Daimler AG Annual Report 1999

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FY1999 Annual Report · Daimler AG

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Key Figures

DaimlerChrysler Group

in millions
of US $1)

in millions
of €

99:98

change
in %

Revenues

European Union

of which Germany

NAFTA

of which USA

Other markets

Employees (at Year-End)

Research and Development Costs

Investments in Property, Plant and Equipment

151,035

149,985

131,782

117,572

50,310

49,960

44,990

38,449

28,592

28,393

24,918

21,317

87,693

87,083

72,681

63,877

78,651

78,104

65,300

56,615

13,032

12,942

14,111

15,246

466,938

441,502

425,649

7,628

9,536

7,575

9,470

6,693

8,155

6,501

8,051

Cash Provided by Operating Activities

18,149

18,023

16,681

12,337

Operating Profit

Operating Profit Adjusted2)

Net Operating Income

Value Added

Net Income

Per Share (in €/US$)

Net Income Adjusted2)

Per Share (in €/US$)2)

Total Dividend

Dividend per Share (in €)

11,089

11,012

10,388

10,316

7,081

2,155

5,785

5.77

7,032

2,140

5,746

5.73

8,593

8,583

6,359

1,753

6,230

4,946

4,820

4,0573)

5.03

6,270

6,226

5,350

6.25

6.21

5.58

2,375

2,358

2,356

2.37

2.35

4.283)

4,057

4.28

+14

+11

+14

+20

-8

+13

+16

+28

+20

+11

+22

+19

+14

+16

+11

±0

1) Rate of exchange: 1€ = US $1,0070 (based on the noon buying rate on Dec. 31, 1999).

2) Excluding one-time effects, see page 60.

3) Excluding one-time positive tax effects, especially special distribution of €10.23 per share.

C H A I R M E N ’ S L E T T E R

A Clear Direction:

Strategies for Growth

Dear Shareholders and Employees:

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At the start of the 20th century, your company’s founders

had just invented the automobile. We enter the 21st century

a world leader in the automotive industry and one of the

world’s five most respected companies.1)

This report covers our first full year since the creation of

DaimlerChrysler, and we are delighted to tell you that 1999

capped a hundred years of extraordinary progress. This was

a year of record sales across our brands, of expanded market

shares, technological innovations, and major advances in the

way we design and build our vehicles, serve our customers

and manage our business portfolio. All of our major auto-

motive brands – Mercedes-Benz, Chrysler, Jeep, Dodge,

Freightliner, Sterling, Setra – as well as our services

■

Revenues up 14% to €150 billion (US $151 billion)

■ Operating profit* up 20% to €10.3 billion (US $10.4

billion)

■ Net income* up 16% to €6.2 billion (US $6.3 billion)

■

Earnings per share* up 11% to €6.21 (US $6.25)

■ We sold almost 4.9 million cars, light trucks and

commercial vehicles – and once again increased market
share in virtually every segment in which we operate –
despite intense competition.

■ We added €2.1 (US $2.2) billion in value in 1999

(operating profit less our cost of capital)

*Excluding one-time effects.

company debis and Dasa, our aerospace division, had a

This year of record performance by DaimlerChrysler was not

great year.

evident in the DCX share price. This, in our view, is largely a

reflection of transformations in the global economy. Tele-

Profit growth once again outstripped revenue growth by

communications and IT growth stocks grabbed the attention

more than we had anticipated. Net income is 19% up on

of investors, while value stocks such as those of the auto-

1998, and we have proposed a dividend of €2.35 per share5

motive industry, lagged behind. Investors were also concern-

Adjusted net income also rose by 16% to €6.2 billion

ed about a possible slowdown in the US market. So we know

(US $6.3 billion). This made us one of the most profitable

that our current share price does not properly reflect the

of the major automotive groups in 1999.

high potential of this great company. And we are working to

therefore realize our true value.

However, as you will see throughout this Annual Report,

when it comes to assessing the value of this company, we do

more than insist on its potential. We are constantly turning

that potential into performance. And in 1999 we achieved a

level of performance that demonstrates what we believe real

value is all about.

1) Financial Times, November 1999

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Robert J. Eaton, Jürgen E. Schrempp

For that, we owe a great deal to our people all around the

Today, integrated functional departments, and shared ideas

world, who can be proud of a fine achievement in a difficult

and technologies, are significantly improving everything we

year. Working together has been more demanding than we

make, the way we do business, and the way we serve our

anticipated. Integration projects made heavy calls on our

customers – as this report shows.

time and energies. But we got on with our day-to-day busi-

ness, kept our eye on the ball, and simultaneously set in

And as importantly, these integration benefits are helping

motion a process of profound change. It is to everyone’s

us to become more efficient. In 1999 we made €1.4

credit that we accomplished so much – the best year ever

(US $1.4) billion in synergies.

in our combined history.

PILLARS OF PROFITABILITY

three brand-focused automotive divisions, backed by an

Secondly, we restructured our organization by establishing

Automotive Council for product design, engineering and

In particular, we accomplished four points in your company

production, and a Sales and Marketing Council for brand

this year – each one will support our long-term profitable

development and strengthening our sales organization, both

growth. We completed our integration, set up two councils

of which report directly to the Board of Management. The

to fast-track our best ideas, unlocked new value for share-

councils will preserve the most successful aspects of our

holders in our non-automotive businesses, and put in place

integration and sustain a process of continuous transfor-

a strategy for our future growth.

mation and reinvention at DaimlerChrysler – principally by

Let’s look at each of those accomplishments in a little more

detail.

fast-tracking good ideas.

Thirdly, we restructured our business portfolio as part of

our on-going strategy to unlock value for our shareholders

First, we completed our program for the integration of the

from our non-automotive businesses. To this end, we created

new company in just one year, instead of two as originally

the world’s third largest aerospace group (after Boeing

projected. The effect of the integration process: We are now

and Lockheed) by negotiating the three-way merger of

one company.

DaimlerChrysler Aerospace, Aerospatiale-Matra and CASA,

to form the European Aeronautic Defence and Space Com-

pany, EADS. This deal leaves us with 30% of EADS

– the largest single shareholding.

C H A I R M E N ’ S L E T T E R

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Top Team Talks: The joint chairmen address senior management.

We also sold debitel, our mobile telephone subsidiary, and

Fourthly, and most importantly, we put in place a number

the gain from that amounted to €1.1 billion (US $1.1 billion)

of core strategies that are already charting our course for

– from an initial investment of a mere €9 million nine

future growth. Simply stated, they come down to this:

years ago.

delivering value added for our shareholders through brand

This restructuring of our non-automotive business has

enabled us to free up capital for attractive new investments

THE FUTURE OF OUR BUSINESS

and this process will be continued.

– AND THE BUSINESS OF OUR FUTURE

leadership in our markets.

And while Adtranz, our rail systems subsidiary, experienced

The automotive business is no longer just about moving

difficulties in 1999, it retained its global leadership in the

metal. It’s about moving customers – in both senses of the

rail systems market and we introduced a major program for

word. Today’s customers assume quality and reliability as

its recovery, which we expect will return it to profitability

given. What they demand now are styling, power, status,

in 2000.

lifestyle and personalized service. They want their dream

car, or truck. They want it tailored to their needs and tastes.

Moreover, through alliances, there are excellent opportun-

They expect us to deliver that, and they expect us to

ities for us to grow our investments in both Temic and MTU.

surprise them, and delight them.

New consumer demands and dramatic advances in

automotive technology (a field where DaimlerChrysler

always leads the pack) mean that the way we design and

make vehicles will change faster and more radically in the

next ten years than it did in the past 50.

At the same time, the way we sell our vehicles and serve

And it’s not just the big, leading-edge developments that

our customers will also be transformed. And the Internet

count; there are also the many smaller ideas that together

will play a huge part in these changes.

make a big difference. Last year alone, we registered 2,000

patents and introduced 85 major new developments into our

In this highly competitive market place, quality and speed-

passenger and commercial vehicles.

to-market have been reduced to entry-level requirements.

We will be delivering profitable growth and value-added to

What’s more, of the 500 projects currently under way in our

our shareholders by exploiting the power and fascination

Research & Technology division, more than half will in the

that our brands represent in the market, and leveraging to

near future find their way into two or more of our business

the hilt our technological and design superiority.

units. In other words, the cutting edge has become our

stock-in-trade, and a powerful part of our competitive

WHAT WE MEAN BY BRAND LEADERSHIP

advantage.

– AND WHAT BRAND LEADERSHIP WILL MEAN

FOR OUR CUSTOMERS

But product and technology leadership is not enough. For

us the vehicle of tomorrow has become both entry point and

We are once again redefining what represents the greatest

centerpiece in a customer experience that begins with

value for our customers. And, in partnership with our

exhilarating choice and fascinating automotive features.

suppliers, we are reconfiguring our business to deliver more

That continues with the fun of driving. And endures through

of this value in our chosen market segments. Succeeding in

faultless service across an ever-widening range of customer

this means we can raise customer expectations beyond the

needs, all met by a service network totally dedicated to

reach of our competitors. It’s that simple.

customer support.

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Our portfolio of brands and products, and our record of

We intend to make that moment of first contact with our

innovation, are unmatched. We have 60 new models in the

customers the beginning of a total relationship. We have to

pipeline. We lead in the luxury car segments. We defined

understand them completely. We have to get them excited.

the minivan, and will continue to do so. We now lead in

Offer them real choice. Solve their problems. Give them fast,

SUVs, and outside Asia we are dominant in heavy trucks all

hassle-free backup and service. Always be there for them –

over the world.

on the phone, on the Net, on the floor of the dealership –

wherever and whenever they need us. Give them the best.

Through our technological leadership we gave the auto-

motive industry the airbag, ABS braking, and our unique

electronic stability technology. We lead again now with

Active Body Control, drive-by-wire, and the fuel cell – to

name a few. No other company has done more to lead and

shape this industry.

C H A I R M E N ’ S L E T T E R

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Our business is more than just our products and services.

Nevertheless, our well-balanced spread of revenues between

It’s about an experience. A total customer experience

Europe and North America, gives us the flexibility to

delivered through the entire range of products and services

respond to market developments more quickly than our

of each of our car, truck and commercial vehicle brands, as

competitors. We have the flexibility and resolve to ensure

well as debis, Dasa and Adtranz.

that revenues and profits will continue to be strong again

We are not there yet, but our plans for continued, steady

in 2000.

improvement will drive our position of leadership in the

Within our overall strategy, we will focus our efforts this

automotive industry as we advance into the 21st century.

year in several key areas:

It is, above all, the irrepressibly entrepreneurial spirit of

Already we are setting the pace in sustainable mobility

this company - our passion for making great cars and trucks

– that most vital of tomorrow’s automotive technologies –

which stems from our dual heritage - that will enable us to

with the work we are doing in the development of fuel cell

accomplish this.

engines and more efficient internal combustion engines.

Our efforts in the development of lightweight materials and

2000 AND BEYOND

traffic-assist systems also support this.

This year we will again face strong competition.

The Internet and information technology are transforming

our lives, and we have long since integrated these value

In North America, early indications suggest the level of

drivers into our business. We have already done pioneering

economic activity is likely to plateau in 2000 following

work. We showed the world the first vehicle with direct

another year of rapid growth in 1999. In contrast, we expect

Internet access in 1997. We can deliver an on-line vehicle

a gradual pick-up in economic activity in Europe, except in

financing decision within 15 minutes. And our supplier

the United Kingdom. In Japan, further slow recovery is

program has been driven through a dedicated Internet

expected, with continued faster recovery in South East Asia.

market place for seven years. In fact, last year, 81% of our

The outlook for Latin America varies widely.

suppliers voted DaimlerChrysler the best company for

This suggests that competition will intensify in all our

markets.

communication in supply management.

In short, e-business has been an important part of the

program of our divisions, company-wide, for several years.

In that time we have also been building the product and

service infrastructure that enables us to deliver on the

promise of the Internet. Now we are co-ordinating those

initiatives. And what is taking shape is an efficient, user-

friendly, business-to-business and business-to-customer

relationship together with our strong dealers, that already

far outstrips what our competitors have achieved.

Principally, of course, our business is to build the world’s

We drove and will drive the consolidation process in the

best cars and trucks, to support the people who buy them

world-wide automotive industrie, we will seek further

with the world’s best automotive services, and to build the

world-wide growth in the automotive business and lead this

best internal processes in the industry. In the final analysis,

development into the future.

technology remains a means to an end, not an end in itself.

At the end of the day, our job as leaders is to anticipate the

But it is the people of DaimlerChrysler who will make the

future and to make it happen to the best advantage of you,

difference – their energy, inventiveness, dedication and

the shareholder. We are doing that by concentrating the

professionalism, and sheer passion for what they do. Our

considerable resources of this company in support of our

strategy is to retain, recruit and develop people with

automotive-, our non-automotive divisions and our services.

outstanding skills and attitudes, all around the world,

We are leveraging our leadership in research and techno-

through benchmark human resources management. More

logy, by finding the world’s best people and giving rein to

than two thirds of our employees share in our profits, either

their knowledge and their genius for style, by nurturing our

through stock ownership or performance-related bonuses.

tradition of engineering excellence, expanding our global

Very few large companies have achieved that level of profit

marketing reach, and optimizing our business portfolio, our

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participation. Perhaps that’s why we have one of the lowest

financial muscle and our purchasing power.

staff turnovers in our industry and are rated as one of the

world’s most attractive employers. It also goes to the heart

We have seen the future … and it is us.

of our entrepreneurial ethic.

The integration has given our management new strength.

We have learned to cope with cultural differences. We

can make decisions faster, we are exchanging ideas faster,

and we have greater flexibility now when it comes to

Robert J. Eaton

Jürgen E. Schrempp

making mergers and alliances work across national and

regional borders.

The key to all this is globalization. Profitably expanding our

operations around the world will enable us to leverage our

technological advantage more profitably across a widening

base of sales, and use our purchasing power across a

widening supply chain, making it the best and most cost-

efficient in the world. Part of globalization is our deep

concern for the people and regions we work and produce at.

We are a good corporate citizen wherever we operate.

T H E B O A R D O F M A N A G E M E N T

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8
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MANFRED BISCHOFF
Aerospace & Industrial Non-Automotive
Appointed until 2003

ECKHARD CORDES
Corporate Development & IT-Management
Appointed until 2003

GÜNTHER FLEIG
Human Resources & Labor Relations
Director
Appointed until 2004

THOMAS C. GALE
Product Development,
Design Chrysler Group & Passenger Cars
Operations
Appointed until 2003

MANFRED GENTZ
Finance & Controlling
Appointed until 2003

JAMES P. HOLDEN
Chrysler Group
Appointed until 2003

Retired from the Board of Management:
Theodor R. Cunningham, September 30, 1999
Kurt J. Lauk, September 30, 1999
Thomas T. Stallkamp, September 30, 1999
Heiner Tropitzsch, September 30, 1999

ROBERT J. EATON
Chairman of the Board of
Management
Until March 31, 2000

JÜRGEN E. SCHREMPP
Chairman of the Board of
Management
Appointed until 2003

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JÜRGEN HUBBERT
Mercedes-Benz Passenger
Cars & smart
Appointed until 2003

KLAUS MANGOLD
Services (debis)
Appointed until 2003

THOMAS W. SIDLIK
Procurement & Supply
Chrysler Group & Jeep Operations
Appointed until 2003

GARY C. VALADE
Global Procurement & Supply
Appointed until 2003

KLAUS-DIETER VÖHRINGER
Research & Technology
Appointed until 2003

DIETER ZETSCHE
Commercial Vehicles
Appointed until 2003

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Front runner

Since its formation in November 1998, DaimlerChrysler has driven through a

transformation that is turning potential into performance and creating dramatic new

opportunities for growth. Writer Paul Bell, the author of this special chapter, calls

the process ‘a quantum leap into the automotive future’.

He comes in fast. Dark-haired and compact, with an economy of movement and language
that suggest physical power and an astonishingly quick mind, Dirk Walliser, who drives the
business program of DaimlerChrysler’s development of fuel-cell technology, sits down at a
table in the main cafeteria at the corporation’s Stuttgart headquarters – and reinvents his
world.

How engines will work. Which technology factors will differentiate the way cars perform
and navigate. The way people will move about in the cities of tomorrow. Why the company
he works for, which led the world into the 20th century with the first automobile, is doing it
again in the 21st century – commanding a powerful array of brands, new products, technologi-
cal innovations, and all the knowledge its workers, researchers, engineers and managers are
ceaselessly accumulating and leveraging throughout the Group.

What makes Walliser’s exposition so compelling is that, though a scientist to his fingertips,
he is even more passionate in his conviction that the company’s quest to maintain techno-
logical leadership and define global industry standards should be driven by what these con-
tribute to the profitable growth of the company and the leading position of its brands. By the
time Walliser has finished, the cafeteria is empty again. The breakfast crowd has come, eaten
and gone but Walliser has not noticed.

PEOPLE AT WORK. The Eurostar/SFT

assembly lines in Graz, Austria, which run

five different car manufacturing platforms

that consume 300 truckloads of parts a

day. Last May, the Graz team successfully

integrated production of the Mercedes-Benz

M-Class into a line formerly devoted to the

Jeep Grand Cherokee — with no loss of

production to Jeep. The job was done in five

months, nine months faster than had

initially been projected. The line’s flexibility

allows vehicles to be produced profitably at

lower volumes, and the line itself is a

classic example of how integration benefits

are being realized company-wide.

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“We’ll be offering a total experience
to the customer, and maximizing the
total value of our sales both by car
and by customer.”

two biggest markets, the United States and Europe, more than
70% of automotive revenues and profits are now derived from
an ever lengthening chain of new, highly profitable down-
stream services – like rentals, financing, leasing, fleet man-
agement, telematics, servicing, insurance, legal support for
new and used vehicles. All this is part of the growing business
of debis, the services company of DaimlerChrysler, which pro-
vides its provides their customers worldwide with sophisti-
cated, value-adding financial services and information technol-
ogy services tailored to individual business requirements.
These services, as well as the advent of e-business to auto-
mobile sales, and the entry of the Internet into the vehicle
itself, are reshaping the customer’s relationship with the car,
and the manufacturer’s relationship with the customer. Driv-
ing a car out of the showroom is no longer the end of the rela-
tionship. It’s just the beginning.

This is the downstream side of what the industry calls the
automotive value chain – that longer and, ultimately, far more
profitable part of the life cycle of a car or truck. It is the task
of Alexander Koesling, director of Corporate Strategy, to
coordinate DaimlerChrysler’s strategic thinking on how to
turn potential into performance and add value to the com-
pany through profitable growth at appropriate points along
that chain. In the future, says Koesling, buying or leasing a
vehicle from DaimlerChrysler will simply be the customer’s
entry-point to a string of services and support. That string
will extend through the lifecycle of the vehicle, from pur-
chase to disposal, and its elements will build a relationship
between manufacturer and customer that outlasts any one
vehicle the latter may use. “We’ll be offering a total experi-
ence to the customer, and maximizing the total value of our
sales both by car and by customer,” says Koesling.

And Torok: “To retain a differential pricing ability, we need
a long-term relationship with the customer that drives rev-
enue and profits all the way through the ownership cycle. So
we are actively reinventing ourselves … as a more pervasive
transportation company in which the automobile is one com-
ponent alongside an array of aftermarket items - service con-
tracts, telematic services, affinity tie-ins... That’s where e-com-
merce comes in. It’s all part of an expanded value chain in
which you leverage your position in one market to build link-
ages into other sources of value.”

As he rises to go, the interview suddenly turns personal. What
are you by training? An engineer?”
“A physicist,” he says. “I used to study the stars.”
“Stars to cars,” the interviewer observes, “that’s a big change.
What brought you to DaimlerChrysler?”

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But the answer is obvious. Walliser has a dream, but he dreams
in real time about a future he can reach out and touch – the
advancing technologies, the shifting demographics, the chang-
ing markets, the testing of new shareholder imperatives, all
converging to shape the automotive industry of five, ten and
twenty years from now. In his own field, Walliser reckons,
DaimlerChrysler is already two to three years ahead of its clos-
est rival.

“This work, this company, are reality,” replies Walliser as he
turns for the door. “I wanted to be somewhere where I could
help make the future happen.”

It was an inspired choice. Since its formation in November
1998, DaimlerChrysler has driven through a transformation
process that – for this new ‘whole’, much greater than the
sum of its two formerly independent parts – is no less than a
quantum leap into the automotive future.

PERPETUAL REINVENTION. Across the Atlantic, that same sense
and spirit are placed in a strategic context by Steve Torok,
repsonsible for sales and marketing operations and business
strategy: “There’s a tendency to consider the auto industry as
a mature industry because unit sales growth is generally in the
two or three percent range globally. What’s missed is that the
units being sold are undergoing radical, almost revolutionary
changes in technology, and that, even though unit sales don’t
change much, their composition, and the qualities of the prod-
ucts, are changing dramatically.

So we don’t see ourselves as operating in a mature business,
we see it as a business that is in a perpetual cycle of reinven-
tion. The trick is to understand where the new segments are
emerging. And one of the strengths of this company – and I
believe this is a core cultural strength on both sides of the
Atlantic – is the desire to identify new, undeveloped market
segments, and the willingness to invent products in them.”
Such desire and willingness are being realized in the almost 60
new models that will come to market between 2000 and 2005.
But that’s just the start. New forces are reshaping the com-
petitive landscape for traditional automakers. In the world’s

PROPULSION SYSTEM OF THE FUTURE. Inside the

workshops and laboratories of the Fuel Cell Project Group

facility at Nabern Technology Park, Stuttgart, scientists and

engineers are designing engines that run on the chemical

interaction of hydrogen and oxygen, which produces

electricity to power the vehicle, and emits pure water

vapor. In an era of global warming, atmospheric pollution

and long-term fossil-fuel scarcity, DaimlerChrysler fuel-cell

technology is a guarantor of sustainable mobility in the

future, and the company is moving rapidly towards mass

production for small cars and buses.

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For example, together with debis IT Services as its software
partner, the Mercedes-Benz Sales and Marketing Organization
is working on the Digital Sales Channel project to develop an
e-commerce platform for vehicle sales at DaimlerChrysler.
DSC integrates various features of vehicle sales (initiation of a
new or used vehicle sale, leasing, financing, insurance, part-
exchange etc.) and also includes customer-relations elements.

Moreover, says Torok, the company can now pursue the value
chain and apply its cutting-edge automotive technologies to
much greater effect because development costs can be spread
over the combined sales of the corporate brands. In the future,
this will show up as another quantum leap in the company’s
competitive advantage.

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CALIFORNIA DREAMING. The future always seems closer in
California, land of the leading edge. Here, DaimlerChrysler re-
searchers are engaged in several major projects, partnering
with other leading automakers, fuel providers and power-gen-
eration companies in the development of fuel cell technology;
analyzing the start-up culture of Silicon Valley; considering the
impact of the San Francisco lifestyle on the way its people live,
work and innovate.

And that’s just California! Be it fuel cell or information tech-
nology in Palo Alto, telematics in Berlin, drive systems in
Stuttgart, communications in Bangalore, India, electronics
in Shanghai, or vehicle dynamics at the Chelsea Proving
Grounds in Michigan, DaimlerChrysler surveys and creates
the future from a global vantage point, researching, design-
ing, and manufacturing vehicles, systems and services that
will define transport in tomorrow’s world.

Nowhere is the view from that global vantage point more
acutely appreciated or applied than in the offices – in Palo
Alto, Berlin and Kyoto, Japan – of Eckard Minx’s interdiscip-
linary Society and Technology Research Group (STRG).
Its task is to provide an early-warning system for the
DaimlerChrysler Board of Management on changes in the
business and social environment, and customized research
to individual clients within the group. STRG monitors con-
sumer behavior, investigates knowledge/information trends,
transportation and patterns of human settlement around the
globe, and takes a view that currently extends as far as 2020.
It’s an important link in DaimlerChrysler’s quality chain.
Quality companies need quality information.

PUTTING THE BEST TO THE TEST. Vehicle

development and testing facilities in Auburn Hills (above),

Papenburg (above right) and Sindelfingen. In both

Germany and the US, the company has established

facilities and practices that are bringing engineers and

designers into a single marketplace where they can more

easily exchange information, test new ideas, and take into

development those that survive their rigorous testing.

Supported by digital information and flexible human

resource allocation, the company is rapidly shortening its

product development times — a vital element in the

company’s competitive armory.

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“Every euro, every dollar that
we spend on R & D goes to
providing our customers with a
safer, more comfortable and more
ecologically friendly ride. These
innovations are a key to securing
and consolidating the business
success of this company.”

The Chelsea Proving Grounds is another, though quite differ-
ent, link. Based at Chelsea is Michelle O’Connor Martindale,
one of a handful of women in the automotive industry now
pursuing fast-track careers in vehicle dynamics. She, too,
made her own inspired choice. In an aircraft between
DaimlerChrysler’s twin capitals, Detroit and Stuttgart, 27-
year-old Martindale describes the pure pleasure of her work.
Each weekday, she thunders round the Chelsea test track,
testing the soon-to-be-unveiled new Chrysler coupe, another in
the long line of “concept cars” that Board of Management
member Tom Gale calls “icons”. Says Gale: “These are cars and
projects that, from the company’s earliest days, have dazzled
the industry. When Chrysler was down on its luck in the hard
days of the Eighties, they became rallying points for the pride
and energy of the company its people wanted it to be. Cars
like the Portofino or the Viper – windows into the future of au-
tomotive design, and also catalysts for – and symbols of - deep
corporate change and inspiration.” For Tom Gale and Auburn
Hills, the concept car is the point where tomorrow’s vision,
today’s technology, and that deep sense of the classic that
comes down from the past, meet the road on four wheels.

Martindale’s devotion to cars is virtually genetic – her father
and grandfather were Detroit autoworkers. But it was she
who first had the good sense to head for Auburn Hills –
with the first college degree her motor-mad Michigan family
ever had.

For people like Dirk Walliser, the scientist-strategist with his
passion for a life-changing technology, and Michelle Martin-
dale, the test-engineer daughter of an Irish autoworker with
her passion for break-away design, the world of Daimler-
Chrysler is a place of unique opportunity and robust com-
petitive challenge. For the people of DaimlerChrysler, that
world, with its ever more complex and rapidly changing mar-
kets, cultures and technologies, is also the subject of intense
curiosity. Their curiosity, their passion for cars, their de-
termination to be first and best in whatever they do, are

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attitudes and ambitions that are integral to the company’s
position as a market leader. Klaus-Dieter Vöhringer, who
heads the company’s research and technology thrust, en-
capsulates the role innovation plays in the company’s over-
all strategy for brand leadership: “Every euro, every dollar
that we spend on R&D goes to providing our customers with
a safer, more comfortable and more ecologically friendly
ride. These innovations are a key to securing and consoli-
dating the business success of this company.”

What makes this effort so awesome is the sheer scale of
human and financial resources the company is able to deploy.
Here are the hard numbers of DaimlerChrysler’s ever-tighten-
ing grip on the future. In terms of input, one in every 12
employees (i.e. about 40,000 people) is engaged in research
and development, and the company has embarked on a three-
year spending program for R&D and investments in plant,
property and equipment, to which it has committed €50 bil-
lion, a budget equivalent to the GDP of several developing
countries. Output is equally staggering. Last year, throughout
the group, there were 466 different research projects under
way. In that time, 70 of those projects were completed and
their results transferred to the company’s internal “custom-
ers” for application in products and services; 85 new develop-
ments were unveiled for passenger car and commercial
vehicle manufacturing; and almost 2,000 patents were
registered to protect the group’s competitive edge.

MOBILITY MEGATRENDS. In the future that DaimlerChrysler
anticipates, its managers, futurologists and researchers
have identified several ‘megatrends’ they believe will be
critical to the company’s performance and value.

“The first,” says Klaus-Dieter Vöhringer, “is sustainable
mobility. We expect fuel to become scarcer in the not-too-
distant future. Moreover, the automobile is still an environ-
mental factor – there are ecological implications to the
now almost unlimited mobility of humans and goods.”

That means developing vehicles that use less fuel. Like the
smart cdi for traffic-congested, emission-sensitive Europe.
Powered by a direct injection turbocharged diesel engine, the
smart achieves a combination of high output and low con-
sumption. Or the Dodge Durango hybrid concept for the US,
which provides a boost in fuel economy in the popular sport-
utilities which are big gas guzzlers. The new Durango proto-
type has two power trains: one a conventional engine that
drives the back wheels; the other an auxiliary electric motor
that drives the front wheels and stores electrical energy for
distribution during braking and acceleration. Net effect: a
20% cut in the fuel consumption of a 3.9-liter V-6 engine
with the power of a 5.9-litre V-8.

At the further edge of this quest for sustainable mobility is
the fuel cell. Ferdinand Panik, head of DaimlerChrysler’s
fuel cell project, believes this technology will initiate a
change in mobility that will “go far beyond normal inno-
vation”, and could revolutionize propulsion in the way the
microchip revolutionized IT. It’s a potent index of the fuel
cell’s importance that 60 companies, including eight of the
world’s top ten revenue earners, are presently at work on it.
But DaimlerChrysler has claimed the edge. In five years its
engineers have reduced the weight of their drive system,
and extended their test vehicles’ power and range, drama-
tically.

Propulsion aside, the fuel cell provides an on-board power
supply for the growing array of electronics revolutionizing the
driving experience inside, and around, the vehicle. And here’s
another megatrend. While the automobile’s crucial compo-
nents are still the chassis, drive train and running gear, elec-
tronics and sensor systems are becoming increasingly impor-
tant. “The future,” says Vöhringer, “belongs to drive-by-wire
vehicles that do away with the steering wheel, accelerator and
brake pedals, while new electronic assistance systems will
help the driver in critical situations or take over monotonous
routine tasks during normal operation.” For example,
DaimlerChrysler engineers are developing autonomous on-
board systems comprising sensors connected by ‘neural net-
works’ capable of recognizing patterns and signals around the
car – a traffic sign, a pedestrian, a potentially dangerous situa-
tion – and enhancing the driver’s response and the general
safety of the vehicle.

VISIONS OF THE FUTURE. Spectators at LAB.01,

the DaimlerChrysler Project for EXPO 2000 (the

153-day world exposition opening in Hanover on

June 1), on a pre-visit to Barcelona last year as part

of a tour of six European cities. The project LAB.01,

an undertaking by the company’s communication

division, offers young people an interactive

experience with future technologies, that is meant

to stimulate their vision of tomorrow’s world.

Typically, its displays, which are spread over

2,000 m2, are anything but passive - the exhibition

has attracted large crowds and widespread

publicity everywhere it has been seen. More than

100,000 visitors and high media interest proved

the success of the extraordinary conception.

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This second megatrend segues into a third, as mobility and
electronics meet modern information and communications
technologies. While this meeting occurs at every conceiv-
able level of product and process, it is most apparent in the
systems with which drivers and consumers will interact di-
rectly – the equipment and services they consciously use –
telematics for example, dynamic navigation systems that
will reduce traffic jams, fuel consumption and exhaust emis-
sions, and ease pressure on urban transport systems.

FROM VIRTUAL REALITY TO REAL VALUE. Then there’s the
IT under the hood - the engineering you don’t actually see, but
whose presence you register. At DaimlerChrysler’s Marien-
felde complex in Berlin, Wilfried Käding presides over the
automotive industry’s most advanced driving simulator. A large
projection dome mounted on six hydraulic actuators that run
up and down on rails, the simulator offers complete movement
to left and right, backwards and forwards, and up and down. A
car is bolted to the floor of the dome, and a visual display pro-
jected around the dome’s inner walls simulates driving under

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all conditions – other traffic, weather conditions, road sur-
faces, or general hazards and crises. The “driver” can experi-
ence the entire spectrum of conditions and vehicle perfor-
mance in real time, while his own performance and reactions
are similarly measured. There’s practically nothing about a car
or its driver this machine cannot test. “There are other simula-
tors,” says Käding, “but nothing as sophisticated as this. With it
we can make concepts driveable without actually building
them first.”

What the simulator and other technologies have been to
Mercedes-Benz and automotive engineering, Chrysler’s so-
phisticated CAD system has been to automotive design.
At Auburn Hills, Walter Solak, responsible for Design
Operations in the Product Design Office, demonstrates the
use of CATIA (computer-aided three-dimensional interactive
application) software that is becoming the group’s dominant
platform for all phases of development, from product con-
cept to plant design. Solak says advanced vehicle concepts
such as the Dodge Copperhead Convertible coupe have been
modelled by computer to such a precise state of finish that
the company’s top managers can approve them for further
development on the strength of a CATIA-generated video
demonstration. CATIA’s power is in its ability to build and
store layers of design data, and make them available in a
common language to all parts of the design and manu-
facturing process simultaneously. It’s a shorter, more flex-
ible, cost-efficient process that is slashing overall develop-
ment and manufacturing times – another example of how
DaimlerChrysler is getting its products to market better and
faster than ever before. CATIA enabled Stuttgart to cut its
development lead times by three months, i.e., 15%, during
1999, and the time taken to build a Mercedes-Benz proto-
type has been cut by 30%.

“What we’ve done,” says Janet Priestap, responsible for Plant
Solutions, who has been overseeing a trial program for the
design by CATIA of a new Jeep plant, “is take what we’ve
learned in automotive design and apply it to plant design. We
can ‘fly’ you through an entire plant. The vision is to enable
virtual manufacturing.” The benefits are multiple. “It allows
earlier and more effective optimization of plant and process
design. It supports faster launches. The virtual approach al-
lows bugs to be identified and eliminated long before imple-
mentation, resulting in lower costs, better production facility
utilization, and shorter time to market. This is not science fic-
tion,” says Priestap. “We are already applying these tools.”

PROCESS LEADERSHIP. Taken in tandem with the “agent-
based factory” being perfected in Berlin, Priestap’s exposition
offers another illustration of the many benefits of synergy and
technological cooperation that give the company’s three auto-
motive divisions and their brands their new depth. At the
company’s Berlin research facility, Stefan Bussmann describes
a new computer software, a so-called “agent system” that iden-
tifies and networks autonomous, automated components
within a production or supply chain. This permits each agent
to adapt to changes it detects in the system around it, and co-
ordinate its response with the other agents. This system will
introduce a quantum shift in manufacturing efficiency and
flexibility by increasing throughput by at least 10%, making it
possible to respond more flexibly to market changes. Down
the corridor, Volker May of the Knowledge-Based Engineering
unit, explains to lay visitors a diagnostic system that originated
in DaimlerChrysler Aerospace’s space shuttle program and is
now finding its way into passenger cars. While May’s presenta-
tion is a thing of beauty to the industrial engineer, it is bewil-
deringly technical to his visitors. Not that it matters. May’s au-
dience has understood much more than he could possibly
convey in words – about that place in the mind where science
and the heart meet in a passion for the cutting edge, engineer-
ing excellence and common business sense.

But it is Hans-Joachim Schöpf, chief engineer of the Merce-
des-Benz and smart division, who offers the most acute
summation of the relationship between technology, inno-
vation and, ultimately, performance. “We must meet custom-
er expectations, then go beyond them. At the same time, we
must be asking how we can distinguish ourselves through
innovation, and create a unique selling proposition, but still
have people say, ‘This is real value for money.’ Quality, cost
and innovation at the right time are all critical, but at the
heart is pace-making innovation. After all, we have a 6-8
year life cycle in the automotive industry, while in the
electronics industry it’s only 12 months. The question we
have to address is how we adapt to higher rates of change
in associated industries.”

The key, says Schöpf, is process leadership, creating a
workplace that encourages a rapid exchange of ideas and
information among designers and engineers, combined with a
high degree of digital product development, and placing work-
shops in the heart of the developmental “marketplace”.

For Schöpf, the qualities he finds most admirable in his
Auburn Hills colleagues are their flexibility – “they are very
nimble in process” – their unfailing concern about containing
costs; and their insight into the business development process.

