Daimler AG
Annual Report 2001

Plain-text annual report

Answers for questions to come Annual Report 2001 Key Figures DaimlerChrysler Group Amounts in millions 01 US $1) 01 00 99 01:00 Change in % Revenues 136,072 152,873 162,384 149,985 European Union of which: Germany North America of which: USA Other markets 40,624 45,640 50,348 49,960 20,612 23,157 25,988 28,393 81,814 91,916 95,939 87,083 72,216 81,132 84,503 78,104 13,634 15,317 16,097 12,942 Employees (at year-end) 372,470 416,501 466,938 Research and development costs 5,348 6,008 7,395 7,575 Investments in property, plant and equipment 7,918 8,896 10,392 9,470 Cash provided by operating activities 14,192 15,944 16,017 18,023 Operating profit (loss) (1,173) (1,318) 9,752 11,012 Operating profit adjusted3) 1,197 1,345 5,213 10,316 Net income (loss) per share (in US $/ ) Net income adjusted3) per share (in US $/ )3) Total dividend Dividend per share (in ) (589) (662) 7,894 5,746 (0.59) (0.66) 7.87 5.73 650 0.65 893 730 0.73 3,481 6,226 3.47 6.21 1,003 2,358 2,358 1.00 2.35 2.35 1) Rate of exchange: 1 = US $0.8901 (based on the noon buying rate on Dec. 31, 2001). 2) A 1% decrease after adjusting for changes in the consolidated Group. 3) Excluding one-time effects, see pages 54-60. -62) -9 -11 -4 -4 -5 -11 -19 -14 -0 . -74 . . -79 -79 -57 -57 A product range with infinite possibilities Divisions Mercedes-Benz Passenger Cars & smart Amounts in millions Operating profit Operating profit adjusted Revenues Investments in property, plant and equipment Research and development Unit sales Employees (Dec. 31) Chrysler Group Amounts in millions Operating profit (loss) Operating profit (loss) adjusted Revenues Investments in property, plant and equipment Research and development Unit sales Employees (Dec. 31) Commercial Vehicles Amounts in millions Operating profit (loss) Operating profit adjusted Revenues Investments in property, plant and equipment Research and development Unit sales Employees (Dec. 31) Services Amounts in millions Operating profit Operating profit adjusted Revenues Investments in property, plant and equipment Employees (Dec. 31) Other Activities Amounts in millions Operating profit Operating profit adjusted Revenues Investments in property, plant and equipment Research and development Employees (Dec. 31) 01 US $ 2,627 2,636 01 € 2,951 2,961 00 € 2,145 2,874 42,462 47,705 43,700 1,834 2,138 2,061 2,402 2,096 2,241 1,229,688 1,154,861 102,223 100,893 01 US $ (4,701) (1,943) 56,506 4,524 1,959 01 € (5,281) (2,183) 63,483 5,083 2,201 00 € 501 531 68,372 6,339 2,456 2,755,919 3,045,233 104,057 121,027 01 US $ (458) 45 01 € (514) 51 00 € 1,212 1,253 25,432 28,572 29,804 1,321 903 1,484 1,015 1,128 974 492,851 548,955 96,644 101,027 01 US $ 545 514 01 € 612 578 00 € 2,457 641 14,999 16,851 17,526 100 112 9,712 282 9,589 01 US $ 1,051 182 4,012 150 347 01 € 1,181 205 00 € 3,590 67 4,507 10,615 168 390 547 1,753 21,101 47,108 % change +38 +3 +9 -2 +7 +6 +1 % change . . -7 -20 -10 -10 -14 % change . -96 -4 +32 +4 -10 -4 % change -75 -10 -4 -60 +1 % change -67 +206 -58 -69 -78 -55 Our Passenger Car Brands Our Commercial Vehicle Brands Our Alliance Partner Our Strategic Partner 1 Answers for questions to come With its strong brand portfolio, its comprehensive product range and its global presence, DaimlerChrysler is a company with almost infinite possibilities. We aim to enthuse our customers with our products and services, and to apply innovative technology to make the traffic of tomorrow even safer, as well as more economical and environment friendly. To these ends we focus our global resources and the knowledge, experience and energy of our employees. 2 6 8 Chairman’s Letter  Board of Management Business Review 12 Outlook  16 The Executive Automotive Committee 18 20 DaimlerChrysler Worldwide Special Section: The “Vision of Accident-Free Driving” 26 Operating Activities 26 30 34 38 40 44 46 48 50 52 54 68 Mercedes-Benz Passenger Cars & smart Chrysler Group  Commercial Vehicles Services  Other Activities  Research and Technology  DaimlerChrysler and the Environment  Global Procurement and Supply  Human Resources The DaimlerChrysler Shares Analysis of the Financial Situation Financial Statements  117 118 Supervisory Board  Report of the Supervisory Board  120 Major Subsidiaries  122 Six-Year Summary  123 124 International Representative Offices Addresses & Information    2 Chairman‘s Letter No one will forget 2001. The shocking and deeply regrettable tragedies of September 11 have since inspired a set of values and memories that will enshrine forever the lessons of that day. The attacks unleashed an unprecedented and decisive global response to terrorism. It was an answer strengthened by passionate solidarity and marked by the firm, unbreakable resolve of a united international community. DaimlerChrysler’s reaction during the immediate aftermath was characterized by spontaneous and heartfelt support for all those affected by the attacks. We also expressed our grief and compassion through substantial material aid. Our company remains profoundly and acutely connected to the grim realities of that day. Notwithstanding this, it was essential for us to meet our commitments for 2001. Performance in 2001. It is now a matter of record that with an operating profit of €1.3 billion, we reached our anticipated earnings range for 2001. We are certainly not satisfied with this result, but it should be considered that it was achieved in an extremely difficult environment, particularly in the later part of the year. For Mercedes-Benz and smart, however, 2001 was an excellent year with new records in revenue, sales and profit. With over 1.1 million vehicles sold, Mercedes-Benz is today the world’s leading luxury car brand. The resounding success of the C-Class family and strong demand for the new SL were two of the factors driving growth to unprecedented levels and further enhancing the brand’s position. The now well established smart brand also overachieved its sales targets. At Chrysler Group we implemented our ambitious turnaround program with real signs of success. Despite highly competitive market conditions in 2001, Chrysler Group exceeded the objectives set for its cost reduction program and surpassed slightly the upper end of its earnings’ predictions. In a US market artificially fuelled by high cash discounts and zero percent financing we managed to introduce a selective incentive program. New and extremely appealing products, exemplified by the Jeep Liberty, the Chrysler PT Cruiser and the Dodge Ram, as well as many others in the pipeline, are good reason for optimism at Chrysler Group. The results of our Commercial Vehicles division, the world’s largest manufacturer of vans, trucks and buses, mirrors the downturn in North America and the weakening markets of Europe. At Freightliner, the new management announced an effective turnaround plan in October. By the end of last year the changes had shown early results. Inventories on new and used trucks were brought back considerably. Other areas of our Commercial Vehicles division were able to continue their excellent performance. Our van operation, for example, already market leader in Europe, extended its product range by introducing the very successful Sprinter in North America. At DaimlerChrysler Services, the increased pressure on margins in the US market had a negative impact. Our Services division will continue adding value to the automotive business through even stronger support of our operations. It will also pursue its policy of divesting non-core activities. Chairman‘s Letter 3 Finally, at our strategic partner Mitsubishi Motors Corporation (MMC), we have increased our stake to 37.3%. We now have the potential to cooperate with the Commercial Vehicles division of MMC, as well. The turnaround plans at Mitsubishi Motors are yielding promising results. Initiatives aimed at increasing productivity and quality, along with considerable improvements in cost structures, are under way. The management of MMC is confident that it will reach break-even during that company’s current financial year ending March 2002. For the rest of 2002, one will have to take into consideration the extremely difficult market conditions prevailing in Japan. Group outlook 2002. The global automotive business is currently experiencing the toughening markets the Chrysler Group started to feel as early as 2000. We said then, at the onset of the American industry’s downturn, that while Chrysler Group may have to be one of the major automobile manufacturers to enter this valley, we would also be first out. That, we believe, is beginning to happen. The year in view, however, promises to be another demanding one, with several major economies facing weaker growth. The world economy has moved off a solid base. Consequently, DaimlerChrysler has reviewed and updated its planning assumptions to take into account the consequences of a weaker economic and market environment. In February 2001, the Group set targets for 2002 and beyond based on assumptions that were reasonable at that time, but which no longer apply. The reality is that the fundamentals for 2002 have become more uncertain and the task more challenging. Consequently, our current planning is conservative. DaimlerChrysler nevertheless expects Group operating profit for 2002 to be significantly in excess of twice the level of 2001. However, we remain confident that we will achieve results similar to those projected in February 2001, although at slightly later dates. DaimlerChrysler has taken the right steps to deal with the uncertain times that many predict lie ahead. 4 Chairman‘s Letter We are thus confident that our company’s strategy, set several years ago, will lead to our targeted occupation of the automotive industry’s number one spot. The strategy. DaimlerChrysler’s strategy is based on the four pillars of: ● Global presence through the development of dynamic operations in all important automotive markets, to profit from regional growth and to attract new customers; ● Strong brands, creating efficient and effective market pull at the same time as they promote customer loyalty; ● A broad product range, serving all customer needs, exploring and profiting from new market niches or segments and allowing savings through significant economies of scale; and finally ● Leadership in technology, underpinning DaimlerChrysler’s position as the world automotive industry’s foremost innovator and providing the key to further product differentiation. Stunning future products planned for the passenger car and commercial vehicle divisions emphasize the fact that ours remains the most exciting automotive company in the world. Our products are proof of the excellent performance level of DaimlerChrysler. DaimlerChrysler’s mix of premium brands and those suited for a wider market is one of the best balanced in our business. Backed by strong research and development, these brands will be at the cutting edge of technology in their respective segment, offering our customers the best there is in terms of innovation, design, safety, quality, service and the sheer enjoyment of owning one of our products. Implementation and execution. We are nevertheless conscious that even the best strategy needs energetic commitment to proper execution. For us, 2002 will therefore be another important year of implementation. What exactly do we mean by implementation? Perhaps it is best described as the productive drawing together and integrating of the many, complex strands that make up the unique fabric of DaimlerChrysler – our most vital process. In this regard, the impact of DaimlerChrysler’s Executive Automotive Committee (EAC) on management of product portfolios, technology, production capacities, as well as sales and marketing activities, has begun to pay off. The EAC continuously finds ways of saving costs and sharing technological know-how. This process allows us to develop and launch new products faster and even more efficiently. Another major focus is on multi-brand management. For us, the clear positioning of our brands is a key factor in the success of our automotive business. We have carefully positioned every one of our brands against its natural competitors. At the same time we have taken care to ensure that all of our brands are clearly separated from each other. Like no other competitor we cover the entire spectrum of products. In its totality, our brand portfolio is the strongest in the industry. We will build on this advantage. For 2002, the EAC will maintain its focus on the consistent and rigorous implementation of our strategy. Chairman‘s Letter 5 An unconditional commitment to our shareholders. DaimlerChrysler counts some 370,000 highly creative and multi-talented employees to whom I would like to express my sincere thanks for their outstanding commitment. These are the people who create the benchmarks that distinguish our company in the many markets it serves. First class execution, high energy levels, innovative thinking and excellent management are the qualities that will see us through the challenges of 2002 and the years that follow. We continue to rate as one of the world’s most respected employers. As a result the company attracts the best people who also understand and endorse DaimlerChrysler’s powerful commitment to its shareholders. Cautious optimism. We emphasize the caliber of these great human assets because of their critical importance in these times. In our opinion, the difficult economic climate of 2001 has clearly spilled over into 2002. Several factors over which we have little or no control will influence the global automotive industry’s short-term performance. Notwithstanding these uncertainties, we remain confident that our determination and ability to handle short-term demands will deliver outstanding medium to long-term results. For more than a century we have characteristically met corporate challenges with cool heads and resolved them with a high degree of accomplishment. This experience, backed by unequalled products and a magnificent team, will help generate the higher levels of profit our shareholders expect and deserve. Against this background, my colleagues on the Board of Management and I are firmly convinced that the years that lie ahead will bring great success to your company. Sincerely Yours Jürgen E. Schrempp 6 The Board of Management Manfred Bischoff Age: 59 Aerospace & Industrial Businesses Board Member Mitsubishi Motors Corporation Appointed until 2003 Manfred Gentz Age: 60 Finance & Controlling Appointed until 2003 Günther Fleig Age: 53 Human Resources & Labor Relations Director Appointed until 2004 Eckhard Cordes Age: 51 Commercial Vehicles Appointed until 2003 Jürgen Hubbert Age: 62 Mercedes-Benz Passenger Cars & smart Appointed until 2005 Rüdiger Grube Age: 50 Corporate Development Deputy Member of the Board of Management Appointed until 2004 The Board of Management 7 Jürgen E. Schrempp Age: 57 Chairman of the Board of Management Appointed until 2005 Klaus-Dieter Vöhringer Age: 60 Research & Technology Appointed until 2003 Klaus Mangold Age: 58 Services Appointed until 2003 Gary C. Valade Age: 59 Global Procurement & Supply Appointed until 2003 Dieter Zetsche Age: 48 Chrysler Group Appointed until 2003 Thomas W. Sidlik Age: 52 Procurement & Supply Chrysler Group Board Member Hyundai Motor Company Appointed until 2003 Wolfgang Bernhard Age: 41 Chief Operating Officer Chrysler Group Deputy Member of the Board of Management Appointed until 2003 8 Business Review Earnings target achieved despite difficult market conditions ■ Successful restructuring programs ■ Operating profit (adjusted for one-time effects) of €1.3 billion, within the target range ■ Net loss of €0.7 billion (2000: net income of €7.9 billion); excluding one-time effects, net income of €0.7 billion (2000: €3.5 billion) ■ Proposed dividend: €1.00 per share (2000: €2.35) Earnings impacted by restructuring charges and market weakness. In 2001, DaimlerChrysler achieved an operating profit excluding one-time effects of €1.3 billion (2000: €5.2 billion). This was within the target range announced in February 2001, despite a signifi- cantly more difficult environment. Particularly as a re- sult of the charges for turnaround activities at Chrysler Group, Freightliner and Mitsubishi Motors, there were negative one-time effects in a total amount of €2.7 bil- lion. Operating profit in 2000 was influenced by posi- tive one-time effects in a total amount of €4.5 billion. Including one-time effects, there was thus an operating loss of €1.3 billion (2000: operating profit €9.8 billion). The Mercedes-Benz Passenger Cars & smart divi- sion again increased its earnings. The earnings of the Commercial Vehicles and Services divisions decreased, however, and Chrysler Group reported an operating loss excluding one-time effects of €2.2 billion. The main reasons for the decline in earnings at Group level were the extremely competitive US market for passenger cars, minivans and light trucks, the dramatic contrac- tion of demand for heavy trucks in North America, continued pressure on margins in the financial services business, and weakening demand in important markets. The Group sustained a net loss of €0.7 billion (2000: net income €7.9 billion) and a loss