Merger of Growth
Annual Report 1998
DaimlerChrysler
Amounts in Millions
Revenues
Europe
United States
Other markets
Employees (at Year-End)
98
DM 1)
98
US $ 2)
98
€
97
€
96
€
257,744
154,615
131,782
117,572
101,415
94,794
56,868
48,468
42,115
37,270
127,716
76,616
65,300
56,615
49,485
35,234
21,136
18,014
18,842
14,660
441,502
425,649
418,811
Research and Development Costs
13,090
7,853
6,693
6,501
5,751
Investments in Property, Plant and Equipment
15,950
9,568
8,155
8,051
6,721
Cash Provided by Operating Activities
32,625
19,571
16,681
12,337
9,956
Operating Profit
Net Operating Income
Net Income
Per Share
Net Income Adjusted 4)
Per Share Adjusted 4)
Total dividend
Dividend per Share
16,807
10,082
8,593
6,230
6,212
12,862
7,716
6,576
5.252
-
9,428
5,656
4,820
4,057 3)
4,022
10.09
6.05
5.16
4.28 3)
4.24
10,212
6,126
5,221
4,057
10.90
6.55
5.58
4.28
4,608
2,764
2,356
4.60
2.76
2.35
-
-
-
-
-
-
1) Conversion rate: € 1 = DM 1.95583
2) Rate of exchange: € 1 = US $ 1.1733
(based on the noon buying rate on Dec. 31, 1998 of US $1 = DM 1.6670 and the conversion rate of € 1 = DM 1.95583);
the average US $/DM rate of exchange in 1998 was 1.7597.
3) Excluding one time positive tax effects, especially special pay-out of € 10.23 (DM 20) per share.
4) Excluding nonrecurring items: 1998 before merger costs; 1997 excluding one-time positive tax effects,
especially special payout of € 10.23 (DM 20) per share.
PASSENGER CARS
Mercedes-Benz
smart ®
Amounts in Millions
98
US $
98
€
97
€
Percentage of Sales
Operating Profit
2,338
1,993
1,716
Revenues *)
38,234
32,587
27,555
Investments in Property,
Plant and Equipment
R&D
Unit Sales
Employees (12/31)
2,341
1,995
1,885
2,264
1,930
1,583
922,795
715,055
95,158
91,753
PASSENGER CARS & TRUCKS
Chrysler
Plymouth
Jeep®
Dodge
Amounts in Millions
98
US $
98
€
97
€
Operating Profit
4,942
4,212
3,368
Revenues *)
66,101
56,340
51,942
Investments in Property,
Plant and Equipment
R&D
Unit Sales
Employees (12/31)
4,599
3,920
4,501
1,989
1,695
1,512
3,093,716
2,886,981
123,180
118,639
COMMERCIAL VEHICLES
Mercedes-Benz
Freightliner
Sterling
Setra
* Unconsolidated figures of the business.
Amounts in Millions
98
US $
98
€
97
€
Operating Profit
1,110
946
342
Revenues *)
27,175
23,162
20,012
Investments in Property,
Plant and Equipment
R&D
Unit Sales
Employees (12/31)
976
832
601
837
714
602
489,680
417,384
89,711
85,071
A-Class
C-Class, CLK, SLK
E-Class
S-Class/SL
M-Class/G-Class
smart
Passenger Cars
Trucks
Minivans
Sport-Utility Vehicles
Vans
Light and Medium
Duty Trucks/Unimogs
Heavy Duty Trucks
Buses
15%
42%
28%
6%
7%
2%
31%
23%
22%
24%
44%
20%
29%
7%
CHRYSLER FINANCIAL
SERVICES
Amounts in Millions
Operating Profit
Revenues *)
Employees (12/31)
98
US $
98
€
97
€
765
652
586
3,376
2,877
2,407
3,513
3,405
SERVICES
Financial Services
IT Services
Telecom Services
Amounts in Millions
Operating Profit
Revenues *)
Investments in Property,
Plant and Equipment
98
US $
98
€
97
€
460
392
246
11,232
9,573
7,924
334
285
193
Employees (12/31)
20,221
14,898
AEROSPACE
Commercial Aircraft
Military Aircraft
Space Systems Infrastructure
Satellites
Defense and Civil Systems
Aeroengines
Amounts in Millions
Operating Profit
Revenues *)
Investments in Property,
Plant and Equipment
R&D
Employees (12/31)
98
US $
98
€
97
€
731
623
284
10,290
8,770
7,816
382
326
255
2,402
2,047
2,233
45,858
43,521
OTHERS
Amounts in Millions
98
US $
98
€
97
€
Operating Profit
(171)
(146)
(225)
Revenues *)
4,019
3,426
3,896
Investments in Property,
Plant and Equipment
R&D
Employees (12/31)
935
797
635
360
307
571
32,581
37,844
O U R P U R P O S E
is to be a global provider of automotive and transportation
products and services, generating superior value for our customers,
our employees and our shareholders.
O U R M I S S I O N
is to integrate two great companies to become a world enterprise
that by 2001 is the most successful and respected automotive and
C O N T
E N T S
transportation products and services provider.
We will accomplish this by constantly delighting our customers with
the quality and innovation of our products and services, resulting from
the exellence of our processes, our people and our unique portfolio
of strong brands.
Consolidated Revenues
in Billions of g
Operating Profit
in Billions of g
Earnings per Share*)
in €
150
125
100
75
50
10
8
6
4
2
6
5
4
3
2
96
97
98
96
97
98
96
97
98
*) Adjusted for non-recurring items.
Chairmen's Letter 2
Board of Management 8
The Merger 10
People of DaimlerChrysler 12
Brands and Products 14
Business Review 18
The DaimlerChrysler Shares 22
Outlook 24
Operating Activities 26
DaimlerChrysler Worldwide 48
Research and Technology 50
DaimlerChrysler and the Environment 52
Human Resources 54
Analysis of the Financial Situation 56
Financial Statements 66
Supervisory Board 112
Report of the Supervisory Board 114
Major Subsidiaries 116
Five-Year Summary 118
Addresses/Information 119
fds
6
5
4
3
2
1
96
97
98
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Dear Shareholders and Employees:
1998 was a historic year. A year all of us will remember.
It saw the creation of DaimlerChrysler – a new company formed from a merger which was
completed in record time and with the overwhelming support of you, our shareholders and our
employees. A new company with a proud combined heritage, with unparalleled products and
brands, and with extraordinary opportunities that neither Daimler-Benz nor Chrysler alone
could have dreamed of.
A GREAT START. The people of DaimlerChrysler have made a great start in turning this potential
into performance.
In 1998:
(cid:2) Revenues grew to € 131.8 billion (US $146.5 billion), up 12 % compared to combined 1997
results.
(cid:2) Operating profits increased to € 8.6 billion (US $9.6 billion), up 38 %.
(cid:2) Net income, excluding extraordinary one-time costs related to the merger, grew to € 5.2
billion (US $6.1 billion), up 29 %.
(cid:2) Earnings per share grew by 30 % to € 5.58 (US $6.55), again excluding extraordinary one-
time costs related to the merger.
(cid:2) We sold more than 4.4 million cars, light trucks and commercial vehicles, and gained market
share in virtually every market in which we operate – despite intense competition.
(cid:2) DaimlerChrysler Services (debis) achieved record results and further strengthened its
competitive position.
(cid:2) DaimlerChrysler Aerospace (Dasa) had its best year ever.
(cid:2) As a result of our strong performance, DaimlerChrysler created 19,000 new jobs.
These results are a tribute to the hard work and dedication of our people. They show that all of
us kept our eye on the ball, despite the extra work involved in the merger.
With what we have achieved so far, with the way in which we are bringing the two companies
together, with our exciting plans for the future: DaimlerChrysler is in pole position to deliver
extraordinary value to our customers, our shareholders and our employees in the years ahead.
DELIVERING VALUE. Our proposal to declare a dividend of € 2.35 per share, reflects our
commitment to shareholder value. For former Chrysler shareholders, this represents a
continuation of the high dividend levels of recent years. For former Daimler-Benz shareholders,
it is a significantly better return than in the past.
Also, we are the first company in the world to introduce a “global share,” which is traded as a
registered share – without the need for depository receipts – on 21 stock exchanges worldwide.
We were one of the first companies to adopt the new European currency, the euro, as our
corporate currency. By moving early, we already reap competitive benefits from this change.
And this annual report is one of the first ever to report in euro.
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We initiated a public offering of more than 20 % of our mobile communication service provider,
debitel; and we are taking full control of Adtranz, our rail systems business, in order to turn the
company around.
Most importantly, we are now adopting a tough new yardstick for evaluating the performance of
each of our business units compared to our cost of capital – return on net assets, or “RONA”.
We established a minimum target of 15.5 % RONA before tax. However, we push each business to
do much better and achieve returns that match or exceed those of their best competitors’.
At corporate level, taking into account items like financing and taxes, we earn our cost of capital
when we achieve at least 9.2 % RONA after tax. In 1998, the stellar performance of our
businesses returned 11.6 % RONA after tax at corporate level, compared to 10.2 % in 1997.
Robert J. Eaton
Jürgen E. Schrempp
CREATING THE NEW COMPANY. We aim to be truly one company – the world's leading
automotive and transportation products and services company.
Already, we are on our way.
In just the first 100 days of your company, we made great strides in bringing together all key
organizational functions so that our people can focus immediately on building the new company.
We combined:
(cid:2) our procurement functions – the first step toward leveraging our combined annual purchasing
power of € 80 billion (US $94 billion);
(cid:2) our sales and marketing organization – to maximize the strength and reach of our products;
(cid:2) almost all of our staff functions, including quality assurance, corporate finance, legal,
communications, and our information technology departments, which have been combined
under one Chief Information Officer;
(cid:2) our worldwide executive management development – to rapidly align performance evaluation
and career planning;
(cid:2) our research and development activities for diesel engines, electric vehicles and fuel cell
vehicles into single dedicated teams – combining expertise and eliminating overlap;
(cid:2) our financial services businesses – making DaimlerChrysler Services (debis) the world’s
fourth largest non-bank financial services company with € 70 billion (US $82 billion) in
assets.
All told, we are well on track to delivering our “synergy” target of € 1.3 billion (US $1.4 billion)
in bottom-line profit improvement for 1999.
But for us integration is much more than just combining org charts. It's about bringing people
together – in a way to really make this new company greater than the sum of its parts.
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Right now, all across the world, people in DaimlerChrysler are working together to find new
ways of doing things. No longer doing them in “the Chrysler way” or “the Daimler-Benz way”,
but shaping new solutions based on the strength of the diverse views and experiences that have
made them so successful in the past.
This is not always easy, and discussions sometimes get quite heated. But new and better
“DaimlerChrysler ways” of doing things are emerging. Because the best ideas often germinate in
the warm soil of constructive conflict.
Of course, integrating two highly successful organizations is quite a challenge. To meet this
challenge, we have set up an integration process that brings together key people in functional
and cross-functional teams. Their task is to explore an ever increasing number of integration
opportunities – currently around 100 major areas with nearly 1,300 subprojects – and then to
quickly implement action plans. The teams report directly to us and the other DaimlerChrysler
executives who make up the Chairmen’s Integration Council. Built into this process is a sense of
urgency and a high degree of accountability.
From the outset, the teams agreed on some simple guiding principles. The best value-creating
ideas get priority. The people who can implement solutions must be involved. Put pragmatism
before perfectionism – better to be 80 % right now, than 100% too late. Rapid implementation of
agreed solutions. “Lessons learned” are captured and shared across the company.
This integration process acts like a catalyst within DaimlerChrysler – creating a new culture
with new ways of thinking and interacting with one another. We can already see it happening.
There is excitement. There is real commitment to achieving success. Close professional and
personal relationships are being forged. Breakthroughs are happening every day.
For instance, we saw this spirit in action recently when close to 100 specialists revamped a
plant in Graz, Austria, where we had already been building the Jeep® Grand Cherokee. Strong
demand in Europe brought the opportunity to add capacity for our Mercedes-Benz M-Class.
To maximize efficiencies, one group wanted to build both vehicles on the same production line.
Another group wanted separate plants to keep the Jeep® and Mercedes-Benz brands as separate
as possible. After some initially tense exchanges, they came up with a win-win solution – same
plant, separate production lines – that will enable the plant to deliver an additional 30,000
Mercedes-Benz M-Classes annually to European markets starting in the summer of 1999. As a
result, we will achieve bottom-line benefits worth € 280 million (US $330 million).
From this cross-fertilization of ideas between our European and North American plants, we will
also save money and improve quality in our new Jeep® facility that is currently under
construction in Toledo, Ohio.
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In sales and marketing, we launched a major initiative to further enhance brand image while
eliminating overlap in back office functions and logistics. For instance, we will cut advertising
costs by focusing our global media buying on fewer agencies. And we are jointly harnessing
cutting-edge information to enhance our customer relationship management and dealer
communication systems.
This process of coming together as one is already paying off. It is opening up new opportunities
and creating a platform from which we will drive forward.
OPPORTUNITIES FOR GROWTH. Going forward, your company enjoys some impressive
opportunities. In the past, in order to recoup our investment, we had to pass on to competitors
the innovative and world-leading technologies developed by Mercedes-Benz. Now we can keep
these innovations in the family and use them to our distinct competitive advantage to enhance
our own products and brands.
Through our joint venture with Ballard of Canada, we lead the world in fuel cell technology. We
are working flat out with the goal of being the first to put an attractive and viable range of fuel
cell vehicles into the market. As the next step in the development of our Jeep® Commander
sports utility vehicle concept, for example, we plan to incorporate the fuel cell technology from
the world’s first methanol-powered fuel cell car, developed by Mercedes-Benz.
We are well positioned to increase market share in North America by breaking into new market
segments. We intend to grow in Europe by expanding sales of Chrysler and Jeep® products with
the support of our extensive Mercedes-Benz distribution network. We are also laying the
groundwork in Asia, Latin America and other emerging markets, so as to be ready to expand
when they recover. And in commercial vehicles, our teams have already identified a number of
exciting, all-new product opportunities.
New opportunities are also opening up in our other businesses as well. Through
DaimlerChrysler Services (debis), we are focusing on global growth in financial services,
IT services and telecommunications. The combined strengths of our financial services will give
us a formidable competitive platform, particularly in North America. We also expect to grow
by applying our combined financial expertise across the full range of transportation products.
And through DaimlerChrysler Aerospace (Dasa), we will continue to build on our excellent
international position through our involvement, for example, in Airbus commercial aircraft, in
military aircraft and in space technologies. DaimlerChrysler Aerospace will clearly be a major
player in European and global consolidation.
THE KIND OF COMPANY WE WANT TO BE. In the future, we will be operating in a whole new
competitive landscape – dominated by increasingly global multibrand automotive companies.
In this environment, what will make DaimlerChrysler special?
Let us tell you what kind of company we want DaimlerChrysler to be.
A PASSION FOR CREATIVITY. Above all, we will preserve, nurture and build upon the spirit that
runs like a golden thread through everything we do – a spirit of adventure, a spirit of creativity,
a relentless pursuit of quality, and an all-pervading sense of urgency. Every day we realize more
and more that wherever we are in the world, we speak the same language: the language of
passion – to design, build and sell great products that customers love.
Look at our upcoming new Chrysler PT Cruiser. Its fun, groundbreaking design promises to
carve out a whole new niche for us in North America and, possibly, in Europe.
Or at our new Mercedes-Benz S-Class. With its elegant lines and breakthrough innovations, it is
redefining the premium car market worldwide and setting new standards in automotive
technology.
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The same passion that drove the development of these cars inspires innovation in all areas of
our business – from research to design, through engineering and manufacturing, to the way we
serve our customers. As a result, 80 % of our revenues now come from products introduced in
the last five years.
And that’s just the start. Over the next three years we plan to invest more than € 46 billion
(US $54 billion) to develop new technologies and new products and to bring them to market.
With each product, we aim to push the envelope further. And each will be evidence of the
passion and creativity we bring to our products.
KNOWLEDGE THAT EMPOWERS US. A passion for creativity is one key to unlock innovations.
Knowledge is the other. We want DaimlerChrysler to be a company that uses everything we
know as a force for competitive advantage. Because we believe that our combined experience
and know-how on both sides of the Atlantic and all around the world can lift us above the crowd.
So we will invest heavily – time, energy, and money – to bring people together. This is
particularly important in the beginning when people meeting face-to-face is so crucial to
building understanding and to sharing creative ideas.
We are making our knowledge available on-line, “real-time” everywhere, for example through
our Corporate University, through dedicated training of our employees, through Business TV
channel and through the use of cutting-edge IT-networks. So our people can benefit from each
others’ experience – no matter where they are in the world.
We will encourage our people always to look for new ideas, wherever they may be found.
And in turn to share their own ideas openly with others in the company.
Already this is happening. For example: We are currently looking at bringing an innovative paint
technique developed in our German auto plants to America, where we could achieve significant
cost savings and environmental benefits. And we believe that by sharing the experiences and
lessons learned from many successful product introductions in recent years, we will be able to
get new models into the marketplace faster and start earning a return on them sooner.
SPEED GIVES US THE EDGE. At DaimlerChrysler, we will be relentless about speed.
Our achievements in the past on both sides of the Atlantic have shown that speed is of the
essence for competitive advantage. If we want to expand our customer base and increase
margins we have to keep our brand and product range constantly up to date and bring
innovative, high quality products to the market faster than our competitors. It is not enough to
be passionate and innovative, we must also be swift.
Take the Dodge Durango, which went from concept to production in just 23 months, creating a
whole new niche. Or our Airbus aircraft team in Hamburg, Germany, which, together with its
partners in the Airbus consortium, has in less than three years reduced the manufacturing time
of an aircraft from eighteen months to eight – doubling output. In both cases, the rewards were
extraordinary.
Moving fast, we will introduce no fewer than 34 new cars, light trucks and commercial vehicles
over the next three years, and many new products in services, aerospace, rail systems and
diesel engines.
BEING TRULY GLOBAL. We want to meet and exceed the expectations of our customers wherever
they are – with products designed especially for them.
To do this we have to be a truly global company. Integrate our worldwide design, engineering
and production networks. Access global capital markets. Exploit global technologies. And
harness global communications. At the same time, we have to be local and put down roots in key
markets around the world. In each case, we will bring to bear a combination of skills,
experience, technologies and financial and management resources with a unique local focus.
Already we count as “domestic” half the world market for our products. We are at home in more
than 200 countries. From our strong position in North America and Europe, we plan over time to
expand in Asia, in Latin America and in other developing markets.
One of the prerequisites is to add to our core of skilled global managers and experts from all
around the world, who are equally at ease doing business wherever we operate. And we want
all our people wherever they are to be as global in their outlook as their company. In building
such a global culture, we will increasingly use our Corporate University.
Wherever we operate we will be socially and environmentally responsible and we will contribute
in meaningful ways to the communities we serve. In many cases, we will invest, stimulate local
industries, and create jobs.
This will not detract from our bottom line commitment. Only as a profitable company can we
make a real difference. And, over time, only a responsible approach to our global environment
will ensure long-term profitability.
BUILDING DAIMLERCHRYSLER. Your company has made a great start. We are coming
together as one. The next few years may not be easy, and there may be pitfalls on the way.
But DaimlerChrysler has tremendous opportunities and a clear vision that will set us apart.
And most of all, we have passionate and inspired people with the spirit and the dedication to
make DaimlerChrysler truly extraordinary.
November 17, 1998, saw the birth of DaimlerChrysler – a child with extraordinary genes and
extraordinary potential. It has been said that there are only two things we can give our children:
one is roots, the other is wings. DaimlerChrysler has roots that are the envy of our industry.
Our people are giving it wings.
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The Board of Management
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R O B E R T J . E A T O N
J Ü R G E N E . S C H R E M P P
Chairman
Appointed until 2001
Chairman
Appointed until 2003
MANFRED BISCHOFF
ECKHARD CORDES
THEODOR R.
Aerospace & Industrial
Corporate Development
CUNNINGHAM
Non-Automotive
& IT-Management (incl.
Sales and Marketing Latin
Appointed until 2003
responsibility for MTU
America (all automotive
Diesel Engines and
brands) and Chrysler
Automotive Electronics)
Truck Operations
Appointed until 2003
Appointed until 2003
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THOMAS C. GALE
MANFRED GENTZ
JAMES P. HOLDEN
JÜRGEN HUBBERT
KURT J. LAUK
KLAUS MANGOLD
Product Strategy, Design
Finance and Controlling,
Brand Management
Passenger Cars Mercedes-
Commercial Vehicles
Services
and Passenger Car
Appointed until 2003
Chrysler, Plymouth, Jeep
Benz & smart
& Brand Management
Appointed until 2003
Operations Chrysler,
Plymouth, Jeep and
Dodge
Appointed until 2003
and Dodge & Sales and
Appointed until 2003
Commercial Vehicles
Marketing North America
(all automotive brands) &
Minivan Operations
Appointed until 2003
Appointed until 2003
THOMAS W. SIDLIK
THOMAS T.
HEINER TROPITZSCH
GARY C. VALADE
KLAUS-DIETER
DIETER ZETSCHE
Procurement & Supply
STALLKAMP
Human Resources &
Global Procurement
VOEHRINGER
Brand Management
for the Chrysler,
Passenger Cars & Trucks
Labor Relations Director
and Supply
Research & Technology
Mercedes-Benz and
Plymouth, Jeep and
Chrysler, Plymouth, Jeep
Appointed until 2003
Appointed until 2003
Appointed until 2003
smart & Sales and
Dodge brands & Jeep
and Dodge
Operations
Appointed until 2003
Appointed until 2003
Marketing Europe,
Asia, Africa, Australia/
Pacific (all automotive
brands)
Appointed until 2003
O N M A Y 7, 1 9 9 8 , the news broke that Daimler-
Benz and Chrysler were about to undertake the
biggest merger in the history of the automotive
industry.
Only five months before this historic announcement,
the CEOs of Chrysler and Daimler-Benz, Bob Eaton
and Jürgen Schrempp, met on the occasion of the
North American International Auto Show in Detroit
and privately discussed a common future for
their two companies. Soon it became clear that the
company leaders were captivated by a common idea:
two strong partners with complementary product
ranges would join together and achieve significant
synergy gains even in the medium term.
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The Merger
Completed within less than 200 working days
J A N U A R Y 1 2 , 1 9 9 8
Jürgen E. Schrempp, Chairman of the Daimler-
Benz Management Board, in Detroit for North
American International Auto Show, visits
Robert J. Eaton, Chairman and Chief
M A Y 6 , 1 9 9 8
Executive Officer of Chrysler Corporation, to
Merger agreement signed in London
suggest discussion of possible merger
J U N E 1 6 - 1 8 , 1 9 9 8
Daimler-Benz management team visits
Auburn Hills
M A R C H - A P R I L 1 9 9 8
Working teams prepare possible business
M A Y 7, 1 9 9 8
combination in detail
Merger agreement announced worldwide:
J U N E 2 5 , 1 9 9 8
Chrysler management team visits
Stuttgart
Daimler-Benz and Chrysler combine to form
M A I 1 4 , 1 9 9 8
the world’s leading automotive, transportation
Daimler-Benz Supervisory Board
and services company
agrees to merger
Soon after the May 7 press conference in London
had drawn the worldwide attention to DaimlerChrysler,
the real work began: members of the executive teams
of both companies met in Auburn Hills and Stuttgart
to set plans for the merger in motion, discuss stra-
tegies and synergies and install the so-called PMI
(post-merger integration) phase. During this time,
numerous measures were taken to communicate the
company’s philosophy and make its goals known to
the public and, even more importantly, to the share-
holders and more than 440,000 employees
worldwide.
In just 10 months, DaimlerChrysler was created.
Now the integration process is proceeding as a
global company comes into being. Most of the
major tasks arising from the integration are to be
completed by employees on both sides of the
Atlantic within two to three years. The Post-Merger
Integration Team has the task of coordinating this
process.
A U G U S T 2 7 / 2 8 , 1 9 9 8
Daimler-Benz and Chrysler management
teams meet in Greenbrier, West Virginia, to
prepare the merger
N O V E M B E R 17, 1 9 9 8
DayOne: DaimlerChrysler stock begins
trading on stock exchanges worldwide
under symbol DCX
A U G U S T 6 , 1 9 9 8
S E P T E M B E R 1 8 , 1 9 9 8
Chrysler shareholders approve merger with
97.5 % approval. Daimler-Benz shareholders
D E C E M B E R 2 1 , 1 9 9 8
Merger of Daimler-Benz
Announcement that DaimlerChrysler shares
approve merger with 99.9 % approval
N O V E M B E R 9 , 1 9 9 8
with DaimlerChrysler registered
will trade as “global stock” rather than
American Depositary Receipts (ADRs)
Merger Report published
Daimler-Benz receives 98 % of stock in
exchange offer
People of
DaimlerChrysler
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With more than 440,000 committed employees,
DaimlerChrysler is a partnership of talented and
creative people who have one thing in common:
A passion for designing and manufacturing outstanding
products and for providing excellent services.
Now it is important to bring together the people of
DaimlerChrysler and their ideas – an exchange at all
levels. Four examples – as representatives of many
more – illustrate this.
Jim Donlon and Jürgen Walker are the first top mana-
gers at DaimlerChrysler to move over to the central
offices on the other side of the Atlantic at the begin-
ning of 1999: Walker’s new office is in Auburn Hills,
while Donlon has set up office in Möhringen.
Jim Donlon has already had extremely good experience
with German: After all, he met his wife in a German
course in college. Now both are having an opportunity
to apply in practice what they learned back then; since
February 1, 1999, Donlon is head of world-wide Group
Controlling, based in Stuttgart. The former chief con-
troller from Auburn Hills intends to work together with
his new colleagues to combine the best ideas from Ger-
many and America, and is looking forward to the assign-
ment: “If we can merge the outstanding capabilities
of our people, then I am firmly convinced that nothing
can stop us. We have the potential to become one of the
best companies in the world, if not the very best.”
Jürgen Walker, now responsible for financial controlling
in Auburn Hills, became familiar with the success of
the former Chrysler Corporation three years ago, as the
head of Business Management and Controlling Passen-
ger Cars, in connection with a benchmarking project.
Even then, the two companies were already the most
profitable companies in the passenger car business.
“The success models of the two companies were diffe-
rent, but both led to top results,” Walker observes. He is
enthusiastic about the open working atmosphere in his
new venue in Auburn Hills. “The willingness to accept
new conditions, subject areas and challenges is remark-
able. This attitude will guarantee our success over the
long term.”
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team goes about its work: “The collaboration with my
colleagues from Auburn Hills is excellent. Despite the
differences in the way we work, we have succeeded in
covering new ground and have achieved results together
that no longer beg the question whether the German
or the American approach is better, but which ask what
is the best solution to guarantee quick success. An
essential factor in this is ‘speed’, one of the new values
arising from the DaimlerChrysler Vision.”
And William E. Burrell, an organization development
consultant on the American side of the “Vision Roll-
Out”, is fascinated by the new task: “The integration of
the cultures is a success factor for the merger – we have
recognized that and are operating accordingly,” he says.
Along with the transatlantic videoconferences and more
frequent trips to Stuttgart Burrell reads and writes “mas-
ses of eMails”. For him, working in the PMI team is a
new challenge: “Never before have two such successful
companies been involved in a merger, and it is a transat-
lantic one, too, There are no role-models for this kind of
work – that is what makes it so interesting.“ He also sees
his job as a contribution to mutual familiarization. “The
point is not to make everything the same, but to come to
a common understanding on the part of everyone on the
staff about the future of DaimlerChrysler. If we preserve
our strengths, but at the same time are open to new
approaches and ideas - then the success of Daimler-
Chrysler will be guaranteed.”
In the Post-Merger Integration teams, experts from
Stuttgart and Auburn Hills are pushing hard to advance
the merger. Questions about product strategy, purcha-
sing and sales are on the list, along with the integration
of the company cultures. Stephanie Dickes from Stutt-
gart and William E. Burrell from Auburn Hills are wor-
king together on the topic of “Vision Roll-Out”: How is
the vision of DaimlerChrysler to be made transparent for
all employees?
Stephanie Dickes is a consultant in the Management
Consulting area of DaimlerChrysler AG and her work
entails implementing the corporation’s strategic goals.
She therefore sees as decisive for Vision Rollout the fact
that the process relates the goals and values of the new
corporation to the concrete strategic requirements of its
divisions: “Pure communication without regard to soft
facts and behavior would be too little here. Vision Roll-
out serves to promote integration within the company,”
she says. She is enthusiastic about the way the PMI
S M A R T With the smart city coupe, DaimlerChrysler is
establishing a new brand with innovative technology in
a new market segment. The smart is the intelligent and
future-oriented response to urban transport require-
ments, optimum use of resources and integrated traffic
concepts. The smart brand represents a highly individu-
alistic and unusual product that makes a statement
through its technical expertise and design concept.
With an exterior length of only 2.5 meters (8 feet,
2 inches), the smart needs minimum road space, yet
gives two occupants a high degree of safety and the
spacious feel of a large sedan. The smart is produced in
a completely new industrial park in Hambach, France.
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M E R C E D E S - B E N Z Around the world, the Mercedes
star is the symbol for automobiles of the highest quality
and safety. The reputation of Mercedes-Benz cars and
their proverbial values are the result of more than 110
years experience of automobile making. Diesel-engine
passenger cars, crash crumple zones, power steering,
antilock brakes and the Electronic Stability Program
(ESP) are among the trailblazing developments to
hit the street first in a car with the star. Today, a wider
range than ever is offered in 190 countries under the
Mercedes-Benz brand.
The latest members of the family are the M-Class
sport-utility vehicle, the successful off-roader with
typical Mercedes road qualities, and the innovative
A-Class with its revolutionary space and safety concept.
Mercedes-Benz is demonstrating with the new S-Class
not only the capability to produce innovative and
technically brilliant products, but also elegance and
dynamism.
Brands & Products
J E E P ® Jeep, which got its start as a military vehicle, is
one of the most widely recognized brands in the world.
Today, Jeep vehicles have continued to define the sporty
and versatile side of the sport-utility segment world-
wide. The all-new 1999 Jeep Grand Cherokee is the flag-
ship of the brand, with new levels of technology inno-
vation, on-road ride and handling, four-wheel-drive
leadership, refinement and style.
D O D G E Dodge covers a wide range of cars, minivans,
sport-utility vehicles and trucks. Common to all is the
bold styling of the distinctive grille -- the design signa-
ture for a brand that continues to enjoy great success in
the marketplace. New momentum for the Dodge brand
began in 1992 with the introduction of the Viper and
the Intrepid. The successful development of the Dodge
brand continues. In the past five years, Dodge retail
sales have doubled.
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C H R Y S L E R Be it a sedan, coupe, convertible or mini-
van, the Chrysler brand’s focus is to provide upscale
products that deliver expressive, leading-edge design,
fine-tuned athletic handling and performance and refi-
ned function that benefits the customer and embodies a
passion for engineering. Every year since 1992 there
has been a major product introduction for the Chrysler
brand. With the introduction of the all-new 1999 Chrys-
ler 300M, LHS and Concorde, Chrysler offers a complete
portfolio of cars and minivans that fit the brand’s image
and appeal.
P L Y M O U T H In North America, DaimlerChrysler’s
Plymouth brand combines contemporary styling, mean-
ingful innovation and value in versatile products that
provide a confident and fun driving experience. Besides
the head-turning Prowler roadster, the Plymouth brand
covers the breadth of the affordable portion of the mar-
ket in three key segments: compact, sedan and minivan.
Brands & Products
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T H E C O M M E R C I A L V E H I C L E S A N D B U S E S O F T H E
M E R C E D E S - B E N Z , S E T R A , F R E I G H T L I N E R A N D
S T E R L I N G B R A N D S In the market for commercial
vehicles and buses, DaimlerChrysler is active worldwide
with four brands: Mercedes-Benz, Setra, Freightliner
and Sterling. The company is a market leader in Europe,
North America and Latin America. In the segments for
trucks over six tons and buses over eight tons, Daimler-
Chrysler is number one in the world.
DaimlerChrysler produces locally built and developed
products in the Asia-Pacific region, which represents
the world’s largest market for commercial vehicles. It is
also the market with the greatest potential in the
coming years.
Together with its commercial vehicle brands, Daimler-
Chrysler also manufactures a full range of components,
including complete powertrains.
DaimlerChrysler is represented in the European market
for commercial vehicles by the Mercedes-Benz brand,
and for buses by Mercedes-Benz and Setra.
The range of vehicles extends from vans of two tons and
above to buses, commercial vehicles and heavy-duty
trucks. The current strategy envisages the addition of a
city delivery vehicle -- a move that would make Daimler-
Chrysler a genuine full-line supplier within Europe.
Freightliner Corporation is number one in North Ameri-
ca for heavy-duty trucks. The company is based in Port-
land, Oregon, and manufactures commercial vehicles at
locations in the United States, Canada and Mexico. In
addition, DaimlerChrysler also manufactures trucks for
use in delivery, construction and long-distance hauling
under the brand name Sterling.
D A I M L E R C H R Y S L E R S E R V I C E S With headquarters
in Berlin, DaimlerChrysler Services AG (debis) has its
main activities in the business units Financial Services,
IT Services and Telecom.
By combining the Chrysler Financial Company L.L.C.
and debis financial activities DaimlerChrysler Services
is now the world´s fourth-largest provider of financial
services outside the banking and insurance sector.
Through the continuous improvement of existing
business concepts and the development of new ones,
DaimlerChrysler Services is strengthening its market
position further with a strategy of internationalization.
All business units are penetrating new markets
worldwide.
D A I M L E R C H R Y S L E R A E R O S P A C E Today, Dasa is the
largest German aerospace company and a major Europe-
an and international partner. Worldwide the company’s
employees work in business units such as military air-
craft, helicopters, aeroengines, space systems infrastruc-
ture, space systems satellites and defense electronics.
The Civil Aircraft business is the largest unit in
the division. Operating under the name of Daimler-
Chrysler Aerospace Airbus GmbH, it is responsible for
all Airbus activities at Dasa, which has a 37.9% stake in
the European consortium Airbus Industrie, the world’s
second largest producer of commercial aircraft.
R A I L W A Y S Y S T E M S The product portfolio of Adtranz
ranges from electric and diesel locomotives, high-speed
trains to intercity and regional trains, trams and under-
ground trains, people movers, signal and traffic control
systems, fixed installations and infrastructure, as well
as servicing and maintenance. Adtranz is the world’s
largest provider of railway systems with marketing,
development and production locations in 60 countries
and branch offices in another 40 countries.
A U T O M O T I V E E L E C T R O N I C S TEMIC’s product range
covers the majority of automotive electronics applica-
tions. Among the technical advances that TEMIC has
developed is a new crash sensor and a distance control
system based on radar and infrared technology. TEMIC
has operations in Europe, North America and Asia. In
addition to TEMIC, DaimlerChrysler’s automotive elec-
tronics operations include the Huntsville Electronics
Plant in Alabama, which grew out of Chrysler’s
involvement in the U.S. space program. Today, at two
separate sites, Huntsville Electronics manufactures
components such as radios, instrument clusters and
controllers for the engine body, transmission and
transaxle.
D I E S E L E N G I N E S MTU Friedrichshafen and its sub-
sidiaries form the Diesel Engines business unit, which
ranks among the world’s leading manufacturers of
large diesel engines and complex drive systems.
When it comes to diesel engines, MTU takes over at a
power level where truck manufacturers top out. The
truck model series 500 is one example: MTU took this
engine and, in collaboration with U.S. partner Detroit
Diesel Corporation, used it as the basis to develop the
new model series 2000 and 4000 in 12- and 16-cylinder
versions. MTU has a leading postion in the market for
ship propulsion systems.
In the field of decentralized energy production, MTU
supplies emergency power systems designed to meet
the stringent safety standards required for offshore
drilling platforms, airports, data centers or nuclear
power plants.
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DaimlerChrysler was very successful in 1998. We further improved the earning power of the company: Operating profit rose by
€ 2.4 billion to € 8.6 billion and net operating income increased from € 5.3 billion to € 6.6 billion. Return on net assets (after taxes)
reached 11.6% (1997: 10.2%). Revenues increased by 12% to € 131.8 billion. Almost all business units contributed to this growth.
On the basis of this favorable earnings trend, we are proposing at our shareholders' meeting to declare a dividend of € 2.35 per share
for the 1998 financial year.
EARNING POWER INCREASED. DaimlerChrysler achieved an
operating profit of € 8.6 billion in 1998. This represents an
increase of 38% over the comparable figure of € 6.2 billion for
1997. The net operating income, the basis for calculating the
return on capital employed (after taxes) increased from € 5.3
billion to € 6.6 billion. This means that at 11.6% (1997: 10.2%)
we easily surpassed the minimum yield (9.2%) required to cover
capital costs and increase the value of the Group. Since we stan-
dardized the controlling instruments in the DaimlerChrysler
Group to conform with internal requirements and adjusted the
minimum return on investment to the corresponding trends in
the international capital markets, these values are not
comparable with the figures published by Daimler-Benz and
Chrysler in 1997.
Almost all divisions contributed to the rise in operating profit.
The growth in the Commercial Vehicles and Aerospace divisions
was especially pronounced. The vehicles business contributed
around 83% of the operating profit, while the other business
areas contributed 17%. (Page 56)
A €€€€€ 2.35 DIVIDEND PROPOSED. On the basis of the favorable
trend in earnings in the operating business, we are proposing to
our shareholders to declare a dividend of € 2.35 (DM 4.60) per
share for 1998. Former Daimler-Benz shareholders would
receive a substantially higher distribution than in the past,
while the dividend for former Chrysler shareholders would
remain at the high level of previous years.
SLOWER GROWTH OF THE WORLD ECONOMY. The trend in the
overall global economic environment was less favorable than
the trend of business at DaimlerChrysler. The world economy
grew by only 1.8% in 1998, after 3.4% in 1997. This represents
the lowest growth rate since 1982. The recession in Japan and
the economic and financial crisis in various newly industria-
lizing countries in Asia and in Russia were the main reasons.
The business conditions have also become noticeably unsettled
in South America as well, particularly in Brazil.
On the other hand, the overall economic situation in Western
Europe and in North America continued to be stable. The U.S.
economy, as in 1997, grew by 3.9%, supported by persistent
vigorous spending by consumers and by high levels of
investment activity. In Western Europe, economic performance
grew by 2.8%. The main impetus came from the countries in
which the euro was introduced on January 1, 1999. Another
driving factor in economic growth in Western Europe was
increasing domestic demand.
The international exchange rate structure was on average
relatively stable in 1998, despite certain fluctuations between
the dollar, yen and European currencies during the year. As a
result the impact of changes in exchange rates on the business
trend at DaimlerChrysler was smaller than in previous years.
Operating Profit
in Millions
98
US $
98
98
€
97
97
€
Consolidated Revenues
in Billions of €
DaimlerChrysler
10,082
8,593
6,230
Passenger Cars
(Mercedes-Benz, smart)
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
Chrysler Financial Services
Services
Aerospace
Others
2,338
1,993
1,716
4,942
4,212
3,368
1,110
946
342
765
460
731
652
392
623
586
246
284
(171)
(146)
(225)
125
100
75
50
25
96
97
98
Other Markets
U.S.A.
Europe
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REVENUES ROSE BY 12% TO € 131.8 BILLION. Despite the strained
situation of the world economy, DaimlerChrysler was able to
increase revenues by 12% to € 131.8 billion.
Revenue growth in the United States (+ 15% to € 65.3 billion)
and in the European Union outside Germany (+ 26% to € 20.3
billion) was especially strong. In Germany, our revenues rose
by 19% to € 24,9 billion. With a total of € 21.2 billion, our
business volume almost reached the level of 1997 in the other
markets, despite the unfavorable economic trends in Japan,
Russia and many newly industrializing countries.
Overall, 83% of our revenues were earned in the vehicles
business. The Services contributed 6% and the Aerospace
Division 7%.
STRONG GROWTH IN ALL DIVISIONS. Almost all of our business
units contributed an increase of revenues with double-digit
rates of growth.