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What he most admires in his Stuttgart colleagues is the
strength of their technology, innovation, and product quality
and finish. “For DaimlerChrysler it is a matter of how quickly
Stuttgart can transfer its technologies to Auburn Hills, and
how quickly Auburn Hills can transfer its processes to
Stuttgart.” The rate of exchange is moving like a high-speed
train. The willingness to share, says Schöpf, has been fantas-
tic.

KEEP ON TRUCKING. Between Freightliner in North America,
and Mercedes-Benz in Europe, the Commercial Vehicles
division headed by Dieter Zetsche is No. 1 in the world.
And it’s here that one sees with particular clarity how
DaimlerChrysler knits together the diverse strengths and
competencies of its different parts, builds them into a
company-wide design, technological and commercial know-
how, then leverages it all out across the divisions to build
brand leadership and market share.

Describing the value chain strategy, corporate strategist
Alexander Koesling says much of the thinking in this area is
being driven by the commercial vehicle sector. That point is
well illustrated by DaimlerChrysler truck subsidiary Freight-
liner’s astonishing level of backup to North America’s long-
distance truckers. This is a company founded by a frustrated
customer who so badly wanted a better truck, he decided to
make them himself. How’s that for customer orientation!
“It’s customer driven like no other company I ever met,”
says Zetsche.

A COMPANY COMMUNICATING. DCTV, the

company’s in-house, business-wide television service

has studios co-located in Troy, Michigan, USA and

Stuttgart, Germany. Pioneered in Auburn Hills and

now broadcasting in seven languages, DCTV is

available to 420,000 employees, spread through

plants, research facilities and offices around the

world. The network produces news and company

information, continuously repeated throughout the

day via more than 5,000 television sets. DCTV has

become an important tool in connecting the global

family of DaimlerChrysler, generating corporate

esprit d’ corps, and showcasing the company’s

achievements and technologies.

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ONROAD, ONLINE. Having renewed its product

line, Mercedes-Benz trucks are now offering new

services to their operators. In 1999 FleetBoard, a

new fleet management system, was introduced.

Seen here in the popular Actros (above and right),

FleetBoard represents a major advance in truck-

operator business-to-business communications.

This Internet-driven system includes data

management, journey audits, text transmission,

fault diagnosis, analysis of driver performance,

position reporting and digital roadmapping.

Overall, FleetBoard optimizes efficiency and cuts

operating costs by improving communication,

scheduling, and vehicle monitoring.

It’s an ethic that carried through from manufacture to ser-
vice, as Jim Hebe, president of Freightliner, elaborates. “We
have been successful not only in building the most complete
and modern range of trucks available, but also in building
services around that vehicle. Our involvement in the value
chain is such that we support the customer through the en-
tire life of the truck. We are the only manufacturer in North
America which requires its dealers to provide service 24
hours a day, seven days a week. We have more dealers open
on this basis than all the rest of the industry combined. We
have a 24-hour call centre. If a customer is down and can’t
get service, they call our call centre and it will do anything
that has to be done to get them fixed - get them into a
Freightliner shop, or even a competitor shop. We’ll do any-
thing – get parts off the plant floor, ship them, whatever it
takes. We’ve also developed the only total vehicle computer
diagnostic system. From our call centre we can diagnose a
vehicle anywhere in North America, and instruct the
mechanic on how to repair the problem.”

All this wealth of customer service experience is now part
of DaimlerChrysler’s developing value-chain product and
service template. Meanwhile, the company is busy lever-
aging its technological capacity from the passenger car side
of the house, over to commercial vehicles. “Beyond mere
scale,” says Dieter Zetsche, “we have the advantage of being
part of a big automotive group, with all the technological
leadership which is provided by this group. Funded by the
big car revenues we are getting, and the profits we are
making, we can be at the forefront of technology on the car
side, and apply that to the commercial vehicle side - which
sets us even more apart from any competitor.”

So what’s to come? Beginning this year, DaimlerChrysler will
be introducing its S-class electronic stability wizardry into its
Mercedes-Benz and Freightliner trucks, and extending that ca-
pability into the even more complex task of controlling truck-
trailers. Also on the menu are lane-sensor devices and distance
control (distronics).

And what’s the next big thing for commercial vehicles?
Very simply, e-commerce.

This is one division where e-commerce makes its way
directly to the bottom line via the product. Growth in the
long haul business will continue to track GDP growth, says
Zetsche, which makes the future pretty bright. But it’s the
growth in e-commerce, which market pundits expect to be
exponential, that is really lighting up the house. Shopping
on the Internet depends on delivery by van. So with
e-business booming for a company like Federal Express…
Fedex, says Zetsche, has already made the Mercedes-Benz
Sprinter its standard vehicle worldwide except North America
and a few Asian countries and is currently testing 80 Sprint-
ers within the US. And Freightliner’s Hebe has a US matcher -
the Internet grocery store, Homegrocer.com, has ordered a
thousand light vans from Freightliner since it opened up shop
two years ago. This sector is going to catch fire.

CHAIN REACTION. Over at Procurement and Supply, where
their primary job is to shape the world’s most effective supply
chain for a company that annually purchases €95 billion
worth of supplies from 30,000 suppliers, Board Member Gary
Valade and his team have shaved almost €4 billion off the
company’s cost base through synergy savings, reductions in
variable costs and a supplier cost reduction effort. The
Internet is also being used here.

This is a major part of the upstream end of the automotive
value chain – the part that terminates with the car, manu-
factured and ready for sale on the showroom floor. Here -
through innovative thinking about the way the Daimler-
Chrysler divisions buy or create demand for the supplies
they build into their products – a 600-strong team at Pro-
curement & Supply, supported by thousands of others
throughout the supply chain, is moving the company toward
a lower cost base. This process is strongly assisted by the
additional leverage with suppliers afforded the company by
its significantly enlarged scale. Valade’s team has united the
best of the two processes that were separately at work on
either side of the Atlantic, and injected new elements that
will strengthen DaimlerChrysler’s capacity to find the
world’s best suppliers, even supporting their own
technology and innovation program where appropriate.
It means presenting one face to the supplier, searching for
and developing new synergies across the business units,
and globalizing information throughout the company and its
supply base.

From start to finish - or in this case, from finish to start –
from the innards of an on-board diagnostic system, to the
model of your dreams, to a safer ride, to a lifetime fuel-
purchasing discount, to the best possible way home – be it
route or mode – DaimlerChrysler is fashioning a tool for
consumer delight of extraordinary scope and power.
It has become the ultimate dream machine – but like Dirk
Walliser’s, its dreams are profoundly real.

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“We must meet customer
expectations, then go beyond them.
At the same time, we must be
asking how we can distinguish
ourselves through innovation, and
create a unique selling proposition
that is value for money.”

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B U S I N E S S R E V I E W

Earning Power

increases once again

■ New records for earnings, unit sales and revenues

■ Operating profit grows faster than revenues - up 28% to €11.0 billion

■ Net income increases from €4.8 billion to €5.7 billion

■ Synergy targets significantly overachieved with benefits of €1.4 billion

■ €2.35 dividend proposed (1998: €2.35)

■ Almost 4.9 million passenger cars and commercial vehicles sold (1998: 4.5 million)

■ Dasa, Aérospatiale Matra and CASA merge to form EADS

EARNING POWER INCREASES. DaimlerChrysler continued to
grow profitably in 1999. Operating profit increased to €11.0
billion (1998: €8.6 billion). After adjusting for one-time
effects such as income from the sale of debitel shares,
operating profit was up 20% to €10.3 billion and still
outpaced revenues. Particularly sharp increases were posted
by the Mercedes-Benz Passenger Cars & smart and Chrysler
Group divisions. Net income at DaimlerChrysler increased
by 19% to a record €5.7 billion; adjusted for one-time effects,
net income rose to €6.2 billion (up 16%).

Net operating income, the basis for calculating return on net
assets, increased to €7.0 billion (1998: €6.4 billion).
Representing a return of 13.2% (1998: 12.7%) it again
significantly exceeded the minimum rate of return of 9.2%
required to cover cost of capital and to increase corporate
value, meaning that the company achieved further profitable
growth. The difference between operating profit and capital
costs (value added) increased by €0.4 billion to roughly €2.1
billion, significantly increasing the value of the company.
DaimlerChrysler is thus one of the most profitable automotive
companies in the world. (see p. 60)

€2.35 DIVIDEND PROPOSED. We are proposing to our
shareholders a dividend of €2.35 (1998: €2.35) per share for
1999. With a total dividend payout of €2,358 million,
DaimlerChrysler is paying the highest dividend among the
companies included in the DAX30 and is one of the top divi-
dend paying companies in the automotive industry.

WORLD ECONOMIC GROWTH SLOWS. The positive trend of
global economic growth eased off slightly during the year
under review. When weighted to reflect the share of the
Group’s revenues generated in each country, economic
expansion in DaimlerChrysler’s markets decreased to 2.9%
from 3.2% in 1998. This was primarily a result of slow growth

in Western Europe, particularly in Germany, as well as the
economic crisis in South America. On the other hand, the
beginning of a recovery in Japan and other Asian countries
had an overall positive effect. The economic situation in North
America remained favorable. As was the case in 1998, the US
economy grew by 4%, driven mainly by sustained consumer
spending and high levels of investment.

The international exchange rate structure, in particular the
strength of the dollar, the pound and the yen compared to the
euro, generally had a favorable impact on our operating
businesses.

Operating Profit
in millions

99
US $

99
€

98
€

DaimlerChrysler Group

11,089

11,012

8,593

Mercedes-Benz Passenger Cars
& smart

2,722

2,703

1,993

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra, Thomas Built Buses)

Services

Aerospace

Others

5,086

5,051

4,255

1,075

1,067

946

2,053

2,039

735

730

985

623

(402)

(399)

(130)

DaimlerChrysler Group adjusted

10,388

10,316

8,583

Revenues
in millions

99
US $

99
€

98
€

DaimlerChrysler Group

151,035 149,985 131,782

Mercedes-Benz Passenger Cars
& smart

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner, Sterling,
Setra, Thomas Built Buses)

Services

Aerospace

Others

38,367

38,100

32,587

64,534

64,085

56,412

26,882

26,695

23,162

13,023

12,932

11,410

9,255

9,191

8,770

5,893

5,852

3,526

Consolidated Revenues
in billions of €

150

125

100

Other Markets

USA

Europe

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REVENUES INCREASE BY 14% TO €150.0 BILLION. Despite
the slow growth of the world economy, DaimlerChrysler
boosted revenues by 14% to €150.0 billion in 1999. Growth
was particularly strong in the US (up 20% to €78.1 billion).
In Germany, we were able to increase our revenues by 14%
to €28.4 billion, while revenues from the European Union
excluding Germany were up 7% to €21.6 billion. In the
remaining markets revenues rose 2% to €21.9 billion,
despite the difficult economic situation in South America.

STRONG GROWTH IN THE AUTOMOTIVE BUSINESS. Positive
sales trends in Western Europe and North America contri-
buted significantly to total revenues of €127.3 billion in our
automotive business, an increase of 14% from 1998. Sales of
DaimlerChrysler passenger cars and commercial vehicles
increased to almost 4.9 million units (1998: 4.5 million) in the
year under review. Of these, some 3.2 million (1998: 3.1
million) were Chrysler, Plymouth, Jeep and Dodge brand
passenger cars and light trucks, while 1,080,000 (1998:
923,000) were Mercedes-Benz and smart brand vehicles.
Sales of Mercedes-Benz, Freightliner, Sterling, Setra and Tho-
mas Built Buses commercial vehicles totaled 555,000 units
(1998: 490,000).

Sales of Mercedes-Benz passenger cars achieved double-digit
growth rates in nearly all key markets. The new S-Class,
which enabled us to substantially expand our lead in the
premium segment, was particularly successful in 1999.
The A-Class, M-Class and the CLK coupe also contributed
significantly to increased sales of the Mercedes-Benz brand.
The smart city coupe became one of the leaders in the
Western European compact segment during the year under
review. (see pp. 30-33)

Sales of Chrysler, Jeep, Dodge and Plymouth brand vehicles in
the US increased by 6% to 2.7 million units in 1999. In the
sport-utility vehicle segment sales were especially strong
due to the great success of the Jeep Grand Cherokee. Our
range of pickups was augmented by the Dodge Dakota Quad
Cab in 1999. The Chrysler PT Cruiser, a multi-purpose

passenger car of unique design in the industry, was
presented at the Detroit Auto Show in January 1999 and
will be arriving at dealerships in the spring of 2000.
(see pp. 34-37)

An attractive range of products spearheaded profitable
growth at the Commercial Vehicles division in 1999. Sales
increased significantly in North America, where the
Freightliner and Sterling brands helped to further
strengthen our market position. Sales of trucks, vans and
buses of the Mercedes-Benz and Setra brands in Western
Europe also grew. However, the economic crisis in South
America depressed sales there. (see pp. 38-41)

GROWTH AT OTHER DIVISIONS. The Services division posted a
substantial increase in revenues for the 10th consecutive year.
Strong growth continued at both the IT Services (+ 31% to
€2.9 billion) and the Financial Services (+ 29% to €10.1
billion) business units. We were particularly successful in
North America, where the division’s revenues rose 35% to
€6.3 billion. (see pp. 44-45)

Revenues at the Aerospace division increased by 5% to
€9.2 billion. The Civil Aircraft business unit again enjoyed
particular success, with Airbus posting the highest volume
of incoming orders in the international civil aircraft
industry for the first time ever. Incoming orders at Dasa as
a whole again exceeded revenues but, as expected, did not
reach the extraordinarily high level of 1998. (see pp. 46-47)

Adtranz contributed €3.6 billion (+7%) to the total revenues
of €5.9 billion from other DaimlerChrysler businesses. Auto-
motive Electronics accounted for €0.9 billion (+18%) and
Diesel Engines €1.0 billion (+4%). (see pp. 48-49)

SYNERGY TARGETS OVERACHIEVED..... Integration at
DaimlerChrysler proceeded much more rapidly than
planned. By the end of 1999, we had completed virtually all
individual projects or transferred them to the line
organizations. Important synergy initiatives that turned

Synergy savings 1999
in millions

Purchasing

General Integration/
Finance /Services

Research and Development

Sales Organization/
Additional Sales

Total

99
€

520

370

420

1,390

Purchasing Volume
€94.9 billion (1998: €79.6 billion)

Mercedes-Benz
Passenger Cars & smart

Chrysler Group

Commercial Vehicles

Services

Aerospace

Other

24 %

46 %

19 %

2 %

5 %

4 %

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N

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potential into performance included the joint production of
the M-Class and the Jeep Grand Cherokee in Graz, the
integration of our sales organization in all important
markets, the exchange of components in the automotive
business, and numerous projects in global procurement and
supply. For example, the implementation of a software pro-
gram previously only used in Auburn Hills, will enable us to
reduce the development time for Mercedes-Benz vehicles by
more than 15%. All in all, with €1.4 billion in the year under
review, we significantly overachieved the synergy targets
announced in the merger report.

TARGETED ACQUISITIONS IN THE AUTOMOTIVE SECTOR. On
January 1, 1999, DaimlerChrysler strengthened its position in
the high-performance sports car segment by purchasing 51%
of AMG GmbH. The remaining shares in the company will be
acquired gradually between now and 2009. This acquisition
will enable us to expand the market presence of the renowned
AMG brand.

In addition, in January 2000 we acquired a 40% stake in the
TAG McLaren Group, one of the world’s leading producers
of high-performance sports cars and racing cars. Our
investments in AMG and TAG McLaren are part of a strategy
designed to further strengthen both the technological
competence and the image of the Mercedes-Benz brand.

SALE OF DEBITEL SHARES GENERATES €1.1 BILLION. In
1999 we reduced our stake in debitel AG from 52% to 10%.
In view of the competitive situation in the telecommunica-
tions sector, substantial investment would have been neces-
sary in fixed-line networks to secure debitel’s position in
the telecommunications market and to expand internation-
ally. Such an investment, however, would have run counter
to DaimlerChrysler’s strategy of concentrating on its auto-
motive business and related services.

NEW DIMENSIONS IN AEROSPACE. The agreements signed in
October 1999 to establish the European Aeronautic Defence
and Space Company (EADS) and the space technology joint
venture Astrium open up new opportunities for the European
aerospace industry.

The merger of Dasa, the French company Aérospatiale Matra
and CASA of Spain to form EADS will create the largest
aerospace company in Europe and the third-largest worldwide.
EADS, which is expected to have 96,000 employees and
annual revenues of €21 billion, is scheduled to begin
operations in the summer of 2000. We and our French
partners will each hold 30% of the new company, while the
Spanish state holding company SEPI will have a 5.6% stake.
The remaining 34.4% will be offered to the public and traded
on the stock market.

In a move that will further strengthen our position on the glo-
bal bus market, our Freightliner subsidiary established a joint
venture with the UK’s Mayflower Corporation plc. The new
company, known as Thomas Dennis Co. LLC., focuses on the
production and marketing of commercial low-floor buses for
the North American market.

Astrium, which is scheduled to begin operations in the first
half of 2000, will consolidate the space technology activities of
Matra Marconi Space (MMS) and Dasa. We expect Alenia
Spazio, a subsidiary of Finmeccanica (Italy), to also join
Astrium. Astrium will be one of the world’s leading space
technology companies and the biggest in Europe.

On October 1, 1999, DaimlerChrysler also acquired 49% of the
vehicle customizing company, Westfalia Werke GmbH & Co., in
response to the growing demand for customized recreational
vehicles.

Investments in Plant, Property
an Equipment
in millions

99
US $

99
€

98
€

Research and
Development costs
in millions

99
US $

99
€

98
€

DaimlerChrysler Group

9,536

9,470

8,155

DaimlerChrysler Group

7,628

7,575

6,693

Mercedes-Benz Passenger Cars
& smart

2,244

2,228

1,995

Mercedes-Benz Passenger Cars
& smart

2,057

2,043

1,930

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra, Thomas Built Buses)

Services

Aerospace

Others

5,261

5,224

3,920

775

770

832

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra, Thomas Built Buses)

326

338

592

324

336

588

285

326

797

Aerospace

Others

2,014

2,000

1,695

833

827

714

2,019

2,005

2,047

705

700

307

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12,000 NEW JOBS CREATED. Adjusted for changes in the
consolidated group, DaimlerChrysler created 12,000 new
jobs in 1999 as a result of the success of our products and
services. Our total work force now numbers 466,938
employees. While the Services division accounted for about
3,600 of the new jobs, increased demand also necessitated
new hirings in our automotive divisions. (see pp. 58-59)

GLOBAL INTEGRATION OF PROCUREMENT AND SUPPLY. In
1999, DaimlerChrysler purchased goods and services worth
€94.9 billion (1998: €79.6 billion).

Last year, our worldwide purchasing activities were
concentrated in the new corporate department, Global
Procurement & Supply, and we merged our two former
supplier programs, Tandem and SCORE. The result is a
platform which allows us to develop and strengthen long-term
partnerships with excellent suppliers all over the world.
Numerous projects which exploited the enhanced
procurement potential of our new, merged company led to
synergies totaling €520 million in the year under review.
(see pp. 56-57)

NEW BOARD OF MANAGEMENT STRUCTURE. In September
1999, we reduced the DaimlerChrysler Board of Management
from 17 members to 14 and reorganized their responsibilities.
The new structure makes for a more efficient and effective
organization that can quickly and flexibly respond to market
challenges. We established the Automotive Council early
on as a means of promoting the transfer of automotive
business know how throughout the company. The Council is
responsible for the exchange of technology, product ideas and
strategy, while ensuring that the policy of strict separation of
vehicle brands is observed. We also set up a Sales and Market-
ing Council to coordinate global sales and marketing
activities. (see pp. 42-43)

€9.5 BILLION INVESTED IN 1999. Investment in plant,
property and equipment at DaimlerChrysler increased to
€9.5 billion (1998: €8.2 billion). More than 86% was
channeled into our automotive business. Among the most
important investment projects at the Mercedes-Benz Passen-
ger Cars & smart division were the new Technology Center
in Sindelfingen and the preparations for producing the new
C-Class. Investment in the Chrysler Group division focused
on the new Jeep assembly plant in Toledo, Ohio, a new
production plant for six-cylinder engines in Detroit, and
preparations for producing the PT Cruiser and the new
generation of minivans. Investment at the Commercial
Vehicles division was targeted primarily at the
modernization of production facilities and the expansion
of capacity in North America.

We also invested €0.3 billion (1998: €0.3 billion) in
DaimlerChrysler Aerospace. Most was focused on expanding
capacity in the Airbus program. Investment in the Services
division totaled €0.3 billion, most of which went into the
IT Services business unit.

€7.6 BILLION FOR RESEARCH AND DEVELOPMENT. In 1999,
there were more than 40,000 employees working in research
and development at DaimlerChrysler worldwide, underscoring
the importance of R&D within our value-based management
system. Our objective is to bring new, attractive products to
market as quickly and cost-effectively as possible, thereby
gaining key competitive advantages. R&D expenditures
increased from €6.7 billion in 1998 to €7.6 billion in the
year under review. Of this amount, €1.8 billion (1998: €1.7
billion) went toward projects commissioned by third parties,
most of them in the Aerospace division.

Almost 85% of R&D investment was directed towards securing
the future of our automotive business, while 8% was at
DaimlerChrysler Aerospace and 5% was at the other industrial
business units.

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D A

I M L E R C H R Y S L E R

S H A R E S

Shareholder base

expanded significantly

■ Upward trend on international stock markets

■ Performance of automotive stocks lagged behind international indexes

■ Share price does not reflect positive business developments at DaimlerChrysler

■ Highest dividend yield in the automotive industry

UPWARD TREND ON INTERNATIONAL MARKETS. The year
1999 saw stock markets in North America and Europe
fluctuate wildly, before closing the year at record highs.
Driven by a powerful year-end surge, the DAX rose 39% over
the year to 6,958. The Dow Jones Industrial Average was up
25% at end-1999, the Dow Jones Euro Stoxx 50 Index 47% and
the London FTSE-100 18%. Japan’s Nikkei Index rose 37% to
18,934 points, although it was still about 50% below its record
level at end-1989. The upward trends continued into mid-
February 2000. Both the DAX, with 7,812 points on February
11, and the Dow Jones, with 11,750 points on Januay 14, set
new records.

The upward trend on world stock markets resulted from a
high volume of liquidity in search of investment opportunities;
low interest rates and the generally positive prospects for
accelerated economic growth. Large international mergers
and merger speculation throughout various branches of
industry also fueled rises on capital markets. Telecommuni-
cations and IT stocks particularly benefited, as did financial
stocks. Automotive stocks, however, lagged behind the
buyoant market trends.

DCX PERFORMANCE. Despite positive earnings prospects for
DaimlerChrysler throughout 1999 as reflected in key
indicators for DCX the ticker abbreviation of our shares, the
company’s share price did not benefit from the generally
favorable performance of capital markets (see table).
Immediately following DaimlerChrysler’s launch on November
17, 1998 “Day One”, the DaimlerChrysler share price quickly
surged above the average for German corporations.
Financial analysts pointed to the benefits of the merger and
a strong North American automobile market. The subse-
quent fall of the share price was due to the generally more
modest development of world markets and the more
reserved analyst forecasts in view of expected medium-term
trends on automobile markets.

DCX fell sharply at the end of July, despite good
six-month results. Some investors were concerned
that the US automobile market might slow and impact on
DaimlerChrysler’s earnings. At the end of September 1999,
DCX reached a year-low of €63.26 in Europe and $65 5/16
in the US. However, the share price subsequently recovered
for a while, closing the year at €77 in Europe and $78 1/4
in the US. On February 15, 2000, it was trading at €66.29
and $66, respectively.

HIGH VOLUME OF DAIMLERCHRYSLER SHARES TRADED.
DaimlerChrysler’s weighting in the German DAX 30 was 7.5%
at the end of 1999, the fourth most heavily weighted stock on
that index. It is the only automotive stock in the Dow Jones
Euro Stoxx 50 Index, with a 2.9% weighting, putting DCX in
ninth place. DaimlerChrysler has the second-biggest market
capitalization among automobile manufacturers after Toyota.

Share Price Index
(as of Nov. 17, 1998)

145

130

115

100

D 98

F 99

A 99

J 99

A 99

O 99

Nov.
17
98

D 99 Feb.
15
00

DaimlerChrysler

DAX

MSCI Automobiles Index

Statistics per Share

Net income (basic)1)

Net income (diluted)1)

Dividend

99
US $

6.25

6.20

99
€

6.21

6.16

2.35

98
€

5.58

5.45

2.35

Stockholders’ Equity (Dec. 31)

36.19

35.94

30.31

Number of shares
in millions (Dec. 31)

Share price: Year-end

High
Low

1) Excluding one-time effects.
2) Since November 17, 1998.

1,003.3 1,001.7

78 1/4
108 5/8
65 5/16

77.00
95.79
63.26

83.60
85.902)
70.612)

Worldwide trading volume of DaimlerChrysler stock in 1999
amounted to 1.1 billion shares. Of these, 196 million were
traded in the US and 872 million in Germany (including Xetra
trading). DaimlerChrysler was among the top companies on
German stock exchanges in terms of volume. Contracts traded
for DaimlerChrysler shares on the Eurex (formerly German
Futures Exchange) were among the highest in volume.

In terms of dividend yield, with about 5% (including tax
credits), the DaimlerChrysler share has the highest value in
the international automobile industry and among the DAX 30
companies.

INCREASING NUMBER OF SHAREHOLDERS. DaimlerChrysler’s
shareholder base grew by more than 30% from 1.4 million
to 1.9 million shareholders in 1999 - a significant expansion.
This is evidence of continued confidence in DaimlerChrysler’s
stock and its attractiveness as a long-term investment.
Institutional investors, including Deutsche Bank (12%) and

DaimlerChrysler
Market Capitalization
(end of reporting period)
billions of €

100

Nov. 17
98

Dec. 31
98

June 30
99

Dec. 31
99

Feb. 15
00

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the Emirate of Kuwait (7%), own approximately 75% of total
share capital. Around 25% is held by private investors. The
proportion of European shareholders increased further to
around 65%. Some 22% of the company’s equity is held by
investors in the US.

INCREASED USE OF NEW MEDIA FOR INVESTOR RELATIONS.
In 1999 we set up the DCX Investor Relations homepage
with great success. Here, investors can find not only
information on the company and its stock, but also all
annual and interim reports, SEC filings, corporate pre-
sentations and videos of these presentations. Currently
we have more than 10,000 page-visits a day and rising.

In addition, we have significantly enhanced our information
service. We publish a quarterly comprehensive fact-sheet for
the whole Group and a monthly updated production schedule
for the Chrysler Group. Furthermore, with our Investor
Relations Releases, we provide the 1,500 leading investors and
analysts with information by e-mail and fax on important
DaimlerChrysler events. This information is simultaneously
released to the press and posted onto the Internet so that pri-
vate investors have equal and simultaneous access to
information on all significant developments.

We have further intensified our contacts with institutional
investors. We personally answered institutional investors’
questions about DaimlerChrysler in more than 300 one-on-one
discussions; which included our 150 biggest shareholders.
About a third of these talks were conducted at Board of Mana-
gement level. Moreover, we present our company to the
investment community at all leading stock exchanges.

More than 16,000 shareholders attended the Annual Meeting of

DaimlerChrysler AG in May 1999.

O U T L O O K

Profitable growth

■ Continued high profitability

■ Revenues to increase significantly to about €167 billion in 2002

■

€50 billion to be invested by the year 2002

■ Almost 60 new vehicle models by 2005

K
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FAVORABLE OUTLOOK FOR THE WORLD ECONOMY. We
expect generally favorable economic conditions in all of our
key markets throughout the planning period 2000 – 2002.
While growth in North America may slow somewhat at a high
level, it is likely to pick up in Western Europe. The Japanese
economy is recovering, although in the short term it may not
experience the dynamic growth of earlier years. Prospects for
the emerging markets of Asia have greatly improved and we
expect the economies of South America to begin to expand in
2000. For the countries of Eastern Europe, we expect moder-
ate growth over the planning period.

We also anticipate that the convergence of economic growth
rates in the US and Western Europe will lead to a stronger
euro on the international currency markets.

AUTOMOBILE DEMAND REMAINS HIGH. Given the anticipated
stable economic conditions on the world’s markets, we expect
the high sales volumes in automobile markets to continue in
the period 2000 – 2002. However, we expect a slight
reduction in demand for automobiles in North America and
Western Europe after the record-setting year of 1999. On the
other hand, demand is expected to increase considerably in
Asia and South America. Furthermore, the increasing
globalization of the automobile industry, as well as shorter
product cycles and growing pressures to reduce costs will all
act to accelerate the process of industry consolidation.

PROFITABLE GROWTH AT DAIMLERCHRYSLER. Due to our
attractive product range and high order backlogs, we expect
revenues in 2000 to increase to approximately €153 billion.
Despite more intense competition in the automotive sector, we
expect revenues to increase to €167 billion by 2002. This
forecast assumes a moderate appreciation of the euro against
the dollar, pound and yen. We plan to achieve our highest
rates of growth in Asia, South America and Eastern Europe.
A variety of new and attractive products will enable nearly all
business units to grow faster than the market over the coming
years. Strict cost management at all divisions and additional
synergies resulting from the merger will provide a strong
foundation for continued profitable growth. Of course, these
results are contingent upon the accuracy of our assessments
of how important markets and exchange rates will develop.

FURTHER GROWTH IN THE AUTOMOTIVE BUSINESS. The
Mercedes-Benz Passenger Cars & smart division will be
rounding off and updating its range of products throughout
the planning period. The new C-Class, which will be launched

in May 2000 and offered in five different model versions in
the coming years, will play an important role in helping to
strengthen the worldwide market position of the Mercedes-
Benz brand. The smart brand will also achieve greater
momentum in 2000 through the introduction of the extremely
fuel-efficient cdi diesel model and the smart City convertible.

In order to strengthen its position on the fiercely competitive
North American automobile market, the Chrysler Group
division will be renewing more than half of its product
portfolio over the next two years. The innovative and
unconventional PT Cruiser, which will be available in spring
2000, has defined a new market segment and is opening up
new opportunities for growth. In addition, the new generation
of Chrysler and Dodge minivans, which we will be launching in
the fall of 2000, will further strengthen our lead in this
segment.

In order to ensure continued profitable growth and expand its
share of the world market, the Commercial Vehicles division
will take greater advantage of the benefits offered by interna-
tional networks. We also want to maintain our technical
leadership and to extend the range of services we offer in
connection with commercial vehicles. Our new small van, the
Vaneo, will open up additional opportunities. The Vaneo is
DaimlerChrysler’s first commercial vehicle in the high-growth
segment of less than two metric tons gross vehicle weight.

INCREASING REVENUES AT OTHER DIVISIONS. The Services
division is once again heading for above-average growth. The
Financial Services business unit will focus on expanding
leasing and financing services for both DaimlerChrysler and
non-DaimlerChrysler products. While the IT Services business
unit will concentrate on strengthening its international
presence even further, we are also considering strategic alter-
natives for this business.

On the basis of a high volume of outstanding orders,
particularly for civil aircraft, we expect revenues at the
Aerospace division to increase over the coming year. In order
to meet delivery deadlines for Airbus jets, we plan to increase
annual production from 288 aircraft in 1999 to more than
350 in 2002. The merger of Dasa, Aérospatiale Matra and
CASA to form the European Aeronautic Defence and Space
Company (EADS) creates the third-largest aerospace company
in the world and the largest in Europe. EADS will enjoy a
considerably stronger competitive position on the global
market than did its individual founding companies.

Revenues
in billions

DaimlerChrysler Group

Mercedes-Benz Passenger Cars
& smart

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner, Sterling,
Setra, Thomas Built Buses)

Services

Aerospace1)

Others2)

2000 E
€

2002 E
€

153

167

1) Excluding any EADS effects.
2) Including Potsdamer Platz and Headquarters.

We plan an early turnaround at Adtranz in 2000, breaking
even during 2000, to realize annual cost reductions of €300
million by 2002 and focusing activities on the core business of
rail vehicles. Our Automotive Electronics business unit will
continue to benefit from the growing number of electronic
components in automobiles. The MTU/Diesel Engines business
unit is expected to expand business volume, especially in
commercial applications. Prospects for growth look
particularly good in Asia after the economic recovery there.

€50 BILLION FOR THE FUTURE. DaimlerChrysler plans to
invest €45 billion in plant and equipment, research and
development in the period 2000 – 2002. If third-party
research is included, this figure rises to around €50 billion.
A major part of the investment will be channeled into
development and production preparation for 60 new
passenger car and commercial vehicle models, which will be
introduced over the period ending in 2005. Important projects
include the successor models to the Mercedes-Benz C- and E-
Classes, the Dakota and Ram trucks, the Jeep Cherokee, and
the new Business Class truck from Freightliner. In addition to
expanding and modernizing vehicle production facilities, funds
will also be used to increase Airbus production capacity and
develop new Airbus models.

STRATEGIES FOR THE FUTURE. DaimlerChrysler is a company
whose unique potential ensures it an excellent global
competitive position. At the same time, we are faced with
challenges such as the continuing process of consolidation in
the automotive industry, the growing importance of environ-
mental considerations and the impact that Internet expansion
will have on our business processes. In view of these
challenges, we have developed six core strategies:

■ Attain market leadership in every vehicle segment in

which we are active.

■ Provide premium services throughout the entire

automotive value-added chain.

■ Secure global growth and expand our global market

presence.

Investments in Property
Plant and Equipment
in billions

DaimlerChrysler Group

Mercedes-Benz Passenger Cars
& smart

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner, Sterling,
Setra, Thomas Built Buses)

Services

Aerospace1)

Others2)

2000 E 2000- 02 E
€

€

10.9

27.9

2.2

5.7

5.6

14.5

1.3

0.4

0.5

0.9

3.4

1.0

1.5

1.8

■ Form strategic partnerships in our non-automotive

businesses.

■ Attain worldwide leadership in human resources

development and management.

■ Introduce a value-added based performance measure
defined as operating profit after deduction of capital
costs, or net operating income after tax at Group level.

K
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The implementation of these key strategies will create the
conditions necessary for DaimlerChrysler not only to further
strengthen its leading position in the international automotive
industry, but also to continue growing profitably despite
increasingly intense competition.

Research and
Development1)
in billions

2000 E 2000- 02 E
€

€

DaimlerChrysler Group

5.9

17.5

Mercedes-Benz Passenger Cars
& smart

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner, Sterling,
Setra, Thomas Built Buses)

Aerospace2)

Others3)

1.9

5.5

2.0

6.0

0.9

0.4

0.7

2.4

1.3

2.3

1) Excluding third-party contracts of €1.7 billion per year.
2) Excluding any EADS effects.
3) Including Potsdamer Platz and Headquarters.

Mercedes-Benz Passenger Cars & smart

Best year ever for

Mercedes-Benz

The new Mercedes-Benz CL is a unique synthesis of high performance and

luxury. Advanced technology that is unavailable in any other car and innovative

design are additional features of this exclusive Mercedes-Benz coupe.