per share of €0.66 (2000: earnings per share €7.87). Excluding one- time effects, both income and earnings per share were positive, but lower than in the prior year at €0.7 billion and €0.73 respectively (2000: €3.5 billion and €3.47 respectively). (see pp. 54-60). €1.00 dividend. The Board of Management and the Supervisory Board will propose to the shareholders at the Annual Meeting that a dividend of €1.00 per share is distributed (2000: €2.35). The total dividend distribu- tion will therefore amount to €1,003 million (2000: €2,358 million). The dividend level proposed is related to the year’s earnings. However, DaimlerChrysler is confident that it will take profits to much higher levels in the future. Extensive measures to improve profitability. In order to return DaimlerChrysler to a position of strong and sustainable profitability, even with difficult market conditions, and to improve the competitive position of the company, we initiated extensive restructuring programs during the year under review. Operating Profit In millions 2001 US $ 2001 € 2000 € DaimlerChrysler Group (1,173) (1,318) 9,752 Mercedes-Benz Passenger Cars & smart*) Chrysler Group*) Commercial Vehicles*) Services*) Other Activities*) 2,636 2,961 (1,943) (2,183) 45 514 182 51 578 205 2,874 531 1,253 641 67 DaimlerChrysler Group*) 1,197 1,345 5,213 *) adjusted for one-time effects Business Review 9 Chrysler Group’s turnaround plan has been implemented faster than we anticipated, with better savings and profitability effects being achieved in 2001 than originally planned. As a result, and despite the negative impact of lower unit sales and revenues, Chrysler Group was able to achieve an operating loss (excluding one-time effects) of €2,183 million, slightly better than we announced on February 26, 2001 (an operating loss in the range of €2.2-2.6 billion). At Freightliner, our North American truck subsidiary, the cost-cutting measures started in 2000 have been significantly reinforced by a comprehensive turnaround plan which was announced on October 12, 2001. With this plan we should be able to achieve continuously increasing positive effects on profitability, amounting to US $850 million annually from the year 2004. Key elements are savings on material costs, production costs and fixed costs. Within the framework of measures designed to improve the existing business model, in the future Freightliner will concentrate on generating profitable business rather than increasing market share. Global economic weakness. Prospects for the world economy deteriorated throughout 2001. Weighted for each country’s share of the Group’s revenues, economic growth in DaimlerChrysler’s sales markets fell to 1.2% from 3.9% in 2000. As a consequence of the general economic weakness in North America, Western Europe, and South America, and the subsequent effects on the world economy of the terrorist attacks on September 11, growth rates were significantly lower than in the prior year. The Japanese economy was in recession and Asian emerging markets were unable to equal their dynamic growth of previous years. There were only small exchange-rate movements during the period under review. The euro lost 5% of its value against the US $ and 2% against the British pound. However, it appreciated by 8% against the Japanese yen. Difficult markets worldwide. Competition in the inter- national automotive industry continued to intensify in 2001 for both passenger cars and commercial vehicles in nearly all market segments. This was primarily due to weaker demand in important markets, the resulting drop in capacity utilization and numerous new models in established market segments. The US market for passenger cars and light trucks shrank by 1% or 0.2 million units to 17.1 million vehicles, despite significant increases in sales incentives. New registrations of passenger cars in Western Europe only equaled the levels of the previous year, particu- larly due to the weakness of demand in Germany, and the markets of Asia, South America and Eastern Europe did not provide any significant impetus. The commercial vehicles sector was impacted by the dramatic shrinkage of demand in North America and Argentina. Particularly in the United States, follow- ing the weakening of the market for heavy and medium trucks in the prior year (-12%), there was a severe decline in 2001 (-26%). Demand in Western Europe also declined during the course of the year. Consolidated revenues close to prior year’s figure. In 2001, DaimlerChrysler achieved total revenues of €152.9 billion. Adjusted for changes in the consolidated Group, revenues were nearly at the same level as in 2000. Revenues In millions 2001 US $ 2001 € 2000 € Consolidated Revenues In billions of € DaimlerChrysler Group 136,072 152,873 162,384 Mercedes-Benz Passenger Cars & smart Chrysler Group 42,462 47,705 43,700 56,506 63,483 68,372 Commercial Vehicles 25,432 28,572 29,804 Other markets 150 125 100 75 50 25 Services Other Activities 14,999 16,851 17,526 4,012 4,507 10,615 USA 97 98 99 00 01 European Union 10 Business Review DaimlerChrysler Aerospace and debis Systemhaus were partially included in the prior year’s figures. In addition, TEMIC (Automotive Electronics) and Adtranz (Rail Systems) were no longer consolidated from April and May 2001 respectively. While the Mercedes-Benz Passenger Cars & smart division was able to increase revenues by 9%, at Chrysler Group and the Commercial Vehicles division they were lower than in the prior year. Services’ revenues also declined slightly, but on a comparable basis there was growth of 12%. 4.5 million vehicles sold. DaimlerChrysler’s unit sales of 4.5 million vehicles were lower than in the prior year (4.7 million). The Mercedes-Benz Passenger Cars & smart divi- sion performed very well again, with record unit sales of more than 1.2 million vehicles (+6%), strengthening its position as the leading brand in the premium segment. (see pp. 26-29). Unit sales by Chrysler Group of the Chrysler, Jeep and Dodge brands fell to 2.8 million vehicles (2000: 3.0 million). (see pp. 30-33). Unit sales by the Commercial Vehicles division of 492,900 trucks, vans and buses were also lower than the high level of the prior year (549,000). (see pp. 34-37). Consolidation phase at Services division. In the period under review, the Services division focused even more on sales financing and leasing for the products of the DaimlerChrysler Group. It achieved total revenues of €16.9 billion (2000: €17.5 billion). On a comparable basis (adjusted for the revenues of debis Systemhaus, which were still included at DaimlerChrysler Services in the first nine months of the prior year) the division’s revenues climbed by 12%. Total contract volume of €131.8 billion reached the level of the prior year ad- justed for exchange-rate effects, while, as planned, we limited our new business to €54.9 billion (2000: €56.8 billion). (see pp. 38-39). Other Activities fulfill expectations. Despite the nega- tive effects of the terrorist attacks on September 11, MTU Aero Engines was able to continue its positive trend of the previous years and achieved further increases in revenues and earnings. (see pp. 40-41). EADS should also significantly increase revenues and earnings in its first full financial year. At the end of 2001, its order backlog climbed to a new peak of €183.7 billion. With a total of 1,575 aircraft on order, Airbus further improved its strong position in the world market for civil aircraft. (see pp. 41-42). As expected, Mitsubishi Motors’ revenues and unit sales decreased in the first half of the company’s 2001/2002 financial year (ending on March 31, 2002). The restructuring measures are being implemented as planned, and the management expects to break even in the full 2001/2002 financial year. Mitsubishi Motors’ long-term competitiveness should improve as a result of an extensive product offensive. (see pp. 42-43). Concentration on the automotive business. In 2001, DaimlerChrysler maintained its strategy of focusing on the automotive business and related services. In January 2001, we sold the remaining 10% of the shares of debitel AG to the Swiss telecommunications company, Swisscom. On April 3, 2001, the European antitrust authori- ties approved the sale of Adtranz, our Rail Systems business unit, to the aeronautics and rail-technology group, Bombardier. This had been negotiated in August 2000. Adtranz was therefore removed from the DaimlerChrysler Group’s consolidation effective May 1, 2001. On April 9, 2001, we agreed to sell an initial 60% of the shares of TEMIC to Continental. We have an option to sell the remaining 40% to Continental at an agreed price between 2002 and 2005. TEMIC was therefore removed from the consolidated Group effective April 1, 2001 and has since been included at equity in line with our 40% stake. With this sale we have integrated TEMIC into a strong automotive supplier group with a wide range of products, increasing its potential for future growth. In January 2002, we exercised our contractually agreed option to sell to Deutsche Telekom AG our 49.9% equity interest in T-Systems ITS (formerly debis Systemhaus AG). The sale of this investment is to be concluded by March 2002. Also in January 2002, DaimlerChrysler and GE Capital agreed that GE Capital would acquire a part of DaimlerChrysler Services’ capital services portfolio in the United States. The items to be transferred to GE Capital consist mainly of commercial real estate and the asset-based lending portfolio. Strong brands efficient processes and innovative technologies Business Review 11 Stronger position in Asia. In the year under review, we enhanced our position in the growth markets of Asia. In June 2001, we acquired from AB Volvo its 3.3% equity interest in Mitsubishi Motors, including all rights from the previous cooperation agreement between Mitsubishi Motors and Volvo in the field of commercial vehicles. We thus created the right conditions for developing a strong competitive position in the Asian commercial vehicle markets. DaimlerChrysler now holds 37.3% of Mitsubishi Motors’ equity. Within the framework of our cooperation with Mitsubishi FUSO, the commercial vehicles division of Mitsubishi Motors, in December 2001 DaimlerChrysler took over the sales of the FUSO light truck, Canter, in selected European markets. With Hyundai Motor Company (HMC) of South Korea, in which DaimlerChrysler holds a 10% equity in- terest, we agreed in June on the establishment of a joint venture for the production of medium-class commercial vehicle engines of the Mercedes-Benz 900 series in South Korea. Construction of the production facility started immediately after the contract was signed. 372,470 employees. At the end of 2001, DaimlerChrysler employed 372,470 people. The reduc- tion compared with the prior year was partially due to the fact that TEMIC and Adtranz employees are no longer included in the workforce of the DaimlerChrysler Group. In addition, there were workforce reductions as a result of measures taken to improve profitability, in particular at Chrysler Group and Freightliner. (see pp. 50-51). Intensive cooperation with suppliers. In 2001, DaimlerChrysler purchased goods and services world- wide worth €106.5 billion. Of this, 33% was accounted for by the Mercedes-Benz Passenger Cars & smart division, 43% by Chrysler Group, 19% by Commercial Vehicles and 5% by the other units. In close cooperation with our suppliers we have succeeded in significantly reducing the prices of materials. Parallel to this, together with our partners we have intensified our efforts to further improve the quality of our products. (see pp. 48-49). €14.9 billion invested in the future. Last year the DaimlerChrysler Group invested €8.9 billion in property, plant and equipment and €6.0 billion in research and development. Expenditures were reduced as a result of the more efficient cross-divisional concentration of resources that was brought about by the turnaround activities. Major investments were made in the Mercedes-Benz Passenger Cars & smart division to prepare for the production of the new E-Class and the new SL. At Chrysler Group, preparations for the Jeep Liberty and the new Dodge Ram were among the more important projects. In the Commercial Vehicles division the focus was on investments for the production of the Vaneo and the Axor. DaimlerChrysler’s research and development departments employed more than 28,000 people at the end of 2001. In addition to developing new products, priority was given to developing new drive systems and electronic systems to enhance traffic safety. (see pp. 20-25 and 44-45). Investments in Property, Plant and Equipment In millions 2001 US $ 2001 € 2000 € Research and Development Costs In millions 2001 US $ 2001 € 2000 € DaimlerChrysler Group 7,918 8,896 10,392 DaimlerChrysler Group 5,348 6,008 7,395 Mercedes-Benz Passenger Cars & smart Chrysler Group Commercial Vehicles Services Other Activities 1,834 4,524 1,321 100 150 2,061 5,083 1,484 112 168 2,096 6,339 1,128 282 547 Mercedes-Benz Passenger Cars & smart Chrysler Group Commercial Vehicles Other Activities 2,138 1,959 903 347 2,402 2,201 1,015 390 2,241 2,456 974 1,753 12 Outlook Continuous improvement in profitability ■ DaimlerChrysler Group: significant earnings improvement expected in 2002 and beyond ■ Executive Automotive Committee (EAC) established as an implementation platform for Group strategy ■ Further growth at Mercedes-Benz Passenger Cars & smart ■ Turnaround measures reinforced at Chrysler Group and Freightliner ■ Services division to continue focusing on automotive business ■ Investment in products and innovation to secure competitiveness Slow recovery of world economy. As a consequence of the generally difficult economic conditions in the world, which have further deteriorated since the terrorist attacks on the United States, we have re-examined and adjusted our assumptions for the development of global economic activity, particularly for the year 2002. We now assume that the economic upturn originally ex- pected for the end of 2001 is only likely to begin in the second half of 2002, and then gather pace. We antici- pate global economic growth of 1.4% in 2002, 3.4% in 2003 and 3.2% in 2004. The economies of the United States and Western Europe should return to a path of stable growth within the planning period, whereas the Japanese economy will probably only begin to emerge from recession. We do not expect above-average growth in the emerging economies of Asia, South America or Eastern Europe before 2003. Intensified competition in the automotive industry. Against this macroeconomic backdrop we have also revised our projections for automotive markets. In the year 2002 we now expect a significant decline in the market for passenger cars and light trucks in North America, and a moderate weakening of demand in Western Europe and Japan. Demand in Western Europe for trucks over 6 tons is likely to be distinctly lower than last year, whereas demand in the US market might continue to fall. The worldwide economic revival expected to begin in the second half of 2002 should have positive effects on automotive markets, with sales increasing in 2003 and 2004. Generally difficult market conditions, shorter product lifecycles and high produc- tion capacities will intensify competition and increase the pressure to cut costs in all market segments, which in turn should accelerate consolidation in the industry. Continuous improvement in profitability at DaimlerChrysler. In order to counteract unfavorable market developments we will continue to implement the restructuring measures introduced in 2001, and will actually strengthen them in some areas. However, the fundamentals have now become more difficult and the task more challenging. DaimlerChrysler neverthe- less expects Group operating profit for 2002 excluding one-time effects to exceed twice the 2002 level by a very significant amount. We are confident that we will achieve the results announced in February 2001, but at slightly later dates. Not only the turnaround plans will contribute to this, but also the enhanced coordination of our global activities and the resulting cost reduc- tions, a more favorable market situation, and many attractive new products. The Outlook section and other sections in this Annual Report contain forward-looking statements that reflect the current views of DaimlerChrysler management with respect to future events. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project” and “should” and similar expressions are intended to identify forward-looking statements. Such statements are subject to risks and uncertainties, including, but not limited to: changes in general economic and business conditions, especially an economic downturn in Europe or North America; changes in currency exchange rates and interest rates; introduction of competing products; lack of acceptance of new products or services, including increased competitive pressures on the general level of sales incentives and pricing flexibility; inability to implement the turnaround plans for the Chrysler Group and Freightliner promptly and successfully, especially an inability to meet revenue enhancement, efficiency and cost reduction initiatives; the ability of Mitsubishi Motors to implement its restructuring plan successfully; and decline in resale prices of used vehicles. If any of these or other risks and uncertainties occur (some of which are described under the heading “Analysis of the Financial Situation” in this Annual Report) , or if the assumptions underlying any of these statements prove incorrect, then actual results may be materially different from those expressed or implied by such statements. DaimlerChrysler does not intend or assume any obligation to update these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. With new concepts for a successful future Outlook 13 Revenues of €156 billion in the year 2004. On the basis of the current order situation and market expectations, we anticipate revenues of €142 billion in 2002 (2001: €153 billion). The decline of 7% compared with the prior year is mainly due to unfavorable market pros- pects, which will particularly affect Chrysler Group and the commercial vehicles business, but also to changes in the consolidated Group and the projected exchange- rate effects. As a result of improving market conditions and primarily due to the introduction of attractive new ve- hicles, we expect revenues to increase to €156 billion by 2004. This figure assumes a moderate increase in the value of the euro against the US dollar, the British pound and the Japanese yen. The most rapid growth in revenues is likely to be achieved in Asia, South America and Eastern Europe. EAC: a strategy-implementation platform. The Execu- tive Automotive Committee (EAC) is the platform for the implementation of our strategy, with a focus on the four key pillars of global presence, strong brands, wide product range and technological leadership. Headed by Jürgen E. Schrempp and Jürgen Hubbert, this commit- tee has been used to coordinate the Group’s automotive business since the beginning of 2001. Its goal is the effective exchange of technologies, innovations, components and processes between the divisions. This should result in the continuous improve- ment of the Group’s cost position, while strictly maintaining the identity of individual brands. Many important decisions were taken by the EAC in 2001, two examples being a common platform for the next-generation Chrysler Neon and Mitsubishi Lancer, and the use of Mercedes-Benz components in the Chrysler Crossfire. The work of the EAC will continue to support the implementation of our strategy in 2002. (see pp. 16-17). Further growth at Mercedes-Benz Passenger Cars & smart. The Mercedes-Benz Passenger Cars & smart di- vision plans to expand its product range in the coming years and penetrate new market segments, in order to ensure continued growth throughout the planning period. New products in 2002 include the new E-Class sedan and the CLK coupe. In addition, at the end of 2002 we will launch a luxury sedan under the Maybach brand, which will once more underscore DaimlerChrysler’s leading position in the premium segment. The smart model range will be extended in 2003 with a roadster and in 2004 with a four-seater mini car. Chrysler Group: return to profitability. Due to unfavor- able economic conditions, the assumptions for 2002 underpinning Chrysler Group’s turnaround plan have also been adjusted. In particular, expectations for the US market have been revised from 16 million passen- ger cars and light trucks to approximately 15 million vehicles. In order to break even in 2002 in the face of weaker market conditions, Chrysler Group has intensi- fied and accelerated some aspects of the turnaround plan that was announced on February 26, 2001. Furthermore, various new, innovative models such as the Dodge Viper, the Chrysler Crossfire, the Chrysler Pacifica and the new Dodge Durango should ensure that Chrysler Group’s competitive position improves significantly in an extremely difficult market environment. Closer cooperation both within the DaimlerChrysler Group and with our partner Mitsubishi Motors should also help improve our cost position and margins, as well as the innovative potential of Chrysler Group. Revenues In billions Plan 2002 € Target 2004 € DaimlerChrysler Group 142 156 Mercedes-Benz Passenger Cars & smart Chrysler Group Commercial Vehicles Services Other Activities 46 56 28 16 2 50 59 33 19 3 14 Outlook Consolidation in the commercial vehicles business. In 2002, the Commercial Vehicles division will continue to adjust its capacities and cost structures to lower demand worldwide. As announced, another top priority will be to further implement the Freightliner turn- around plan. In order to strengthen its position as global market leader for commercial vehicles, in the year 2002 the division will present six new or revised vehicles, including the successor model in the Freightliner Business Class, the double-decker of the new Setra TOPClass 400 family of luxury buses, and re- vised versions of the successful Mercedes-Benz models, Actros and Sprinter. Important new products are also planned in the area of components, particularly the launch of the new OM 457 engine with turbobrake. Our long-term strategy is to achieve cost savings by taking more advantage of our position as the world’s largest manufacturer of commercial vehicles. We see further potential to reduce costs and penetrate new markets, particularly the growth markets of Asia, as a result of the cooperation with our partners, Mitsubishi Motors and Hyundai. Continued specialization at Services. The Services divi- sion will continue its strategy of focusing on automo- tive financial services, and will further improve its processes and structures in order to secure a sustained increase in profitability. At the same time, its product range will be more closely oriented towards the cus- tomers of the Group’s various vehicle brands. Within the context of this strategy, in Germany from the middle of 2002, the DaimlerChrysler Bank will offer de- posit and savings facilities, investment funds and cus- tomer credit cards, in addition to its existing products. We also intend to extend our activities in the areas of automotive and personal insurance, in fleet manage- ment and with telematics services. Mitsubishi Motors: Growth with new products. Mitsubishi Motors (MMC) will continue to implement its restructuring program, which has already led to significantly better results in the 2001/2002 financial year. At the same time, innovative new models should ensure long-term profitability and growth for the impor- tant volume segments. The company will launch a total of 16 new model variants in the financial years from 2001 to 2003, including different variants for Japan, the United States, Europe and Asia. This ambitious plan will be supported by close cooperation between Mitsubishi Motors and DaimlerChrysler and particu- larly the Chrysler Group. And due to our acquisition of AB Volvo’s equity interest in MMC in June 2001, there will also be new possibilities for cooperation between DaimlerChrysler’s Commercial Vehicles division and MMC’s FUSO unit. Changed environment in the aeronautics industry. The terrorist attacks on September 11 have significantly altered the economic environment of the aeronautics industry. Against this background, the MTU Aero Engines business unit anticipates a decline in revenues in the civil aircraft business in 2002. However, MTU Aero Engines aims to ensure its future profitability by means of targeted measures such as the analysis of planned investments, cost and development budgets, as well as the adjustment of existing capacities by flexible staff- ing. The foundation for this was already laid by expand- ing the maintenance business and participating in new programs. EADS has also taken steps to maintain its profit- ability. These measures include keeping its Airbus manufacturing capacities at the level achieved in 2001 instead of the originally planned expansion, prudent human-resources planning and the accelerated imple- Investments in Property, Plant and Equipment In billions 2002–2004 € Plan 2002 € DaimlerChrysler Group Mercedes-Benz Passenger Cars & smart Chrysler Group Commercial Vehicles Services Other Activities 8.0 2.7 3.7 1.3 0.1 0.2 22.9 8.0 10.4 3.8 0.2 0.5 Impressive premieres: In Detroit DaimlerChrysler presented concept cars by Mercedes-Benz, Jeep® and Dodge. Left picture: from left to right, Jeep Willys2, Jeep Compass, Dodge Razor, and Dodge M80. Right picture: Mercedes-Benz Vision GST (Grand Sports Tourer) Outlook 15 facilities in the automotive business and on the development of new technologies that will enhance the safety, environmental compatibility and economy of road transport. With our investments and extensive research and development activities, the turnaround plans, and the cross-divisional activities of the Executive Automotive Committee, we are laying the foundations for continu- ously growing earnings at DaimlerChrysler. mentation of cost-cutting programs. In conjunction with its highly flexible production system, EADS expects that these measures will enable it to remain profitable despite sharper fluctuations in Airbus pro- duction. In 2002, EADS expects to deliver 300 Airbus aircraft (2001: 325). The development of the A380 is proceeding as planned. Investment secures competitiveness. In the planning period of 2002 to 2004, DaimlerChrysler expects to in- vest €41 billion in property, plant and equipment, and research and development. A large part of this expendi- ture will be on the development and preparation for production of new passenger car and commercial ve- hicle models. In addition, we are planning significant spending on the modernization of manufacturing Research and Development Costs In billions Plan 2002 € 2002–2004 € DaimlerChrysler Group Mercedes-Benz Passenger Cars & smart Chrysler Group Commercial Vehicles Other Activities 5.9 2.4 2.1 1.0 0.4 17.6 6.9 6.5 3.1 1.1 16 Executive Automotive Committee Executive Automotive Committee: driving the implementation process ■ Key steering instrument for worldwide automotive business ■ Preparation of cross-divisional decisions and initiatives ■ Numerous projects defined and addressed; many already successfully completed Successful start for EAC. The Executive Automotive Committee (EAC), which was formed at the beginning of 2001 under the joint leadership of Jürgen E. Schrempp and Jürgen Hubbert, has already introduced several pioneering initiatives and has established itself as an effective, efficient and goal-oriented instrument for coordinating our global automotive business. The activities of the EAC are intended to optimize and strengthen the Group’s entire automotive business. Enormous cost-reducing potential can be realized through joint projects by the Group’s three automotive divisions and our partner, Mitsubishi Motors, and through the resulting knowledge transfer. The variety of DaimlerChrysler’s brands is the basis for us to selectively target our customers – and to fulfill their individual wishes. In this context, the task of the EAC is to secure the uniqueness and identity of each individual brand. To achieve this, the EAC concentrates on the following areas of work: - Coordinating and optimizing the product portfolio - Identifying new technologies and innovations and selecting the products and brands in which they will be applied - Standardizing components - Steering the global production capacities of the DaimlerChrysler Group - Coordinating our global sales and marketing activities Quick and flexible decisions. The EAC meets at monthly intervals. In the year 2001, 45 projects were defined and analyzed, and reports on their progress were regularly submitted to the Committee. 19 of these projects were either already successfully completed in the first year or are now in their final stages. There are examples of the success of the EAC throughout its whole range of activities. The overall steering of DaimlerChrysler’s automo- tive business now takes place – with due consideration being paid to our alliance partners – in accordance with standard rules and processes. It is also an advantage that cross-divisional projects are discussed in detail in the EAC. This detailed coordination will enable us to keep ahead of the competition with our next generation of vehicles. Product portfolio: cross-divisional segment strategy. In some vehicle segments the foundations have already been laid for the realization of synergies between the various products of the Group. For example, engineers from DaimlerChrysler and Mitsubishi Motors are work- ing on a shared design concept for a small car in the so-called B-segment. The smart four-seater and the two Mitsubishi variants that are based on this platform are to be launched as early as 2004. Another decision was taken to develop a common C-segment platform, with an estimated production volume of more than 500,000 vehicles per year, for the Chrysler Neon and the Mitsubishi Lancer and derived product variants. Chrysler Group and MMC have also defined a third platform for full-sized sedans in the D-segment, that is, for the successors to their Stratus/Sebring and Galant models. Definition of a long-term innovation calendar. A Group- wide innovation plan has been prepared as a joint project by the research and development departments. On this basis, the EAC has prioritized and coordinated the current innovation projects. The result is an innova- tion calendar which defines when each innovation is to be applied in which brand and in which product. Groundbraking initiatives for the future Executive Automotive Committee 17 Standardization and exchange of components. Under the leadership of the EAC, interdisciplinary component teams of development engineers and purchasing man- agers have already identified numerous components which can be bought or made in larger numbers in the future, and which will therefore be significantly cheaper. These include electronic control units, batteries and fuel pumps. A good example of the cross-divisional exchange of components is the Mercedes-Benz five-speed auto- matic transmission, which will be used in a modified form in Chrysler Group vehicles and for this purpose will be produced at a new gearbox plant in Indiana, USA, starting in the year 2004. A product example is the Chrysler Crossfire, in which Mercedes-Benz components are also used. In this case in particular, a crucial condition was that the interests of both brands, Chrysler and Mercedes-Benz, were fully taken into consideration. Coordination of sales and marketing activities. Cross- divisional, regional strategies are being developed together with representatives of our global sales and marketing organizations. An important goal here is to investigate possibili- ties for standardization, while determining which areas have to remain unique for reasons of brand identity or to protect our customers’ interests. Some of the issues to be dealt with are the further development of the distribution network, the organization of after-sales and service activities, and customer communication. The coordination of sales and marketing activities is one of the main tasks of the EAC for 2002. Continued implementation in 2002. The EAC has already proven its worth as a central platform for the implementation of our strategy of encouraging the in- tensive exchange of technologies, innovations, compo- nents and processes within the Group. In this way we can continuously improve our cost position and quality standards, and ultimately also the attractiveness of our products for the customers of DaimlerChrysler. With this goal in mind, the EAC will successfully continue its work in the year 2002. The role of the EAC within DaimlerChrysler Board of Management EAC Schrempp Hubbert Mercedes-Benz Passenger Cars & smart Hubbert Chrysler Group Zetsche Commercial Vehicles Cordes Mitsubishi Motors Corporation Bischoff Corporate Development Grube Divisions Mercedes-Benz Passenger Cars & smart Chrysler Group Commercial Vehicles Mitsubishi Motors Corporation The EAC four major areas of work Executive Automotive Committee Cross-divisional coordination of Product portfolio Technology Production capacities/Pur- chasing & supply Sales and marketing organization Areas for cross-divisional synergies Car Speciality SUV Sports tourer Multi Purpose Vehicle Van Pickup FWD manual Manual RWD/4WD Automatic RWD Automatic FWD IL-4 gasoline Chassis Exterior Interior Electronics Products Powertrain Commodities Out of this assessment the EAC initiated various projects to realize cross-divisional effects 18 DaimlerChrysler Worldwide A Global Company – DaimlerChrysler ■ DaimlerChrysler products are sold in more than 200 countries ■ Manufacturing facilities in 37 countries ■ Broad access to the fast-growing Asian markets through our strategic partners Mitsubishi Motors and Hyundai Motor Europe Mercedes-Benz Passenger Cars & smart Chrysler Group Commercial Vehicles Sales Organization Automotive Businesses Services Other Activities NAFTA Mercedes-Benz Passenger Cars & smart Chrysler Group Commercial Vehicles Sales Organization Automotive Businesses Services Other Activities South America Mercedes-Benz Passenger Cars & smart Chrysler Group Commercial Vehicles Sales Organization Automotive Businesses Services Other Activities Production locations Sales outlets Revenues in millions of € Employees 8 2 17 – – 2 – – – 29,894 93,807 3,785 2,261 15,313 63,080 5,012 – 35,293 95 4,768 3,817 3 2,221 16,898 Production locations Sales outlets Revenues in millions of € Employees 1 41 19 – – 2 – – – 11,891 2,111 58,210 101,027 9,463 18,615 5,522 – 2,200 48 11,596 5,231 1 2,012 4,030 Production locations Sales outlets Revenues in millions of € Employees 1 2 2 – – – – – – 347 1,508 725 748 1,456 12,024 691 9 1 – 212 72 – 305 – Note: Unconsolidated revenues of each division (segment revenues) A global presence with strong brands and products DaimlerChrysler Worldwide 19 Asia Australia/Oceania Production locations Sales outlets Revenues in millions of € Employees Production locations Sales outlets Revenues in millions of € Employees Mercedes-Benz Passenger Cars & smart Chrysler Group Commercial Vehicles Sales Organization Automotive Businesses Services Other Activities Africa Mercedes-Benz Passenger Cars & smart Chrysler Group Commercial Vehicles Sales Organization Automotive Businesses Services Other Activities 4,236 443 347 16 Mercedes-Benz Passenger Cars & smart Chrysler Group 1,170 1,496 Commercial Vehicles – – – 1,054 3 2 – 109 167 511 76 173 Sales Organization Automotive Businesses Services Other Activities 3 2 2 – – – – – – – – – – – – 343 2 – 561 152 396 – 95 15 – – 531 729 132 – Production locations Sales outlets Revenues in millions of € Employees 1 1 2 – – – – – – 210 3 – 776 168 774 – 71 20 4,450 5 898 – 151 – 20 The “Vision of Accident-free Driving” The “Vision of Accident-free Driving” Electronic systems, on the other hand, have almost no reaction time. In about two-thirds of all road accidents, they could be in a position to recognize cer- tain critical situations in good time. They register the surroundings of the vehicle and transmit this data to a special electronic system, where it is evaluated and in- terpreted. Such driver assistance systems can help people to perceive hazardous situations and to act safely in road traffic. Sensors can help alert the driver and increase the opportunity to prevent an accident. Innovation through electronics. Today, 80% of all inno- vations in the automotive industry are influenced by electronics. Thanks to high-powered microchips and in- creasingly efficient computer architecture, computation speeds have doubled annually over the past few years and this has been a decisive factor in the development of driver-assistance systems. DaimlerChrysler research- ers have made pioneering advances that can interpret images in near real-time. A rapid, efficiently-organized data-processing system is employed which accesses net- worked tables instead of having to carry out intricate computations. Images can thus be recognized consider- ably more quickly than with methods used previously. Road accidents are generally regarded as inevitable. However, many of them can be prevented, and DaimlerChrysler, a pioneer in the application of innova- tive technologies, with its premium brand Mercedes- Benz is pursuing its “Vision of Accident-free Driving.” Our researchers and developers are working towards increasing the safety of future automobile generations to a level which only a few years ago would have been regarded as unattainable: Our objective is to prevent most accidents or at least to alleviate their conse- quences. In matters of safety, Mercedes-Benz has been at the forefront for decades. And our commitment to the “Vision of Accident-free Driving” should be an encour- agement to the entire automotive industry. DaimlerChrysler intends traffic to be safer, more convenient and more environment-friendly overall. At least every second road accident might be prevented if the vehicles involved were fitted with appropriate driver-assistance systems. The number of fatalities and injuries could thus be drastically reduced over the coming 15 to 20 years. On the other hand, driver-assistance systems should not restrict drivers’ freedom in critical situations or diminish their ultimate responsibility. Putting critical fractions of a second to use. In the year 2000, some three million people were injured and 42,000 killed in accidents on US roads; during the same period, there were 500,000 injuries and 7,700 fatalities in Germany. Nine out of ten road accidents resulting in injury or death are the result of human error. Even if a driver recognizes a hazard, he or she often lacks sufficient time for an appropriate reaction as a result of the surprise situation. The car of tomorrow will think with you The reliable recognition of traffic signs also works in conditions of diffuse light and during the night at distances of 30 to 40 meters. The “Vision of Accident-free Driving” 21 Night vision: Two headlights illuminate the road with beams of invisible infrared light. An infrared video camera captures the reflected light and the image is shown on an LCD screen. Our researchers also make use of so-called teach- able methods. So the emphasis is no longer on drafting and testing, but on the selection and training of certain systems. Like humans, it is possible for systems to learn by example and thus they can become increas- ingly versatile. Matching man and machine. Research also makes use of findings from the fields of psychology, anthropology, ergonomics and neurophysiology. Drivers do not react the same way in all situations. When taking evasive action at high speed, for example, drivers tend to exag- gerate steering movements. In such a situation, he or she often reacts in a reflex manner. If a driver is trying to read a map or is distracted by a child in the rear seat, he or she could fail to notice other, objectively more important occurrences. Research in the field of “human-machine interac- tion” is important for the development of practice-orien- ted information systems capable of individualization. The goal of such systems is to help drivers become more attentive without diverting their attention from the traffic situation. Causes of fatal road accidents*) *) On highways in Bavaria in 1991 Source: GDV, Institut für Fahrzeugsicherheit, München (Institut for Automotive Safety, Munich) Sleep Inattention Medical causes Vehicle in front Vehicle dynamics Weather Veering off course Stationary vehicle Pedestrian/occupant/animal Accident Other persons Other factors Physiological factors 38% False assessment 46% Unexpected behavior 11% Technical problems 5% 0% 5% 10% 15% 20% 25% 22 The “Vision of Accident-free Driving” DaimlerChrysler is committed to a total safety concept Pioneers in safety. DaimlerChrysler is an innovator in automotive safety research and increasingly employs assistance systems which help drivers recognize haz- ardous situations. Mercedes-Benz engineers are now working on new intelligent systems which will enhance active and passive safety even further. At DaimlerChrysler, safety has consistently been accorded utmost priority from the earliest days of the company’s history. The first safety features were developed by Mercedes-Benz as early as 1939. The safety cell with crumple zones in the front and in the rear of a car as well as improved restrained systems like automatic seat belts, seat belt pretensioners and airbags have long been standard equipment for many of its passenger vehicles. For decades, the company has enhanced the concepts of “passive safety” for mitigat- ing the consequences of an accident and “active safety” for accident prevention. As early as the seventies, pat- tern recognition – the multidimensional recognitition and interpretation of objects by computer – was a major focus of research at Mercedes-Benz. Advances in brake technology paved the way for the anti-lock braking system (ABS) in 1978: For the first time, sen- sors were used to monitor the rotation of each wheel and control brake pressure accordingly. This was fol- lowed by inventions such as acceleration skid control (ASR), brake assist, and the electronic stability program (ESP). Today, DaimlerChrysler is committed to a holistic safety concept. Active safety in particular still offers considerable potential. The “Vision of Accident-free Driving” today. DaimlerChrysler already offers driver-assistance sys- tems that help increase safety in many of its production passenger cars and commercial vehicles. Crucial stop- ping distance can be wasted if drivers fail to apply suf- ficient pressure to the brake pedal in critical situations. Brake Assist recognizes a hazardous situation on the basis of how quickly the driver depresses the pedal, and immediately applies full braking pressure. Skidding is another critical factor. Sooner than even the most experienced driver, the Electronic Stabil- ity Program (ESP) recognizes when a vehicle is tending to skid. The system then intervenes to help stabilize the vehicle by issuing precisely-metered braking impulses or by reducing engine output. ESP therefore helps unite the functions of other driving dynamics regulation systems such as brake assist, the anti-lock braking system (ABS) and acceleration skid control (ASR). Sensotronic Brake Control (SBC) is an electronic system that also helps stabilize vehicles and reduces braking distances. SBC transmits the driver’s braking commands to a microcomputer which calculates the optimum brake force for each wheel. Maximum brake force is applied more rapidly thanks to a high-pressure reservoir and electronically controlled valves. The electronic brake system encompasses other valuable features such as the dry braking function which eliminates the film of water which forms on the brake disks during wet weather, and the new soft-stop function which allows more gentle stopping in inner- city driving. The stereo-vision camera is the sensor for the City Assistant. The picture of the surroundings must be passed on in high definition to image processing for instant evaluation. We are driven by visions of the future The “Vision of Accident-free Driving” 23 Distronic, a comfort system, also eases the burden on the driver. A radar sensor located in the radiator grille measures the distance to the vehicle in front. The sensor can observe the traffic scenario up to 150 meters (almost 500 feet) ahead. If the car approaches a recognized vehicle in front too closely, Distronic can automatically disengage the accelerator and – if necessary – gently apply the brakes. Drifting from a traffic lane on motorways is a major cause of accidents, especially when trucks and buses are involved. The Lane-departure Warner can alert the driver to the danger of leaving a recognized lane of traffic with a signal – the distinctive sound of a vehicle crossing a line of marker studs on the road. The driver then steers the vehicle back on course. The vehicle’s position is analyzed by a high-powered computer on the basis of camera images and lane markings. Our “Vision of Accident-free Driving” tomorrow. Safety systems which are already on board of road vehicles have helped to bring about a considerable reduction in accidents. Even more might be prevented if drivers were supported by additional ‘eyes.’ Future develop- ments will therefore help enhance visibility, especially at night and in complex traffic situations. Many accidents occur in darkness, rain, fog and in the dazzling light of oncoming vehicles. With the Night Vision infrared system, the driver has a range of vision of up to three times as long as that provided by conven- tional low-beam headlights. Night Vision can help drivers recognize the topography of the road, obstacles and darkly clothed pedestrians 150 meters (almost 500 feet) away. Conventional low-beam headlights, on the other hand, illuminate the road ahead for only 40 meters (130 feet). Nose-to-tail collisions resulting from driver fatigue or distraction can have devastating consequences. Many accidents, especially those involving heavy trucks, could be prevented by the development of intel- ligent systems. The so-called Electronic Crumple Zone can prevent up to 80% of rear-end collisions involving two trucks and over 30% of all truck accidents on motorways. This system can help brake a vehicle if it approaches the vehicle in front too closely and the driver fails to react. More efficient road utilization, a 15% reduction in fuel consumption and improved working conditions in the truck cockpit are provided by the Electronic Draw- bar. This means greater safety for other road users as well. With this system, two trucks are coupled by elec- tronic means: The leading vehicle is driven as usual, while the second truck automatically follows it without a mechanical connection. Either vehicle can terminate the link at any time. Proven in the test car: In critical situations a driver can react faster with sidesticks than with accelerator and brake pedal. 24 The “Vision of Accident-free Driving” Many minor accidents in inner-city traffic are also avoidable. Relief from stress in this complex environ- ment and in bumper-to-bumper traffic is provided by the City Assistant: Vehicles fitted with this system can follow the car in front at a previously selected distance under normal conditions. It can help to identify stop signs, traffic lights, moving objects and pedestrians: Several recognition modules operating in parallel ana- lyze the characteristic shapes and image sequences The CLK convertible with a glass bubble roof is used to investigate vision requirements when driving. The test drivers’ viewing behavior can be analyzed with a variety of simulated A columns. Pedestrians are recognized from their typical leg movements. The system uses picture sequences for identification. with the results being conveyed to the driver or directly to the brake and steering systems or the cruise control unit. With the Lane-change Assistant, displays in the ex- terior mirror warn the driver when detected overtaking vehicles are in his or her ‘blind spot.’ For this purpose, video cameras are fitted behind the rear-view mirror and on the vehicle exterior; the images they provide are analyzed in real-time. Engineers are investigating how the driver’s peripheral field of vision can be improved with the Bubble-top Car. Human beings process 90% of all infor- mation visually. A Mercedes-Benz CLK convertible fitted with a glass bubble roof is helping researchers to analyze how often and for how long a driver fixes his or her gaze in a particular direction, and to use this information for example to optimize the contours of the A-pillars or in developing new vehicle concepts. In the future, the PRE-SAFE occupant-protection concept from Mercedes-Benz can help reduce injury risk in certain critical situations. The protective systems, such as seat belt pretensioners, react within a matter of milliseconds; the human recognition phase, on the other hand, is in the order of seconds. Taking advantage of this reduction in time will open up a new dimension in vehicle-occupant protection. Thus, PRE-SAFE may acti- vate special protective systems such as seat belt pre- tensioners and automatically adjustable seats in certain critical situations. If no accident occurs, all systems return to their original status. Extendable bumpers, deployable crash boxes or movable interior elements are also being researched. The system is analogous to nature: a falling cat will turn in flight so as to assume the most favorable position on landing. Infinite possiblities. Driver-assistance systems will be even more efficient once they are capable of processing and transmitting location based data. The telematic control complex PASS (Position Aware Safety Systems), currently being researched, uses an automated The “Vision of Accident-free Driving” 25 Position Aware Safety Systems (PASS) will optimize car driving: vehicles could automatically help to avoid obstacles that suddenly appear, such as rocks on the road. exchange of information between traffic participants whose positions are provided by the Differential Global Positioning System (DGPS). The assistance systems on board a vehicle receive all this data, evaluate it and may react by steering or braking. Information on road conditions is acquired by special computers on board the vehicles which build up an increasingly precise database. In the future, vehicles might be able to inform each other of hazards or traffic jams. In addition to enhancing safety, this vehicle-to-vehicle communication will improve route planning. A further future safety element is provided by the Drive by Wire electronic system. Accelerating, braking and steering can be carried out electronically without any mechanical connections. Like aircraft, road vehicles can be controlled by purely electronic means using ‘sidesticks’ – two ergonomically contoured joysticks which perform the functions of the steering wheel and pedals. Mechatronic sensors register how much pres- sure the driver applies to the sidestick and in which direction, filter out excessively sharp steering move- ments and give the driver the feeling of direct contact with the road. The sidesticks thus help the driver to brake more rapidly or even to better avoid obstacles. The driver does not tire as quickly and can have a better view of the instruments. The electronically controlled brake system (Brake by Wire) is already available in certain Mercedes-Benz production vehicles. The “Vision of Accident-free Driving” at DaimlerChrysler: vehicles will become increasingly skilled at understanding their surroundings. They will recognize the traffic in their vicinity, and they may be fitted with microphones so that we can talk to them; they may be able to interpret road signs and react of their own accord when necessary. Their ability to “think along with the driver” will help prevent many accidents or mitigate their consequences. These assistance systems, which are constantly on the alert and are never distracted, will support the driver and make road traffic considerably safer. Our goal is accident-free road transport 26 Mercedes-Benz Passenger Cars & smart Another record year for Mercedes-Benz and smart ■ Adjusted operating profit adjusted up 3% to €3.0 billion ■ New sales record of more than1.2 million units (+6%) ■ New SL-Class with pioneering technology ■ Growth continues at smart Record sales, revenues and operating profit. The Mercedes-Benz Passenger Cars & smart division in- creased sales, revenues and operating profit once again in the year under review. Worldwide, 1,229,700 ve- hicles were sold (2000: 1,154,900). Revenues increased 9% to €47.7 billion (2000: €43.7 billion). Despite higher costs associated with the development and launch of new models and the last full year of the current E-Class, operating profit adjusted for one-time effects increased by 3% to €3.0 billion – also a new record. Success continues at Mercedes-Benz. The Mercedes- Benz brand posted a new record in 2001 by selling 1,113,500 vehicles, a 6% increase. The C-Class family was particularly successful. The series includes the C-Class sedan, the new version of the station wagon, and the brand new sports coupe, more than 59,000 units of which have already been delivered since the vehicle was launched last spring. The excellent perfor- mance of the C-Class more than offset the lifecycle- related decline of the E-Class. The A-Class, which under- went a model update in June and is now also available in a long-wheelbase version, has done very well in the market. The M-Class underwent a substantial model update in the fall of 2001, and unit sales again reached a high level, despite difficult market conditions in the US. With a worldwide market share of more than 50%, the S-Class sedan was once again by far the number- one vehicle in its segment. The Mercedes-Benz brand continued to grow in nearly all markets in 2001. Sales of Mercedes-Benz ve- hicles in Western Europe rose 6%. In Germany, despite a weakening market, we nearly equaled our sales level of the previous year, while further increasing market share to 11.9% (2000: 11.8%). We sold 206,600 passen- ger cars in the US, thereby surpassing the record set in 2000 by 0.5%. In Japan, the success enjoyed by the new C-Class led to a significant increase in new registrations of Mercedes-Benz vehicles (+5%). Sales also developed positively in other regions, particularly in the emerging markets of Asia and Eastern Europe. First cycle of the product offensive successfully com- pleted. The launch of the new SL in the fall of 2001 marked the successful completion of the first cycle of the product offensive begun in 1993. Sales have more than doubled since the program was initiated. Mercedes-Benz now has one of the youngest model ranges in the premium class, with an average age of only 2.6 years (excluding the G-Class SUV). Completely new models which had no predecessor series in 1993 now account for 46% of total unit sales. The A-Class and M-Class make up 26% of total unit sales. Amounts in millions Operating profit Operating profit adjusted 2001 US $ 2,627 2,636 2001 € 2,951 2,961 2000 € 2,145 2,874 Revenues 42,462 47,705 43,700 Investment in property, plant and equipment Research and development Production (units) Unit sales Employees (Dec. 31) 1,834 2,138 2,061 2,402 2,096 2,241 1,249,951 1,161,601 1,229,688 1,154,861 102,223 100,893 Worldwide luxury brand No.1 Mercedes-Benz Passenger Cars & smart 27 A dream come true: The new SL is Mercedes-Benz’ interpretation of a thoroughbred sports car – it offers roadster exhilaration combined with maximum safety and supreme comfort. 28 Mercedes-Benz Passenger Cars & smart A continuing passion: The new E-Class. Greater efficiency with the Mercedes-Benz Production System. Assembly of the SL at DaimlerChrysler’s plant in Bremen, Germany, is setting new standards, thanks to the new Mercedes-Benz Production System (MPS). With this system the necessary quality gates in produc- tion were achieved much earlier than was previously the case due to a higher level of standardization and more extensive integration of production processes into the vehicle development stage. The improved processes enabled us to reach optimal capacity after only four months. We will therefore probably be able to produce 30,000 SLs in 2002. Mercedes-Benz portal launched. Since September 2001, customers and others interested in the Mercedes-Benz brand have been able to obtain extensive mobility services via the new Mercedes-Benz portal at www.mercedes-benz.t-online.de or from a special call center (tel. in Germany: 0190/78 88 80). Services include detailed route planning with up-to-the-minute traffic and weather reports, professional office applica- tions, customizable appointment calendars, an exten- sive range of information and various transaction and reservation features. The Mercedes-Benz portal is oper- ated by StarMobility GmbH, a joint venture between DaimlerChrysler (51%) and T-Online (49%). 100 years of Mercedes-Benz. In December 1900, Emil Jellinek commissioned Wilhelm Maybach, chief engineer of the Daimler Motoren Gesellschaft (DMG), to build 36 vehicles for resale. Jellinek used the pseudonym Mercedes (his daughter’s name) for his cars when they were driving in races. The numerous racing successes recorded by the “Mercedes cars” led the Daimler Motoren Gesellschaft to begin marketing all of its vehicles under the Mercedes name in 1901. According to Interbrand’s ranking, Mercedes-Benz is today the world’s most valuable premium automobile brand and twelfth among all kinds of brands worldwide. Successful in motor sports. Mercedes-Benz was among the top brands in motor sports in the year under review. The McLaren-Mercedes team finished second in the Constructors’ Championship of the Formula 1 racing series, which is seen by an average 300 million television viewers and spectators per race. David Coulthard finished second in the Drivers’ Champion- ship, while Mika Häkkinen, in whose placed Kimi Raikkönen will be racing next season, finished fifth. Mercedes-Benz also won eight of ten races in the German Touring Car series, capturing both the drivers’ and the team championships. The second cycle of the product offensive will also involve penetrating market segments that are new to Mercedes-Benz as a means of ensuring further the profitable growth of our premium vehicles. The “Vision GST” concept car presented at the Detroit Auto Show in January 2002 illustrates the opportunities generated by this approach. Pioneering innovation in the new SL-Class. In the fall of 2001, Mercedes-Benz embarked on a new chapter in the tradition of the SL roadster by introducing a stylisti- cally fascinating new sports car with state-of-the-art engineering. The most important technical milestone in the SL is its Sensotronic Brake Control (SBC) electronic- hydraulic braking system. Mercedes-Benz was the first in the world to offer this system. SBC represents the first element of future by-wire systems that use elec- tronic signals to carry out drivers’ commands, instead of conventional mechanical parts or hydraulics. It works together with the proven electronic stabil- ity program (ESP) and the Active Body Control (ABC) chassis system that reduces body movements to a minimum in bends or during braking. (see pp. 20-25). This unique combination of modern electronic chassis systems gives the new SL dynamic handling like no other vehicle as well as offering the highest level of safety. In addition, the newly developed Vario roof makes driving the SL a truly fascinating experience that com- bines the driving pleasure of an open roadster with the excellent comfort of a Mercedes-Benz coupe. smart: unique driving experience and great practicality Mercedes-Benz Passenger Cars & smart 29 Individually open – from the folding sliding roof to fully convertible: The smart convertible & passion represents a flexible, future-oriented mobility concept. More than 116,000 smarts sold. The innovative smart car concept, combining fun and great practicality with a compact yet spacious and safe interior, was particularly successful in 2001. Smart sold 116,200 city coupes and convertibles (up 14%) in the year under review. Increased demand within the smart brand occurred mainly from sales of the smart cdi and smart convert- ible, selling 27,700 and 23,300 units. The smart cdi remains the best selling and best-priced “three-liter car” (fuel consumption better than 67 miles per US gallon) in Western Europe. Germany is its most important market, with sales of 46,700 vehicles, followed by Italy (30,000), and France (8,700). The successful introduc- tion of the smart in the UK and Greece was followed by its launch in Japan in the year under review. The smart city coupe has been available as a right-hand-drive vehicle since October 2001, and is also now offered as a “kei car” version subject to a lower vehicle tax in Japan. Upcoming new smart products. Following the presenta- tions of the smart roadster and roadster coupe concept vehicles in 1999 and 2000 respectively, additional fu- ture model variants of the smart were presented at the International Auto Show in Frankfurt. Among the high- lights was the world premiere of the smart tridion4 show car. The car demonstrates the versatility of the brand and shows that a model with four seats and five doors can still be a true smart. We also introduced an alternative drive concept known as the smart hyper. It features both a diesel engine and an electric motor. This combination allows noticeably lower fuel con- sumption and emissions than a conventional drive system. Maybach: new luxury-car brand with tradition. Supreme individuality, stylish elegance and ultimate exclusive- ness combined with maximum space and comfort – these are the goals of the newly established Maybach brand. Maybach is to be revitalized as an independent top brand in the ultra-luxury segment. Product develop- ment is running according to plan. The Maybach factory will start operations in the fall of 2002, and will use a flexible manufacturing system to produce up to 1,500 limousines a year. Unit Sales 2001 *) Mercedes-Benz of which: A-Class C-Class of which: CLK SLK Sport Coupe E-Class S-Class/SL M-Class G-Class smart Mercedes-Benz and smart worldwide Europe of which: Germany Western Europe (excluding Germany) NAFTA USA (retail sales) South America Asia/Australia (excluding Japan) Japan (new registrations) *) Group figures, unless otherwise indicated, (including leased vehicles) 1,000 Units 1,114 191 507 65 42 59 201 107 102 6 116 1,230 854 436 402 229 207 16 58 55 01:00 (in %) +6 -4 +30 -20 -19 . -18 -2 -3 +53 +14 +6 +7 -1 +16 +4 +0 -20 +12 +13 30 Chrysler Group Turnaround plan meets expectations ■ Operating loss excluding one-time effects of €2,183 million is lower than previously announced ■ Better cost reductions and efficiency improvements offset decline in unit sales and revenues ■ Successful launch of new Jeep Liberty and Dodge Ram Earnings goal achieved. Despite the difficult market conditions in North America, Chrysler Group’s operat- ing loss excluding one-time effects of €2,183 million (2000: operating profit of €531 million) was lower than the target range set at the beginning of the year (oper- ating loss of €2.2–2.6 billion). The implementation of the turnaround plan achieved cost savings and effi- ciency improvements that were substantially greater than originally planned, offsetting the negative impact of declining unit sales and revenues. Due to the intensely competitive market situation with further increases in sales incentives, unit sales in the United States fell by 11% to 2,196,000 vehicles, and market share slipped to 13.0% from 14.2% in the prior year. Worldwide, Chrysler Group sold 2.76 million cars, minivans, SUVs and light trucks in 2001 (2000: 3.05 million). These figures reflect Chrysler Group’s short term strategy of improving profits rather than protect- ing market share at any price. New and additional products will provide for market share growth in the medium to long term. Revenues declined by 7% to €63.5 billion. Efficiency and creativity in product development. New and attractive products offered at competitive prices are the foundation of the future success of Chrysler Group. Established in 1989, Chrysler Group’s Platform Team concept revolutionized the product-creation pro- cess for high-volume manufacturers. Building on that experience we have now formed Product Innovation Teams to more closely link the entire organization. This new approach aims for “disciplined pizzazz” at all lev- els of the product-creation process in order to achieve reduced vehicle development times, improved quality and sustained profitability. At the same time, we will maintain the attractive design and ability to discover new market niches that Chrysler has become known for, and which is the basis for the success of our brands. The Chrysler Crossfire: from concept to reality. The Chrysler Crossfire concept vehicle continues Chrysler Group’s strategy of developing breakthrough vehicle concepts and turning them into reality. Following in the footsteps of the Dodge Viper, Chrysler Prowler and Amounts in millions 2001 US $ 2001 € Operating profit (loss) (4,701) (5,281) Operating profit (loss) adjusted (1,943) (2,183) 2000 € 501 531 Revenues 56,506 63,483 68,372 Investment in property, plant and equipment Research and development Production (units) Unit sales Employees (Dec. 31) 4,524 1,959 5,083 2,201 6,339 2,456 2,679,411 2,963,822 2,755,919 3,045,233 104,057 121,027 The American way of life... Chrysler Group 31 Convincing for customers: Stunning design and innovative features put the all-new 2002 Dodge Ram 1500 at the head of its class. 32 Chrysler Group North American Car of the Year: The segment-busting Chrysler PT Cruiser with its head-turning design and high versatility. Successful launch of Jeep® Liberty. The all-new Jeep Liberty provides a distinctive Jeep design that delivers efficient space utilization, enhanced versatility and new levels of innovation, while paying homage to the brand’s 60-year heritage. With these best-in-class capa- bilities, Liberty has gone on to set new sales records each month since its launch in spring 2001 – all with- out sales incentives. Unit sales of the new Jeep Liberty in North America totaled 141,700 in 2001. In Europe the Liberty was presented under the Cherokee name at the Frankfurt International Motor Show in September 2001. The Jeep Liberty is produced for the world market at the new Toledo North Assembly Plant (TNAP) in Ohio. DaimlerChrysler began to design TNAP at the time of the merger in 1998. It now represents the cul- mination of best practices from the company’s world- wide manufacturing operations and is a great example of incorporating new technology from Mercedes-Benz. Unit sales of the Jeep brand were 523,000 vehicles in 2001 (2000: 607,500). Presentation of pioneering automotive concepts. Build- ing on the momentum of its award-winning Jeep Willys concept vehicle, Chrysler Group designers presented the radical Jeep Willys2 design study concept at the Tokyo Motor Show in October 2001. Willys2 was also designed with unsurpassed imagination and an adventurous flair. Its usefulness and versatility were developed to exist in harmony with nature, while being perfectly suited for the rigors of an active lifestyle. Other concept vehicles introduced at auto shows in early 2002 were the Dodge M80 pickup truck, the Dodge Razor and the Jeep Compass. Chrysler Group’s 2002 concept vehicles all target the Millenial Genera- tion, the next large emerging group of consumers. They were designed to be aspirational, emotional, minimalist and practical. By incorporating many corporate off-the-shelf components, all concepts will be affordable if produced. Chrysler PT Cruiser, the series version of the Crossfire will give the Chrysler brand another exciting and aspirational vehicle. It joins the Chrysler PT Cruiser, 300M and Town & Country in reinforcing the brand’s innovative appeal. As an image car, Chrysler Crossfire demonstrates Chrysler Group’s flexibility and speed in decision-making. DaimlerChrysler will produce the Chrysler Crossfire together with the Karmann company in Osnabrück, Germany. Many Mercedes-Benz compo- nents will be used in this car, which is to be launched in 2003, just 18 months after the production decision was taken in August 2001. The Chrysler Crossfire is a good example of the potential that cross-divisional cooperation initiated by the Executive Automotive Committee is making available to the Group. 