Revenues in the automotive business reached € 112.1 billion,
exceeding the 1997 level by 13%. Overall, DaimlerChrysler
sold more than 4.4 (1997: 4.0) million passenger cars and
commercial vehicles in 1998. This total included 3.1 (1997: 2.9)
million vehicles of the Chrysler, Plymouth, Jeep and Dodge
brands; 923,000 (1997: 715,000) passenger cars of the
Mercedes-Benz and smart brands; and 490,000 (1997: 417,000)
commercial vehicles of the Mercedes-Benz, Freightliner,
Sterling and Setra brands.
Sales of Mercedes-Benz passenger cars increased in all
important markets, with the exception of Asia. The new S-Class,
which was unveiled in October 1998, underscores our leading
position in the top segment of the market. With our new smart
city coupe, we are offering our customers not only an entirely
new automobile, but also a new concept of mobility. (Page 26)
Sales of Chrysler, Plymouth, Jeep and Dodge vehicles rose by
7% to 3,094,000 passenger and light-utility vehicles. We
continued to improve our position in the North American
market. Sport-utility vehicles, pickups and minivans continued
to be especially successful. Among the new product highlights
of 1998 were the Chrysler 300M, the Jeep Grand Cherokee
and the new compact Dodge and Plymouth Neon. The Chrysler
Financial Services Division, whose main priority is to
offer financial services to customers and dealers of the Chrysler,
Plymouth, Jeep and Dodge brands, also was able to further
expand its business. (Page 30)
The Commercial Vehicles Division, with its Mercedes-Benz,
Freightliner, Sterling and Setra brands, continued its profitable
growth in 1998. Revenues, sales and production reached all-
time highs. Business developed especially well in North
America where Sterling, a new truck brand, got off to an
excellent start. (Page 36)
The dynamic growth of DaimlerChrysler Services continued for
the ninth year in a row. The Financial Services,
IT Services and Telecom Services business units sharply
increased their business volumes. Overall revenues rose
by 21% to € 9.6 billion. (Page 42)
Revenues in the Aerospace Division increased by 12 % to € 8.8
billion and incoming orders also reached a record level with
€ 13.9 (1997: 9.9) billion. Above all, the Commercial Aircraft unit
contributed the bulk of the growth in this division, due to the
market success of the Airbus. (Page 44)
Adtranz with € 1.7 billion (+2%), Automotive Electronics with
€ 0.8 billion (+35%), and Diesel Engines with € 0.9 billion
(+ 5%), contributed to revenues of the other businesses in the
amount of € 3.4 billion. (Page 46)
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Revenues
in Millions
9 8
US $
9 8
€
9 7
€
Investment in Property,
Plant and Equipment
in Millions
9 8
US $
9 8
€
9 7
€
DaimlerChrysler
154,615
131,782
117,572
DaimlerChrysler
9,568
8,155
8,051
Passenger Cars
(Mercedes-Benz, smart)
38,234
32,587
27,555
Passenger Cars
(Mercedes-Benz, smart)
2,341
1,995
1,885
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
66,101
56,340
51,942
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
4,599
3,920
4,501
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
27,175
23,162
20,012
Chrysler Financial Services
3,376
2,877
2,443
Services
Aerospace
Others
11,232
9,573
10,290
8,770
7,924
7,816
4,019
3,426
3,896
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
Services
Aerospace
Others
976
832
601
334
382
935
285
326
797
193
255
635
SERVICES DIVISION RESTRUCTURED. Only a short time after the
merger of Daimler-Benz AG into DaimlerChrysler AG was
recorded in the Commercial Register on December 21, 1998, as
the conclusive legal act of the business combination, we
restructured our services business. In January 1999, we
announced that DaimlerChrysler would bring together its
worldwide financial services business under the roof of
DaimlerChrysler Services (debis) AG in Berlin. The integration
of Chrysler Financial Company L.L.C. and the Financial Services
(debis) business unit created the fourth-largest provider of
financial services in the world outside of the banking and
insurance sectors, with a contract volume totaling more than
€ 70 billion.
Also in January, we announced along with our partner Metro
that in the spring of 1999 we would place at least 20 percent of
the share capital of debitel on the stock exchange. Equal
numbers of shares will be offered by Metro and debis. Debitel
is the largest network-independent telephone company in
Europe. Even after listing on the stock exchange, debis will
remain the largest shareholder in debitel.
PORTFOLIO SELECTIVELY IMPROVED. We also improved our
business portfolio relating to earnings and risk factors in 1998
in order to strengthen the competitiveness and earning power
of our business units.
On October 31, 1998, we acquired the shares in Micro Compact
Car (MCC) AG of Biel (Switzerland) held by the Swatch Group
AG in the amount of 19% with a view to better maximizing the
strategic opportunities of the smart brand as one of the six
passenger automobile brands of DaimlerChrysler. As a result,
MCC is now a 100 percent subsidiary of DaimlerChrysler.
We further expanded our position in the North American
market for medium and heavy-duty commercial vehicles with
the acquisition of the Thomas Built Buses Corporation, with
headquarters in North Carolina in the United States.
During the year under review, our Aerospace Division Dasa
acquired the defense electronic business of Siemens and
thereby decidedly strengthened its position in the European
defense industry. Moreover, the Franco-British Matra BAE
Dynamics has had a 30% participating interest in LKF GmbH
since early 1998. This constitutes an important step forward in
the Europeanization of our defense technology.
On the road toward the creation of European structures in the
aerospace industry, we have agreed with the British GEC, the
French Lagardère Group, and Finmeccanica to bring together
the space operations activities.
In January 1999, we agreed that DaimlerChrysler would
acquire the share of ABB in the 50/50 Adtranz joint venture at
a price of US $ 472 million. By fully integrating this company,
which is a global leader in railroad technology, in our business
portfolio and our overall business strategy, we will be able to
forge a more deliberate and rapid restructuring of Adtranz.
MORE THAN 19,000 NEW JOBS. In 1998, adjusted for changes in
the consolidated group, we were able to create 19,000 new jobs
due to positive business trends in all areas of DaimlerChrysler.
The number of employees rose to 441,502. The Service Division
employed almost 5,000 people more than at the end of 1997.
Additional personnel were also needed in the vehicle business
and in the Aerospace Division to handle increased demand.
The number of employees rose by 7,764 to 233,030 in Germany
and by 5,785 to 117,048 in the United States.
VALUE-ADDING PARTNERSHIPS EXPANDED. DaimlerChrysler
purchased goods and services worth € 79.6 billion in 1998
(1997: € 75.8 billion).
In accordance with our philosophy of integrated value-adding
partnerships, cooperation with our suppliers continued to
intensify and great successes were also achieved in numerous
product and investment projects. The TANDEM and the SCORE
programs – similar in their approach - were combined in the
Research and
Development costs
in Millions
DaimlerChrysler
Passenger Cars
(Mercedes-Benz, smart)
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
98
US $
98
€
97
€
7,853
6,693
6,501
2,265
1,930
1,583
1,989
1,695
1,512
837
714
602
Aerospace
Others
2,402
2,047
2,233
360
307
571
Purchasing Volume
€ 79.6 Billion (1997: € 75.8 Billion)
Passenger Cars
(Mercedes-Benz, smart)
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep
®
22 %
, Dodge)
47 %
Commercial Vehicles
(Mercedes-Benz, Freightliner, Sterling, Setra)
Services
Aerospace
Other
18 %
3 %
6 %
4 %
context of the Extended Enterprise concept. This provides the
groundwork for the development and ongoing cultivation of our
long-term partnerships with excellent suppliers. Within the
Global Procurement and Supply organization, synergies were
realized and projects to achieve cost reductions were initiated.
The development of common commodity and supplier
strategies as well as common operative processes will play a
major role in that process. These common strategic elements
will be implemented throughout our worldwide procurement
organization.
€ 8.2 BILLION INVESTED IN PLANT, PROPERTY AND EQUIPMENT.
To secure the future of DaimlerChrysler, we invested
€ 14.9 billion in 1998 in plant, property and equipment, as well
as in research and development.
DaimlerChrysler’s overall investment in plant, property and
equipment in 1998 increased to € 8.2 billion (€ 8.1 in 1997).
More than 82% of this amount was invested in the vehicle
business. Key projects in the Mercedes-Benz and smart Divisi-
on (€ 2.0 billion) were a new technology center in Sindelfingen,
a new plant for the A-Class in Brazil and preparations for pro-
ducing the new S-Class. Preparations for producing the num-
erous new models, a transmission plant in Kokomo/Indiana and
a new assembly plant for the Dodge Dakota in Campo Largo/
Brazil were major priorities of the Chrysler, Plymouth, Jeep and
Dodge brands (€ 3.9 billion). In the Commercial Vehicles Divi-
sion (€ 0.8 billion), major investments were made in connection
with the introduction of the Atego, along with plant
modernization.
A total of € 0.3 billion (€ 0.3 billion in 1997) were invested in
plant, property and equipment in DaimlerChryslers' Aerospace
Division. Expansion of capacity in the Airbus Program was a
priority. The major part of the investment volume in the
services business area in the amount of € 0.3 billion was made
in the IT Services business unit.
€ 6.7 BILLION FOR RESEARCH AND DEVELOPMENT. In 1998,
there were more than 36,000 employees in research and
development at DaimlerChrysler worldwide, underscoring the
importance of R&D within the framework of our value-based
management. The objective is to ensure a more efficient use of
resources throughout the company by developing new forms of
interdisciplinary cooperation and increasingly integrating
suppliers into the process. Expenditures for R&D increased to
€ 6.7 billion (€ 6.5 billion in 1997). Of this amount, € 1.7 billion
(1997: € 2.1 billion) went to projects under contract with third
parties, especially in the Aerospace Division.
We used more than 85% of the funds for our own projects to
ensure the future of our vehicle business divisions; 7% of ex-
penditures on research and development went to the Aero-
space Division, and 4% to other business areas. Research and
development investment in Adtranz amounted to € 82 million,
in automotive electronics to € 47 million and in diesel engines
to € 56 million.
Our main activities in the vehicles divisions were the new
C-Class and S-Class Coupe models from Mercedes-Benz and a
new Chrysler Sebring, a completely new minivan and the
successor to the Jeep Cherokee. The lion’s share of research and
development investment in the Commercial Vehicles Division
was spent on product innovations in the Trucks Europe, vans
Europe and the powertrain units. In the Aerospace Division, the
main R&D priority was the on-going development of the Airbus
program, the development of new aircraft engines and new
guidance and communications systems.
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In what turned out to be a turbulent year on the stock exchange, shares in both Daimler-Benz and Chrysler showed a positive
development in 1998. At the close of trading in November, shares were up by more than 20% compared with the end of 1997. On
November 17, 1998, the new DaimlerChrysler shares were quoted on the stock exchanges for the first time. As the first globally
registered stock, it is now being traded on 21 stock exchanges in eight countries. The share capital of € 2.6 billion is distributed
among more than 1.4 million shareholders.
SHARP SWINGS IN SHARE PRICES. In 1998, share prices in We-
stern Europe and North America continued their decade-long
upward trend. On the other hand, Asian markets declined for
the third year in a row. In the first half of the year, high levels
of liquidity and lower interest rates helped produce an
unexpectedly strong rise in Western stock markets. The subse-
quent decline in share prices was triggered by difficulties in
Russia, which, together with a financial crisis in Latin America
and the already prolonged crisis in Asia, resulted in a loss of
confidence on the part of investors. Beginning in October, a
market recovery began to take hold in Western stock markets
after interest rates were reduced in the United States and
Europe. In New York, the Dow Jones index rose by 16% in the
course of the year. The London FTSE-100 Index rose by 15% and
the German stock exchange index (DAX) by 18.5%. On the other
hand, the Japanese Nikkei average fell by 9% and closed with
the lowest year-end value since 1985.
TREND IN SHARE PRICES OF DAIMLER-BENZ AND CHRYSLER
STOCKS. Daimler-Benz shares since late February 1998 have
consistently outperformed the DAX. In the wake of the
announcement of the merger of Daimler-Benz and Chrysler on
May 7, Daimler-Benz was quoted at more than DM 200 (about
€ 102). After adjustments for the special distribution of DM 20
(€ 10.23) per share and for the capital increase of June 1998,
share prices reached a new historical high at the end of July.
After the announcement of the merger, Chrysler share prices
rose more steeply than those of Daimler-Benz. In late July, the
former reached an annual high of almost US $61 per share.
Thereafter, both share prices followed almost in tandem the
downward-trend on international stock exchanges. The decision
of Standard & Poor`s not to include DaimlerChrysler shares in
Stock Market Performance 1998
Share Price Index
(as of Nov. 17, 1998)
175
150
125
100
75
130
120
110
100
90
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J 99
F 99
M 99
17.
Nov.
98
Chrysler
Daimler-Benz
DAX
MSCI Automobiles Index
DaimlerChrysler
DAX
MSCI Automobiles Index
130
120
110
100
90
17. Nov. 98
D 98
J 99
F 99
M 99
M.S.C.I. Automobiles Index
DAX
DaimlerChrysler
Statistics per share
Net income
(before merger costs)
Net income
Net income (diluted)
Dividend
98
US $
98
€
6.55
5.58
6.05
5.91
2.76
5.16
5.04
2.35
Stockholders’ Equity (12/31)
35.57
30.31
Number of shares (12/31)
in millions
Share price Year-end
High*)
Low*)
1,001.7
96 1/16
108
83 7/8
83.60
94.20
70.60
*) November 17, 1998 until March 15, 1999.
the S&P 500 index triggered short-term pressure on share
prices. Following the recovery of the stock markets, in mid-
November, Chrysler share price showed an increase of 26%
compared to the last day of 1997, and Daimler-Benz share price
increased by 21%.
NOVEMBER 17, 1998: DAY ONE. Trading in shares of
DaimlerChrysler began on November 17, 1998, on international
stock exchanges. As the first globally registered stock, it is
traded in eight countries on 21 stock exchanges. The identity of
shareholders is stored in an electronic share register.
DaimlerChrysler
Chrysler
Daimler-Benz
The DaimlerChrysler stock was off to a good start on November
17, 1998, with a Day One share price of DM 139.30
(€ 71.20) in Frankfurt and US $83 13/16 in New York.
Thereafter, it rose more strongly than the DAX and the MSCI
Automobile index, an international composite. On March 15,
1999, the share price in Frankfurt reached € 84.75,
representing an increase of 19% over the first day of trading in
November 1998. In New York, the DaimlerChrysler stock was
quoted at US $92 5/16 (+ 10%) as of March 15, 1999.
“Day One” for the DaimlerChrysler shares on November 17, 1998
at the New York Stock Exchange.
Market Capitalization
(end of reporting period)
Billions of €
00
80
60
40
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Dec. 30
97
May 7
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Nov. 17
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Dec. 30
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March15
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Chrysler
Daimler-Benz
DaimlerChrysler
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In mid-March 1999, the DaimlerChrysler stock was the most
heavily weighted in the DAX at 12.1%. In the European Euro
Stoxx 50 Index, its weighting was 5.9%, and in the Stoxx 50,
which also includes UK and Swiss companies, it was weighted
at 4.1%. The share capital of our company amounts to € 2.56
billion. The number of shareholders totals more than 1.4 million;
the largest shareholders are the Deutsche Bank with 12% and
the State of Kuwait with 7%. More than half of the share capital
resides in the hands of Europeans and approximately 25% in the
hands of US investors.
INVESTOR RELATIONS EXPANDED FURTHER. We further
intensified contacts with investors and financial analysts in
1998 and to an ever-increasing degree involved the operational
management in discussions. Investor Relations was confronted
with an especially daunting task since Daimler-Benz and
Chrysler, and later DaimlerChrysler, were being closely
monitored by the capital markets. The main reasons for this
close scrutiny were the positive business trends, the special
distribution carried out by Daimler-Benz, the ensuing increase
of share capital and finally the corporate merger itself. In June
1998, shortly before the capital increase, we organized a
worldwide road show.
As a result of the increase in capital stock amounting to
approximately € 3.8 billion, the largest ever in the history of
German industry, we were able to bring the equity capital of
Daimler-Benz back to the level prior to the special distribution.
An additional challenge was the stock exchange offer to
shareholders of Daimler-Benz supported by comprehensive
marketing and communications activities. In September and
October 1998 we organized another road show in conjunction
with the exchange offer, in the course of which we held more
than 50 separate conversations and a great number of
presentations and conference calls, enabling us to reach more
than 1,200 institutional investors, representing almost 60% of
the capital of Daimler-Benz.
100
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60
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30.Dec
7. Mai 98
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30. Dez. 98
19. M rz 1999 (vorl.)
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DaimlerChrysler expects to increase both sales and profitability in the years to come. It is expected that all areas of business will
contribute to the additional growth. By finding synergies from the merger of the two companies and continuing to make extensive
funding available for investments and research and development, we are creating the conditions for profitable growth. By the year 2001,
we intend to increase our business volume by more than € 20 billion over the 1998 figure to € 153 billion.
STABILIZING WORLD ECONOMY. For 1999 and the coming years,
we expect that the world economic environment as a whole will
again become stable. While it is possible that economic growth
in North America and Western Europe may initially lose some
of its dynamism, we anticipate that these key markets for
DaimlerChrysler will show steady growth. Despite extensive
public programs, the Japanese economy will probably be slow
to overcome its recession. The Asian emerging markets are
thought to have traversed their economic low point by now,
while in South America — starting from Brazil — further
deterioration in the overall economic situation must be
expected.
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In our view, the introduction of the euro will help to stabilize
exchange rates. Overall, we expect the euro to lead to a
strengthening of the position of DaimlerChrysler in internatio-
nal competition.
A SLIGHT WEAKENING IN THE DEMAND FOR AUTOMOBILES.
After the extraordinarily high level of 1998, we expect a slight
weakening in the automobile business in Western Europe and
North America. In subsequent years, moderate growth should
be possible again in these markets. Especially individual niche
markets such as minivans, off-road vehicles, pickups, coupes
and convertibles will show above average growth. In Asia, the
demand for automobiles is thought to have bottomed out by
now, but a fundamental improvement in the market situation
cannot be anticipated until the medium term. In South America,
the prospects for growth continue to be favorable, but in the
current year, because of the economic crisis in Brazil, we
expect further declines in the demand for automobiles.
DAIMLERCHRYSLER ON THE GROWTH TRACK. Because of the
high level of orders and the positive business trend in the first
months, we expect DaimlerChrysler revenues to climb to € 137
billion in the current year. A large number of new and appealing
products will enable us to do better than the competition in
many of our business units. Strict cost management in all fields
of business and the synergies which we are achieving through
the integration of Daimler-Benz and Chrysler are favorable
conditions for growing profitably and increasing the company’s
earning power further in the coming years. Significant changes
in exchange rates, especially between the euro and the U.S.
dollar may, however, have an impact on revenues and profits.
This also applies if the general economic conditions should
exhibit significantly more negative trends in important markets
than we have assumed in our planning.
FURTHER GROWTH IN THE AUTOMOTIVE BUSINESS. The
Mercedes-Benz and smart Passenger Car Division expects to
maintain steady growth in sales by the year 2001. Because of
the appeal of its products, the division should achieve
significant growth even if market volumes stagnated or
declined slightly.
The Chrysler, Plymouth, Jeep and Dodge brands should be able
to maintain their high sales levels in 1999, even if the overall
trend in North America were somewhat weaker. The
innovations for the 1998 and 1999 model year, such as the
Chrysler 300M sedan, the new Jeep Grand Cherokee and the
compact Neon, will be important contributors. Numerous addi-
tional new products should enable further increases in sales
and revenues in the years to follow.
In the coming years, the Commercial Vehicle Division will focus
on its product drive and on internationalization. The main area
of growth will be in our North American business, which we are
carefully expanding with the new Sterling brand and the
integration of the Thomas Built Buses Corporation. As a system
supplier of major aggregates and components for commercial
vehicles, the powertrain unit will contribute to the growth of
the division.
POSITIVE PROSPECTS IN THE OTHER DIVISIONS AS WELL.
DaimlerChrysler Services plans to utilize the favorable general
conditions in the international service markets to continue its
dynamic growth. In the current year the division anticipates an
increase in sales to around € 11 billion. It should be noted in
this connection that the former Chrysler Financial Services will
contribute approximately € 3 billion while revenues from
debitel (1998: € 1.5 billion) are not included in the projected
turnover as a result of its listing on the stock exchange.
In the Aerospace Division, we have improved our earning
power considerably in recent years. Extensive order volumes,
especially for commercial aircraft and participation in important
international programs in defense and space technology
are establishing a solid foundation for further growth.
Revenues
in Billions
DaimlerChrysler
Passenger Cars
(Mercedes-Benz, smart)
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
Services1)
Aerospace
Others2)
1999 E
€
2001 E
€
137
37
54
23
11
9
6
153
39
60
25
15
10
8
Investments in Property,
Plant and Equipment
in Billions
DaimlerChrysler
Passenger Cars
(Mercedes-Benz, smart)
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
Services1)
Aerospace
Others2)
1999 E
€
1999-2001
€
9.0
2.2
4.3
1.1
0.3
0.5
0.6
23.7
5.9
11.0
3.3
0.8
1.4
1.3
1) Including Chrysler Financial Services, excluding debitel.
2) Including Potsdamer Platz, Headquarters, Adtranz 100%.
Our other operational business units are also planning for
significant growth by the year 2001. Following the
complete acqusition by DaimlerChrysler, we expect to be
able to guide Adtranz towards profitable growth with a new
management structure and a leaner organization. The Auto-
motive Electronics unit will continue to benefit in coming
years from the increasing use of electronic components in
automobiles. The MTU/Diesel Engines unit will continue to
pursue the growth strategy already begun - the
development from a niche vendor to a full-line supplier.
INTEGRATION PROJECTS TO BE LARGELY COMPLETED BY
2001. Integration within DaimlerChrysler is being
coordinated by a Post-Merger Integration Team. We had
already identified the major areas of integration before the
merger. The integration projects are expected to be largely
completed by the end of 2001. In the current year we are
already realizing synergies with a value of € 1.3 billion
and in the medium term we are expecting synergy gains of
more than € 3 billion per year.
STRATEGIC POSITIONING IN ASIA. Despite a difficult market
situation, our activities to enhance our market presence in
Asia continue.
Because of the long-term significance of the Asian region
for DaimlerChrysler and to secure market closeness, we
established five regional centers in 1998 (North East Asia,
South East Asia I and II, Japan, and Australia/Pacific).
Together with the individual divisions they are responsible
for the success of DaimlerChrysler in those areas.
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EXPENDITURES TO SECURE THE FUTURE. In the 1999 to 2001
planning period, DaimlerChrysler expects to spend around € 40
billion (including third party contracts € 46 billion), or around
€ 13 billion annually, for research and development and invest-
ment in fixed assets. The focus of the investments will be on
product launches and facelifts in passenger cars and commercial
vehicles, and enlarging production capacities in the vehicle
business and for commercial aircraft. Important projects in
research and development are work on the successors to the
C- and E-Class of Mercedes-Benz, the Dakota truck and the
Chrysler minivan. In addition, the Maybach luxury sedan is
being developed. Heavy expenditures are also planned in the
Aerospace Division, especially for the development of new
Airbus models.
Research and
Development 1
in Billions
DaimlerChrysler
Passenger Cars
(Mercedes-Benz, smart)
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
Aerospace
Others2)
1999 E
€
1999-2001
€
5.5
1.9
1.6
0.8
0.5
0.7
16.6
5.5
5.2
2.2
1.6
2.1
1) Excluding third party contracts.
2) Including Headquarters, Adtranz 100%.
Mercedes-Benz
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Climb in and enjoy exclusivity:
The new S-Class allows you to
experience the future of the
automobile today. With more than
thirty innovations, this car once
again sets new standards in
comfort, safety and driving
enjoyment.
1998 was extraordinarily successful for the
Mercedes-Benz Passenger Cars and smart Division,
setting new records for revenues and sales. The
Division's contribution to the operating profit of the
company rose to € 2.0 billion (1997: € 1.7 billion). Due
to the many new products brought to market in the
past few years, our market position worldwide has
Amounts in Millions
Operating Profit
Revenues
Investments in Property,
Plant and Equipment
R&D
Production (Units)
Sales (Units)
been significantly improved. Moreover, dynamic and
Employees (12/31)
98
US $
98
€
97
€
2,338
1,993
1,716
38,234
32,587
27,555
2,341
1,995
1,885
2,264
1,930
1,583
947,517
726,686
922,795
715,055
95,158
91,753
attractive passenger cars such as the new S-Class
have strengthened the image of the Mercedes-Benz
brand. With the launch of the smart city coupe in
1998, we introduced a highly innovative vehicle and
a new brand for a wholly unprecedented passenger
transportation concept.
DIFFERENCES IN MARKET DEVELOPMENT. Development varied
significantly among the most important markets for the
division in 1998. New registrations rose noticeably in Western
Europe as well as in Germany. The market segments in which
we compete especially profited from this trend. But on the other
hand, there was a definite decline in demand for luxury cars in
Asia and South America. In North America, luxury passenger
car sales were slightly higher than in 1997.
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RECORD HIGHS IN SALES AND REVENUES. In 1998, the
division substantially increased its sales of the Mercedes-Benz
and smart brands in all important markets. At € 32.6 billion
(1997: € 27.6 billion), revenues reached an all-time high.
Revenues of € 6.7 billion in the United States surpassed the
record set in 1997 by 39%. We also achieved significant growth
in Western Europe outside Germany (up 28% to € 8.2 billion).
In Germany, revenues were up 14% to € 12.6 billion.
In 1998, 922,800 passenger cars, station wagons, sport-utility
vehicles, and smart city coupes (1997: 715,100 units) were sold,
easily surpassing 1997 records.
OPERATING PROFIT INCREASED TO € 2.0 BILLION. Despite
significant expenses related to the introduction of new products,
in particular the new S-Class and smart, the division was able
to increase its operating profit by 16.2% to € 2.0 billion. In
addition to the higher sales volume, important factors included
further improvements in the cost structure and consistently
favorable exchange rates.
MERCEDES-BENZ: MARKET POSITION CONTINUED TO IMPROVE.
With the exception of the Far East, sales of Mercedes-Benz
passenger cars increased in all important markets. As a result,
we expanded our market share worldwide to 2.2% (1997: 1.7%).
We were able to reach entirely new customer groups with the
most attractive product program in the history of the Mercedes-
Benz brand. The M-Class was especially successful with sales
of 63,800 units. We sold about 9,000 CLK convertibles since its
introduction in June, and from October to the end of year, we
delivered more than 10,300 units of the new S-Class. In
Germany, sales were up 26% to a new high of 347,100 vehicles.
Market share rose to 9.6% (1997: 8.0%). We recorded the highest
growth of all large European carmakers with a 38% increase
Optimum safety, superb comfort, exemplary
solidity and – last but not least – unspoiled
driving enjoyment. The new Mercedes-Benz CL
meets such exacting standards thanks to its
ploneering technology.
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Western Europe outside Germany. In the United States sales of
Mercedes-Benz passenger cars reached 170,200 vehicles (up
39%). In terms of revenues, we were the most successful
luxury brand in the United States with a 7.6% market share.
Despite the unfavorable market situation in Japan, we managed
to sell more than 40,000 vehicles and achieved a share of the
luxury class market of 12.8%. Mercedes-Benz was the most
successful import brand in Japan.
SUCCESSFUL YEAR FOR THE A-CLASS. The A-Class, equipped
with the most state-of-the-art standard safety package of all
compact and mid-size cars, has been enjoying extremely strong
demand. The innovative concept and design, combined with a
favorable price/performance ratio, enabled sales to soar to
136,100 units, earning the A-Class a strong position in the
market within one year. In Japan, it was awarded the prize for
the best import car of the year. In 1999, we expect to see
additional sales growth due to new engine versions and
equipment options.
NEW S-CLASS SETS STANDARDS. The new S-Class features more
than 30 technical innovations and is a trendsetter in passenger
car technology. Peak values in aerodynamics and a reduction in
weight of approximately 660 pounds excluding options offer
fuel savings of up to 17% compared with its predecessor model
while at the same time its performance rating is significantly
higher. Thanks to an automatic cylinder cut-off system in the
S 500, fuel consumption can be reduced by a further 7% on
average. The air suspension system combined with the
adaptive shock absorber system (AIRmatic), ventilated luxury
seats, a chip card in place of a door and ignition key (Keyless
Go) and the distance control system (Distronic) offer our
customers the option of extra comfort. In addition to safety and
comfort, the classic characteristics of every Mercedes-Benz,
the new model also provides more driving pleasure than ever
before in this series. The new S-Class has not only been
enthusiastically received by traditional customers, but, as the
first market statistics demonstrate, it is also capable of
attracting customers previously attached to other luxury
brands.
M-CLASS EXTRAORDINARILY SUCCESSFUL. The overwhelming
success of the M-Class in North America following its market
introduction in September 1997 continued in Europe in the
spring of 1998. Around the world, customers appreciate the
excellent price/value ratio of the M-Class. The exceptional
image enjoyed by the M-Class results from its exemplary safety
characteristics, future-oriented design, and the combination of
pronounced all-terrain maneuverability with sedan-like on-road
qualities. Due to high demand, M-Class capacity at our U.S.
production facility in Tuscaloosa, Alabama, was boosted from
65,000 units to more than 80,000 units in 1999. Moreover,
beginning in mid-1999, up to 30,000 additional vehicles
per year will be manufactured for the European market at
Steyr-Daimler-Puch in Graz, Austria.
A-CLASS PRODUCTION STARTED IN BRAZIL. The new A-Class
production facility in Juiz de Fora, Brazil, started regular
production in February 1999. The new plant is an important step
toward developing the South American market for the
Mercedes-Benz brand. After the final expansion phase, it will
have a capacity to produce up to 70,000 vehicles each year.
Completion of the project in only two years was possible due to
the joint efforts of an international team from the United States,
Europe and Brazil. To ensure that the high quality standards of
Mercedes-Benz are also maintained in Brazil, training
employees for that location was started well in advance. More
than 150 specialized employees from Brazil were trained in our
German assembly plants in Rastatt, Sindelfingen and Bremen,
and 160 trainers from Germany will be working in Brazil during
the startup phase.
INVESTMENTS BOOST INNOVATIVE STRENGTH. We are investing
€ 0.7 billion in a new technology center in Sindelfingen to be
completed in the year 2000 for the development of Mercedes-
Benz passenger cars. The entire passenger car development
will thus be concentrated at the two locations of Sindelfingen
and Untertürkheim instead of the previous 18. Consolidating our
development capacities and using state-of-the-art technologies
will open up additional opportunities for boosting our
development output. We will also achieve synergies by working
together with the technology center in Auburn Hills.
The 1,500 acre Mercedes-Benz testing facility in Papenburg,
Germany, which was opened on October 8, 1998, offers product
developers entirely new possibilities. For example, a number of
different processes can now be carried out simultaneously
instead of sequentially, which significantly shortens develop-
ment times.
MOBILO-LIFE LONG-TERM GUARANTEE INTRODUCED. In 1998, the
Mercedes-Benz brand set new standards not only in new
products, but in the service sector as well. Mercedes-Benz is
the first brand to offer a standard life-long no-rust-thru and
mobility guarantee. It applies to vehicles registered for the first
time after October 24, 1998. The Mobilo-Life long-term
guarantee is effective in 23 European countries up to the fourth
year from registration, providing the car is regularly serviced
at an authorized Mercedes service center. The long-term
guarantee is then effective for up to another 30 years.
One of the most important achievements was the victory in
the driver and designer world championships in Formula One:
Mika Häkkinen became world champion with eight victories in
16 races. David Coulthard finished third in the drivers' world
championship. West McLaren Mercedes won the designer title
with a total of nine first places. We also won two races in the
CART series in the United States. In the FIA GT championship,
Klaus Ludwig and Ricardo Zonta won the driver championship
in a Mercedes CLK-LM, and AMG Mercedes collected the team
title with a total of 10 victories in 10 races.
MERCEDES-BENZ MAYBACH - A NEW DIMENSION IN AUTO-
MOBILE DESIGN. After we first revealed the design prototype of
the Mercedes-Benz Maybach to the world in Tokyo in October
1997, we decided in July 1998 to develop this top model into a
production version. The Maybach will continue the tradition
of large chauffeur-driven limousines with the innovative state-
of-the-art technology of Mercedes-Benz passenger cars and
introduce a new dimension in the luxury automobile class.
SMART CITY COUPE SUCCESSFULLY LAUNCHED IN EUROPE.
The smart city coupe has been delivered to customers in nine
European countries since early October 1998. The launch not
only put a completely new automobile onto the streets of
Europe, but at the same time it heralded the birth of a new
brand and an entirely new, single-level distribution network.
It was nominated as the most environmentally friendly car of
the year for 1998 by the German transport group Verkehrsclub
Deutschland (VCD) and achieved by far the best results in the
magazine “AutoBild’s” comparison crash test in the compact
car segment. These qualifications are convincing proof of the
trendsetting concept of the city coupe.
At the Paris Motor Show in October 1998, the smart was
introduced for the first time as a turbodiesel with common rail
direct injection (CDI). With a fuel consumption rating of only
69.2 miles per gallon, this vehicle will be available at the end of
1999. In addition, the smart range is to be expanded with an
attractive convertible version. In the year under review, 21,200
vehicles rolled off the assembly line at our plant in Hambach,
France.
SMART MOBILITY. In addition to the vehicle itself, we are also
developing a comprehensive mobility concept in cooperation
with AVIS, various municipalities and other transit operators,
to create special advantages for smart users in the urban
environment. Together with our partners, we are offering
innovations such as smartmove & More (rental cars for smart
customers with special transportation needs), smartmove
Parking (compact parking spaces for micro-compact cars) and
other attractive mobility services.
FORMULA ONE WORLD CHAMPION AND FIA GT CHAMPION. With
21 victories in 45 races in three series, 1998 was the most
successful motor sports year in the history of Mercedes-Benz.
smart – the ideal two-seater
city coupe. A statement of
individual mobility in inner
city areas. A car that gives
you extra freedom without
sacrificing safety and
comfort.
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Passenger Car Sales 1998
1,000 Units
98:97 (in %)
Mercedes-Benz
A-Class
C-Class
of which CLK
SLK
E-Class
S-Class/SL
M-Class
G-Class
smart
Sales worldwide
Europe
of which Germany
Western Europe
(excl. Germany)
North America
United States (retail sales)
South America
Far East (excl. Japan)
Japan (new registrations)
906
136
384
62
54
259
58
64
4
17
923
640
355
275
183
170
8
14
40
+27
+ .
+10
+182
+17
-6
-7
+291
+8
+ .
+29
+34
+28
+42
+40
+39
+28
-49
- 3
Chrysler Plymouth
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The new Chrysler 300 M – The
continuation of the traditional 300
series. A comfortable and roomy
sedan for driving pleasure in the city
and on long trips. With a powerful
2.7 or 3.5 liter V-6 engine and the
advanced “Cab Forward Design” for
improved legroom and greater driver
comfort.
The Chrysler, Plymouth, Jeep and Dodge brands
recorded their best year ever in 1998, setting several
sales records, including all-time highs in trucks and
sport-utility vehicles. This helped the brands
increase revenues to € 56.3 billion in 1998, compared
to € 51.9 billion in 1997. The operating profit of the
Division increased to € 4.2 billion, compared to
€ 3.4 billion in 1997. In the past few years, all-new
and redesigned products have helped the brands
to expand their market position. Symbolizing the
success of recent quality improvement initiatives are
the Chrysler Cirrus and Concorde. Both were
recognized by J.D. Power and Associates for having
the best quality in their respective categories in the
Initial Quality Rankings for 1998.
Amounts in Millions
98
US $
98
€
97
€
Operating Profit
Revenues
Investm. in Property,
Plant, Equipment
R&D
Production (Units)
Sales (Units)
Employees (12/31)
4,942
4,212
3,368
66,101
56,340
51,942
4,599
3,920
4,501
1,989
1,695
1,512
2,982,644
2,773,264
3,093,716
2,886,981
123,180
118,639
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FAVORABLE MARKET SITUATION IN NORTH AMERICA.
Strong economic growth, falling car prices and low interest
rates resulted in an overall rise in sales of passenger cars and
light trucks in North America in 1998. In particular, sales of
sport-utility vehicles and pickups benefitted the most from the
strong market, while sales of passenger cars fell slightly.
DaimlerChrysler is well positioned in the highest growth
segments with its Chrysler, Plymouth, Jeep and Dodge brands.
We are therefore able to take part at a higher level in the
favorable market development in North America. In contrast,
international business was negatively impacted by the
economic and financial crisis in Asia.
NEW RECORDS IN REVENUE AND PRODUCTION. The Chrysler,
Plymouth, Jeep and Dodge brands have their strongest
presence in the North American markets of the United States,
Canada and Mexico. Revenues of the Division totalled a new
record of € 56.3 billion ( 1997: € 51.9 billion). Of total revenues
93% were generated in North America, 3% in Europe and 4% in
the rest of the world.
Worldwide production in 1998 totaled 2,982,600 vehicles
(1997: 2,773,300). Car production in 1998 was 865,300 (1997:
778,200); truck production totaled 2,117,300 (1997: 1,995,100).
FURTHER IMPROVEMENT IN EARNINGS SITUATION. The
operating profit of the Division increased from € 3,368 million
in 1997 to € 4,212 million in 1998. Higher sales volume and
lower warranty costs were the primary positive contributors.
In contrast to this were higher costs for purchase incentives,
which are attributed in particular to strengthened competitive
conditions in North America.
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MORE THAN 3 MILLION VEHICLES SOLD WORLDWIDE IN 1998.
U.S. sales (shipments) reached 2,548,900 vehicles in 1998.
These were 10% ahead of 1997’s total of 2,312,400 units. Truck
sales, including minivans and sport-utility vehicles, rose to
1,784,000 units, a 9% increase over 1997. Within this category,
sport-utility vehicles accounted for 626,800 units, a 20%
increase over 1997. Car sales reached 764,900 vehicles, a 12%
increase over 1997.
In Canada, sales (shipments) totaled 261,800 vehicles, a
decrease of 2% compared to 1997. Truck sales in 1998 were
174,500 units, a 3% decrease compared to 1997. Car sales
reached 87,300 in 1998, up 1%. In Mexico, the brands reported
overall sales of 94,800 vehicles, up 34% from 70,900 in 1997.
Chrysler, Jeep and Dodge brand sales (shipments) outside
North America were 188,200, down 21% from 1997, which had
been a record year internationally for these brands. Chrysler
minivans were the brands’ biggest seller outside of North
America, accounting for 34% of international sales. The Jeep
Cherokee accounted for 18% of sales outside North America;
the Jeep Grand Cherokee also for 18% of international sales.
CHRYSLER BRAND SUCCESSFUL WITH NEW MODELS. Positioned
as a near-luxury marque, the Chrysler brand continues to build
upon its reputation in the industry. In 1998, Chrysler launched
the LHS and all-new 300M both to critical acclaim. The 300M,
designed for sale in North America and export to international
markets, was named Motor Trend magazine’s “Car of the Year”,
and has also been well received by the European media and
customers.
The Jeep® Grand Cherokee: with the
best off-road qualities – and a great
role-model for luxurious sport-utility
vehicles for all leisure activities.
At the North American International Auto Show in Detroit in
January 1999, the brand introduced the 2001 Chrysler PT
Cruiser. Described as a flexible-activity vehicle, the new design
blends characteristics of cars, trucks, minivans and sport-
utility vehicles to create an all-new car segment in America.
The prefix “PT”, meaning “personal transportation”, reflects
the vehicle’s versatility for each individual owner.
Left- and right-hand-drive versions will be produced at
DaimlerChrysler’s assembly plant in Toluca, Mexico, with
sales starting in early 2000.
PLYMOUTH REPRESENTS FUN, VALUE. The Plymouth brand,
which celebrated its 70th anniversary in 1998, continues to
serve as an affordable entry-level brand for customers. The
2000 Plymouth Neon compact car was unveiled in December
1998 in Los Angeles. The new Neon, which went on sale in the
first quarter of 1999, combines a high degree of functionality
with a fun driving experience. The Plymouth Prowler remains
an image-enhancing car for the brand. This unique roadster
is available in red, black, bright yellow, as well as in the
original purple.