T
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&
&

Z
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30
30

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The Mercedes-Benz Passenger Cars & smart division

is the world’s leading manufacturer of high quality

passenger cars. Our products set themselves apart from

those of our competitors through innovative technology,

the highest levels of safety and comfort, and pioneering

design. In 1999 we set new records for sales, revenues

and operating profit. This success was due to the

wide range of vehicles on offer: The most attractive

and most diverse range of models Mercedes-Benz has

ever presented. Moreover, the smart recovered from

a difficult launch to become a market leader in the

micro-car segment.

amounts in millions

Operating Profit

Revenues

Investments in Property,
Plant and Equipment

R & D

Production (Units)

Sales (Units)

Employees (Dec. 31)

99
US $

99
€

98
€

2,722

2,703

1,993

38,367

38,100

32,587

2,244

2,228

1,995

2,057

2,043

1,930

1,097,142 947,517

1,080,267 922,795

99,459

95,198

BRAND MANAGEMENT A KEY FACTOR. Competition on the
global passenger car market continues to heat up. Along with
innovative technologies, brand management has become a
decisive competitive factor. For these reasons we have worked
hard on the continued development of the Mercedes-Benz
brand over the past several years. As a result Mercedes-Benz
is represented in nearly all premium market segments.
The brand’s vehicles are noted for innovative technology,
the highest levels of comfort and safety, and pioneering
design. Thanks to our product offensive and the pursuit of
a consistent price/value strategy, sales of Mercedes-Benz
passenger cars have risen from 600,000 to over one million
units in a period of only four years.

In 1998 we introduced a completely new brand, with
completely new technology, into a completely new market
segment. The two-seater smart City coupe is innovative and
unique, a car for individualists. What’s more, it offers trend-
setting solutions to problems of urban mobility and optimum
use of resources.

MARKETS DEVELOPED POSITIVELY. Overall, trends in the key
markets ofr the Mercedes-Benz Passenger Cars & smart
division were favorable trend in 1999. New registrations of
passenger cars in Western Europe were higher than in 1998.
Mercedes-Benz and smart market segments profited from
this development. In North America, sales in the premium
market segments again surpassed the previous year’s high
levels, primarily as a result of generally favorable economic
conditions. In contrast, the economic crisis in South America
held back demand for passenger cars throughout the year.
The markets in Japan and the emerging Asian economies
registered only slight improvement, while Eastern Europe
and the Middle East countries remained weak.

The convertible version of the smart City coupe

features an innovative, multi-stage roof design. The

smart City convertible is equipped with the same

SUPREX turbo engine as the smart City coupe, and

reaches an electronically limited top speed of 135 kph.

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RECORD SALES, REVENUES AND OPERATING PROFIT. The
Mercedes-Benz Passenger Cars & smart division continued
growing profitably in 1999. Unit sales and revenues increased
significantly and market share improved in nearly all
important markets. Revenues set a new record, climbing to
€38.1 billion (1998: €32.6 billion). 1999 was also the first
year in which more than one million Mercedes-Benz and
smart passenger cars, station wagons, SUVs and City
coupes were sold throughout the world, an increase of
157,500 vehicles over last year’s record. This positive sales
development was accompanied by an increase in operating
profit of 36% to €2.7 billion, a new record.

in the convertible segment for the first time. This was primarily a
result of the success of the CLK convertible. In the US, we
were able to surpass the previous year’s sales volume for the
sixth consecutive year. Our market share in the comparable
segments reached 7.4%. In Japan, Mercedes-Benz was again
the most successful import brand in 1999. Once again, our
performance in Japan was significantly better than that of our
direct competitors. In addition to the S-Class—which has met
with a tremendous response in Japan—the M- and A-Class
also contributed greatly to our success. Our share of the
comparable market segments increased to 14.2% in Japan
(1998: 12.2%).

MERCEDES-BENZ ENJOYED MOST SUCCESSFUL YEAR. Sales
of Mercedes-Benz passenger cars increased by 10% to a
record of 1,000,400 units in 1999.

The A-Class was particularly successful. With safety standards
unique in its class, a wide range of innovations—including its
special design—and an attractive engine program, extended by
the new 1.9-liter gasoline engine, the A-Class has established
itself in a fiercely competitive market segment. The new
S-Class received numerous awards and top ratings in a variety
of tests. Our top model is setting standards competitors
will have to match. It was therefore no surprise that new
registrations of S-Class vehicles in both Germany and Japan
were almost twice as high as those for the predecessor
model. Overall, the vehicle’s global market share of the
luxury segment reached 50%. The M-Class and the CLK also
had a very successful year. The E-Class, which underwent a
significant model update in both engineering and design in
July, fell slightly short of last year’s sales volume. However,
in the second half of the year, the model update led to a
strong increase in sales. As expected, sales of the C-Class
sedan, which will be replaced by a new model in June 2000,
were lower.

SALES RECORDS IN IMPORTANT MARKETS. Unit sales
growth in Western Europe in general (+8%) and Germany in
particular (+9%) was strong in 1999 and Mercedes-Benz was
able to retake the lead in the high-priced V-8 segment with the
new S-Class. Mercedes-Benz also became the leading brand

M-CLASS SUCCESS STORY CONTINUES. The M-Class has
received numerous awards since its introduction in 1997. In
July 1999, it was selected by the Insurance Institute for High-
way Safety as “Best Pick” following frontal crash tests on
15 sport utility vehicles. The 2000 model, which features a
comprehensive package of improvements and attractive new
diesel engines, will ensure that the popular SUV remains in
great demand. Production capacity for the M-Class in the
Tuscaloosa, Alabama, plant was increased from 65,000 to
80,000 units in 1999. To meet growing demand in Europe, we
also launched production of the M-Class at the SFT (Steyr-
Daimler-Puch Fahrzeugtechnik) company in Graz, Austria,
in May 1999. Production is scheduled to increase to around
20,000 units in 2000.

THE NEW MERCEDES-BENZ CL—A UNIQUE SYNTHESIS OF
DRIVING PERFORMANCE AND COMFORT. The new Mercedes-
Benz CL coupe had its world premiere at the 69th Geneva
Auto Show in the spring of 1999. The CL 500 and CL 600
versions have been available to customers since the fall. The
Mercedes coupe is distinguished by state-of-the-art technology
not available in any other automobile in the world and a
design which is at once both innovative and elegant. The most
important new feature is Active Body Control (ABC) as
standard—a milestone in driving dynamics and comfort. Within
seconds, a high-pressure hydraulic system and two powerful
computers adjust the suspension and damping to driving
conditions, thereby compensating almost completely for body
movements while accelerating, taking curves or braking.

The Vision SLR is the Mercedes-Benz study of a gran

turismo for the 21st century. It combines style

elements of the current Formula 1 “Silver Arrow” and

of the SLR sports car of the fifties.

VISION SLR ROADSTER: A SPECTACULAR BLEND OF
ENGINEERING AND DESIGN. The vision of a Mercedes
super sports car has become reality. After the SLR concept
car turned heads at the beginning of 1999 in Detroit, the
DaimlerChrysler Board of Management gave the go-ahead in
July 1999 for production of the new sports car. Mercedes-
Benz presented the spectacular SLR roadster concept for the
first time at the International Auto Show (IAA) in Frankfurt/
Main, Germany. Like the SLR coupe, the roadster is a high-
performance sports car designed with 21st century customers
in mind. It also sets new standards for future automobile
development.

SMART CIT Y COUPE ESTABLISHES MARKET POSITION. From
its market launch until the end of January 2000, more than
100,000 smart City coupes left the assembly line for service
on Europe’s roads. Weekly sales figures for the smart rose
significantly throughout the year and the brand’s popularity
continues to grow strongly. As a result, the City coupe now
occupies the number one spot in Switzerland in the micro-
car segment. In Germany, it is number two. The smart is
currently sold in Germany, Switzerland, Austria, Italy, France,
the Benelux, in Portugal and in Spain. It will be introduced in
the UK and in Japan in 2000. The successful smart cdi diesel
introduced by DaimlerChrysler in December 1999 is also the
least expensive three-liter car in the world.

WORLD PREMIERE FOR THE SMART CITY CONVERTIBLE AND
THE ROADSTER CONCEPT. The smart City convertible was a
big hit with the public after it was unveiled at the IAA in
Frankfurt last September. The most significant technical
innovation of the vehicle, which is scheduled for market
launch in March 2000, is an extraordinary top that opens in
three stages. Another glimpse at the future of smart was
provided in Frankfurt by the innovative roadster concept. In
the quest to get back to basics — in other words, driving fun —
the roadster deliberately dispenses with certain accessories.
Weighing in at just under 1,550 pounds, the sporty two-seater
promises pure driving pleasure without cutting any corners
on safety.

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MIKA HÄKKINEN WORLD CHAMPION AGAIN. Mika
Häkkinen’s repeat victory in the Formula 1 driver’s
championship was the motor racing highlight of 1999 for
McLaren Mercedes. The team’s other driver, David Coulthard,
took fourth position. With a more powerful engine and a new
chassis, the prospects for a successful Formula 1 season in
2000 are excellent. This year we will also be active in DTM,
the German touring car series, with eight Mercedes-Benz
CLKs.

Passenger Car Sales 1999

Mercedes-Benz

of which: 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)

of which: Italy

United Kingdom

France

North America

of which: United States (retail sailes)

South America

Far East (excl. Japan)

Japan (new registrations)

1,000
Units

99:98
(in %)

1,000

207

354

247

1,080

750

417

324

212

189

+10

+52

-8

+35

-3

-5

+69

+41

+14

+368

+17

+18

+33

+11

+10

+16

+11

+102

+24

Chrysler Group
Exciting products ahead

C H R Y S L E R , J E E P

, D O D G E , P L Y M O U T H

Combining versatility and efficiency in an all-new, distinctively American

design, the Chrysler PT Cruiser breaks the mold of a traditional small car

to create a new flexible-activity vehicle with an innovative interior package.

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34
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For the Chrysler Group division, 1999 was an all-time

record year in terms of revenues. And with several

all-new vehicles joining the lineup, continued strong

performance is expected. The division’s strongest

presence is in North America. The Chrysler Group’s

amounts in millions

Operating Profit

Operating Profit Adjusted

99
US $

5,086

5,226

99
€

98
€

5,051

4,255

5,190

4,255

Revenues

64,534

64,085

56,412

Investments in Property,
Plant and Equipment

US market share in 1999 for cars and light trucks was 15%.

R & D

Production (Units)

Sales (Units)

Employees (Dec. 31)

5,261

2,014

5,224

3,920

2,000

1,695

3,208,566 2,982,644

3,229,270 3,093,716

129,395

126,816

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NORTH AMERICAN MARKET REMAINS FAVORABLE. The
continued strong growth of the US economy resulted in a
further increase in North American sales of passenger cars
and light trucks in 1999. However, the launch of many new
models and greater production capacity further intensified
competition which, in turn necessitated a higher level of sales
incentives in the industry. These developments also affected
the fast-growing SUV, pickup and minivan segments in which
the Chrysler Group is a leader.

REVENUES, SALES, OPERATING PROFIT IMPROVED. The
division achieved record revenues of €64.1 billion in 1999,
representing an increase of 14% over 1998. Of total revenues,
93% were generated in the NAFTA, 4% in Western Europe and
3% in the rest of the world. Operating profit grew faster than
revenues, rising 19% to €5.1 billion. Unit sales totaled 3.2
million (1998: 3.1 million). Mainly due to the economic crises
in South America and the slow recovery in Asia, sales outside
North America declined to 177,300, down 6% from 1998.

CHRYSLER BUILDS ON HERITAGE OF INNOVATION. Chrysler
brand unit sales grew by 3% to 455,500 vehicles in 1999,
marked by exceptional sales of the sporty 300M sedan, the
brand’s flagship. The luxurious LHS sedan and Sebring
Convertible were first in their categories in Strategic Vision’s
1999 Total Quality Awards, based on an independent research
firm’s survey of the buying, owning and driving experience of
more than 30,000 customers. Strong sales of the Chrysler
Town & Country minivan, a luxury car alternative, continued.

The 2001 Chrysler PT Cruiser, a blend of retro and
contemporary design, will debut in dealerships in spring 2000.
The Cruiser combines nimble city handling with the interior
space and functionality of a much larger vehicle. As a part of
the brand’s global expansion, the Chrysler 300M will be
available in Japan by mid-2000 and a right-hand-drive PT

The award-winning Dodge Dakota Quad Cab is

the newest entry into the brand’s truck lineup. It

offers room for six passengers, a powerful V-8

engine and the largest pickup bed of any four-

door compact pickup truck.

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Cruiser will be on sale in Japan and Europe by year-end.
The withdrawal of the Plymouth brand at the close of the
2001 model year is part of a strategy for sharpening the
focus of the division’s brands and expanding the Chrysler
brand globally.

JEEP UNIT SALES CONTINUED TO GROW. Jeep sales reached
an all-time high in 1999, totaling 680,700 units, up 20%.
Leading the way was the Grand Cherokee, with a 41% in-
crease. Completely redesigned and launched in September
1999, the Grand Cherokee was named North American Truck
of the Year by a panel of independent auto journalists. More
than two million of them have been built since 1992.

Outstanding products, strong worldwide brand recognition
and an aggressive customer-relationship marketing effort
keep the Jeep brand prospering. For more than 40 years, Jeep
Jamborees have provided owners an opportunity to tackle
challenging off-road trails across North America. Celebrating
its sixth anniversary in 2000, Camp Jeep will be a three-day,
action-packed gathering of Jeep owners. In addition, Jeep 101
events provide Jeep owners and prospective owners an
opportunity to experience Jeep capability first-hand. Each
year, more than 50,000 customers participate in these
programs.

DODGE STANDS FOR PERFORMANCE. A sales increase
of 4% in 1999 to 1,810,900 vehicles validates the continuing
strength of the performance-oriented Dodge brand. The latest
addition is the Dodge Dakota Quad Cab, with six-passenger
seating, a V-8 engine and the largest pickup bed of any four-
door compact pickup. The popular Dakota has been named
J.D. Power & Associates’ most appealing compact pickup three
years in a row and was first in its class in Strategic Vision’s
1999 Total Quality Awards and J.D. Power’s Initial Quality
Study. Strong sales of the Ram pickup, Durango sport-utility
vehicle, Caravan minivan and Intrepid sedan (Family Circle
magazine’s Family Car of the Year) reflect the depth of the
Dodge brand, while the Viper is the ultimate American
supercar.

MINIVAN SUCCESS DRIVEN BY CONTINOUS IMPROVEMENT.
Sixteen years after inventing the minivan, the company
celebrated the sale of its 8-millionth minivan worldwide in
1999. A new generation of Chrysler and Dodge minivans was
unveiled at the 2000 North American International Auto
Show in Detroit. The new minivans, which will be launched
on the market in fall 2000, offer sleeker styling, enhanced
power trains and many new industry-first features, including a
power-up and power-down liftgate, power dual sliding doors
and a variable central console. The division enjoys approxi-
mately 40% of the North American minivan market. Chrysler
minivans have received more than 130 awards.

INVESTING IN GROWTH. The division is investing in several
of its facilities to expand capacity and reduce product-
development time. Construction of a new $1.2 billion (€1.2
billion) Jeep assembly facility in Toledo, Ohio, is under way. The
St. Louis North plant in Missouri is undergoing expansion and
upgrade for assembly of the popular Dodge Ram Quad Cab.

Investment in expanding power train manufacturing opera-
tions includes a $624 (€620) million modernization of
the Kenosha (Wis.) engine plant and a $260 (€258) million
upgrade to its Trenton (Mich.) engine plant. The company is
also building a new $750 (€745) million V-6 engine plant in
Detroit, near the V-8 plant built in 1998.

Construction is also under way of a full-size aero/acoustics
wind tunnel at Auburn Hills, which will be used for evaluation
of clay models early in the development stage to shorten
design time. Ground was also broken in 1999 for a new Quality
Center in Auburn Hills, designed to enhance synergies with
engineers and suppliers. A new Corrosion Test Facility at the
Chelsea (Mich.) proving grounds will simulate 10 years of
corrosion conditions on body parts and components and
reduce a test schedule from 18 to 6 months.

AN EYE TO THE FUTURE. Each year, Chrysler, Dodge and Jeep
concept vehicles are produced to project the division’s vision
of its future vehicles. One example is the Chrysler Java, which
debuted at the 1999 Frankfurt International Auto Show.
Compact in length, the Java features big benefits for

Jeep Jamborees, Camp Jeep and Jeep 101

events provide customers with an opportunity

to experience the off-road capability of their

vehicles. Each year, more than 50,000 Jeep

owners participate in these programs.

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SUCCESS ON THE TRACK. The Dodge brand’s presence in
motorsports is growing. In 2001, the brand will return to
NASCAR Winston Cup racing, which attracted more than 10
million spectators and 112 million TV viewers in 1999. The
Dodge Viper road racing program has won the North Ameri-
can Super Touring Series, the LeMans 24 Hours twice and the
FIA GT2 Championship three times. Dodge Ram teams are
frequent winners in the NASCAR Craftsman Truck Series.
And in cooperation with DaimlerChrysler Team Mopar
engineers, driver Mark Kinser won the 1999 World of Outlaws
sprint car racing championship.

Vehicle Sales 1999

Total

of which: Passenger cars

Trucks

Minivans

SUVs

United States

Canada

Mexico

Rest of the world

1,000
Units

3,229

906

741

682

900

2,693

268

177

99:98
(in %)

-3

-1

+20

-5

-6

passengers through its tall architecture and panoramic
seating. At the 2000 North American International Auto
Show in Detroit, the division unveiled four new concepts:
the Chrysler 300 Hemi C rear-wheel-drive convertible; the
Dodge MAXXcab, a four-door pickup with a short bed and
car-like interior; the Jeep Varsity, a small sport-utility with
the refined look of a European car; and the Dodge Viper
GTS/R, a step toward the next generation of muscle cars.

E-COMMERCE GROWTH. The explosive growth of e-commerce
capabilities provides substantial opportunities. The Chrysler
Group division is establishing an internal “e-Connect” organ-
ization that will coordinate and communicate its entry
into a variety of e-commerce business-to-business and busi-
ness-to-consumer initiatives. Over the last two years, the
division has developed a fully integrated and networked Web
infrastructure that will allow it to move with industry-leading
speed and efficiency further into the e-commerce arena.

FIVE STAR CUSTOMER SERVICE. The company sharpened its
focus on customer service in 1999 by bolstering its trademark
Five-Star process for ensuring customer-service excellence. A
national advertising campaign underlined dealers’ ongoing
commitment to providing well-trained employees, consistent,
customer-focused processes, and clean, efficient facilities. In
addition, the division launched Five Star Market Centers in
1999, a web-based ordering service for reducing dealership
expenses.

A FOCUS ON SAFETY. In 1999, DaimlerChrysler was the first
automaker to offer its customers in the US free child-safety
seat inspections. Through a partnership with Fisher Price Inc.
and the National Safety Council, the “Fit for a Kid” service is
more than doubling the number of certified child-safety seat
inspectors in the US and is creating the capacity to inspect
and ensure proper installation of 800,000 seats annually.

Commercial Vehicles

Growth continues

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 ,
T H O M A S B U I L T B U S E S

Freightliner, the No.1 supplier of heavy duty trucks in North America, offers the most modern family of trucks

and the largest selection of cabs, sleepers, and component options in the industry. Sterling was founded by

Freightliner Corporation in 1998. Masterful engineering and attention to detail are qualities that enable Sterling

to create an impressive range of hard-working, long-lasting professional trucks and tractors.

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38
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The DaimlerChrysler Commercial Vehicles division is

the world’s leading producer of commercial vehicles.

It is also an internationally-recognized manufacturer of

top-quality components. Our global production and

development spans locations in Europe and North and

South America. In 1999 our success continued.

Thanks to a fresh and innovative product line, sales

and revenues rose to record levels for the sixth

consecutive year. We were also able to further boost

operating profit. The Commercial Vehicles division was

particularly successful in North America and was also

able to strengthen its market position in Europe.

amounts in millions

Operating Profit

Revenues

Investments in Property,
Plant and Equipment

R & D

Production (Units)

Sales (Units)

Employees (Dec. 31)

99
US $

99
€

98
€

1,075

1,067

946

26,882

26,695

23,162

775

833

770

827

832

714

551,473 492,643

554,929 489,680

90,082

89,711

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MARKETS IN WESTERN EUROPE AND NORTH AMERICA
CONTINUE TO DEVELOP FAVORABLY. While the commercial
vehicle markets of Western Europe and North America
continued to experience favorable growth, demand in South
America fell considerably as a result of the economic crisis
affecting the region. Markets also performed poorly in some
countries of Southeast Asia, Turkey and Eastern Europe.

GROWTH CONTINUED. The Commercial Vehicles division
continued growing in 1999. Unit sales and revenues rose to
record levels for the sixth consecutive year. Revenues in 1999
increased by 15% to €26.7 billion. Growth was particularly
vigorous in the US, where revenues rose by 53% to €9.2
billion. Germany also posted growth (+11% to €7.0 billion),
as did Western Europe (excluding Germany), where
revenues increased by 12% to €6.1 billion. Worldwide sales
rose to 554,900 (1998: 489,700) trucks, vans and buses of
the Mercedes-Benz, Freightliner, Sterling, Setra and Thomas
Built Buses brands. As a result of buoyant demand in North
America and Western Europe, the division was able to
slightly boost operating profit from €0.9 billion to €1.1
billion.

In October 1999, we restructured the division, creating five
business units with individual worldwide responsibility for
their brands and products: Mercedes-Benz Trucks; Mercedes-
Benz Vans; Mercedes-Benz/Setra Buses; Freightliner, Sterling,
Thomas Built Buses; and Powertrain.

HIGHLY SUCCESSFUL YEAR FOR MERCEDES-BENZ TRUCKS. In
the segment for vehicles over six metric tons, Mercedes-
Benz produces trucks for long-distance and local shipping, the
construction industry and for special uses. The vehicles in the
European product line—Actros, Atego, Econic and Unimog—are
notable for their economy, long maintenance intervals, and

The new Mannheim Customer Center, which opened on

July 19, 1999, is not only a stimulating source of

information, but also allows customers a look at the

production process. This engine center sets the standard

for other Powertrain centers.

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excellent safety and high environmental standards. In 1999
the Atego was voted Truck of the Year, as was the Actros in
1997. In 1999 new registrations of Mercedes-Benz trucks
throughout Western Europe reached 79,400 units, signifi-
cantly exceeding last year’s high volume. As a result, we
were able to increase our market share to 25% (1998: 24%) in
the segment above six metric tons, further consolidating our
leading position in Western Europe.

Now that our product line has been completely renewed, we
are enhancing customer service. At the beginning of the year,
we introduced FleetBoard®, an innovative fleet management
system to help customers optimize vehicle use and boost
competitiveness.

As a result of unfavorable economic conditions in South
America, sales in the region fell to 44,600 units in 1999
(1998: 57,700). Nevertheless, in the market for vehicles over
six metric tons, we were able to defend our dominant position
in Brazil (36%, 1998: 36%) and Argentina (36%, 1998: 37%).
Our most important market launch last year was the 1938/
FSK—the first Mercedes-Benz cab-over-engine truck to be
manufactured in Brazil.

MERCEDES-BENZ VANS LEAD IN EUROPE. Mercedes-Benz
vans have enjoyed a commanding position on the European
market since 1997. In the Commercial Vehicle of the Year
awards, 1st, 2nd and 3rd places were taken by the successful
Sprinter (2.5–4.6 metric tons), the Vito and V-Class (up to 2.6
metric tons) and the Vario (4.8–7.5 metric tons), which offer
ideal versions for both commercial and private applications.

In 1999, both the Vito and the V-Class underwent substantial
model updates. The new CDI engines have been particularly
popular among customers. In the year under review, a total of
220,900 Mercedes-Benz vans (1998: 216,500) were sold
worldwide. The most important markets for the Vans unit
were Germany (69,300 vehicles; up 5%), and the other West-
ern European countries (119,800; up 7%). On the strength of
this performance, market share rose to 18.9% (1998: 18.4%),
further consolidating our leading position in Europe. In the
wake of the economic crises in Brazil and Argentina, sales
outside Western Europe decreased significantly to 31,800
(1998: 38,800) units.

VANEO COMPACT VAN EXTENDS PRODUCT LINE. The
Vaneo compact van will extend our product line into the fast-
expanding sector for vehicles under 2 tons. With its compact
exterior dimensions, the Vaneo can be used commercially or as
a family vehicle. It will be launched at the end of 2001.

LEADING MANUFACTURER OF BUSES WORLDWIDE. In 1999
DaimlerChrysler sold a total of 44,700 complete buses and bus
chassis (1998: 32,600). Growth in the markets of Western
Europe and North America helped offset a decrease in sales
in South America. In 1999, we were once again the world’s
leading manufacturer of buses over eight metric tons.

EvoBus GmbH, a 100 percent subsidiary of DaimlerChrysler, is
responsible for our bus operations in Western Europe. In the
year under review, EvoBus’ sales of complete buses and bus
chassis fell slightly to 8,000 units. Of this total, the Mercedes-
Benz brand sold 5,200 units (down 8%), with Setra accounting
for 2,800 units (up 8%). As a result, EvoBus achieved a market
share of 26%. The two brands were therefore able to retain
their market leadership in Western Europe (including Turkey).
Among the major product launches in 1999 were the
Mercedes-Benz Travego travel coach and the S 317 GT-HD
from Setra. Our buses also did extremely well in the
Commercial Vehicle of the Year awards, capturing two 1st,
two 2nd and two 3rd places.

FREIGHTLINER AND STERLING GOING FOR GROWTH. The
greatest growth in the year under review was again achieved
in the North America region. On the strength of an attractive
product line, we were able to profit significantly from the positi-
ve development of the North American market last year. As a
result, we further consolidated our position as the leading
manufacturer of heavy trucks in North America. Total sales for
the region amounted to 193,000 units for the year under review
(1998: 125,600). In the US, in the segment for Class 8 heavy
trucks (15 metric tons and up), the combined market share of
our Freightliner and Sterling brands rose from 33.1% in 1998 to
37.3% in 1999. Our new Sterling brand alone achieved a market
share of more than 5%. Sales were particularly successful in the
segment for Class 6 and 7 medium-weight trucks (8.8–15 metric
tons), where we were able to improve on the substantial gains
made in 1998. Total US sales in this segment reached 41,400

The Mercedes-Benz Vito F

offers numerous new attractive

features. With its spacious,

variable interior and its excellent

ride, the Vito F perfectly suits the

needs of sporty individuals,

young families, or business

people looking for a multi-

purpose vehicle.

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units (up 45%) in 1999, which represents a market share of
23.1% (1998: 19.5%). Thomas Built Buses Corporation, which
Freightliner acquired in 1998, contributed 14,500 vehicles
to total unit sales in North America. Thomas Built Buses is
one of the leading manufacturers of bus superstructures in
the NAFTA region.

In order to further strengthen DaimlerChrysler’s position in
the global bus business, our subsidiary, Freightliner, formed a
joint venture with Mayflower Corporation plc. of the UK, to
produce buses for the North American market.

POWERTRAIN BUSINESS UNIT: A POWERFUL SYSTEM
SUPPLIER. The Powertrain business unit (PTU) manu-
factures and markets engines, transmissions, axles and
steering systems. The business unit’s most important
customers are the commercial vehicle assembly plants
within DaimlerChrysler itself. In 1999, the business unit
supplied components worth €3.2 billion to customers at
DaimlerChrysler and external customers. Following its first in-
dependent appearance at a trade fair (the 1998 International
Auto Show in Hanover, Germany), the PTU business unit
has been able to market its products more successfully to
customers outside of DaimlerChrysler. The acquisition of At-
lantis Foundries in South Africa marks a further stage in the
drive to expand PTU’s international production collaboration
and boost its competitiveness on the world market.

SERVICE PACKAGES IN DEMAND. Mercedes-Benz
CharterWay, a joint venture between our Services division,
debis, and the Mercedes-Benz Commercial Vehicles division,
offers its customers a comprehensive service package
including everything from repairs and maintenance to profes-
sional fleet management. Since CharterWay was founded in
1992, more than 40,000 vehicles have been serviced in this
way. By the end of 1999, CharterWay was active in 20
countries.

NETWORKING CUTS COSTS. In 1999, we intensified
networking among various production and development
facilities within the Commercial Vehicles division. This has
helped us to fur-ther reduce costs and improve our
competitive position. For example, the first Freightliner
models with Mercedes-Benz engines were unveiled in March
1999 at the Mid-American Trucking Show. The new Sterling
Acterra, which is scheduled for market launch in early 2000,
will be equipped with four-cylinder and six-cylinder Mercedes-
Benz diesel engines. A further example is the new generation
of medium and heavy trucks in South America, which will
be equipped with the cab used for the European Atego. The
new business structure will give additional impetus to this
process of integration.

Commercial Vehicles Sales 1999

1,000
Units

99:98
(in %)

World

of which: Vans (including V-Class)

Trucks

Buses

Unimogs

Europe

of which: Germany

Western Europe (excl. Germany)

of which: France

United Kingdom

Italy

NAFTA

of which: USA

South America

of which: Brazil

Asia

555

226

282

287

114

161

193

172

+13

+20

+37

-25

+13

+24

+54

+59

-23

-24

-12

T H E C O U N C I L S

Automotive Council

Sales and Marketing Council

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4242

FOCUS ON DEVELOPMENT AND PRODUCTION. The develop-
ment of new products is one of the core processes in the
automotive industry. Designing innovative vehicles with a high
level of safety and quality in a short time and simultaneously
ensuring the profitability of the product—that is the demanding
goal of every manufacturer.

DaimlerChrysler faces an additional challenge: harnessing its
outstanding research and technology, purchasing and hu-
man resource capabilities; linking the three automotive
divisions of the company and then utilizing the enormous
potential that results.

DaimlerChrysler has an extremely broad range of products
and brands that includes passenger cars of the Mercedes-Benz
and smart brands, passenger cars and trucks of the Chrysler,
Jeep and Dodge brands and the various trucks, vans and buses
of the Commercial Vehicles division.

The goal of the AUTOMOTIVE COUNCIL (AC) and its members
from each of the three automotive divisions is to guide, coor-
dinate and standardize activities at all stages of the product
creation process, while at the same time preserving the
identity and uniqueness of our brands. Starting points for
achieving this include an integrated engine and components
strategy, selective and targeted transfers of innovations, the
development of common standards and the optimization of
production through best-practice comparisons of the various
locations and their production philosophies.

FOCUS ON THE CUSTOMER. The second core process of the
value-added chain begins with the responsibility to the
customer and comprises the production, sales and service of
vehicles. This also includes professional support and com-
munication with customers and the entire range of after-
sales services.

Substantial synergy savings can also be realized by
coordinating the interaction of the three automotive
divisions and making joint use of the worldwide sales
network.

THE SALES AND MARKETING COUNCIL (SMC) has a task
analogous to that of the Automotive Council—making decisions
affecting all divisions with respect to the sales network, multi-
ple-brand strategy and sales and after-sales activities in
general.

The Sales and Marketing Council manages and controls the
sales process through the setting of agreed goals.

CREATING VALUE. The Automotive Council and the Sales
and Marketing Council, both Board of Management
committees, will contribute substantially to our efforts to
market more attractive products of specific brands more
quickly worldwide, further increase quality in sales and
services, and raise productivity and efficiency. This will
help us to create value, satisfy the desires of our customers in
every respect, once again turning potential into performance.

Automotive Council
Development and Production

Hans Joachim Schöpf
Development
Mercedes-Benz Passenger Cars & smart

Georg Weiberg
Development
Mercedes-Benz Vans

Thomas C. Gale
Product Development,
Design Chrysler Group &
Passenger Car Operations

Eckhard Cordes
Corporate Development
& IT Management

James P. Holden
Chrysler Group

Jürgen Hubbert
Mercedes-Benz Passenger Cars
& smart

Dieter Zetsche
Commercial Vehicles

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43
43

Sales and Marketing Council
Sales and Service

Larry Baker
MOPAR

Theodor R. Cunningham
Global Sales
and Marketing
Chrysler Group

Günter Egle
Global Parts Center
Mercedes-Benz

Benito de Filippis
Sales and Marketing
Mercedes-Benz Vans

Joe Hilger
Service Chrysler

Joachim Schmidt
Mercedes-Benz
Passenger Cars & smart
Sales and Marketing

Harald Schuff
Operations and Planning
Sales Organization
Europe/Rest of World
excl. NAFTA

Hans Tempel
Business Unit
Mercedes-Benz Trucks
Sales and Marketing

Steve Torok
Operations and Planning
Sales Organization NAFTA

Ulrich Walker
Global Service Mercedes-Benz

Members of the Board
of Management
DaimlerChrysler AG

Services

Dynamic growth

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44
44

In its tenth financial year, DaimlerChrysler Services (debis) AG continued its success story, achieving

new record figures for revenues, earnings and work force in the future-oriented areas of financial

services and IT services. For debis, 1999 was typified by further internationalization.

debis, the Services division of DaimlerChrysler, took

full advantage of the growth potential of the services

amounts in millions

Operating Profit

99
US $

99
€

2,053

2,039

98
€ *)*)*)*)*)

985

949

market in 1999 and once again posted outstanding

results. With a managed portfolio of €99.2 billion,

debis is one of the world’s leading financial services

companies outside of the banking and insurance

sector. debis Systemhaus is one of Europe’s leading

manufacturer-independent IT services companies.

Operating Profit Adjusted

1,033

1,026

Revenues

13,023

12,932

9,987

Financial Services

10,126

10,056

7,772

IT Services

2,962

2,941

2,244

Investments in Property,
Plant and Equipment

326

324

285

Employees (Dec. 31)

26,240

21,272

*) 1998: excluding Telecom Services.

GROWTH CONTINUES. The Services division grew for the
tenth consecutive year in 1999, with revenues increasing by
29% to €12.9 billion. 42% of our revenues were generated in
the US, 32% in Germany and 12% in the European Union,
excluding Germany. Earnings were also up in 1999, with
operating profit increasing to €2.0 billion (1998: €1.0
billion); after adjusting for extraordinary effects, it actually
rose by 8% to €1.0 billion. These effects include non-
recurring income of €1.1 billion from the disposal of 42.4%
of the shares in debitel, as well as one-time expenses
arising from the sale of receivables from previos years
carried out in connection with the integration of the
financial services business.

Substantial investment would have been required to continue
successfully operating debitel, the telecommunications service
provider, as a unit of DaimlerChrysler. In line with our value
based management system, however, we decided to sell the
majority of our debitel shares in order to create additional
value.

A COMPREHENSIVE PACKAGE OF FINANCIAL SERVICES. The
core business of the Financial Services business unit
comprises comprehensive financial services for all
DaimlerChrysler vehicle brands plus other activities such as
brand-independent fleet management. Non-automobile
financial services are also an important business area. Such
capital services include financing concepts and investment
fund solutions for aircraft, rail vehicles, ships, real estate and
infrastructure projects. In addition, our countertrade
department provides complete customized solutions for cross-
border trade and projects, while our insurance activities
include brokerage services and direct insurance.

INTEGRATION AND INTERNATIONALIZATION. In January
1999, all of DaimlerChrysler’s financial services activities
were consolidated into debis. Subsequently, the former
Mercedes-Benz, debis and Chrysler Financial Services leasing
companies were merged in our most important markets.
This created great potential for synergy savings. Integration

in all of our markets will be completed in 2000. We also
expanded internationally in the year under review. At the
end of 1999 the Financial Services business unit had more
than 100 companies operating in 35 countries around the
world.

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STRONG GROWTH IN FINANCIAL SERVICES. Key indicators
for the Financial Services unit were positive in 1999. We set
records for both contract volume (€99.2 billion; 1998: €70.0
billion) and new business (€50.7 billion; up 44%). The
capital services portfolio increased to €7.5 billion (1998:
€4.9 billion), and the outlook for capital services remains
very positive. Countertrade volume was up 43% to €486
million and insurance policy volume increased by 16% to
€872 million.

IT SERVICES: COMPLETE SOLUTIONS. Our IT Services
customers benefit from our high-grade services, ranging from
consulting (Plan) to the development of software solutions
and system integration (Build) to applications, data centers,
networks and desktops (Run). We offer industry-specific,
complete solutions, an advantage which has made us one of
the leading European companies covering all areas of
information management. The IT Services business unit
once again posted dynamic growth in 1999.