214,300 Chrysler PT Cruisers sold. In response to the strong global demand for the PT Cruiser, we have steadily increased production of this innovative and versatile vehicle since it was launched at the beginning of 2000. The popular PT Cruiser offers the interior vol- ume of a full-size sedan or sport-utility vehicle with a length shorter than many compact cars. After unit sales of 141,200 in its first year, 214,300 PT Cruisers were sold in 2001. In total, the Chrysler brand achieved unit sales of 775,500 vehicles (2000: 694,200). Excellent design and convincing functionality Chrysler Group 33 The ultimate SUV: Jeep Liberty combines legendary off-road abilities with on-road comfort. In addition, the Chrysler Pacifica concept vehicle premieried in early 2002. This all-wheel-drive vehicle is particularly well suited for long trips and combines the spatial comfort of a minivan with the versatility of an SUV as well as the smooth driving qualities of a sedan. A series version of the Chrysler Pacifica, which will be very similar to the concept study, will be presented by Chrysler Group in 2002. Production should then begin in the first half of 2003. New 2002 Ram continues Dodge brand’s success story. The all-new 2002 Ram 1500 was launched in Septem- ber 2001 and sets new standards for the competition. Compared to the previous model the Dodge Ram was improved significantly in every area, from design to handling, from performance to capability, while main- taining the core qualities of every Ram. This was dem- onstrated by Four Wheeler magazine’s selection of the all-new Dodge Ram for its prestigious “Pickup Truck of the Year” award. Due to this model changeover and the generally difficult market conditions, however, unit sales by the Dodge brand were 1,457,400 vehicles (2000: 1,695,400). More than nine million minivans sold. Eighteen years after Chrysler Corporation invented the minivan segment, Chrysler Group celebrated production of the nine-millionth minivan in April 2001. It came off the assembly line at the European manufacturing facility in Graz, Austria. Chrysler Group sells nearly 600,000 minivans a year in more than 70 countries around the world. With three minivan assembly plants, Chrysler Group has the capacity to build more than 2,700 minivans per day. The Dodge and Chrysler brands have over 35% of the minivan segment in the United States, despite having over 15 competitors. U-Connect – new vehicle communication system. Start- ing in 2002, DaimlerChrysler will be the first auto- maker to offer an innovative communication system featuring hands-free voice recognition. An affordable solution designed specifically for Chrysler Group customers. U-Connect is multilingual (English, Spanish and French) and recognizes various voices (up to five). Unlike competing products, U-Connect is based on a customer’s mobile telephone and works both inside and outside the vehicle. An after-market version of the new system will be available in the spring of 2002, with factory installation starting in early 2003. Unit Sales 2001 *) Total of which: Passenger Cars Light Trucks Minivans SUVs**) USA Canada Mexico Rest of the world *) Shipments (including leased vehicles) **) Including the PT Cruiser 1,000 units 2,756 698 596 592 870 2,196 241 133 186 01:00 (in %) - 10 - 15 - 16 + 1 - 6 - 11 - 10 + 10 - 0 34 Commercial Vehicles in North America Still the world leader ■ Business developments significantly impacted by weak market ■ Adjusted operating profit slightly positive at €51 million ■ 492,900 commercial vehicles sold (–10%) ■ Restructuring measures well underway at Freightliner ■ Strategic partnerships strengthen market presence in Asia Consolidation in the Commercial Vehicles division. Despite a difficult year for the sector as a whole, Com- mercial Vehicles sold 492,900 (2000: 549,000) trucks, buses and vans worldwide of the brands Mercedes- Benz, Freightliner, Sterling, Western Star, Thomas Built Buses, Setra, Orion and American LaFrance. We there- fore succeeded in maintaining our position as the world’s leading manufacturer of commercial vehicles. Revenues totaled €28.6 billion (-4%). A slight decline in Western Europe (-1% to €14.4 billion) was accompanied by drops in North America (-9% to €9.5 billion) and South America (-16% to €1.5 billion). Operating profit adjusted decreased significantly to €0.1 billion (2000: €1.3 billion). This was primarily due to the losses at Freightliner in the United States, where we introduced an extensive turnaround program in October 2001. Full-line product range expanded. The Mercedes-Benz truck portfolio was expanded in September 2001 with the introduction of the new Axor truck series, which is positioned between the Actros and the Atego. In addition, the new Setra TopClass 400 luxury coach family has met with a tremendous response. In October, the bus was also honored with the most important international prize in the sector, the “Coach of the Year 2002” award. The range of vans was expanded through the addition of a six-ton variant of the successful Sprinter model and a new version of the vehicle for the North American market. We also introduced the new Vaneo compact van at the International Motor Show in Frankfurt as a premium product in the fast-growing compact-van segment. Mercedes-Benz Trucks remain successful in a difficult market environment. Unit sales of 107,900 Mercedes- Benz trucks in the year under review were down 11% from 2000. The decline was primarily due to sharply lower demand in the troubled markets of Turkey and Argentina as well as a drop in demand in Western Europe, although this was partially offset by growth in other markets outside Europe. Nevertheless, with 67,300 units sold (2000: 77,700) and a market share of 22% (2000: 23%), Mercedes-Benz was once again the leading brand in Western Europe for trucks over 6 metric tons. Mercedes-Benz Trucks also maintained its leading position in the most important South American markets of Brazil and Argentina, with market shares of 34% (2000: 37%) and 35% (2000: 36%), respectively. Amounts in millions Operating profit (loss) Operating profit adjusted 2001 US $ 2001 € (458) (514) 45 51 2000 € 1,212 1,253 Revenues 25,432 28,572 29,804 Investments in property, plant and equipment Research and development Production (units) Unit sales Employees (Dec. 31) 1,321 903 1,484 1,015 1,128 974 494,866 552,471 492,851 548,955 96,644 101,027 Customized transport solutions for our customers Commercial Vehicles 35 Specific range of application: The new Mercedes-Benz Axor semi-trailer truck is designed to fulfill customer requirements such as low weight, low fuel consumption, attractive price and maximum economy. 36 Commercial Vehicles The most modern long-distance bus in the world: The Setra TopClass 400 generation of long- distance buses offers innovative technology, high economy and exemplary comfort. the previous year with unit sales of 11,000 vehicles (2000: 11,900). We nevertheless remained the leader in Western Europe, with a market share of 26% (2000: 26%), as well as in Brazil (52%; 2000: 59%), and Argentina (72%; 2000: 68%). Mercedes-Benz Vans expand global presence. A total of 243,200 vans were sold in the year under review, thereby surpassing the record set in 2000 by 1%. Unit sales in Western Europe were up 3% to 202,100 vehicles, while market share once again reached 19%. Mercedes-Benz thus maintained its leading position in the 2 - 6 metric ton segment in Western Europe. In South America, where unit sales fell to 7,800 vehicles (2000: 12,000), Mercedes-Benz remained the market leader in the comparable segment. The Mercedes-Benz Sprinter was launched in the US market under the Freightliner brand name in mid 2001 and sales reached more than 2,200 by the end of the year. Global components strategy continues successfully. DaimlerChrysler is one of the world’s leading manufacturers of diesel engines for commercial ve- hicles. We recently gathered together the worldwide component activities of Mercedes-Benz, MTU/Diesel Engines and Detroit Diesel Corporation in the DaimlerChrysler Powersystems business unit. This has enabled us to more efficiently structure the develop- ment, production and marketing of diesel engines and components. Long-term synergies have already been identified and realized, particularly in purchasing. Our global components strategy, which is de- signed to increase the share of Group components in our brands, was further pursued throughout 2001. The engine for the Mercedes-Benz Axor truck, for example, is built by a production network involving São Bernardo do Campo, Brazil, and Mannheim, Germany. Further economies of scale will be achieved through the decision to produce transmissions and steering sys- tems along with engines and axles in Brazil. In addition, our operations in the US are being expanded through the establishment of a manufacturing plant for drive shafts and steering systems. The integration of our diesel- engine activities in the off-highway business also had a positive effect. With the added benefit of a clear brand strategy we are present in this market with an attractive, competitive range of diesel engines covering the entire output spectrum. Restructuring at Freightliner, Sterling, and Thomas Built Buses. The collapse of demand in North America led to a substantial reduction in sales of our North American brands in 2001 (-34% to 100,400 units). Our leading position in the segment for Class 8 heavy trucks (15 tons and up) nevertheless remained unchal- lenged in the US. Our market share for Class 8 vehicles reached 39% (2000: 36%), while in Class 6/7 (from 8.8 to 15 tons), it was 27% (2000: 24%). To ensure a return to long-term profitability as quickly as possible, Freightliner presented a turna- round program in October. With this plan we should be able to achieve continuously increasing positive effects on profitability, amounting to an annual US $850 million from the year 2004. Numerous measures are already being implemented and showing positive results. Mercedes-Benz and Setra Buses defend market position. Last year 26,700 complete buses and bus chassis of the Mercedes-Benz and Setra brands were sold worldwide (2000: 27,500), making DaimlerChrysler by far the world’s leading bus manufacturer once again. Unit sales in Western Europe (including Turkey) were down 16% on the record year of 2000 to 6,600 vehicles as a result of generally negative market developments, particularly in the segment of tourist buses, and the severe decline of the important Turkish market. In South America, we did not maintain the high sales level of The world’s leading manufacturer Commercial Vehicles 37 of commercial vehicles Strategic partnership with MMC. In June 2001, DaimlerChrysler acquired AB Volvo’s 3.3% interest in Mitsubishi Motors Corporation (MMC), including all legal rights arising from the cooperation between Mitsubishi FUSO Truck & Bus Company (MFTB) and Volvo. With worldwide sales of more than 140,000 trucks and buses and a market share of over 30% in Japan, MFTB is particularly well represented in the Asian commercial vehicles market. Being able to work together with MFTB gives us the opportunity to strengthen our position in Japan and other Asian markets over the long term. In December 2001, DaimlerChrysler assumed control of sales and service of MMC’s Canter light truck in five countries. The model is now available with its own brand presentation at selected Mercedes-Benz dealerships in the United Kingdom, France, Italy, Sweden and Poland. In the future, our strategy will include joint investment and development programs within the commercial vehicle field. Engine joint venture with Hyundai. We took the first firm step toward commercial vehicle collaboration with our partner Hyundai in June 2001, by establishing the joint venture “Daimler Hyundai Truck Corporation.” The company was set up to produce Series 900 Mercedes-Benz diesel engines in South Korea. A large proportion of Hyundai commercial vehicles will be equipped with these engines in the future. Planning of a production facility in the immediate vicinity of Hyundai’s state-of-the-art plant in Chonju was begun shortly after the joint-venture contract was signed. The star among the compact vans: The multifunctional Mercedes-Benz Vaneo is a family sedan, recreational vehicle and spacious station wagon all in one. Unit Sales 2001 *) World of which: Vans (incl. V-Class) Trucks Buses Unimogs Europe of which: Germany Western Europe (excl. Germany) of which: France UK Italy North America of which: USA South America of which: Brazil Asia/Australia *) Wholesale (including leased vehicles). 1,000 Units 01:00 (in %) 493 258 189 43 3 293 106 170 36 29 22 106 89 43 34 26 -10 +3 -24 -12 +32 -3 -6 +1 +6 +3 +4 -31 -32 -15 -9 +2 38 Services Financial Services well positioned for the future ■ Adjusted operating profit only slightly below prior year's level despite difficult situation in North America ■ As expected, new business slightly down from prior year at €54.9 billion ■ Strategic refocus of Services Well positioned with Group-focused financial services. DaimlerChrysler Services is well positioned for the future in the dynamic growth markets of financial and mobility services. The division continues to concentrate on DaimlerChrysler’s core automotive business, and uses its innovative products to extend the value chain of the Group’s brands. DaimlerChrysler Services also offers fleet management programs, mobility services and target-group focused insurance solutions. Great success has been achieved in using services to support the sales of vehicles by the Mercedes-Benz Passenger Cars & smart, Chrysler Group and Commercial Vehicles divisions. With more than 100 operating companies in 38 countries in the four regions of North America, Europe, Asia/Pacific, and South America/Africa/Middle East, DaimlerChrysler Services is one of the world’s leading providers of automotive financial services. Further increase in revenues at Financial Services. DaimlerChrysler Services posted revenues of €16.9 bil- lion in 2001 (2000: €17.5 billion). Excluding the rev- enues of debis Systemhaus (IT services), which were fully consolidated in the first nine months of the prior year, revenues increased by 12%. New business was slightly lower than in the prior year at €54.9 billion, as we had anticipated. With a share of €35.7 billion, the US remained DaimlerChrysler Services’ most important market for new business (2000: €35.4 billion). Worldwide contract volume reached €131.8 billion (2000: €126.3 billion); adjusted for exchange-rate effects, the portfolio was around the same size as a year earlier. Again, the largest share was accounted for by North America (€95.0 billion). As a result of the global presence of the Financial Services division, one of every three DaimlerChrysler vehicles sold was financed by DaimlerChrysler Services. The size of the non-automotive portfolio was reduced in 2001. Adjusted earnings slightly below prior year’s level despite difficult market conditions in North America. In 2001, the division achieved an operating profit of €0.6 billion – significantly lower than the previous year (€2.5 billion), which was positively affected by one-time effects totaling €1.8 billion. Operating profit in 2001 in- cluded one-time income of €0.3 billion arising from the sale of the remaining debitel AG shares to Swisscom, a Swiss telecommunications company, as well as one- time losses of €0.1 billion caused by the devaluation of the Argentinean peso against the US $ and of €0.2 billion for the sale of parts of the capital services port- folio in the United States that was agreed on in January 2002. Excluding one-time effects, there was an operat- ing profit of €0.6 billion, slightly lower than the level of the prior year. Business was impacted by continuing pressure on margins, provisions for risks associated with the commercial vehicle portfolio, and residual- value losses in connection with Chrysler Group ve- hicles. Competitive pressures have intensified in the financial services business due to the entry of new companies and the merger of established firms. These negative factors were offset by the efficient utilization of the available refinancing instruments, and by an optimized cost structure resulting from measures designed to improve profitability. Amounts in millions Operating profit Operating profit adjusted Revenues Contract volume Investments in property, plant and equipment Employees (Dec. 31) 2001 US $ 545 514 2001 € 612 578 2000 € 2,457 641 14,999 16,851 17,526 117,340 131,828 126,314 100 112 9,712 282 9,589 Leasing and financing all around the automobile Services 39 You can hear the smile. Friendly and competent service-liners look after our customers from the call center in Dallas, USA. of off-lease vehicles, programs have been developed in cooperation with dealers that offer customers various alternatives at the end of the leasing period. This has made it possible to boost customer loyalty. Activities expanded. In 2001, we further expanded our fleet management operations. We were able to attract new customers by offering innovative fleet programs, particularly in Germany, where our total fleet of man- aged vehicles increased to more than 110,000 units. Our vehicle financing operations have been concen- trated in the new DaimlerChrysler Bank, and after we receive a full banking license DaimlerChrysler Services will further expand its product range. Our goal is to begin offering