The all-new
JEEP VEHICLES’ POPULARITY CONTINUES TO GROW.
Jeep Grand Cherokee was among the DaimlerChrysler vehicles
introduced to great reviews in1998. The 1999 Grand Cherokee
received the “4x4 of the Year” award from Petersen’s “4-Wheel
& Off-Road magazine” and “Four Wheeler of the Year” from
“Four Wheeler magazine”. It also was named the 1999 North
American Truck of the Year at the North American Interna-
tional Auto Show in Detroit.
The Jeep brand is on the forefront of customer relationship
marketing. After “inventing” customer loyalty programs with
the original Rubicon Trail Jeep Jamboree 45 years ago, the Jeep
brand created Camp Jeep in 1995, a three-day action-packed
family event exclusively designed for Jeep owners and their
active lifestyles. The 1999 Camp Jeep will be held in Virginia at
Walton’s Mountain near the Wintergreen Resort.
Internationally, the 1998 Jeep Grand Cherokee was named the
“Best Sport-Utility in Brazil.” The Grand Cherokee was also
named the best luxury and compact sport-utility vehicle by
“Geländewagen Magazin” in Germany, and the ”Best New
Sport-Utility” by the Automobile Journalists of Canada.
DODGE VEHICLES EMPHASIZE POWER, SPORTINESS. The Dodge
brand remains the performance division of the company. In
1998, it posted US sales of 1,454,700, up 15% compared with
1997. Dodge Truck’s U.S. sales of 1,099,900 were up 21%
compared with 1997.
New R/T production and concept vehicles were unveiled at
Detroit’s North American International Auto Show. The 2000
Dodge Neon debuted in dealerships in the first quarter of 1999
with an all-new exterior and interior, along with substantially
improved on-road performance and handling. The Dodge
Dakota Quad Cab became available for retail sale in the fourth
quarter of 1998. The industry’s biggest and most powerful
compact pickup is now the most versatile, with four doors.
Wide-opening rear doors (with full roll-down windows) offer
unrestricted passenger ingress and egress, and make loading
and unloading large packages easier. Dodge Dakota Quad Cab
features the most interior room in its class.
MINIVANS RETAIN POPULARITY. Chrysler, Plymouth and Dodge
minivans are among the most successful products of
DaimlerChrysler. In 1998, the company celebrated 15 years of
minivan production with ceremonies at the Windsor (Ontario,
Canada) and St. Louis (Missouri) South assembly plants. More
than 7 million DaimlerChrysler minivans have been produced
since the vehicle’s 1983 introduction for the 1984 model year.
In the United States the company posted a 1% sales increase
for 1998 models, with sales totaling 518,900 units. Record
minivan sales were reported in Canada.
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At the 1998 Chicago Auto Show, Chrysler showcased a new
dimension in luxury minivans-the 1999 Chrysler Town & Country
Limited. Production of this more distinctive and upscale version
of the Town & Country luxury minivan started in March 1998.
In the United States, the minivans received the Consumers’
Digest “Best Buy Award.” Canada’s Carguide Magazine named
the Dodge Caravan a 1999 “best buy” in the minivan category
for the third consecutive year.
CONCEPT VEHICLES HIGHLIGHT FUTURE TECHNOLOGIES AND DE-
SIGN. The Chrysler Pronto Cruizer concept car was unveiled at
the Geneva Motor Show in March 1998. It was the first time a
Chrysler-brand concept was introduced at a European motor
show since the Portofino -- the brand’s first iteration of its cab-
forward design. The Pronto Cruizer’s exterior and interior
design themes were inspired by the 1940s American art-deco
design. The Pronto Cruizer took that classic appeal and refined
it with a cutting-edge styling, efficient packaging, precision
craftsmanship and a heavy dose of American fun and freedom.
In addition, four concept vehicles were unveiled at Detroit’s
1999 North Amercan International Auto Show.
The Jeep Commander concept is an upscale sport-utility vehicle
that uses environment-friendly fuel-cell technology. The Com-
mander may well be the world’s only four-wheel-drive vehicle
that runs on electric power.
The Chrysler Citadel blends characteristics of a luxury sport
sedan and the power and security of a sport-utility vehicle
together with a futuristic design. While the Citadel is not only a
hybrid among market segments, it is also a hybrid of power
trains, as it draws power from two different sources. A gas
engine propels the rear wheels, and electricity drives the front
wheels.
The Dodge Charger R/T pays homage to the muscle-car era. Its
low emissions even meet the California Air Resources Board Ul-
tra Low Emission Vehicle standard. That’s because it’s powered
by a supercharged, compressed natural gas (CNG) 4.7-liter V-8
engine.
The Dodge Power Wagon truck concept is a refined and
tailored interpretation of the original, rugged 1946 workhorse.
The Power Wagon is powered by a 7.2-liter, direct-injection I-6
turbocharged diesel engine.
Dodge Caravan ES: a family car offering an extra dimension – a spacious interior and
variable seating combined with pure driving pleasure.
Sales 1998
Total
Of which: Passenger Cars
Trucks
Minivans
SUV
Units ('000)
98:97 (in %)
3,094
939
719
685
750
+ 7
+ 9
+ 8
0
+ 13
+ 10
- 2
+ 34
- 21
United States
2,548
Canada
Mexico
Rest of the World
261
94
188
In June, the company started production of the Jeep Cherokee
at the Cordoba (Argentina) assembly plant. The vehicles will be
sold in the Mercosur markets of Argentina, Brazil, Paraguay
and Uruguay.
Opening ceremonies were held in July for the Campo Largo
(Brazil) assembly plant, which will build gas- and diesel-
powered Dodge Dakota pickups in standard and club cab
versions. A new transmission plant in Kokomo, Indiana, began
production in July of new transmissions for the redesigned
1999 Jeep Grand Cherokee.
July also saw the groundbreaking ceremony for the new 1.1-
million-square-foot Toledo (Ohio) assembly plant. This facility
represents a € 500 million investment by the company in the
north side of the city. Production of Jeep sport-utility vehicles
will start at the end of 2000.
MOTORSPORTS VICTORIES CAP STRONG YEAR FOR VIPER
RACING. In auto racing, the Dodge Viper finished first and
second in the GT-2 class at the 24 Hours of LeMans endurance
race in France. It was the first time a company has won this
race with a production vehicle designed and manufactured in
the United States. Also, Viper Team ORECA won the Federation
Internationale de l’Automobile (FIA) GT-2 Constructors’
Championship and the FIA GT-2 Drivers’ Championship for the
second consecutive year.
BRANDS RECEIVE QUALITY HONORS. Four Chrysler and Dodge
vehicles topped the 1998 Total Quality Index ratings by Strate-
gic Vision, a California-based research firm. The Dodge Ram,
Chrysler Town & Country, Dodge Durango and Chrysler
Sebring won in their respective categories.
In June, J.D. Power and Associates named the Chrysler Con-
corde and Cirrus as having the best quality in their categories
in the Initial Quality Rankings for 1998. The Dodge Caravan
finished second in the compact van category.
REDUCING COST BY SCORE. Efforts to improve vehicle quality
and value continue in part through a program that provides
suppliers with initiatives to generate new ideas and improve
their production processes. In August 1998, the Supplier Cost
Reduction Effort (SCORE) surpassed its stretch goal of € 1.7
billion in savings, topping its original goal for the 1998 model
year by more than € 400 million.
INVESTMENTS IN PRODUCTION LEAD THE WAY INTO THE NEXT
CENTURY. In May, the Bramalea (Ontario) assembly plant had
formal launch ceremonies to mark full production of the 1999
Chrysler 300M, LHS and Concorde and Dodge Intrepid.
Also in May, construction began on the new Mack Avenue II
Engine Plant in Detroit, Michigan. The 600,000-square-foot
facility represents another € 640 million investment by
the company in the city. The plant will build a new 3.7-liter V-6
engine for the next-generation Jeep Cherokee and the entire
Dodge truck line. The plant is expected to open by 2001 and
produce up to 300,000 engines annually.
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The Plymouth Neon Style – a compact sedan sporting
amazing features. An “American way of drive” in
styling, performance and safety as well as comfort
and aerodynamic design.
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Chrysler Financial
Chrysler Financial Services (CFS) achieved a
record operating profit of € 652 million for 1998,
up from € 586 million in 1997. Earnings benefited
during 1998 from lower credit losses and growth
in the company’s managed portfolio of receivables
and leases. Revenues increased to € 2,9 billion
compared to € 2,4 billion in 1997. In addition to
setting a new record for earnings in 1998, CFS
acquired a record € 74.2 billion in loans and
leases and managed a record € 42.5 billion
portfolio of receivables and leases at year-end.
PROVIDING A WIDE RANGE OF AUTOMOTIVE SERVICES.
Chrysler Financial Services (CFS) provides retail and lease
financing for vehicles, dealer inventory and other financing
needs, dealer property and casualty insurance, and dealership
facility development and management, primarily for
DaimlerChrysler dealers and their customers. Headquartered in
Southfield, Michigan, CFS is one of the largest automotive
financial services companies in North America. CFS also ex-
panded during the last two years into international markets,
opening offices in Belgium, France, Italy, Japan, Venezuela,
Taiwan, Puerto Rico, Austria, Germany and the Netherlands.
GROWTH IN AUTOMOTIVE FINANCING VOLUME. CFS’s auto-
motive volume increased to € 80.1 billion in 1998 compared to
€ 73.7 billion in 1997. The increase in automotive volume re-
flects higher retail and lease penetration due to the impact of
marketing programs to customers and dealers initiated during
1997. Nearly 2.5 million new Chrysler, Plymouth, Jeep and
Dodge vehicles have been financed by CFS in the United States
in 1998, 250,000 vehicles more than in 1997.
Chrysler Credit Canada Ltd., which provides automotive finan-
cial products and services to Canadian automotive dealers and
customers, financed 310,000 new vehicles in 1998 compared to
277,000 vehicles in 1997.
OHTER BUSINESSES ALSO SUCCESSFUL. Chrysler Insurance
Company (CIC), a subsidiary, had a very favorable business
development. Premium volume rose to € 200 million in 1998.
Chrysler Insurance was named to Ward’s 50 Benchmark Group
Services
for the eighth consecutive year. This award recognized CIC as
one of the top performing property and casualty companies in
the industry.
Chrysler Capital Company L.L.C. worked closely with
DaimlerChrysler on tax-related investments, managing approxi-
mately € 2.5 billion in leveraged leases and other commercial
loans and leases.
Chrysler Realty Corporation (CRC) engages in the ownership,
development and management of DaimlerChrysler automotive
dealership properties in the United States. CRC purchases or
leases dealership facilities and then leases or subleases these
facilities to dealers. At the end of 1998, CRC controlled 723
sites, of which 189 were owned.
FINANCIAL SERVICES COMBINED WITHIN DAIMLERCHRYSLER
SERVICES. CFS will be combined with debis in 1999. The com-
bined financial services unit of DaimlerChrysler Services will
have a portfolio of € 70 billion. It will be the fourth-largest pro-
vider of financial services in the world outside the banking and
insurance sector and will compete directly with the some of the
strongest competitors in the financial services market. The
new DaimlerChrysler Financial Services North America L.L.C.
(DCFSNA) will continue to serve dealers and customers in the
United States, Canada and Mexico and will be headquartered in
Southfield, Michigan. Chrysler Capital’s operations are being
combined with the existing capital services operations of debis
Financial Services to form a new international business unit,
which will focus on global Capital Services. It will tap the enor-
mous potential of the non-automotive financial services busi-
ness, with worldwide headquarters based in Norwalk, Connecti-
cut.
Amounts in Millions
9 8
US $
9 8
€
9 7
€
Operating Profit
Revenues
Employees (12/31)
765
3,376
652
586
2,877
2,407
3,513
3,405
M E R C E D E S - B E N Z , F R E I G H T L I N E R ,
S T E R L I N G , S E T R A
Commercial Vehicles
The new Atego Series for delivery duty and light
long-haul and building site traffic. First shown in
1998, the Atego was voted “truck of the year ’98”.
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The Commercial Vehicles Division continued its
profitable growth in 1998. Revenues, sales and
Amounts in Millions
98
US $
98
€
97
€
production reached all-time highs. Operating profit
Operating Profit
1,110
946
342
rose to € 0.9 billion (1997: € 342 million). Business
Revenues
27,175
23,162
20,012
developed especially well in North America where
Trucks Europe
Sterling, a new truck brand, got off to an excellent
start. The truck and van business also grew
significantly in Western Europe, and in Latin
America, the Sprinter van was particularly
successful. Despite a difficult market in Asia, we
continue to target strategically important markets
in the region.
Commercial Vehicles
North America
Vans Europe
Powertrains
Buses Europe
Commercial Vehicles
Latin America
Unimog
Investments in plant,
property and equipment
R & D
Production (Units)
Sales (Units)
Employees (12/31)
7,169
8,309
5,823
3,792
2,390
2,459
329
976
6,110
5,572
7,080
4,965
4,963
4,435
3,232
2,946
2,037
1,931
2,096
2,242
280
832
320
601
837
714
602
492,643
422,438
489,680
417,384
89,711
85,071
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FAVORABLE MARKET DEVELOPMENT IN WESTERN EUROPE AND
NORTH AMERICA. The commercial vehicle markets in Western
Europe and North America developed very favorably in 1998,
while demand in the Asian markets remained significantly
lower than in the previous year as a result of their economic
and financial crisis. In various South American countries as
well, and particularly in Brazil, the growing economic
uncertainty led to a definite decline in commercial vehicle
demand, especially in the second half of the year.
In Western Europe, there was market growth in nearly every
region and in all market segments. The revival in demand was
especially pronounced for trucks in the category over 6 tons,
notably for heavy-duty trucks over 16 tons. Sales in the United
States were up 11% to 345,900 vehicles in Classes 6 to 8 (over
8.8 tons), a particularly important market segment for
Freightliner and Sterling.
COMMERCIAL VEHICLE DIVISION ON GROWTH COURSE. The
Commercial Vehicle Division continued its growth course in
1998. Revenues rose by 16% to a new record high of € 23.2
billion. Vigorous growth was achieved in the United States (up
48% to € 6 billion) and in Western Europe outside of Germany
(up 15% to € 5.4 billion). In Germany, the previous year’s level
was surpassed at € 6.4 billion (up 12%), while in South America
revenues dropped to € 2.1 billion (-2%). With worldwide sales
of 489,700 (1997: 417,400) units, Mercedes-Benz, Freightliner,
Sterling and Setra commercial vehicle sales set a new record as
well. The Commercial Vehicles North America, Vans Europe,
and Trucks Europe units performed particularly well.
EARNINGS SIGNIFICANTLY IMPROVED. The positive trend in
earnings achieved in1997 was strengthened considerably in
1998. Operating profit from commercial vehicles rose from
€ 342 million in 1997 to € 946 million. The new, more cost-
effectively manufactured products, continued process optimiza-
tion in production and constructive relations with the suppliers
were particularly important factors.
MERCEDES-BENZ VANS LEAD MARKET IN WESTERN EUROPE.
With the successful Vito (2.6 tons), Sprinter (2.5 to 4.6 tons)
and Vario (4.8 to 7.5 tons) van models and the V-Class minivan,
the Vans Europe unit again grew more strongly than the market
in 1998. It was able to reinforce the leading position it achieved
for the first time in the previous year in the segment from
2 to 6 tons in Western Europe. Market share in this segment
highest safety standards. In 1998, the product drive was
continued in Europe with the new Atego delivery truck.
This series is produced in Wörth, Germany, and has impressed
drivers and fleet operators.
The Atego was awarded the distinction of “Truck of the Year
1999” by the international automotive press after the heavy-
duty Actros truck took the title in 1997. The business unit’s
sales rose 13% to a total of 87,300 vehicles. In the sector
for trucks over 6 tons, we reinforced our market leadership
in Western Europe and achieved a market share of 23%.
The Trucks Europe production network, which includes
the facilities in Wörth, Germany, Aksaray, Turkey, Arbon,
Switzerland, and Molsheim, France, assembled a total of
88,700 trucks in 1998 (1997: 78,800 units).
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First market appearance of the Powertrain unit at the IAA
commercial vehicle show in Hannover.
rose to 18.7% (1997: 18.3%). In Germany, market share was also
higher at 27.1% (1997: 26.4%). Total sales for the business unit
increased to 199,500 vehicles exceeding the previous year
record by a further 10%. Germany remains the most important
market for the Vans Europe business unit at 66,100 vehicles
(up 8%). A total of 123,800 vehicles were sold in Europe out-
side of Germany (up 7%), and 8,600 vehicles were sold over-
seas (up 66%).
The “1998 Commercial Vehicle of the Year” awards illustrate
the outstanding customer acceptance of Mercedes-Benz vans:
The Sprinter and Vito won first place and the Vario third place
in the light trucks category of under 7.5 tons.
SUBSTANTIAL GROWTH IN REVENUES FOR TRUCKS EUROPE.
The Mercedes-Benz truck product program includes vehicles
tailored to market demands for nearly every application and
they all offer the highest possible customer benefit. It also
includes special vehicles such as the Econic, manufactured in
Arbon, Switzerland, that was launched in 1998. The success
factors of the truck product range are high efficiency, customer-
friendly maintenance intervals, an environmentally compatible
product concept, ergonomically designed interior space and
In 1998, the Unimog business was focused even more strongly
on the tool carriers segment and was integrated into the Trucks
Europe Unit. A total of approximately 2,900 Unimogs were sold
in 1998.
POWERTRAIN UNIT AS A COMPETITIVE SYSTEM SUPPLIER.
As a competitive component manufacturer with special system
expertise, the Powertrain unit produces and markets engines,
transmission units, axles, and steering systems. The unit’s
most important customers are the assembly plants for
Mercedes-Benz commercial vehicles in Western Europe.
Since 1998, it has also been producing engines for Freightliner
Corporation in North America. The unit delivered products
worth € 2.9 billion to customers inside DaimlerChrysler.
Revenues from external customers amounted to approximately
of € 0.3 billion. As a result of the business unit’s independent
presence at the International Commercial Vehicle Show in
Hannover, more customers from outside of DaimlerChrysler
have been reached. In the current fiscal year, the business unit
plans to continue to expand its sales organization and after-
sales activities. In addition, more attention will be focused
on improving its competitive position and taking advantage
of the opportunities offered by the global production network.
EVOBUS CONTINUES TO EXPAND LEADING MARKET POSITION.
The Buses Europe unit, whose corporate name is EvoBus
GmbH, increased its sales in 1998 by 4% to a total of nearly
8,300 Mercedes-Benz and Setra units (5,700 complete buses
and bus chassis and 2,600 vehicles respectively). The unit also
strengthened its leading market position in Western Europe
(including Turkey) with 20% for Mercedes-Benz (1997: 18%) and
9% for Setra (1997: 9%). Among the most important product
launches at Mercedes-Benz in 1998 were the CITARO, which
was awarded the title of “Commercial Vehicle of the Year,”
in the city bus category, the 15-meter version of the INTEGRO
as well as the innovative CITO midibus. In addition, the
15-meter Setra 319 GT-HD tour bus was introduced to the
market in 1998.
STRONGEST GROWTH IN NORTH AMERICA. Freightliner Corpora-
tion continued its growth course in 1998 and participated at an
above-average rate in the positive market development in North
America. The new Sterling brand, introduced to the market
after the acquisition of the heavy-duty trucks segment from
Ford Motor Co. in the spring of 1998, contributed substantially
to Freightliner's growth. The new heavy Freightliner Argosy
cabover truck was also received extremely well in the market.
Freightliner sold a total of 128,000 commercial vehicles in 1998
(1997: 89,400 units) and reinforced its position as the leading
manufacturer of heavy-duty trucks in North America. Among
Class 8 trucks (over 15 tons), the combined market share of
Freightliner and Sterling in the United States reached 31.3%
(1997: 28.2%). Business was especially favorable for medium-
duty trucks in Classes 6 to 7 (8.8 to 15 tons). In this segment,
sales in the United States soared by 84% to a total of 25,600
vehicles, and the market share reached 18.2% (1997: 11.7%).
The purchase of Thomas Built Buses Corporation was an
important milestone in DaimlerChrysler’s strategy to become
a leading manufacturer in the medium-duty commercial vehicle
segment in North America and to further strengthen its posi-
tion in the bus business. Thomas Built Buses, headquartered
in North Carolina, holds a 33% market share and is one of the
leading manufacturers of school bus assemblies in North
America.
Mercedes-Benz Mexico S.A. increased production to 9,800
commercial vehicles in 1998 (1997: 6,400 units), most
of which were exported to the United States and Canada.
SPRINTER REMAINS SALES LEADER IN LATIN AMERICA.
We continued to optimize the structure of the Commercial
Vehicles Latin America unit in 1998. The production company
in Brazil now concentrates on assembling truck and bus
chassis, while van production for South America is consolid-
ated in Argentina.
Despite a difficult economic environment, the business unit was
able to increase sales by 1% after the high level of the previous
year to more than 57,000 commercial vehicles. Here the market
success of the Sprinter van series produced by Mercedes-Benz
Argentina was decisive, and nearly, 15,000 units were sold.
Sales 1998
Units ('000)
98:97 (in %)
World
of which Vans
(incl. V-Class)
Pick-ups
Trucks
Buses
Unimog
Europe
of which Germany
Western Europe
(excl. Germany)
North America
of which U.S.A.
Latin America (excl. Mexico)
of which Brazil
Asia
490
217
4
234
33
3
277
107
148
126
108
58
39
12
+17
+12
+.
+23
+6
–7
+8
+11
+12
+46
+49
+5
+5
+11
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We also maintained our leading position in Brazil in the segment
of trucks over 6 tons and buses with market shares of approx-
imately 36% and 64% respectively. In Argentina, the market
share for trucks over 6 tons rose to 37% and 15% for vans.
IMPORTANT PROJECTS IN ASIA. The People’s Republic of
China is a market with tremendous growth potential for the
bus business in particular. A key project for DaimlerChrysler
is the Yaxing-Benz joint venture, which was founded in March
1997 with Jiangsu-Yaxing Motor Coach Group in Yangzhou.
It produces buses and chassis under the Yaxing and Mercedes-
Benz brands. The components for the bus chassis are supplied
by Mercedes-Benz do Brasil among others. Furthermore,
a partnership to jointly develop and produce a new light-duty
truck was agreed with Nissan Diesel in 1998.
Freightliner and Sterling, our truck brands in North
America, have now been joined by another strong
partner: the Thomas Built Buses Corporation, one of the
leading manufacturers of school bus assemblies.
First class, reliable service and qualified friendly
customer care: another area in which we aim to be
world leaders.
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Vehicle Sales Organization
responsibility; for the passenger car lines Mercedes-Benz and
smart, Dieter Zetsche will be responsible; and for commercial
vehicle lines Mercedes-Benz, Freightliner, Sterling and Setra,
Kurt Lauk will assume responsibility. Ted Cunningham is
responsible for the worldwide standardization of common
systems and processes in marketing and sales. This structure
allows for regional distinctions and requirements for product
development in order to fully capitalize market potential with
products suitable to the market and the customer, and to
promote future growth.
NEW REGIONAL RESPONSIBILITY. To quickly implement growth
possibilities and operational synergies, we also have created
three areas of regional market responsibility. Market
development and control of the sales companies has been
divided into three regions: North America, South America and
Europe/rest of the world. As a rule, the previously separate
wholesale stages will be integrated in this new organization.
Within each country, responsibility for all brands will then be
taken by one national company.
The main responsibility lies with each country chairman (CEO).
To achieve appropriate savings, central functions such as
finance, controlling, parts logistics and administration will be
combined. In addition, special brand managers in each of the
countries and regions will be responsible for the individual
makes and will orient them toward their respective market
segments and target groups.
MARKETING INTEGRATION COUNCIL. At the top of the new
organizational matrix of worldwide brand responsibility and re-
gional sales responsibility is a “Marketing Integration Council”.
This council steers the new marketing and sales structure and
consists of Ted Cunningham, Jim Holden, Kurt Lauk and Dieter
Zetsche. Among other responsibilities this group will determine
production goals and define the central services to be
established, as well as take decisions on profit goals in
coordination with the business units.
Following the merger of Daimler-Benz and Chrysler
we created a new worldwide sales structure as one of
the first results of the integration process. This new
organization lays the groundwork for achieving our
growth goals for the vehicles businesses and
realizing the synergy gains resulting from the
merger. New opportunities and standards have been
defined for the brand portfolio of the new company in
order to enhance the value of each individual brand.
Also for this purpose, distinct areas of brand
responsibility have been allocated within the Board of
Management of DaimlerChrysler. Our overall goal is
to be the best in the world, not only with our
products, but also in all aspects of customer service.
PROTECTION OF BRAND NAMES IS THE MOST IMPORTANT
REQUIREMENT. To protect our investment in the company's six
passenger car brands, we have identified the opportunities and
limits for each individual brand. The next step was to define the
respective positions in the market for the entire brand portfolio
and the product strategy, communication, and sales modalities.
This uniform worldwide brand management clearly separates
the brands from one another and defines the tasks within the
brand portfolio. From today’s perspective, each brand has
considerable prospects for growth within the framework of the
standards and market segments defined for it. Thus, the
operational units are provided with the basis for their strategic
decisions in conformance with the agreed standards. The major
brand positioning elements are defined in a so-called “Brand
Bible” to which all areas of the company are committed.
WORLDWIDE BRAND RESPONSIBILITY. With the goal of further
harmonizing the development of the different brands around the
world, we have restructured the organization of the six
passenger vehicle brands, as well as the four commercial
vehicle brands. Three different areas of worldwide
responsibility have been created. For the Chrysler, Plymouth,
Dodge and Jeep lines, Jim Holden will assume worldwide
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Services
debis, the services company of DaimlerChrysler, recorded
business developments well above average in all areas in
1998. Operating profit and sales reached new heights, and a
record number of new jobs were created. By merging the
activities of Chrysler Financial Company L.L.C. and debis at
the beginning of 1999, we have paved the way for a further
expansion of our financial services activities.
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Economic solutions and qualified on-site customer service are guiding principles for us. For example in car fleet
management, tailored to your requirements to ensure maximum time and cost savings.
DYNAMIC GROWTH CONTINUES. In 1998, the dynamic growth of
DaimlerChrysler Services AG continued for the ninth con-
secutive year. All business units – Financial Services, IT Ser-
vices and Telecom Services - showed remarkable development
and increased the volume of their business. Revenues increased
by 21% to € 9.6 billion. For the first time, more than half of the
division’s turnover, € 5.0 billion, came from outside Germany.
In addition, we commenced business operations in a further 10
countries.
OPERATING PROFIT INCREASED BY 59%. Once again, we were
able to show an improved result. Operating profit, the figure
which indicates the success of the division’s operations, was, at
€ 392 million, 59% higher than for 1997. All business units
contributed to this success by significantly improving their
results.
IMPROVED PROSPECTS FOR GROWTH THROUGH DAIMLER-
CHRYSLER. The merger of Chrysler Corporation with Daimler-
Benz AG has also opened up excellent new prospects for growth
in the services sector. As a result of merging the activities of
Chrysler Financial Company L.L.C. with those of debis at the
beginning of 1999, the Services Division is in a position to
expand its strategically important position within
DaimlerChrysler still further. With a portfolio of more than
€ 70 billion, DaimlerChrysler Services AG has grown into the
fourth-largest financial services company in the world outside of
the banking and insurance sector. Through the merger, it has an
extremely good market position, and can continue to grow with
the support of the financial strength of DaimlerChrysler. We
have integrated the former division of Trade Finance into the
division of Financial Services as debis Trade Finance. Since
January 1, 1999, now that the Potsdamer Platz project is largely
complete, real estate management operations have been the
direct responsibility of the financial unit of DaimlerChrysler AG.
In 1998 real estate management achieved a business volume of
€ 82 million (1997: € 112 million). These revenues are included
in the sales of DaimlerChrysler Services.
MORE THAN 5,000 NEW JOBS. At the end of 1998, the Services
Division employed 5,323 more staff than in 1997, the number of
employees increasing to 20,221. Our German companies
employed 13,519 persons (+25%), while an additional 6,702
(+66%) were employed in other countries. This, too, reflects the
increasing internationalization of our activities. The number of
people employed by debis has increased by 8,700 over the last
two years.
FINANCIAL SERVICES: STRONG GROWTH CONTINUED IN 1998.
The Financial Services unit, with 95 operating companies in 29
countries, increased revenues by 15% to € 5.9 billion. At the
same time, new business expanded by 24% to € 15.5 billion.
Contract levels also reached a new high, with € 27.5 billion.
Along with the gratifying trend in North America and Western
Europe, where we were able to expand our portfolio by 15% and
27%, respectively, debis also succeeded in increasing contracts
in Asia by 23% to € 1.5 billion, despite the economic and
Amounts in Millions
9 8
US $
9 8
€
9 7
€
Operating Profit
460
392
246
Revenues
11,232
9,573
7,924
Financial Services
IT Sevices
6,866
2,633
5,852
2,244
Telecom Services
1,762
1,502
5,102
1,613
1,182
Investment in Property,
Plant and Equipment
334
285
193
Employees (12/31)
20,221
14,898
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financial crisis. In the field of insurance (debis Insurance
Brokerage) we were able to increase premium volume by 7% to
€ 0.6 billion. The Trade Finance division raised its countertrade
volume by 18% to € 341 million.
IT SERVICES: BUSINESS OUTSIDE GERMANY GAINING IN IM-
PORTANCE. The IT Services division continued the positive
trend 1997 and increased its revenues by 39% to a current level
of more than € 2.2 billion, with 69% of that business with
customers outside of DaimlerChrysler. Revenues abroad showed
above-average growth, increasing by 97% to € 0.6 billion.
IT Services offers a complete range of IT services, from
consulting (Plan) through the development of software solutions
(Build) to the operation of application systems, mainframe
centers, networks and desktop services (Run). Along with the
general expansion of business, we have established a number of
new companies abroad, including Brazil, Japan, Singapore, the
Philippines, Russia, Hungary, the Czech Republic and Poland.
TELECOM SERVICES: SUCCESSFUL START ON THE FIXED NET-
WORK. debis Telecom Services achieved revenues of € 1.5
billion (1997: € 1.2 billion) with its activities in telecommuni-
cations, traffic telematics, traffic consulting and planning, and
online services. With its successful move into the fixed
telephone network, debitel has now become one of the most
important suppliers offering a complete range of services in the
telecommunications market. We also have 3 million (1997: 1.7
million) mobile telecommunication customers throughout
Europe. In Germany, debitel has around 1.8 million cellular
phone subscribers, and thereby remains first among the mobile
service providers. We have also expanded our business volume
significantly in the fields of traffic telematics and electronic
commerce.
To give debitel also direct access to the international money
markets, the two major shareholders, debis and Metro decided
to convert debitel into a joint-stock company. In March 1999, at
least 20% of the share capital will be placed with private and
institutional investors in Germany and abroad.
Brevi vel toto est iunior anno. Utor
The final assembly of
permisso, caudaeque pilos ut
the A321 passenger
equinae paulatim vello unum, demo
aircraft from the
etiam unum.
versatile Airbus family
in Hamburg.
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Aerospace
With an operating profit of € 623 million, 1998 was
the most successful year for DaimlerChrysler
Aerospace since its founding in 1989. The Aero-
space Division increased its revenues by 12% in
1998 to € 8.8 billion (1997: € 7.8 billion). Incoming
orders reached an all-time high as well at € 13.9
billion (1997: € 9.9 billion). Almost all business units
contributed to this favorable development. The
integration of SI Sicherungstechnik was an important
milestone in the realignment of the Defense and
Civil Systems business unit.
FAVORABLE CONDITIONS OVERALL. The economic situation was
favorable for the Aerospace Division in 1998. Demand for civil
aircraft and aeroengines remained strong. Positive factors
included production clearance for the Eurofighter. On the other
hand, the very limited public budgets in Western Europe had a
negative effect. The dollar exchange rate, which on an annual
average barely changed in comparison to 1997, created stable
conditions for currency exchange.
Regardless of the favorable market situation in the commercial
sector, competition continued to intensify in this industry.
There is still a great need to reduce costs and combine forces
to remain competitive on an international level.
Dasa, the British GEC, the French Lagardère, and the Italian
Finmeccanica have agreed to merge their aerospace activities
as part of the process of Europeanization of the aerospace
industry. The new aerospace company, provisionally named
Newco, is due to be founded in June 1999, provided per-
mission is granted by the regulating bodies of the European
Union. In addition, we are continuing to pursue the goal of
establishing a European Airbus corporation.
BEST EARNINGS EVER. The favorable development of earnings
demonstrates that we have strengthened the earning power of
this division in the course of the past few years. The division’s
operating profit rose by € 339 million to € 623 million,
making 1998 the most successful year since Dasa’s founding.
Significant factors in this development included the success of
the restructuring and optimization programs we introduced
several years ago. We are now able to significantly improve
our position in an extremely competitive market.
REVENUES AND INCOMING ORDERS HIGHER THAN EVER.
The Aerospace Division increased its revenues by 12% as
compared to 1997 and set a new record at € 8.8 billion.
Except for the Satellites unit, which for accounting reasons
remained just under the previous year’s level at € 0.6 billion
(1997: € 0.7 billion), all of the business units contributed to
this success. The growth in revenues was especially
pronounced in the Commercial Aircraft unit at € 3.0 billion
(1997: € 2.4 billion), in Defense and Civil Systems at € 1.7
billion (1997: € 1.5 billion), in Aeroengines at € 1.7 billion
(1997: € 1.5 billion) and the helicopter business at € 0.7
billion (1997: € 0.6 billion). While the higher delivery volume
in the Airbus program had a significant effect in the
Commercial Aircraft unit, the growth in the Defense and Civil
Systems unit predominantly resulted from the integration of
SI Sicherungstechnik, accomplished in 1998, which was
acquired from Siemens.
Incoming orders reached € 13.9 billion in 1998 and were 40%
higher than in 1997. The largest share in incoming orders was
once again contributed by the Commercial Aircraft unit at
€ 5.2 billion (1997: € 4.6 billion). At € 2.7 billion (1997: € 1.0
billion), the largest growth was achieved in the Military
Aircraft unit due to production clearance for the Eurofighter.
Amounts in Millions
98
US $
98
€
97
€
Operating Profit
731
623
284
Revenues
10,290
8,770
7,816
Commercial Aircraft
3,475
2,962
2,433
Helicopters
Military Aircraft
Space Infrastructure
Satellites
Defense and Civil
Systems
798
1,123
683
757
680
957
582
645
620
846
565
741
2,029
1,729
1,453
Aeroengines
1,948
1,660
1,515
Investment in property,
plant and equipment
382
326
255
R&D
2,402
2,047
2,233
Employees (12/31)
45,858
43,521
The Aeroengines (€ 2.6 billion; 1997: € 1.4 billion), Defense
and Civil Systems (€ 2.1 billion; 1997: € 1.6 billion), Space
Systems Infrastructure (€ 0.5 billion; 1997: € 0.4 billion), and
Satellites (€ 0.6 billion; 1997: € 0.6 billion) units were able to
increase their incoming orders. At € 744 (1997: € 818) million,
orders in the helicopter business did not quite reach the 1997
level, which had been exceptionally high due to two large
contracts.
WORK FORCE AND CAPACITIES CAREFULLY EXPANDED. The high
volume of orders on hand has allowed us to carefully expand
the work force in almost all business units. At the end of 1998,
we employed a total of 45,858 persons in the Aerospace Divisi-
on (1997: 43,521 persons). We gained 1,142 new employees as a
result of the integration of SI Sicherungstechnik.
The award of the Eurofighter contract by the nations involved
made a large number of jobs more secure for the future, above
all in the Military Aircraft and Aeroengine units.
In the Commercial Aircraft unit, the volume of orders on hand
increased to 1,300 aircraft by the end of 1998 (1997: 1,009
units). This and the expectation of increased earnings in the
future once again led the Airbus consortium to increase
production rates in the A319/A320/A321 program from 16
aircraft per month in 1997 to 22 aircraft per month by
mid-2000.
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Automotive Electronics
MTU/Diesel Engines
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RAIL SYSTEMS. The rail systems business unit, which was still
being conducted by the Adtranz joint venture in 1998, in-
creased its sales by 2% to € 3.3 billion. Incoming orders also
increased to € 4.2 billion (1997: € 3.8 billion). This increase
resulted mainly from large contracts such as the order for 400
locomotives for the Deutsche Bahn AG, a complete city rail
system for the Portuguese city of Porto, diesel and electric
inter-city trains for England, streetcar lines for the French city
of Nantes, and various contracts for “People Movers.”
Adtranz recorded a significant loss in 1998 because in previous
years it had taken on contracts at prices that did not cover
costs and suffered from technical problems. We have
introduced comprehensive structural changes to increase
earning power in a sustained way. These changes especially
affect the plants in Germany and Scandinavia. Adtranz
proposed its new platform concept in 1998, which in the future
is intended to cover all product areas from People Movers,
streetcars, underground trains, regional and inter-city trains all
the way up to locomotives.
Adtranz was able to expand its market presence in Switzerland
through the acquisition of the Schweizerische Lokomotiv- und
Maschinenfabrik AG and the railroad division of Schindler AG.
We also have extended our international presence to Africa with
a joint venture for servicing and maintaining rail cars in Ugan-
da. As a result, Adtranz is now active in 60 countries, operating
under the aegis of proprietary companies.
In January 1999, we decided to acquire the 50% share in
Adtranz held by our joint venture partner ABB. On the one
hand this enables us to fulfill a contractual obligation and on
the other hand the complete takeover is in accordance with
our intention and interest to push ahead more quickly and
more purposefully with the restructuring of Adtranz in future.
AUTOMOTIVE ELECTRONICS. After the sale of the semicon-
ductor division, the automotive electronics (TEMIC) business
unit was able to increase its volume of business by 35% to €
0.8 billion and its incoming orders by 22% to € 0.8 billion, cal-
culated on a comparable basis, as well as create 790 new jobs.
In the meantime, TEMIC is concentrating upon its six product
areas — drives and chassis, antiblock brakes, passenger
protection systems, sensor systems, high-end electronic
equipment and electric motors, which function as autonomous
units. Among our customers are the companies of
DaimlerChrysler and all major automobile manufacturers.
TEMIC made 45% of its sales in 1998 with products that were
not older than two years. We invest about 10% of revenues in
research and development annually to ensure that we maintain
our capacity to innovate. An additional 9% is applied to invest-
ment in plant, property and equipment. In the case of new cars,
up to 90% of all technical innovations are today based on
electronics. This is the main reason driving an automobile is
becoming increasingly simple, safe, and comfortable. TEMIC
has thus introduced a series of trend-setting innovations in the
new S-Class: both axles are outfitted with pneumatic spring and
adaptive shock absorber systems (ADS), which have been
integrated as standard equipment in the AIRmatic (Adaptive In-
Amounts in Millions
9 8
US $
98
€
97
€
Rail Systems*)
Revenues
Incoming Orders
Employees (12/31)
Automotive Electronics
Revenues
Incoming Orders
Employees (12/31)
MTU/Diesel Engines
Revenues
Incoming Orders
Employees (12/31)
3,891
4,906
3,316
4,181
3,261
3,809
23,785
22,715
885
892
754
760
557
622
4,638
3,848
1,081
1,072
921
914
878
897
5,893
5,758
*) Of which 50% are included in the financial statements of the
DaimlerChrysler Group.
telligent Ridecontrol). Furthermore, the Distronic radar-based
electronic distance control system was incorporated into the
S-Class for the first time. TEMIC also supplies the control
systems for the multiple-position recliner, electronic ignition
switches, chassis sensors and radiator fan.
MTU/DIESEL ENGINES. For the MTU/Diesel Engine units 1998
was very succesful. Thanks to sales growth in Europe and
North America, we were able to increase revenues by 5% to
€ 0.9 billion despite the more difficult market conditions in
East and Southeast Asia. The overall expansion of business was
due to growth in the commercial sectors of the market. The
new 2000 and 4000 product lines received an especially warm
welcome from our customers. With the new engines, the
company is in a position to fulfill the demands of the market for
drive systems that are economical, easy to maintain and
optimized for efficient fuel consumption. Thanks to improve-
ments made to the MTU ship propulsion assemblies, MTU has
maintained a leading position in this segment of the market for
several years now. For this reason, MTU has for a long time
been offering complete financial arrangements for ships
through debis Financial Services. Increases in turnover were
also attained in locomotive engines.