An attractive range of services led to revenues increasing by
31% to €2.9 billion. Growth outside Germany was
particularly strong, with business volume increasing from
€562 million to €876 million. Customers outside the
DaimlerChrysler Group accounted for 75% of the business
unit’s total revenues in 1999 (1998: 69%).

The strategically targeted acquisitions we made in 1999 will
help us expand our range of services even further. The
acquisition of the French IT company, “Soleri”, represents an
important step toward consolidating our position in France.
Other companies were established in the US, the Netherlands,
Belgium, Hungary, Spain and Austria. Our most recently
established subsidiary was set up in Australia.

Aerospace

A new dawn over Europe

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46
46

As the largest sector of Dasa, DaimlerChrysler Aerospace Airbus GmbH is responsible for our

Airbus activities. Dasa holds a 37.9% stake in the European Airbus consortium, which in 1999 was

the world’s number two for passenger aircraft sales, and for the first time, number one for incoming

orders. The Airbus family, which is constantly being expanded with new and innovative models,

offers attractive products to customers all over the world.

DaimlerChrysler Aerospace (Dasa) was once again one

of the most profitable companies in its sector. Key

areas of business remain our holdings in Airbus Indus-

trie and Eurocopter, the manufacture and marketing

of engines and our involvement in numerous European

aerospace projects. The merger of Dasa with the

French company, Aérospatiale Matra, and the Spanish

company, CASA, to form the European Aeronautic

Defence and Space Company (EADS) has created new

opportunities. EADS will be the largest aerospace

company in Europe and the third-largest in the world.

Dasa will also be joining forces with Matra Marconi

Space (MMS) to create Astrium, a new space-technology

company.

OUTLOOK REMAINS FAVORABLE..... Due to the high level of
orders on hand we significantly stepped up the production of
civil aircraft in 1999. Although new orders did not achieve
the extremely high level of the previous year, for the first
time Airbus received more aircraft orders than any other
manufacturer in the world. Business also continued to
develop favorably in the aeroengines sector. In the defense
sector, on the other hand, government budgetary constraints
led in some cases to a substantial decline in orders. Never-
theless, the year under review brought us the first contract
for series production of the new Tiger helicopter.

BUSINESS VOLUME AND OPERATING PROFIT RISE. . . . . In 1999,
the Aerospace division boosted revenues by 5% to €9.2
billion. The chief engine of growth was the Commercial
Aircraft business unit, where increased sales of aircraft and
aircraft components for the Airbus program led to an above-
average growth rate of 13%. Strong increases were also
recorded in the Military Aircraft and Aeroengines business
units. On the strength of a sharp increase in revenues,
operating profit rose 17% to €730 million, surpassing the
high figure recorded in 1998.

INCOMING ORDERS CONTINUE TO OUTPACE REVENUES.
While incoming orders (€9.9 billion) were higher than total
revenues in 1999, they were significantly down from the
figure for 1998 (€13.9 billion). This decrease was primarily
due to the fact that the previous year was exceptional: in 1998
a boom in the civil aircraft market led to a very high volume of
Airbus orders and the contracts awarded for series production
of the “Typhoon” Eurofighter were another factor which
disproportionately inflated orders for that year. As expected,
further cuts in government budgets also had an impact on the
level of incoming orders at the Defense and Civil Systems
business unit. As a result of authorization for the first series
batch of the Tiger military helicopter, incoming orders for the
Helicopters business unit doubled over the previous year.

amounts in millions

Operating Profit

Revenues

99
US $

735

99
€

98
€

730

623

9,255

9,191

8,770

Commercial Aircraft

3,363

3,340

2,962

Helicopters

Military Aircraft

Space Infrastructure

Satellites

Defense and Civil
Systems

710

705

1,085

1,077

596

461

592

458

680

957

582

645

1,736

1,724

1,729

Aero Engines

1,754

1,742

1,660

Investments in Property,
Plant and Equipment

R & D

338

336

326

2,019

2,005

2,047

Employees (Dec. 31)

46,107

45,858

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EADS—NEW HORIZONS FOR EUROPEAN AEROSPACE. In the
fourth quarter of 1999, we signed contracts to merge Dasa,
the French Aérospatiale Matra and the Spanish CASA to form
the European Aeronautic Defence and Space Company
(EADS)—Europe’s largest aerospace company. The new
company is scheduled to begin operations in the summer of
2000. We and our French partners will each hold 30% of
EADS, with SEPI, the Spanish state holding company, taking
a 5.6% stake. Current plans call for a public offering of the
remaining 34.4% of the equity. Annual revenues of €21
billion and a workforce of more than 96,000 employees will
make EADS the world’s third-largest aerospace company.
With a 80% stake in Airbus Industrie, EADS will be the
second-largest manufacturer of civil aircraft in the world.
It will also be the world’s leading helicopter manufacturer
(holding 100% of Eurocopter). In addition, the new company
will be the market leader for carrier rockets and a leading
supplier of satellites, military aircraft and defense technology.

ASTRIUM—JOINING FORCES IN THE SPACE SECTOR.
Contracts signed between Dasa, Aérospatiale Matra and
Marconi Electronic Systems will further boost the com-
petitiveness of the European aerospace industry. Matra
Marconi Space (MMS) and Dasa are scheduled to merge their
space systems businesses in the first half of 2000. With more
than 8,000 employees and revenues of €2.25 billion,
Astrium, the new joint venture, will be the biggest space-
technology company in Europe and a leading global player.
We anticipate that Alenia Spazio, a subsidiary of the Italian
company Finmeccanica, will also join Astrium, further
strengthening the company’s position on the international
market.

Other Industrial Businesses

Rail Systems

Automotive Electronics
MTU/Diesel Engines

S
S
E
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S
S
S
S
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N
N

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B

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48
48

RAIL SYSTEMS: NEW STRUCTURE. Revenues at the Rail
Systems business unit were up 7% to €3.6 billion in 1999.
Earnings remained negative, however. The acquisition of the
50% share of Adtranz held by ABB is enabling DaimlerChrysler
to proceed more rapidly and effectively with the necessary
restructuring at Adtranz. In December 1999, Adtranz began a
comprehensive restructuring program that is expected to
achieve a turnaround at the rail systems company in 2000.
An important element of this program is targeted cost-cutting
achieved through the elimination of excess capacity, con-
centration on key areas of expertise and a more efficient
production and organizational structure.

The first CRUSARIS Intercity trains went into service in
Norway, Switzerland and Great Britain during the year under
review. Adtranz was responsible for 50% of the total contract
volume for the production of the ICE3 high-speed train, which
sets new technical standards in its segment. The People Mover
automated transport system from Adtranz also went into
operation at the Rome and Singapore airports. In China, the
business unit was involved in the electrification of a 600-mile
rail line. Adtranz also supplied subway and urban light rail
systems for Lisbon, Stockholm and Bucharest and several
cities in Germany.

AUTOMOTIVE ELECTRONICS: STILL BOOMING. The Auto-
motive Electronics business unit (TEMIC) is a leading sup-
plier of electronic systems for engines, safety systems and
applications that enhance driving comfort. TEMIC has
development, production and sales locations in strategic
markets in Europe, North America and Asia. Our customer
base includes most automobile manufacturers around the
world. Operations focus on seven areas: drivetrains and
chassis, ABS, occupant safety, sensor systems, comfort
electronics, electric motors and intelligent distance-control
systems. Each operates as an independent unit.

In 1999, the Automotive Electronics business unit posted an
18% increase in revenues to €0.9 billion. Incoming orders
jumped by 38% to €1.0 billion. The positive business outlook
at TEMIC led us to hire 535 employees.

New applications have been made possible by modern
automotive electronics. For example, TEMIC produces a
continuous velocity transmission (CVT), an adaptive cruise
control (ACC), telematics applications and systems that are
now controlled by electronics instead of hydraulics. We also
anticipate strong growth for our voice recognition system.
TEMIC took over this area from Dasa in 1999, making it the
world leader in voice control systems.

amounts in millions

Rail Systems*)

Revenues

Incoming Orders

Employees (Dec. 31)

Automotive Electronics

Revenues

Incoming Orders

Employees (Dec. 31)

MTU/Diesel Engines

Revenues

Incoming Orders

Employees (Dec. 31)

99
US $

99
€

98
€

3,587

3,562

3,316

3,354

3,331

4,181

23,239

23,785

896

890

1,053

1,046

754

760

5,173

4,638

966

959

1,022

1,015

921

914

5,885

5,893

*) 50% consolidation in 1998; comparable figures (100%)
shown in the table.

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MTU/DIESEL ENGINES: TECHNOLOGICAL LEADERS. The MTU/
Diesel Engines business unit increased revenues to €1.0
billion in 1999 (1998: €0.9 billion). Revenues within
Europe climbed 8% to €600 million. Long-standing business
relations with our Asian partners also led to higher sales.
The increase resulted from the timely processing of defense
procurement orders already on the books, as well as growth
in the non-defense sector. The biggest contributors to
revenues in 1999 were sales of propulsion systems for large
high-speed ferries, luxury yachts, passenger ships and navy
ships. MTU/Diesel Engines’ new 2000 and 4000 Series
engines were augmented by additional cylinder and
application variants in 1999, setting new standards for
commercial markets in particular, and strengthening the
position of this business unit.

The launch of new product lines in the distributed power
systems segment also contributed substantially to the increase
in revenues. Alongside its traditional diesel engines and gas
turbines, MTU began supplying gas engines for distributed
power systems for the first time in 1999. The company drew
on its experience and expertise as a systems supplier in
developing the ready-to-install “Powerpack”— a complete drive
module for rail vehicles. In a development similar to trends in
the automotive industry, rail vehicle manufacturers are
increasingly turning to complete drive systems. MTU also
demonstrated its technological expertise through its subsidiary
L’Orange, which manufactures high-performance injection
systems for diesel, heavy fuel and gas engines and the innova-
tive common-rail systems.

D A I M L E R C H R Y S L E R W O R L D W I D E

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A
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North America

Production
Locations

Sales
Organization
Locations

Revenues
in millions
€

Personnel

Mercedes-Benz
Passenger Cars & smart

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra, Thomas Built Buses)

Services

Aerospace

Others

508

9,180

1,898

5,167

59,766 125,549

508

10,408

21,623

—

6,356

5,349

1,457

502

707

2,944

South America

Production
Locations

Sales
Organization
Locations

Revenues
in millions
€

Personnel

Mercedes-Benz
Passenger Cars & smart

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra, Thomas Built Buses)

Services

Aerospace

Others

—

466

350

1,330

780

1,254

466

1,346

11,886

259

125

939

109

234

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, Setra

and Thomas Built Buses commercial vehicles.

3. Plus a further 34,133 employees engaged in joint sales of Mercedes-Benz Passenger Cars & smart, Mercedes-Benz,

Freightliner, Sterling, Setra and Thomas Built Buses commercial vehicles.

Asia

Production
Locations

Sales
Organization
Locations

Revenues
in millions
€

Personnel

Mercedes-Benz
Passenger Cars & smart

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra, Thomas Built Buses)

Services

Aerospace

Others

—

629

3,101

328

409

420

629

517

116

267

407

1,246

1,616

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A
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Europe

Production
Locations

Sales
Organization
Locations

Revenues
in millions
€

Personnel

Mercedes-Benz
Passenger Cars & smart

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra, Thomas Built Buses)

Services

Aerospace

Others

Africa

—

3,460

24,305

92,400

2,839

2,159

3,460

13,728

55,327

140

6,065

19,114

7,365

45,467

4,314

29,089

Production
Locations

Sales
Organization
Locations

Revenues
in millions
€

Personnel

Mercedes-Benz
Passenger Cars & smart

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra, Thomas Built Buses)

Services

Aerospace

Others

—

259

677

3,503

156

259

430

—

668

—

151

Australia/Oceania

Production
Locations

Sales
Organization
Locations

Revenues
in millions
€

Personnel

Mercedes-Benz
Passenger Cars & smart

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra, Thomas Built Buses)

Services

Aerospace

Others

—

197

440

134

197

266

—

120

—

263

Research and Technology

Driving innovation

Y
G
Y
O
G
L
O
O
L
N
O
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52
52

The variable ergonomics test bench gives answers to important questions

concerning the dimensions and ergonomics of future models. The state-of-

the-art, computer-controlled equipment helps to considerably shorten the

development time of new vehicles.

DaimlerChrysler’s central Research and Technology department is responsible for integrated

innovation and technology management. It supports the business units in the development

‚of technology strategies and establishes the technological basis for innovative products and

processes. Research and Technology’s success is measured by the extent to which its

achievements can be transferred into the development, production, sales and marketing

activities of the business units.

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A

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SEVEN CORE FIELDS OF TECHNOLOGY. Four megatrends
will determine the future of technology at DaimlerChrysler:
the demand for sustainable mobility; the use of closed
production processes and customized materials; increasing
global networking; and new functions based on electronics.
To harness these megatrends, Research and Technology
focuses on seven technology fields: Drive technologies;
vehicle concepts; production technology; materials research;
traffic research and telematics; information and communica-
tions technology; electronics, mechatronics and control
technologies.

In 1999 we made great progress with:

NEW CERAMIC MATERIALS TO REDUCE WEAR. A brake that
is lighter, more comfortable to use, and doesn’t rust — our
engineers have turned this concept into reality with a new
fiber-reinforced ceramic brake disk. A true “brake for life,“
the so-called “CMC” brake can operate reliably throughout
the entire service life of a road vehicle, aircraft or rail vehicle.
CMC brake disks for wheels and axles have already demon-
strated their potential in tests with ICE high-speed trains.
The new disk has also proved itself in tests with motor vehi-
cles. Following successful stationary and vehicle tests, we
are now working with the vehicle development departments
to get this new technology ready for series production.

LIGHTWEIGHT SEATS FOR SERIES PRODUCTION. A new
bucket seat concept that uses carbon fiber composites will
enable lightweight bucket seat design from the world of motor
sports to deliver the comfort of traditional seats for the first
time. A key feature is an adjustable seat back made possible by
installing a joint that is both flexible and torsionally stiff
between the seat bottom and seat back. This innovative seat is
the product of intelligent component and sophisticated
materials design.

SOFTWARE THAT PROVIDES COMPETITIVE ADVANTAGES.
Automotive electronics software is becoming increasingly
important. At the same time, sales and marketing software
systems tailored to the needs of customers and dealers are
providing our company with a distinct competitive advan-
tage. To further promote these areas, DaimlerChrysler

Research launched an innovation campaign in software
engineering in 1999. Together with the development
departments at the passenger cars divisions and the central
Sales and Marketing department, it established so-called “Soft-
ware Experience Centers.” Although such centers operate
independently and have their own resources, they are also
closely integrated with ongoing development projects. The
result is an extensive exchange of knowledge and experience
in software development and software quality management.

Software must be systematically tested if the highest
standards of quality are to be ensured. To significantly
reduce testing costs, we developed a model-based test for
control algorithms and a fully automatic test on the basis of
evolutionary algorithms. These new procedures, which we
introduced last year, yielded substantial improvements in
the methodology and automation of software testing.

LONGER-RANGE BATTERY-DRIVEN VEHICLES. Along with the
development of fuel cell drives (see p. 13), we continue to
move forward on battery-driven vehicles. The Electric
Powered Interurban Commuter (EPIC) — an electric vehicle
based on the Chrysler Voyager — has been equipped with a
lithium ion battery, replacing the nickel metal hydride battery
used previously. This will not only improve power and energy
density significantly; it will also increase the vehicle’s range
and reduce costs. The project is one of the first to combine
technological expertise from Auburn Hills and Stuttgart, and
exemplifies the successful cooperation between our research
departments.

ENHANCING NIGHT VISION. The high beams are on, yet
drivers on the other side of the highway are not blinded by
the light. Thanks to a new night-vision system developed by
our engineers, this could soon become a reality. The optical-
electronic system, which uses an infrared diode as a source
of light, enhances vision at night and in bad weather.
Working in cooperation with EvoBus, the system has been
installed in a test bus, with extremely good results. The laser
headlight illuminates the road up to 500 feet ahead — more
than three times the distance achieved by a conventional low
beam headlight.

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DaimlerChrysler and the Environment

Commitment

to environmental

protection

At the Sindelfingen factory, in addition to the legally required

measurements of emissions in the ambient air, plants are also used as

solvent detectors. In this greenhouse, air quality is examined using

tomatoes, nasturtiums and bush beans.

Protection of the environment and respect for the conservation of natural resources are high

priorities for DaimlerChrysler. Our environmentally compatible measures cover the entire

product range and apply to the complete product life cycle, from the use of raw materials to

product development, production and usage, all the way to disposal and recycling.

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FIRST DAIMLERCHRYSLER ENVIRONMENTAL REPORT. The
first DaimlerChrysler Annual Environmental Report was
published in August 1999. The report outlines environmental
projects in progress worldwide, and demonstrates the
company’s responsible approach to environmental steward-
ship. For the first time, we also had an environmental group
review the reporting process and the main contents of the
report and they also paid tribute to our contribution to
sustainable development. This new approach had an impact
on acceptance of the report among the general public.
Feedback through a questionnaire enclosed with the report
revealed that more than 60 percent of readers considered our
report superior to other environmental reports, while 30
percent rated it as good as others.

BEST PRACTICE. As a result of a combined best practice and
benchmarking effort between Auburn Hills and Stuttgart, nine
projects have been set up. They focus on environmental
management systems, auditing, performance measurement,
hazardous materials and communications. These projects
were selected on the basis of their potential for enhancing our
environmental performance, promoting environmental
standards and cutting costs, as well as their chances of
success. As our initial analysis shows, there are great oppor-
tunities for mutual learning since different parts of our
company provide benchmarks in different areas. To underline
our commitment, in 2000 we will be introducing a company-
wide award program for outstanding environmental
achievements.

CERTIFIED ENVIRONMENTAL MANAGEMENT SYSTEMS
IMPLEMENTED. Experience has shown that certification
increases environmental awareness, reduces risk, conserves
resources, and enhances business performance. At present,
roughly half the automotive workforce operates within an en-
vironmental management system that has been certified in
line with ISO 14001. DaimlerChrysler plans to have all its
worldwide production facilities certified by the end of 2003.
In addition, and as a next step, we have also kicked off pilot
projects which focus on the integration of different manage-
ment systems, including environmental, quality, and health
and safety.

DEVELOPING A COMMON APPROACH. Through the
DaimlerChrysler merger we also intend to improve our effi-
ciency in the area of environmental protection by enhancing
expertise and adopting the best methods and procedures.
Consequently, the Post-Merger Integration environmental
affairs group has been developing a common approach to en-
vironmental protection, establishing a common environmental
policy and leveraging existing programs.

Its efforts have focused on:

■ Adoption of corporate environmental guidelines.

■ Publication of a joint Environmental Report.

■

Identification of best practices and benchmarking.

■ Establishment of an efficient organizational structure.

A CORPORATE COMMITMENT. In July 1999, the following six
environmental guidelines were approved by the Board of
Management:

■ We face the environmental challenges of the future by
working continuously to improve the environmental
performance of our products and operations.

■ We strive to develop products which, in their respective

market segments, are environmentally sensitive.

■ We plan all stages of manufacturing to provide optimal

environmental protection.

■ We offer our customers ecologically-oriented service and

information.

■ We endeavor to achieve exemplary environmental

performance worldwide.

■ We provide our employees and the public with compre-

hensive information on environmental protection.

At DaimlerChrysler, environmental protection is integrated
into the activities of the company at all levels. Sustainable,
long-term growth can only be secured if we take care of our
valuable resources. In addition, by integrating the principles
expressed in the guidelines into our decision-making proces-
ses, we will create a competitive advantage for the company.

Global Procurement & Supply

Creating the world’s most
effective supply chain

Teamwork with suppliers is a key source of innovation. DaimlerChrysler

employee Richard Soyka (left) and Decoma employees Christina Hernandez

and Chris Keyes are involved with a new plastics technology that could help

make cars lighter and less expensive.

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DaimlerChrysler’s Global Procurement & Supply function is charged with creating the world’s most

effective supply chain. During the first year of the merger, DaimlerChrysler’s automotive purchasing

volume reached €84.5 billion. With extensive procurement and supply activities supporting a variety

of manufacturing and distribution operations worldwide, we decided to create a new structure that

would make them part of a single global organization. In 1999, the synergy targets announced for

Global Procurement & Supply were significantly overachieved.

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MAJOR ADVANTAGES OF A GLOBAL APPROACH:
■ A global organization is better able to identify best

practices, implement standardized processes, and rapidly
introduce improvements within the company and across
its global supply base.

■ One global organization means more consistent supplier
management and one interface between the company
and its suppliers.

■ By leveraging the combined output of all DaimlerChrysler
business units, the new global organization is in a stronger
position to select and utilize the services of the world’s best
suppliers — and to acquire the most innovative technology.

■ A global organization can offer significant career and

personal development opportunities, place talented people
in challenging positions and apply their skills to emerging
opportunities worldwide.

THE NEW EXTENDED ENTERPRISE PROGRAM. Prior to the
merger, both Daimler-Benz and Chrysler Corporation
benefited from strong supplier relationships supported by
distinctive communications programs. The former Daimler-
Benz program, called TANDEM, provided a platform for
enhanced communication and cooperation, while the Chrysler
Extended Enterprise® program promoted shared benefits
between the automaker and its suppliers. As part of the
creation of the new DaimlerChrysler Global Procurement &
Supply organization, the best elements of the Daimler-Benz
and Chrysler Corporation purchasing programs were blended
into a new Extended Enterprise system, which aims to foster
seamless global cooperation between DaimlerChrysler and its
suppliers in all product creation, volume production and
customer satisfaction activities.

The expanded Extended Enterprise Program focuses on four
key areas:

■ Technical Management, which establishes common

quality standards worldwide and virtual research and
development systems that blend DaimlerChrysler
research initiatives with those of suppliers;

■ Supply Management, which encompasses new processes

for improving material flows and work schedules,
reduction of inventories, improving logistics and
reducing order-to-delivery times throughout the system;

■ Commercial Management, which blends the best of

existing cost reduction and communications programs to
increase revenues while reducing costs and improving
profitability for DaimlerChrysler and each of its Extended
Enterprise supplier partners, and

■ Program Management, which establishes a new Balanced
Scorecard supplier ratings system and rewards suppliers
that actively participate in the Extended Enterprise Pro-
gram and perform well.

We presented the basic principles of our new Extended
Enterprise Program to supplier partners from 25 countries in
September 1999 at the first-ever DaimlerChrysler Global
Supplier Plenum.

CREATING A NEW COST MANAGEMENT PROCESS. Another
major GP&S initiative in 1999 was called the Fusion Project,
a major program designed to identify the total cost of ownership
of each process element and to create a new cost manage-
ment process worldwide based on the success of the former
Chrysler SCORE cost reduction program and previous Daim-
ler-Benz cost reduction campaigns. As a result of the Fusion
Project, new cost management pilot projects will be introduced
throughout the Extended Enterprise Program.

SYNERGY TARGETS OVERACHIEVED. By taking advantage of
synergy effects, we were able to substantially reduce costs
in Global Procurement & Supply in our first year of
operations after the merger. The synergy targets announced
in the merger report were significantly overachieved. This
excellent result demonstrates the great earnings potential
that a strong procurement organization brings to our
company. Close and fair cooperation on a long-term basis
with our excellent supplier partners will remain the key
factor of success for our global procurement activities in the
future.

Human Resources

12,000 new jobs created

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A three-week trip abroad offering a view into another culture is the centerpiece

of a new DaimlerChrysler exchange program for young people aged 15 to 17.

The program is intended as a way to develop close relationships between the

new company’s employees in North America and Germany.

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An important success factor for DaimlerChrysler is the

creativity and dedication of our employees and their

enthusiasm for their work. This is why we support and

encourage the further development of their abilities,

the international composition of our management, and

the establishment of an organization that enables us to

work successfully throughout all of our business units

around the globe. All our employees participate in the

creation of corporate value.

Employees

DaimlerChrysler

Mercedes-Benz Passenger Cars
& smart

466,938 441,502

99,459

95,158

Chrysler Group1)
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner, Sterling,
Setra, Thomas Built Buses)

129,395 126,816

90,082

89,711

Vehicle Sales Organization2)

34,133

31,280

Services3)

Aerospace

Others4)

26,240

23,734

46,107

45,858

41,522

28,945

1) Including Headquarters.
2) Mercedes-Benz Passenger Cars & smart.
3) Excluding Chrysler Financial Services 1998: 20,221.
4) Headquarters, Others.

12,000 NEW JOBS CREATED. At December 31, 1999,
DaimlerChrysler employed 466,938 people worldwide (1998:
441,502). Of these, approximately 241,233 worked in
Germany, while 123,928 were employed in the US. After
adjustment for changes resulting from the consolidation
process, DaimlerChrysler created almost 12,000 additional
jobs in the year under review.

INTEGRATION PROCESS DRIVEN FORWARD. Important Hu-
man Resources integration projects were successfully
completed by the end of the year. Our achievements include
the creation of a unified, company-wide management
structure, a unified system of executive compensation and a
global framework for employee assignments abroad. We also
succeeded in rapidly integrating all centralized units and
functions of the former Daimler-Benz and Chrysler Corporati-
on. A unified global travel strategy is also being implemented
that will result in considerable savings.

GLOBAL EXCHANGE PROGRAM. With about 100 managers
trading places on both sides of the Atlantic, our Global Ex-
change Program far surpassed our original expectations and
played a key role in bringing the new company closer
together. We also expanded our language and intercultural
training programs—more than 8,000 of our employees
attended such courses in 1999.

RECRUITING CAMPAIGNS. DaimlerChrysler took on more
than 2,400 university graduates in 1999, primarily in the
fields of engineering, computer science and business. As well
as offering internships throughout the company, we are also
intensifying cooperation with various universities and expand-
ing internal further education programs leading to Master’s
degrees and Doctorates. Potential new employees are
therefore afforded the opportunity to take a close look at
DaimlerChrysler at the earliest possible stage. Our goal in
Human Resources is for DaimlerChrysler to be among the
most attractive employers worldwide, allowing us to obtain
top talent for all our business units.

DAIMLERCHRYSLER CORPORATE UNIVERSIT Y (DCU). Linked
to the strategic goals and tailored to the needs of our business,
the DCU activities focus on developing global executive talent.
In 1999 more than 2,000 international executives participated
in management development seminars, workshops, discussion
forums and Communities of Practice around the globe. In our
recently established intranet platform, “DCU Online”, various
teams from all over the world have access to multimedia
learning opportunities in order to exchange best practices and
share knowledge across borders.

PERFORMANCE-BASED COMPENSATION. In 1999, we further
extended our system of performance-based compensation. The
distribution of Stock Appreciation Rights (SAR) aligns the
interests of our executive management with those of the
shareholders. In Germany, a new profit-sharing arrangement
for blue and white collar employees is now linked to the value
creation of the company. In the US, all employees continue to
participate in performance-based compensation programs.
With these developments, some portion of compensation is
based on performance for essentially all levels of responsibility.

GLOBAL POLICY FOR ETHICAL BEHAVIOR. The Board of
Management has defined a global policy for ethical behavior
(Integrity Code) that is valid for every employee in all units of
the Group. The implementation of this major document is an
important step towards meeting the expectations shareholders
and society have concerning corporate behavior.

A WORD OF THANKS TO OUR STAFF. We would like to thank
all of the company’s employees for their hard work and
dedication. Without their commitment, we would never have
been able to achieve the ambitious goals which we set for
ourselves.We would also like to thank our employees’
representatives for their constructive cooperation.

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O F

T H E

F I N A N C I A L

S I T U A T I O N

■ Sustained improvement in profitability

■ Operating profit increased 28% to €11.0 billion

■ Net income reached €5.7 billion (plus 19%)

■ Return on net assets significantly above cost of capital at 13.2% (1998: 12.7%)

■ Industrial business presented separately for the first time

CONTINUED IMPROVEMENT IN OPERATING PROFIT.
DaimlerChrysler further improved its profitability in 1999
and achieved an operating profit of €11.0 billion. This repre-
sents an increase of 28% over the previous year’s figure of
€8.6 billion. After adjusting for certain one-time items af-
fecting both financial years, which will be described hereun-
der, operating profit improved by 20% to €10.3 billion,
meaning that operating profit increased at a much higher
rate than revenues. It was particularly encouraging that all
divisions again achieved higher operating profits – in some
cases substantially higher. The improvement in operating
profit was also the result of synergies achieved in the first
year after the business combination, primarily due to cost
savings in procurement and supply, and the sales organiza-
tion. In the segment Other we fully consolidated Adtranz
for the first time due to our acquisition of the remaining
50% stake from ABB. Operating improvements at Adtranz
were partially offset by further burdens from the restructur-
ing measures initiated during the year.

With a total of €5.1 billion (1998: €4.3 billion) in 1999 the
biggest contribution to operating profit again came from the
segment Chrysler Group. The significant increase over the
previous year’s result was mainly due to higher unit sales
and improved product mix, with the market success of the
Jeep Grand Cherokee, Dodge Durango and the full-size se-
dans being particularly important. Increases in vehicle pric-
ing, partially offset by higher sales incentives for certain
models, also contributed to the improvement in operating
profit. The depreciation of the euro had an additional posi-
tive effect on the translation of the Chrysler Group’s US dol-
lar profits into euros. On the other hand, negative effects
arose from the difficult economic situations in Asia and
South America. Furthermore, the results include a €139

million charge for lump-sum retiree payments related to the
collective bargaining agreement reached with the United
Auto Workers labor union (UAW) in the US in September
1999.

The Mercedes-Benz Passenger Cars & smart division
achieved an operating profit of €2.7 billion – a substantial
increase of 36%. Important factors behind this rise were the
increased volumes of the new S-Class, the A-Class and the
M-Class. For life-cycle reasons, sales of the C-Class and E-
Class were below the levels of the previous year. Shipments
of the E-Class, however, gained momentum again after the
introduction of the face-lifted model in the middle of the
year. Higher output figures for the M-Class became possible
after additional production facilities came on line in Graz,
where the M-Class has been produced since spring 1999. As
additional expenditures were necessary for the smart, par-
ticularly in the first half of the year, for the purpose of prod-
uct modifications and in order to achieve better market posi-
tioning, its contribution to operating profit was again
negative, despite a significant sales recovery since spring
1999.

The operating profit attained by the Commercial Vehicles di-
vision rose by 13% to €1,067 million in the 1999 financial
year (1998: €946 million). Major contributions to this in-
crease came from the dynamic development of the commer-
cial vehicle business in the NAFTA region and the continu-
ing market success of our vans in the European markets. In
North America, the vehicles of the new truck brand, Ster-
ling, and the school bus manufacturer, Thomas Built Buses,
were available for the entire year for the first time. The diffi-
cult economic situations in South America and Turkey had a
negative impact on our business, however.

The Services division, in which the services activities of
debis and Chrysler Financial Services were integrated in
1999, recorded an operating profit of €2,039 million (1998:
€985 million). This increase was mainly due to gains of
€1,140 million from the sale of most of our shares in debitel
AG. As this transaction took place less than two years after
the merger, we reported the figure, in accordance with US
GAAP, in the statement of income as extraordinary income.
However, within the framework of segment reporting it is
allocated to the operating profit of the Services division.
Negative effects on earnings arose from a charge in the
amount of €127 million relating to prior period
securitization transactions. After adjusting for these effects
and for one-time income from the share-swap (debitel for
Freecom) carried out with Metro in 1998, the comparable
figure for operating profit is still well above last year’s
result.

The Aerospace division profited again in 1999 from the
strong demand for civil aircraft and from the extraordinary
market success of the Airbus program, especially the A320-
family. Growth in revenues caused by increased aircraft de-
liveries and a favorable US dollar exchange rate led to a rise
in operating profit by 17% to €730 million. Due to existing
currency-hedging, however, we were not able to take full ad-
vantage of exchange-rate developments. Restructuring bur-
dens caused by capacity adjustments in the area of defense
systems, made necessary by a further decline in the Ger-
man defense budget, prevented an even higher rise in earn-
ings.

The decline in operating profit for the segment Other is
mainly due to the fact that the previous year’s results in-
cluded income from the disposal of the Group’s semiconduc-
tor activities and from the sale of two buildings at
Potsdamer Platz. The Automotive Electronics business con-
tinued to increase revenues and earnings while the MTU/
Diesel Engines unit was also able to improve slightly on the
high level of earnings achieved in the preceding year. At
Adtranz we acquired the remaining 50% stake from ABB in
the spring. The reorganization measures introduced in the
plants in Germany in 1998 contributed to a reduction in the
operating losses of the Rail Systems business. Because
there is still a situation of overcapacity, additional measures
were necessary, mainly in Europe outside Germany, which
in 1999 again had a negative effect on operating profit.
However, with a comprehensive reorganization of produc-
tion, concentration on core competencies and the adjust-
ment of capacities to market demand, we are confident that
Adtranz will be able to achieve and sustain profitability.

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Operating Profit by
Segments
in millions

99
US $

99
€

98
€

Mercedes-Benz Passenger Cars
& smart

2,722

2,703

1,993

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra, Thomas Built Buses)

Services

Aerospace

Other

Eliminations

5,086

5,051

4,255

1,075

1,067

946

2,053

2,039

735

(402)

(180)

730

(399)

(179)

985

623

(130)

(79)

DaimlerChrysler Group

11,089

11,012

8,593

FINANCIAL INCOME MARKED BY EXCHANGE-RATE INFLU-
ENCES. In the year under review, financial income declined
by €0.4 billion to €0.3 billion. Higher income from affiliated,
associated and related companies and from stock-market
gains, which we achieved due to the positive development of
stock markets in 1999, were offset by significant charges re-
lated to exchange-rate movements. The substantial deprecia-
tion of the euro against other currencies that are important
to us led to sizable burdens from the settlement and valua-
tion of derivative financial instruments, which did not
qualify for hedge accounting. However, the losses incurred
of €1.1 billion are only temporary mark-to-market adjust-
ments, as the corresponding underlying transactions will be
recorded for purposes of operating profit with the prevailing
exchange rates on the day of settlement. In the event that
the current exchange rates also prevail at the time of settle-
ment of the underlying transaction and the derivative finan-
cial instrument, a shift occurs between financial income and
operating profit. Therefore the contracted hedge rates apply
in determining net income. The planned adoption of the
new accounting standard SFAS 133, which permits hedge
accounting for anticipated foreign currency cash flows, may
result in lower earnings volatility in periods of significant
exchange rate fluctuations.