our customers a range of banking services in 2002 that go beyond those available through the financing and leasing packages of a typical auto- motive bank. We expanded our presence in the eastern Medi- terranean by establishing a financial services company in Greece. The Mobility Management Services unit also further expanded its activities, focusing primarily on the development and operation of telematics services for toll-collection systems on highways. Services focused on core business. Since the beginning of 2001, the Services division has been operating under the DaimlerChrysler corporate brand name, thereby underscoring the important role played by financial ser- vices in the sale of Group vehicles. Following a decade of dynamic growth, in 2001 we decided to focus on the consolidation of our operations. In order to boost the earnings of the Services division, we focused our activities even more strongly on supporting the sales of DaimlerChrysler vehicles, while at the same time controlling our growth in the automotive leasing and financing business with a clear focus on profitability. Against a backdrop of increasing loan defaults and losses on the sale of ex-lease vehicles, a stronger emphasis was laid on the evaluation and control of the risks inherent in our business. We further improved our risk-management system by, among other things, standardizing our credit principles. The losses sustained on the sale of off-lease vehicles primarily involved Chrysler and Freightliner products. Measures introduced to increase profitability. In order to increase profitability, the division introduced numer- ous measures to cut costs, boost the efficiency of busi- ness processes, and optimize internal routines. The customer-focused coordination of products and services was further improved by means of closer cooperation between the leasing and financing companies and the sales organizations of the automotive divisions. Activi- ties throughout the Services division were also more closely aligned with its goals. In addition, we reduced costs by merging administrative back-office functions in various countries. In order to improve the remarketing 40 Other Activities Other Activities MTU Aero Engines Amounts in millions 2001 US $ 2001 € 2000 € Amounts in millions 2001 US $ 2001 € 2000 € Operating Profit 1,051 1,181 3,590 Revenues Operating Profit Adjusted 182 205 67 Incoming Orders 2,214 2,487 2,105 1,943 2,183 2,409 The Other Activities segment comprises the MTU Aero Engines business unit, our equity interests in EADS, TEMIC, Mitsubishi Motors Corporation, and until April 2001 included the Rail Systems business unit, which was sold last year. It also includes our Corporate Research department, our real estate activities, and the holding and finance companies. In 2001, the Other Activities segment achieved an operating profit of €1.2 billion (2000: €3.6 billion). This included one-time income totaling €1.0 billion resulting from the sale of Adtranz (€0.3 billion) and 60% of the stock in TEMIC (€0.2 billion), our proportionate share (€0.9 billion) of the gain arising from EADS in connec- tion with the formation of Airbus SAS, and our share of the restructuring charge at Mitsubishi Motors (€0.4 bil- lion). In the year 2000, there was one-time income of €3.5 billion, primarily due to the exchange of a control- ling interest in DaimlerChrysler Aerospace for shares in EADS. Excluding one-time effects, operating profit amounted to €205 million (2000: €67 million). Employees (Dec. 31) 7,839 7,162 Global partnerships. Together with its partners, the MTU Aero Engines business unit develops and pro- duces engines for civil and military applications. It also performs servicing and maintenance on engines at 11 locations worldwide. MTU Aero Engines is the world's largest independent provider of maintenance services for civil aviation engines. The company's customers include users and manufacturers of aircraft engines and industrial gas turbines around the world. Further growth in revenues and earnings. MTU Aero Engines continued to increase revenues and earnings despite the negative effects of the terrorist attacks of September 11. In 2001, the business unit's revenues grew by 18% to reach €2.5 billion. This was primarily due to an increased demand for civil-aircraft engines and significantly higher revenues by the maintenance plants, but also to the stronger US $. Civil applications particularly benefited from the growth of the CF-6 programs and higher sales of V2500 engines, as well as from strong demand for LM6000 industrial gas turbines. On the military side, MTU Aero Engines delivered the first series production engines for the Eurofighter (EJ200) during the year under review. Incoming orders at MTU Aero Engines also devel- oped positively again in 2001, reaching a total of €2.2 billion. As expected, they did not match the previous year's extraordinarily high level (2000: €2.4 billion) which was influenced, among other things, by the first series production orders for the Tiger military helicop- ter. The business unit registered strong demand for CF-6 and V2500 replacement parts in 2001, and also gained new customers for its civil maintenance services for V2500 engines in the US and Middle East markets. As a result of these positive developments, earn- ings at MTU Aero Engines GmbH again surpassed the figure for the previous year. Stronger competitive position in a difficult market Other Activities 41 The Eurofighter has two EJ200 jet engines. MTU is the system leader for this engine in Germany. With the new Airbus A380 family, EADS can introduce new technologies while securing long-term competitiveness in the field of large civil aircraft. New projects secure growth and competitiveness. MTU Aero Engines is steadily expanding its mainte- nance business in order to participate in the good growth prospects in that sector. For example, MTU Maintenance Zhuhai - a 50:50 joint venture between MTU Aero Engines and China Southern Airlines – received its business license in April 2001. Starting in November 2002, it will be able to repair engines close to the Asian customer base. The business unit is also investing in new pro- grams that will strengthen its position as an engine manufacturer. For example, MTU Aero Engines is par- ticipating in the GP 7000 engine program for the Air- bus A380. In 2001, Air France became the first airline to order GP 7000 engines for the Airbus aircraft it has ordered. We expect this to be followed by orders from other airlines. The PW6000 engine developed with Pratt & Whittney was certified for the Airbus A318 . The first flight of the Airbus A318 took place on January 15, 2002. EADS Successfully meeting market challenges. EADS is the world’s second largest aerospace and defense company. Since its establishment in July 2000, it has been included in DaimlerChrysler's consolidated financial statements at equity, in proportion to our 33% stake. Despite a difficult market in 2001, particularly follow- ing the events of September 11, EADS expects to reach its revenue and earnings targets in its first full year of operation. The company made substantial progress with its two major projects - the Airbus A380 for the civil aircraft market and the Airbus A400M military transport aircraft. EADS also entered into numerous cooperative agreements and partnerships that will result in sustained improvements in its competitiveness. Repeated strong growth in revenues, incoming orders and earnings. EADS’ revenues of €30.8 billion were 27% higher than the pro-forma figure of the prior year (€24.2 billion). A large part of this growth is explained by the fact that since the formation of Airbus SAS, BAe Systems’ share of Airbus revenues is also included, which was not the case in the prior year. Adjusted for this effect, revenues rose by 10%. The main factors behind the rise were the above-average increases in revenues at Airbus SAS, which delivered a record 325 aircraft (2000: 311), and in the Military Transport Aircraft and Defence & Civil Systems divisions. Positive effects also came from higher revenues in the Aeronautics division and from changes in the value of the US $. On the other hand, the Space division did not quite equal the prior year’s figure. 42 Other Activities Incoming orders increased to € 60.2 billion in 2001 (2000: €49.1 billion). Adjusted for the consolidation effect of Airbus SAS, incoming orders rose by 5%. In the first nine months of 2001, mainly due to the growth in business at Airbus, there was a 32% increase in earnings before taxes and interest (EBIT) to €1.1 bil- lion. The company also expects full-year earnings ad- justed for one-time effects and goodwill amortization to be significantly higher than the previous year's figure. Order backlog at record level. EADS’ order backlog reached a new record level of €183.7 billion for 2001 year-end, which is equivalent to the revenues of more than six years. Airbus further consolidated its leading position in the civil-aircraft market with a record order backlog of 1,575 aircraft. In terms of the number of units on order, this corresponds to a market share of 54%. In the defense sector, at the end of December 2001, eight European countries decided to procure 196 military transport aircraft of the type Airbus A400M, with a total value of about €18 billion. Partnerships strengthen competitiveness. In July 2001, Airbus SAS was established with retroactive effect from January 1, thereby combining into one company all pre- vious activities of the former Airbus consortium. EADS owns 80% of the new company, with the remaining 20% held by BAE Systems. MBDA, which was established in December 2001, combines the guided missile activities of EADS, BAE Systems and Finmeccanica. EADS has a 37.5% stake in MBDA, which is the world's second largest manufac- turer of guided missiles and covers all market segments in the sector. One of EADS’ most important strategic goals is to expand its presence in the US market. To this end, EADS and Northrop Grumman have signed cooperative agreements for the fast-growing sectors of defense elec- tronics and the maintenance and servicing of Airbus fleets in the US. Joint projects with other US partners are also being examined. EADS generated revenues of approximately US $4 billion in the US in 2001. Mitsubishi Motors Mitsubishi Motors' worldwide presence. Mitsubishi Motors Corporation (MMC), Japan's fourth-largest auto maker, designs and produces small cars, full-size pas- senger cars, SUVs, light and heavy trucks, and buses. The company has production plants in 13 countries, including seven assembly and component plants in Japan. More than 50% of all Mitsubishi vehicles are sold outside Japan, primarily in Asia, America and Europe. Further expansion of alliance with MMC. At the begin- ning of 2001, DaimlerChrysler had a 34% stake in Mitsubishi Motors Corporation. At that time the field of cooperation was limited to passenger cars and light commercial vehicles. However, in June 2001 we acquired Volvo's 3.3% interest in Mitsubishi Motors, including all legal rights arising from the previous cooperation between Mitsubishi Motors and Volvo in the area of medium and heavy commercial vehicles. We and Mitsubishi Motors thereby placed our alliance on a significantly broader base encompassing all ve- hicle segments. DaimlerChrysler has included its 37.3% stake in MMC in its consolidated financial statements at equity. Turnaround measures cut losses. In the first half of the 2001/2002 financial year (which ends on March 31, 2002), sales of Mitsubishi Motors vehicles totaled 658,000 units, lower than the 675,000 units recorded during the same period of the previous financial year. This decline was due to the fact that although sales remained stable in North America, there was a noticeable drop in sales in the Japanese, European and Asian markets. Revenues according to Japanese GAAP totaled 1,533 billion yen. (€14.2 billion), falling slightly short of the previous year's figure of 1,543 billion yen. As ex- pected, MMC recorded an operating loss in the first half of the 2001/02 financial year of 13.1 billion yen (€121 million). That loss was 44% less than the figure for the first six months of 2000/01 (23.2 billion yen). This significant improvement was largely a result of the turnaround measures introduced in February 2001. The loss before one-time effects and taxes totaled 27.4 billion yen (€253 million), representing a 7% improvement on the half-year results of 2000/01 (a loss of 29.5 billion yen). New potential through global alliance Other Activities 43 Car of the Year in Japan in the mini-car segment - the Mitsubishi ek Wagon, introduced in October 2001. The exciting Space Liner concept car gives a preview of Mitsubishi Motors’ upcoming minivan generation. Long-term improvement in earning power. In February 2001, the Board of Management of Mitsubishi Motors Corporation introduced a comprehensive turnaround plan designed to return the company to sustained prof- itability and long-term growth. Organizational and per- sonnel changes were crucial elements of the rapid and effective implementation of this program. Accordingly, Mitsubishi Motors reduced the number of management levels to four, cut executive management positions by 25%, and replaced approximately 60% of its executive and senior executive officers. The company also introduced measures designed to reduce material costs, and fixed costs. Mitsubishi Motors is on schedule with regard to fixed costs, and the company is confident it will surpass the 2001/02 cost-cutting targets for materials. The planned work- force reductions (9,500 employees by the end of the 2003 financial year) are also progressing faster than expected. By the end of 2001, 7,500 persons had already left the company, 3,000 more than was originally planned. Due to the progress achieved with the turnaround plan to date, the MMC Board of Management is confi- dent that the positive developments of the first half of the 2001/02 financial year will continue in the second half. MMC therefore expects to achieve its goals for the financial year 2001/02, which ends on March 31, 2002. As previously announced, MMC should be able to reach breakeven for the 2001/02 financial year. Growth through new products. In addition to its re- structuring measures, Mitsubishi Motors plans to en- sure future profitability and long-term growth primarily through the introduction of new, innovative products for key volume segments. Mitsubishi Motors offered a preview of its future model program at the Tokyo Motor Show in October 2001. In addition to the S.U.P. and Space Liner concept cars, the company presented the CZ2 and CZ3, two models very similar to the com- pletely new compact car that will be launched in Japan in late 2002. With this automobile MMC will broaden its range in the important compact-car segment, which is expected to grow substantially in the medium to long term. The vehicle combines space and style, and is both sporty and elegant. In addition to the new compact car's fresh styling, spaciousness and attractive interior, it features an array of other appealing customer benefits. Last year, MMC launched the Airtrek (a sedan/ SUV) and the eK Wagon mini-car in Japan. The all-new eK Wagon sets new standards, especially in terms of safety, in this very important market segment in Japan. Only three months after its market launch in early October, orders for more than 45,000 of this car had been placed. 