We developed standardized units for the new 2000 and 4000
line of products for generating stationary electric power in
the “decentralized energy system” segment of the market.
These cost-efficient units bear the brand name “Virtus”. This
enables MTU to offer a range of outputs from 100 to 2000 kW.
Furthermore, we concluded a marketing and distribution
agreement with the gas turbine manufacturer AlliedSignal to
close the performance gap between large diesel engines and the
gas turbines of General Electric. Our subsidiary, L’Orange,
which is a manufacturer of high-performance injection systems
for diesel, heavy fuel and gas engines and the innovative
common rail system, continued its steady growth in 1998.
North America
Production
Locations
Sales
Organization
Locations
Revenues
in Millions
€ Personnel
Passenger Cars
(Mercedes-Benz, smart)
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
Chrysler Financial Services
Services
Aerospace
Others
2
711
7,200
1,739
41
5,233
52,272
122,602
9
—
—
2
5
711
6,937
17,052
40
12
6
34
2,827
3,480
2,780
1,488
1,510
283
273
1,773
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DaimlerChrysler
W O R
L D W I D E
South America
Production
Locations
Sales
Organization
Locations
Revenues
in Millions
€ Personnel
Passenger Cars
(Mercedes-Benz, smart)
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
Chrysler Financial Services
Services
Aerospace
Others
1
2
3
—
—
1
—
365
354
1,247
17
1,329
1,523
365
2,085
12,720
2
6
2
32
10
203
77
64
12
697
113
80
Notes:
1. Unconsolidated revenues from the point of view of the individual business
2. Common sales locations for Mercedes-Benz and smart cars and Mercedes-Benz, Freightliner,
Sterling and Setra commercial vehicles.
3. Plus a further 37,801 employees engaged in joint sales of Mercedes-Benz and smart cars,
Mercedes-Benz, Freightliner, Sterling and Setra commercial vehicles and in central functions.
Europe
Production
Locations
Sales
Organization
Locations
Revenues
in Millions
€
Personnel
Passenger Cars
(Mercedes-Benz, smart)
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
Chrysler Financial Services
Services
Aerospace
Others
Africa
7
2
3,456
21,301
91,774
27
2,085
2,319
14
3,456
12,832
55,296
—
—
25
44
5
35
13
148
6,403
17,166
12
83
6,894
45,434
2,486
18,909
Production
Locations
Sales
Organization
Locations
Revenues
in Millions
€
Personnel
Passenger Cars
(Mercedes-Benz, smart)
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
Chrysler Financial Services
Services
Aerospace
Others
2
1
1
—
—
—
1
119
633
8
92
—
14
119
513
3,418
—
1
2
28
—
76
34
29
—
719
—
87
Asia
Production
Locations
Sales
Organization
Locations
Revenues
in Millions
€
Personnel
Passenger Cars
(Mercedes-Benz, smart)
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
Chrysler Financial Services
Services
Aerospace
Others
6
5
1
—
—
—
2
271
2,730
344
24
497
357
271
607
1,225
3
4
11
77
5
78
245
438
8
69
28
1,463
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Australia/Oceania
Production
Locations
Sales
Organization
Locations
Revenues
in Millions
€
Personnel
Passenger Cars
(Mercedes-Benz, smart)
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
Chrysler Financial Services
Services
Aerospace
Others
_
—
1
—
—
—
2
154
369
2
65
154
188
—
4
1
34
—
33
10
42
—
1
—
—
82
—
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Research
and Technology
The “Technical Vision” research
project is concerned with
primary safety in cars: a small
camera on the vehicle and a
computer inside the car assess
the traffic situation and
perform intelligent stop and go
driving operations, for example
near traffic signs, lights and
pedestrians, and warn the
driver of stop signs, red lights
and possible collisions.
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The development of innovative products with high
quality, comfort, safety, efficiency and environmental
compatibility – this is the main challenge for the
more than 36,000 employees engaged in research and
development activities at DaimlerChrysler.
INNOVATIVE ASSISTANCE SYSTEMS. Autonomous technical
assistance systems open up a broad spectrum of applications,
above all in the areas of safety, comfort and new vehicle and
system functions. DaimlerChrysler has already introduced such
systems - the dynamic DynAPS autopilot system and the
Distronic distance control system.
CRADLE OF KNOWLEDGE. The tasks of the Research and
Technology Division consist largely of supporting the other
divisions in the development of their technology strategies,
ensuring the integration of innovation and technology
management and creating the technological basis for products
with a competitive edge. Our areas of research include micro-
electronics, sensor technology, telecommunications and data
processing. Here are a few examples of key projects from these
areas, in which we have made significant progress in 1998.
STEER-BY-WIRE. Our Research and Technology staff has
developed a completely new approach to motor vehicle steering
that eliminates the need for a mechanical connection between
the steering wheel and the wheels. Because all commands are
electronically transmitted, this innovative concept is called
steer-by-wire. Using this technology, the steering wheel
functions exclusively as an input and feedback instrument for
the driver. The optimum position of the wheels is calculated
using appropriate control algorithms reflecting the driver’s
desires as well as vehicle and road conditions and is
implemented with corresponding electronic interventions.
The necessary control unit concepts were designed with the aid
of comprehensive driving dynamics simulations and have
already been tested in a variety of research vehicles.
SAFE DATA BUS. The prerequisite for true drive-by-wire
systems, which function without any mechanical or hydraulic
backup, is an absolutely reliable electronic system. With the
“TTP Data Bus”, DaimlerChrysler researchers developed such a
system on a solid scientific basis.
TTP stands for Time Triggered Protocol. This means the data
bus accepts data that sensors or control units want to send to
other units only in exactly defined time segments. At the same
time, all components of the system are duplicated. In this way
TTP, guarantees the highest degree of safety by recognizing
malfunctions and data transmission errors. A brake-by-wire
research vehicle equipped with the TTP data bus and electronic
brakes has been demonstrating its reliability for several
months.
Research and Technology is developing a number of other
assistance systems and demonstrated their technical feasibility
in test vehicles. Among them are systems to recognize road
conditions and traffic signs, stop-and-go automation and
systems for automatically staying in lane. The early involvement
of potential users in tests helped identify problems relating to
the acceptance of such electronic assistants.
MOBILE WORKSTATION. How can drivers best enjoy the benefits
these assistance systems provide? The Drive&Work research
project is dedicated to exploring the possibilities. For instance,
if a vehicle could move without driver intervention in a traffic
jam, the driver’s seat could become a mobile office.
In 1998, we introduced a modified steering wheel for this
purpose; its design incorporates a trackball and keyboard. As
long as the stop-and-go automation is activated, the driver can
turn his or her attention to office applications. As soon as the
system prompts the driver to resume driving functions, the
office application fades out and the instrument panel reappears.
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Simulated driving studies have demonstrated that the system
does not have any adverse effects on driver reaction.
ELECTRONIC COUPLING FOR TRUCKS. The objective of the
European joint research project “Chauffeur”, which was
initiated by Daimler-Benz, is to prepare for the introduction of
automatic driving functions in highway traffic.
DaimlerChrysler has developed the “electronic hitch” for this
purpose. It links two seven-and-a-half-ton trucks with each
other without any physical connection. The vehicle in front is
steered as usual, while the second one follows the first
automatically at a speed-dependent distance of between six and
14 meters. The new system results in significant savings of fuel
and highway space.
The electronic hitch has successfully passed first field tests on
the “Brenner Autobahn”. Additional tests are to follow in the
near future on the regular routes of a large European trucking
company.
With the “powder slurry” clear
paint process used for the A-Class,
solvent emissions have been
reduced to well below threshold
values and paint consumption
reduced by 20 %. The National
Association of German Industry
rewarded this innovation with the
Environment Prize for 1998.
DaimlerChrysler
and the Environment
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The protection of the environment is one of
DaimlerChrysler’s main corporate objectives. The
high quality expected of our products includes high
environmental standards and respect for natural
resources. Our environmentally compatible measures
cover the entire product range and take the complete
product life cycle into consideration, from the use of
raw materials to product development, production
and product use, as well as disposal and recycling.
AWARD-WINNING PAINT PROCESS FOR THE A-CLASS. The
integrated paint system for the Mercedes-Benz A-Class,
awarded the environment prize of the National Association of
German Industry in 1998, is another process that sets new
standards. Together with the supplier industry, we have
succeeded in implementing a process with minimal emissions
and reduced energy consumption that is exemplary from both
an economic and environmental perspective. By using the
“powder-slurry” procedure for clear coats, we have been able to
reduce solvent emissions to far below threshold values. At the
same time, the electrostatic application process makes it
possible to significantly reduce overspray. Paint consumption is
20% lower and paint waste is minimized as well.
ADDITIONAL ADVANCES IN PRODUCT-INTEGRATED ENVIRON-
MENTAL PROTECTION. We are committed to developing
products that are environmentally compatible in their
respective market segments.
For example, by using intelligent light weight construction
concepts for the new S-Class, particularly in the chassis and
bodywork, we have reduced vehicle weight by up to 662
pounds. Improved engines and aerodynamic drag have lowered
fuel consumption by an average of 17% compared to the
previous model. Another contribution to the conservation of
resources is the use of renewable raw materials (an average of
51 pounds per vehicle) and recycled materials. Recycled
materials now represent 14% of total plastics in the vehicle
compared to 6.5% in the predecessor model.
Increasing recycled materials is a focus for our Chrysler,
Plymouth, Jeep and Dodge vehicle products as well. Our
objective is to boost the proportion of recycled plastics to 30%
by 2002.
In August, the smart city coupe was ranked first on the German
Automobile Club’s environmental list. In addition to low
pollutant emissions and fuel consumption, the comprehensive
mobility concept was a key factor in this distinction.
MEETING INTERNATIONAL STANDARDS. To efficiently implement
the environmental philosophy of DaimlerChrysler, it is essential
for environmental protection to be rooted in corporate
processes. At an early stage, we started to develop environmen-
tal management systems based on international standards.
Our production locations were certified by external auditors.
All DaimlerChrysler automotive production facilities in Germany
and our Jeep assembly plant in Austria have been certified in
accordance with the European Eco Audit Ordinance since 1998.
Some locations have already been certified for the second time.
By applying this experience, we will develop certified environ-
mental management systems at our other locations, as well as in
administrative areas, in the years to come.
CONTINUOUS IMPROVEMENT OF ENVIRONMENTAL PRODUC-
TION STANDARDS. DaimlerChrysler considers itself a forerunner
in environmentally compatible production technologies. We
systematically promote the use and development of technologies
that conserve energy and water and at the same time minimize
emissions and solid waste. These efforts include reusing and
recycling raw materials and supplies and recycling production
waste. From an environmental perspective, the paint processes
used in our automotive plants are of special significance. In the
past, in the assembly plants of Mercedes-Benz, Chrysler,
Plymouth, Jeep and Dodge, we have introduced trendsetting
innovations in this area. As an example, the waste-water impact
has been lessened considerably with a lead-free cathodic
electrocoating system. Another important step was the
conversion to water-based paints for a number of coats. As a
result, paint solvent emissions have been markedly reduced.
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Human Resources
DaimlerChrysler represents the merger of two strong
partners. Our strength is based on the enthusiasm and
creativity of our employees. The results are successful
products and services, and in consequence, more
secure jobs, rising levels of employment and an
increased sharing in profits and capital by the staff at
all levels of the company.
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Lifelong learning:
Everywhere at
DaimlerChrysler we are
promoting the
professional development
of our employees in
courses, seminars and
discussion groups. The
Auburn Hills and
Stuttgart locations are
linked for this purpose
by a video conferencing
system.
Employees
1998
1997
DaimlerChrysler
441,502
425,649
Passenger Cars
(Mercedes-Benz, smart)
95,158
91,753
Passenger Cars & Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
123,180
118,639
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
89,711
85,071
Vehicle Sales Organization1)
31,280
30,518
Chrysler Financial Services
3,513
3,405
Services
Aerospace
Other2)
20,221
14,898
45,858
43,521
32,581
37,844
1) Mercedes-Benz and smart, Commercial Vehicles.
2) Headquarters, Other.
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CONTINUATION OF A RESULTS- AND PERFORMANCE-ORIENTED
PAY POLICY. With a performance-oriented pay policy,
DaimlerChrysler ensures that its salaries and wages are
globally competitive and that it has the means to attract highly
qualified and motivated employees.
Furthermore, it is a part of our “value-based management”
to have our employees share in the success of the company. The
profit-sharing plans for employees at DaimlerChrysler reflect
the success of business operations and the very considerable
contribution made by the staff.
It is an important ingredient of our pay policy for manager’s to
link compensation to performance of company goals.
DIVERSITY AND EQUALITY OF OPPORTUNITY AS AN OPERATING
PRINCIPLE. On Day One, the Chairmen of the Board of Manage-
ment of DaimlerChrysler officially signed a statement that
underscored our support for diversity. This “Diversity State-
ment” reflects our commitment to valuing differences in
providing an environment that supports equality.
A WORD OF THANKS TO OUR STAFF. We thank our qualified and
committed employees for their performance and their
commitment. Our gratitude is also due to the employees’
representatives for their constructive cooperation.
MORE THAN 19,000 NEW JOBS CREATED. As of December 31,
1998, DaimlerChrysler employed 441,502 employees worldwide
(300,068 in the previous year at Daimler Benz, and 125,581 at
Chrysler). Of these, about 233,000 are employed in Germany
and 117,000 in the United States. Adjusted for changes resulting
from the consolidation, DaimlerChrysler created more than
19,000 new jobs in 1998.
A COMMON CULTURE AS THE GOAL. The international coordina-
tion and global integration of our human resources activities
has become more important than ever before. Subjects such as
the integration of company cultures, global exchange programs
and compensation programs are thus in the forefront of our
concern. It is our goal in the context of integration to create a
DaimlerChrysler culture which preserves regional differences
and strengths.
LEADERSHIP AND MANAGEMENT DEVELOPMENT. The continued
professional and personal development of our employees is the
goal of our international personnel development program. In
1998, we continued to improve the quality of our executive
management, furthered the development of the next generation
of executives and also developed a future-oriented level of
qualifications and team spirit. When filling management
positions, we have consciously promoted selected executives
with high potential.
The role of the DaimlerChrysler Corporate University (DCCU)
is to support the development of executives utilizing four
major programming elements: Executive Education, Leadership
Development, Strategic Dialogue and Knowledge Management.
With its worldwide programs, the DCCU is an important
element of the integration process.
RECRUITING CAMPAIGN FOR YOUNG EXECUTIVES LAUNCHED.
With a recruiting campaign for young executives launched in
1998, we are creating the preconditions for uninterrupted and
successful growth in the future. In this connection, we have
expanded the regional groups of young executives and
increased hiring of new graduates, especially in the fields of
mechanical engineering, electrical engineering and computer
sciences.
In Germany, we have once again increased the number of new
trainees by 10% to 3,300 – more than 10,000 trainees are now
employed by the company.
BROAD ACCEPTANCE OF OUR PART-TIME EMPLOYMENT PLAN
FOR SENIOR STAFF. For us, an attractive part-time employment
model for senior staff is one way of ensuring a competitive work
force structure that makes a significant contribution to
guaranteeing a future supply of junior employees.
DaimlerChrysler was the first company in the German
automobile industry to offer its work force in Germany a part-
time employment model for senior staff. The nearly 2,000 part-
time contracts for senior employees that were concluded in the
year under review demonstrate the success and the broad
acceptance of our plan.
A N A L Y S I S
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I N A N C I A L S I T U A T I O N
The 1998 fiscal year was characterized by an excellent business development and a marked and sustained boost in earning
power. Operating profit increased by 38% to € 8.6 billion and the consolidated net income adjusted for non-recurring items
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reached € 5.2 billion. Return on net assets of 11.6% was calculated on the basis of the revised and unified controlling parameters
of the DaimlerChrysler Group. Return on Net Assets is thus significantly above the capital costs ratio of 9.2%. Cash flow from
operating activities has further improved. The structure of the cash flow statement and balance sheet ratios are still influenced
by the ongoing expansion in the financial services business.
MERGER HANDLED ACCORDING TO THE POOLING OF INTERESTS
METHOD. Subsequent to completion of the voluntary exchange
offer in the fall of 1998 in which the former shareholders of
Daimler-Benz tendered more than 98% of their shares in
exchange for DaimlerChrysler shares, all conditions for the
application of the pooling of interests method of accounting
were fulfilled. According to the pooling of interests method of
accounting the consolidated financial statements for prior years
are also presented as if DaimlerChrysler had always been a
combined company.
CONTINUED INCREASE IN EARNING POWER. DaimlerChrysler
increased its earning power in 1998 and posted an operating
profit of € 8.6 billion. This is an increase of 38% compared to
the 1997 figure of € 6.2 billion. Due to their non-recurring na-
ture, the operating profit does not include merger expenses
totaling € 685 million. It was especially pleasing that nearly all
business units were once again able to improve their operating
profit in 1998. At € 4.2 (1997: 3.4) billion, the greatest contri-
bution to operating profit by far was made by the Passenger
Cars and Trucks Chrysler, Plymouth, Jeep, Dodge division. The
improvement over the previous year was primarily due to in-
creased sales volume and lower warranty costs. The effects of a
strike dampened the 1997 operating profit for this division by
the amount of approximately € 0.5 billion. The Passenger Cars
Mercedes-Benz, smart division was once again able to increase
the high result level of the preceding years and achieved an
operating profit of € 2.0 (1997: 1.7) billion, in spite of the model
change to the new S-Class and the market launch of the smart.
A jump in earnings was achieved by the Commercial Vehicles
Mercedes-Benz, Freightliner, Sterling, Setra division. Their
operating profit increased from € 0.3 billion to 0.9 billion.
The fundamental upgrading of the product line in recent years
and the systematic addition of attractive new models is paying
off in all segments of the automotive business of the Group.
In addition to an expansion of volume, this also contributes
to a clear increase in profit margin. Additionally, the current
programs for cutting costs and increasing efficiency in all
business units are making an important contribution to the
improvement of profitability.
In our service activities, too, the dynamic business and income
trend of recent years has continued unabated in 1998. Chrysler
Financial Services were able to increase operating profit by
11% to € 0.7 billion. For the services integrated under debis the
further increase in leasing and sales financing volume,
together with the continued growth of IT Services and Telecom
Services, led to a jump in earnings of 59% to € 0.4 billion.
The Aerospace division continued to profit from the strong
demand for commercial aircraft and the outstanding marketing
success of the Airbus product line, especially the A320-family
of aircraft. In 1998, DaimlerChrysler Aerospace agreed on
a repayment of approximately € 0.9 billion to the Federal
Republic of Germany in complete discharge of the development
grants received in the past. This payment, combined with the
one made in 1997 of € 0.7 billion, discharges all repayment
obligations still existing in connection with the grants received
during the development phase of the Airbus program. Of the
repayment amount, € 0.2 billion was expensed in 1998. The
remaining portion has been capitalized and will be amortized
over those aircraft delivered in the future to which the repay-
ments are related. The operating profit of the Aerospace
division increased from € 0.3 billion to € 0.6 billion.
While the business units Automotive Electronics and MTU/
Diesel Engines, which are included in the Other segment, were
able to post further improvements in profitability, the situation
at Rail Systems continued to be unsatisfactory in 1998. The
financial results of Rail Systems were negatively impacted
by further restructuring measures and goodwill write-offs.
In January 1999, we agreed with ABB to take over its 50%
stake in Adtranz. We believe we will be able to implement the
necessary structural measures faster and more decisively in
order to improve the earning power of the world’s leading rail
technology company more quickly. The results of this segment
also include gains on disposals of the semiconductor activities
and the sale of two buildings at Potsdamer Platz. In addition,
the expenses for corporate research functions are included in
the results of this segment.
Operating Profit
by Segments
in Millions
Passenger Cars
(Mercedes-Benz, Smart)
Passenger Cars and Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
Chrysler Financial Services
Services
Aerospace
Other
Eliminations
98
US $
98
€
97
€
2,338
1,993
1,716
4,942
4,212
3,368
1,110
946
342
765
460
731
652
392
623
586
246
284
(171)
(146)
(225)
(93)
(79)
(87)
DaimlerChrysler-Group
10,082
8,593
6,230
INCREASE IN FINANCIAL RESULTS. In 1998, the financial
results reached € 0.8 billion and were 21% higher than in 1997;
however, there were significant changes in their makeup.
Income from affiliated, associated and related companies de-
clined by € 0.6 billion to € (0.1) billion. The financial income
for the year 1997 included the gain from the disposal of the
stake in Cap Gemini Sogeti. In addition, the income of Airbus
Industrie declined noticeably due to invoicing factors. Whereas
interest income at € 0.7 billion was less than the amount for
1997 due to lower interest rate levels, other financial results at
€ 0.1 billion (1997: minus 0.8 billion) are positive. In 1997,
especially due to the appreciation of the US dollar against the
D-Mark, other financial results were burdened by the settle-
ment and valuation of foreign exchange contracts which did not
qualify for hedge accounting. The improvement in 1998 over
1997 reflects the upward revaluation of the D-Mark in relation
to the US dollar in 1998.
COMPARABLE GROUP NET INCOME CLEARLY IMPROVED. The
net income reported in the income statement is € 4.8 billion, a
decrease of € 1.7 billion from 1997. However, net income fig-
ures for 1998 and 1997 include non-recurring items and are
therefore not comparable. The net income for 1997 included tax
benefits amounting to € 2.5 billion resulting from the special
distribution of € 10.23 (DM 20.00) per share of Daimler-Benz
AG and from the reversal of valuation allowances on deferred
tax assets. The net income for 1998 is reduced by costs
amounting to € 401 million (after taxes) related to the imple-
mentation of the merger. If adjusted for these non-recurring
items, the net income for 1998 at € 5.2 billion is 29% higher
than the comparable figure of € 4.1 billion for 1997. The 1998
extraordinary result of € 129 million is related to Daimler-
Chrysler Corporation’s early extinguishment of borrowings
carrying a high interest rate which would have run until the
year 2020. After adjusting for the special items, earnings per
share increased from € 4.28 in 1997 to € 5.58 in 1998.
DISTRIBUTION OF € 2.35 PER SHARE. Due to the favorable
trend in earnings in the operating business, we are proposing
to our shareholders at the Annual General Meeting to be held
on May 18, 1999 to declare a dividend of € 2.35 (DM 4.60) per
share for the 1999 fiscal year. On the basis of an aggregate
share capital entitled for dividends of € 2,561 million the total
distribution amount will reach € 2,356 million.
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57
Consolidaded
Statements of Income
in Millions
Revenues
Cost of sales
Selling, administrative
and other expenses
98
US $
98
€
97
€
154,615
131,782
117,572
(121,692)
(103,721)
(92,953)
(19,041)
(16,229)
(15,621)
The following table shows the transition from income before
financial income and income taxes reported in the statements
of income to the segment operating profit.
Research and development
(5,833)
(4,971)
(4,408)
Other income
Merger costs
Income before financial
income and income taxes
1,425
(803)
8,671
1,215
(685)
7,391
957
–
5,547
Reconciliation to
Operating Profit 1998
in Millions
98
€
97
€
Income before financial
income and income taxes
7,391
5,547
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Financial income, net
Income before
income taxes and
extraordinary item
Income taxes
Minority interests
Income before
extraordinary item
Extraordinary item,
net of taxes
Net income
Net income excluding
non-recurring items1)
896
763
633
+ Interest costs of pensions,
688
721
9,567
8,154
6,180
net
+ Operating income from
affiliated, associated and
related companies
+ Gains on unallocated
financial instruments
+ Merger costs
Operating Profit
(15)
74
(156)
(112)
685
–
8,593
6,230
(3,607)
(3,075)
(153)
(130)
482
(115)
5,807
4,949
6,547
(151)
(129)
–
5,656
6,126
4,820
5,221
6,547
4,057
1) 1998: merger costs (after taxes); 1997: tax reduction due to the special
distribution of € 10.23 (DM 20.00) per share of Daimler-Benz AG
(€ 1,487 million) and reversal of the valuation allowance on deferred
tax assets (€ 1,003 million)
FURTHER DEVELOPMENT OF OPERATING PROFIT AND SEG-
MENT REPORTING. In 1997, the Financial Accounting Stand-
ards Board (FASB) revised the requirements for segment re-
porting with the newly issued SFAS 131, “Disclosures about
Segments of an Enterprise and Related Information”. In this
respect the definition of operating profit according to SFAS 14
is no longer applicable. SFAS 131 requires that the reporting
of segment financial results be consistent with the internal
reporting system and with the information used by operating
management to determine the allocation of financial resources
among the segments (management approach).
In light of the merger and the application of SFAS 131, we have
developed segment reporting and a definition of operating
profit that achieves the goal of better international comparabil-
ity and, at the same time, provides the best possible descrip-
tion of the economic situation for each segment.
German and US companies treat company pensions in funda-
mentally different ways. German companies normally carry
the pension liabilities in the balance sheet which represent
provisions for future pension payments. US companies are re-
quired to fund pension obligations on an ongoing basis. This
funding takes the form of contributions by the US company to
external pension funds. The different method of funding
pension obligations by German and US companies results in
significant differences in the amount of pension expense
included in the statement of income. Pension cost for a US
company represents service costs and interest cost reduced by
investment earnings. In contrast the accrual to pension pro-
visions in the consolidated statements of a German company
comprise full interest costs in addition to the service costs.
Because of this inherent difference, we are removing pension
interest cost, net of plan investment income, from the
calculation of operating profit.
In the calculation of operating profit, we are including the
earnings and losses of those affiliated, associated and related
companies, which are not considered to be only financial
investments but in which we have entrepreneurial interest.
Gains and losses on the settlement of financial instruments,
which are intended to be hedges for our operations, but do not
qualify for hedge accounting treatment under US GAAP, are
also included in operating profit.
According to the new system, interest on advance payments
for long-term contracts is excluded from operating profit.
Henceforth, DaimlerChrysler AG corporate research costs are
considered Group expenses and are no longer excluded from
the calculation of operating profit. In 1998, merger costs were
removed from the calculation of segment operating profit.
On the whole, the new calculation method results in a slightly
higher operating profit. The following table compares the old
and new calculation methods.
Reconciliation of
Operating Profit 1998
in Millions of €
Operating profit according
to SFAS 14 (old)
Interest costs of pensions,
net
Operating income from
affiliated, associated and
related companies*)
Gains on unallocated
financial instruments
Interest on advance
payments on long term
contracts
Corporate research of
DaimlerChrysler AG
Merger costs
Daimler-
Chrysler
Group
Passenger
Cars
Mercedes-
Benz, smart
Chrysler
Financial
Services
Passenger
Cars and
Trucks
Chrysler,
Plymouth,
Jeep, Dodge
Commercial
Vehicles
Mercedes-
Benz,
Freightliner,
Sterling, Setra
Services
Aerospace
7,613
1,913
5.547
4,007
865
652
374
537
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I
S
688
179
721
165
106
80
(156)
(154)
(163)
685
27
74
(112)
(126)
–
–
6.230
–
–
40
5
(30)
–
–
–
–
–
–
–
–
–
–
–
–
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59
12
143
6
–
–
33
–
(90)
–
392
–
623
Operating profit according
to SFAS 131 (new)
8,593
1,993
4,212
946
652
*) The income from Airbus Industrie was included in the previous definition of operating profit.
COMMON PERFORMANCE MEASURES ESTABLISHED THROUGH-
OUT GROUP. For guidance and control of the DaimlerChrysler
Group and its business units, we have placed the controlling
measures of the two companies on a uniform basis. This adjust-
ment was made easier by the fact that the controlling factors of
the two partners were already based on the principles of value-
oriented company management and were similar in their fea-
tures. The new control system permits and promotes decentral-
ized responsibility, transparency across the business units, and
investment allocation oriented toward capital markets’ princi-
pals in all units of the DaimlerChrysler Group.
For control purposes, we distinguish between the Group level
and the operative business level. At the Group level, we use
Net Operating Income, an after-tax measure of results, which is
set in relation to the capital invested in the Group, to determine
the Group profit statistic Return on Net Assets (RONA). This
shows the extent to which the DaimlerChrysler Group as a
whole is achieving or exceeding the return expectations of its
investors. The expected return, or weighted average cost of
capital for the Group, is defined as the minimum return which
the investors expect for the investment of equity and borrow-
ings. These capital costs are determined primarily by the inter-
est rate for long-term bonds plus a risk premium for invest-
ments in stocks. At the present time, we calculate the Group’s
weighted average cost of capital to be 9.2% after taxes.
For the industrial business units, we continue to use operating
profit, a measure of results before interest and taxes, since this
figure accurately depicts the scope of responsibility of opera-
tive management. As a capital basis in this respect we also use
net assets, that is, assets less those liabilities which are not
subject to interest payments. The minimum expected return on
net assets is 15.5%. The costs of capital in the new measure-
ment system are largely consistent in their levels of expecta-
tion to the 12% on capital employed which was formerly pre-
scribed for the business units of the Daimler-Benz Group as the
minimum required rate of return. For the financial services
business units, it is customary to use return on equity as the
controlling standard.
In addition to the minimum expected return on invested capi-
tal, the individual business units are managed on the basis of
strategic return targets and growth goals, which are oriented to
the best competitor in the respective industry. In addition, the
economic value added, defined as operating profit after deduc-
tion of the average capital costs, serves as a further measure
for achieving our profitable growth. In the individual business
units, specific value drivers were defined which are in accord-
ance with the control variables for the Group, complement
them and serve as parameters for the operating units for in-
creasing the value of the corporation.
Net assets are determined on the basis of book values, as
shown in the following table.
Net Assets1)
of the DaimlerChrysler-Group
in Millions
98
US $
98
€
Stockholders’ equity
35,629
30,367
Minority interests
Financial liabilities of the
industrial segment
Pension provisions of the
industrial segment
810
691
10,869
9,264
19,394
16,530
Net Assets and
Return on Net Assets
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1998
1997
In Billions
In Billions
of €
of €
Annual Average
Net Assets
1998
%
1997
%
DaimlerChrysler Group
(after taxes)
56.5
51.4
11.6
10.2
1) Year-end values; annual average: € 56.5 billion (US $ 66.3 billion)
Return on Net Assets
Net assets
66,702
56,852
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For the individual industrial businesses, the net assets are de-
rived from the asset side, since these businesses are often not
legal units and therefore also do not have an evolved financing
structure. Net assets are derived from total assets by deducting
non-interest bearing debt. In terms of value, derivation from
liabilities and from assets comes to the same results.
The return on net assets for the DaimlerChrysler Group, based
on the net operating income in the amount of € 6.6 billion,
rose in the 1998 fiscal year to 11.6% (1997: 10.2%), and was
significantly higher than the average costs of capital. Especially
encouraging was the fact that all divisions succeeded in im-
proving their return on net assets or their return on equity
compared to 1997 and that the industrial units overall ex-
ceeded the minimum expected return of 15.5%. The return on
net assets for the rail systems was negative due to the business
problems at Adtranz.
60
Industrial business
(before interest and taxes)
Passenger Cars
(Mercedes-Benz, smart)
Passenger Cars and
Trucks
(Chrysler, Plymouth, Jeep®, Dodge)
Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra)
Services1)
Aerospace2)
Rail Systems,
Automotive Electronics,
MTU/Diesel Engines
8.0
7.2
25.1
23.8
17.7
16.1
23.8
20.9
5.5
5.3
17.1
6.5
0.7
1.4
1.2
0.5
0.8
17.5
17.4
43.0
36.2
1.2
(18.4)
(11.2)
Financial Services
Chrysler
Financial Services
debis
Financial Services
Stockholders' equity
Return on Equity3)
3.0
2.9
21.8
20.0
1.6
1.2
17.4
16.3
1) Excluding financial services
2) The organization of business procedures in the aerospace industry
under which part of the capital employed is generally financed
by advanced payments results in a relatively low capital base and
correspondingly higher RONA value; this is therefore not directly
comparable with RONA values from other branches of industry
3) Before taxes
Reconciliation to
Net Operating Income
in Millions
Net income
Non-recurring items1)
Net income adjusted for
non-recurring items
Minority interests
Interest expense related
to industrial activities,
after taxes
Interest cost of pensions
related to industrial
activities, after taxes
Net operating income
98
€
97
€
4,820
6,547
401
(2.490)
5,221
4,057
130
476
115
406
748
674
6,576
5,252
1) 1998: merger costs (after taxes); 1997: tax reduction due
to the special distribution of € 10.23 (DM 20.00) per share
of Daimler-Benz AG (€ 1,487 million) and reversal of the
valuation allowance on deferred tax assets (€ 1,003 million)
MARKED INCREASE IN THE BALANCE SHEET TOTAL. The
comparison between the amounts shown in the balance sheet
for December 31, 1998 and year-end 1997 are greatly affected
by the exchange rates applicable to assets and liabilities de-
nominated in currencies other than Euro or D-Mark. For ex-
ample, the exchange rate applicable for converting the US $
balance sheets of the American companies in the Group at the
end of 1998 fell to DM 1.67 compared with DM 1.79 one year
previously. Correspondingly, the exchange rate of the Euro
against the US $ increased from US $ 1.09 to 1.17. This means
that the overall increase in the consolidated balance sheet total,
which rose 9% to € 136.1 billion is somewhat understated
compared to the development of original balance sheets totals
in local currencies. The increase in the balance sheet total
results primarily from the continuing expansion in the leasing
and sales financing business. On the assets side leased equip-
ment increased by € 3.6 billion and receivables from financial
services by € 4.8 billion. Together these items now amount to
€ 41.1 billion, representing approximately 30 % of our total
assets. These are balanced on the liabilities side by financial
liabilities in the amount of € 40.4 (1997: 34.4) billion.
Fixed assets rose by 12% to € 49.6 billion. This was mainly due
to the growth in leased equipment, whereas property, plant and
equipment only rose by 3% to € 29.5 billion. Inventories – less
advance payments received – are recorded as € 11.8 billion in
the consolidated balance sheet. Their share of the balance
sheet total remains almost unchanged at 8.7%. Receivables
from sales of goods and services and other receivables have
fallen by € 0.3 to 18.4 billion overall. In the previous year this
figure included tax receivables in the amount of € 1.5 billion
relating to the special distribution of Daimler-Benz AG. Liquid
assets totaled € 19.1 billion at December 31, 1998 and exceeded
the amount for the previous year by € 1.8 billion.
On the liabilities side, stockholders’ equity increased from
€ 28.0 to 30.4 billion. Despite the negative effects from
currency translation the equity ratio, adjusted for dividend
payments, remains at 21%, the level of the previous year. Ex-
cluding the leasing and sales financing business, the equity ra-
tio amounted to 28% (1997: 28%). Overall the accrued liabilities
recorded on the balance sheet fell by € 1.2 to 34.6 billion due
to the fact that DaimlerChrysler Corporation funded a portion
of its postretirement healthcare and life insurance benefits
liability.
Balance Sheet Structure
In Billions of €
Non-Current Assets
136
37%
125
35%
125
21%
Current Assets
55%
55%
29%
45%
28%
136
21%
25%
48%
30%
of which: Liquidity
Deferred Taxes and
Prepaid Expenses
14%
14%
8%
10%
98
97
5%
97
6%
98
Stockholders’ Equity
Accrued Liabilities
Liabilities
of which:
Financial Liabilities
Deferred Taxes
and Income
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CONTINUED GROWTH IN THE FINANCIAL SERVICES BUSINESS.
In 1998, the leasing and sales financing activities in the
DaimlerChrysler Group were performed mainly by Chrysler
Financial Services and debis Financial Services. In 1999, these
two business units will be merged within DaimlerChrysler
Services (debis) AG. In order to make the influence of this
rapidly growing business on the consolidated financial state-
ments more transparent, we have presented in the consolidated
balance sheet and statements of income and cash flow the con-
solidated figures for our leasing and sales financing activities
in addition to the figures for the whole Group. In the interest of
comparability with other financial services companies, we have
presented the financial services activities as if they were per-
formed by an independent company (stand alone approach).
Consequently, the vehicles included under equipment on
operating leases are, for example, reported at market value and
not at the Group’s manufacturing costs; the funds which are
loaned within the DaimlerChrysler Group (inter-company
loans) are presented as financial liabilities.
15
10
5
–5
–10
–15
–20
–25
Cash Flow
In Billions of €
d by
g Activities
e
vid
ash Pro
eratin
C
p
O
d for
g Activities
ash Use
estin
v
In
C
g Activities
d by
e
vid
ash Pro
ncin
C
a
Fin
Overall, the financial services business shows an income be-
fore financial income and income taxes of € 936 million (1997:
792 million). This increase in income is largely due to the con-
tinuing very brisk business in Germany and the USA, where
we were able to enjoy in particular the benefits of greater sales
volumes of our cars and at the same time greater market pen-
etration. The balance sheet total of the leasing and sales financ-
ing business increased by 18% to € 47.9 billion. The largest
share continued to be receivables from financial services at
€ 26.5 billion (1997: € 21.7 billion). This is balanced on the
liabilities side mainly by financial liabilities, which in the year
under review increased by € 5.4 billion to € 36.8 billion as
a result of the continuing growth in volume. Stockholders’
equity used in the financial services business amounted to
€ 4.6 billion at year-end and represents approximately 10% of
the balance sheet total.
Balance Sheet Structure of the Financial Services Business
In Billions of €
48
10%
1%
82%
77%
41
11%
1%
81%
77%
Stockholders’ Equity
Accrued Liabilities
Liabilities
of which:
Financial Liabilities
Non-Current Assets
of which:
Equipment on
operating Leases
25% (1997: 24%)
Current Assets
of which:
Receivables from
Financial Services
48
27%
73%
55%
41
25%
75%
53%
1996
1997
1998
HIGHER CASH FLOW FROM OPERATING ACTIVITIES. In 1998,
cash flow provided by operating activities adjusted for changes
in the consolidated group and currency effects grew by 35%
and reached € 16.7 billion (1997: € 12.3 billion). This was
primarily caused by improved financial results (before non-
cash expenses and income). Cash used for investing activities
in the amount of € 23.4 billion (1997: € 14.5 billion) was
influenced by the ongoing expansion of the leasing and
sales financing business. Additions to equipment on operating
leases increased by € 2.1 billion to € 5.3 billion net. At the
same time capital tied up with respect to receivables from
financial services grew by € 2.8 billion. In addition, we further
increased our investments in the money and capital markets.
In comparison to 1997, cash provided by financing activities
more than doubled and reached € 6.8 billion. This resulted
primarily from higher net borrowings in the amount of
€ 7.9 billion (1997: € 6.2 billion). In 1997, cash flow from
financing activities was impacted by Chrysler Corporation’s
acquisition of € 1.9 billion of its common stock as part of a
share repurchase program. The special distribution of Daimler-
Benz AG in connection with the tax refund and the subsequent
capital increase caused substantial flows of capital which,
however, level off in the calculation of cash flow from financing
activities. Overall, development of individual cash flows caused
a € 0.4 billion reduction in cash and cash equivalents with
initial maturity of less than 3 months to € 6.3 billion. At the
same time liquid assets which also include investments and
securities with longer maturities increased from € 17.3 billion
to € 19.1 billion.
Deferred Taxes
and Income
8%
98
97
7%
97
7%
98
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FINANCING ACTIVITIES MARKED BY DISTRIBUTE-RECAPTURE
PROGRAM OF DAIMLER-BENZ. In 1998, changes in German tax
laws caused us to distribute € 3.8 billion of retained earnings
of Daimler-Benz AG, mostly generated during the high-earning
80’s, to stockholders. This resulted in an additional distribu-
tion in 1998 of € 10.23 (DM 20) per Daimler-Benz share. The
former Daimler-Benz stockholders received a total dividend
of € 5.3 billion which represents the retained earnings plus
the tax refund from the German fiscal authorities. In order
to restore our original balance sheet ratios, we subsequently
undertook a capital increase in the overall volume of € 3.8
billion by way of a rights offering. More than 90% of our stock-
holders participated in this offering.