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Consolidated Statements
of Income
in millions

Revenues

Cost of sales

Selling, administrative
and other expenses

99
US $

99
€

98
€

151,035 149,985 131,782

(119,046) (118,219) (103,666)

(17,655)

(17,532)

(16,229)

DISTINCT IMPROVEMENT IN NET INCOME. Net income of
€5.7 billion is reported in the statement of income – 19%
higher than the previous year’s result. However, the figures
for both years were considerably affected by extraordinary
and other one-time items and are therefore not entirely
comparable. In 1998, merger costs and the loss on early

Research and development

(5,777)

(5,737)

(4,971)

Other income

Merger costs

Income before financial
income, income taxes and
extraordinary items

832

–

827

1,099

–

(685)

Reconciliation to
Operating Profit
in millions

99
US $

99
€

98
€

9,389

9,324

7,330

Income before financial
income, income taxes and
extraordinary items

9,389

9,324

7,330

Financial income, net

335

333

763

+ Interest cost of pensions, net

382

379

688

Income before income taxes
and extraordinary items

9,724

9,657

8,093

Effects of changes in
German tax law

Other income taxes

Total income taxes

Minority interests

Income before
extraordinary items

Gains on disposals of a business,
net of taxes

Losses on early extinguishment
of debt, net of taxes

Extraordinary items

Net income

Net income excluding
non-recurring items1)

(818)

(812)

–

(3,747)

(3,721)

(3,014)

(4,565)

(4,533)

(3,014)

(18)

(130)

5,141

5,106

4,949

664

659

–

(20)

644

(19)

640

(129)

5,785

5,746

4,820

6,270

6,226

5,350

1) 1999: Disposal of 42.4% of the shares of debitel AG, restructuring

measures at Adtranz, charge for lump-sum retiree payments related
to the UAW collective bargaining agreement, charge related to prior
period securitization transactions, early extinguishment of debt,
effects of changes in German tax law

1998: Merger costs, settlement of obligations relating to the Airbus

program, goodwill impairment at Adtranz, gains on disposals of
various businesses, early extinguishment of debt

+ Operating income from

affiliated, associated and
related companies

+ Gains on unallocated
financial instruments

+ Gain on disposal of
debitel shares

+ Miscellaneous (principally
merger costs in 1998)

(15)

(156)

1,148

1,140

–

151

150

746

Operating profit

11,089

11,012

8,593

extinguishment of long-term, high-yielding debt had a nega-
tive impact on net income in the amount of €401 million
and €129 million, (after taxes) respectively. On the other
hand, in 1999 the reduction of our stake in debitel AG from
52.4% to 10.0% (due to the initial public offering and the
sale of shares to Swisscom) yielded after-tax income of €659
million, which is shown as an extraordinary item. In con-
trast there arose negative one-time effects relating to prior
period securitization transactions, the lump-sum retiree
payments related to the collective bargaining agreement
negotiated with the United Auto Workers’ labor union in
September and the restructuring measures initiated by
Adtranz. In addition, the tax reform passed by the German
parliament in 1999 resulted in a one-time tax burden of
€812 million for the DaimlerChrysler Group. Since the
Group’s German companies together record a considerable
net deferred tax asset position, the benefits resulting from
the reduction of the corporation tax rate from 45 to 40%
were offset by a one-time tax charge for the decreased
valuation of these deferred tax assets. Moreover, there was

a significant additional tax burden as a result of a broaden-
ing of the tax base including an additional tax imposed on
dividends distributed by non-German Group companies. The
broadening of the tax base, which was considered in the
consolidated financial statements for 1999 through asset
write-ups and additional tax provisions, will result in
increased taxable income in future years and therefore
partially offset the effect of the tax rate reduction. Adjusted
for the foregoing one-time effects in both years, net income
for 1999 of €6.23 billion was 16% higher than the compa-
rable figure for the previous year of €5.35 billion. Based on
Group net income, earnings per share increased from €5.03
to €5.73; adjusted for one-time effects, earnings per share
increased from €5.58 to €6.21.

Development of Earnings
in billions of €

1996

1997

1998

1999

Operating Profit

Net income

1) Net income for 1997 includes €2.5 billion

of special non-recurring tax benefits

DIVIDEND OF €2.35 PER SHARE. Due to the continued posi-
tive earnings trend, we propose to the Annual Meeting
taking place on April 19, 2000, that for 1999 a dividend of
€2.35 per share be distributed - the same as for 1998. With
a total of 1,003 million shares outstanding, the amount to be
distributed is €2,358 million.

SEPARATE REPORTING OF INDUSTRIAL AND FINANCIAL

SERVICES BUSINESSES IN THE CONSOLIDATED FINANCIAL
STATEMENTS. Our leasing and sales financing business con-
tinued to grow in the 1999 financial year. In recent years, in
order to make the impact of this rapidly expanding business
on our financial statements more transparent, we presented
in the balance sheets and statements of income and cash
flows, not only the figures for the Group as a whole, but
also corresponding figures for our leasing and sales financ-
ing activities. To provide an even better view of our financial
position, in the 1999 financial statements we are also show-

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ing the industrial business separately for the first time. The
eliminations from transactions within the Group, which
mainly comprise the supply of vehicles, as well as inter-
company loans and the related interest payments, are allo-
cated to the industrial business. For reasons of comparabil-
ity with other financial services companies, we report our
financial services activities as if they were performed by an
independent company (stand-alone view). For example, the
vehicles included under equipment on operating leases are
shown in the balance sheet of the financial services busi-
ness at market prices and not at original Group production
costs. The inter-company loans granted within the
DaimlerChrysler Group are shown as financial liabilities.

In the industrial business we achieved a total operating
profit (net of one-time items) of €9.4 billion, which was 23%
higher than in the preceding year. At the same time, the
operating profit of the financial services business rose from
€890 million to €939 million.

In prior years we published the amounts of net assets and
return on net assets (RONA) for the industrial business and
the equity ratio for the DaimlerChrysler Group, assuming
the leasing and sales financing activities of the financial ser-
vices business were performed by an independent company.
For the calculation of the equity ratio, we included the fi-
nancial services business as if it were an equity method in-
vestment by the industrial business. In connection with our
separate presentation of the industrial and financial serv-
ices business, we modified the computations of net assets
and RONA, as if both businesses were separate companies.
However, we have allocated the effects of transactions be-
tween the industrial and financial services businesses to
the industrial business. The prior year amounts for net as-
sets, RONA and the equity ratio have been adjusted to con-
form with our computations in the current year.

PERFORMANCE MEASURES SUPPORT VALUE-BASED
MANAGEMENT. As a result of the merger, the DaimlerChrysler
Group has developed uniform performance measures which
are intended to secure the value-based management and
performance of the company as a whole as well as the indi-
vidual business units. These performance measures allow
and encourage decentralized responsibility, inter-divisional
transparency and capital-market-oriented investment per-
formance in all areas of the DaimlerChrysler Group.

For performance purposes we differentiate between the
Group level and the operating levels of the divisions and
business units. At the Group level we use net operating in-
come, a capital-market-oriented after-tax performance meas-
ure. This is compared to the capital employed by the Group
for the determination of the Group performance measure,
return on net assets (RONA). Return on net assets demon-
strates the extent to which the DaimlerChrysler Group
earns or exceeds the rate of return required by its investors.
The required rate of return, or the Group’s average cost of

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capital, is defined as the minimum rate of return which in-
vestors expect for invested equity and borrowings. These
capital costs are mainly determined by long-term bond rates
combined with a risk premium for investments in stocks.
For the Group we currently calculate a weighted average
cost of capital of 9.2% after taxes.

For the industrial business units we use operating profit as
an earnings measure, a commonly accepted performance
measure before interest and taxes, as this more accurately
reflects the areas of responsibility under the control of busi-
ness unit management. The industrial business units also
use net assets which is defined as assets minus non-inter-
est-bearing liabilities as a capital basis. The minimum re-
quired rate of return on net assets is 15.5%. For our finan-
cial services activities we apply, as is usual in this sector,
return on equity as a performance measure. The target rate
of return on equity is 20% (before taxes).

Furthermore, value added, defined as the absolute perform-
ance measure after deducting the average cost of capital,
serves as an additional important performance measure for
controlling profitable growth. Particularly in those areas in
which the rates of return achieved are significantly higher
than the cost of capital, continued growth in value can pri-
marily be achieved by selectively utilizing growth opportu-
nities while maintaining profitability.

Within the framework of our strategic value management
we also define value added goals for the individual business
units of the Group. For this purpose we carry out bench-
mark analyses of the returns and growth rates of the com-
petitors within each sector.

In 1999 net operating income, which is derived from net in-
come, rose by 10.6% to €7.0 billion. An increase in annual
average net assets from €50.1 billion to €53.2 billion – a
lower growth rate than that of revenues –led to an improve-
ment in return on net assets for the DaimlerChrysler Group
from 12.7% to 13.2%. This meant that our return on capital
again clearly exceeded the weighted average cost of capital
of 9.2%. A particularly positive point was the fact that all of
the automotive divisions again improved their return on net
assets compared with the previous year and exceeded the
minimum required rate of return of 15.5% by a large mar-
gin. The return on net assets for Rail Systems was again
negative, as the business situation was still unsatisfactory
and because of the restructuring measures that were initi-
ated. In the financial services business return on equity
was 18.4%, somewhat lower than in the preceding year and
below the ambitious minimum required rate of return we
had set for the business.

The value added of the DaimlerChrysler Group increased
during 1999 by €387 million to €2.1 billion. The main
contributions came from the divisions Mercedes-Benz
Passenger Cars & smart and Chrysler Group.

Net Assets and
Return on Net Assets

98
99
(annual average, in billions of €)
Net Assets

99
%

98
%
Return on Net Assets

DaimlerChrysler Group
(after taxes)

53.2

50.1

13.2

12.7

Industrial businesses
(before interest and taxes)

Mercedes-Benz Passenger
Cars & smart

Chrysler Group
(Chrysler, Jeep®, Dodge, Plymouth)

Commercial Vehicles
(Mercedes-Benz, Freightliner,
Sterling, Setra, Thomas Built Buses)

Services1)

Aerospace2)

Rail Systems,
Automotive Electronics,
MTU/Diesel Engines

39.0

35.1

24.0

21.9

9.6

8.0

28.2

25.1

19.5

17.6

25.9

24.2

6.0

0.8

2.2

5.5

0.5

1.4

17.8

15.0

33.8

17.1

16.0

43.0

1.0

1.2

(29.1)

(18.4)

Stockholders’ Equity

Return on Equity3)

Financial Services

5.1

4.3

18.4

20.7

1) Excluding Financial Services
2) The organization of business procedures in the aerospace industry, under
which a part of the capital employed is generally financed by advance
payments, results in a relatively low capital base and a correspondingly
higher RONA value and is therefore not directly comparable with RONA
values from other industrial sectors.

3) Before taxes

Net assets are determined on the basis of book values, as
shown in the following table.

Net Assets
of the DaimlerChrysler Group
in millions

Stockholders’ equity

Minority interests

Financial liabilities of the
industrial segment

Pension provisions of the
industrial segment

Net Assets

991)
€

981)
€

36,060

30,367

650

691

4,400

3,631

14,014

16,535

55,124

51,224

1) Represents the value at year-end; the average for the year was

€53.2 billion (1998: €50.1 billion)

Reconciliation to
Net Operating Income
in millions

Net income

Non-recurring items

Net income adjusted for non-
recurring items

Minority interests

Interest expense related to
industrial activities, after taxes

99
€

98
€

5,746

4,820

480

530

6,226

5,350

130

127

131

Interest cost of pensions related
to industrial acivities, after taxes

661

748

Net Operating Income

7,032

6,359

GERMAN PENSION TRUST FOUNDED. In the future we intend
to administer the liquidity relating to the pension obliga-
tions of DaimlerChrysler AG in Germany in a separate pen-
sion fund according to common international standards. For
this purpose we founded the DaimlerChrysler Pension Trust
in 1999, and initially transferred into it more than €4 billion
of securities. In January 2000, we transferred further secu-
rities in the amount of €1.3 billion to the DaimlerChrysler
Pension Trust. By means of a long-term investment policy
with a larger proportion of stocks, we aim to achieve a higher
rate of return, which we expect will reduce our future
pension expenses. Despite the establishment of the
DaimlerChrysler Pension Trust, DaimlerChrysler AG contin-
ues to retain the ultimate future obligation for the pension
benefits. With the newly founded Pension Trust we are ad-
justing the financing of the pension obligations of
DaimlerChrysler AG to conform with the practices of other
Group companies in the U.S. and other countries, which use
pension funds according to country-specific circumstances.

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Because the resources of the pension fund are to be used
exclusively for the purpose of providing retirement pension
payments and are permanently separated from the other as-
sets of the Group in accordance with US GAAP, the trans-
ferred investments are reported net against the correspond-
ing pension provisions. This gives us better international
comparability, especially with US companies, which finance
their pension obligations through separate funds.

CONTINUED GROWTH OF THE BALANCE SHEET TOTAL. Sig-
nificantly higher business volume and the continuing ex-
pansion of the leasing and sales financing business, as well
as the considerably higher valuation of the US dollar on the
balance sheet date, have led to an increase in the balance
sheet total over last year’s level by €38.5 billion, or 28%, to
€174.7 billion, despite the foundation of the DaimlerChrysler
Pension Trust. The assets and liabilities of the Group’s US
companies were translated on December 31, 1999 at a rate
of exchange of €1 = $1.005 (1998: €1 = $1.169), which
resulted in correspondingly higher balance sheet positions
in euros. Of the aggregate rise in total assets, €13.0 billion
was explained by currency effects alone.

On the assets side, primarily equipment on operating leases
and receivables from financial services have increased dis-
proportionately in relation to the increases in other asset
categories. After growth of 86% and 46%, respectively, these
items now account for a total of €66.0 billion, which is 38%
of our total assets. This is mirrored by financial liabilities
amounting to €64.5 billion (1998: €40.4 billion). The stron-
ger US dollar contributed €5.2 billion to the increase in the
total of equipment on operating leases and receivables from
financial services. Property, plant and equipment rose by
23% to €36.4 billion. In addition to substantially higher capi-
tal expenditures, the US dollar denominated fixed assets of
DaimlerChrysler Corporation, translated into euros, contrib-
uted to the increase. Inventories – net of advance payments
received – totaled €15.0 billion (1998: €11.8 billion) in the
consolidated balance sheet. Their share of the balance sheet
total declined from 8.7% to 8.6%. Due to expanded business
volume, trade receivables and other receivables increased
by €3.0 billion to €21.4 billion overall. The level of liquid
funds fell to €18.2 billion (1998: €19.1 billion) due to the
transfer of more than €4 billion of securities into the
DaimlerChrysler Pension Trust.

Balance Sheet Structure
in billions of €

Fixed Assets

175

40%

175

19%

Stockholders’ Equity

Balance Sheet Structure of the Industrial Business
in billions of €

Property, Plant
and Equipment

101

36%

101

28%

Stockholders’ Equity

136

37%

136

21%

22%

Accrued Liabilities

Non-fixed Assets

54%

25%

53%

Liabilities

Other Fixed Assets

Inventories

55%

48%

37%

of which:
Financial Liabilities

Receivables

33%

27%

39%

14%

13%

14%

13%

37%

Accrued Liabilities

of which: Liquidity

Deferred Taxes and
Prepaid Expenses

30%

10%

14%

Liquidity

16%

20%

29%

30%

Liabilities

Deferred Taxes
and Income

Deferred Taxes and
Prepaid Expenses

11%

12%

Deferred Taxes
and Income

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A strong increase also occurred in stockholders’ equity,
which reached €36.1 billion at December 31, 1999 (1998:
€30.4 billion). This was the result of higher net income and
currency translation. In view of the increased balance sheet
total, the equity ratio net of dividend distribution fell from
20.6% to 19.3%. For the industrial business, however, the
equity ratio increased from 26.6% to 27.8%. The Group’s bal-
ance sheet figure for accrued liabilities grew overall by 8.9%
to €37.7 billion. The reduction in pension provisions re-
sulted from the formation of the DaimlerChrysler Pension
Trust was offset by higher other accrued liabilities, prima-
rily due to the significant expansion of business volume and
the effects of currency translation.

For the leasing and financing business, total assets in-
creased by 55% compared with December 31, 1998 to €73.9
billion. Receivables from financial services of €38.7 billion
(1998: €26.5 billion) account for the biggest part of this in-
crease. Total liabilities, primarily comprised of financial li-
abilities, increased by €23.3 billion to €60.1 billion during
1999, as a result of continuing growth in financial services
and the effects described above from the appreciation of the
US dollar. The equity employed in the financial services
business amounted to €5.7 billion at the end of the year,
equivalent to about 7.8% of total assets.

HIGHER CASH FLOW FROM OPERATING ACTIVITIES. Cash pro-
vided by operating activities (adjusted for changes in the
consolidated group and exchange-rate effects) increased by
8.0% in the year under review and reached €18.0 billion
(1998: €16.7 billion). A significantly better financial result
(before non-cash expenses and income) was partially offset
by a higher working capital caused by the expanded busi-
ness volume. Cash used for investing activities of €32.1 bil-
lion in 1999 (1998: €23.4 billion) was again characterized
by the continued expansion of our leasing and sales financ-
ing business. For the financial services business, cash used
for investing activities amounted to €21.8 billion – nearly
€10 billion more than in the preceding year. This was
primarily due to a considerably higher net increase in
equipment on operating leases (up €7.9 billion to €12.9 bil-
lion) and a net cash outflow of €1.8 billion related to receiv-
ables from financial services. To cover the capital needs of
our growing financial services business, we entered into a
considerable volume of both short-term and long-term finan-
cial liabilities. After taking into consideration the higher
dividend payments made by the Group to its shareholders
(adjusted for the special dividend distribution made in
1998) cash provided by financing activities rose by €9.0
billion to €15.8 billion. As a result of the aforementioned
developments cash and cash equivalents with an initial

TRANSPARENCY OF RISK IN ASSET AND LIABILITY MANAGE-
MENT. The liquid assets available in the DaimlerChrysler
Group are invested in the money markets and in the capital
markets, with a view towards both the cash flow needs of
the Group and the optimization of returns. Our capital mar-
ket investments are principally in stocks and interest-bear-
ing bonds, using the instruments of modern portfolio man-
agement. Derivative financial instruments are used only to
hedge market risks in asset, liability and foreign currency
management. We use a central front-end system for the con-
stant determination and monitoring of portfolios, market
values and yields.

For the assessment and control of the risk connected with
financial instruments held by the Group, we use a risk limit
set by the Board of Management, derived from the value-at-
risk method, and in accordance with the regulations of the
Bank for International Settlements. For this method, we rely
on the variance-covariance approach based on the Risk
Metrics® model and the appropriate data supplied by J. P.
Morgan. In addition to the historical data for volatilities and
correlations, information from other sources on interest and
exchange rates, which is necessary for the evaluation of all
instruments, is maintained in the financial risk controlling
system.

The following table for value-at-risk shows the possible mar-
ket value fluctuations determined for the stock portfolio and
the interest-rate-sensitive financial instruments of the
DaimlerChrysler Group, including the receivables and
liabilities relating to the financial services business, on the
basis of a confidence level of 99% and a holding period of
five days. Risk-reducing correlation effects between indi-
vidual market parameters are the main reason why the
overall risk is lower than the sum of the individual risks.

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Value at Risk
in millions of €

Average
for

12/31/1999

1999 12/31/1998

Interest-rate-sensitive financial
instruments

Stocks and stock derivatives

Total

105

127

148

168

171

166

Cash Flow
in billions of €

–5

–10

–15

–20

–25

–30

–35

d by

g Activities
ash Provid
eratin

p
O

d for
g Activities
ash Use
Investin

d by

g Activities
ash Provid

ncin
C
a
Fin

1997

1998

1999

maturity of less than three months increased by €2.5 billion
to €8.8 billion (after adjusting for exchange-rate effects).
Despite the transfer of securities to the DaimlerChrysler
Pension Trust, liquidity which also includes investments
and securities with longer maturities, only declined from
€19.1 billion to €18.2 billion.

ONGOING INTERNATIONALIZATION OF OUR REFINANCING
ACTIVITIES. The funding activities of the DaimlerChrysler
Group increased substantially in 1999 due to the continuing
growth of the financial services business. To achieve this
funding, the treasury centers in Auburn Hills and Stuttgart
used our world-wide group of regional holding and finance
companies as issuing entities in the various capital markets.

Among other bond issues, in 1999 the Group issued its first
global bond, a US $4.5 billion issue as well as a €1 billion
benchmark bond issue. To take advantage of prevailing mar-
ket conditions, funds were raised in other currencies, such
as the Japanese yen, Canadian dollar, Swiss franc and Czech
koruna. Another important source of funding, mainly in the
United States was the securitization of sales financing re-
ceivables.

During 1999, we reorganized our commercial bank facilities,
establishing global credit facilities of US $17 billion, with
commitments from 49 banks.

As a consequence of the solid finance structure of
DaimlerChrysler, the rating agencies, Moody’s Investor Ser-
vices and Standard & Poor’s, confirmed their existing A1
and A+ ratings, respectively, in 1999.

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In accordance with applicable regulations on risk manage-
ment for banks, we have separated the trading areas from
the administrative functions of processing, financial ac-
counting and financial controlling in terms of organization,
location and systems.

EXCHANGE-RATE RISKS REDUCED BY HEDGING. The interna-
tional orientation of our business activities results in cash
receipts and payments denominated in various currencies.
Particularly due to the fact that exports from Germany ex-
ceed the flows of imports from other currency regions,
DaimlerChrysler is subject to exchange-rate risks. Net expo-
sure, which is the difference between exports and imports
in each currency, is regularly monitored within the frame-
work of the centralized foreign currency management. Cur-
rency exposures are hedged with the use of suitable finan-
cial instruments according to exchange-rate expectations

which are constantly reviewed. In this context, the opposing
currency risks of DaimlerChrysler Corporation are netted
against the currency risks of DaimlerChrysler AG. The net
assets of the Group which are invested abroad in subsidiar-
ies and affiliated companies are generally not hedged
against currency risks.

Because of the introduction of the euro on January 1, 1999,
risks connected with the currencies of the euro zone
have now been eliminated. Exchange-rate exposure for the
DaimlerChrysler Group now primarily exists for the curren-
cies shown in the following table. This table shows the
negative effects on pre-tax cash flows in 2000 and 2001 re-
sulting from a hypothetical 10% appreciation of the euro,
after consideration of the existing currency hedging which
occurred through December 31, 1999.

Exchange-rate sensitivities in 2000
in billions of €

Gross foreign currency exposure

Netting

Net currency exposure

Negative effect of a 10%
appreciation of the euro1)

USD

14.2

(6.8)

7.4

CAD

6.9

(7.4)

(0.5)

GBP

3.2

(0.3)

2.9

JPY

2.1

(0.6)

1.5

Others

Total

2.1

28.5

(0.3)

(15.4)

1.8

13.1

0.12

–

0.05

0.02

0.07

0.26

Exchange-rate sensitivities in 2001
in billions of €

Gross foreign currency exposure

Netting

Net currency exposure

Negative effect of a 10%
appreciation of the euro1)

USD

14.8

(7.7)

7.1

0.30

CAD

7.1

(7.1)

–

GBP

3.7

(0.3)

3.4

JPY

Others

Total

2.0

(0.2)

1.8

3.1

30.7

(1.2)

(16.5)

1.9

14.2

0.19

0.04

0.14

0.67

1) On cash flows before taxes, after consideration of existing hedging contracts

EARLY RECOGNITION AND CONSISTENT MANAGEMENT OF
FUTURE RISKS. In view of the global operations of the
DaimlerChrysler Group’s business units and the increas-
ingly intense competition in all markets, the business units
are subject to many risks which are inseparably connected
with entrepreneurial activity. For the early recognition and
assessment of existing risks and the formulation of an ap-
propriate response, we have developed and used effective
monitoring and control systems. Among other things, these
systems include the application of Group-wide standard
guidelines, the use of reliable software, the selection and
training of qualified personnel and constant checks by our

internal auditors. With a view to the requirements of the
German Business Monitoring and Transparency Act
(KonTraG), we have integrated the Group’s early warning
systems into a risk management system. The operating
units continuously monitor existing risks and regularly re-
port on them to the Group’s Board of Management in the
context of planning and controlling processes, taking into
consideration agreed-upon thresholds. This ensures that the
Group’s management recognizes significant risks at an
early stage and can initiate appropriate measures to deal
with them.

Risks resulting from interest-rate and exchange-rate devel-
opments, including our hedging activities, have been de-
scribed in this section. Additional uncertainties arise from
further economic developments in those countries which
are important for our businesses, and can be increased by
the strong cyclical nature of demand in some of the markets
we serve.

The automotive sector, in particular, is marked by dynamic
competition which is likely to become even more intense in
the future as a result of worldwide excess capacity. The in-
troduction of the euro as a single currency in eleven mem-
ber states of the European Union and the growing impor-
tance of new distribution channels such as the Internet will
reinforce this trend. It will therefore continue to be impor-
tant for us to maintain our position in our traditional mar-
kets while exploiting additional market potential with inno-
vative new products. In this context the market success of
the smart and the addition of new models and versions to
the smart product range is of great significance.

Like all internationally active automobile manufacturers, the
DaimlerChrysler Group is affected by intensifying legal
regulations in its various markets concerning the exhaust
emissions and fuel consumption of its range of cars as well
as their safety standards. Furthermore, there are several ac-
tions for damages pending against companies of the
DaimlerChrysler Group – as well as an investigation by the
European Commission.

Our financial services business is primarily involved in leas-
ing and financing Group products, mainly vehicles, to our
customers and for our dealerships. Refinancing is carried
out to a considerable extent through external capital mar-
kets. This gives rise, not only to credit risks, but also to re-
sidual-value risks for the vehicles, which are given back to
us for remarketing at the end of their leasing periods.

Adtranz operates in an extremely competitive environment,
characterized by industry overcapacity and pricing pressure
resulting from the rationalization needs faced by railroad
operators. We are confident, however, that the measures we
are taking to restructure Adtranz will improve in its com-
petitive situation.

Using a newly developed country-rating system, CRISK-Ex-
plorer, we are striving to monitor not only the risk potential
but also the opportunities connected with business activi-
ties in emerging markets.

YEAR 2000 ADAPTATION SUCCESSFULLY COMPLETED. We
successfully completed the process of adapting our informa-
tion and communications systems for year 2000 compli-
ance. All of our computers, technical equipment and ma-
chinery in our plants, offices and spare parts centers
continued to function properly after the end of the year, so
there were no significant disturbances or failures. The
project team that was responsible for Group-wide conver-
sion and adaptation has now concluded its work and has
handed over responsibility for further system developments
to the appropriate functional departments. When carrying
out the necessary system adaptations for a smooth transi-
tion to the year 2000, it proved to be a great advantage that
we had already introduced the euro as our corporate cur-
rency on January 1, 1999.

For the DaimlerChrysler Group the costs of ensuring year
2000 compliance amounted to approximately €240 million.
Of this total, about €70 million was incurred in the 1999 fi-
nancial year.

EVENTS AFTER THE END OF THE 1999 FINANCIAL YEAR.
Since the end of the 1999 financial year there have been no
further developments, beyond the ones described above,
which are of major significance to DaimlerChrysler and
which would lead to a changed assessment of the Group’s
position. The course of business in the first months of 2000
confirms the statements made in the section Outlook.

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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 state-
ments.

P R E L I M I N A R Y

N O T E

The accompanying consolidated financial statements
(consolidated balance sheets as of December 31, 1999 and
1998, consolidated statements of income, cash flows and
changes in stockholders’ equity for each of the financial
years, 1999, 1998 and 1997) were prepared in accordance
with United States generally accepted accounting principles
(US GAAP).

In order to comply with Section 292 a of the HGB (German
Commercial Code), the consolidated financial statements
were supplemented with a consolidated business review
report and additional 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 Directives of
the European Community. For the interpretation of these
directives we relied on the statement by the Committee for
Accounting Directives, which has also been approved by the
European Commission and the German Federal Department
of Justice.

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With the introduction of the euro effective January 1, 1999,
we changed over our internal and external reporting to
euros and therefore also prepared the consolidated financial
statements and the consolidated business review report in
euros, including the figures for prior years.

The consolidated financial statements and the consolidated
business review report as of December 31, 1999 prepared in
accordance with Section 292 a of the HGB (German
Commercial Code) and filed with the Commercial Register
in Stuttgart under the number, HRB 19 360, will be
provided to shareholders on request.

S T A T E M E N T

B Y

T H E

B O A R D

O F

M A N A G E M E N T

The Board of Management of DaimlerChrysler AG is
responsible for preparing the accompanying financial
statements.

We have installed effective controlling and monitoring
systems to guarantee compliance with accounting principles
and the adequacy of reporting. These systems include the
use of uniform guidelines group-wide, the use of reliable
software, the selection and training of qualified personnel,
and regular reviews by our internal auditing department.

With a view to the requirements of the German Business
Monitoring and Transparency Act (KonTraG) we have
integrated the Group’s early warning systems into a risk
management system. This enables the Board of Manage-
ment to identify significant risks at an early stage and to
initiate appropriate measures.

KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft audited the consolidated
financial statements, which were prepared in accordance
with the United States generally accepted accounting
principles, and issued the following auditors’ report.

Together with the independent auditors, the Supervisory
Board’s Financial Audit Committee examined and discussed
the consolidated financial statements including the business
review report and the auditors’ report in depth.
Subsequently, the entire Supervisory Board reviewed the
documentation related to the financial statements.

Robert J. Eaton

Jürgen E. Schrempp

Manfred Gentz

I N D E P E N D E N T A U D I T O R S ’ R E P O R T

We have audited the accompanying consolidated balance
sheets of DaimlerChrysler AG and subsidiaries
(“DaimlerChrysler”) as of December 31, 1999 and 1998, and
the related consolidated statements of income, changes in
stockholders’ equity, and cash flows for each of the years in
the three-year period ended December 31, 1999. These con-
solidated financial statements are the responsibility of
DaimlerChrysler’s management. Our responsibility is to ex-
press an opinion on these consolidated financial statements
based on our audits. We did not audit the financial state-
ments of DaimlerChrysler Corporation or certain of its con-
solidated subsidiaries (“DaimlerChrysler Corporation”),
which statements reflect total assets constituting 29 percent
and 43 percent at December 31, 1999 and 1998, and total
revenues constituting 43 percent, 45 percent and 46 per-
cent for the years ended December 31, 1999, 1998 and 1997,
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 ob-
tain 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.

In 1998 and 1997, DaimlerChrysler accounted for a material
joint venture in accordance with the proportionate method
of consolidation as is permitted under the Seventh Directive
of the European Community and the Standards of the Inter-
national Accounting Standards Committee. In our opinion,
United States generally accepted accounting principles re-
quired that such joint venture be accounted for using the
equity method of accounting. The United States Securities
and Exchange Commission stated that it would not object to
DaimlerChrysler’s use of the proportionate method of con-
solidation 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 in 1998 and 1997, as discussed in the
preceding paragraph, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of DaimlerChrysler as of December 31,
1999 and 1998, and the results of their operations and their
cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with United States
generally accepted accounting principles.

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Stuttgart
February 14, 2000

KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft

Prof. Dr. Wiedmann
Wirtschaftsprüfer

Schmid
Wirtschaftsprüfer

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

Consolidated

Year ended December 31,

Note

(Note 1)

€

151,035

149,985

131,782

117,572

(119,046)

(118,219)

(103,666)

(92,879)

31,989

31,766

28,116

24,693

(17,655)

(17,532)

(16,229)

(15,621)

(5,777)

(5,737)

(4,971)

(4,408)

832

–

9,389

335

9,724

(818)

–

(3,747)

(4,565)

(18)

5,141

664

(20)

827

–

9,324

333

9,657

(812)

–

(3,721)

(4,533)

(18)

5,106

659

(19)

5,785

5,746

5.13

0.64

5.77

5.10

0.63

5.73

5.09

0.64

5.73

5.06

0.63

5.69

1,099

(685)

7,330

763

8,093

–

(3,014)

(130)

4,949

–

(129)

4,820

5.16

(0.13)

5.03

5.04

(0.13)

4.91

848

–

5,512

633

6,145

–

1,4871)

(970)2)

517

(115)

6,547

–

6,5473)

6.903)

–

6.903)

6.783)

–

6.783)

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S
O
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(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, income taxes and
extraordinary items

Financial income, net

Income before income taxes and extraordinary items

Effects of changes in 1999 German tax law

Tax benefit relating to a special distribution

Income taxes

Total income taxes

Minority interests

Income before extraordinary items

Extraordinary items:

Gains on disposals of a business, net of taxes

Losses on early extinguishment of debt, net of taxes

Net income

Earnings per share

Basic earnings per share

Income before extraordinary items

Extraordinary items

Net income

Diluted earnings per share

Income before extraordinary items

Extraordinary items

Net income

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 the deferred tax asset 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 1998 and 1997 balances have been restated from Deutsche Marks into euros using the Official Fixed Conversion Rate.

Industrial Business

Year ended December 31,

Financial Services

Year ended December 31,

€

139,929

124,010

111,166

(109,805)

(97,492)

(87,812)

30,124

26,518

23,354

10,056

(8,414)

1,642

(16,532)

(15,351)

(14,913)

(1,000)

(5,737)

(4,971)

(4,408)

(in millions, except per share amounts)

6,406

Revenues

(5,067)

Cost of sales

1,339

(708)

–

710

725

(267)

(1)

457

–

Gross margin

Selling, administrative and other expenses

Research and development

Other income

Merger costs

Income before financial income, income taxes and
extraordinary items

Financial income, net

Income before income taxes and extraordinary items

Effects of changes in 1999 German tax law

Tax benefit relating to a special distribution

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7373

Income taxes

Total income taxes

Minority interests

Income before extraordinary items

Extraordinary items:

Gains on disposals of a business, net of taxes

Losses on early extinguishment of debt, net of taxes

7,772

(6,174)

1,598

(878)

–

106

–

826

849

(282)

(2)

565

–

769

–

4,802

618

5,420

784

(114)

6,090

–

136

–

778

784

(193)

(2)

589

–

6,090

589

565

457

Net income

–

Earnings per share

Basic earnings per share

Income before extraordinary items

Extraordinary items

Net income

Diluted earnings per share

Income before extraordinary items

Extraordinary items

Net income

–

691

–

8,546

327

8,873

993

(685)

6,504

740

7,244

(4,340)

(2,732)

(16)

4,517

659

(19)

5,157

–

(128)

4,384

–

(129)

4,255

–

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

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(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

Non-fixed assets

Deferred taxes

Prepaid expenses

Total assets (thereof short-term
1999: €70,111; 1998: €57,953)

Liabilities and stockholders’ equity

Capital stock

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income

Treasury stock

Stockholders’ equity

Minority interests

Accrued liabilities

Financial liabilities

Trade liabilities

Other liabilities

Liabilities

Deferred taxes

Deferred income

Consolidated

At December 31,

Industrial Business

Financial Services

At December 31,

Note

(Note 1)

€

2,843

2,823

2,561

2,632

2,457

36,689

36,434

29,532

36,338

29,479

191

863

104

702

3,969

3,942

2,851

27,440

27,249

14,662

3,079

3,433

2,149

2,886

23,816

11,776

70,941

70,448

49,606

45,482

36,971

24,966

12,635

15,090

14,985

11,796

14,036

11,142

8,902

8,840

7,605

8,522

6,958

949

318

654

647

39,006

38,735

26,468

38,697

26,460

12,658

12,571

10,775

5,408

4,847

7,163

5,928

9,032

8,969

12,160

8,250

11,563

9,163

9,099

6,589

8,197

5,968

719

902

597

621

93,851

93,199

75,393

44,451

40,486

48,748

34,907

3,832

3,806

7,265

7,214

5,016

6,134

3,710

7,076

4,999

6,008

138

126

175,889

174,667

136,149

100,719

88,464

73,948

47,685

2,583

7,380

2,565

7,329

2,561

7,274

24,093

23,925

20,533

2,257

2,241

–

(1)

–

36,313

36,060

30,367

30,318

25,905

5,742

4,462

654

650

691

637

674

37,958

37,695

34,629

37,155

34,224

540

405

64,940

64,488

40,430

4,400

3,631

60,088

36,799

15,896

15,786

12,848

15,484

12,608

302

240

10,358

10,286

9,249

7,655

6,919

2,631

2,330

91,194

90,560

62,527

27,539

23,158

63,021

39,369

5,228

4,542

5,192

4,510

4,165

3,770

1,227

3,843

1,504

2,999

3,965

2,661

667

771

Total liabilities (thereof short-term
1999: €83,171; 1998: €58,181)

139,576

138,607

105,782

70,401

62,559

68,206

43,223

Total liabilities and stockholders’ equity

175,889

174,667

136,149

100,719

88,464

73,948

47,685

The accompanying notes are an integral part of these Consolidated Financial Statements.
All 1998 balances have been restated from Deutsche Marks into euros using the Official Fixed Conversion Rate.

