individual meetings.
The principal focus of the extraordinary Supervisory Board
meeting in January 1997 was the new corporate structure. The
central topic was the merger of Mercedes-Benz AG into Daimler-
Benz AG. The Passenger Car, Commercial Vehicle, Services
(debis), Aerospace (Dasa), Finance/Controlling, Personnel, Re
search and Technology, Sales, Corporate Development, and the
Directly Managed Businesses divisions were formed at the same
time. This created the principal organizational and structural
conditions for the Group's realignment.
The regular items treated at the Supervisory Board meeting
in February were the 1997-1999 business plan for the medium-
range future together with the investment, personnel, and earn
ings planning and the Company's refinancing needs. The 1996
financial statements were reviewed at the meeting in April. Any
matters requiring approval as per the Articles of Incorporation
were discussed as well.
The Board of Management also reported regularly on the
development of the individual vehicle classes and the Passen
ger Car and Commercial Vehicle divisions. The new CLK and Mi-
Class series, the A-Class developments, the expansion of the prod
uct ranges for the heavy-duty Actros truck,
and the inauguration of the plants in Ham-
bach, Tuscaloosa, and Bad Cannstatt were
presented in detail.
Other important topics included the stra
tegic alignment of the individual divisions
and the related subsidiaries and affiliated
companies. The acquisition of Ford Heavy
Trucks and its integration within the Freight-
liner organization under the Sterling name-
plate deserve special mention in this respect.
The increase of the Company's share in Mi
cro Compact Car AG and the associated assumption of corpo
rate responsibility for the Smart project was presented and dis
cussed at length at the meetings on April 11 and June 25, 1997
The partnership with the Canadian company Ballard Power
Systems represents a milestone in the development of the tech
nological innovation capabilities of Daimler-Benz. The objective
of this undertaking is to advance the development and market
ing of fuel cell technology. The fact that Ford became part of the
joint venture in December 1997 broadens the industrial and tech
nological basis of the project, above all in the field of propul
sion technology. It also underscores the appropriateness of our
decision.
With the founding of the Tegaron joint venture together with
Telekom, debis made a crucial step toward establishing itself in
the telematics market. The acquisition of shares in FreeCom
GmbH strengthened debitel´s market position.
The acquisition of Siemens' defense electronics business
should be viewed as an important contribution to the perma
nent consolidation of the Defense and Civil Systems unit. As a
result, Dasa was able to significantly expand its product range
in defense electronics.
Other individual topics reviewed by the Supervisory Board
concerned the realization of the Euro fighter program at Dasa,
restructuring at Airbus, the partnership with Groupe Lagardere
in the space systems and defense sectors, the construction of the
A3XX widebody jet, the expansion of the A340-500/600 prod
uct program, and the completed repayment to the Federal Re
public of Germany of development subsidies for the A320 pro
gram.
Important steps toward streamlining the Group's portfolio
were the sale of the TEMIC semiconductor activities to Vishay
and the withdrawal from our involvement in Cap Gemini. In
connection with corporate strategy reporting, the Supervisory
Board was at all times included in deliberations revolving around
the positioning of TEMIC, which were completed with the sale of
the semiconductor activities at year-end. The separation of deb-
is Systemhaus from Cap Gemini opens up new opportunities for
the international orientation of this division culminating in the
auspicious outsourcing agreement with Banco Ambrosiano
Veneto.
The 1997 financial statements of Daimler-Benz AG, the con
solidated financial statements, and the combined business re
view according to German accounting principles were examined,
along with the accounting principles used, by KPMG Deutsche
Treuhand-Gesellschaft AG Wirtschaftsprüfungsgesellschaft,
Frankfurt/Main, and endorsed with an unqualified audit certif
icate. The same applies to the consolidated financial statements
according to U.S. GAAP, with a reservation concerning the pro
portionate method of consolidation for joint ventures used by
Daimler-Benz which nonetheless is specifically allowed by the
Securities and Exchange Commission (SEC). These documents,
together with the Board of Management's proposed appropri
ation 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
in the presence of the auditors. The Supervisory Board noted
and approved the results of the independent auditors' examin
ation and following its own examination found no grounds for
objection. On April 3, 1998, the Supervisory Board acknowledged
the 1997 consolidated financial statements, approved and rat
ified the 1997 financial statements of Daimler-Benz AG, and
agreed with the Board of Management's proposed appropriation
of earnings.
There were no personnel changes on the Supervisory Board
and Board of Management since the 1997 Shareholders Meet
ing.
At its meeting on January 23, 1997, the Supervisory Board
appointed Dr. Cordes as full member of the Board of Manage
ment responsible for Corporate Development and the Directly
Managed Businesses effective April 1, 1997 Also effective April
1, 1997, Mr. Vöhringer was appointed as a full member of the
Board of Management responsible for the functional department
Research and Technology.
Mr. Werner voluntarily resigned from the Board of Manage
ment with effect from January 31, 1997
At the meeting on January 23, 1997, the following additional
changes to the Board of Management were decided with respect
to the new structure of Daimler-Benz AG effective April 1, 1997:
Dr. Gentz transferred to Mr. Tropitzsch his responsibility for Per
sonnel, which until then he had managed conjointly with the
Finance department. Mr. Tropitzsch was appointed as the direc
tor of labor and, along with Mr. Hubbert (Passenger Car Div
ision), Dr. Lauk (Commercial Vehicle Division), and Dr. Zetsche
(Sales), as a member of the Board of Management.