The group’s funding requirements will be influenced by the
continued growth of the financial services business. To meet
this need and to optimize capital costs we are resorting primar-
ily to international money and capital markets. In 1998 we
again made use of asset backed securities to limit group debt
by securitizing receivables from leasing and sales financing.
CENTRAL REFINANCING MANAGEMENT. In the Daimler-
Chrysler Group, we will coordinate the funding of our opera-
tions on a centralized basis by using our regional holding
and finance companies to obtain funds in the money and
capital markets. Longer-term financing activities in the inter-
national capital markets will generally be carried out with
issues which are guaranteed by DaimlerChrysler AG. This will
ensure that we come to the financial markets with a consistent
credit standing, and therefore will obtain the most economical
funding for the Group.
CREDIT RATING AT A HIGH LEVEL. DaimlerChrysler AG is
rated by the international firms Moody’s Investors Service and
Standard & Poor’s for both short- and long-term borrowing. The
long-term borrowing ratings of A1 and A+ and short-term bor-
rowing with Prime-1 and A-1 are highly regarded internation-
ally. In fact, Moody’s short-term Prime-1 rating is the highest
category possible. Since DaimlerChrysler AG guarantees loans
issued by our group companies, they also benefit from our high
credit rating. As part of the business combination, Daimler-
Chrysler AG has guaranteed the outstanding long-term debt
obligations of the former Chrysler Corporation and Chrysler
Financial Company. Following this action, both rating organiza-
tions upgraded their ratings of these liabilities, whose long-
term rating was slightly below the referenced categories, to the
level of A1 or A+.
ACTIVE INTEREST MANAGEMENT. The liquid assets available in
the DaimlerChrysler Group are invested, partly in the money
markets and to a larger extent in the capital markets, with
a view to both the cash flow needs of the Group and the
optimization of returns. The division between the two investment
priorities (asset allocation) is the basis of our interest
management.
The investments in the capital markets are governed in accord-
ance with a risk limit established by the Board of Management
using the value-at-risk method. The instruments of modern
portfolio management are used to invest the liquid funds in
fixed-interest securities and stocks. In the asset and foreign
currency management, derivative financial instruments are
only used to hedge against market risks. For ongoing determi-
nation and tracking of investments and market values, as well
as results, we utilize a central front-end system.
In accordance with the guidelines established by the Bank for
International Settlements (BIS) on risk management in banks,
the trading divisions are separated organizationally, physically
and in their technical systems from the administrative func-
tions of settlement, financial accounting and controlling.
EURO INTRODUCED AS GROUP CURRENCY. After the bilateral
exchange rates between the currencies of the eleven participat-
ing states were established by the European Council of Heads
of States and Governments in early May 1998, the euro was of-
ficially introduced as the common currency on January 1, 1999.
Due to the global orientation of our activities, we wholeheart-
edly welcome this step and regard it as a definite opportunity
for our company. In the future, the benefits of productivity in-
creases in our goods and services manufactured in the euro
area will no longer be reduced by exchange rate fluctuations.
We have introduced the euro and replaced the D-Mark as the
group-wide currency on January 1, 1999. To this end, the
invoicing and reporting systems have been converted to euros.
The cost of the conversion incurred during the past years
totaled approximately € 100 million. These conversion costs
will be offset in the long term by annual savings of approxim-
ately € 50 million due to lower transaction and forward ex-
change cover costs.
HEDGING EXCHANGE RATE RISKS. The international orienta-
tion of our business activities results in streams of deliveries
and payments denominated in a variety of currencies. Gener-
ally, the exports from Germany exceed the imports invoiced in
other currencies, therefore, DaimlerChrysler is exposed to
exchange rate risks. The net exposure resulting after offsetting
exports and imports in the individual currencies is regularly
assessed in the context of central currency management and is
hedged with appropriate financial instruments on the basis of
continuously reviewed currency rate expectations. In the
process, the opposing currency risks of DaimlerChrysler
Corporation are netted against the currency risks of Daimler-
Chrysler AG. The net assets of the Group which are invested
abroad in subsidiaries and affiliated companies are not in-
cluded in the management of currencies.
As a result of the introduction of the euro on January 1, 1999,
risks associated with the currencies of the countries participat-
ing in the euro will no longer exist. Henceforth, the Group will
be subject to exchange rate exposure from transactions
denominated primarily in the currencies listed in the following
table. The table demonstrates the negative effect of a 10% up-
ward revaluation of the euro on expected cash flows before
taxes in the years 1999 and 2000, after considering hedging
actions which have been taken until December 31, 1998.
Exchange Rate
Sensitivities in 1999
in Billions of €
USD
CAD
GBP
JPY
Other
Total
Gross amount of foreign
currency exposure
Gross amount of foreign
currency netting
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11.5
4.3
5.5
5.7
Net currency exposure
7.2
(0.2)
3.1
0.2
2.9
1.8
0.6
1.2
2.1
24.0
0.4
11.2
1.7
12.8
Negative effect of a 10%
appreciation of the euro
after hedging1)
0.11
–
0.05
–
0.03
0.19
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Exchange Rate
Sensitivities in 2000
in Billions of €
USD
CAD
GBP
JPY
Other
Total
Gross amount of foreign
currency exposure
Gross amount of foreign
currency netting
11.6
6.0
5.7
5.9
Net currency exposure
5.6
(0.2)
3.3
0.3
3.0
1.7
0.3
1.4
3.4
25.7
1.3
13.8
2.1
11.9
Negative effect of a 10%
appreciation of the euro
after hedging1)
0.24
–
0.13
0.06
0.16
0.59
1) On cash flow before taxes, in consideration of existing hedging contracts
FUTURE RISKS. As a globally active company, DaimlerChrysler
is subject to a number of risks intrinsic to its corporate activi-
ties. Above, we have described the risks resulting from the
development of currency exchange rates, including the steps
we take to insure ourselves against them. Additional uncertain-
ties result from the further economic development of the
national economies important to us, which are further re-
inforced by the strongly cyclical nature of demand in some
of our relevant markets. In particular, the automotive sector is
characterized by strong competition, which should intensify
over time due to worldwide excess capacities. Like all auto-
motive manufacturers, the DaimlerChrysler Group is affected
by increasingly strict emissions and fuel consumption require-
ments and safety standards in the sales markets for the
vehicles it produces. However, we believe that due to the
merger of two strong partners and the targeted promotion of
our innovative strength, we are well prepared to address these
risks and uncertainties. We are confident that we will also be
able to offer our customers attractive and highly competitive
products and services in the future.
We utilize effective internal control systems to determine and
deal with existing risks. These involve the use of group-wide
standardized guidelines, running reliable software, selecting
and training qualified personnel and ongoing checks by our
internal auditors. As part of the merger, the existing internal
control systems will be combined into a risk management
system that meets the requirements of the German Business
Monitoring and Transparency Act (KonTraG). This will enable
the Board of Management to identify potential risks at an early
stage and to initiate appropriate countermeasures.
CHANGEOVER TO THE YEAR 2000. We have made an inventory
of the measures which are necessary for the adaptation of our
information processing and communications systems to the
year 2000. This study of year 2000 compliance did not only
concentrate on the data processing systems but also on the
technical equipment and machines in our production facilities
and spare parts warehouses, as well as the research and devel-
opment facilities, and it also included our suppliers and the
dealer organizations. In the main, the necessary conformance
measures will be implemented decentrally within the opera-
tional business units. A global project organization will manage
the exchange of know-how throughout the Group and coordi-
nate the implementation process. Using a reporting system
called into being specifically for this purpose, the Board
of Management will be informed at regular intervals of the
progress of the project and the critical areas of action.
In order to allow a smooth transition to the year 2000, all criti-
cal systems not yet adjusted to the date change are targeted to
be modified or replaced by the third quarter of the current
year. Together with the other automobile manufacturers in Ger-
many and the United States we are also working with our
suppliers so that they can make the necessary preparations for
the year 2000 changeover. We anticipate that our key suppliers
who have not yet completed the conversion process will
undertake the appropriate adjustment measures in time.
The following timetable shows DaimlerChrysler’s internal
target dates for compliance and the estimated compliance
status as of December 31, 1998, by area:
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Status of Compliance
as of December 31, 1998
Planned Target Date for
100% Compliance
Critical business computer systems
Critical plant floor equipment
Production and critical
non-production suppliers
Vehicle components
End-user computing
Dealers
99%
65%
67%
100%
33%
65%
December 1998
September 1999
June 1999
September 1999
September 1999
September 1999
The costs for the whole changeover process are expected to
amount to approximately € 240 million.
EVENTS AFTER THE END OF THE 1998 FISCAL YEAR. Beyond
the developments already described, no events occurred after
December 31, 1998 which are of major significance for
DaimlerChrysler and would lead to a change in the assessment
of the Group. The course of business in the first months of
1999 confirms the statements in the chapter Outlook.
This Annual Report contains forward-looking statements based on beliefs of DaimlerChrysler management. When used in this
document, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and “project” are intended to identify forward-looking
statements. Such statements reflect the current views of DaimlerChrysler with respect to future events and are subject to risks and
uncertainties. Many factors could cause the actual results to be materially different, including, among others, changes in general
economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products, lack of
acceptance of new products or services and changes in business strategy. Actual results may vary materially from those projected here.
DaimlerChrysler does not intend or assume any obligation to update these forward-looking statements.
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The accompanying consolidated financial statements
(consolidated balance sheets as of December 31, 1998 and 1997,
consolidated statements of income, cash flows and changes in
stockholders’ equity for each of the years in the three-year
period ended December 31, 1998) were prepared in accordance
with the United States Generally Accepted Accounting
Principles.
In order to comply with § 292 a HGB (German Commercial
Code), the consolidated financial statements were prepared in
Deutsche Mark and supplemented with a consolidated business
review report and further explanations. Therefore, the
consolidated financial statements, which have to be filed with
the commercial register and published in the Federal Gazette,
comply with the Fourth and Seventh Directive of the European
Community. To interpret these directives we relied on the
statement of the Committee for Accounting Directives, which
was agreed upon by the European Commission and the
German Federal Department of Justice.
With the introduction of the euro effective January 1, 1999 we
have converted our internal and external reporting to euro and,
therefore, restated the consolidated financial statements and
the consolidated business review report including the figures
of fiscal 1997 to euro using the exchange rate as of January 1,
1999 (see Note 1 to the consolidated financial statements). The
Form 20-F will also be presented in euro with the consent of
the United States Securities and Exchange Commission (SEC).
The consolidated financial statements and the consolidated
business review report as of December 31, 1998 prepared in
accordance with § 292 a HGB (German Commercial Code) and
filed with the commercial register in Stuttgart under the
No. HRB 19 360 will be provided to shareholders upon request.
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S
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The Board of Management of DaimlerChrysler AG is
responsible for preparing the accompanying consolidated
financial statements.
We have installed effective internal controlling and monitoring
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 software,
the selection and training of qualified personnel, and ongoing
reviews by our internal auditing department.
As part of the merger, the existing internal control systems will
be combined into a risk management system that meets the
requirements of the German Business Monitoring and
Transparency Act (KonTraG). This will enable the Board of
Management to identify potential risks at an early stage and
to initiate appropriate countermeasures.
KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft has audited the consolidated
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 consolidated
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.
Robert J. Eaton
Jürgen E. Schrempp
Manfred Gentz
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We have audited the accompanying consolidated balance sheets
of DaimlerChrysler AG and subsidiaries (“DaimlerChrysler”) as
of December 31, 1998 and 1997, and the related consolidated
statements of income, cash flows, and changes in stockholders'
equity for each of the years in the three-year period ended
December 31, 1998. These consolidated financial statements
are the responsibility of DaimlerChrysler's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the
consolidated financial statements of DaimlerChrysler Corpora-
tion and consolidated subsidiaries (“DaimlerChrysler Corpora-
tion”), a wholly-owned subsidiary of DaimlerChrysler AG,
which statements reflect total assets constituting 43 percent
and 44 percent at December 31, 1998 and 1997, and total
revenues constituting 45 percent, 46 percent and 47 percent
for the years ended December 31, 1998, 1997 and 1996, of the
related consolidated totals. Those statements were audited by
other auditors whose report has been furnished to us, and
our opinion, insofar as it relates to the amounts included for
DaimlerChrysler Corporation, is based solely on the report of
the other auditors.
We conducted our audits in accordance with German and
United States generally accepted auditing standards. Those
standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial state-
ments are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits and the report of the other auditors,
provide a reasonable basis for our opinion.
DaimlerChrysler has accounted for certain joint ventures in
accordance with the proportionate method of consolidation
as is permitted under the Seventh Directive of the European
Community and the Standards of the International Accounting
Standards Committee. In our opinion, United States generally
accepted accounting principles require that such joint ventures
be accounted for using the equity method of accounting.
The United States Securities and Exchange Commission has
stated that it would not object to DaimlerChrysler's use of the
proportionate method of consolidation as supplemented by the
disclosures in Note 3.
In our opinion, based on our audits and the report of the
other auditors, except for the use of the proportionate method
of accounting, as discussed in the preceding paragraph, the
financial statements referred to above present fairly, in all
material respects, the financial position of DaimlerChrysler
as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity
with United States generally accepted accounting principles.
Frankfurt am Main
March 15, 1999
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft
Zielke
Wirtschaftsprüfer
Schmid
Wirtschaftsprüfer
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C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E
(in millions, except per share amounts)
Revenues
Cost of sales
Gross margin
Selling, administrative and other expenses
Research and development
Other income
Merger costs
Income before financial
income and income taxes
Financial income, net
Income before income taxes
and extraordinary item
Tax benefit relating to a special distribution
Income taxes
W
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F
H
S
A
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F
O
S
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M
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A
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S
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68
Total income taxes
Minority interest
Income before extraordinary item
Extraordinary item: loss on early
extinguishment of debt, net of taxes
Net income
Earnings per share
Basic earnings per share
Income before extraordinary item
Extraordinary item
Net income
Diluted earnings per share
Income before extraordinary item
Extraordinary item
Net income
Consolidated
Year ended December 31,
Financial Services
Year ended December 31,
1998
Note
(Note 1)
$
1998
€
1997
€
1996
€
1998
€
1997
€
1996
€
30
154,615
131,782
117,572
101,415
7,908
6,545
5,548
5 (121,692)
(103,721)
(92,953)
(78,995)
(6,157)
(5,075)
(4,347)
32,923
28,061
24,619
22,420
(19,041)
(16,229)
(15,621)
(13,902)
(5,833)
(4,971)
(4,408)
(4,081)
5
6
1
7
1,425
(803)
8,671
896
1,215
(685)
7,391
763
9,567
8,154
8
(3,607)
(3,075)
9
31
(153)
5,807
(151)
5,656
6.05
(0.16)
5.89
5.91
(0.16)
5.75
(130)
4,949
(129)
4,820
5.16
(0.13)
5.03
5.04
(0.13)
4.91
1,751
(921)
1,470
(760)
1,201
(652)
–
106
–
936
23
959
–
82
–
792
4
796
–
58
–
607
–
607
848
–
5,285
408
5,693
(1,547)
(361)
(307)
(234)
957
–
5,547
633
6,180
1,4871)
(1,005)2)
482
(115)
23
6,547
4,169
–
6,5473)
(147)
4,022
6.90
–
6.903)
6.78
–
6.783)
4.24
(0.15)
4.09
4.20
(0.15)
4.05
(2)
596
–
596
–
–
–
–
–
–
(1)
488
–
488
–
–
–
–
–
–
(2)
371
–
371
–
–
–
–
–
–
1) Reflects the tax benefit relating to a special distribution (see Note 20).
2) Includes non-recurring tax benefits of € 1,003 relating to the
decrease in valuation allowance as of December 31, 1997, applied to the
domestic operations that file a combined tax return.
3) Excluding non-recurring tax benefits, 1997 net income would have been
€ 4,057 and basic and diluted earnings per share would have
been € 4.28 and € 4.21, respectively.
The accompanying notes are an integral part of these Consolidated Financial Statements.
All balances have been restated from Deutsche Marks into Euros using the exchange rate as of January 1, 1999.
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S
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O
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K
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S
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E
G
N
A
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F
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C O N S O L I D A T E D B A L A N C E S H E E T S
Consolidated
At December 31,
Financial Services
At December 31,
(in millions)
Assets
Intangible assets
Property, plant and equipment, net
Investments and long-term financial assets
Equipment on operating leases, net
Fixed assets
Inventories
Trade receivables
Receivables from financial services
Other receivables
Securities
Cash and cash equivalents
Current assets
Deferred taxes
Prepaid expenses
1998
Note
(Note 1)
$
1998
€
1997
€
1998
€
104
53
632
1997
€
51
39
631
10
10
16
11
12
13
14
15
16
17
8
19
3,004
2,561
2,422
34,649
29,532
28,558
3,344
2,851
2,397
17,203
14,662
11,092
12,001
9,571
58,200
49,606
44,469
12,790
10,292
13,840
11,796
10,897
8,922
7,605
7,265
654
654
505
761
31,054
26,468
21,717
26,460
21,658
12,642
10,775
11,3761)
5,936
6,214
14,267
12,160
10,180
7,731
6,589
6,809
597
681
418
702
88,456
75,393
68,244
34,982
30,258
5,885
7,197
5,016
6,134
5,688
6,430
17
133
14
71
Total assets (thereof short-term
1998: € 57,953; 1997: € 54,370)
159,738
136,149
124,831
47,922
40,635
Liabilities and stockholders’ equity
Capital stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock
Preferred stock
Stockholders’ equity
Minority interests
Accrued liabilities
Financial liabilities
Trade liabilities
Other liabilities
Liabilities
Deferred taxes
Deferred income
3,005
8,534
2,561
7,274
2,391
2,958
24,091
20,533
21,8921)
(1)
–
–
(1)
–
–
1,143
(424)
.
20
35,629
30,367
27,960
4,639
4,379
810
691
782
40,629
34,629
35,787
17
412
28
508
47,436
40,430
34,375
36,810
31,381
15,074
12,848
12,026
242
10,851
9,249
7,912
2,366
90
1,610
73,361
62,527
54,313
39,418
33,081
4,886
4,423
4,165
3,770
2,502
3,487
2,665
2,366
771
273
22
23
24
25
8
26
Total liabilities (thereof short-term
1998: € 58,181; 1997: € 50,918)
124,109
105,782
96,871
43,283
36,256
Total liabilities and stockholders’ equity
159,738
136,149
124,831
47,922
40,635
1) Includes a tax receivable/tax benefit of approximately € 1.49 billion relating to the special distribution (see Note 20).
The accompanying notes are an integral part of these Consolidated Financial Statements.
All balances have been restated from Deutsche Marks into Euros using the exchange rate as of January 1, 1999.
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F
H
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F
O
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C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
(in millions)
Net income
Income (loss) applicable to minority interests
Adjustments to reconcile net income to net cash
provided by operating activities:
Tax benefit relating to a special distribution
Gain on disposals of businesses
Depreciation and amortization of equipment
on operating leases
Depreciation and amortization of fixed assets
Change in deferred taxes
Extraordinary item: loss on early
extinguishment of debt
Change in financial instruments
(Gain) loss on disposal of fixed
assets/securities
Change in trading securities
Change in accrued liabilities
Change in current assets and liabilities:
– inventories, net
– trade receivables
– trade liabilities
– other assets and liabilities
Cash provided by operating activities
Purchases of fixed assets:
– Increase in equipment on operating leases
– Purchases of property, plant and equipment
– Purchases of other fixed assets
Proceeds from disposals of equipment on
operating leases
Proceeds from disposals of fixed assets
Payments for acquisitions of businesses
Proceeds from disposals of businesses
Additions to receivables from financial services
Repayments of receivables from financial services:
– Finance receivables collected
– Proceeds from sales of finance receivables
Acquisitions of securities (other than trading)
Proceeds from sales of securities
(other than trading)
Change in other cash
Cash used for investing activities
Change in commercial paper borrowings and
short-term financial liabilities
Additions to long-term financial liabilities
Repayment of financial liabilities
Dividends paid (Financial Services:
incl. profit transferred from subsidiaries)
Proceeds from issuance of capital stock
Purchase of treasury stock
Proceeds from special distribution tax refund
Cash provided by (used for) financing
Consolidated
Year ended December 31,
Financial Services
Year ended December 31,
1998
(Note 1)
$
5,656
153
–
(347)
2,314
6,287
2,298
151
(224)
(432)
294
1,665
(1,145)
(807)
2,144
1,564
19,571
(9,733)
(9,568)
(358)
3,466
604
(1,006)
804
(95,264)
39,638
48,046
(5,418)
1998
€
4,820
130
–
(296)
1,972
5,359
1,959
129
(191)
(368)
251
1,419
(976)
(688)
1,827
1,334
16,681
(8,296)
(8,155)
(305)
2,954
515
(857)
685
(81,196)
33,784
40,950
(4,617)
1997
€
6,547
115
(1,487)
(569)
1,456
4,847
(706)
–
146
(204)
(387)
840
(744)
(555)
1,709
1,329
12,337
(5,914)
(8,051)
(264)
2,632
576
(607)
1,336
(70,154)
22,257
44,336
(5,190)
3,208
(1,926)
(27,507)
2,734
(1,641)
(23,445)
3,828
685
(14,530)
2,937
11,135
(4,841)
(7,572)
4,782
(198)
1,744
2,503
9,491
(4,126)
(6,454)
4,076
(169)
1,487
1,781
9,057
(4,612)
(1,267)
231
(1,888)
–
1996
€
4,022
(22)
–
(182)
1,159
4,233
112
147
200
(65)
(171)
1,416
(427)
53
231
(750)
9,956
(4,045)
(6,721)
(215)
1,730
660
(236)
1,105
(56,880)
15,892
39,474
(4,024)
4,649
(134)
(8,745)
2,828
2,440
(5,228)
(746)
231
(1,570)
–
1998
€
596
2
–
–
1997
€
488
1
–
–
1,784
38
399
1,429
27
288
–
–
(51)
–
44
64
124
159
1,107
4,266
(7,238)
(37)
(60)
2,270
15
(43)
3
(81,259)
33,784
40,950
(2,602)
2,487
(187)
(11,917)
3,639
9,169
(5,073)
(589)
515
–
–
–
–
13
–
3
(140)
23
1
1,187
3,320
(4,889)
(24)
(38)
1,905
21
(64)
–
(71,221)
23,114
44,336
(1,701)
1,763
(739)
(7,537)
1,679
7,037
(3,844)
(491)
176
–
–
1996
€
371
2
–
7
1,215
23
83
–
2
–
–
21
(49)
4
(30)
(369)
1,280
(3,458)
(12)
(13)
1,794
6
(83)
283
(58,126)
17,042
39,474
(1,475)
2,382
(656)
(2,842)
1,389
3,174
(3,035)
(479)
248
–
–
activities
7,987
6,808
3,302
(2,045)
7,661
4,557
1,297
Effect of foreign exchange rate changes on cash
and cash equivalents up to 3 months
Net increase (decrease) in cash and cash
equivalents up to 3 months
Cash and cash equivalents (up to 3 months):
at beginning of period
at end of period
(466)
(397)
646
351
(415)
(353)
1,755
(483)
7,783
7,368
6,634
6,281
4,879
6,634
5,362
4,879
(28)
(18)
699
681
36
376
323
699
24
(241)
564
323
The accompanying notes are an integral part of these Consolidated Financial Statements.
All balances have been restated from Deutsche Marks into Euros using the exchange rate as of January 1, 1999.
C O N S O L I D A T E D S T A T E M E N T S O F C H A N G E S I N S T O C K H O L D E R S ’ E Q U I T Y
(in millions of €)
Additional
paid-in
capital
Cumulative
Retained
translation
earnings adjustment
Available- Minimum
pension
liability
for-sale
securities
Capital
stock
Treasury
stock
Preferred
stock
Accumulated other
comprehensive income
Balance at January 1, 1996
2,525
5,596
13,335
(2,006)
4,022
–
–
1,034
Net income
Other comprehensive income
Total comprehensive income
Issuance of capital stock
–
–
5
–
–
68
Purchase and retirement of capital stock
(93)
(1,477)
Dividends
Other
–
7
–
23
(808)
32
74
–
38
–
–
–
–
(36)
–
16
–
–
–
–
–
–
–
–
Balance at December 31, 1996
2,444
4,210
16,581
(972)
112
(20)
6,547
–
–
1,865
–
157
Net income
Other comprehensive income
Total comprehensive income
Issuance of capital stock
–
–
4
–
–
85
Purchase and retirement of capital stock
(59)
(1,430)
Dividends
Other
–
2
–
93
(1,276)
40
–
1
–
–
–
–
–
–
–
–
–
–
–
–
Balance at December 31, 1997
2,391
2,958
21,892
893
269
(19)
(424)
Net income
Other comprehensive income (loss)
Total comprehensive income
–
–
–
–
4,820
–
–
(1,402)
–
259
–
(1)
Issuance of capital stock
163
3,913
Purchase and retirement of capital stock
Re-issuance of treasury stock
Dividends
Special Distribution
Other
–
–
–
–
7
–
538
–
–
(1,086)
(5,284)
(135)
191
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at December 31, 1998
2,561
7,274
20,533
(509)
528
(20)
The accompanying notes are an integral part of these Consolidated Financial Statements.
All balances have been restated from Deutsche Marks into Euros using the exchange rate as of January 1, 1999.
–
–
–
–
–
–
–
Y
T
I
U
Q
E
’
S
R
E
D
L
O
H
K
C
O
T
S
N
I
S
E
G
N
A
H
C
F
O
S
T
N
E
M
E
T
A
T
S
D
E
T
A
D
I
L
O
S
N
O
C
71
Total
19,488
4,022
1,088
5,110
73
(1,623)
(808)
115
22,355
6,547
2,023
8,570
89
(1,951)
(1,276)
173
27,960
4,820
(1,144)
3,676
4,076
(169)
1,020
(1,086)
(5,284)
174
30,367
.
–
–
–
–
–
.
.
–
–
–
–
–
.
.
–
–
–
–
–
–
–
.
–
–
–
–
–
(53)
–
53
–
–
–
–
(462)
–
38
–
–
–
(169)
482
–
–
111
–
C O N S O L I D A T E D F I X E D A S S E T S S C H E D U L E
Acquisition or Manufacturing Costs
Balance at
January 1,
1998
654
3,253
3,907
Currency
change
(8)
(150)
(158)
Acquisitions/
disposals of
businesses
10
148
158
Additions
Reclassi-
fications
Disposals
216
329
545
19
–
19
154
16
170
Balance at
December 31,
1998
737
3,564
4,301
16,918
26,376
(497)
(972)
69
(471)
851
2,761
1,170
268
493
1,717
18,018
26,245
16,285
(649)
2
2,922
183
1,608
17,135
5,016
64,595
414
5
217
1,249
52
523
374
2,834
13,846
(263)
(2,381)
(3)
(2)
(10)
(50)
–
(.)
(3)
(68)
(842)
(44)
(444)
(16)
8
8
(1)
(1)
–
(196)
(198)
31
1,681
8,215
407
18
91
154
22
159
49
900
10,245
(1,640)
(19)
211
4,029
4,539
65,937
2
1
93
(94)
(1)
–
(1)
–
–
86
1
41
80
1
6
28
243
5,151
718
29
358
1,178
71
676
195
3,225
18,129
(in millions of €)
Other intangible assets
Goodwill
Intangible assets
W
O
L
F
H
S
A
C
F
O
S
T
N
E
M
E
T
A
T
S
D
E
T
A
D
I
L
O
S
N
O
C
72
Land, leasehold improvements and
buildings including buildings on
land owned by others
Technical equipment and machinery
Other equipment, factory and
office equipment
Advance payments relating to plant
and equipment and construction in progress
Property, plant and equipment
Investments in affiliated companies
Loans to associated and affiliated companies
Investments in associated companies
Investments in related companies
Loans to associated and related companies
Long-term securities
Other loans
Investments and long-term financial assets
Equipment on operating leases2)
1) Currency translation changes with period end rates.
2) Excluding initial direct costs. See Note 11.
The accompanying notes are an integral part of these Consolidated Financial Statements.
All balances have been restated from Deutsche Marks into Euros using the exchange rate as of January 1, 1999.
Depreciation/Amortization
Balance at
January 1,
1998
341
1,144
1,485
Currency
change
(6)
(6)
(12)
8,245
16,845
(174)
(531)
10,945
(440)
2
–
Acquisitions/
disposals of
businesses
2
–
2
21
(291)
25
–
36,037
(1,145)
(245)
83
–
–
254
37
3
60
437
2,832
(2)
–
–
(8)
–
(1)
–
(11)
(118)
–
4
–
–
–
.
(41)
37
–
Additions
137
227
364
561
2,185
2,191
–
4,937
32
–
10
13
1
–
2
58
1,972
Reclassi-
fications
–
–
–
6
–
(5)
(2)
(1)
–
–
–
1
–
–
(1)
–
1
Book Value1)
Balance at
Balance at
Balance at
December 31,
December 31,
December 31,
Disposals
1998
1998
88
11
99
386
1,354
1,740
351
2,210
2,561
1997
313
2,109
2,422
237
1,449
8,422
16,759
9,596
9,486
8,673
9,531
1,492
11,224
5,911
5,340
–
3,178
–
36,405
4,539
29,532
5,014
28,558
21
–
2
46
–
1
3
73
1,124
92
4
8
214
38
1
17
374
3,563
626
25
350
964
33
675
178
331
5
217
995
15
520
314
2,851
14,566
2,397
11,014
Y
T
I
U
Q
E
’
S
R
E
D
L
O
H
K
C
O
T
S
N
I
S
E
G
N
A
H
C
F
O
S
T
N
E
M
E
T
A
T
S
D
E
T
A
D
I
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O
S
N
O
C
73
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
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S
E
T
O
N
74
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T AT E M E N T S
B A S I S O F P R E S E N T A T I O N
1. T H E C O M P A N Y A N D T H E M E R G E R
DaimlerChrysler AG (“DaimlerChrysler” or the “Group”) was
formed through the merger of Daimler-Benz Aktiengesellschaft
(“Daimler-Benz”) and Chrysler Corporation (“Chrysler”)
in November 1998 (“Merger”). The consolidated financial
statements of DaimlerChrysler have been prepared in
accordance with United States Generally Accepted Accounting
Principles (“U.S. GAAP”), except that the Group has accounted
for certain joint ventures in accordance with the proportionate
method of consolidation (see Note 3). DaimlerChrysler has
previously prepared and reported its consolidated financial
statements in Deutsche Marks (“DM”). With the introduction
of the Euro (“€”) on January 1, 1999, DaimlerChrysler has
elected to present the accompanying consolidated financial
statements in Euro. Accordingly, the Deutsche Mark
consolidated financial statements for each period presented
have been restated into Euro using the Deutsche Mark/Euro
exchange rate as of January 1, 1999 of € 1 = DM 1.95583.
DaimlerChrysler`s restated Euro financial statements depict
the same trends as would have been presented if it had
continued to present its consolidated financial statements in
Deutsche Marks. The Group’s consolidated financial
statements will, however, not be comparable to the Euro
financial statements of other companies that previously
reported their financial information in a currency other than
Deutsche Marks. All amounts herein are shown in millions of
Euros (“€”) and for the year 1998 are also presented in U.S.
dollars (“$”), the latter being unaudited and presented solely
for the convenience of the reader at the rate of DM 1.6670 =
$1, the Noon Buying Rate of the Federal Reserve Bank of New
York on December 31, 1998.
Pursuant to the amended and restated business combination
agreement dated May 7, 1998, 1.005 Ordinary Shares, no par
value (“DaimlerChrysler Ordinary Share”), of DaimlerChrysler
were issued for each outstanding Ordinary Share of Daimler-
Benz and .6235 DaimlerChrysler Ordinary Shares were issued
for each outstanding share of Chrysler common stock, stock
options and performance shares. DaimlerChrysler issued
1,001.7 million Ordinary Shares in connection with these
transactions.
The Merger was accounted for as a pooling of interests and
accordingly, the historical results of Daimler-Benz and
Chrysler have been restated as if the companies had been
combined for all periods presented. Adjustments were made to
the restated consolidated financial statements to record the tax
effects of anticipated earnings distributions from the Group’s
foreign subsidiaries. Certain reclassifications were made to
Chrysler’s financial statements to conform them with
DaimlerChrysler’s presentation. Prior to the Merger, there
were no material transactions between Daimler-Benz and
Chrysler.
The following information reconciles total revenues, income
before taxes and extraordinary item and net income for the
separate companies with amounts presented in the
accompanying consolidated statements of income for the years
ended December 31, 1997 and 1996, and for the nine months
ended September 30, 1998 (the operating period of Daimler-
Benz and Chrysler prior to the Merger).
Nine months
ended
September 30,
Year ended December 31,
1998
1997
1996
(unaudited)
52,610
63,426
54,371
44,364
54,146
47,044
96,974
117,572
101,415
Revenues:
Daimler-Benz
Chrysler
Total
Income before income taxes and extraordinary item:
Daimler-Benz
Chrysler
Restatement for exchange rate effects
of withholding taxes
Total
Net income:
Daimler-Benz
Chrysler
Restatement for withholding taxes
Total
3,251
3,988
26
7,265
1,678
2,507
26
4,211
2,173
4,059
(52)
6,180
4,112
2,487
(52)
6,547
1,002
4,710
(19)
5,693
1,412
2,715
(105)
4,022
In connection with the Merger, € 685 of merger costs
(€ 401 after tax) were incurred and have been charged to
expense in 1998. These costs consisted primarily of fees for
investment bankers, attorneys, accountants, financial printing,
accelerated management compensation and other related
charges.
Commercial practices with respect to the products
manufactured by DaimlerChrysler necessitate that sales
financing, including leasing alternatives, be made available to
the Group’s customers. Accordingly, the Group’s consolidated
financial statements are significantly influenced by activities
of a number of “captive” financing entities. To enhance the
readers’ understanding of the Group’s consolidated financial
statements, the accompanying financial statements present, in
addition to the consolidated financial statements, information
with respect to the financial position, results of operations and
cash flows of the Group’s financial services business activities.
Such information, however, is not required by U.S. GAAP and is
not intended to, and does not represent the separate U.S. GAAP
financial position, results of operations or cash flows of the
Group’s financial services business activities. Amounts with
respect to the financial services business are presented prior
to intercompany eliminations of transactions with other Group
companies.
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2 . S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S
Consolidation — All material companies in which Daimler-
Chrysler has legal or effective control are consolidated.
Significant investments in which DaimlerChrysler has a 20%
to 50% ownership (“associated companies”) are generally
accounted for using the equity method. For certain invest-
ments in joint ventures, DaimlerChrysler uses the proportion-
ate method of consolidation (see Note 3). Other investments
are accounted for at cost (“affiliated companies”).
Except for the Merger, the Group has accounted for its business
combinations under the purchase accounting method. As
such, all assets acquired and liabilities assumed are recorded
at fair value. An excess of the purchase price over the fair
value of net assets acquired is capitalized as goodwill and
amortized over the estimated period of benefit on a straight-
line basis.
The effects of intercompany transactions have been eliminated.
Foreign Currencies — The assets and liabilities of foreign
subsidiaries where the functional currency is other than the
I
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DM are generally translated using period end exchange rates
while the income statements are translated using average
exchange rates during the period. Differences arising from the
translation of assets and liabilities in comparison with the
translation of the previous periods are included as a separate
component of stockholders’ equity.
The assets and liabilities of foreign subsidiaries operating in
highly inflationary economies are remeasured into DM on the
basis of period end rates for monetary assets and liabilities and
at historical rates for non-monetary items, with resulting trans-
lation gains and losses being recognized in income. Further, in
such economies, depreciation and gains and losses from the
disposal of non-monetary assets are determined using
historical rates.
The exchange rates of the more important currencies used in
preparation of the consolidated financial statements were as
follows:
Currency:
Brazil
France
Great Britain
Italy
Japan
Spain
USA
1 BRL
1 FRF
1 GBP
1000 ITL
100 JPY
100 ESP
1 USD
Exchange rate1) at
December, 31
Annual average exchange rate
1998
DM
1.37
0.30
2.80
1.01
1.45
1.18
1.67
1997
DM
1.61
0.30
2.98
1.02
1.38
1.18
1.79
1998
DM
1.51
0.30
2.91
1.01
1.35
1.18
1.76
1997
DM
1.61
0.30
2.84
1.02
1.44
1.18
1.73
1996
DM
1.50
0.29
2.35
0.98
1.38
1.18
1.50
1) Official rates fixed at the Frankfurt Currency Exchange.
S
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Revenue Recognition — Revenue is recognized when title
passes or services are rendered net of discounts, sales
incentives, customer bonuses and rebates granted. Sales under
which the Company conditionally guarantees the minimum
resale value of the product are accounted for as operating
leases with the related revenues and costs deferred at the time
of title passage. Revenue on long-term contracts is generally
recognized under the percentage-of-completion method based
upon contractual milestones or performance. Revenue from
finance receivables is recorded on the interest method.
Operating lease income is recorded when earned on a straight-
line basis.
The Group sells significant amounts of automotive retail and
wholesale receivables in transactions subject to limited credit
risk. The Group generally sells its receivables to a trust and
remains as servicer, for which it is paid a servicing fee.
Servicing fees are earned on a level-yield basis over the
remaining term of the related sold receivables. In a
subordinated capacity, the Group retains residual cash flows, a
limited interest in principal balances of the sold receivables
and certain cash deposits provided as credit enhancements for
investors. Gains and losses from the sales of finance
receivables are recognized in the period in which such sales
occur. In determining the gain or loss for each qualifying sale
of finance receivables, the investment in the sold receivable
pool is allocated between the portion sold and the portion
retained based upon their relative fair values.
Product-Related Expenses — Expenditures for advertising and
sales promotion and for other sales-related expenses are
charged to expense as incurred. Provisions for estimated costs
related to product warranty are made at the time the related
sale is recorded. Research and development costs are
expensed as incurred.
Earnings Per Share — Basic earnings per share is generally
calculated by dividing net income by the weighted average
number of shares outstanding. Diluted earnings per share
reflects the potential dilution that would occur if all securities
and other contracts to issue Ordinary Shares were exercised or
converted (see Note 31). Net income represents the earnings
of the Group after minority interests. Basic and diluted
earnings per Ordinary Share have been restated to reflect the
conversion of Daimler-Benz and Chrysler shares into
DaimlerChrysler Ordinary Shares (see Note 1) and the dilutive
effect resulting from the discount to market value at which the
Daimler-Benz Ordinary Shares were sold in the rights offering
(see Note 20).
Intangible Assets — Purchased intangible assets are valued at
acquisition cost and are amortized over their respective useful
lives (3 to 40 years). Goodwill derived from acquisitions is
capitalized and amortized over 3 to 40 years. The Group
periodically assesses the recoverability of its goodwill based
upon projected future cash flows. Intangible assets also include
intangible pension assets.
Property, Plant and Equipment — Property, plant and equipment
is valued at acquisition or manufacturing costs less accu-
mulated depreciation. Depreciation expense is recognized
either using the declining balance method until the straight-
line method yields larger expenses or the straight-line method.
Special tooling costs are capitalized and amortized over the
years that a model using that tooling is expected to be prod-
uced and within each year based on the units produced. The
costs of internally produced equipment and facilities includes
all direct costs and allocable manufacturing overhead. Costs of
the construction of certain long-term assets include capitalized
interest which is amortized over the estimated useful life of the
related asset. The following useful lives are assumed: buildings
- 17 to 50 years; site improvements - 8 to 20 years; technical
equipment and machinery - 3 to 30 years; and other equip-
ment, factory and office equipment - 2 to 15 years.
Leasing — The Group is a lessee of property, plant and
equipment and lessor of equipment, principally passenger cars
and commercial vehicles. All leases that meet certain specified
criteria intended to represent situations where the substantive
risks and rewards of ownership have been transferred to the
lessee are accounted for as capital leases. All other leases are
accounted for as operating leases. Equipment on operating
leases, where the Group is lessor, is valued at acquisition cost
and generally depreciated over the assets’ useful lives,
generally three to seven years, using the straight-line method.