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A
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F
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M
S
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E
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7575

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 €)

stock

capital

earnings

adjustment

securities

liability

stock

Total

Additional

Cumulative

Available-

Minimum

Capital

paid-in

Retained

translation

for-sale

pension

Treasury

Preferred

Accumulated other

comprehensive income

Balance at January 1, 1997

2,444

4,210

16,581

(972)

Net income

Other comprehensive income

Total comprehensive income

Issuance of capital stock

–

Purchase and retirement of capital stock

(59)

(1,430)

6,547

–

Dividends

Other

–

(1,276)

–

1,865

–

112

–

157

–

(20)

–

(462)

–

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

–

(1,086)

(5,284)

–

538

–

(135)

191

–

Balance at December 31, 1998

2,561

7,274

20,533

(509)

528

(20)

Net income

Other comprehensive income (loss)

Total comprehensive income

Issuance of capital stock

Purchase of capital stock

Re-issuance of treasury stock

Dividends

Other

–

(8)

5,746

–

(2,356)

2,431

(181)

–

(8)

–

Balance at December 31, 1999

2,565

7,329

23,925

1,922

347

(28)

–

(169)

482

–

111

–

(86)

–

22,355

6,547

2,023

8,570

(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

5,746

2,242

7,988

(86)

(2,356)

(6)

36,060

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

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(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
Gains on disposals of businesses (see also Note 9)
Depreciation and amortization of equipment
on operating leases
Depreciation and amortization of fixed assets
Change in deferred taxes
Losses on early extinguishment of debt (extraordinary item)
Change in financial instruments
(Gain) loss on disposal of fixed assets/securities
Change in trading securities
Change in accrued liabilities
Change in other operating 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:
including 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 activities
Effect of foreign exchange rate changes on cash
and cash equivalents maturing within 3 months

Net increase (decrease) in cash and cash
equivalents maturing within 3 months
Cash and cash equivalents (maturing within 3 months)

At beginning of period
At end of period

Consolidated

Year ended December 31,

(Note 1)

5,785
18

–
(1,189)

3,338

6,077
2,419
19
249
(1,223)
499
4,029

(2,453)
(738)
1,340
(21)
18,149

(19,471)
(9,536)
(650)
6,621
511
(1,298)
1,345
(102,855)

42,221
52,206
(4,426)
3,745
(748)
(32,335)

9,398

13,434
(4,643)

(2,395)

165
(87)
–
15,872

€

5,746
18

–
(1,181)

3,315

6,035
2,402
19
247
(1,215)
495
4,001

(2,436)
(733)
1,331
(21)
18,023

(19,336)
(9,470)
(645)
6,575
507
(1,289)
1,336
(102,140)

41,928
51,843
(4,395)
3,719
(743)
(32,110)

9,333

13,340
(4,611)

(2,378)

164
(86)
–
15,762

€

4,820
130

–
(296)

1,972

5,359
1,959
129
(191)
(368)
251
1,419

(976)
(688)
1,827
1,334
16,681

(10,245)
(8,155)
(305)
4,903
515
(857)
685
(81,196)

33,784
40,950
(4,617)
2,734
(1,641)
(23,445)

2,503

9,491
(4,126)

(6,454)

4,076
(169)
1,487
6,808

€

6,547
115

(1,487)
(569)

1,456

4,847
(705)
–
146
(204)
(387)
840

(744)
(555)
1,709
1,328
12,337

(7,225)
(8,051)
(264)
3,943
576
(607)
1,336
(70,154)

22,257
44,336
(5,190)
3,828
685
(14,530)

1,781

9,057
(4,612)

(1,267)

231
(1,888)
–
3,302

811

805

(397)

646

2,497

2,480

(353)

1,755

6,325
8,822

6,281
8,761

6,634
6,281

4,879
6,634

Industrial Business

Year ended December 31,

Financial Services

Year ended December 31,

€

5,157
16

–
(1,181)

268

5,966
1,496
19
247
(1,213)
495
3,913

(2,387)
(541)
1,222
(415)
13,062

(3,192)
(9,407)
(524)
3,303
411
(1,145)
1,336
(28)

–
–
(3,958)
3,333
(462)
(10,333)

(260)

918
439

(2,373)

82
(86)
–
(1,280)

€

4,255
128

–
(296)

195

5,321
1,560
129
(191)
(317)
251
1,375

(1,040)
(812)
1,668
224
12,450

(3,057)
(8,118)
(245)
2,691
500
(814)
682
63

–
–
(2,015)
247
(1,455)
(11,521)

(1,136)

322
944

(5,865)

3,561
(169)
1,487
(856)

€

6,090
114

(1,487)
(569)

4,820
(997)
–
146
(217)
(387)
837

(604)
(578)
1,709
146
9,060

(2,364)
(8,027)
(226)
2,091
555
(543)
1,336
1,067

(857)
–
(3,489)
2,065
1,365
(7,027)

102

2,020
(768)

(776)

55
(1,888)
–
(1,255)

750

(371)

610

2,199

(298)

1,388

5,660
7,859

5,958
5,660

4,570
5,958

€

589
2

–
–

€

565
2

–
–

€

457
1

–
–

3,047

1,777

1,419

69
906
–
–
(2)
–
88

(49)
(192)
109
394
4,961

(16,144)
(63)
(121)
3,272
96
(144)
–
(102,112)

41,928
51,843
(437)
386
(281)
(21,777)

9,593

12,422
(5,050)

(5)

82
–
–
17,042

281

621
902

38
399
–
–
(51)
–
44

64
124
159
1,110
4,231

(7,188)
(37)
(60)
2,212
15
(43)
3
(81,259)

33,784
40,950
(2,602)
2,487
(186)
(11,924)

3,639

9,169
(5,070)

(589)

515
–
–
7,664

(26)

(55)

676
621

27
292
–
–
13
–
3

(140)
23
–
1,182
3,277

(4,861)
(24)
(38)
1,852
21
(64)
–
(71,221)

23,114
44,336
(1,701)
1,763
(680)
(7,503)

1,679

7,037
(3,844)

(491)

176
–
–
4,557

367

309
676

S
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A
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F
O

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N
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O
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O
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Net income
Income (loss) applicable to minority interests
Adjustments to reconcile net income to net cash
provided by operating activities:

Net increase (decrease) in cash and cash
equivalents maturing within 3 months
Cash and cash equivalents (maturing within 3 months)

At beginning of period
At end of period

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

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Balance at

Acquisitions/

January 1,

Currency

disposals of

Reclassi-

Balance at

December 31,

Acquisition or Manufacturing Costs

(in millions of €)

1999

change

businesses

Additions

fications

Disposals

1999

Other intangible assets

Goodwill

Intangible assets

737

3,564

4,301

359

414

108

129

236

103

339

–

161

983

4,061

5,044

Land, leasehold improvements and
buildings including buildings on
land owned by others

18,018

983

Technical equipment and machinery

26,245

2,085

196

201

997

2,796

270

336

232

990

20,232

30,673

Other equipment, factory and
office equipment

Advance payments relating to plant and
equipment and construction in progress

17,135

1,436

117

2,699

414

1,385

20,416

4,539

632

2,997

(1,042)

7,100

Property, plant and equipment

65,937

5,136

Investments in affiliated companies

Loans to affiliated companies

Investments in associated companies

718

358

Investments in related companies

1,178

101

Loans to associated and related companies

Long-term securities

Other loans

676

195

–

Investments and long-term financial assets

3,225

184

Equipment on operating leases2)

18,129

3,139

534

(29)

(1)

112

9,489

(22)

2,653

78,421

370

158

182

142

109

207

1,228

19,336

(2)

–

(87)

–

100

–

307

1,062

546

1,323

220

785

373

4,351

8,038

32,678

1) Currency translation changes with period end rates.
2) Excluding initial direct costs.

The accompanying notes are an integral part of these Consolidated Financial Statements.
All 1998 balances have been restated from Deutsche Marks into euros using the Official Fixed Conversion Rate.

Depreciation/Amortization

Book Value1)

Balance at

Acquisitions/

Balance at

January 1,

Currency

disposals of

Reclassi-

December 31,

1999

change

businesses

Additions

fications

Disposals

1999

1998

386

1,354

1,740

8,422

16,759

131

148

197

922

115

137

215

352

631

(6)

2,538

11,224

804

2,482

–

36,405

1,923

234

5,655

214

374

3,563

–

555

–

3,315

132

761

519

1,702

2,221

464

2,359

2,823

351

2,210

2,561

Other intangible assets

Goodwill

Intangible assets

9,159

11,073

9,596

Land, leasehold improvements and
buildings including buildings on
land owned by others

19,575

11,098

9,486

Technical equipment and machinery

1,332

13,252

7,164

5,911

Other equipment, factory and
office equipment

7,099

4,539

Advance payments relating to plant and
equipment and construction in progress

2,228

41,987

36,434

29,532

Property, plant and equipment

–

117

216

945

530

1,107

182

784

356

626

350

964

675

178

Investments in affiliated companies

Loans to affiliated companies

Investments in associated companies

Investments in related companies

Loans to associated and related companies

Long-term securities

Other loans

409

3,942

2,851

Investments and long-term financial assets

1,872

5,574

27,104

14,566

Equipment on operating leases2)

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S

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I
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F
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A
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7979

(2)

(3)

–

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 A T E M E N T S

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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 Novem-
ber 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 accounts for certain joint ventures in accord-
ance with the proportionate method of consolidation (see Note 3).
Prior to December 31, 1998, DaimlerChrysler prepared and re-
ported its consolidated financial statements in Deutsche Marks
(“DM”). With the introduction of the euro (“€”) on January 1, 1999,
DaimlerChrysler has presented the accompanying consolidated fi-
nancial statements in euro. Accordingly, the Deutsche Mark con-
solidated financial statements for prior periods have been restated
into euro using the Official Fixed Conversion Rate of €1 =
DM1.95583. DaimlerChrysler’s 1998 and 1997 restated euro finan-
cial statements depict the same trends as would have been pre-
sented 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 finan-
cial information in a currency other than Deutsche Marks. All
amounts herein are shown in millions of euros and for the year
1999 are also presented in U.S. dollars (“$”), the latter being unau-
dited and presented solely for the convenience of the reader at the
rate of €1 = $1.0070, the Noon Buying Rate of the Federal Reserve
Bank of New York on December 31, 1999.

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 is-
sued for each outstanding Ordinary Share of Daimler-Benz and
.6235 DaimlerChrysler Ordinary Shares were issued for each out-
standing share of Chrysler common stock, stock options and per-
formance 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 accord-
ingly, the historical results of Daimler-Benz and Chrysler for 1998
and 1997 have been restated as if the companies had been com-
bined for all periods presented. In connection with the Merger,
€685 of merger costs (€401 after tax) were incurred and charged
to expense in 1998. These costs consisted primarily of fees for in-
vestment bankers, attorneys, accountants, financial printing, accel-
erated management compensation and other related charges.

Certain prior year balances have been reclassified to conform with
the Group’s current year presentation.

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 sig-
nificantly influenced by activities of the financial services busi-
nesses. To enhance the readers’ understanding of the Group’s con-
solidated financial statements, the accompanying financial state-
ments present, in addition to the consolidated financial statements,
information with respect to the financial position, results of opera-
tions and cash flows of the Group’s industrial and financial serv-
ices 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 industrial or financial services business ac-
tivities. Transactions between the Group’s industrial and financial
businesses principally represent intercompany sales of products,
intercompany borrowings and related interest, and other support
under special vehicle financing programs. The effects of transac-
tions between the industrial and financial services businesses
have been eliminated within the industrial business columns.

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 DaimlerChrysler
has legal or effective control are consolidated. Significant invest-
ments in which DaimlerChrysler has a 20% to 50% ownership (“as-
sociated companies”) are generally accounted for using the equity
method. For certain investments in joint ventures, DaimlerChrysler
uses the proportionate method of consolidation (see Note 3). All
other investments are accounted for at cost.

For business combinations accounted for under the purchase ac-
counting method, 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 amor-
tized 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 subsidiar-
ies where the functional currency is other than the euro are gener-
ally translated using period-end exchange rates while the state-
ments of income are translated using average exchange rates dur-
ing 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’ eq-
uity.

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Product-Related Expenses – Expenditures for advertising and sales
promotion and for other sales-related expenses are charged to ex-
pense as incurred. Provisions for estimated costs related to product
warranty are made at the time the related sale is recorded. Re-
search and development costs are expensed as incurred.

Earnings Per Share – Basic earnings per share is calculated by di-
viding net income by the weighted average number of shares out-
standing. Diluted earnings per share reflects the potential dilution
that would occur if all securities and other contracts to issue Ordi-
nary Shares were exercised or converted (see Note 31). Net income
represents the earnings of the Group after minority interests. Bas-
ic and diluted earnings per Ordinary Share for the years ended De-
cember 31, 1998 and 1997 have been restated to reflect the conver-
sion of Daimler-Benz and Chrysler shares into DaimlerChrysler Or-
dinary 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, other than good-
will, are valued at acquisition cost and are generally amortized
over their respective useful lives (3 to 40 years) on a straight-line
basis. Goodwill derived from acquisitions is capitalized and amor-
tized over 3 to 40 years. The Group periodically assesses the re-
coverability of its goodwill based upon projected future cash flows.

Property, Plant and Equipment – Property, plant and equipment is
valued at acquisition or manufacturing costs less accumulated de-
preciation. Depreciation expense is recognized either using the de-
clining balance method until the straight-line method yields larger
expenses or the straight-line method. Special tooling costs are
capitalized and amortized over their estimated useful lives, prima-
rily using the units of production method. The costs of internally
produced equipment and facilities include all direct costs and allo-
cable 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 improve-
ments – 8 to 20 years; technical equipment and machinery – 3 to
30 years; and other equipment, factory and office equipment – 2
to 15 years.

The assets and liabilities of foreign subsidiaries operating in
highly inflationary economies are remeasured into euro on the ba-
sis of period-end rates for monetary assets and liabilities and at
historical rates for non-monetary items, with resulting translation
gains and losses being recognized in income. Further, in such
economies, depreciation and gains and losses from the disposal of
non-monetary assets are determined using historical rates.

The exchange rates of the significant currencies of non-euro par-
ticipating countries used in preparation of the consolidated finan-
cial statements were as follows (prior periods have been restated
from Deutsche Marks into euros using the Official Fixed Conver-
sion Rate of €1 = DM1.95583):

Exchange rate at
December 31,

1999

€1 =

1998

€1 =

Annual average
exchange rate

1999

€1 =

1998

€1 =

1997

€1 =

1.80

1.42

1.93

1.29

1.22

0.62

0.70

0.66

0.67

0.69

102.73

134.84

121.25

144.96

136.20

1.00

1.17

1.07

1.11

1.13

Currency:

Brazil

Great
Britain

Japan

USA

BRL

GBP

JPY

USD

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 Group condi-
tionally 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. Operating lease income
is recorded when earned on a straight-line basis. Revenue on long-
term contracts is generally recognized under the percentage-of-
completion method based upon contractual milestones or perform-
ance. Revenue from finance receivables is recorded on the interest
method.

The Group sells significant amounts of finance 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 lim-
ited interest in principal balances of the sold receivables and cer-
tain cash deposits provided as credit enhancements for investors.
Gains and losses from the sales of finance receivables are recog-
nized in the period in which such sales occur. In determining the
gain or loss for each qualifying sale of finance receivables, the in-
vestment in the sold receivable pool is allocated between the por-
tion sold and the portion retained based upon their relative fair
values.

(in millions of €, except per share amounts)

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Leasing – The Group is a lessee of property, plant and equipment
and lessor of equipment, principally passenger cars and commer-
cial vehicles. All leases that meet certain specified criteria in-
tended to represent situations where the substantive risks and re-
wards of ownership have been transferred to the lessee are ac-
counted 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 depreciated over its esti-
mated useful life, generally 3 to 14 years, using the straight-line
method.

Long-Lived Assets – The Group reviews long-lived assets to be held
and used for impairment whenever events or changes in circum-
stances indicate that the carrying amount of an asset may not be
recoverable.

Non-fixed Assets – Non-fixed assets represent the Group’s invento-
ries, receivables, securities and cash, including amounts to be real-
ized in excess of one year. In the accompanying footnotes, the por-
tion of assets and liabilities to be realized and settled in excess of
one year has been disclosed.

Marketable Securities and Investments – Securities are accounted
for at fair values, if readily determinable. Unrealized gains and
losses on trading securities, representing securities bought princi-
pally for the purposes of selling them in the near term, are in-
cluded in income. Unrealized gains and losses on available-for-sale
securities are included in accumulated other comprehensive in-
come, 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
income.

Inventories — Inventories are 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”). Cer-
tain of the Group’s U.S. inventories are valued using the last-in,
first-out method (“LIFO”). Manufacturing costs comprise direct ma-
terial and labor and applicable manufacturing overheads, including
depreciation charges.

Financial Instruments – DaimlerChrysler uses derivative financial
instruments for hedging purposes. Financial instruments, includ-
ing derivatives (especially currency futures, options and swaps, se-
curity options and interest rate 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 de-
rivative financial instrument and an underlying transaction and a
derivative is so designated, a valuation unit is formed. Once allo-
cated, gains and losses from these valuation units, which are used
to manage interest rate and currency risks of identifiable assets, li-
abilities, or firm commitments, do not affect income until the un-
derlying 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 Account-
ing Standards (“SFAS”) 87, “Employers’ Accounting for Pensions,”
and SFAS 106, “Employers’ Accounting for Postretirement Benefits
Other Than Pensions.” An accrued liability for taxes and other con-
tingencies is recorded when an obligation to a third party has been
incurred, the payment is probable and the amount can be reason-
ably estimated. The effects of accrued liabilities relating to person-
nel and social costs are valued at their net present value where ap-
propriate.

Use of Estimates – Preparation of the financial statements requires
management to make estimates and assumptions that affect the re-
ported amounts of assets and liabilities and disclosure of contin-
gent assets and liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the report-
ing period. Actual results could differ from those estimates.

New Accounting Pronouncements – On January 1, 1999,
DaimlerChrysler adopted Statement of Position (“SOP”) 98-5, “Re-
porting on the Costs of Start-Up Activities,” issued by the Ameri-
can Institute of Certified Public Accountants. 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 did not 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 Ac-
tivities.” This Standard requires companies to record derivatives
on the balance sheet as assets and liabilities, measured at fair
value. Gains and 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. With
the issuance of SFAS 137, “Accounting for Derivative Instruments
and Hedging Activities – Deferral of the Effective Date of FASB
Statement No. 133, an Amendment of FASB Statement No. 133,”
this Standard is effective for fiscal years beginning after June 15,
2000. DaimlerChrysler plans to adopt SFAS 133 effective January
1, 2000. The new Standard will permit the Group to apply hedge
accounting for certain foreign currency derivative contracts on
qualifying forecasted transactions. Under the Group’s current ac-
counting policies such contracts are marked to market with unreal-
ized gains and losses impacting current earnings. Accordingly, ap-
plication of the new Standard in accounting for such foreign cur-
rency derivative contracts may result in lower current period earn-
ings volatility relating to the Group’s foreign currency risk man-
agement in periods of significant changes in exchange rates.

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3 . S C O P E O F C O N S O L I D A T I O N
Scope of Consolidation – DaimlerChrysler comprises 549 foreign
and domestic subsidiaries (1998: 481) and 16 joint ventures (1998:
82); the latter are generally accounted for on a pro rata basis. A to-
tal of 55 (1998: 27) subsidiaries are accounted for in the consoli-
dated financial statements using the equity method of accounting.
During 1999, 76 subsidiaries and 2 joint ventures were included in
the consolidated financial statements for the first time. A total of
69 subsidiaries and 7 joint ventures were no longer included in
the consolidated group. Significant effects of changes in the con-
solidated group on the consolidated balance sheets and the con-
solidated statements of income are explained further in the notes
to the consolidated financial statements. A total of 343 subsidiaries
(“affiliated companies”) are not consolidated as their combined in-
fluence on the financial position, results of operations, and cash
flows of the Group is not material (1998: 313). The effect of such
non-consolidated subsidiaries for all years presented on consoli-
dated assets, revenues and net income of DaimlerChrysler was ap-
proximately 1%. In addition, 7 (1998: 7) companies administering
pension funds whose assets are subject to restrictions have not
been included in the consolidated financial statements. The con-
solidated financial statements include 109 associated companies
(1998: 110) accounted for at cost and recorded under investments
in related companies as these companies are not material to the
respective presentation of the financial position, results of opera-
tions or cash flows of the Group.

Investment in Adtranz – In the first quarter of 1999,
DaimlerChrysler acquired the remaining outstanding shares of
Adtranz, a rail systems joint venture, from Asea Brown Boveri for
$472 (€441). The acquisition has been accounted for under the
purchase method of accounting. The purchase price has been allo-
cated to assets acquired and liabilities assumed based on their es-
timated fair values. This allocation resulted in goodwill of €100,
which will be amortized on a straight-line basis over 17 years.
Prior to the acquisition, the Group accounted for its investment in
Adtranz, including its 65 subsidiaries in 1998, using the propor-
tionate method of consolidation. Accordingly, the consolidated fi-
nancial statements of DaimlerChrysler as of December 31, 1998
and for the years ended December 31, 1998 and 1997 included
DaimlerChrysler’s 50% interest in the assets and liabilities, rev-
enues and expenses and cash flows of Adtranz.

Under U.S. GAAP, DaimlerChrysler’s investment in Adtranz was re-
quired to be accounted for using the equity method of accounting.
The differences in accounting treatment between the proportionate
and equity methods would not have affected reported stockholders’
equity or net income of DaimlerChrysler. Under the equity method
of accounting, DaimlerChrysler’s net investment in Adtranz would
have been included within investments in the balance sheet and
its share of the net 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 have been reported as part of finan-
cial income, net in the Group’s statement of income. Additionally,
Adtranz would have impacted the Group’s reported cash flows only
to the extent of the investing cash outflow in 1998 of €159 result-
ing 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 Se-
curities and Exchange Commission to prepare its consolidated fi-
nancial statements with this departure from U.S. GAAP.

Summarized consolidated financial information of Adtranz follows
as of December 31, 1998 and for the years ended December 31,
1998 and 1997. The amounts represent those used in the
DaimlerChrysler consolidation, including goodwill resulting from
the formation of Adtranz. Other companies included in the consoli-
dated financial statements according to the proportionate method
are not material.

At December 31,

Balance Sheet Information

Fixed assets1)

Non-fixed assets

Total assets

Stockholders’ equity

Minority interests

Accrued liabilities

Liabilities

Total liabilities and stockholders’ equity

1998

728

842

1,570

385

542

636

1,570

1) Includes net goodwill resulting from the formation of Adtranz of €348.

Statement of income information

Revenues

Operating loss1)

Net loss

Year ended December 31,

1998

1997

1,658

(322)

(316)

1,631

(222)

(154)

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
(maturing within 3 months)

Cash (maturing within 3 months)
at beginning of period

Cash (maturing within 3 months)
at end of period

Year ended December 31,

1998

1997

(130)

(84)

161

(2)

(12)

(50)

(55)

155

145

100

155

In 1998, cash maturing within 3 months includes €30 (1997: €51)
held by DaimlerChrysler AG in connection with internal cash con-
centration procedures.

(in millions of €, except per share amounts)

4 . D I S P O S I T I O N S
Due to an initial public offering in March 1999 as well as to the
selling of a substantial portion of its remaining interests in Sep-
tember 1999, debis AG, a wholly-owned subsidiary of
DaimlerChrysler, reduced its remaining interest in debitel AG to
10 percent (see Note 9).

In March 1998, the Group’s semiconductor business was sold to an
American company, Vishay Intertechnology, Inc. Also, during 1998
the Group sold further interests, including the sale of 30% of its in-
terests in LFK-Lenkflugkörpersysteme GmbH and 100% of its inter-
ests in CMS, Inc. and two real-estate-project-companies. The total
pretax gain from these dispositions was approximately €300.

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 pretax gain
of €110.

In July 1997, debis AG terminated its strategic relationship with
Cap Gemini Sogeti S.A. through the sale of its 24.4% interest re-
sulting in a pretax gain of €420.

During December 1997, DaimlerChrysler completed an initial pub-
lic offering (“IPO”) of its common stock in Dollar Thrifty Automo-
tive Group, Inc. (“DTAG”), formerly Pentastar Transportation
Group, Inc., for net proceeds of €343. The IPO of the common stock
interest resulted in a pretax and after-tax gain of €65. The gain
was deferred and will be recognized over the remaining term of
the vehicle supply agreements with DTAG, which end in 2001. The
tax effect on this transaction reflects the difference between the
book and tax basis of the Group’s stock interest in DTAG for which
deferred taxes were not provided, in accordance with SFAS 109,
“Accounting for Income Taxes.” In addition, the 1997 earnings in-
clude the recognition of €86 (€53 after taxes) of previously de-
ferred profits from the sale of vehicles from DaimlerChrysler to
DTAG.

S
T
N
E
M
E
T
A
T
S

L
A

C
N
A
N

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

N O T E S T O T H E 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

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:

Number of employees (annual average):

Year ended December 31,

1999

1998

1997

Year ended December 31,

1999

1998

1997

Hourly employees

279,124

268,764

261,426

Selling expenses

Administration expenses

Goodwill amortization and writedowns

Other expenses

11,744

10,100

5,145

5,217

215

428

227

685

9,663

4,709

210

1,039

17,532

16,229

15,621

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).

Personnel expenses included in the statement of income are com-
prised 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

Year ended December 31,

1999

1998

1997

21,044

19,982

18,656

3,179

2,990

2,817

931

1,126

1,077

783

866

755

221

26,158

25,033

23,370

Salaried employees

Trainees/apprentices

170,539

152,415

147,882

13,898

12,760

12,353

463,561

433,939

421,661

In 1999, 14,851 people (1998: 36,024 people; 1997: 34,448 people)
were employed in joint venture companies.

In 1999, the total remuneration paid by Group companies to the
members of the Board of Management of DaimlerChrysler AG
amounted to €55.4, and the remuneration paid to the members of
the Supervisory Board of DaimlerChrysler AG totaled €1.2. Dis-
bursements to former members of the Board of Management of
DaimlerChrysler AG and their survivors amounted to €23.4. An
amount of €100.5 has been accrued in the financial statements of
DaimlerChrysler AG for pension obligations to former members of
the Board of Management and their survivors. As of December 31,
1999, no advances or 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 equip-
ment (€132, €99 and €95 in 1999, 1998 and 1997, respectively),
rental income, other than relating to financial services leasing ac-
tivities (€153, €138 and €87 in 1999, 1998 and 1997, respectively)
and reductions in certain accruals (€130, €199 and €154 in 1999,
1998 and 1997, respectively). In 1998 and 1997, gains on sales of
companies of €389 and €117, respectively, were recognized in
other income.

E
M
O
C
N

F
O

S
T
N
E
M
E
T
A
T
S

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

(in millions of €, except per share amounts)

7. F I N A N C I A L I N C O M E , N E T

Income tax expense (benefit) consists of the following:

Year ended December 31,

1999

1998

1997

(111)

Current taxes

Germany

Foreign

Deferred taxes

Germany

Foreign

Year ended December 31,

1999

1998

1997

1,074

1,538

836

1,085

4,533

(267)

(1,472)

1,322

1,660

967

992

3,014

(910)

205

(517)

E
M
O
C
N

F
O

S
T
N
E
M
E
T
A
T
S

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

Income (loss) from investments
of which from affiliated companies
€41 (1998: €(20); 1997: €17)

Gains, net from disposals of
investements and shares in affilia-
ted and associated companies

459

Write-down of investments and shares
in affiliated companies

(19)

(55)

(76)

Income from companies
included at equity

Income (loss) from investments, net

Other interest and similar income
of which from affiliated companies
€17 (1998: €13; 1997: €10)

(70)

485

1,382

1,327

1,320

Interest and similar expenses

(729)

(702)

(640)

Interest income, net

653

625

680

Income from securities and long-term
receivables

913

231

376

Write-down of securities and
long-term receivables

Realized and unrealized gains (losses)
on derivative financial instruments

Other, net

Other financial income (loss), net

(17)

(10)

(1,078)

145

(794)

(202)

(384)

333

(158)

208

763

(104)

(532)

633

The Group capitalized interest expenses related to qualifying construction
projects of €163 (1998: €186; 1997: €207).

8 . I N C O M E T A X E S
Income before income taxes and extraordinary items amounted to
€9,657 (1998: €8,093; 1997: €6,145), of which €2,688 was gener-
ated by the Group’s operations in Germany (1998: €2,229; 1997:
€1,450).

In 1999, the tax laws in Germany were changed including a reduc-
tion in the retained corporate income tax rate from 45% to 40% and
the broadening of the tax base. The effects of the changes in Ger-
man tax laws were recognized as a charge of €812 (basic: €0.81
per share; diluted: €0.80 per share) in the consolidated statement
of income in 1999. The effects of the reduction in the tax rate on
the deferred tax assets and liabilities of the Group’s German com-
panies as of December 31, 1998 amounted to €290. The broaden-
ing of the tax base resulted in tax expense of €522.

German corporate tax law applies a split-rate imputation with re-
gard to the taxation of the income of a corporation and its share-
holders. In accordance with the tax law in effect for fiscal 1999, re-
tained corporate income is initially subject to a federal corporate
tax of 40% (1998 and 1997: 45%) plus a solidarity surcharge of
5.5% (1998: 5.5%; 1997: 7.5%) on federal corporate taxes payable.
Including the impact of the surcharge, the federal corporate tax
rate amounts to 42.2% (1998: 47.475%; 1997: 48.375%). Upon distri-
bution of certain retained earnings generated in Germany to stock-
holders, the corporate income tax rate on the earnings is adjusted
to 30%, plus a solidarity surcharge of 5.5% (1998: 5.5%; 1997: 7.5%)
on the distribution corporate tax, for a total of 31.65% (1998:
31.65%; 1997: 32.25%), by means of a refund for taxes previously
paid. Upon distribution of retained earnings in the form of a divi-
dend, 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 1999 are calculated
using effective corporate income tax rates of 42.2% (1998 and
1997: 47.475%) plus the after federal tax benefit rate for trade tax
of 9.3% (1998 and 1997: 8.525%). The effect of the tax rate reduc-
tions in 1999 and 1997 on deferred tax balances are reflected
separately in the reconciliations presented below.

A reconciliation of income taxes determined using the German cor-
porate tax rate of 42.2% (1998: 47.475%; 1997: 48.375%) plus the af-
ter federal tax benefit rate for trade taxes of 9.3% (1998: 8.525%;
1997: 8.625%) for a combined statutory rate of 51.5% in 1999
(1998: 56%; 1997: 57%) is as follows:

Deferred income tax assets and liabilities are summarized as fol-
lows:

Year ended December 31,

Property, plant and equipment

1999

1998

1997

Equipment on operating leases

Investments and long-term financial assets

Inventories

Receivables

Net operating loss and tax credit carryforwards

Retirement plans

Other accrued liabilities

Liabilities

Deferred income

Other

Valuation allowances

Expected expense for income taxes

4,973

4,532

3,503

Effect of changes in 1999 German
tax laws

Change of solidarity surcharge
in 1997

812

–

Credit for dividend distributions

(500)

(515)

(1,624)

Foreign tax rate differential

(966)

(1,012)

(813)

Release of valuation allowances on
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-deductible
goodwill

Other

Actual expense (benefit)
for income taxes

–

(1,003)

112

(465)

Deferred tax assets

(28)

(18)

(240)

Equipment on operating leases

Property, plant and equipment

186

(163)

Inventories

Receivables

Prepaid expenses

Retirement plans

4,533

3,014

(517)

Other accrued liabilities

E
M
O
C
N

F
O

S
T
N
E
M
E
T
A
T
S

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

December 31,

1999

1998

1,217

920

1,983

1,424

993

1,011

3,662

4,248

1,482

1,246

490

2,063

1,068

1,328

527

1,056

3,880

4,166

846

1,144

452

18,676

16,627

(363)

(411)

18,313

16,216

(3,346)

(2,743)

(5,600)

(4,252)

(499)

(483)

(3,278)

(3,645)

(508)

(450)

(4,127)

(2,069)

(671)

(367)

(520)

(297)

(1,150)

(1,059)

(19,699)

(15,365)

The 1999 and 1998 income tax credits from dividend distributions
amounted to €500 and €515, respectively, and reflected mainly the
tax benefits from the dividend distributions of €2.35 per Ordinary
Share to be paid in respect of 1999 and 1998.

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 allow-
ances 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 re-
sults 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 state-
ments which was not taxable since write-downs were previously
not recognized for tax purposes.

Taxes on undistributed earnings of foreign
subsidiaries

Other

Deferred tax liabilities

Deferred tax assets (liabilities), net

(1,386)

851

At December 31, 1999, the Group had corporate tax net operating
losses (“NOLs”) and credit carryforwards amounting to €2,232
(1998: €1,724) and German trade tax NOLs amounting to €1,352
(1998: €2,156). In 1999, the corporate tax NOLs and credit
carryforwards relate to losses of foreign and domestic non-
Organschaft companies and are partly limited in their use to the
Group. The valuation allowances on deferred tax assets of foreign
and domestic operations decreased by €48. In future periods, de-
pending upon the 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 de-
crease.

(in millions of €, except per share amounts)

9 . E X T R A O R D I N A R Y I T E M S
In March 1999, debis AG, a wholly-owned subsidiary of
DaimlerChrysler, sold a portion of its interests in debitel AG in an
initial public offering of its ordinary shares for proceeds of €274.
In September 1999, debis AG sold an additional portion of its re-
maining interests in debitel AG to Swisscom for proceeds of €924.
The sales resulted in an extraordinary after-tax gain of €659 (net
of income tax expense of €481) and reduced debis’ remaining in-
terest in debitel to 10 percent. U.S. GAAP requires that when a sig-
nificant disposition of assets or businesses occurs within two years
subsequent to accounting for a business combination using the
pooling-of-interests method of accounting that the gain or loss be
reported as an extraordinary item. Due to the significance of the
September 1999 transaction, the gains from both the March and
September dispositions have been reported in the accompanying
consolidated statements of income as extraordinary items, net of
taxes.

In 1999 the Group extinguished €51 of long-term debt resulting in
an extraordinary after tax loss of €19 (net of income tax benefit of
€11).

In December 1998, DaimlerChrysler extinguished €257 of the out-
standing principal amount of its Auburn Hills Trust Guaranteed
Exchangeable Certificates due 2020 (the “Certificates”) at a cost of
€454. The extinguishment of the Certificates resulted in an ex-
traordinary after tax loss of €129 (net of income tax benefit of
€78).

E
M
O
C
N

F
O

S
T
N
E
M
E
T
A
T
S

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

Net deferred income tax assets and liabilities in the consolidated
balance sheets are as follows:

December 31, 1999

December 31, 1998

Total

thereof
non-current

Total

thereof
non-current

Deferred tax assets

3,806

2,937

5,016

3,979

Deferred tax liabilities

(5,192)

(4,689)

(4,165)

(2,884)

Deferred tax assets
(liabilities), net

(1,386)

(1,752)

851

1,095

DaimlerChrysler provided foreign withholding taxes of €343
(1998: €297) on €6,868 (1998: €5,948) in cumulative undistributed
earnings of foreign subsidiaries because these earnings are not in-
tended to be permanently reinvested in those operations. In addi-
tion, beginning in1999, the German tax law requires that deduct-
ible expenses are reduced by 5% of foreign dividends received. The
additional German tax of €177 on the future payout of these for-
eign dividends was recognized in 1999 and included in “Effects of
changes in 1999 German tax laws.” The Group did not provide in-
come taxes or foreign withholding taxes on €13,224 (1998: €6,016)
in cumulative earnings of foreign subsidiaries because these earn-
ings are intended to be indefinitely reinvested in those operations.
It is not practicable to estimate the amount of unrecognized de-
ferred tax liabilities for these undistributed foreign earnings.