Stuttgart-Mohringen, April 1998
The Supervisory Board
Chairman
Addresses:
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
debis Haus at Potsdamer Platz
D-10875 Berlin
Tel. (49) 30-2554 0
Fax (49) 30-2554 2525
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
TEMIC TELEFUNKEN
microelectronic GmbH
P. O. Box 35 35
D-74025 Heilbronn
Tel. (49) 7131-67 0
Fax (49) 7131-67 2340
MTU/Diesel Engines
M TU Friedrichshafen GmbH
D-88040 Friedrichshafen
Tel. (49)7541-90 0
Fax (49) 7541-90 5000
Liaison Offices:
Abu Dhabi
Tel. (97) 12-436 531
Fax (97) 12-436 650
Bangkok
Tel. (66) 2-260 6075
Fax (66) 2-260 6077
Buenos Aires
Tel. (54) 1-801 3585
Fax (54) 1-808 8702
Hanoi
Tel. (84) 88958 711
Fax (84) 88958 714
Hong Kong
Tel. (85) 2-2594 8876
Fax (85) 2-2594 8801
Kiev
Tel. (38) 044-271 7842/7887
Fax (38) 044-271 9443
London
Tel. (44) 171-839 8998
Fax (44) 171-839 9279
Madrid
Tel. (34) 1-322 6161
Fax (34) 1-322 6019
Rome
Tel. (39) 6-41898 405
Fax (39) 6-4121 9097/9088
Sydney/Melbourne
Tel. (61)39-566 9266
Fax (61) 39-566 9110
Tashkent
Tel. (7) 3712-406 374
Fax (7) 3712-406 674
Zagreb
Tel. (38) 5148-123 21
Fax (38) 5148-123 22
Corporate Representative Offices:
Bonn/Berlin
Bonn:
Tel. (49) 228-5404 100
Fax (49) 228-5404 109
Berlin:
Tel. (49) 30-2554 1810
Fax (49) 30-2554 1819
Brussels
Tel. (32) 2-23311 33
Fax (32) 2-23311 80
Jerusalem/Tel Aviv
Tel. (97) 22-56666 15
Fax (97) 22-56666 46
Cairo
Tel. (20) 2-5790 197/198
Fax (20) 2-5790 196
Mexico City
Tel. (52) 5-267 0106
Fax (52) 5-267 0105
Moscow
Tel. (7)501-926 4039
Fax (7) 501-926 4038
New Delhi
Tel. (91) 124-3473 12
Fax (91) 124-3473 13
Paris
Tel. (33) 1-538300 60
Fax (33) 1-538300 62
Beijing
Tel. (86) 10-6590 6680/6678
Fax (86) 10-6590 6683/6684
Pretoria
Tel. (27) 12-309 1503
Fax (27) 12-666 8191
Sao Paulo
Tel. (55) 11-758 7171/6611
Fax (55) 11-758 7118
Singapore
Tel. (65) 291 9385
Fax (65) 292 1817
Tokyo
Tel. (81)3-5572 7130
Fax (81) 3-5572 7127
Washington D.C.
Tel. (1)202-408 4900
Fax (1)202-408 4891
Publications for our shareholders:
Daimler-Benz Annual Report
(German, English and French)
Form 20-F
(English)
Daimler-Benz Aerospace (Dasa) Annual Report
(German and English)
Daimler-Benz InterServices (debis) Annual Report
(German and English)
Daimler-Benz Interim Reports for 1st, 2nd and 3rd quarters
(German, English and French)
Daimler-Benz Environmental Report
(German and English)
Disk with financial information
(English; editable MS EXCEL tables)
The financial statements of Daimler-Benz Aktiengesell-
schaft and the consolidated financial statements prepared
in accordance with German GAAP were audited by KPMG
Deutsche Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftspriifungsgesellschaft 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. The financial
statements may be obtained from Daimler-Benz free of
charge.
The above publications can be requested from:
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.
Balance Sheet Press Conference:
April 8, 1998
10:00 am
Kultur- und Kongreßzentrum (Congress Centre)
Stuttgart, Germany
Corporate Presentation to Analysts:
April 8, 1998
2:30 pm
Stuttgart-Mohringen
Annual General Meeting:
May 27, 1998
10:00 am
Hanns-Martin-Schleyer-Halle
Stuttgart, Germany
Half-Year Balance Sheet Press Conference:
July, 30, 1998
10:00 am
Frankfurt am Main
Corporate Presentation to Analysts:
July, 30 1998
2:00 pm
Frankfurt am Main
Daimler-Benz will be reporting on the first quarter of 1998
at the Balance Sheet Press Conference on April 8, 1998, on
the first six months with a semi-annual report published on
July 30, 1998, and on the first nine months at the end of
October 1998.
Investor Relations:
Tel: (49) 711-17 92197, 17 92283 or 17 92261
Fax: (49) 711-17 94109 or 17 95235
Conception and content:
Daimler-Benz AG, RK/B
Design:
Daimler-Benz AG, K/D, BS/M
This report has been printed on environment friendly paper
bleached without the use of chlorine.
Daimler-Benz AG
D-70546 Stuttgart
http://www.daimler-benz.com