Current Assets — Current assets represent the Group’s
inventories, receivables, securities and cash, including
amounts to be realized in excess of one year. In the accompany-
ing footnotes, the portion of assets and liabilities to be realized
and settled in excess of one year have been disclosed.
Marketable Securities and Investments — Securities are accounted
for at fair values, if readily determinable. Unrealized gains and
losses on trading securities, that is, securities bought
principally for the purposes of selling them in the near term,
are included in income. Unrealized gains and losses on
available-for-sale securities are included in accumulated other
comprehensive income, net of applicable deferred income
taxes. All other securities are recorded at cost. Unrealized
losses on all marketable securities and investments that are
other than temporary are recognized in earnings.
Inventories — Inventory is valued at the lower of acquisition or
manufacturing cost or market, cost being generally determined
on the basis of an average or first-in, first-out method (“FIFO”).
Certain of the Group’s U.S. inventories are valued using the
last-in, first-out method (“LIFO”). Manufacturing costs comprise
direct material and labor and applicable manufacturing
overheads, including depreciation charges.
Financial Instruments — DaimlerChrysler uses derivative
financial instruments for hedging purposes. Financial
instruments, including derivatives (especially currency futures
and currency options, security options, interest rate swaps and
currency swaps), which are not designated as hedges of
specific assets, liabilities, or firm commitments are marked to
market and any resulting unrealized gains or losses are
recognized in income. If there is a direct connection between a
derivative financial instrument and an underlying transaction
and a derivative is so designated, a valuation unit is formed.
Once allocated, gains and losses from these valuation units,
which are used to manage interest rate and currency risks of
identifiable assets, liabilities, or firm commitments, do not
affect income until the underlying transaction is realized (see
Note 29 d).
Accrued Liabilities — The valuation of pension liabilities and
postretirement benefit liabilities is based upon the projected
unit credit method in accordance with Statement of Financial
Accounting Standards (“SFAS”) 87, “Employers’ Accounting for
Pensions” and SFAS 106. An accrued liability for taxes and
other contingencies is recorded when an obligation to a third
party has been incurred, the payment is probable and the
amount can be reasonably estimated. In determining other
accrued liabilities – including warranties and estimated future
losses on open contracts – all applicable costs are taken into
consideration including price increases. The effects of accrued
liabilities relating to personnel and social costs are valued at
their net present value where appropriate.
Use of Estimates — The preparation of financial statements
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent amounts at the date of the financial
statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
New Accounting Pronouncements — On January 1, 1998, the
Group adopted SFAS 130, “Reporting Comprehensive Income.”
SFAS 130 establishes standards for the reporting and
presentation of comprehensive income and its components in
a full set of financial statements. Comprehensive income
consists of net income, foreign currency translation
adjustments, net unrealized gains (losses) on available-for-sale
securities and additional minimum pension liability provisions
and is presented in the consolidated statements of changes in
stockholders´ equity. The Standard requires only additional
3 . S C O P E O F C O N S O L I D A T I O N
disclosure in the consolidated financial statements and does
not affect the Company´s financial position or results of
operations. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
Effective January 1, 1998, the Group adopted SFAS 131,
“Disclosures about Segments of an Enterprise and Related
Information.” Segment data for 1997 and 1996 has been
restated to conform with the new requirements. See Note 30.
On January 1, 1998, the Group adopted SFAS 132, “Employers’
Disclosures about Pensions and Other Postretirement
Benefits.” SFAS 132 revises employers´ disclosures about
pensions and other postretirement benefit plans. SFAS 132
does not change the method of accounting for such plans. See
Note 22a.
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I
Effective January 1, 1998, DaimlerChrysler adopted Statement
of Position (“SOP”) 98-1, “Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.”
This SOP requires that entities capitalize certain internal-use
software costs once certain criteria are met. Adoption of the
standard did not have a material effect on DaimlerChrysler´s
consolidated financial statements.
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77
In April 1998, the American Institute of Certified Public
Accountants issued SOP 98-5, “Reporting on the Costs of Start-
Up Activities.” DaimlerChrysler is required to adopt the
provisions of SOP 98-5 effective January 1, 1999. SOP 98-5
provides, among other things, guidance on the financial
reporting of start-up costs and organization costs. It requires
costs of start-up activities and organization costs to be
expensed as incurred. Adoption of this accounting
pronouncement is not anticipated to have a material effect on
DaimlerChrysler´s consolidated financial statements.
In June 1998, the Financial Accounting Standards Board
issued SFAS 133, “Accounting for Derivative Instruments and
Hedging Activities.” This Standard requires companies to
record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains or losses resulting
from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. This Standard is
effective for fiscal years beginning after June 15, 1999.
DaimlerChrysler plans to adopt this accounting
pronouncement by January 1, 2000.
Scope of Consolidation — DaimlerChrysler comprises 481
foreign and domestic subsidiaries (1997: 494) and 82 joint
ventures (1997: 92); the latter are generally accounted for on a
pro rata basis. 27 subsidiaries are accounted for in the
consolidated financial statements using the equity method of
accounting. During 1998, 54 subsidiaries and 6 joint ventures
were included in the consolidated financial statements for the
first time. A total of 67 subsidiaries and 16 joint ventures were
no longer included in the consolidated group. Significant
effects of changes in the consolidated group on the consoli-
dated balance sheets and the consolidated statements of
income are explained further in the notes to the consolidated
financial statements. A total of 313 subsidiaries (1997: 285) are
not consolidated as their combined influence on the financial
position, results of operations, and cash flows of the Group is
not material. The effect of such non-consolidated subsidiaries
for all years presented on consolidated assets, revenues and
net income of DaimlerChrysler was less than 2%.
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
78
In addition, 7 (1997: 7) companies administering pension funds
whose assets are subject to restrictions have not been included
in the consolidated financial statements. The consolidated
financial statements include 127 associated companies. At
December 31, 1998, 17 associated companies are accounted for
in the consolidated financial statements using the equity
method of accounting. The remaining associated companies are
recorded under investments in related companies in as much
as these companies are not material for the respective
presentation of the financial position, results of operations and
cash flows of the Group.
Investment in Adtranz — The Group accounts for its
investment in Adtranz, a rail systems joint venture between
the Group and Asea Brown Boveri Ltd. (“ABB”), including its
65 (1997: 63) subsidiaries, using the proportionate method of
consolidation. Accordingly, DaimlerChrysler reports its 50%
interest of the assets and liabilities, revenues and expenses
and cash flows in Adtranz. The Group believes that such
method of financial statement presentation, which is permitted
by the regulations of the Seventh Directive of the European
Community and represents a benchmark treatment
encouraged by the Standards of the International Accounting
Standards Committee, better illustrates its consolidated
financial position, results of operations and cash flows to the
readers of the Group’s consolidated financial statements.
Under U.S. GAAP, DaimlerChrysler’s investment in Adtranz is
required to be accounted for using the equity method of
accounting. The differences in accounting treatment between
the proportionate and equity methods would not affect
reported stockholders’ equity or net income of Daimler-
Chrysler. Under the equity method of accounting, Daimler-
Chrysler’s net investment in Adtranz would be included
within investments in the balance sheet and its share of the
net income or loss of Adtranz together with the amortization
of the excess of the cost of its investment over its share of the
investment’s net assets would be reported as a net amount in
financial income, net in the Group’s statement of income.
Additionally, Adtranz impacted on the Group’s reported cash
flows only to the extent of the investing cash outflow in 1998 of
€ 159 resulting from a capital contribution by DaimlerChrysler.
For purposes of its United States financial reporting obligation,
DaimlerChrysler has requested and received permission
from the United States Securities and Exchange Commission to
prepare its consolidated financial statements with this
departure from U.S. GAAP.
Summarized consolidated financial information of Adtranz
follows. The amounts represent those used in the Daimler-
Chrysler consolidation, including goodwill resulting from the
formation of Adtranz. Other companies included in the conso-
lidation according to the proportionate method are not material.
Balance sheet information
Fixed assets1)
Current assets
Total assets
Stockholders’ equity
Minority interests
Accrued liabilities
Liabilities
At December 31,
1998
1997
728
842
808
941
1,570
1,749
385
7
542
636
712
6
496
535
Total liabilities and stockholders’ equity
1,570
1,749
1) Includes net goodwill resulting from the formation of Adtranz of € 348
and € 435 in 1998 and 1997, respectively.
Statement of income information
Revenues
Operating loss1)
Net loss
Year ended December 31,
1998
1997
1996
1,658
(322)
(316)
1,631
(222)
(154)
1,450
(69)
(49)
1) The operating losses for 1998 and 1997 include impairment charges on
goodwill of € 64 and € 61, respectively.
Cash flow information
Cash flows from:
Operating activities
Investing activities
Financing activities
Effect of foreign exchange on cash
Change in cash (up to 3 months)
Cash (up to 3 months) at beginning of period
Cash (up to 3 months) at end of period
Year ended December 31,
1998
1997
1996
(130)
(84)
161
(2)
(55)
155
100
72
(12)
(50)
.
10
145
155
(231)
64
41
4
(122)
268
146
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
79
Cash up to 3 months includes € 30 (1997: € 51; 1996: € 59)
held by DaimlerChrysler AG in connection with internal cash
concentration procedures.
The Group and ABB entered into an option agreement, in
connection with the formation of Adtranz, whereby, for certain
periods during 1998 through 2005, the Group has the right
(call option) to purchase ABB’s 50% interest in Adtranz for U.S.
$1,800 plus a premium calculated on the basis of Adtranz’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 accord-
ance with the same criteria except that the price for the put
option is lower than the price for the call option assuming the
same future earnings.
In January 1999, DaimlerChrysler agreed to acquire ABB‘s 50%
interest in Adtranz for $472. The acquisition cancels the call
and put option discussed above. The transaction is expected to
be completed in the second quarter of 1999. Consummation of
the merger is subject to various conditions, including among
others, approval of certain governmental authorities.
4 . A C Q U I S I T I O N S A N D D I S P O S I T I O N S
In March 1998, the Group‘s semiconductor business was sold
to an American company, Vishay Intertechnology, Inc., for a
gain of € 143 (before taxes). Moreover, during 1998 the Group
sold further interests, including the sale of 30% of its interests
in LFK-Lenkflugkörpersysteme GmbH and 100% of its interests
in CMS, Inc. and two real-estate-project-companies for a total
gain of approximately € 153.
this transaction reflects the difference between the book and
tax basis of the Group’s stock interest in DTAG for which
deferred taxes were not provided, in accordance with SFAS
109, “Accounting for Income Taxes.” In addition, the 1997
earnings include the recognition of € 86 ($97) (€ 53 or $60
after taxes) of previously deferred profits from the sale of
vehicles from DaimlerChrysler to DTAG.
In January 1997, DaimlerChrysler sold its interests in AEG
Electrocom GmbH and AEG ElectroCom International, Inc.
(sorting and recognition systems) to Siemens AG resulting in a
gain of € 110 (before taxes).
In July 1997, debis AG, a subsidiary of DaimlerChrysler,
terminated its strategic relationship with Cap Gemini Sogeti
S.A. through the sale of its 24.4% interest resulting in a gain
of € 420.
During December 1997, DaimlerChrysler completed an initial
public offering (“IPO”) of its common stock in Dollar Thrifty
Automotive Group, Inc. (“DTAG”), formerly Pentastar
Transportation Group, Inc., for net proceeds of € 343 ($387).
The IPO of the common stock interest resulted in a pretax and
after-tax gain of € 65 ($73). The gain was deferred and will be
recognized over the remaining term of the vehicle supply
agreements with DTAG, which end in 2001. The tax effect on
In 1996, the Group committed to a plan of disposal for Thrifty,
a subsidiary of DTAG, and recognized a € 50 ($65) pretax loss
(€ 77 or $100 after taxes) to write down Thrifty’s carrying
value to estimated fair value less costs to sell. The after tax
loss includes the effect of not being able to claim a tax
deduction for the capital loss on DaimlerChrysler’s investment
in Thrifty.
In January 1996, DaimlerChrysler announced that it would
discontinue financial support for NV Koninklijke Nederlandse
Vliegtuigenfabriek (“Fokker”), a Dutch aircraft manufacturer.
Subsequent to the announcement, Fokker requested and
received, in accordance with Dutch law, protection from its
creditors. In connection therewith, control of Fokker was
placed with a third-party administrator. On March 15, 1996,
Fokker formally filed for bankruptcy under the laws of The
Netherlands. The Group recorded a charge in the 1995
statement of income for discontinuing such investment.
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
80
During 1996, the Group realized gains of approximately € 51
from the proceeds of sales of certain inventories in excess of
the inventories’ previously written-down value.
In June 1996, the shareholders of AEG approved the merger of
AEG with DaimlerChrysler and in September 1996, effective
January 1, 1996, such merger was formally registered in the
commercial register. As part of the merger, the Group
purchased the outstanding minority interest of AEG. In
connection with the foregoing transactions, the Group
recorded charges to 1996 operations of approximately € 153.
During 1996, the Group contributed its Dornier aircraft
business into a newly formed holding company 80% owned by
Fairchild Industries Corporation, an American aircraft
manufacturer. In connection therewith, the Group recorded
charges in 1996 of approximately € 222, of which a portion
included the businesses’ loss from operations up to the date of
contribution. The Group is accounting for its 20% investment
in the holding company using the equity method of accounting.
In 1996, the Group sold Electrospace Systems, Inc. (“ESI”) and
Chrysler Technologies Airborne Systems, Inc. (“CTAS”) for net
proceeds of € 366 ($476). ESI and CTAS were engaged
principally in the manufacture of defense electronics and
aircraft modification, respectively, and represented
substantially all of the operations of Chrysler Technologies
Corporation (“CTC”), a wholly owned subsidiary of the Group.
The sale resulted in a pretax gain of € 78 ($101) (€ 67 or $87
after taxes). In 1996, the Group signed an agreement to sell
Pentastar Electronics, Inc. (“PEI”) for net proceeds of € 13
($17), which resulted in the recognition of a pretax loss of € 59
($77) (€ 39 or $51 after taxes) to write down PEI’s carrying
value to estimated fair value less costs to sell. PEI represented
the remaining operations of CTC. The sale of PEI was
completed on January 10, 1997.
N O T E S T O T H E C O N S O L I D A T E D S T AT E M E N T S O F I N C O M E
5 . F U N C T I O N A L C O S T S A N D O T H E R E X P E N S E S
Selling, administrative and other expenses are comprised of
the following:
Selling expenses
Administration expenses
Goodwill amortization and writedowns
Other expenses
Year ended December 31,
1998
1997
1996
10,100
5,217
227
685
9,663
4,709
210
8,383
4,125
135
1,039
1,259
16,229
15,621
13,902
Expenses amounting to € 229 and € 369 related to the
repayment of development cost subsidies were recorded under
other expenses in 1998 and 1997, respectively (see Note 28).
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
81
Personnel expenses included in the statement of income are
comprised of:
Wages and salaries
Social levies
Net periodic pension cost (see Note 22a)
Net periodic postretirement benefit
cost (see Note 22a)
Other expenses for pensions and retirements
Number of employees (annual average):
Hourly employees
Salaried employees
Trainees/apprentices
Year ended December 31,
1998
1997
1996
19,982
18,656
17,143
2,990
1,126
866
69
2,817
1,076
755
66
2,527
1,228
673
77
25,033
23,370
21,648
Year ended December 31,
1998
1997
1996
268,764
261,426
262,048
152,415
147,882
146,006
12,760
12,353
11,704
433,939
421,661
419,758
In 1998, 36,024 people (1997: 34,448 people; 1996: 34,655
people) were employed in joint venture companies.
In 1998, the total remuneration paid by Group companies to
the members of the Board of Management of DaimlerChrysler
AG amounted to € 41, and the remuneration paid to the
members of the Supervisory Board of DaimlerChrysler AG
totaled € 2. Additionally, members of the Board of Management
subscribed for convertible bonds at a notional amount of € 0.6
within the 1998 Stock Option Plan. Options totalling 1,755,000
and 12,000 to purchase Chrysler common stock were granted
to members of the Board of Management and the Supervisory
Board, respectively (see Note 21).
To determine the fair value of the option rights, option pricing
models may be used. As such, the resulting fair values can
fluctuate significantly based upon the underlying assumptions.
Accordingly, uniform and consistent values are generally not
available. See Note 21 with respect to the valuation of the
option rights including the underlying assumptions and
conditions of converting the option rights in accordance with
SFAS 123, “Accounting for Stock-Based Compensation.”
As of December 31, 1998, no advances and loans existed to
members of the Board of Management of DaimlerChrysler AG.
6 . O T H E R I N C O M E
Other income includes gains on sales of property, plant and
equipment (€ 99, € 95 and € 130 in 1998, 1997 and 1996,
respectively), gains on sales of companies (€ 389, € 117 and
€ 197 in 1998, 1997 and 1996, respectively), rental income
(€ 138, € 87 and € 52 in 1998, 1997 and 1996, respectively),
foreign currency exchange gains (€ 116, € 109 and € 21 in
1998, 1997 and 1996, respectively), and reductions in certain
accruals (€ 199, € 154 and € 114 in 1998, 1997 and 1996,
respectively).
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
82
7. F I N A N C I A L I N C O M E , N E T
Year ended December 31,
1998
1997
1996
Income (loss) from investments
(111)
66
217
of which from affiliated companies € (20)
(1997: € 17; 1996: € 20)
Gains (losses), net from disposals of
investments and shares in affiliated and
associated companies
Write-down of investments
and shares in affiliated companies
Income (loss) from companies
included at equity
Income (loss) from investments, net
Other interest and similiar income
of which from affiliated companies
€ 13 (1997: € 10; 1996: € 12)
Interest and similiar expenses
Interest income, net
Income from securities and
long-term receivables
Gains from sales of securities
Write-down of securities and
long-term receivables
Realized and unrealized gains (losses)
on financial instruments
Other, net
Other financial income (loss), net
37
459
(9)
(55)
59
(70)
(76)
36
485
1,409
1,595
(702)
707
17
132
(640)
955
16
85
(10)
(10)
145
(158)
126
763
(794)
(104)
(807)
633
(55)
(68)
85
1,161
(581)
580
9
57
(3)
(390)
70
(257)
408
The Group capitalized interest expenses related to qualifying
construction projects of € 186 (1997: € 207; 1996: € 145).
8. I N C O M E T A X E S
Income before income taxes, extraordinary items and minority
interests amounted to € 8,154 (1997: € 6,180; 1996: € 5,693), of
which € 2,229 was generated by the Group’s operations in
Germany (1997: € 1,450; 1996: € 594).
The provision (benefit) for income taxes consists of the
following:
Current taxes
Germany
Foreign
Deferred taxes
Germany
Foreign
Year ended December 31,
1997
1998
1996
(267)
1,383
(1,472)
1,695
967
992
3,075
(910)
205
(482)
207
1,228
(654)
766
1,547
German corporate tax law applies a split-rate imputation with
regard to the taxation of the income of a corporation and its
shareholders. In accordance with the tax law in effect for fiscal
1998, retained corporate income is initially subject to a federal
corporate tax of 45% plus a solidarity surcharge of 5.5% (1997
and 1996: 7.5%) on federal corporate taxes payable. Including
the impact of the surcharge, the federal corporate tax rate
amounts to 47.475% (1997 and 1996: 48.375%). Upon
distribution of certain retained earnings to stockholders, the
corporate income tax rate on the earnings is adjusted to 30%,
plus a solidarity surcharge of 5.5% (1997 and 1996: 7.5%) on
the distribution corporate tax, for a total of 31.65% (1997 and
1996: 32.25%), by means of a refund for taxes previously paid.
Upon distribution of retained earnings in the form of a
dividend, stockholders who are taxpayers in Germany are
entitled to a tax credit in the amount of federal income taxes
previously paid by the corporation.
For German companies, the deferred taxes for 1998 and 1997
are calculated using an effective corporate income tax rate of
47.475% plus the after federal tax benefit rate for trade tax of
8.525%. The effect of the tax rate reduction on year-end 1997
deferred tax balances is reflected in the reconciliation of 1997
presented below.
A reconciliation of income taxes determined using the German
corporate tax rate of 47.475% plus the after federal tax benefit
rate for trade taxes of 8.525% for a combined statutory rate of
56% in 1998 (1997 and 1996: 57%) is as follows:
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
Year ended December 31,
1998
1997
1996
Expected provision for income taxes
4,566
3,522
3,245
Change in tax rate for deferred taxes, domestic
Credit for dividend distributions
Foreign tax rate differential
Release of valuation allowances on Group’s
German deferred tax assets as of
December 31, 1997
Changes in valuation allowances on German
deferred tax assets
Write-downs of investments, different for
tax purposes
Amortization of non-tax-deductible goodwill
Other
Actual provision (benefit) for income taxes
–
(515)
(985)
68
(1,624)
(797)
–
(85)
(993)
–
(1,003)
–
112
(465)
(533)
(18)
78
(163)
3,075
(240)
(106)
55
2
29
(10)
(482)
1,547
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
83
The 1998 income tax credit from dividend distributions
amounted to € 515 and reflected mainly the tax benefit from
the dividend distribution of € 2.35 per Ordinary Share/ADS.
The 1997 income tax credit from dividend distributions
amounted to € 1,624 and reflected primarily a tax benefit of €
1,487 from the special distribution. This benefit resulted from
the refund of taxes previously paid on undistributed profits at a
rate of 50% in excess of the effective tax rate of 30% on
distributed profits.
In 1997, the decrease in the consolidated domestic valuation
allowances was due in part to € 465 utilization of tax loss
carryforwards. Additionally, € 1,003 was due to the reversal of
the remaining valuation allowances as of December 31, 1997
for the German companies included in the filing of a combined
tax return (“Organschaft”) on the basis that the current and the
expected results of operations supported a conclusion that it
was more likely than not that the deferred tax assets would be
realized.
During 1997, the Group sold its investment in Cap Gemini
Sogeti S.A. and realized a gain of € 420 in its consolidated
financial statements which was not taxable since write-downs
were previously not recognized for tax purposes.
During 1996, the Group’s consolidated valuation allowances on
deferred tax assets decreased by € 538. In 1996, the Group
realized income tax benefits from the utilization of loss
carryforwards of € 344 relating to entities in the Aerospace
division. The tax benefits of such loss carryforwards had been
fully reserved as of December 31, 1995 since the entities had a
history of operating losses prior to 1996 and such losses were
limited as to their use. Tax benefits recognized from other
changes to the valuation allowances in 1996 included the
merger of the former AEG Aktiengesellschaft into
DaimlerChrysler AG during 1996, after which the German loss
carryforwards of AEG Aktiengesellschaft could be utilized by
the Group’s German Organschaft. Prior to the merger such net
operating losses (“NOLs”) were limited as to their use, and
accordingly were fully reserved for in the amount of € 118. In
addition, during 1996 the Group realized tax benefits of € 207
related to investments written down in previous years.
In 1998, DaimlerChrysler entered into an intercompany
transaction to absorb the Group’s Organschaft NOLs in a
manner which resulted in no net tax effect. The transaction
resulted in an increase in deferred tax assets mainly for
property, plant and equipment in an amount equal to the
decrease in deferred tax assets for the German NOLs.
At December 31, 1998, the Group had corporate tax NOLs and
credit carryforwards amounting to € 1,724 (1997: € 6,141) and
German trade tax NOLs amounting to € 2,156 (1997:
€ 6,346). The corporate tax NOLs and credit carryforwards
mainly relate to losses of domestic and foreign non-
Organschaft companies and are partly limited in their use to
the Group. The Group’s consolidated valuation allowances on
deferred tax assets of domestic and foreign operations
increased in the balance sheet by € 143. In future periods,
depending upon the Group’s financial results, management’s
estimate of the amount of the deferred tax assets considered
realizable may change, and hence the valuation allowances
may increase or decrease.
Deferred income tax assets and liabilities are summarized as
follows:
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
84
Property, plant and equipment
Equipment on operating leases
Inventories
Receivables
Net operating loss and tax credit carryforwards
Retirement plans
Other accrued liabilities
Liabilities
Deferred income
Other
Valuation allowances
Deferred tax assets
Property, plant and equipment
Equipment on operating leases
Inventories
Receivables
Prepaid expenses
Retirement plans
Other accrued liabilities
Foreign withholding taxes
Other
Deferred tax liabilities
Deferred tax assets, net
December 31,
1998
1997
2,063
1,068
1,328
527
1,056
3,880
4,166
846
1,144
549
484
992
1,259
700
3,367
4,601
3,761
774
1,049
504
16,627
17,491
(411)
(268)
16,216
17,223
2,743
4,252
483
3,645
450
2,069
367
297
1,059
2,541
3,601
504
3,257
908
1,891
410
390
535
15,365
14,037
851
3,186
Net deferred income tax assets and liabilities in the
consolidated balance sheets are as follows:
Deferred tax assets
Deferred tax liabilities
Deferred tax assets, net
December 31, 1998
December 31, 1997
Total
thereof
non-current
Total
thereof
non-current
5,016
4,165
851
3,979
2,884
1,095
5,688
2,502
3,186
4,400
1,609
2,791
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
85
DaimlerChrysler provided foreign withholding taxes of € 297
(1997: € 390) on € 5,948 (1997: € 7,789) in cumulative
undistributed earnings of foreign subsidiaries because these
earnings are not intended to be permanently reinvested in
those operations. The Group did not provide income taxes or
foreign withholding taxes on € 6,016 (1997: € 4,907) in
cumulative earnings of foreign subsidiaries because these
earnings are intended to be indefinitely reinvested in those
operations. It is not practicable to estimate the amount of
unrecognized deferred tax liabilities for these undistributed
foreign earnings.
S
T
N
E
M
E
T
A
T
S
Including the items charged or credited directly to related
components of shareholders’ equity, the provision (benefit) for
income taxes consists of the following:
Provision (benefit) for income taxes
before extraordinary items
Income tax benefit of extraordinary items
Stockholders’ equity for employee stock
option expense in excess of amounts
recognized for financial purposes
Stockholders’ equity for items of other
comprehensive income
Year ended December 31,
1998
1997
1996
3,075
(78)
(482)
–
1,547
(90)
(212)
(39)
(32)
296
3,081
176
(345)
64
1,489
9 . E X T R A O R D I N A R Y I T E M
In December 1998, DaimlerChrysler extinguished € 257
($ 300) of the outstanding principal amount of its Auburn Hills
Trust Guaranteed Exchangeable Certificates due 2020 (the
“Certificates”) at a cost of € 454 ($ 530). The extinguishment of
the Certificates resulted in an extraordinary after tax loss of
€ 129 ($ 143) (net of income tax benefit of € 78 ($ 87)). At
December 31, 1998, € 214 ($ 250) of the Certificates remained
outstanding. The remaining Certificates are not redeemable
prior to maturity and carry a current interest rate of 12 percent.
In December 1996, DaimlerChrysler extinguished € 437
($ 550), or 50 percent, of the outstanding principal amount of
its Auburn Hills Trust Guaranteed Exchangeable Certificates
due 2020 at a cost of € 683 ($ 859). The extinguishment of the
Certificates resulted in an extraordinary after tax loss of € 147
($191) (net of income tax benefit of € 90 or $ 118).
N O T E S T O T H E C O N S O L I D A T E D B A L A N C E S H E E T S
1 0 . I N T A N G I B L E A S S E T S A N D P R O P E R T Y , P L A N T A N D E Q U I P M E N T , N E T
Information with respect to changes to the Group’s intangible
assets and property, plant and equipment is presented in the
Consolidated Fixed Assets Schedule included herein.
Intangible assets represent principally goodwill from the
formation of Adtranz and the acquisition of American Motors
Corporation. Intangible assets also include intangible pension
assets.
Property, plant and equipment include buildings, technical
equipment and other equipment capitalized under capital lease
agreements of € 394 (1997: € 376). Depreciation expense on
assets under capital lease arrangements was € 38 (1997: € 29;
1996: € 44).
11 . E Q U I P M E N T O N O P E R A T I N G L E A S E S , NET
Information with respect to changes to the Group’s equipment
on operating leases is presented in the Consolidated Fixed
Assets Schedule included herein. Of the total equipment on
operating leases, € 14,078 represent automobiles and
commercial vehicles (1997: € 10,496).
Noncancellable future lease payments due from customers for
equipment on operating leases at December 31, 1998 are as
follows:
1999
2000
2001
2002
2003
thereafter
S
T
N
E
M
E
T
A
T
S
3,166
1,933
952
286
98
151
6,586
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
86
1 2 . I N V E N T O R I E S
Raw materials and manufacturing supplies
Work in process
thereof relating to long-term contracts
and programs in process € 919
(1997: € 705)
Finished goods, parts and products
held for resale
Advance payments to suppliers
Less: Advance payments received
thereof relating to long-term contracts
and programs in process € 578
(1997: € 769)
1 3 . T R A D E R E C E I V A B L E S
Receivables from sales of goods
and services
Long-term contracts and programs,
unbilled, net of advance payments received
Allowance for doubtful accounts
At December 31,
1998
1997
2,278
4,568
1,911
4,414
7,631
312
6,789
337
14,789
13,451
(2,993)
(2,554)
11,796
10,897
At December 31,
1998
1997
8,020
7,841
442
8,462
(857)
7,605
243
8,084
(819)
7,265
Certain of the Group’s U.S. inventories are valued using the
LIFO method. If the FIFO method had been used instead of the
LIFO method, inventories would have been higher by € 549
(1997: € 547).
As of December 31, 1998, € 399 of the trade receivables
mature after more than one year (1997: € 440).
14 . R E C E I V A B L E S F R O M F I N A N C I A L S E R V I C E S
Receivables from:
Sales financing
Finance leases
Initial direct costs
Unearned income
Unguaranteed residual value of
leased assets
Allowance for doubtful accounts
At December 31,
1998
1997
20,635
17,015
9,542
8,151
30,177
25,166
96
85
(4,245)
(4,003)
804
26,832
(364)
26,468
870
22,118
(401)
21,717
Sales financing and finance lease receivables consist of retail
installment sales contracts secured by automobiles and
commercial vehicles. Contractual maturities applicable to
receivables from sales financing and finance leases maturing
in each of the years following December 31, 1998 are as
follows:
1999
2000
2001
2002
2003
thereafter
15 . O T H E R R E C E I V A B L E S
Receivables from affiliated companies
Receivables from related companies1)
Other receivables and other assets
Allowance for doubtful accounts
12,903
6,019
4,599
1,996
1,059
3,601
30,177
At December 31,
1998
1997
480
804
375
717
10,740
11,490
12,024
12,582
(1,249)
(1,206)
10,775
11,376
1) Related companies include entities which have a significant ownership in
DaimlerChrysler or entities in which the Group holds a significant
investment.
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
87
Actual cash flows will vary from contractual maturities due to
future sales of finance receivables, prepayments and charge-
offs.
As of December 31, 1998, € 14,733 of the financing receivables
mature after more than one year (1997: € 12,336).
Other receivables and other assets includes retained interests
in sold receivables and subordinated asset backed certificates
of € 3,046 (1997: € 3,357) and, in 1997, a tax refund of
approximately € 1,500 relating to a special distribution.
As of December 31, 1998, € 4,199 of the other receivables
mature after more than one year (1997: € 4,305).
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
88
1 6 . S E C U R I T I E S , I N V E S T M E N T S A N D L O N G - T E R M F I N A N C I A L A S S E T S
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:
Debt securities
Equity securities
Equity based funds
Debt based funds
At December 31,
1998
1997
4,565
971
1,970
4,654
12,160
4,259
1,131
1,038
3,752
10,180
Carrying amounts and fair values of debt and equity securities
included in securities and investments for which fair values
are readily determinable are classified as follows:
At December 31, 1998
At December 31, 1997
Available-for-sale
Trading
Securities
Investments and long-term
financial assets available-for-sale
Cost
Fair
value
10,501
11,183
934
977
11,435
12,160
Unrealized
Gain
706
44
750
278
675
11,713
12,835
397
1,147
Aggregate cost, fair values and gross unrealized holding gains
or losses per security class are the following:
Loss
Cost
Fair
vaule
8,952
1,228
10,180
8,603
1,218
9,821
282
520
10,103
10,700
24
1
25
–
25
Unrealized
Gain
Loss
356
10
366
238
604
6
–
6
–
6
Equity securities
Debt securities issued by the German
government and its agencies
Municipal securities
Debt securities issued by
foreign governments
Corporate securities
Equity based securities
Debt based securities
Asset-backed securities
Other marketable securities
Available-for-sale
Trading
At December 31, 1998
At December 31, 1997
Cost
Fair
value
1,116
1,623
93
418
892
1,459
1,761
4,309
597
134
93
418
893
1,478
1,970
4,654
595
134
Unrealized
Gain
513
–
–
5
32
208
345
–
–
10,779
11,858
934
977
11,713
12,835
1,103
44
1,147
Loss
Cost
Fair
vaule
Unrealized
Gain
Loss
5
–
–
3
12
–
–
3
1
24
1
25
693
1,063
371
–
59
1,360
1,404
834
3,750
761
24
8,885
1,218
–
59
1,362
1,412
1,038
3,752
761
25
9,472
1,228
10,103
10,700
–
–
5
10
205
2
–
1
594
10
604
1
–
–
2
3
–
–
–
–
6
–
6
The estimated fair values of investments in debt securities, by
contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without
penalty.
Available-for-sale
Due within one year
Due after one year through five years
Due after five years through ten years
Due after ten years
At December 31,
1998
1997
975
2,122
129
385
930
1,839
355
495
3,611
3,619
Proceeds from sales of available-for-sale securities were
€ 2,734 (1997: € 1,432; 1996: € 1,237). Gross realized gains
from sales of available-for-sale securities were € 98 (1997:
€ 92; 1996: € 11), while gross realized losses were € 8 (1997:
€ 1; 1996: € 3). DaimlerChrysler uses the specific
identification method as a basis for determining cost and
calculating realized gains or losses.
Other securities classified as cash equivalents were
approximately € 4,600 and € 3,900 at December 31, 1998 and
1997, respectively, and consisted primarily of purchase
agreements, commercial paper and certificates of deposit.
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
89
17. C A S H A N D C A S H E Q U I V A L E N T S
Cash and cash equivalents include € 308 (1997: € 175) of
deposits with original maturities of more than three months.
1 8 . A D D I T I O N A L C A S H F L O W I N F O R M A T I O N
Liquid assets recorded under various balance sheet captions
are as follows:
Cash and cash equivalents
available within 3 months
Cash and cash equivalents
which mature after 3 months
Securities
Other
At December 31,
1998
1997
1996
6,281
6,634
4,879
308
175
12,160
10,180
324
336
683
7,031
258
19,073
17,325
12,851
The following represents supplemental information with
respect to cash flows:
Interest paid
Income taxes paid
Year ended December 31,
1998
1997
1996
2,553
993
1,953
1,699
1,773
1,211
19 . P R E P A I D E X P E N S E S
Prepaid expenses are comprised of the following:
As of December 31, 1998, € 5,280 of the total prepaid expenses
mature after more than one year (1997: € 4,511).
At December 31,
1998
1997
5,309
825
6,134
4,696
1,734
6,430
Prepaid pension cost
Other prepaid expenses
S
T
N
E
M
E
T
A
T
S
2 0 . S T O C K H O L D E R S ’ E Q U I T Y
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
90
Number of shares issued and outstanding (adjusted for the
Merger)
At December 31, 1998, DaimlerChrysler had issued and
outstanding 1,001,733,220 registred, Ordinary Shares of no
par value. However, each share represents € 2.56 of capital
stock.
Special Distribution
On May 27, 1998 the Daimler-Benz shareholders approved, and
on June 15, 1998 Daimler-Benz paid, a special distribution of €
10.23 (€ 10.04 after adjustment to reflect the approximately 20 %
discount to market value at which the Daimler-Benz Ordinary
Shares and ADS were sold in the rights offering) per Ordinary
Share/ADS.
Rights Offering
In June 1998, Daimler-Benz issued to holders of Daimler-Benz
Ordinary Shares, ADS’s and convertible debt securities, rights
to acquire up to an aggregate of 52.4 million newly issued
Daimler-Benz Ordinary Shares and on June 25, 1998, Daimler-
Benz issued and sold 52.4 million Daimler-Benz Ordinary
Shares for net proceeds of € 3,827. The rights issued by
Daimler-Benz entitled the holders to purchase Daimler-Benz
Ordinary Shares at approximately a 20% discount to the
market price of Daimler-Benz Ordinary Shares. Basic and
diluted earnings per Ordinary Share have been restated to
reflect the dilutive effect resulting from the discount to market
value at which the Daimler-Benz Ordinary Shares were sold in
the rights offering.
Treasury Stock
In November 1998, Chrysler contributed 23.5 million shares of
its common stock to the Chrysler Corporation Retirement
Master Trust, which serves as a funding medium for and holds
the assets of various pension and retirement plans of Chrysler.
Preferred Stock
On July 24, 1998, Chrysler redeemed all of the outstanding
Chrysler Depositary Shares representing its Series A
Convertible Preferred Stock.
Authorized and conditional capital (DaimlerChrysler AG)
Through April 30, 2003, the Board of Management is
authorized, upon approval of the Supervisory Board, to
increase capital stock by a total of up to € 256 (authorized
capital (i)) and to issue shares of up to € 26 to employees
(authorized capital (ii)). Up to December 31, 1999, and upon
approval of the Supervisory Board, the Board of Management
may issue capital stock of up to € 77 for the subscription of
shareholders of the former Daimler-Benz Aktiengesellschaft
(authorized capital (iii)).
With respect to the 4.125% convertible notes and the 5.75%
subordinated mandatory convertible notes described below,
capital stock may be conditionally increased by up to € 43.7 in
the period from July 1, 1998, up to the time the merger with
Daimler-Benz Aktiengesellschaft became effective (conditional
capital (iv)) and € 43.7 for conversions after this date
(conditional capital (i)). A contingent increase of capital stock
may also result upon conversions related to the 1996, 1997
and 1998 Stock Option Plans as described in Note 21. For this
purpose, amounts of up to € 40.0 each are reserved for the
period from July 1, 1998, up to the time the merger with
Daimler-Benz Aktiengesellschaft became effective (conditional
capital (v)) and for conversions after this date (conditional
capital (ii)). In addition, DaimlerChrysler is authorized for
future issuances of shares equaling up to € 102 of capital stock
in connection with convertible bonds or bonds with warrants
issued or guaranteed by April 30, 2003 (conditional capital
(iii)).
Convertible notes
During 1996, DaimlerChrysler Luxembourg Capital S.A.
(formerly: Daimler-Benz Capital (Luxembourg) AG), a
subsidiary of DaimlerChrysler, issued 4.125% bearer notes
with appertaining warrants due July 5, 2003, in the amount of
€ 383 with a nominal value of € 511 each, including a total of
7,690,500 options which, on the basis of the option
agreement, entitled the bearer of the option to subscribe for
shares of Daimler-Benz AG. The option price per share
(adjusted for the Merger) is € 42.67 in consideration of
exchange of the notes or € 44.49 in cash. During 1998, options
for the subscription of 5,027,002 (1997: 1,785; 1996: 36) newly
issued Daimler-Benz Ordinary Shares have been exercised.
In June 1997, DaimlerChrysler issued 5.75% subordinated
mandatory convertible notes due June 14, 2002 with a
nominal amount of € 66.83 per note. These convertible notes
represent a nominal amount of € 508 including 7,600,000
notes which may be converted (adjusted for the Merger) into
0.86631 newly issuable shares before June 4, 2002. Notes not
converted by this date will be mandatorily converted at a
conversion rate between 0.86631 and 1.25625 Ordinary
Shares per note to be determined on the basis of the average
market price for the shares during the last 20 trading days
before June 8, 2002. During 1998, 3,713 (1997: 156) Daimler-
Benz Ordinary Shares were issued upon exercise.
Comprehensive income
The changes in the components of other comprehensive income
(loss) are as follows:
Year ended December 31,
1998
Tax
Effect
Pretax
Net
Pretax
1997
Tax
Effect
Net
Pretax
Unrealized gain (loss) on securities:
Unrelialized holding gain (loss)
Reclassification adjustments
Net unrealized gain (loss)
659
(354)
(103)
57
556
(297)
305
(46)
259
439
(230)
(106)
54
333
(176)
209
(52)
157
105
(13)
92
1996
Tax
Effect
(60)
6
(54)
Net
45
(7)
38
Foreign currency translation adjustment
Minimum pension liability adjustment
(1,402)
(2)
–
1
(1,402)
1,865
(1)
1
–
(.)