Including the items charged or credited directly to related compo-
nents of stockholders’ equity, the expense (benefit) for income
taxes consists of the following:

Expense (benefit) for income taxes
before extraordinary items

Income tax expense (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,

1999

1998

1997

4,533

3,014

(517)

470

(78)

–

(31)

(212)

(39)

(155)

296

176

4,817

3,020

(380)

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

1 2 . I N V E N T O R I E S

E Q U I P M E N T , N E T

Information with respect to changes in the Group’s intangible as-
sets and property, plant and equipment is presented in the Con-
solidated Fixed Assets Schedule included herein. Intangible assets
represent principally goodwill and intangible pension assets.

Property, plant and equipment includes buildings, technical equip-
ment and other equipment capitalized under capital lease agree-
ments of €368 (1998: €394). Depreciation expense on assets under
capital lease arrangements was €32 (1998: €38; 1997: €29).

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 , N E T
Information with respect to changes in the Group’s equipment on
operating leases is presented in the Consolidated Fixed Assets
Schedule included herein. Of the total equipment on operating
leases, €26,409 represent automobiles and commercial vehicles
(1998: €14,078).

Noncancellable future lease payments due from customers for
equipment on operating leases at December 31, 1999 are as fol-
lows:

At December 31,

1999

1998

Raw materials and manufacturing supplies

2,602

2,278

Work-in-process
thereof relating to long-term contracts
and programs in process €2,000 (1998: €919)

6,285

4,568

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 €1,166 (1998: €578)

9,887

7,631

518

312

19,292

14,789

(4,307)

(2,993)

14,985

11,796

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 €691 (1998: €549).

S
T
E
E
H
S

E
C
N
A
L
A
B

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

2000

2001

2002

2003

2004

thereafter

4,939

3,956

2,102

459

178

187

11,821

1 3 . T R A D E R E C E I V A B L E S

At December 31,

1999

1998

Receivable from sales of goods and services

8,859

8,020

Long-term contracts and programs, unbilled,
net of advance payments received

Allowance for doubtful accounts

779

442

9,638

8,462

(798)

8,840

(857)

7,605

As of December 31, 1999, €469 of the trade receivables mature aft-
er more than one year (1998: €399).

(in millions of €, except per share amounts)

S
T
E
E
H
S

E
C
N
A
L
A
B

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

1 4 . 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

1 5 . O T H E R R E C E I V A B L E S

Receivables from:

Sales financing

Finance leases

Initial direct costs

Unearned income

At December 31,

1999

1998

Receivables from affiliated companies

32,696

20,635

Receivables from related companies1)

11,440

9,542

Other receivables and other assets

44,136

30,177

143

Allowance for doubtful accounts

(5,977)

(4,245)

At December 31,

1999

1998

850

1,250

480

804

11,598

10,740

13,698

12,024

(1,127)

(1,249)

12,571

10,775

Unguaranteed residual value of leased assets

1,032

804

Allowance for doubtful accounts

39,334

26,832

(599)

(364)

38,735

26,468

As of December 31, 1999, €21,194 of the financing receivables ma-
ture after more than one year (1998: €14,733).

Sales financing and finance lease receivables consist of retail in-
stallment sales contracts secured by automobiles and commercial
vehicles. Contractual maturities applicable to receivables from
sales financing and finance leases in each of the years following
December 31, 1999 are as follows:

2000

2001

2002

2003

2004

thereafter

20,184

8,043

5,935

3,568

2,166

4,240

44,136

Actual cash flows will vary from contractual maturities due to fu-
ture sales of finance receivables, prepayments and charge-offs.

In the normal course of business, the Group sells to third parties
certain of its receivables from financial services. In 1999, the
Group sold financial receivables for proceeds of €51,843 (1998:
€40,950; 1997: €44,336).

1) Related companies include entities which have a significant ownership in

DaimlerChrysler or entities in which the Group holds a significant
investment.

Other receivables and other assets include retained interests in
sold receivables and subordinated asset backed certificates of
€4,006 (1998: €3,046).

As of December 31, 1999, €3,390 of the other receivables mature
after more than one year (1998: €4,199).

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 non-fixed assets
are comprised of the following:

Debt securities

Equity securities

Equity-based funds

Debt-based funds

At December 31,

1999

1998

4,347

4,565

938

1,191

2,493

971

1,970

4,654

8,969

12,160

Carrying amounts and fair values of debt and equity securities in-
cluded in securities and investments for which fair values are
readily determinable are classified as follows:

Available-for-sale

Trading

Securities

Investments and long-term
financial assets available-for-sale

Cost

Fair
value

At December 31, 1999

Unrealized

Gain

Loss

Cost

At December 31, 1998

Fair
value

Unrealized

Gain

Loss

8,114

8,486

487

483

8,601

8,969

522

–

522

150

10,501

11,183

934

977

154

11,435

12,160

706

750

296

784

488

–

278

675

397

8,897

9,753

1,010

154

11,713

12,835

1,147

–

The aggregate costs, fair values and gross unrealized holding gains
and losses per security class are as follows:

Cost

Fair
value

At December 31, 1999

Unrealized

Gain

Loss

Cost

At December 31, 1998

Fair
value

Unrealized

Gain

Loss

Equity securities

977

1,662

698

1,116

1,623

512

Debt securities issued by the German
government and its agencies

Municipal securities

Debt securities issued by
foreign governments

Corporate debt securities

Equity-based funds

Debt-based funds

Asset-backed securities

Other marketable debt securities

Available-for-sale

Trading

159

167

1,682

1,654

1,234

935

1,210

1,191

2,526

2,495

622

255

616

255

–

276

–

418

892

893

1,459

1,761

1,478

1,970

4,309

4,654

597

134

595

134

–

209

345

8,410

9,270

1,010

150

10,779

11,858

1,103

487

483

–

934

977

8,897

9,753

1,010

154

11,713

12,835

1,147

–

S
T
E
E
H
S

E
C
N
A
L
A
B

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

The estimated fair values of investments in debt securities, by con-
tractual 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,

1999

1998

1,473

1,806

477

166

975

2,122

129

385

3,922

3,611

Proceeds from disposals of available-for-sale securities were
€6,540 (1998: €2,734; 1997: €1,432), including €4,059 related to
the contribution to the DaimlerChrysler Pension Trust (see Note
22a). Gross realized gains from sales of available-for-sale securities
were €627 (1998: €98; 1997: €92), while gross realized losses were
€4 (1998: €8; 1997: €1). DaimlerChrysler uses the specific identifi-
cation method as a basis for determining cost and calculating real-
ized gains and losses.

Other securities classified as cash equivalents were approximately
€5,400 and €4,600 at December 31, 1999 and 1998, respectively,
and consisted primarily of purchase agreements, commercial pa-
per and certificates of deposit.

(in millions of €, except per share amounts)

1 7 . 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 €338 (1998: €308) of deposits
with original maturities of more than three months.

S
T
E
E
H
S

E
C
N
A
L
A
B

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

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
originally maturing within 3 months

Cash and cash equivalents
originally maturing after 3 months

Securities

Other

At December 31,

1999

1998

1997

8,761

6,281

6,634

338

308

175

8,969

12,160

10,180

133

324

336

18,201

19,073

17,325

The following represents supplemental information with respect to
cash flows:

Interest paid

Income taxes paid

Year ended at December 31,

1999

1998

1997

3,315

1,883

2,553

993

1,953

1,699

1 9 . P R E P A I D E X P E N S E S
Prepaid expenses are comprised of the following:

Prepaid pension cost

Other prepaid expenses

At December 31,

1999

1998

6,236

5,309

978

825

7,214

6,134

As of December 31, 1999, €6,118 of the total prepaid expenses ma-
ture after more than one year (1998: €5,280).

2 0 . S T O C K H O L D E R S ’ E Q U I T Y

Number of shares issued and outstanding
DaimlerChrysler had issued and outstanding 1,003,261,403 and
1,001,733,220 registered, Ordinary Shares of no par value at De-
cember 31, 1999 and 1998, respectively. Each share represents ap-
proximately €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 Or-
dinary Shares, ADS and convertible debt securities, rights to ac-
quire 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 pro-
ceeds of €3,827. The rights issued by Daimler-Benz entitled the
holders to purchase Daimler-Benz Ordinary Shares at approxi-
mately a 20% discount to the market price of Daimler-Benz Ordi-
nary Shares. Basic and diluted earnings per Ordinary Share have
been restated to reflect the dilutive effect resulting from the dis-
count to market value at which the Daimler-Benz Ordinary Shares
were sold in the rights offering.

Treasury Stock
During the second half of 1999, DaimlerChrysler purchased ap-
proximately 1.2 million of its Ordinary Shares and reissued the
shares to employees in connection with an employee share pur-
chase plan.

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
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 and to issue shares of up to €26 to employ-
ees.

With respect to the 4.125% convertible notes and the 5.75% subor-
dinated mandatory convertible notes described below, capital stock
may be conditionally increased by up to €43.7 for conversions. In
addition, DaimlerChrysler is authorized to issue shares equaling
up to €102 of capital stock in connection with convertible bonds or
bonds with warrants issued or guaranteed by April 30, 2003.

Convertible notes
In June 1997, DaimlerChrysler issued 5.75% subordinated manda-
tory 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 con-
verted 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 1999, 665 (1998: 3,713; 1997: 156) DaimlerChrysler Ordi-
nary Shares were issued upon exercise.

During 1996, DaimlerChrysler Luxembourg Capital S.A., a wholly-
owned 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 (as
amended), entitles the bearer of the option to subscribe for shares
of DaimlerChrysler AG. The option price per share is €42.67 in
consideration of exchange of the notes or €44.49 in cash. During
1999, options for the subscription of 1,517,468 (1998: 5,027,002;
1997: 1,785) newly issued DaimlerChrysler Ordinary Shares have
been exercised.

Comprehensive income
The changes in the components of other comprehensive income
(loss) are as follows:

Year ended December 31,

1999
Tax
Effect

Pretax

Net

Pretax

1998
Tax
Effext

Net

Pretax

1997
Tax
Effect

Net

Unrealized gains (losses) on securities:

Unrealized holding gains (losses)

292

(163)

129

659

(354)

305

439

(230)

209

Reclassification adjustments for
(gains) losses included in net income

Net unrealized gains (losses)

Foreign currency translation adjustments

Minimum pension liability adjustments

Other comprehensive income (loss)

(623)

(331)

2,431

(13)

2,087

313

150

–

(310)

(181)

(103)

556

(297)

(46)

259

(106)

333

(176)

2,431

(1,402)

(8)

(2)

–

(1,402)

1,865

(1)

–

(.)

(52)

157

1,865

155

2,242

(848)

(296)

(1,144)

2,199

(176)

2,023

S
T
E
E
H
S

E
C
N
A
L
A
B

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

Miscellaneous
Minority stockholders of Dornier GmbH have the right to exchange
their interests in Dornier for holdings of equal value in
DaimlerChrysler 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 re-
ported in its statutory financial statements determined in accord-
ance with the German commercial code (Handelsgesetzbuch). For
the year ended December 31, 1999, DaimlerChrysler management
has proposed a distribution of €2,358 (€2.35 per share) of the
1999 earnings of DaimlerChrysler AG as a dividend to the stock-
holders.

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 various stock appreciation rights (“SARs”)
plans resulting from newly adopted plans and the conversion of
former Daimler-Benz Stock Option and former Chrysler plans. In
addition, the Group has a stock option plan which was originally
established by Daimler-Benz in 1996 and has been converted to op-
tions for DaimlerChrysler Ordinary Shares. The Group also has a
performance-based stock award plan. Prior to the Merger, Chrysler
had both fixed stock option and performance-based stock compen-
sation plans. These Chrysler plans were terminated as a result of
the Merger and all outstanding options and awards became vested
and were converted into equivalent DaimlerChrysler Ordinary
Shares. The Group accounts for all stock-based compensation plans
in accordance with APB Opinion No. 25 and related interpreta-
tions.

Stock Appreciation-Based Plans
In the first half of 1999, DaimlerChrysler established a new stock
appreciation rights plan (the “SAR Plan 1999”) which provides eli-
gible employees of the Group with the right to receive cash equal
to the appreciation of DaimlerChrysler Ordinary Shares subse-
quent to the date of grant. The stock appreciation rights granted
under the SAR Plan 1999 vest in equal installments on the second
and third anniversaries from the date of grant. All unexercised

(in millions of €, except per share amounts)

Compensation expense or benefit on SARs and performance-based
stock awards is recorded based on changes in the market price of
DaimlerChrysler Ordinary Shares and, in case of performance-
based stock awards, the attainment of certain performance goals.
For the years ended December 31, 1999 and 1998 the Group recog-
nized compensation benefit of €106 and compensation expense of
€251, respectively, for SARs and performance-based stock awards.

Stock Option Plans
DaimlerChrysler established, based on shareholder approvals, the
1998, 1997 and 1996 Stock Option Plans (former Daimler-Benz
plans), which provide for the granting of options (“Stock Options”)
for the purchase of DaimlerChrysler Ordinary Shares to certain
members of management. The options granted under the Plans are
evidenced by non-transferable convertible bonds with a principal
amount of €511 per bond due ten years after issuance. During cer-
tain 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 (granted
in 1998 and 1997) have been held for a 24 month waiting period.
The specific terms of these plans are as follows:

1999

1998

Bonds granted in

1996

1997

1998

Stated
interest
rate

Due

Conversion
price

July 2006

5.9%

€42.62

July 2007

July 2008

5.3%

4.4%

€65.90

€92.30

In the second quarter of 1999, DaimlerChrysler converted all op-
tions granted under the 1998 and 1997 Stock Option Plans into
SARs. All terms and conditions of the new SARs are identical to
the stock options which were replaced, except that the holder of a
SAR has the right to receive cash equal to the difference between
the exercise price of the original option and the fair value of the
Group’s stock at the exercise date rather than receiving
DaimlerChrysler Ordinary Shares.

S
T
E
E
H
S

E
C
N
A
L
A
B

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

SARs expire ten years from the grant date. The exercise price of a
SAR is equal to the fair market value of DaimlerChrysler’s Ordi-
nary Shares on the date of grant. On February 24, 1999, the Group
issued 11.4 million SARs at an exercise price of €89.70.

As discussed below, DaimlerChrysler converted all options granted
under its existing stock option plans from 1997 and 1998 into
SARs in the second quarter of 1999.

In conjunction with the consummation of the Merger in 1998, the
Group implemented a SAR plan (22.3 million SARs at an exercise
price of $75.56 each). The initial grant of SARs replaced Chrysler
fixed stock options that were converted to DaimlerChrysler Ordi-
nary Shares as of the consummation of the Merger. SARs which re-
placed stock options that were exercisable at the time of the con-
summation 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 became exercisable in two
installments; 50 percent on the six-month and one-year anniversa-
ries of the consummation date.

A summary of the activity related to the Group’s SAR plans as of
and for the years ended December 31, 1999 and 1998 is presented
below (SARs in millions):

Weighted-avg.
exercise
price

Number
of SARs

Weighted-avg.
exercise
price

Number
of SARs

Outstanding at beginning
of year

22.2

€64.58

–

Granted

11.4

89.70

22.3

€64.58

Exchange of Stock Options
for SARs

Exercised

Forfeited

Outstanding at end of year

SARs exercisable
at year-end

15.2

79.79

–

(2.2)

(0.8)

45.8

64.91

76.07

75.68

(0.1)

64.58

–

22.2

64.58

26.8

€64.92

11.3

€64.58

The Group grants performance-based stock awards to certain eli-
gible employees with performance periods of up to three years and
track the value of DaimlerChrysler Ordinary Shares. The amount
ultimately earned in cash compensation at the end of a perform-
ance period is based on the degree of achievement of corporate
goals. In 1999, the Group issued €0.7 million performance-based
stock awards.

S
T
E
E
H
S

E
C
N
A
L
A
B

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

Analysis of the Stock Options issued to management is as follows
(options in millions):

1999

Average
conversion
price per
share

Number of
Stock
Options

Balance at beginning of year

15.5

€79.63

Bonds sold

Converted

Repayment

Exchanged for SARs

Outstanding at year-end

Exercisable at year-end

–

(0.2)

(15.2)

0.1

–

79.10

79.79

42.62

1998

Average
conversion
price per
share

€65.60

92.30

42.62

72.22

–

7.5

8.2

(.)

(0.2)

–

1997

Average
conversion
price per
share

Number of
Stock
Options

0.2

7.4

(0.1)

(.)

–

7.5

0.1

€42.62

65.90

42.62

65.90

–

65.60

€42.62

15.5

79.63

€42.62

0.1

€42.62

No compensation expense was recognized in 1999 in connection
with the stock option plans (1998: €38; 1997: none).

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 and 1997, and changes during the years ending on those
dates is presented below (options in millions):

Chrysler
shares
under
option

1998

Weighted-
average
conversion
price

Chrysler
shares
under
option

1997

Weighted-
average
conversion
price

Outstanding at beginning of year

30.7

$27.71

28.5

$23.68

Granted

Exercised

Forfeited

Converted to DaimlerChrysler shares

Outstanding at end of year

Options exercisable at year-end

9.2

(3.8)

(0.1)

(36.0)

–

39.82

23.38

30.60

31.24

–

10.1

(7.8)

(0.1)

–

30.7

13.4

33.72

20.92

26.70

–

27.71

$23.43

No compensation expense was recognized for Chrysler fixed stock
option grants since the options had conversion 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 execu-
tives). At the end of each cycle, participants earned no Perfor-
mance 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 Direc-
tors based on the Chrysler’s performance in relation to the perform-
ance goals established at the beginning of the performance cycle.
Compensation expense recognized for Performance Share awards

was €65 and €18 for 1998 and 1997, respectively. Unearned
Chrysler Performance Share awards outstanding at the date of the
Merger and December 31, 1997 were 1.9 million and 0.9 million,
respectively. As a result of the Merger, all Performance Shares
were vested and converted into DaimlerChrysler 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 di-
luted earnings per share would have been reduced by approxi-
mately €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, re-
spectively. No additional compensation expense would have been
recognized under SFAS 123 in 1999.

(in millions of €, except per share amounts)

The fair value of the DaimlerChrysler stock options issued in con-
junction with the 1998 and 1997 Stock Option Plans was calcu-
lated 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):

a) Pension plans and similar obligations
Pension plans and similar obligations are comprised of the follow-
ing components:

At December 31,

1999

1998

Pension liabilities (pension plans)

5,588

9,148

S
T
E
E
H
S

E
C
N
A
L
A
B

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

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 %

€19.38

€11.76

The fair value of each Chrysler fixed stock option grant is esti-
mated 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 and 1997:

Expected dividend yield

Expected volatility

Risk-free interest rate

Expected lives (in years)

Fair value per option

1998

1997

4.0 %

29 %

5.7 %

4.7 %

26 %

6.2 %

$9.20

$6.79

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 Perform-
ance Share grants were vested as of the date of the Merger, for
purposes of SFAS 123, all remaining compensation expense was
recognized in 1998.

Accrued postretirement health and life
insurance benefits

Other benefit liabilities

7,756

7,020

704

450

14,048

16,618

In the fourth quarter of 1999, DaimlerChrysler AG established the
“DaimlerChrysler Pension Trust” to provide for future pension ben-
efit payments in Germany. DaimlerChrysler AG contributed
€4,059 of securities to the Pension Trust, thereby reducing ac-
crued pension liabilities. In January 2000, DaimlerChrysler AG
contributed an additional €1,275 of securities to the Pension Trust.

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 oth-
ers are fixed plans depending on ranking (both wage level and po-
sition).

At December 31, 1999, plan assets were invested in diversified
portfolios that consisted primarily of debt and equity securities, in-
cluding 9.7 million shares of DaimlerChrysler Ordinary Shares
with a market value of €750 in a U.S. plan, which were contributed
in connection with the Merger. Assets and income accruing on all
pension trust and relief funds are used solely to pay pension ben-
efits and administer the plans.

The following information with respect to the Group’s pension
plans is presented by German Plans and Non-German Plans (prin-
cipally comprised of plans in the U.S.). DaimlerChrysler uses the
rates of the 1998 Heubeck mortality tables for the valuation of the
German pension liabilities.

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:

1999
Due after
one year

Total

At December 31,

1998
Due after
one year

Total

Pension plans and similar
obligations (see Note 22a)

14,048

13,075

16,618

15,714

Income and other taxes

2,281

1,122

246

Other accrued liabilities
(see Note 22b)

21,366

7,813

16,889

6,464

37,695

20,965

34,629

22,424

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E
E
H
S

E
C
N
A
L
A
B

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

At December 31,

1999
Non-
German
Plans

1998
Non-
German
Plans

German
Plans

12,599

16,010

11,378

15,905

–

2,664

–

(1,212)

267

756

–

430

1,185

1,983

258

732

686

429

1,033

821

(22)

A reconcilation of the funded status to the amounts recognized in
the consolidated balance sheets is as follows:

At December 31,

1999
Non-
German
Plans

1998
Non-
German
Plans

German
Plans

Funded status*)

6,089

(6,245)

9,701

(3,414)

Unrecognized acturarial
net gains (losses)

Unrecognized prior
service cost

Unrecognized net
assets at date of initial
application

(691)

3,859

(723)

(7)

(3,530)

(6)

(1,530)

–

(252)

–

(357)

Net amount recognized

5,391

(6,168)

8,972

(5,247)

Change in Projected
benefit obligations:

Projected benefit
obligations at
beginning of year

Foreign currency
exchange rate changes

Service cost

Interest cost

Plan amendments

Actuarial (gains) losses

(28)

(2,142)

Acquisitions and other

518

Benefits paid

(539)

(1,070)

(502)

(991)

Projected benefit obliga-
tions at end of year

13,123

19,578

12,599

16,010

Amounts recognized in
the consolidated balance
sheets consist of:

Prepaid pension cost

–

(6,236)

–

(5,309)

Accrued pension
liability

Intangible assets

Accumulated other
comprehensive
income

5,391

–

197

(98)

(31)

8,972

–

176

(94)

(20)

Net amount recognized

5,391

(6,168)

8,972

(5,247)

*) Difference between the projected benefit obligations and the fair value of

plan assets.

Change in plan assets:

Fair value of plan assets
at beginning of year

Foreign currency
exchange rate changes

Actual return on plan
assets

2,898

19,424

2,740

18,012

–

3,309

–

(1,410)

226

3,463

302

2,478

Employer contributions

4,059

166

Plan participant
contributions

Acquisitions and other

–

498

–

1,305

Benefits paid

(149)

(1,064)

(144)

(988)

Fair value of plan assets at
end of year

7,034

25,823

2,898

19,424

(in millions of €, except per share amounts)

S
T
E
E
H
S

E
C
N
A
L
A
B

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

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 eco-
nomic conditions of the country in which the pension plans are
situated. The weighted-average assumptions used in calculating
the actuarial values for the principal pension plans were as follows
(in %):

Weighted-average assumptions as
of December 31:

Discount rate

Expected return on plan assets

Rate of compensation increase

German Plans

Non-German Plans

1999

1998

1997

1999

1998

1997

6.0

7.7

2.8

6.0

7.7

3.0

6.5

7.7

3.5

7.5

9.8

5.9

6.5

9.8

6.0

6.8

9.8

6.0

The components of net periodic pension cost were as follows:

Service cost

Interest cost

1999

Non-
German
Plans

German
Plans

1998

Non-
German
Plans

German
Plans

1997

Non-
German
Plans

German
Plans

267

756

430

1,185

258

732

429

1,033

243

718

295

998

Expected return on plan assets

(223)

(1,872)

(203)

(1,514)

(198)

(1,372)

Amortization of

Unrecognized net actuarial losses (gains)

Unrecognized prior service cost

Unrecognized net obligation

Other

Net periodic pension cost

–

802

214

129

(2)

–

(3)

782

187

126

344

(1)

(2)

–

760

196

125

317

The projected benefit obligations and fair value of plan assets for
pension plans with accumulated benefit obligations in excess of
plan assets were €13,934 and €7,818, respectively, as of December
31, 1999 and €13,391 and €3,497, respectively, as of December 31,
1998.

Other Postretirement Benefits
Certain DaimlerChrysler operations in the U.S. and Canada pro-
vide 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 ben-
efits and eligibility rules may be modified periodically.
At December 31, 1999, plan assets were invested in diversified
portfolios that consisted primarily of debt and equity securities.

The following information is presented with respect to the Group’s
postretirement benefit plans.

At December 31,

1999

1998

Change in accumulated postretirement benefit
obligations:

Accumulated postretirement benefit
obligations at beginning of year

9,886

9,667

Foreign currency exchange rate changes

1,645

(763)

Service cost

Interest cost

Plan amendments

Actuarial (gains) losses

Acquisitions and other

Benefits paid

Accumulated postretirement benefit
obligations at end of year

209

702

246

(1,687)

189

646

280

373

(52)

(525)

(454)

10,527

9,886

Change in plan assets:

Fair value of plan assets at beginning of year

1,574

Foreign currency exchange rate changes

Actual return on plan assets

Employer contributions

Benefits paid

273

241

773

(45)

(24)

1,498

(4)

A reconciliation of the funded status to the amounts recognized in
the consolidated balance sheets is as follows:

Funded status*)

Unrecognized acturarial net gains (losses)

Unrecognized prior service cost

Net amount recognized

At December 31,

1999

1998

7,711

8,312

574

(1,015)

(529)

7,756

(277)

7,020

*) Difference between the accumulated postretirement obligations and the

fair value of plan assets.

The amount recognized in the consolidated balance sheets consists
only of accrued postretirement health and life insurance benefits.

Assumed discount rates and rates of increase in remuneration
used in calculating the accumulated postretirement benefit obliga-
tions together with long-term rates of return on plan assets vary
according to the economic conditions of the country in which the
plans are situated. The weighted-average assumptions used in cal-
culating the actuarial values for the postretirement benefit plans
were as follows (in %):

1999

1998

1997

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)

7.8

10.0

6.5

10.0

5.8

6.0

6.8

8.5

6.5

5.0

The components of net periodic postretirement benefit cost were
as follows:

S
T
E
E
H
S

E
C
N
A
L
A
B

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

Service cost

Interest cost

Expected return on plan assets

Unrecognized net actuarial
losses (gains)

Unrecognized prior service cost

Unrecognized net asset

Other

1999

1998

1997

209

702

(169)

–

189

646

(6)

–

164

592

(5)

(1)

Net periodic postretirement benefit
cost

783

866

755

The following schedule presents the effects of a one-percentage-
point change in assumed health care cost trend rates:

Effect on total of service and interest cost
components

Effect on accumulated postretirements benefit
obligations

1-Percen-
tage
Point
Increase

1-Percen-
tage
Point
Decrease

121

(99)

1,117

(870)

(in millions of €, except per share amounts)

Fair value of plan assets at end of year

2,816

1,574

Amortization of:

S
T
E
E
H
S

E
C
N
A
L
A
B

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

100

Prepaid Employee Benefits
In 1996 DaimlerChrysler established a Voluntary Employees’ Ben-
eficiary Association (“VEBA”) trust for payment of non-pension em-
ployee benefits. At December 31, 1999 and 1998, the VEBA had a
balance of €3,231 and €1,979, respectively, of which €2,698 and
€1,498, respectively, were designated and restricted for the pay-
ment of postretirement health care benefits. Contributions to the
VEBA trust during the years ended December 31, 1999, 1998 and
1997 were €727, €292 and €975, respectively.

b) Other accrued liabilities
Other accrued liabilities consisted of the following:

At December 31,

1999

1998

In connection with the Group’s restructuring, provisions were re-
corded for termination benefits of €183 (1998: €259; 1997: €299),
in 1999 principally within directly managed businesses and
DaimlerChrysler Aerospace, in 1998 principally within the Auto-
motive Business of the former Daimler-Benz Group and
DaimlerChrysler Aerospace and in 1997 principally within the Au-
tomotive Business of the former Daimler-Benz Group. In connec-
tion with these restructuring efforts, the Group effected workforce
reductions of approximately 2,400 employees (1998: 7,100; 1997:
6,600) and paid termination benefits of €239 (1998: €413; 1997:
€503), of which €168 (1998: €242; 1997: €269) were charged
against previously established liabilities. At December 31, 1999 the
Group had liabilities for estimated future terminations for approxi-
mately 7,400 employees.

Accrued warranty costs and price risks

7,505

6,386

Exit costs in 1999, 1998 and 1997 primarily result from the re-
structuring of directly managed businesses.

Accrued losses on uncompleted contracts

Restructuring

Accrued personnel and social costs

Other

993

595

3,409

8,864

762

635

2,263

6,843

21,366

16,889

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 summa-
rized as follows:

Termination
benefits

Exit
costs

Total
liabilities

Balance at January 1, 1997

Utilizations and transfers

Reductions

Additions

Balance at December 31, 1997

Utilizations and transfers

Reductions

Additions

Balance at December 31, 1998

Utilizations and transfers

Reductions

Additions

Balance at December 31, 1999

570

(269)

(45)

299

555

(242)

(12)

259

560

(321)

(15)

183

407

363

(187)

(37)

173

(110)

(19)

(9)

101

188

933

(456)

(82)

333

728

(352)

(31)

290

635

(300)

(24)

284

595

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:
€5,781 (1998: €2,605)

Liabilities to financial institutions
of which due in more than five years:
€2,455 (1998: €2,185)

Liabilities to affiliated companies
of which due in more than five years:
€– (1998: €28)

Loans, other financial liabilities
of which due in more than five years:
€53 (1998: €36)

Liabilities from capital lease and
residual value guarantees
of which due in more than five years:
€258 (1998: €228)

Long-term financial liabilities

Maturities

2001–
2097

2001–
2019

At December 31,

1999

1998

7,892

3,207

20,879

11,015

5,941

4,999

466

257

158

319

1,286

777

36,721

20,475

21,440

14,576

5,398

4,311

145

171

192

592

833

27,767

19,955

64,488

40,430

Weighted average interest rates for notes/bonds, commercial paper
and liabilities to financial institutions are 6.9%, 5.6% and 4.7%, re-
spectively, at December 31, 1999.

tions are largely secured by mortgage conveyance, liens and as-
signment of receivables of approximately €1,599 (1998: €1,526).

Commercial paper is denominated in euros and U.S. dollars and in-
cludes accrued interest. Bonds and liabilities to financial institu-

Aggregate amounts of financial liabilities maturing during the
next five years and thereafter are as follows:

Financial liabilities

36,721

6,617

6,996

2,750

2,857

8,547

2000

2001

2002

2003

2004

there-
after

At December 31, 1999, the Group had unused short-term credit
lines of €12,821 (1998: €7,984) and unused long-term credit lines
of €11,046 (1998: €10,903). In July 1999, DaimlerChrysler consoli-
dated its existing credit facilities into a $17 billion revolving credit
facility with a syndicate of international banks. The new credit
agreement is divided into two tranches. The first tranche is a
multi-currency revolving credit facility which allows
DaimlerChrysler AG and several subsidiaries to borrow up to $5
billion with a maturity of 7 years at interest rates based on LIBOR.

The second tranche is a revolving credit facility which allows
DaimlerChrysler North America Holding Corporation, a wholly-
owned subsidiary of DaimlerChrysler AG, to borrow up to $12 bil-
lion ($6 billion with a maturity of 5 years and $6 billion with a
maturity of 1 year) at various interest rates. The $12 billion revolv-
ing credit facility serves as a back-up for certain commercial paper
drawings.

S
T
E
E
H
S

E
C
N
A
L
A
B

D
E
T
A
D

I
L
O
S
N
O
C

E
H
T

O
T

S
E
T
O
N

101

2 4 . T R A D E L I A B I L I T I E S

At December 31, 1999

Due after
one year

Due after
five years

Total

At December 31, 1998

Due after
one year

Due after
five years

Total

Trade liabilities

15,786

12,848

2 5 . O T H E R L I A B I L I T I E S

Liabilities to affiliated companies

Liabilities to related companies

Other liabilities

At December 31, 1999

Due after
one year

Due after
five years

229

288

–

Total

411

1,193

8,682

10,286

At December 31, 1998

Due after
one year

Due after
five years

–

587

607

–

Total

349

665

8,235

9,249

Liabilities to related companies are primarily obligations to Airbus
Industrie G.I.E., Toulouse.

As of December 31, 1999, other liabilities include tax liabilities of
€871 (1998: €1,025) and social benefits due of €758
(1998: €759).

2 6 . D E F E R R E D I N C O M E
As of December 31, 1999, €907 of the total deferred income is to
be recognized after more than one year (1998: €986).

(in millions of €, except per share amounts)

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 insti-
tuted against the Group, including some purporting to be class ac-
tions, 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 mat-
ters 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 ef-
fect on the Group’s consolidated operating results for the particu-
lar reporting period in which an adjustment of the estimated re-
serve is recorded, the Group believes that any resulting adjust-
ment should not materially affect its consolidated financial posi-
tion.

S
E
T
O
N

R
E
H
T
O

102

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,

1999

1998

3,564

2,449

303

373

103

500

307

4,273

3,359

Contingent liabilities principally represent guarantees of indebted-
ness of non-consolidated affiliated companies and third parties and
commitments by Group companies as to contractual performance
by joint venture companies and certain non-incorporated compa-
nies, partnerships and project groups.

DaimlerChrysler is subject to potential liability under government
regulations and various claims and legal actions which are pend-
ing or may be asserted against DaimlerChrysler concerning envi-
ronmental matters. Estimates of future costs of such environmen-
tal matters are inevitably imprecise due to numerous uncertain-
ties, including the enactment of new laws and regulations, the de-
velopment and application of new technologies, the identification
of new sites for which DaimlerChrysler may have remediation re-
sponsibility and the apportionment and collectibility of
remediation costs among responsible parties.

DaimlerChrysler establishes reserves for these environmental mat-
ters when a loss is probable and reasonably estimable. It is reason-
ably 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 ef-
fect on DaimlerChrysler’s consolidated operating results for the
particular reporting period in which an adjustment of the esti-
mated reserve is recorded, DaimlerChrysler believes that any re-
sulting adjustment should not materially affect its consolidated fi-
nancial 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 are based
primarily on prior experience. Estimates of the future costs of
these actions are inevitably imprecise due to numerous uncertain-
ties, 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 re-
serves, 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, 1999, the remain-
ing commitment not recorded in the financial statements aggre-
gated approximately €342.

Airbus Industrie G.I.E. (“Airbus consortium”) has given a perform-
ance guarantee to Agence Executive, the French government
agency overseeing Airbus. This performance guarantee has been
assumed by DA to the extent of its 37.9 % participation in the Air-
bus consortium.

At December 31, 1999, in connection with DA’s participation in the
Airbus consortium, DA was contingently liable related to the Air-
bus 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 guaran-
tees and participations in financing receivables of the Airbus con-

Total rentals under operating leases, charged as an expense in the
statement of income, amounted to €964 (1998: €984; 1997: €910).
Future minimum lease payments under rental and lease agree-
ments which have initial or remaining terms in excess of one year
at December 31, 1999 are as follows:

sortium under certain 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 sub-
stantially offset any potential losses from the commitments. Based
on experience, the probability of material losses from such cus-
tomer 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 consor-
tium 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.

2000

2001

2002

2003

2004

thereafter

Operating
leases

676

452

341

252

217

904

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 develop-
ment 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 air-
craft.

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 remain-
ing obligations to the German Federal Government, related to the
Airbus A300/310 and A330/340 series aircraft as well as to finan-
cial assistance not related to development, while the 1997 settle-
ment related primarily to the A320 aircraft and its 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 air-
craft 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 commit-
ted volumes are not purchased.

S
E
T
O
N

R
E
H
T
O

103

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, equity securities,
forward exchange contracts and currency options. The Group also
issues financial instruments such as eurobonds, commercial paper
and medium-term-notes. As a consequence of purchasing and issu-
ing these types of financial instruments, the Group may be ex-
posed to risks from changes in interest and currency exchange
rates as well as share prices. Additionally, the Group conducts
business on a global basis in numerous major international curren-
cies and is, therefore, exposed to adverse movements in foreign
currency exchange rates. DaimlerChrysler uses derivative financial
instruments to reduce such risks. Without the use of these instru-
ments 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 assess-
ment procedures and controls for the use of financial instruments,
including a clear segregation of duties with regard to operating fi-
nancial 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. Us-
ing historical variability of market values, potential changes in
value resulting from changes of market prices are calculated on
the basis of statistical methods. The maximum acceptable market
risk is established by senior management in the form of risk capi-
tal, approved for a period not exceeding one year. Adherence to
risk capital limitations is regularly monitored.

b) Notional amounts and credit risk
The contract or notional amounts shown below do not always rep-
resent amounts exchanged by the parties and, thus, are not neces-
sarily a measure for the exposure of DaimlerChrysler through its
use of derivatives.

(in millions of €, except per share amounts)

The notional amounts of off-balance sheet financial instruments
are as follows:

The carrying amounts and fair values of the Group’s financial in
struments are as follows:

Currency contracts

Interest rate contracts

At December 31,

1999

1998

28,974

28,204

25,911

26,162

Currency contracts include foreign exchange forward and option
contracts which are mainly utilized to hedge existing receivables
and liabilities, firm commitments and anticipated transactions de-
nominated in foreign currencies (principally U.S. dollars, Japanese
Yen and major non-euro currencies in Europe). The objective of the
Group’s hedging transactions is to reduce the market risk of its
foreign denominated future cash flows to exchange rate fluctua-
tions. The Group has entered into currency contracts for periods of
one to five years.

S
E
T
O
N

R
E
H
T
O

104

The Group enters into interest rate and interest rate cross-currency
swaps, interest rate forward and futures contracts and interest rate
options in order to safeguard financial investments against fluctu-
ating interest rates as well as to reduce funding costs, to diversify
sources of funding, or to alter interest rate exposures arising from
mismatches between assets and liabilities.

The Group may be exposed to credit-related losses in the event of
non-performance by counterparties to financial instruments.
Counterparties to the Group’s financial instruments represent, in
general, international financial institutions. DaimlerChrysler does
not have a significant exposure to any individual counterparty,
based on the rating of the counterparties performed by established
rating agencies. The Group believes the overall credit risk related
to utilized derivatives is insignificant.

c) Fair value of financial instruments
The fair value of a financial instrument is the price at which one
party would assume the rights and/or duties of another party. Fair
values of financial instruments have been determined with refer-
ence to available market information at the balance sheet date and
the valuation methodologies discussed below. Considering the vari-
ability 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.

At December 31,

Carrying
amount

1999
Fair
value

Carrying
amount

1998
Fair
value

Financial instruments
(other than derivative
instruments):

Assets:

Financial assets

1,360

912

Receivables from
financial services

Securities

Cash and cash
equivalents

Other

Liabilities:

38,735

38,835

26,468

26,460

8,969

12,160

9,099

6,589

133

261

Financial liabilities

64,488

64,954

40,430

40,459

Derivative instruments:

Assets:

Currency contracts

Interest rate contracts

Liabilities:

Currency contracts

Interest rate contracts

944

348

2,109

590

338

268

744

309

349

303

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, 1999 and 1998, the Group had de-
ferred net unrealized gains (losses) on forward currency exchange
contracts and options of €(1,148) and €325, respectively, pur-
chased against firm foreign currency denominated sales commit-
ments extending for a period of three years.

The carrying amounts of cash, other receivables and accounts pay-
able 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:

The carrying amounts of the financial instruments (other than
derivative instruments) are included in the consolidated balance
sheets under their related captions.

Financial Assets and Securities – The fair values of securities in the
portfolio were 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 amounts of vari-
able rate finance receivables were estimated to approximate fair
value since they are priced at current market rates. The fair values
of fixed rate finance receivables were estimated by discounting ex-
pected cash flows using the current rates at which comparable
loans of similar maturity would be made as of December 31, 1999
and 1998.

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 – The fair value of publicly traded debt was es-
timated using quoted market prices. The fair values of other long-
term notes and bonds were 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 inter-
est rates over the remaining term of the instrument. Interest rate
options are valued on the basis of quoted market prices or on esti-
mates based on option pricing models.

Currency Contracts – The fair values of forward foreign exchange
contracts were based on EZB reference exchange rates that con-
sider forward premiums or discounts. Currency options were val-
ued on the basis of quoted market prices or on estimates based on
option pricing models.

d) Accounting for and reporting of financial instruments
The income or expense of the Group’s financial instruments (other
than derivative instruments), with the exception of receivables
from financial services and financial liabilities related to leasing
and sales financing activities, are recognized in financial income,
net. Interest income on receivables from financial services and
gains and losses from sales of receivables are recognized as rev-
enues. Interest expense on financial liabilities related to leasing
and sales financing activities are recognized as cost of sales.

S
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T
O
N

R
E
H
T
O

105

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 agree-
ment designated as a hedge, the gain or loss continues to be de-
ferred and is included in the settlement of the underlying transac-
tion.

Interest differentials paid or received under interest rate swaps
purchased to hedge interest risks on debt are recorded as adjust-
ments to the effective yields of the underlying debt (“accrual
method”).

In the event of an early termination of an interest rate related de-
rivative designated as a hedge, the gain or loss is deferred and re-
corded as an adjustment to interest income, net over the remaining
term of the underlying financial instrument.

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, liabili-
ties or firm commitments are marked to market and any resulting
unrealized gains and losses are recognized currently in financial
income, net. The carrying amounts of derivative instruments are
included under other assets and accrued liabilities.

Derivatives purchased by the Group under macro-hedging tech-
niques, 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 mar-
ket at each reporting period with unrealized gains and losses rec-
ognized 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 transac-
tion, subsequent unrealized gains and losses would be deferred
and recognized along with the effects of the underlying transac-
tion.

(in millions of €, except per share amounts)

3 0 . S E G M E N T R E P O R T I N G
During the first quarter of 1999, DaimlerChrysler combined the ac-
tivities of the Chrysler Financial Services segment and the Serv-
ices segment into a new segment entitled Services. Prior periods
have been reclassified to conform with the 1999 presentation. In-
formation with respect to the Group’s industry segments follows:

Mercedes-Benz Passenger Cars & smart. This segment includes ac-
tivities 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.

Chrysler Group. This segment includes the research, design, manu-
facture, assembly and sale of cars and trucks under the brand
names Chrysler, Plymouth, Jeep® and Dodge and related automo-
tive parts and accessories.

Commercial Vehicles. 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 un-
der the brand names Mercedes-Benz and Freightliner.

Services. The activities in this segment extend to the marketing of
services related to information technology, financial services (prin-
cipally retail and lease financing for vehicles and dealer financ-
ing), insurance brokerage, trading as well as telecommunications
and media (in 1998 and 1997).

Aerospace. This division comprises the development, manufacture
and sale of commercial and military aircraft and helicopters, satel-
lites and related space transportation systems, defense-related
products, including radar and radio systems, and propulsion sys-
tems.

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O
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Other. Represents principally the Directly Managed Businesses in-
cluding rail systems (including 50% interest in Adtranz in 1998
and 1997), automotive electronics (including microelectronics in
1997) 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 sig-
nificant 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 in-
come and income taxes included in the consolidated statement of
income, modified to exclude certain pension and postretirement
benefit costs, to include certain financial income, net and to in-
clude or exclude certain miscellaneous items, principally repre-
senting merger costs in 1998. Additionally, in 1999 the pre-tax
gains on the sales of shares in debitel of €1,140 (see Note 9) have
been included in the measurement of the Services segment operat-
ing profit since such amounts were included in the Group’s mea-
surement of the segment’s performance.

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 respec-
tive units.

Capital expenditures represent the purchase of property, plant and
equipment.

1999

Revenues

Intersegment sales

Total revenues

Operating Profit (Loss)

Identifiable segment assets

Capital expenditures

Depreciation and amortization

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

Mercedes-Benz
Passenger Cars
& smart

Chrysler
Group

Commercial
Vehicles

Services

Aero-
space

Other

Elimi-
nations

Consoli-
dated

35,592

63,666

25,480

10,662

9,144

5,441

–

149,985

2,508

419

1,215

2,270

411

(6,870)

–

38,100

64,085

26,695

12,932

9,191

5,852

(6,870)

149,985

2,703

5,051

1,067

2,039

730

(399)

(179)

11,012

17,611

49,825

11,549

77,266

11,934

65,368

(58,886)

174,667

2,228

1,580

5,224

3,346

770

677

324

3,348

336

290

589

275

(1)

(187)

9,470

9,329

30,859

56,350

22,374

10,371

8,722

3,106

–

131,782

1,728

788

1,039

420

(4,085)

–

32,587

56,412

23,162

11,410

8,770

3,526

(4,085)

131,782

1,993

4,255

946

985

623

(130)

(79)

8,593

17,098

38,121

11,936

49,625

12,970

33,653

(27,254)

136,149

1,995

1,310

3,920

2,837

832

692

285

2,038

326

289

797

293

–

(168)

8,155

7,291

S
E
T
O
N

R
E
H
T
O

107

25,874

52,023

19,481

8,679

7,751

3,764

–

117,572

1,680

531

725

257

(3,261)

–

27,554

52,026

20,012

9,404

7,816

4,021

(3,261)

117,572

1,716

3,412

342

777

284

(214)

(87)

6,230

15,003

38,976

11,000

41,921

11,174

23,926

(17,169)

124,831

1,885

1,160

4,501

2,288

601

687

193

1,627

255

306

635

324

(19)

(170)

8,051

6,222

Capital expenditures for equipment on operating leases for 1999, 1998 and 1997 for the Services segment amounted to €16,144, €7,188
and €4,861, respectively.

Income before financial income,
income taxes and extraordinary items

Not allocated:

certain pension and postretirement
benefit costs

miscellaneous (1998: principally
merger costs)

Allocated:

1999

1998

1997

9,324

7,330

5,512

379

688

721

150

746

certain financial income, net

(171)

(38)

extraordinary item - gains on
disposals of a business
(before income taxes; see Note 9)

Consolidated operating profit

1,140

–

11,012

8,593

6,230

(in millions of €, except per share amounts)

Revenues

1999

1998

1997

*) Excluding Germany.

Germany

European
Union*)

Other
American
countries

U.S.

Other
countries

Consoli-
dated

Asia

28,393

21,567

78,104

11,727

4,796

5,398

149,985

24,918

20,072

65,300

11,519

4,311

5,662

131,782

21,317

17,132

56,615

10,576

5,587

6,345

117,572

An income tax charge of €812 relating to changes in German tax
laws was included in the consolidated statement of income for the
year ended December 31, 1999 and resulted in a reduction of basic
and diluted earnings per share of €0.81 and €0.80, respectively
(see Note 8). In 1998, merger costs of €401 (net of tax) impacted
basic and diluted earnings per share by a decrease of €0.42 and
€0.41. In 1997, tax benefits relating to a special distribution and to
a decrease in the deferred tax asset valuation allowance of €2,490
resulted in an increase of basic and diluted earnings per share by
€2.62 and €2.57, respectively.

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 Ordi-
nary Shares on December 31, 1997. For the same reason, convert-
ible 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 shares
of DaimlerChrysler Ordinary Shares as of December 31, 1997 were
not included in the computations of diluted earnings per share be-
cause the options’ exercise prices were greater than the average
market price of DaimlerChrysler Ordinary Shares during the pe-
riod.

3 2 . F O R M A T I O N O F E A D S
In October 1999, DaimlerChrysler, the French Lagardère Group
and the French government agreed to merge their respective aero-
space and defense activities into a new company. In December
1999, Sociedad Estatal de Participaciones Industriales (SEPI)
agreed to join the Franco-German alliance. The new corporation,
to be called European Aeronautic, Defense and Space Company
(EADS), will be established through a merger of Aerospatiale
Matra S.A., DaimlerChrysler Aerospace AG and Construcciones
Aeronauticas S.A. (CASA). The transaction is expected to be com-
pleted in the first half of 2000. Consummation of the merger is
subject to various conditions, including among others, approval of
certain governmental authorities.

Germany accounts for €14,711 of long-term assets (1998: €12,953;
1997: €12,040), the U.S. for €43,036 (1998: €25,344; 1997:
€22,632) and other countries for €12,701 (1998: €11,309; 1997:
€9,797).

3 1 . E A R N I N G S P E R S H A R E
The computation of basic and diluted earnings per share for “In-
come before extraordinary items” is as follows (in millions of euros
or millions of shares, except earnings per share):

Year ended December 31,

1999

1998

1997

S
E
T
O
N

R
E
H
T
O

108

Income before extraordinary items

5,106

4,949

6,547

Less: preferred stock dividends

–

(1)

Income before extraordinary items -
basic

5,106

4,949

6,546

Income before extraordinary items

5,106

4,949

6,547

Interest expense on convertible
bonds and notes (net of tax)

Income before extraordinary items –
diluted

5,124

4,969

6,566

Weighted average number of shares
outstanding – basic

1,002.9

959.3

949.3

Dilutive effect of convertible bonds
and notes

10.7

19.8

12.8

Shares issued on exercise of
dilutive options

Shares purchased with proceeds
of options

Shares applicable to convertible
preferred stock

Shares contingently issuable

–

18.3

17.7

(11.8)

(13.5)

0.2

1.3

0.8

1.1

Weighted average number of shares
outstanding – diluted

1,013.6

987.1

968.2

Earnings per share before
extraordinary items

Basic

Diluted

5.09

5.06

5.16

5.04

6.90

6.78

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

Rudolf Kuda *)
Frankfurt am Main
Retired Head of Department,
Executive Council,
German Metalworkers’ Union

G. Richard Thoman
Stamford
President and Chief
Executive Officer
of Xerox Corporation

Erich Klemm *)
Sindelfingen
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.

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.

Manfred Göbels *)
Stuttgart
Chairman of the Management
Representative Committee,
DaimlerChrysler Group

Bernhard Walter
Frankfurt am Main
Chairman of the Board of
Managing Directors of
Dresdner Bank AG

Lynton R. Wilson
Toronto
Chairman of the Board
of BCE Inc.

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

Robert J. Lanigan
Toledo
Chairman Emeritus
of Owens-Illinois, Inc.

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

Gerd Rheude *)
Wörth
Chairman of the Works Council,
Wörth Plant,
DaimlerChrysler AG
(since May 6, 1999)

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

Peter Schönfelder *)
Augsburg
Chairman of the Works Council,
Augsburg Plant,
DaimlerChrysler Aerospace AG

Committees of the
Supervisory Board:

Mediation Committee
(Committee pursuant to
§ 27 Sec. 3 MitbestG
(Codetermination Act))

Hilmar Kopper (Chairman)
Erich Klemm
Dr. rer. pol. Manfred Schneider
Bernhard Wurl

Presidential Committee

Hilmar Kopper (Chairman)
Erich Klemm
Dr. rer. pol. Manfred Schneider
Bernhard Wurl

Financial Audit Committee

Hilmar Kopper (Chairman)
Erich Klemm
Willi Böhm
Bernhard Walter

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*) Employee elected
representatives

Retired from the
Supervisory Board:

Karl Feuerstein †
Mannheim
Former Chairman of the
Corporate Works Council,
DaimlerChrysler AG and
DaimlerChrysler Group

retired April 30, 1999,
deceased November 16, 1999

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

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The Supervisory Board and the Board of Management met
in four ordinary and two extraordinary meetings during
the 1999 business year to discuss the state of the company,
the progress of integration, the strategic development of
the divisions and various other issues.

The Presidential Committee met three times in 1999 to discuss
personnel issues of the Board of Management as well as other
questions concerning the company’s corporate governance.
The Financial Audit Committee convened twice with the inde-
pendent auditors to discuss in detail the financial statements
for 1998 and the Half-Year Financial Statement for 1999. The
committee also addressed the issue of commissioning KPMG
Deutsche Treuhand-Gesellschaft AG a financial auditing firm
with the final audit and determined the audit emphasis for the
business year. The Mediation Committee, a body required by
German industrial co-determination law, was not required to
convene.

The Board of Management kept the Supervisory Board con-
tinuously informed of business developments as well as the
financial state of the company and its business units through
monthly reports and discussions during the various meet-
ings. The Board of Management also reported in writing to
the Supervisory Board on any extraordinary activities. In
addition, the Chairman of the Supervisory Board was kept
informed through numerous discussions with the Board of
Management throughout the year.

Integration issues, particularly in the automotive divisions,
dominated the agenda of the Supervisory Board in 1999. A
further key issue was the strategic development of the other
businesses of the Group. Questions relating to the product
portfolio and regional strategies in the automotive business
were discussed as well as the expansion of the IT-activities
of the Group and the contribution of business units into
powerful joint ventures like the Astrium space company.

In its February 1999 meeting, the Supervisory Board voted
to increase its rights under existing corporate law by sub-
jecting a catalogue of actions to its approval. At the meeting,
the Supervisory Board also discussed and approved the
medium-term corporate planning for the period 1999-2001, in-
cluding planning for investment, human resources and earn-
ings, as well as the refinancing limit of the company. The
decision to acquire the remaining stake in Adtranz created the
conditions necessary for implementing a comprehensive re-
structuring program designed to improve Adtranz’ competitive
position over the long term.

The March 1999 Supervisory Board meeting focused on the
1998 financial statements for the DaimlerChrysler AG legal
entity and group and preparations for the Annual General
Meeting. At this meeting, the Board of Management also pro-
vided the Supervisory Board with detailed information on
strategic considerations for the automotive businesses.

Karl Feuerstein retired as Deputy Chairman and member of
the Supervisory Board, effective April 30, 1999. As his
successor and at the request of the Corporate Works Coun-
cil, the Stuttgart Municipal Court named Gerd Rheude a
member of the Supervisory Board of DaimlerChrysler AG,
effective May 6, 1999. Feuerstein died on November 16,
1999, after a long period of serious illness. The Supervisory
Board mourns the loss of Karl Feuerstein, an exceptional
individual whose many years of service to DaimlerChrysler
have left a lasting mark on the company.

After the Annual General Meeting on May 18, 1999, the
Supervisory Board was reconstituted. Hilmar Kopper was
elected Chairman of the Board and Erich Klemm was
elected Deputy Chairman. At this time, the members of
the Mediation Committee, the Presidential Committee and
the Financial Audit Committee were also elected.

The meeting in the summer of 1999 was dominated by the
strategic developments at DaimlerChrysler Aerospace AG
(Dasa), particularly in terms of the consolidation and reor-
ganization of the European aerospace industry. The meeting
focused on the promotion of international mergers as a

means of improving global competitiveness and accelerating
the optimization of successful programs such as Airbus and
the Eurofighter. Another topic at the meeting was the decision
to promote the Mercedes-Benz SLR as a unique vehicle
combining typical Mercedes design, pioneering innovation,
safety and performance, thus underscoring the brand’s pre-
mium position in the sports car segment. In addition to the
successful transfer of technology and image attributes from
Formula One into series production, the SLR also signifies
the continuation of the Silver Arrows legend. The initial
public offering of debitel and the sale of a part of the debitel
shares to Swisscom AG reflected the rapid changes taking
place on the international telecommunications market. The
choice of Swisscom AG as a partner will guarantee further
long term growth potential for this business unit.

In an extraordinary meeting on September 24, 1999, the
Supervisory Board turned its attention to the new corporate
structure, the allocation of responsibilities and the person-
nel changes at the Board of Management level. With the
successful completion of the integration process, Theodor R.
Cunningham, Dr. Kurt J. Lauk, Thomas T. Stallkamp and
Heiner Tropitzsch stepped down from the Board of Manage-
ment, effective September 30, 1999. The Supervisory Board
appointed Günther Fleig as a full member of the Board of
Management, responsible for the Human Resources depart-
ment, and as labor relations director, effective October 1,
1999. James P. Holden was appointed Head of the Chrysler
Group division, and Dr. Dieter Zetsche was named Head of the
Commercial Vehicles division. The new management structure
reflects the global nature of DaimlerChrysler’s vehicles busi-
ness and ensures a stronger focus on customers and markets.

The last Supervisory Board meeting of the 1999 business
year, which took place in December, addressed medium-
term corporate planning for the period 2000-2002, includ-
ing planning for investment, human resources and earnings,
as well as the refinancing limit for the company. The other key
issue at the meeting was the consolidation of aerospace
activities in the European Aeronautic Defence and Space
Company.

The DaimlerChrysler financial statements for 1999 and the
business review report were audited by the KPMG Deutsche
Treuhand-Gesellschaft AG, Berlin and Frankfurt/Main, and
certified without qualification.

The same applies to the consolidated financial statements
according to US GAAP. These were supplemented by a con-
solidated business review report and additional notes in
accordance with Article 292a of the German Commercial
Code (HGB). In accordance with Article 292a, the US GAAP
consolidated financial statements presented in this report
grant exemption from the obligation of producing consoli-
dated financial statements according to German law.

All financial statements and the appropriation of earnings
proposed by the Board of Management as well as the auditors’
reports were submitted to the Supervisory Board. These were
inspected by the Financial Audit Committee and the
Supervisory Board and discussed in the presence of the
auditors. The Supervisory Board has declared itself in
agreement with the result of the final audit and has estab-
lished that there are no objections to be made.

In its meeting on February 25, 2000, the Supervisory Board
approved the consolidated financial statements and the
financial statements of DaimlerChrysler AG for 1999, and
consented to the appropriation of earnings proposed by
the Board of Management.

The Supervisory Board expresses its thanks to the
DaimlerChrysler Board of Management, the company’s
employees, and those Board of Management members
who have retired, for their tremendous individual efforts
and shares their happiness on the great successes
achieved in DaimlerChrysler’s first full year of operation.

Stuttgart-Möhringen, February 2000

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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

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M

112

Mercedes-Benz Passenger Cars & smart

Micro Compact Car smart GmbH, Renningen4)

Mercedes-Benz U.S. International, Inc., Tuscaloosa

Mercedes-Benz India Ltd., Poona

DaimlerChrysler South Africa (Pty.) Ltd., Pretoria4)

Chrysler Group

DaimlerChrysler Corporation, Auburn Hills

DaimlerChrysler Canada, Inc., Windsor

Eurostar Automobilwerk GmbH & Co. KG, Graz

DaimlerChrysler Transport, Inc., Detroit

DaimlerChrysler de Mexico S.A. de C.V., Mexico City

Commercial Vehicles Mercedes-Benz, Freightliner, Sterling, Setra, Thomas Built Buses

EvoBus GmbH, Stuttgart4)

Mercedes-Benz Lenkungen GmbH, Mülheim/Ruhr

Mercedes-Benz España S.A., Madrid

NAW Nutzfahrzeuge AG, Arbon

Freightliner Corporation, Portland4)

Mercedes-Benz Mexico S.A. de C.V., Mexico-City4)

Mercedes-Benz do Brasil S.A., São Bernando do Campo

Mercedes-Benz Argentina, Buenes Aires4)

Mercedes-Benz Group Indonesia, Jakarta4)

Mercedes-Benz Türk A.S., Istanbul

Vehicle Sales Organization

Mercedes-Benz USA, Inc., Montvale4)

DaimlerChrysler France S.A.S, Rocquencourt4)

DaimlerChrysler Belgium S.A./N.V. Brussels

DaimlerChrysler Nederland B.V., Utrecht4)

Mercedes-Benz (United Kingdom) Ltd., Milton Keynes4)

DaimlerChrysler Danmark AS, Hillerød

DaimlerChrysler Sverige AG, Stockholm

Mercedes-Benz Italia S.p.A, Rome4)

Mercedes-Benz (Switzerland) AG, Zurich

Mercedes-Benz Hellas S.A., Athens

DaimlerChrysler Japan Co. Ltd., Tokyo

DaimlerChrysler (Australia/Pacific) Pty. Ltd., Mulgrave/Melbourne4)

Ownership 1)
in %

Stockholders’
Equity in
Millions 2)
of €

Revenues 3)
in Millions of €

Employment
at Year-End

100.0

86.0

100.0

(120)

499

133

* 5)

203

2,281

1,644

985

864

1,448

1,780

328

1,281

1,699

344

3,503

3,418

100.0

15,551

67,890

59,003

129,395

130,329

* 5)

273

239

* 5)

362

213

114

* 5)

100.0

95.0

66.9

100.0

14,1826)

11,8506)

17,331

17,125

8056)

1156)

7506)

946)

1,464

1,555

981

931

6,0056)

5,3136)

11,235

11,125

1,887

1,685

10,337

256

252

2,448

2,252

1,387

4,992

320

9,939

1,459

4,477

374

10,355

6,805

18,940

14,870

523

420

2,683

2,161

1,427

2,058

10,677

11,031

469

471

649

662

1,209

1,246

3,427

1,689

1,225

3,696

8,607

2,577

948

1,032

3,307

262

348

6,775

2,165

831

912

3,080

247

297

2,293

2,041

777

174

667

158

2,222

1,498

1,457

1,751

554

579

937

310

312

598

307

153

597

849

1,352

1,645

524

1,034

304

271

628

278

150

403

778

139

773

505

Ownership 1)
in %

Stockholders’
Equity in
Millions 2)
of €

Revenues 3)
in Millions of €

Employment
at Year-End

Services

DaimlerChrysler Services (debis) AG, Berlin

debis Systemhaus GmbH, Leinfelden-Echterdingen

Mercedes-Benz Finanz GmbH, Stuttgart

Mercedes-Benz Leasing GmbH, Stuttgart

Mercedes-Benz Credit Corporation, Norwalk

Chrysler Financial Company L.L.C., Southfield

Chrysler Capital Company L.L.C., Stamford

Chrysler Insurance Company, Southfield

Aerospace

DaimlerChrysler Aerospace AG, Munich

DaimlerChrysler Aerospace Airbus GmbH, Hamburg

Dornier GmbH, Friedrichshafen

Dornier Satellitensysteme GmbH, Munich

Eurocopter S.A., Marignane

Eurocopter Deutschland GmbH, Ottobrunn

MTU Motoren- und Turbinen-Union München GmbH, Munich

LFK Lenkflugkörpersysteme GmbH, Munich

Nortel Dasa Network Systems GmbH & Co. KG, Friedrichshafen

Other Businesses8)

DaimlerChrysler Rail Systems GmbH, Berlin

TEMIC TELEFUNKEN microelectronic GmbH, Nurnberg

MTU Motoren- und Turbinen-Union Friedrichshafen GmbH, Friedrichshafen

Regional Holding and Finance Companies

DaimlerChrysler North America Holding Corporation, Auburn Hills

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 España Holding S.A., Madrid

100.0

57.6

100.0

75.0

100.0

70.0

50.0

100.0

88.4

100.0

989

187

425

930

2,207

599

230

2,147

616

205

632

107

124

506

333

410

19,594

101

152

276

256

379

212

483

182

1,148

1,544

2,022

183

171

206

168

2,304

1,086

840

* 7)

818

641

* 7)

716

3,028

3,232

167

184

1,772

12,562

10,994

P
U
O
R
G

R
E
L
S
Y
R
H
C
R
E
L
M

A
D

E
H
T

F
O

S
E

R
A

S
B
U
S

R
O

A
M

2,970

15,073

14,645

113

569

232

1,325

1,829

3,016

243

196

2,221

3,440

334

673

347

683

1,139

1,179

462

451

1,340

1,359

295

528

348

351

1,901

1,436

5,984

3,406

5,201

1,220

1,107

1,933

1,507

6,198

3,206

5,169

1,230

953

3,562

3,316

23,239

23,785

890

959

754

921

5,173

5,885

4,638

5,893

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 revenues of the preconsolidated financial statements.
7) Included in Mercedes-Benz Finanz GmbH.
8) Amounts according to U.S. GAAP.

F I V E - Y E A R - S U M M A R Y

– in millions of € –

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 (excluding one-time effects) (€)

Diluted net income per share (excluding one-time effects) (€)

Cash dividend

Cash dividend per share (€)

Cash dividend including tax credit2) per share (€)

From the balance sheets:

Property, plant and equipment

Y
R
A
M
M
U
S
-
R
A
E
Y
-
E
V

114

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 (average of the year)

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) Excluding one-time positive tax effects, especially special pay-out of €10.23 per share.
2) For our stockholders who are taxable in Germany.

–

(1.52)

–

91,040

101,415

117,572

131,782

149,985

21,648

23,370

25,033

26,940

17,143

18,656

19,982

21,044

(1,171)

5,693

–

(1,476)

4,022

5,751

6,212

6.1%

408

4.09

4.05

4.24

4.20

–

6,501

6,230

5.3%

633

6,145

4,946

10.9%

6,547

4.281)

4.211)

4.28

4.21

–

6,693

8,593

6.5%

763

8,093

6,359

12.7%

4,820

5.03

4.91

5.58

5.45

7,575

11,012

7.3%

333

9,657

7,032

13.2%

5,746

5.73

5.69

6.21

6.16

2,356

2,358

2.35

3.36

2.35

3.36

23,111

28,558

29,532

36,434

7,905

11,092

14,662

27,249

54,888

68,244

75,393

93,199

12,851

17,325

19,073

18,201

91,597

101,294

124,831

136,149

174,667

19,488

22,355

27,960

30,367

36,060

2,525

2,444

2,391

2,561

2,565

–

–
–

982.2

1,009.2

31,988

35,787

34,629

37,695

41,672

54,313

62,527

90,560

25,496

34,375

40,430

64,488

114%

123%

133%

179%

36,989

45,953

47,601

55,291

41,950

50,918

58,181

83,316

–

85%

79%

66%

45,252

50,062

53,174

–

A +

A 1

A +

A 1

6,721

4,891

4,427

1,159

9,956

8,051

7,225

5,683

1,456

8,155

9,470

10,245

19,336

4,937

1,972

5,655

3,315

12,337

16,681

18,023

(8,745)

(14,530)

(23,445)

(32,110)

–
–

981.6

994.0

–
–

83.60
96 1/16

77.00
78 1/4

949.3

968.2

959.3

1,002.9

987.1

1,013.6

–

419,758

421,661

433,939

463,561

S
E
C

F
F
O

N
O

I
T
A
T
N
E
S
E
R
P
E
R

L
A
N
O

I
T
A
N
R
E
T
N

115

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

Berlin
Phone: +49 30 2594 1100
+49 30 2594 1109
Fax:

Bonn
Phone: +49 228 5404 100
+49 228 5404 109
Fax:

Abidjan
Phone: +225 25 77 96
+225 25 44 15
Fax:

Abu Dhabi
Phone: +97 12 436 531
+97 12 436 650
Fax:

Bangkok
Phone: +66 2 676 5900 1152
+66 2 676 5936
+66 2 676 5949

Fax:

Beijing
Phone: +86 10 6590 0158
+86 10 6590 0159
Fax:

Brussels
Phone: +32 2 23311 33
+32 2 23311 80
Fax:

Budapest
Phone: +361 346 0303
+361 315 1423
Fax:

Buenos Aires
Phone: +54 11 4808 8719
+54 11 4819 1336
Fax:

Cairo
Phone: +20 2 5790 197/198
+20 2 5790 196
Fax:

Caracas
Phone: +58 2 573 59 45
+58 2 576 06 94
Fax:

Hanoi
Phone: +84 8 8958 711
+84 8 8958 714
Fax:

Hong Kong
Phone: +85 2 2594 8876
+85 2 2594 8801
Fax:

Istanbul
Phone: +90 212 482 3500
+90 212 482 3521
Fax:

Kiev
Phone: +38 044 255 5251
+38 044 225 5288
Fax:

Ljubljana
Phone: +386 61 1883 797
+386 61 1883 799
Fax:

London
Phone: +44 207766 8998
+44 207766 9279
Fax:

Madrid
Phone: +34 91 484 6161
+34 91 484 6019
Fax:

Melbourne
Phone: +61 39 566 9266
+61 39 566 9110
Fax:

Mexico
Phone: +525 57 291 376
+525 53 331 674
Fax:

Moscow
Phone: +7 095 797 5350
+7 095 797 5352
Fax:

New Delhi
Phone: +91 11410 4959
+91 11410 5226
Fax:

Paris
Phone: +33 1 39 23 54 00
+33 1 39 23 54 42
Fax:

Pretoria
Phone: +27 12 677 1502
+27 12 666 8191
Fax:

Rome
Phone: +39 06 41 898405
Fax:

+39 06 41 219097 - 88

São Paulo
Phone: +55 11 758 7171/6611
+55 11 758 7118
Fax:

Seoul
Phone: +82 2 735 3496
+82 2 737 8965
Fax:

Singapore
Phone: +65 849 8321
+65 849 8493
Fax:

Skopye
Phone: +389 91362106
+389 91362106
Fax:

Taipei
Phone: +886 2 2783 9745
+886 2 2783 0593
Fax:

Tashkent
Phone: +998 71 120 6374
+998 71 120 6674
Fax:

Tel Aviv
Phone: +972 9957 9091
+972 9957 6872
Fax:

Tokyo
Phone: +81 3 5572 7172
+81 3 5572 7126
Fax:

Warszawa
Phone: +48 22 6977041
+48 22 6548633
Fax:

Washington D.C.
Phone: +1 202 414 6747
+1 202 414 6716
Fax:

Windsor, Ontario
Phone: +1 519 973 2101
+1 519 973 2226
Fax:

Zagreb
Phone: +38 5 1 48123 21
+38 5 1 48123 22
Fax:

A D D R E S S E S

DaimlerChrysler AG
70546 Stuttgart
Germany
Tel. +49 711 17 1
Fax +49 711 17 94022
www.daimlerchrysler.com

DaimlerChrysler Corporation
Auburn Hills, MI 48326-2766
USA
Tel. +1 248 576 5741
Fax +1 248 576 4742
www.daimlerchrysler.com

DaimlerChrysler Services AG
debis Haus am Potsdamer Platz
D-10875 Berlin
Tel. +49 30 2554 0
Fax +49 30 2554 2525
www.debis.com

DaimlerChrysler Aerospace AG
D-81663 München
Tel. +49 89 607 0
Fax +49 89 607 26481
www.dasa.com

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116

I N F O R M A T I O N

DaimlerChrysler
Railsystems GmbH
D-13627 Berlin
Tel. +49 30 3832 0
Fax +49 30 3832 2000
www.adtranz.com

TEMIC TELEFUNKEN
microelectronic GmbH
D-90411 Nürnberg
Tel. +49 911 9526 0
Fax +49 911 9526 354
www.temic.de

MTU Friedrichshafen GmbH
D-88040 Friedrichshafen
Tel. +49 7541 90 0
Fax +49 7541 90 2247
www.mtu-friedrichshafen.com

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

The complete Annual Report, Form 20-F and the
interim reports are available on the Internet. The
most important financial charts can also be
accessed. Our address is:

www.daimlerchrysler.com

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)

The financial statements of DaimlerChryler Akti-
engesellschaft prepared in accordance with
German GAAP were audited by KPMG Deutsche
Treuhand-Gesellschaft Aktiengesellschaft Wirt-
schaftsprüfungsgesellschaft and an unqualified
opinion was rendered thereon. These financial
statements will be published in the Bundesanzeiger
(Federal Official Gazette) and filed at the District
Court House in Stuttgart. The financial statements
may be obtained from DaimlerChrysler free of
charge.

Investor Relations

contact

Stuttgart

Phone

(+49) 711-17 92286

17 92261
17 95277

Fax

(+49) 711-17 94075
17 94109

Auburn Hills

Phone

(+1) 248 512 2950

Fax

(+1) 248 512 2912

DaimlerChrysler

online

Additional information on DaimlerChrysler is available on the Internet
www.DaimlerChrysler.com