Other comprehensive income (loss)
(848)
(296)
(1,144)
2,199
(176)
2,023
1,152
1,865
1,034
–
1,034
1
26
(10)
(64)
16
1,088
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
91
Miscellaneous
Minority stockholders of Dornier GmbH have the right to
exchange their interest in Dornier for holdings of equal value
in Daimler-Benz Luft- und Raumfahrt Holding AG or Ordinary
Shares of DaimlerChrysler AG and such options are
exercisable at any time.
Under the German corporation law (Aktiengesetz), the amount
of dividends available for distribution to shareholders is based
upon the earnings of DaimlerChrysler AG (parent company
only) as reported in its statutory financial statements
determined in accordance with the German commercial code
(Handelsgesetzbuch). For the year ended December 31, 1998,
DaimlerChrysler management has proposed a distribution of
€ 2,356 ( € 2.35 per share) of the 1998 earnings of
DaimlerChrysler AG as a dividend to the stockholders.
2 1 . S T O C K - B A S E D C O M P E N S A T I O N
The Group currently has variable stock option plans, which
were originally approved by Daimler-Benz and have been
converted to options for DaimlerChrysler Ordinary Shares and
a Stock Appreciation Rights plan. Prior to the Merger, Chrysler
had both fixed stock option and performance-based stock
compensation plans. These plans were terminated as a result
of the Merger and all outstanding options and awards were
vested and converted to DaimlerChrysler Ordinary Shares. The
Group accounts for all stock-based compensation plans in
accordance with APB Opinion No. 25 and related
interpretations.
Variable Stock Option Plans
DaimlerChrysler established the 1998, 1997 and 1996 Stock
Option Plans, which provide for the granting of options (“Stock
Options”) for the purchase of DaimlerChrysler Ordinary Shares
to certain members of management, based on the share-
holders’ approvals of 1996 and 1997. The options granted
under the Plan are evidenced by non-transferable convertible
bonds with a principal amount of € 511 per bond due ten years
after issuance. During certain specified periods each year,
each convertible bond may be converted into 201
DaimlerChrysler Ordinary Shares, if the market price per
share on the day of conversion is at least 15 % higher than the
predetermined conversion price and the options have been
held for a 24 month waiting period. The specific terms of these
plans (adjusted for the Merger) are as follows:
Bonds granted in
1996
1997
1998
Due
Stated
interest
rate
Conversion
price
July 2006
5.9 %
€ 42.62
July 2007
5.3 %
€ 65.90
July 2008
4.4 %
€ 92.30
In 1997, a stockholder challenged the approval of the 1997
Stock Option Plan at the stockholders‘ meeting on May 28,
1997. A regional court in Stuttgart (the Landgericht) dismissed
this case and a higher court in Stuttgart (the Oberlandes-
gericht) dismissed an appeal. The stockholder has subse-
quently appealed these decisions. The conversion rights for
the 1997 and 1998 Stock Option Plans are exercisable only
upon successful resolution of the stockholder legal action.
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
92
Analysis of the Stock Options issued to management is as
follows (shares in millions; adjusted for the Merger):
1998
1997
1996
Number
of Stock
Options
Average
conversion
price per
share
Number
of Stock
Options
Average
conversion
price per
share
Number
of Stock
Options
Average
conversion
price per
share
7.5
8.2
(.)
(0.2)
15.5
0.1
65.60
92.30
42.62
72.22
79.63
42.62
0.2
7.4
(0.1)
(.)
7.5
0.1
42.62
65.90
42.62
65.90
65.60
42.62
–
0.9
(0.7)
(.)
0.2
0.2
–
42.62
42.62
42.62
42.62
42.62
Balance at beginning of year
Bonds sold
Converted
Repayment
Outstanding at year-end
Exercisable at year-end
At December 31, 1998, no additional convertible bonds may be
subscribed under these plans.
Compensation cost recognized in 1998 in connection with the
variable stock option plans amounted to € 38 (1997: € 0; 1996:
€ 0).
Stock Appreciation Rights
In conjunction with the consummation of the Merger, the
Group implemented a new Stock Appreciation Rights plan
(“SARs”). SARs provide eligible employees of the Group with
the right to receive cash equal to the appreciation of
DaimlerChrysler Ordinary Shares subsequent to the date of
grant. The initial grant of SARs replaced Chrysler fixed stock
options that were converted to DaimlerChrysler Ordinary
Shares as of the consummation of the Merger. SARs which
replaced stock options that were exercisable at the time of the
consummation of the Merger were immediately exercisable at
the date of grant. SARs related to stock options that were not
exercisable at the date of consummation of the Merger will
become exercisable in two installments; 50 percent on the six-
month and one-year anniversaries of the consummation date.
A summary of the activity related to the SARs as of and for the
year ended December 31, 1998 is presented below (shares in
millions):
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
93
Granted
Exercised
Outstanding at end of year
SARs exercisable at year end
1998
Number Weighted-avg.
exercise
of SARs
price
22.3
(0.1)
22.2
11.3
$75.56
75.56
75.56
$75.56
Chrysler Fixed Stock Option Compensation Plans
A summary of the status of fixed stock option grants under
Chrysler’s stock-based compensation plans as of December 31,
1998, 1997 and 1996, and changes during the years ending on
those dates is presented below (shares in millions):
Compensation expense (benefit) is recorded based on changes
in the market price of DaimlerChrysler Ordinary Shares,
the number of exercisable SARs and a pro-rata portion of the
unexercisable SARs. Compensation expense recognized
subsequent to the Merger for SARs was € 251 ($279).
S
T
N
E
M
E
T
A
T
S
1998
1997
1996
Chrysler
shares
under
option
Weighted-
average
exercise
price
Chrysler
shares
under
option
Weigthed-
average
exercise
price
Chrysler
shares
under
option
Weighted-
average
exercise
price
30.7
9.2
(3.8)
(0.1)
(36.0)
–
–
$27.71
39.82
23.38
30.60
31.24
–
–
28.5
10.1
(7.8)
(0.1)
–
30.7
13.4
$23.68
33.72
20.92
26.70
–
27.71
$23.43
29.4
9.2
(7.2)
(2.9)
–
28.5
13.3
$19.40
28.66
16.11
14.79
–
23.68
$20.12
Outstanding at beginning of year
Granted
Exercised
Forfeited
Converted to DaimlerChrysler shares
Outstanding at end of year
Options exercisable at year end
No compensation expense has been recognized for Chrysler
fixed stock option grants since the options had exercise prices
of not less than the market value of Chrysler´s common stock
at the date of grant.
Chrysler Performance-Based Stock Compensation Plan
Chrysler’s stock-based compensation plans also provided for
the awarding of Performance Shares, which rewarded
attainment of performance objectives. Performance Shares
were awarded at the commencement of a performance cycle
(two to three years) to each eligible executive (officers and a
limited number of senior executives). At the end of each cycle,
participants may earn no Performance Shares or a number of
Performance Shares, ranging from a set minimum to a
maximum of 150 percent of the award for that cycle, as
determined by a committee of Chrysler´s Board of Directors
based on the Chrysler’s performance in relation to the
performance goals established at the beginning of the
performance cycle.
Compensation expense recognized for Performance Share
awards (since the awards had no exercise price) was € 65 ($72),
€ 18 ($20) and € 23 ($30) for 1998, 1997 and 1996,
respectively. Unearned Chrysler Performance Share awards
outstanding at the date of the Merger and December 31, 1997
and 1996 were 1.9 million, 0.9 million and 0.8 million,
respectively. As a result of the Merger, all Performance Shares
were vested and converted to DaimlerChryler Ordinary Shares.
Miscellaneous
If compensation expense for stock-based compensation had
been based upon the fair value at the grant date, consistent
with the methodology prescribed under SFAS 123, “Accounting
for Stock Based Compensation,” the Group’s net income and
basic and diluted earnings per share would have been reduced
by approximately € 127 and € 25 (basic earnings per share:
€ 0.13 and € 0.03; diluted earnings per share: € 0.13 and
€ 0.03) in 1998 and 1997, respectively. The pro forma effect on
the Group’s consolidated net income and basic and diluted
earnings per share for 1996 was not material.
The fair value of the variable stock options was calculated at
the grant date based on a trinomial tree option pricing model
which considers the terms of the issuance. The underlying
assumptions and the resulting fair value per option are as
follows (at grant date):
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected lives (in years)
Fair value per option
1998
1997
2.45 %
0.83 %
35.2 %
26.2 %
4.09 %
3.65 %
2
2
€ 19.38
€ 11.76
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
The fair value of each Chrysler fixed stock option grant is
estimated on the date of grant using the Black-Scholes option-
pricing model with the following weighted-average
assumptions used for grants and resulting fair values in 1998,
1997 and 1996:
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
94
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected lives (in years)
Fair value per option
1998
1997
1996
4.0 %
29 %
5.7 %
5
4.7 %
26 %
6.2 %
5
4.8 %
31 %
6.7 %
5
$9.20
$6.79
$6.87
Since Chrysler’s fixed stock option grants did not vest, except
upon retirement or a change in corporate control,
compensation expense was recognized over the expected life
of the option (i.e., five years).
The fair value of each Performance Share award was estimated
at the date of grant based on the market value of a share of
Chrysler common stock on the date of grant. Performance
Share awards were recognized over performance cycles of two
to three years. However, because all outstanding fixed stock
option and Performance Share grants were vested as of the
date of the Merger, for purposes of SFAS 123, all remaining
compensation expense was recognized in 1998.
2 2 . A C C R U E D L I A B I L I T I E S
Accrued liabilities are comprised of the following:
At December 31,
1998
Total
Due after
one year
1997
Due after
one year
Total
Pension plans and similar obligations (see Note 22a)
16,618
15,714
17,821
16,963
Income and other taxes
1,122
246
1,006
Other accrued liabilities (see Note 22b)
16,889
6,464
16,960
302
7,076
34,629
22,424
35,787
24,341
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
95
a) Pension plans and similar obligations
Pension plans and similar obligations are comprised of the
following components:
In 1998 the accrued postretirement benefits mainly decreased
due to contributions to a Voluntary Employees’ Beneficiary
Association (“VEBA”) trust in 1998, 1997 and 1996 totalling
€ 1,498 which are now designated for the payment of
postretirement health care benefits and therefore appropriated
to plan assets.
Pension Plans
The Group provides pension benefits to substantially all of its
hourly and salaried employees. Plan benefits are principally
based upon years of service. Certain pension plans are based
on salary earned in the last year or last five years of
employment while others are fixed plans depending on
ranking (both wage level and position).
At December 31, 1998, plan assets were invested in diversified
portfolios that consisted primarily of real estate, debt and equity
securities, including 14.4 million shares of DaimlerChrysler
At December 31,
Pension liabilities (Pension plans)
9,148
1998
8,739
1997
Accrued postretirement health
and life insurance benefits
Other pension liabilities
7,020
8,818
450
264
16,618
17,821
Ordinary Shares with a market value of € 1,197 in a U.S. plan,
which were contributed in connection with the Merger (see
Note 20).
Assets and income accruing on all pension trust and relief
funds are used solely to pay pension benefits and administer
the plans.
The following information with respect to the Group’s pension
plans is presented by U.S. Plans and Non-U.S. Plans which are
principally comprised of plans in Germany. The schedules are in
accordance with SFAS 132 which does not change the method of
accounting for such plans.
In 1998 DaimlerChrysler used the rates of the new Heubeck
mortality tables for the valuation of the German pension liabilities.
The mortality assumptions reflect longer living expectations as
well as lower levels of disability, which resulted in a significant
increase in actuarial losses for Non-U.S. Plans in 1998.
Change in Projected benefit obligations:
Projected benefit obligations at beginning
of year
Foreign currency exchange rate changes
Service cost
Interest cost
Plan amendments
Actuarial losses
Effect of curtailments/settlements
Acquisitions and other
Benefits paid
At December 31,
At December 31,
1998
1997
U.S. Plans
Non-U.S.
Plans
U.S. Plans
Non-U.S.
Plans
14,235
(1,001)
13,048
(211)
11,430
1,757
378
931
43
658
–
(143)
(898)
309
834
39
849
1
132
261
899
35
683
–
2
(595)
(832)
11,881
178
277
817
3
450
–
(20)
(538)
Projected benefit obligations at end of year
14,203
14,406
14,235
13,048
Change in plan assets:
Fair value of plan assets at beginning of year
Foreign currency exchange rate changes
Actual return on plan assets
Employer contributions
Plan participant contributions
Acquisitions and other
Benefits paid
Fair value of plan assets at end of year
16,231
(1,220)
2,254
1,300
–
(115)
(897)
17,553
4,521
(190)
526
5
20
122
(235)
4,769
12,608
3,947
1,957
2,445
33
15
9
(836)
16,231
192
591
60
1
(60)
(210)
4,521
A reconciliation of the funded status to the amounts recognized
in the consolidated balance sheets is as follows:
At December 31,
At December 31,
1998
1997
U.S. Plans
Non-U.S.
Plans
U.S. Plans
Non-U.S.
Plans
Funded status *)
(3,349)
9,637
(1,996)
Unrecognized actuarial net gains (losses)
344
(1,012)
130
Unrecognized prior service cost
(1,436)
(102)
(1,700)
8,527
(443)
(130)
Unrecognized net obligation (net assets)
at date of initial application
(353)
(4)
(506)
(6)
Net amount recognized
(4,794)
8,519
(4,072)
7,948
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
96
Amounts recognized in the consolidated
balance sheets consist of:
Prepaid pension cost
Accrued pension liability
Intangible assets
Accumulated other comprehensive income
(4,816)
136
(94)
(20)
(493)
9,012
–
–
(4,074)
170
(135)
(33)
(621)
8,569
–
–
Net amount recognized
(4,794)
8,519
(4,072)
7,948
*) Difference between the projected benefit obligations and the fair value of
plan assets.
Assumed discount rates and rates of increase in remuneration
used in calculating the projected benefit obligations together
with long-term rates of return on plan assets vary according to
the economic conditions of the country in which the
retirement plans are situated. The weighted-average
assumptions used in calculating the actuarial values for the
principal pension plans were as follows:
Weighted-average assumptions as of
December 31:
Discount rate
Expected return on plan assets
Rate of compensation increase
1998
1997
1996
U.S.
Plans
%
Non-U.S.
Plans
%
U.S.
Plans
%
Non-U.S.
Plans
%
U.S.
Plans
%
Non-U.S.
Plans
%
6.5
9.7
5.9
6.0
8.1
3.3
6.8
9.7
6.0
6.5
8.1
3.7
7.3
9.7
6.0
6.8
8.1
3.8
The components of net periodic pension cost were as follows:
1998
1997
1996
U.S.
Plans
Non-U.S.
Plans
U.S.
Plans
Non-U.S.
Plans
U.S.
Plans
Non-U.S.
Plans
Service cost
Interest cost
378
931
309
834
261
899
277
817
246
721
289
802
Expected return on plan assets
(1,391)
(326)
(1,265)
(305)
(1,001)
(274)
Amortization of
Unrecognized net actuarial losses
Unrecognized prior service cost
Unrecognized net obligation
Other
Net periodic pension cost
41
165
124
2
250
37
22
2
(2)
876
20
176
123
18
232
33
18
2
3
845
57
120
105
116
364
23
18
2
4
864
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
The projected benefit obligations and fair value of plan assets
for pension plans with accumulated benefit obligations in
excess of plan assets were € 13,391 and € 3,497, respectively,
as of December 31, 1998 and € 12,048 and € 3,283
respectively, as of December 31, 1997.
The following information with respect to the Group’s
postretirement benefit plans is presented by U.S. Plans and
Non-U.S. Plans; the latter concerning Canadian companies. The
schedules are in accordance with SFAS 132 which does not
change the method of accounting for such plans.
Other Postretirement benefits
Certain DaimlerChrysler operations in North America provide
postretirement health and life insurance benefits to their em-
ployees. Upon retirement from DaimlerChrysler the employees
may become eligible for continuation of these benefits. The
benefits and eligibility rules may be modified periodically. At
December 31, 1998 plan assets were invested in diversified
portfolios that consisted primarily of debt and equity securities.
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
97
Change in accumulated postretirement
benefit obligations:
Accumulated postretirement benefit
obligations at beginning of year
Foreign currency exchange rate changes
Service cost
Interest cost
Plan participant contributions
Plan amendments
Actuarial losses
Acquisitions and other
Benefits paid
Accumulated postretirement benefit
obligations at end of year
At December 31,
At December 31,
1998
1997
U.S. Plans
Non-U.S.
Plans
U.S. Plans
Non-U.S.
Plans
8,950
(713)
173
598
–
279
348
–
(431)
717
(50)
16
48
–
1
25
(52)
(23)
7,508
1,157
153
548
–
(302)
291
1
(406)
528
81
11
44
–
2
99
(27)
(21)
9,204
682
8,950
717
Change in plan assets:
Fair value of plan assets at beginning of year
Foreign currency exchange rate changes
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets at end of year
91
(24)
13
1,498
(4)
1,574
–
–
–
–
–
–
66
11
12
5
(3)
91
–
–
–
–
–
–
A reconciliation of the funded status to the amounts
recognized in the consolidated balance sheets is as follows:
Funded status*)
Unrecognized actuarial net losses
Unrecognized prior service cost
Net amount recognized
At December 31,
1998
U.S. Plans
7,629
(800)
(269)
6,560
Non-U.S.
Plans
682
(214)
(8)
460
1997
U.S. Plans
8,859
(494)
(25)
8,340
Non-U.S.
Plans
717
(232)
(7)
478
*) Difference between the accumulated postretirement obligations and the
fair value of plan assets.
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
98
The amount recognized in the consolidated balance sheets
consist only of accrued postretirement health and life
insurance benefits.
Assumed discount rates and rates of increase in remuneration
used in calculating the accumulated postretirement benefit
obligations together with long-term rates of return on plan
assets vary according to the economic conditions of the
country in which the retirement plans are situated. The
weighted-average assumptions used in calculating the
actuarial values for the postretirement benefit plans were as
follows:
Weighted-average assumptions as
of December 31:
Discount rate
Expected return on plan assets
Health care inflation rate in following
(or “base”) year
Ultimate health care inflation rate (2002)
1998
1997
1996
U.S. Plans
%
Non-U.S.
Plans
%
6.5
10.0
6.0
5.0
6.3
–
5.1
4.7
U.S. Plans
%
6.8
8.5
6.5
5.0
Non-U.S.
Plans
%
U.S.
Plans
%
Non-U.S.
Plans
%
6.5
–
5.9
4.8
7.3
8.5
6.0
5.1
6.5
–
6.0
5.1
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
99
The components of net periodic postretirement benefit cost
were as follows:
1998
U.S. Plans
Non-U.S.
Plans
1997
U.S. Plans
Non-U.S.
Plans
1996
U.S.
Plans
Non-U.S.
Plans
Service cost
Interest cost
Expected return on plan assets
Amortization of:
Unrecognized net actuarial losses (gains)
Unrecognized prior service cost
Unrecognized net asset
Other
Net periodic postretirement benefit cost
173
598
(6)
3
24
–
–
792
16
48
–
11
(1)
–
–
74
153
548
(5)
(1)
1
(1)
2
11
44
–
–
3
–
–
697
58
147
489
–
(6)
15
(24)
5
626
8
38
–
–
3
(1)
–
48
The following schedule presents the effects of a one-
percentage-point change in assumed health care cost trend
rates:
1-Percentage-
1-Percentage-
Point Increase Point Decrease
Effect on total of service and interest
cost components
Effect on accumulated postretirement
benefit obligations
111
(91)
1,067
(876)
Prepaid Employee Benefits
In December 1998, DaimlerChrysler prepaid certain 1999
nonpension employee benefits by contributing € 292 to a
Voluntary Employees’ Beneficiary Association (“VEBA”) trust
for payment of postretirement health care benefits. Also in
1998, € 1,206 of the amounts contributed to the VEBA in 1997
and 1996 were designated and restricted for the payment of
postretirement health care benefits. Therefore in 1998 the total
of € 1,498 were assigned to the plan assets of the postretire-
ment health care and life insurance benefit plans. In December
1997, Chrysler prepaid certain 1998 nonpension employee
benefits by contributing € 975 to a VEBA trust and other
employee benefit plans. In December 1996, DaimlerChrysler
prepaid certain 1997 nonpension employee benefits by
contributing € 846 to a VEBA trust and other employee benefit
plans.
b) Other accrued liabilities
Other accrued liabilities consisted of the following:
At December 31,
1998
1997
Accrued warranty costs and price risks
6,386
6,363
Accrued losses on uncompleted contracts
Restructuring
Accrued personnel and social costs
Other
S
T
N
E
M
E
T
A
T
S
762
635
2,263
6,843
646
728
2,035
7,188
16,889
16,960
Accruals for restructuring comprise certain employee
termination benefits and costs which are directly associated
with plans to exit specified activities. The changes in these
provisions are summarized as follows:
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
100
Balance at January 1, 1996
Utilizations and transfers
Reductions
Additions
Balance at December 31, 1996
Utilizations and transfers
Reductions
Additions
Balance at December 31, 1997
Utilizations and transfers
Reductions
Additions
Balance at December 31, 1998
Termination
benefits
832
(284)
(194)
216
570
Exit
costs
226
(26)
(17)
180
363
Total
liabilities
1,058
(310)
(211)
396
933
(269)
(187)
(456)
(45)
299
555
(242)
(12)
259
560
(37)
34
173
(110)
(19)
31
75
(82)
333
728
(352)
(31)
290
635
In connection with the Group’s restructuring, provisions were
recorded for termination benefits of € 259 (1997: € 299; 1996:
€ 216), in 1998 principally within the Automotive Business of
the former Daimler-Benz Group and DaimlerChrysler
Aerospace, in 1997 principally within the Automotive Business
of the former Daimler-Benz Group and 1996 principally within
the Automotive Business of the former Daimler-Benz Group,
AEG-DBI and DaimlerChrysler Aerospace. In connection with
these restructuring efforts, the Group effected workforce
reductions of approximately 7,100 employees (1997: 6,600;
1996: 11,800) and paid termination benefits of € 413 (1997:
€ 503; 1996: € 381), of which € 242 (1997: € 269; 1996: € 284)
were charged against previously established liabilities. At
December 31, 1998 the Group had liabilities for estimated
future terminations for approximately 9,500 employees.
During 1996, the aerospace industry experienced a significant
increase in demand. As a consequence, higher production
requirements resulted, especially for DaimlerChrysler
Aerospace Airbus GmbH, in a reduction of approximately € 153
in certain restructuring provision made in 1995.
Exit costs in 1998 and 1997 primarily result from the
restructuring of directly managed businesses. In 1996 they
relate exclusively to the restructuring of businesses of the
former AEG-DBI.
2 3 . F I N A N C I A L L I A B I L I T I E S
Notes/Bonds
Commercial paper
Liabilities to financial institutions
Liabilities to affiliated companies
Loans, other financial liabilities
Liabilities from capital lease and residual
value guarantees
Short-term financial liabilities
(due within one year)
Notes/Bonds
of which due in more than five years:
€ 2,605 (1997: € 3,472)
Liabilities to financial institutions
of which due in more than five years:
€ 2,185 (1997: € 1,492)
Liabilities to affiliated companies
of which due in more than five years:
€ 28 (1997: € 87)
Loans, other financial liabilities
of which due in more than five years:
€ 36 (1997: € 35)
Liabilities from capital lease and residual value
guarantees of which due in more than five
years: € 228 (1997: € 307)
Long-term financial liabilities
At December 31,
Maturities
1998
1997
Weighted
average
interest rate (%)
5.8
5.4
5.2
6.1
5.8
2000–
2097
2000–
2019
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
101
3,207
11,015
4,999
158
319
777
3,030
8,991
4,420
29
406
465
20,475
17,341
14,576
12,671
4,311
3,485
171
283
64
55
833
540
19,955
17,034
40,430
34,375
Commercial paper is denominated in € and U.S. dollars and
includes accrued interest. Bonds and liabilities to financial
institutions are largely secured by mortgage conveyance, liens
and assignment of receivables of approximately € 1,526 (1997:
€ 1,190).
Aggregate amounts of financial liabilities maturing during the
next five years and thereafter are as follows:
Financial liabilities
20,475
5,749
4,226
3,358
1,541
5,081
1999
2000
2001
2002
2003
there-
after
At December 31, 1998, the Group had unused short-term credit
lines of € 7,984 (1997: € 11,027) and unused long-term credit
lines of € 10,903 (1997: € 11,047).
2 4 . T R A D E L I A B I L I T I E S
At December 31, 1998
At December 31, 1997
Due after
one year
Due after
five years
Total
Due after
one year
Due after
five years
Total
Trade liabilities
12,848
54
1
12,026
32
2
2 5 . O T H E R L I A B I L I T I E S
S
T
N
E
M
E
T
A
T
S
Liabilities to affiliated companies
Liabilities to related companies
Other liabilities
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
102
At December 31, 1998
At December 31, 1997
Total
349
665
8,235
9,249
Due after
one year
Due after
five years
–
20
587
607
–
11
2
13
Total
553
956
6,403
7,912
Due after
one year
Due after
five years
–
19
815
834
–
12
16
28
Liabilities to related companies are primarily obligations of
DaimlerChrysler Aerospace Airbus GmbH to Airbus Industrie
G.I.E., Toulouse.
Other liabilities include payroll obligations of the month of
December and related tax liabilities. As of December 31, 1998,
tax liabilities include employee withholding taxes of € 1,025
(1997: € 711) and social benefits due of € 759
(1997: € 659).
2 6 . D E F E R R E D I N C O M E
As of December 31, 1998, € 986 of the total deferred income
mature after more than one year (1997: € 1,321).
O T H E R N O T E S
2 7. L I T I G A T I O N A N D C L A I M S
Various claims and legal proceedings have been asserted or
instituted against the Group, including some purporting to be
class actions, and some which demand large monetary
damages or other relief which could result in significant
expenditures. Litigation is subject to many uncertainties, and
the outcome of individual matters is not predictable with
assurance. It is reasonably possible that the final resolution of
some of these matters may require the Group to make
expenditures, in excess of established reserves, over an
extended period of time and in a range of amounts that cannot
be reasonably estimated. The term “reasonably possible” is
used herein to mean that the chance of a future transaction or
event occurring is more than remote but less than likely.
Although the final resolution of any such matters could have a
material effect on the Group’s consolidated operating results for
the particular reporting period in which an adjustment of the
estimated reserve is recorded, the Group believes that any
resulting adjustment should not materially affect its
consolidated financial position.
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
103
2 8 . C O M M I T M E N T S A N D C O N T I N G E N C I E S
Commitments and contingencies are presented at their
contractual values and include the following:
Guarantees
Notes payable
Contractual guarantees
Pledges of indebtedness of others
At December 31,
1998
1997
2,449
2,107
103
500
307
100
829
186
3,359
3,222
Contingent liabilities principally represent guarantees of
indebtedness of non-consolidated affiliated companies and
third parties and commitments by Group companies as to
contractual performance by joint venture companies.
DaimlerChrysler Aerospace is also obligated to make certain
guaranteed dividend payments to minority shareholders.
DaimlerChrysler is subject to potential liability under
government regulations and various claims and legal actions
which are pending or may be asserted against
DaimlerChrysler concerning environmental matters. Estimates
of future costs of such environmental matters are inevitably
imprecise due to numerous uncertainties, including the
enactment of new laws and regulations, the development and
application of new technologies, the identification of new sites
for which DaimlerChrysler may have remediation
responsibility and the apportionment and collectibility of
remediation costs among responsible parties.
DaimlerChrysler establishes reserves for these environmental
matters when a loss is probable and reasonably estimable. It is
reasonably possible that the final resolution of some of these
matters may require DaimlerChrysler to make expenditures, in
excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably
estimated. Although the final resolution of any such matters
could have a material effect on DaimlerChrysler’s consolidated
operating results for the particular reporting period in which
an adjustment of the estimated reserve is recorded,
DaimlerChrysler believes that any resulting adjustment should
not materially affect its consolidated financial position.
DaimlerChrysler periodically initiates voluntary service
actions and recall actions to address various customer
satisfaction, safety and emissions issues related to vehicles it
sells. DaimlerChrysler establishes reserves for product
warranty, including the estimated cost of these service and
recall actions, when the related sale is recognized. The
estimated future costs of these actions is based primarily on
prior experience. Estimates of the future costs of these actions
are inevitably imprecise due to numerous uncertainties,
including the enactment of new laws and regulations, the
number of vehicles affected by a service or recall action, and
the nature of the corrective action which may result in
adjustments to the established reserves. It is reasonably
possible that the ultimate cost of these service and recall
actions may require DaimlerChrysler to make expenditures, in
excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated.
Although the ultimate cost of these service and recall actions
could have a material effect on DaimlerChrysler’s consolidated
operating results for the particular reporting period in which
an adjustment of the estimated reserve is recorded,
DaimlerChrysler believes that any such adjustment should not
materially affect its consolidated financial position.
In connection with the development of aircraft,
DaimlerChrysler Aerospace Airbus GmbH (“DA”) is committed
to Airbus Industrie to incur future development costs. At
December 31, 1998, the remaining commitment not recorded in
the financial statements aggregated € 316.
Airbus Industries G.I.E. (“Airbus consortium”) has given a
performance guarantee to Agence Executive, the French
government agency overseeing Airbus; such performance
guarantee has been assumed by DA to the extent of its 37.9%
participation in the Airbus consortium.
At December 31, 1998, in connection with DA’s participation in
the Airbus consortium, DA was contingently liable related to
the Airbus consortium’s irrevocable financing commitments in
respect of aircraft on order, including options, for delivery in
the future. In addition, DA was also contingently liable related
to credit guarantees and participations in financing receivables
of the Airbus consortium under customer finance programs.
When entering into such customer financing commitments, the
Airbus consortium has generally established a secured position
in the aircraft being financed. The Airbus consortium and DA
believe that the estimated fair value of the aircraft securing
such commitments would substantially offset any potential
losses from the commitments. Based on experience, the
probability of material losses from such customer financing
commitments is considered remote.
DA’s obligations under the foregoing financing commitments of
the Airbus consortium are joint and several with its other
partners in the consortium. In the event that Airbus, despite
the underlying collateral, should be unable to honor its
obligations, each consortium partner would be jointly and
severally liable to third parties without limitation. Between the
consortium partners, the liability is limited to each partner’s
proportionate share in Airbus.
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
104
In 1989, the Group acquired Messerschmitt-Bölkow-Blohm
GmbH (“MBB”), which included DaimlerChrysler Aerospace
Airbus GmbH (then known as Deutsche Airbus GmbH) which
was and continues to be the German participant in Airbus
Industrie. In connection with this acquisition, the Government
of the Federal Republic of Germany undertook responsibility
for certain financial obligations of MBB and DaimlerChrysler
Aerospace Airbus GmbH and agreed to provide certain
ongoing limited financial assistance for development programs
and other items. Such undertakings, advances and assistance
were to be repaid by DaimlerChrysler Aerospace Airbus GmbH
on a contingent basis equal to 40% of the prior year’s pretax
profit, as defined in the agreement with the Government,
beginning in 2001, and royalty payments based on sales of
aircraft.
During 1998 and 1997, DaimlerChrysler Aerospace Airbus
GmbH settled these contingent obligations with the Federal
Republic of Germany for payments of € 895 and € 716,
respectively. The 1998 settlement, which resulted in the
complete discharge of all remaining obligations to the German
Federal Government, related to the Airbus A300/310 and
A330/340 series aircraft as well as to financial assistance not
related to development, while the 1997 settlement related
primarily to the A320 aircraft and derivatives. Of the
foregoing settlement payments, € 229 and € 369 were
expensed in 1998 and 1997, respectively. The remainder of the
settlement payments were capitalized and are being amortized
over those aircraft to be delivered in the future to which the
settlements related.
In connection with certain production programs the Group has
committed to certain levels of outsourced manufactured parts
and components over extended periods at market prices. The
Group may be required to compensate suppliers in the event
the committed volumes are not purchased.
In the normal course of business, the Group sells to third
parties certain of its receivables from financial services.
During the year ended December 31, 1998 the Group sold
financial receivables for proceeds of € 40,863 (1997: € 44,336).
In connection with such sales, the Group remained liable under
recourse provisions for € 182 (1997: € 161).
The Group is jointly and severally liable for certain non-
incorporated companies, partnerships, and project groups.
Total rentals under operating leases, charged as an expense in
the statement of income, amounted to € 984 (1997: € 910;
1996: € 826). Future minimum lease payments under rental
and lease agreements which have initial or remaining terms in
excess of one year at December 31, 1998 are as follows:
1999
2000
2001
2002
2003
thereafter
Operating
leases
543
371
283
218
168
870
2 9 . I N F O R M A T I O N A B O U T F I N A N C I A L I N S T R U M E N T S
a) Use of financial instruments
In the course of day-to-day financial management,
DaimlerChrysler purchases financial instruments, such as
financial investments, variable- and fixed-interest bearing
securities and stock, forward exchange contracts and currency
options. The Group also sells financial instruments such as
eurobonds, commercial paper and euro-medium-term-notes.
As a consequence, the Group may be exposed to risks from
changes in interest and currency exchange rates as well as
share prices. DaimlerChrysler uses derivative financial
instruments to reduce such risks. Without the use of these
instruments the Group’s market risks would be higher.
Based on regulations issued by regulatory authorities for
financial institutions, the Group has established guidelines for
risk assessment procedures and controls for the use of
financial instruments, including a clear segregation of duties
with regard to operating financial activities and settlement,
accounting and controlling.
Market risk in portfolio management is quantified according to
the “value-at-risk” method which is commonly used among
banks. Using historical variability of market values, potential
changes in value resulting from changes of market prices are cal-
culated on the basis of statistical methods. The maximum
acceptable market risk is established by senior management in
the form of risk capital, approved for a period not exceeding one
year. Adherence to risk capital limitations is regularly monitored.
b) Notional amounts and credit risk
The notional amounts of off-balance sheet financial
instruments are as follows:
The contract or notional amounts shown below do not always
represent amounts exchanged by the parties and, thus, are not
necessarily a measure for the exposure of DaimlerChrysler
through its use of derivatives.
Balance Sheet information
Currency contracts
Interest rate contracts
At December 31,
1998
1997
28,204
22,912
26,162
30,093
Currency contracts include foreign exchange forward and
option contracts which are mainly utilized to hedge existing
receivables and liabilities, firm commitments and anticipated
transactions denominated in foreign currencies (principally
U.S. dollars, Japanese Yen and major European currencies).
The objective of the Group’s hedging transactions is to reduce
the market risk of its foreign denominated future cash flows to
exchange rate fluctuations. The Group has entered into
currency contracts for periods of one to five years.
The Group enters into interest and interest rate cross-currency
swaps, interest rate forward and futures contracts and interest
rate options in order to safeguard financial investments against
fluctuating interest rates as well as to reduce funding costs, to
diversify sources of funding, or to alter interest rate exposures
arising from mismatches between assets and liabilities.
The Group may be exposed to credit-related losses in the event
of non-performance by counterparties to financial instruments.
Counterparties to the Group’s financial instruments represent,
in general, international financial institutions. DaimlerChrysler
does not have a significant exposure to any individual
counterparty, based on the rating of the counterparties
performed by established rating agencies. The Group believes
the overall credit risk related to utilized derivatives is
insignificant.
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
105
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
106
c) Fair value of financial instruments
The fair value of a financial instrument is the price at which
one party would assume the rights and/or duties of another
party. Fair values of financial instruments have been
determined with reference to available market information at
the balance sheet date and the valuation methodologies
discussed below. Considering the variability of their value-
determining factors, the fair values presented herein may not be
indicative of the amounts that the Group could realize in a
current market exchange.
The carrying amounts and fair values of the Group’s financial
instruments are as follows:
At December 31, 1998
Carrying
amount
Fair
value
At December 31, 1997
Carrying
amount
Fair
value
Balance Sheet Financial Instruments:
Assets:
Financial assets
912
912
Receivables from financial services
26,468
26,460
Securities
Cash and cash equivalents
Other
Liabilities:
12,160
12,160
6,590
6,590
261
261
1,485
21,717
10,180
6,809
336
1,485
21,818
10,180
6,809
336
Financial liabilities
40,430
40,459
34,375
35,236
Off-Balance Sheet Financial Instruments:
Assets:
Currency contracts
Interest rate contracts
Liabilities:
Currency contracts
Interest rate contracts
338
97
268
19
744
309
349
303
173
60
535
48
367
116
972
222
In determining the fair values of derivative financial
instruments, certain compensating effects from underlying
transactions (e.g. firm commitments and anticipated
transactions) are not taken into consideration. At December
31, 1998 and 1997, the Group had deferred net unrealized
gains (losses) on forward currency exchange contracts and
options of € 325 and € (243), respectively, purchased against
firm foreign currency denominated sales commitments
extending for varying periods between three and twenty-four
months.
The carrying amounts of cash, other receivables and accounts
payable approximate fair values due to the short-term
maturities of these instruments.
The methods and assumptions used to determine the fair
values of other financial instruments are summarized below:
Financial Assets and Securities – Fair value of securities in the
portfolio was estimated using quoted market prices. The Group
has certain equity investments in related and affiliated
companies not presented in the table, as certain of these
investments are not publicly traded and determination of fair
values is impracticable.
Receivables from Financial Services – The carrying amount of
variable rate finance receivables was estimated to approximate
fair value since they are priced at current market rates. The fair
value of fixed rate finance receivables was estimated by
discounting expected cash flows using the current rates at
which comparable loans of similar maturity would be obtained
made as of December 31, 1998 and 1997.
The fair values of residual cash flows and other subordinated
amounts arising from receivable sale transactions were
estimated by discounting expected cash flows at current
market rates.
Financial Liabilities – Fair value of publicly traded debt was
estimated using quoted market prices. The fair value of other
long-term notes and bonds was estimated by discounting future
cash flows using rates currently available for debt of similar
terms and remaining maturities. The carrying amounts of
commercial paper and borrowings under revolving credit
facilities were assumed to approximate fair value due to their
short maturities.
Interest Rate Contracts – The fair values of existing instruments
to hedge interest rate risks (e.g. interest rate swap agreements)
were estimated by discounting expected cash flows using
market interest rates over the remaining term of the
instrument. Interest rate options are valued on the basis of
quoted market prices or on estimates based on option pricing
models.
Currency Contracts – The fair value of forward foreign exchange
contracts is based on average spot exchange rates that consider
forward premiums or discounts. Currency options are valued on
the basis of quoted market prices or on estimates based on
option pricing models.
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
107
d) Accounting for and reporting earnings of financial
instruments
The earnings of the Group’s on-balance sheet financial
instruments, with the exception of receivables from financial
services, are recognized in financial income, net. Income on
receivables from financial services are recognized as
revenues. The carrying amounts of the on-balance sheet
financial instruments are included in the consolidated balance
sheets under their related captions. The carrying amounts of
off-balance sheet financial instruments are included under
other assets and accrued liabilities.
Financial instruments, including derivatives, purchased to
offset the Group’s exposure to identifiable and committed
transactions with price, interest or currency risks are
accounted for together with the underlying business
transactions (“hedge accounting”). Gains and losses on
forward contracts and options hedging firm foreign currency
commitments are deferred off-balance sheet and are
recognized as a component of the related transactions, when
recorded (the “deferral method”). However, a loss is not
deferred if deferral would lead to the recognition of a loss in
future periods.
In the event of an early termination of a currency exchange
agreement designated as a hedge, the gain or loss continues
to be deferred and is included in the settlement of the
underlying transaction.
Interest differentials paid or received under interest rate swaps
purchased to hedge interest risks on debt are recorded as
adjustments to the effective yields of the underlying debt
(“accrual method”).
In the event of an early termination of an interest rate related
derivative designated as a hedge, the gain or loss is deferred
and recorded as an adjustment to interest income, net over the
remaining term of the underlying transaction.
All other financial instruments, including derivatives,
purchased to offset the Group’s net exposure to price, interest
or currency risks, but which are not designated as hedges of
specific assets, liabilities or firm commitments are marked to
market and any resulting unrealized gains and losses are
recognized currently in financial income, net.
Derivatives purchased by the Group under macro-hedging
techniques, as well as those purchased to offset the Group’s
exposure to anticipated cash flows, do not generally meet the
requirements for applying hedge accounting and are,
accordingly marked to market at each reporting period with
unrealized gains and losses recognized in financial income,
net. At such time that the Group meets the requirements for
hedge accounting and designates the derivative financial
instrument as a hedge of a committed transaction, subsequent
unrealized gains and losses would be deferred and recognized
along with the effects of the underlying transaction.
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
108
3 0 . S E G M E N T R E P O R T I N G
Effective January 1, 1998, the Group adopted SFAS 131,
“Disclosures about Segments of an Enterprise and Related
Information.” Segment data for 1997 and 1996 has been
restated.
Information with respect to the Group’s industry segments
follows:
Passenger Cars Mercedes-Benz, Smart. This segment includes
activities related mainly to the development, manufacture and
sale of passenger cars and off-road vehicles under the brand
names Mercedes-Benz and Smart as well as related parts and
accessories.
Passenger Cars and Trucks Chrysler, Plymouth, Jeep, Dodge.
This segment includes the research, design, manufacture,
assembly and sale of cars and trucks under the brand names
Chrysler, Plymouth, Jeep and Dodge and related automotive
parts and accessories.
Commercial Vehicles Mercedes-Benz, Freightliner, Sterling,
Setra. This segment is involved in the development,
manufacture and sale of vans, trucks, buses and Unimogs as
well as related parts and accessories. The products are sold
mainly under the brand names Mercedes-Benz and Freightliner.
Chrysler Financial Services. This segment is comprised
primarily of Chrysler Financial Company, L.L.C., which is
engaged principally in retail and lease financing for vehicles,
dealer inventory and other financing needs, dealer property
and casualty insurance, and dealership facility development
and management, primarily related to the Chrysler, Plymouth,
Jeep and Dodge brands.
Services. The activities in this segment extend to the
marketing of services related to information technology,
financial services (other than Chrysler Financial Services),
insurance brokerage, trading, telecommunications and media,
as well as real estate management.
Aerospace. This division comprises the development,
manufacture and sale of commercial and military aircraft and
helicopters, of satellites and related space transportation
systems, defense-related products, including radar and radio
systems and propulsion systems.
Other. Represents principally the Directly Managed
Businesses including rail systems (50% interest in Adtranz),
automotive electronics (up to December 31, 1997,
microelectronics), recognition and sorting systems (up to
December 31, 1996) and diesel engines. Other also contains
corporate research, real estate activities and holding and
financing companies.
The Group’s management reporting and controlling systems
are substantially the same as those described in the summary
of significant accounting policies (U.S. GAAP). The Group
measures the performance of its operating segments through
“Operating Profit.” Segment Operating Profit is defined as
income before financial income and income taxes included in
the consolidated statement of income, modified to exclude
certain pension and postretirement benefit costs and merger
costs and to include certain financial income, net.
Sales and revenues related to transactions between segments
are generally recorded at values that approximate third-party
selling prices.
Revenues are allocated to countries based on the location of
the customer; long-term assets, according to the location of the
respective units.
Capital expenditures represent the purchase of property, plant
and equipment.
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
109
Cars
Passenger Commercial
Vehicles
Trucks Mercedes-
Benz,
Plymouth, Freightliner,
Sterling,
Setra
Jeep,
Dodge
Chrysler,
Passenger
Cars
Mercedes-
Benz,
smart
Chrysler
Financial
Services
Services
Aero
space
Other
Elimi-
nations
Consoli-
dated
1998
Revenues
Intersegment sales
Total revenues
Operating Profit (Loss)
Identifiable segment assets
Capital expenditures
Depreciation and amortization
1997
Revenues
Intersegment sales
Total revenues
Operating Profit (Loss)
Identifiable segment assets
Capital expenditures
Depreciation and amortization
1996
Revenues
Intersegment sales
Total revenues
Operating Profit (Loss)
Identifiable segment assets
Capital expenditures
Depreciation and amortization
30,859
56,278
22,374
2,726
7,817
8,722
3,006
– 131,782
1,728
62
788
151
32,587
56,340
23,162
2,877
1,993
4,212
946
652
1,756
9,573
392
48
420
(4,953)
–
8,770
3,426
(4,953) 131,782
623
(146)
(79)
8,593
17,098
37,810
11,936
21,880
28,232
12,970
33,477 (27,254) 136,149
1,995
1,310
3,920
2,837
832
692
–
285
392
1,646
326
289
797
293
–
(168)
8,155
7,291
25,874
51,939
19,481
2,207
1,680
3
531
200
27,554
51,942
20,012
2,407
1,716
3,368
342
586
6,681
1,243
7,924
246
7,751
3,639
–
117,572
65
257
(3,979)
–
7,816
3,896
(3,979)
117,572
284
(225)
(87)
6,230
15,003
38,699
11,000
17,867
24,434
11,174
23,823
(17,169) 124,831
1,885
1,160
4,501
2,288
601
687
–
193
168
1,459
255
306
635
324
(19)
8,051
(170)
6,222
22,447
45,205
15,879
1,840
1,406
3
560
120
5,521
1,199
6,636
3,887
–
101,415
38
211
(3,537)
–
23,853
45,208
16,439
1,960
6,720
6,674
4,098
(3,537)
101,415
1,796
4,321
(61)
471
160
25
(561)
61
6,212
13,305
31,263
9,582
14,003
19,077
10,975
16,099
(13,011) 101,293
1,479
917
3,545
1,760
797
625
–
91
120
1,311
311
277
486
357
(17)
(46)
6,721
5,292
Capital expenditures for equipment on operating leases for 1998, 1997 and 1996 for Chrysler Financial Services amounted to
€ 2,935, € 1,211 and € 297, respectively, and for Services amounted to € 4,303, € 3,678 and € 3,161, respectively.
Income before financial income and income taxes
7,391
5,547
5,285
1998
1997
1996
Not allocated:
certain pension and postretirement
benefit costs
merger costs
Allocated: certain financial income, net
Consolidated operating profit
688
685
(171)
8,593
721
–
(38)
770
–
157
6,230
6,212
Revenues
1998
1997
1996
Other
European
countries
Other
American
countries
U.S.A.
Germany
Other
countries
Consoli-
dated
Asia
24,918
23,550
65,300
11,519
4,311 2,184 131,782
21,317
20,798
56,615
10,576
5,587 2,679 117,572
20,316
16,954
49,485
7,152
5,058 2,450 101,415
Germany accounts for € 12,953 of long-term assets (1997:
12,040; 1996: 11,160), the U.S.A. for € 25,344 (1997: 22,632;
1996: 18,881) and other countries for € 11,309 (1997: 9,797;
1996: 5,808).
3 1 . E A R N I N G S P E R S H A R E
Earnings per share are determined as follows:
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
110
At December 31,
1998
1997
1996
Basic earnings per share:
Income before extraordinary item
4,949
6,547
4,169
Less: preferred stock dividends
–
(1)
(3)
Weighted average number of shares
outstanding
Basic earnings per share
4,949
6,546
4,166
959.3
5.16
949.3
6.90
981.6
4.24
Non-recurring items1)
0.42
(2.62)
–
Basic earnings per share excluding
non-recurring items
5.58
4.28
4.24
Diluted earnings per share:
Income before extraordinary item
4,949
6,547
4,169
Interest expense on convertible bonds
and notes (net of tax)
Weighted average number of shares
outstanding
Dilutive effect on convertible bonds
and notes
Shares issued on exercise of dilutive
options
Shares purchased with proceeds of
options
Shares applicable to convertible
preferred stock
Shares contingently issuable
Diluted earnings per share
20
19
4
4,969
6,566
4,173
959.3
949.3
981.6
19.8
12.8
4.0
18.3
17.7
16.5
(11.8)
(13.5)
(11.9)
0.2
1.3
987.1
5.04
0.8
1.1
968.2
6.78
2.7
1.1
994.0
4.20
Non-recurring items1)
0.41
(2.57)
–
Diluted earnings per share
excluding non-recurring items
5.45
4.21
4.20
1) Non-recurring items comprise merger costs of € 401 (net of tax) in 1998 and tax benefits relating to a special distribution and to a decrease of the
valuation allowance of € 2,490 in 1997.
In 1997, convertible bonds issued in connection with the 1997
Stock Option Plan were not included in the computation of
diluted earnings per share because the options‘ underlying
target stock price was greater than the market price for
DaimlerChrysler Ordinary Shares on December 31, 1997. For
the same reason, convertible bonds issued in connection with
the 1998 Stock Option Plan were not included in the
computation at December 31, 1998.
Unexercised employee stock options to purchase 0.2 million
and 0.1 million shares of DaimlerChrysler Ordinary Shares as
of December 31, 1997 and 1996, respectively, were not
included in the computations of diluted earnings per share
because the options’ exercise prices were greater than the
average market price of DaimlerChrysler Ordinary Shares
during the respective periods.
3 2 . S U B S E Q U E N T E V E N T S
In January 1999, DaimlerChrysler agreed to acquire ABB‘s
50% interest in Adtranz (see Note 3). The transaction is
expected to be completed in the second quarter of 1999.
Consummation of the merger is subject to various conditions,
including among others, approval of certain governmental
authorities.
DaimlerChrysler plans to institute a SAR plan for Daimler–
Chrysler employees currently holding options under the 1997
and 1998 plans and offer each employee the opportunity to
substitute an SAR in exchange for each option currently held.
All terms and conditions will be identical to the stock options
which are being replaced, except that the holder of the SAR
will have the right to receive cash equal to the difference
between the option exercise price and the stock price at the
date of exercise. See also Note 21.
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M E M B E R S O F T H E S U P E R V I S O R Y B O A R D
Hilmar Kopper
Frankfurt am Main
Chairman of the Supervisory
Board of Deutsche Bank AG
Chairman
Manfred Göbels *)
Stuttgart
Chairman of the Senior
Managers’ Committee,
DaimlerChrysler Group
Peter Schönfelder *)
Augsburg
Member of the Works Council,
DaimlerChrysler Aerospace AG
Augsburg Plant
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Karl Feuerstein *
Mannheim
Chairman of the Corporate
Works Council,
DaimlerChrysler AG and
DaimlerChrysler Group
Deputy Chairman
Robert E. Allen
Berkeley Heights
Retired Chairman of the
Board and
Chief Executive Officer
of AT & T Corp.
Erich Klemm *)
Sindelfingen
Chairman of the Works
Council, Sindelfingen Plant,
DaimlerChrysler AG
G. Richard Thoman
Stamford
President and Chief
Operating Officer
of Xerox Corporation
Rudolf Kuda *)
Frankfurt am Main
Head of Department,
Executive Council,
German Metalworkers’ Union
Bernhard Walter
Frankfurt am Main
Chairman of the Board of
Managing
Director of Dresdner Bank AG
Robert J. Lanigan
Toledo
Chairman Emeritus
of Owens-Illinois, Inc.
Lynton R. Wilson
Toronto
Chairman of the Board
of BCE Inc.
Willi Böhm *)
Wörth
Member of the Works Council,
Wörth Plant,
DaimlerChrysler AG
Sir John P. Browne
London
Chief Executive Officer
of BP Amoco p.I.c.
Dr.-Ing. Mark Wössner
Gütersloh
Chairman of the Supervisory
Board of Bertelsmann AG
Bernhard Wurl *)
Frankfurt am Main
IG Metall
Head of Department,
Executive Council,
German Metalworkers’ Union
Stephen P. Yokich *)
Detroit
President of U.A.W.,
International Union United
Automobile, Aerospace and
Agricultural Implement
Workers of America
Helmut Lense *)
Stuttgart
Chairman of the Works Council,
Untertürkheim Plant,
DaimlerChrysler AG
Peter A. Magowan
San Francisco
Retired Chairman of the
Board of Safeway, Inc.,
President and
Managing General Partner
of San Francisco Giants
Herbert Schiller *)
Frankfurt am Main
Chairman of the Corporate
Works Council,
DaimlerChrysler Services
(debis) AG
Dr. rer. pol.
Manfred Schneider
Leverkusen
Chairman of the Board of
Management of Bayer AG
Committees of the
Supervisory Board:
Committee according
§ 27 Sec. 3 MitbestG
(Codetermination Act)
Hilmar Kopper (Chairman)
Karl Feuerstein
Dr. rer. pol. Manfred Schneider
Bernhard Wurl
Presidential Committee
Hilmar Kopper (Chairman)
Karl Feuerstein
Dr. rer. pol. Manfred Schneider
Bernhard Wurl
Financial Audit
Committee
Hilmar Kopper (Chairman)
Karl Feuerstein
Willi Böhm
Bernhard Walter
*) Employee elected representatives
The DaimlerChrysler International Advisory Board
The International Advisory Board (“IAB”) of DaimlerChrysler
advises the DaimlerChrysler Group on questions relating to
global enconomic, technological and political developments and
their effect on the business activities of the group. It supports
the DaimlerChrysler Board of Management but is not
responsible for making business decisions.
The IAB is composed of at least ten high ranking personalities
from business, politics, and science. It meets approximately
twice a year at varying locations worldwide. The last meeting
took place in November 1998 in Washingon D.C., and it was
the first after the merger of DaimlerChrysler.
The IAB was founded in 1995 as Daimler-Benz International
Advisory Board. It is chaired by Victor Halberstadt, Professor at
the Leiden University, The Netherlands. In addition to the
exclusive group of experts there are guest speakers invited to
address topics of current interest.
The meetings are private to encourage frank and open
discussion. Other recent meetings were held in Stuttgart,
Beijing, Sao Paulo, and New York.
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Retired from the
Supervisory Board:
Hans-Detlef Bösel
Langenfeld
Partner with individual
liability of Sal. Oppenheim
jr. & Cie. KGaA
retired at 11/12/1998
Joseph A. Califano, Jr.
New York
Chairman of the Board and
President of National Center
on Addiction and
Substance Abuse at
Columbia University
retired at 12/15/1998
Dr. Martin Kohlhaussen
Frankfurt
Management board
spokesman of
Commerzbank AG
retired at 12/15/1998
Matthias Graf von
Krockow
Köln
Partner with individual
liability of Sal. Oppenheim
jr. & Cie. KGaA
retired at 11/12/1998
Helmut Zahn
Rösrath
Managing Director
of Sal. Oppenheim
jr. & Cie. KGaA
retired at 11/12/1998
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R E P O R T
O F
T H E
S U P E R V I S O R Y
B O A R D
DaimlerChrysler AG was incorporated on May 6, 1998 under
the name Oppenheim Aktiengesellschaft with its corporate
office in Düsseldorf and with a capital stock of DEM 100,000.
Sole stockholder was initially Christopher Freiherr von Oppen-
heim and then Bankhaus Sal. Oppenheim jr. & Cie. KGaA.
Matthias Graf von Krockow (Chairman), Hans-Detlef Bösel and
Helmut Zahn were appointed as members of the first Super-
visory Board of the company. Members of the Board of Manage-
ment were Johannes Josef Maret and Dr. Thomas Sonnenberg.
By a resolution of the Annual General Meeting on June 17,
1998 the name was changed to DaimlerChrysler AG and
the merger of Daimler-Benz Aktiengesellschaft and Chrysler
Corporation was adopted as the object of the company. The
corporation has been entered on the Commercial Register
of the Stuttgart District Court since July 31, 1998.
The decisive steps for the merger in accordance with company
law took place on November 12, 1998. On this day the
capital stock of DaimlerChrysler AG was increased to DEM
4,956,353,515 by contribution of all stock in the Chrysler
Corporation and more than 98% of the stock of Daimler-Benz
Aktiengesellschaft. Daimler-Benz and Chrysler were thereby
united in DaimlerChrysler AG. The share contribution had been
preceded by a public exchange
offer by DaimlerChrysler AG to
the Daimler-Benz stockholders,
by which the stockholders had
been asked to transfer their
stock to the Deutsche Bank
AG, acting as trustees for the
purpose of carrying out the
capital increase. The Chrysler
stock was first transferred to
the Bank of New York by
means of a reversed triangular
merger in accordance with the
law of the State of Delaware,
USA. The Bank of New York then contributed the stock to
DaimlerChrysler AG as an exchange agent. The Supervisory
Board of DaimlerChrysler AG took part in all these measures
in the manner prescribed by law and gave its approval in all
those matters in which it was required to do so.
During the status procedure since November 12, 1998, The
Supervisory Board consisted of Hilmar Kopper, Robert E. Allen,
Sir John Browne, Peter A. Magowan, Robert J. Lanigan,
Dr. Manfred Schneider, G. Richard Thoman, Bernhard Walter,
Lynton R. Wilson, Dr. Mark Wössner, Dr. Martin Kohlhaussen
and Joseph A. Califanio jr. Also with effect from November 12,
1998 Jürgen E. Schrempp and Robert J. Eaton were appointed
Members of the Board of Management of DaimlerChrysler AG.
With the completion of the status procedure and the court-
appointment of the employee representatives on December 15,
1998 the terms of office of Dr. Martin Kohlhaussen and
Joseph A. Califano jr. came to an end. As representatives
of the employees on the Supervisory Board Willi Böhm,
Karl Feuerstein, Manfred Göbels, Erich Klemm, Rudolf Kuda,
Helmut Lense, Herbert Schiller, Peter Schönfelder, Bernhard
Wurl and Stephen P. Yokich were appointed by the court.
The Supervisory Board was constituted in its meeting of
December 16, 1998 and elected Hilmar Kopper as Chairman and
Karl Feuerstein as Vice Chairman. Furthermore, in accordance
with Article 27 Section 3 of the German co-determination act
the Mediating Committee and a Presidential Committee and a
Financial Audit Committee were formed and the members of
the committees were elected. The appointments of November 11,
1998 were annulled and Robert J. Eaton and Jürgen E. Schrempp
were appointed Chairmen of the Board of Management
of DaimlerChrysler AG effective from December 16, 1998 –
Mr. Eaton until November 11, 2001 and Mr. Schrempp until
December 15, 2003.
Manfred Bischoff, Eckhard Cordes, Theodor R. Cunningham,
Thomas C. Gale, Manfred Gentz, James P. Holden, Jürgen
Hubbert, Kurt J. Lauk, Klaus Mangold, Thomas W. Sidlik,
Thomas T. Stallkamp, Heiner Tropitzsch, Gary C. Valade, Klaus-
Dieter Vöhringer and Dieter Zetsche were appointed Members
of the Board of Management with effect from December 16,
1998 for a term of five years – until December 15, 2003.
In this meeting the Supervisory Board concerned itself with
the overall state of the company and amongst other things with
the situation of Adtranz and the measures resulting therefrom.
The financial statements for 1998 of DaimlerChrysler AG,
including the business review report, were audited by the audit
firm, KPMG Deutsche Treuhand-Gesellschaft AG, Berlin and
Frankfurt/Main, and certified without qualification.
This also applies to the consolidated financial statements
according to US GAAP with the exception of the proportionate
method of consolidation applied by DaimlerChrysler AG, which,
however, is expressly permitted by the Securities and Exchange
Commission (SEC). These are drawn up in DM and then con-
verted into euro and supplemented by a consolidated status
report and additional notes in accordance with Article 292a
of the German Commercial Code (§ 292a HGB). In accordance
with §292a HGB the present US GAAP consolidated financial
statements grant exemption from the obligation to draw up
statements under German law.
All financial statements and the appropriation of earnings
proposed by the Board of Management and the auditors’ report
were submitted to the Supervisory Board. They have been
inspected by the Financial Audit Committee and the Super-
visory Board and discussed in the presence of the auditors.
The Supervisory Board has declared itself in agreement with
the result of the auditors’ report and as a result of its own
audit has determined that no objections are to be raised.
In its meeting of March 30, 1999 the Supervisory Board
approved the consolidated financial statements for 1998 and
the financial statements of DaimlerChrysler AG for 1998 and
thereby consented to the appropriation of earning proposed
by the Board of Management.
May 27, 1998 and at the same time Hilmar Kopper was elected
as its Chairman and Karl Feuerstein as its Vice Chairman and
the committees were formed.
The Supervisory Board and Board of Management of the now
dissolved Daimler-Benz AG met in four ordinary and four
extraordinary meetings in fiscal 1998 and concerned them-
selves with the state of the group, the strategic development
of the business divisions and the business units, a special
distribution of available stockholder’s equity, upon which
a levy of 50% corporation tax was imposed (VEK 50), as well
as with detailed consideration of the merger with the Chrysler
Corporation.
The Board of Management has kept the Supervisory Board
fully informed in all meetings and also by means of the regular
written reports on the business trend and the economic
situation of the company. In addition, the Chairman of the
Supervisory Board has kept himself constantly informed
through individual discussions with the Board of Management.
In the spring meeting the corporate plan for the period
1998 –2000 was presented to the Supervisory Board on
schedule. This, including the investment, human resources
and profit planning, was duly considered. In the extraordinary
meeting of the Supervisory Board on March 10, 1998 the
Supervisory Board dealt in detail with the distribution of
the “VEK 50” shares and the subsequent capital increase.
As a result of this discussion, the Supervisory Board and the
Board of Management in the balance sheet approval meeting
on April 3, 1998 recommended to the General Meeting
a special distribution of DEM 20 for each share entitled
to dividend and approved the corresponding capital increase.
In the extraordinary meeting of the Supervisory Board on
May 6, 1998 the intended merger of Daimler-Benz AG and
Chrysler Corporation was considered in the Supervisory Board
for the first time. In a further extraordinary meeting of the
Supervisory Board on May 14, 1998 the Supervisory Board
approved the merger of Daimler-Benz AG and Chrysler
Corporation.
With the conclusion of the Annual General Meeting on May 27,
1998 the term of office of the members of the Supervisory
Board Prof. Hubert Curien, Jürgen Sarrazin, Dr. Roland
Schelling and Prof. Dr. Johannes Semler came to an end. The
Supervisory Board expresses its thanks – also in the name of
the management – to the outgoing members for their many
years of committed service.
In place of the outgoing members of the Supervisory Board the
Annual General Meeting elected Sir John Browne, Jean-Marie
Messier, Bernhard Walter and Dr. Mark Wössner to the
Supervisory Board. Dr. Birgit Breuel, Dr. Michael Endres,
Ulrich Hartmann, Dr. Martin Kohlhaussen, Hilmar Kopper
and Dr. Manfred Schneider were re-elected. By May 6, 1998
the delegate meeting to elect the employee representatives
had already taken place. All employee representatives were
confirmed in their office as members of the Supervisory Board.
The Supervisory Board of Daimler-Benz AG was constituted on
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At its summer meeting on June 24, 1998 the Supervisory Board
approved the acquisition of AMG Motoren- und Entwicklungs-
GmbH and concerned itself once again in depth with the current
status of the merger with Chrysler.
The extraordinary meeting of the Supervisory Board on July 31,
1998 served primarily to make preparations for the Extra-
ordinary General Meeting on September 18, 1998. The Super-
visory Board, together with the Board of Management, re-
commended the Extraordinary General Meeting to approve the
merger with Chrysler on the basis of the Business Combination
Agreement as well as to approve the merger contract between
DaimlerChrysler AG and Daimler-Benz AG. Furthermore, the
Supervisory Board approved the June 30, 1998 interim financial
statements of Daimler-Benz AG.
Walter Riester resigned from the Supervisory Board on October
27, 1999 upon his appointment as Federal German Minister for
Labor and Public Order. He, too, receives our express thanks.
The final meeting of the Supervisory Board of Daimler-Benz AG
took place on November 4, 1998. The Supervisory Board
considered among other matters the new structure of the Micro
Compact Car Group and the capital measures involved, as well
as the question of supplementing the Airbus A320 family with
a new Airbus A318.
With the integration of Daimler-Benz AG into DaimlerChrysler
AG on December 21, 1998, the mandate of the Supervisory
Board of Daimler-Benz AG expired. We thank all members of
the Supervisory Board of Daimler-Benz AG for their service and
in particular for the commitment with which they saw through
the merger of Daimler-Benz and Chrysler.
The management, the employees and the employee represent-
atives have cooperated conscientiously and constructively this
year. In particular, the merger of Daimler-Benz and Chrysler has
made very heavy personal demands on many people in the
company. The Supervisory Board expresses its thanks and
appreciation to the Board of Management and the employees for
the work they have undertaken and for their commitment.
Stuttgart-Möhringen, March 1999
The Supervisory Board
Hilmar Kopper
Chairman
M A J O R
S U B S I D I A R I E S
O F T H E
D A I M L E R C H R Y S L E R
G R O U P
Stockholders’
Ownership 1)
in %
Equity in
Millions 2)
of €
Net Income 3)
in Millions of €
Revenues 3)
in Millions of €
Employment
at Year-End
98
97
98
97
98
97
Passenger Cars Mercedes-Benz, smart
Mercedes-Benz Italia S.p.a.A, Rome4)
Mercedes-Benz (Switzerland) AG, Zurich
Micro Compact Car AG, Biel4)
Mercedes-Benz Hellas S.A., Athens
Mercedes-Benz of North America, Inc., Montvale4)
Mercedes-Benz U.S. International, Inc., Tuscaloosa
Mercedes-Benz India Ltd., Poona
Mercedes-Benz Japan Co. Ltd., Tokyo
Mercedes-Benz Group Indonesia, Jakarta4)
Passenger Cars & Trucks Chrysler, Plymouth, Jeep, Dodge
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DaimlerChrysler Corporation, Auburn Hills
Chrysler Canada Ltd. Windsor
Eurostar Automobilwerk GmbH & Co. KG, Graz
Chrysler Pentastar Aviaton, Inc., Waterford
Chrysler Transport, Inc., Detroit
Chrysler de Mexico S.A. de C.V., Mexico City
Chrysler Financial Company L.L.C., Southfield
Chrysler Credit Canada Ltd., Missisauga
Chrysler Insurance Company, Southfield
Commercial Vehicles Mercedes-Benz/Freightliner/Sterling/Setra
Evo Bus GmbH, Stuttgart4)
Mercedes-Benz Lenkungen GmbH, Düsseldorf
Mercedes-Benz Espana S.A., Milan
Mercedes-Benz (United Kingdom) Ltd., Milton Keynes4)
Mercedes-Benz Nederland B.V., Utrecht4)
Mercedes-Benz Belgium S.A./N.V. Brussels
Mercedes-Benz France SAS, Rocquencourt4)
NAW Nutzfahrzeuge AG, Arbon
Mercedes-Benz Danmark AS Hillerod
Mercedes-Benz Sverige AG, Stockholm
Freightliner Corporation, Portland4)
Mercedes-Benz Mexico S.A. de G.V., Mexico D.F.4)
Mercedes-Benz do Brasil S.A., Sao Bernando do Campo
Mercedes-Benz Argentina, Buenes Aires4)
Mercedes-Benz of South Africa (Pty.) Ltd. Pretoria4)
Mercedes-Benz Türk A.S., Istanbul
Mercedes-Benz (Australia) Pty. Ltd., Mulgrave/Melbourne4)
100.0
100.0
100.0
100.0
100.0
100.0
86.0
100.0
95.0
100.0
100.0
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
55.6
100.0
126
53
12
19
* 5)
* 5)
42
147
14
8.7
7.0
3.9
3.7
(141.1)
(151.6)
4.5
* 5)
* 5)
(4.2)
8.7
(4.9)
1.7
* 5)
* 5)
(34.9)
21.4
6.2
2,041
1,691
667
133
158
6,775
1,644
44
524
127
4,939
411
64
1,498
1,587
-
1,281
628
278
150
1,352
1,699
344
403
612
266
812
144
1,263
1,296
578
405
27
240
1,225
1,715
11,253
2,778
2,487
59,003
54,146
130,329
125,581
* 5)
* 5)
* 5)
* 5)
* 5)
* 5)
* 5)
* 5)
200
29
190
* 5)
* 5)
59
* 5)
15
14
14
* 5)
* 5)
648
165
59
101
59
* 5)
* 5)
* 5)
* 5)
* 5)
* 5)
* 5)
* 5)
29.3
(2.0)
80.6
* 5)
* 5)
11.0
* 5)
2.1
0.2
0.1
* 5)
* 5)
47.0
27.5
18.1
50.1
20.5
* 5)
* 5)
* 5)
* 5)
* 5)
* 5)
* 5)
* 5)
41.3
3.4
12.3
* 5)
* 5)
7.1
* 5)
2.1
2.1
(2.6)
* 5)
* 5)
11,8506)
9,9256)
17,125
15,714
7506)
7836)
1,555
1,675
766)
946)
676)
876)
240
931
187
843
5,3136)
5,0376)
11,125
10,363
1,3816)
1,1306)
3,232
3,048
3996)
1426)
2756)
1396)
102
179
180
177
1,685
1,538
252
2,252
3,080
912
831
232
1,847
2,631
723
689
9,724
1,459
4,477
1,034
524
524
9,250
1,354
4,615
982
510
529
2,165
1,716
2,049
2,040
81
247
297
67
252
239
374
304
271
414
269
243
6,805
4,717
14,870
10,556
420
329
2,161
1,045
100.7
2,058
2,084
11,031
11,513
6.9
(33.2)
70.8
17.3
649
864
662
505
551
1,070
857
471
1,689
3,418
3,696
778
1,834
3,800
3,666
667
Services
DaimlerChrysler Services (debis) AG, Berlin
debis Systemhaus GmbH, Leinfelden-Echterdingen
debitel Kommunikationstechnik GmbH & Co. KG, Stuttgart
Mercedes-Benz Finanz GmbH, Stuttgart
Mercedes-Benz Finance Ltd., Milton Keynes
Mercedes-Benz Credit Corporation, Norwalk
Mercedes-Benz Finanziaria S.p.A., Rome
Aerospace
DaimlerChrysler Aerospace AG, Munich
DaimlerChrysler Aerospace Airbus GmbH, Hamburg
Dornier GmbH, Friedrichshafen
Dornier Satellitensysteme GmbH, Munich
Eurocopter S.A., Marignane/France
Eurocopter Deutschland GmbH, Ottobrunn
MTU Motoren- und Turbinen-Union München GmbH, Munich
LFK-Lenkflugkörpersysteme GmbH, Munich
Nortel Dasa Network Systems GmbH & Co. KG, Friedrichshafen
100.0
100.0
52.4
100.0
100.0
100.0
100.0
100.0
100.0
57.6
100.0
75.0
100.0
100.0
70.0
50.0
Other Industrial Businesses7)
ABB Daimler-Benz Transportation GmbH, Berlin8)
TEMIC TELEFUNKEN microelectronic GmbH, Heilbronn8)
MTU Motoren- und Turbinen-Union GmbH, Friedrichshafen8)
50.0
100.0
88.4
866
205
13
596
97
124
6
71
74
313
382
Stockholders’
Ownership 1)
in %
Equity in
Millions 2)
of €
Net Income 3)
in Millions of €
Revenues 3)
in Millions of €
Employment
at Year-End
98
97
98
97
98
97
990
182
98
405
5)
5)
41
66.4
6.0
63.3
88.0
5)
5)
3.4
430.4
9.3
31.1
114.0
5)
5)
0.1
-
483
1,057
181
130
-
431
900
163
292
168
1,086
1,330
641
188
293
1,560
1,136
627
215
1,869
2,247
1,570
1,067
62
111
125
120
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L
S
Y
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C
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E
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2,136
334.3
379.7
1,837
10,994
10,637
2,394
14,645
14,087
(138.6)
(317.3)
32.8
8.1
46.9
(1.9)
(154.5)
(17.9)
20.9
32.5
11.0
17.2
2.5
138.0
(10.2)
13.3
1,772
2,970
347
683
321
802
1,179
1,036
451
406
1,359
1,275
348
351
367
238
117
1,933
1,507
6,198
3,206
5,169
1,230
953
1,960
1,489
5,903
2,995
4,829
1,231
816
(390)
(254)
3,316
3,261
23,785
22,715
20
87
2
73
754
921
557
878
4,638
5,893
3,848
5,758
Regional Holding and Finance Companies
DaimlerChrysler North America Holding Corp., New York
DaimlerChrysler Nederland Holding B.V., Utrecht
DaimlerChrysler Schweiz Holding AG, Zurich
DaimlerChrysler UK Holding plc., London
DaimlerChrysler France Holding S.A., Rocquencourt
DaimlerChrysler Coordination Center S.A/N.V., Brussels
DaimlerChrysler Espana Holding, Madrid S.A.
100.0
100.0
100.0
100.0
100.0
100.0
100.0
3.053
585
270
92
208
169
197
361
206
11
55
61
45
17
53
12
10
56
18
11
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
42
36
1
3
7
3
21
12
1
2
6
1
21
12
1) Relating to the respective parent company.
2) Stockholders’ equity and net income/net income before transfer taken from national financial statements;
stockholders’ equity converted at year-end exchange rates; net income converted at average annual exchange rates.
3) Converted at average annual exchange rates.
4) Preconsolidated financial statements.
5) Included in the consolidated financial statements of the holding company in the respective country.
6) Included in the turnover of the preconsolidated financial statements.
7) Operating Profit instead of Net Income.
8) Amounts according to U.S. GAAP, ABB Daimler-Benz Transportation GmbH on the basis of Stand-Alone
F
I
V
E
-
Y
E
A
R
-
S
U M M A
R
Y
– in millions of € –
94
95
96
97
98
From the statements of income
Revenues
Personnel expenses
of which: wages and salaries
Research and development costs
Operating profit
Operating margin
Financial results
Income before income taxes and extraordinary items
Net operating income
Net operating income as % of net assets (RONA)
Net income (loss)
Net income (loss) per share (€)
Diluted net income (loss) per share (€)
Net income per share before non-recurring items (€)
Diluted net income per share before non-recurring items (€)
Cash dividend
Cash dividend per share (€)
Cash dividend including tax credit 1) per share (€)
From the balance sheets:
Property, plant and equipment
Y
R
A
M
M
U
S
-
R
A
E
Y
-
E
V
F
I
118
Leased equipment
Current assets
of which: liquid assets
Total assets
Stockholders’ equity
of which: capital stock
Accrued liabilities
Liabilities
of which: financial liabilities
Debt to equity ratio
Mid- and long-term provisions and liabilities
Short-term provisions and liabilities
current ratio
Net assets
Credit rating, long-term
Standard & Poor’s
Moody’s
From the statements of cash flows:
Investments in property, plant and equipment
Investments in leased equipment
Depreciation on property, plant and equipment
Depreciation on leased equipment
Cash provided by operating activities
Cash used for investing activities
From the stock exchange:
Share price at year-end Frankfurt (€)
New York (US $)
Average shares outstanding (in millions)
Average dilutive shares outstanding (in millions)
Average annual number of employees
1) For our stockholders who are taxable in Germany.
95,965
91,040
101,415
117,572
131,782
21,648
23,370
25,033
17,143
18,656
19,982
5,553
(1,171)
5,693
–
–
–
–
–
–
3,499
(1,476)
4,022
–
–
–
–
–
–
–
–
–
–
–
–
3.84
3.59
(1.40)
(1.36)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,751
6,212
6.1%
408
4.24
4.20
4.24
4.20
–
–
–
6,501
6,230
5.3%
633
6,180
5,252
10.2%
6,547
6.90
6.78
4.28
4.21
–
–
–
6,693
8,593
6.5%
763
8,154
6,576
11.6%
4,820
5.16
5.04
5.58
5.45
2,356
2.35
3.36
23,111
28,558
29,532
7,905
11,092
14,662
54,888
68,244
75,393
12,851
17,325
19,073
91,682
91,597
101,294
124,831
136,149
23,316
19,488
22,355
27,960
30,367
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
942.9
982.2
1,009.0
1,009.2
–
2,391
2,561
31,988
35,787
34,629
41,672
54,313
62,527
25,496
34,375
40,430
114%
123%
36,989
45,952
41,950
50,919
–
–
–
–
6,721
4,045
4,427
1,159
85%
–
–
–
8,051
5,914
5,683
1,456
133%
47,601
58,181
79%
56,852
A +
A 1
8,155
8,296
4,937
1,972
9,956
12,337
16,681
(8,745)
(14,530)
(23,445)
–
–
981.6
994.0
–
–
83.60
96 1/16
949.3
968.2
959.3
987.1
–
–
419,758
421,661
433,939
I N T E R N A T I O N A L
R E P R E S E N T A T I O N O F F I C E S
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Phone: 0049 30 2554 1810
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Fax:
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Phone: 0020 2 5790 197
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Phone: 0091 124 3473 12
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Phone: 0038 5 1 48123 21
0038 5 1 48123 22
Fax:
I
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A
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A D D R E S S E S
ABB DaimlerChrysler
Transportation GmbH
13627 Berlin
Tel. 0049 30 3832 0
Fax 0049 30 3832 2000
TEMIC TELEFUNKEN
microelectronic GmbH
90411 Nürnberg
Tel. 0049 911 9526 0
Fax 0049 911 9526 354
MTU Friedrichshafen GmbH
88040 Friedrichshafen
Tel. 0049 7541 90 0
Fax 0049 7541 90 2247
DaimlerChrysler AG
70546 Stuttgart
Germany
Tel. 0049 711 17 1
Fax 0049 711 17 94022
DaimlerChrysler Corporation
Auburn Hills, MI 48326-2766
USA
Tel. 001 248 576 5741
Fax 001 248 576 4742
DaimlerChrysler Services AG
debis Haus am Potsdamer Platz
D-10875 Berlin
Tel. 0049 30 2554 0
Fax 0049 30 2554 2525
DaimlerChrysler Aerospace AG
D-81663 München
Tel. 0049 89 607 0
Fax 0049 89 607 26481
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I N F O R M A T I O N
Publications for our shareholders:
DaimlerChrysler Annual Report
(German, English)
Form 20-F
(English)
DaimlerChrysler Services (debis) Annual Report
(German and English)
DaimlerChrysler Aerospace (Dasa) Annual Report
(German and English)
DaimlerChrysler Interim Reports for 1st, 2nd and
3rd quarters (German, English and French)
DaimlerChrysler Environmental Report
(German and English)
Disk with financial information
(English; editable MS EXCEL tables)
The financial statements of DaimlerChryler Aktien-
gesellschaft prepared in accordance with German
GAAP were audited by KPMG Deutsche Treuhand-
Gesellschaft Aktiengesellschaft Wirtschafts-
prüfungsgesellschaft 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
DaimlerChrysler free of charge.
The above publications can be requested from:
DaimlerChrysler AG
D-70546 Stuttgart
The information can also be ordered by phone or
fax under the following number:
(49) 711-1792287
Additional information on DaimlerChrysler
is available on the internet at:
http://www.DaimlerChrysler.com.
F I N A N C I A L D I A R Y
Balance Sheet Press Conference:
March 31, 1999
10:00 am
Kultur- und Kongreßzentrum
(Congress Centre) Stuttgart, Germany
Corporate Presentation to Analysts:
March 31, 1999
3:00 pm
Stuttgart-Möhringen
Interim Report January to March:
April 28, 1999
Annual General Meeting:
May 18, 1999
10:00 am
Hanns-Martin-Schleyer-Halle
Stuttgart, Germany
Half-Year Balance Sheet Press Conference:
July 29, 1999
New York, U.S.A.
Corporate Presentation to Analysts:
July 29, 1999
New York, U.S.A.
Interim Report January to September:
End of October 1999
Investor Relations
Stuttgart:
Phone 0049 711 17 92197, 17 92286 or 17 92261
Fax
0049 711 17 95235 or 17 94075
Auburn Hills:
Phone 001 248 512 2950
Fax 001 248 512 2912
This report has been printed on
environment friendly paper
bleached without the use of
chlorine.
Conception and Content:
DaimlerChrysler AG,
Investor Relations
Design:
DaimlerChrysler AG, K/D, BS/M
Kirchhoff Consult, Hamburg
DaimlerChrysler
Stuttgart, Germany
Auburn Hills, U.S.A.
www.DaimlerChrysler.com