44 Research and Technology Close cooperation between operating units and research ■ F 400 Carving: a further design study for the car of the future ■ Progress with hybrid and fuel-cell drive systems ■ Focus on lighter materials, lower fuel consumption and reduced emissions for the benefit of customers and the environment Taking the lead through innovation. Innovation plays a key role in distinguishing DaimlerChrysler from its competitors. The technological basis for innovation is provided by Corporate Research and the divisional de- velopment departments. In 2001, DaimlerChrysler in- vested €6.0 billion (2000: €7.4 billion) in the research and development of new products and technologies. Expenditure on research and development was lower than in the previous year due to the deconsolidation of Dasa, Temic and Adtranz. At the end of the year, 2,700 people were employed at Corporate Research, while another 25,400 employees worked in the various divisional development departments. F400 Carving continues the series of innovative con- cept vehicles. The F 400 Carving concept car first dem- onstrated at the Tokyo Motor Show incorporates many pioneering innovations. The tilt of the vehicle's wheels can be adjusted by up to 20 degrees, allowing more force to be applied to the road surface. Newly devel- oped asymmetrical tires improve handling characteris- tics even further. When driving into bends, the vehicle achieves lateral acceleration of up to 1.28 g (g mea- sures accelerative force expressed in terms of the earth’s gravitation) thereby enabling it to outperform current sports cars by about 25 percent. The vehicle's safety can be further enhanced through the installation of active safety systems developed by DaimlerChrysler such as the Electronic Stability Program (ESP), Active Body Control (ABC) and Sensotronic Brake Control (SBC). During the development of the F 400 Carving, engineers at DaimlerChrysler Research were able to draw on the expertise gained with previous concept cars such as the F 200 Imagination and the F 300 Life- Jet, particularly with regard to driving safety and han- dling. The chassis is tuned with the help of an active hydro-pneumatic system that optimally adjusts the vehicle's suspension and shock absorbers to the road surface and the driving situation. The F 400 Carving is also equipped with a pioneering steering system that does not require conventional mechanical steering technology. The system electronically registers the driver’s steering movements and transforms them into commands for the electrically driven steering gear. Improved drive technology for a mobile future. The main objectives in the development of drive systems continue to be greater fuel efficiency and lower emis- sions. To achieve these goals, DaimlerChrysler is simul- taneously working on improving internal-combustion engines, determining the optimal configuration for hybrid drive systems, and fuel-cell technology. Research is focusing on new combustion methods, improved recharging technology, and innovative exhaust-gas treatment systems. In the future, smart technology for managing systems that charge batteries, combust fuels, and treat exhaust gases will become significantly more important. Hybrid drive system being tested. Corporate Research is currently testing and researching hybrid drive concepts aimed at reducing fuel consumption and emissions without diminishing driving pleasure, comfort or a vehicle’s utility value. The “smart hyper,” for example, is equipped with an electric motor and a CDI diesel engine that work in tandem by optimally adjusting the output of each to the driving situation. Both drive systems are turned off when the vehicle is not moving, thereby ensuring that no fuel is consumed and no emissions produced. To get the car moving again, the electric motor is turned on first, allowing the smart to travel silently while con- serving energy. If greater speed or acceleration is needed, the diesel engine is automatically activated. When the vehicle is braked, the electric motor becomes a generator that recharges the batteries. The hybrid system reduces fuel consumption by more than 10% on average and noticeably improves the vehicle's acceleration. Similar results have been achieved with the “A-Class hyper” and the “Dodge Durango TTR.” Leading-edge technology and a tradition of innovation Research and Technology 45 Car of the future: The F 400 Carving research vehicle is a concrete example of technologies and innovations to come. Further development of fuel-cell technology. Our activi- ties in the development of fuel-cell technology are aimed at reducing costs and improving the efficiency of fuel cells and other components. In addition to working on hydrogen-based drive technology, we are developing innovative direct metha- nol systems that can easily transform liquid methanol into electric power. DaimlerChrysler has already dem- onstrated a fuel-cell powered go-cart – the world’s first small vehicle to use this technology. Modern production technology. The extensive use of light materials can significantly reduce fuel consump- tion and emissions, thereby providing benefits for customers and the environment alike. Depending on the type of engine and its performance, every 100-kg decrease in weight reduces fuel consumption by up to 0.4 liters per 100 kilometers. In addition to new, extremely light materials such as aluminum, magnesium, ceramics and fiber-reinforced plastics, improved high-strength steel components can be employed for far better lightweight construction than is currently possible with conventional steel. The processing properties of new materials are an important factor that has to be taken into account when using them in production. This not only requires exper- tise in materials, production technology and new meth- ods of construction, but also the knowledge of how best to combine them. In addition to meeting higher stan- dards with regard to safety, comfort, quality and price, the new materials have to be environmentally compat- ible. An environmental audit is therefore conducted primarily on the materials used, the amount of energy needed to manufacture the product, the length of the materials’ lifecycles, and their recyclability. Thanks to new simulation software currently be- ing developed at DaimlerChrysler Research, it will be- come possible to combine technical data on the proper- ties of materials, processes and production techniques with the specifications of individual components. This will allow the wide differences between materials to be evaluated in a virtual environment, thereby eliminating the need for expensive and time-consuming develop- ment and the construction of prototypes. 46 DaimlerChrysler and the Environment Focus on sustainable and environment friendly mobility ■ Lower fuel consumption with hybrid and fuel-cell technology ■ Further development of new renewable fuels ■ Awards received for exemplary environmental reporting Agreements were reached with ten major Euro- pean cities to test Mercedes-Benz municipal buses equipped with fuel cells. The first such vehicles will be built at the end of 2002; plans call for the delivery of a total of 30 Citaro city buses throughout Europe by the end of 2003. DaimlerChrysler is therefore the first automobile manufacturer to sell fuel-cell vehicles to its customers. Pilot projects have also been agreed for passenger cars. In the US, DaimlerChrysler plans to provide 15 vehicles for the California Fuel Cell Partnership project, which aims to demonstrate the suitability of fuel-cell vehicles for practical applications. At the beginning of 2001, the world’s first methanol-powered fuel-cell- vehicle equipped with technology suitable for everyday use was tested on public roads in Japan. The vehicle was the NECAR 5 which is based on the Mercedes-Benz A-Class. First production vehicle with hybrid technology in the near future. Hybrid technology complements long-term fuel-cell development when it comes to the potential for boosting fuel economy in the near term. DaimlerChrysler is therefore accelerating development of a marketable hybrid drive technology and plans to produce various hybrid vehicles, such as the Dodge Durango and the “RAM Contractor Special.” The hybrid vehicles under development at DaimlerChrysler improve fuel economy by more than 25% compared to similar vehicles with conventional drive systems. Efficient use of resources — the key to sustainable mobility. In view of the sharply increasing demand for energy – particularly in developing countries and the emerging markets – as well as continuing climatic changes due to the use of fossil fuels, the importance of environment-friendly energy sources is growing signifi- cantly. If we want to safeguard mobility over the long term, we will have to continuously lower fuel consump- tion while at the same time reducing our dependence on fossil fuels. In order to achieve these goals and strengthen its competitive position over the long run, DaimlerChrysler is investing substantially in new tech- nologies such as hybrid drive systems and fuel cells. The use of fuel-cell technology leads to signifi- cantly greater fuel economy, as vehicles with fuel-cell drive have much higher internal efficiency ratings (the standard measurement for efficiency of energy conver- sion) than do conventional internal-combustion en- gines. Currently, fuel cells that operate with hydrogen are 50% more efficient than optimized diesel engines. Our overall goal is to further increase fuel-cell efficiency once again by more than 10% in the next phase of development. Fuel-cell technology in practical tests. DaimlerChrysler continued its development of fuel cells in 2001, focusing particularly on field tests of fuel-cell driven vehicles. An important milestone on the road toward the first marketable fuel-cell vehicle was the delivery of the first fuel-cell van – a Mercedes-Benz Sprinter – to the Hermes Versand Service parcel delivery company. The vehicle is equipped with an asynchronous electric motor in the front and pressurized-hydrogen tanks beneath the floor. This concept does not restrict cargo space in any way. It does, however, offer great driver comfort and allows for quiet, high-torque acceleration. And, as is typical of fuel- cell systems, it also ensures zero emissions of CO, NOx and particulates. Active environmental protection for sustainable corporate success DaimlerChrysler and the Environment 47 Practical trials in city traffic: The first Mercedes-Benz Sprinter with fuel-cell technology was delivered to a customer in 2001. DaimlerChrysler’s environmental commitment hon- ored. In 2001, DaimlerChrysler was honored with a number of awards in recognition of its efforts to pro- mote sustainable mobility. The company’s Environmen- tal Report, for example, received the Society of Ameri- can Engineers’ Environmental Communications Prize for the second consecutive year. DaimlerChrysler also received the international Environmental Communica- tion Award from the United Nations Environmental Pro- gram (UNEP). In addition, DaimlerChrysler was named the automotive company with the best sustainability reporting by the UNEP partner organization Sustain- ability. Finally, DaimlerChrysler was listed in the Dow Jones Sustainability Index as “Sustainability Leader” in the automotive sector. Renewable fuels: an opportunity for the future. Techno- logical progress should not be limited to the vehicle itself. Advances also need to be made in the fuels used. The successful establishment of new fuels on the market – from sulfur-free gasoline to biofuels – will require the combined efforts of the automotive industry, oil companies and government authorities. The use of renewable fuels, such as methanol made from biomass, is a promising alternative for substantially reducing CO2 emissions. At the same time, the extraction and processing of biomass will create new jobs and will thus have a positive economic, ecological and social impact. DaimlerChrysler actively supports the development of biofuels and is helping to finance the construction of a pilot facility for producing bio-methanol and bio-diesel. We have also achieved important successes with conventionally powered vehicles: The diesel variant of the smart (smart cdi), for example, is the undisputed German market leader in the so-called three-liter segment (fuel consumption better than 67 miles per US gallon) for especially fuel-efficient vehicles. 48 Global Procurement & Supply Utilizing the potential of supplier networks ■ Total purchasing volume of €106.5 billion ■ Further increase in online transactions ■ Optimization of processes with suppliers Close cooperation with suppliers. DaimlerChrysler purchased goods and services worth €106.5 billion from suppliers in 2001 (2000: €113.3 billion). In 2001, Global Procurement & Supply (GP&S) purchased goods and services totaling €101.2 billion (2000: €103.1 bil- lion) for our automotive divisions, these figures include non-production materials. Due to competitive pressures, our procurement activities in 2001 again focused on cost-reduction measures. We streamlined processes and achieved significant cost savings through better exploitation of expertise throughout the Group. For example, on the model of Mercedes-Benz we strengthened the links between development and procurement at Chrysler Group. Savings at the Chrysler Group. The short-term unit-cost reductions set out for 2001 in the Chrysler Group turn- around plan for 2001 were surpassed. This achieve- ment was due to Chrysler Procurement’s ability to obtain significant cost reductions from suppliers. The second phase of this program, which is already under way, involves the substantial reduction of long-term system costs. e-business gains in importance. GP&S uses e-business to optimize and accelerate processes as well as to make them more transparent. e-business enabled significant purchasing cost reductions. We see exceptional poten- tial in the areas of e-procurement and logistics (supply network collaboration). Total e-business was up sharply in 2001. Online bidding again played an important role in procurement. Online bidding facilitates price optim- ization and provides tremendous time saving. Such bidding events also benefit suppliers by enabling them to better assess their position with respect to their competitors. In one of the largest online bidding events, we purchased 1,200 different body-in-white parts in 80 dif- ferent subgroups. Covisint, a company whose share- holders include DaimlerChrysler and several other au- tomotive manufacturers, provided the technology and was also responsible for carrying it out. Covisint is a service company that, among other things, manages an Internet exchange for online bidding events in the US and Europe. The Supply Network Collaboration unit, which collects precise data on all processes – from supply to production – in near real-time, conducted several promising pilot projects in North America and Europe in 2001. Purchasing Volume €106.5 bilion (2000: €113.3 billion) Mercedes-Benz Passenger Cars & smart Chrysler Group Commercial Vehicles Other 33 % 43 % 19 % 5 % Optimized procurement and logistics through web-based technology Global Procurement and Supply 49 Auction on the Internet: Online bidding as a modern instrument of global procurement. Expanding networks. Intense competition in the auto- motive industry will continue to have a major impact on the forms of cooperation adopted in supplier net- works. Effective management of such networks is of crucial importance for the long-term success of us and our partners. Our goal is to create the world’s most effective supply network, and use the tools at our dis- posal to continue the successful cooperation we have experienced within the framework of our Extended Enterprise® program. Cost reduction through commodity strategies. Com- modity strategies also gained significantly in impor- tance in 2001 and are helping us to reach our targets. Such strategies involve the standardized description and definition of material groups and the application of these definitions to derive strategic goals for procure- ment activities. Sixty material groups were identified in 2000, equivalent to half of total purchasing volume in that year. Another 21 groups were added in 2001. Assessing supplier potential with the External Balanced Scorecard method. The External Balanced Scorecard method enables DaimlerChrysler to measure the performance of suppliers in terms of quality, system costs, technology and delivery effectiveness in a structured manner. These measurements can then be analyzed and, if necessary, used to develop new approaches to improve weak areas. This method supports the joint goal-agreement process and therefore represents an important instrument for enhancing performance. We also improved the Global Procurement and Supply Information System (GPSIS), which obtains data worldwide from the operative procurement, logistics and invoicing systems. The system provides valuable performance measures and other information to support the decision-making process at Global Procurement & Supply. 50 Human Resources Employees prepared for future challenges ■ Company agreement on long-term working-time accounts boosts motivation and flexibility ■ Increasing use of internal e-business applications by our employees ■ 372,470 employees worldwide (2000: 416,501); reduction due to consolidation effects and turnaround activities Global human-resources strategy implemented. In 2001, we focused primarily on implementing the global human-resources strategy adopted in the previous year. Key activities included supporting turnaround plans, integrating various corporate units, and securing our next generation of managers by attracting top talent. We also focused on the future by developing new hu- man-resources tools designed to cope with an aging so- ciety and workforce, and by supporting various activi- ties in Asia through appropriate recruitment activities and assistance for expatriates. Our human-resources strategy supports our employees in creating value for the Group and thus strengthens DaimlerChrysler’s position as an attractive employer. More flexible capacity utilization and working times. The use of tools designed to ensure flexible human- resources management is becoming increasingly impor- tant at DaimlerChrysler. This enables us to quickly adapt our capacity utilization to changes in demand so that we can better compensate for seasonal or cyclical variations. In the context of short- and medium-term ca- pacity management, DaimlerChrysler has implemented a range of highly flexible arrangements, including various models for working hours and plant operating times, as well as the use of temporary employment contracts when necessary. In this way we can react promptly to fluctuations in incoming orders while providing sufficient work for our highly qualified core workforce even if orders decline temporarily. An important element of our long-term human- resources planning was the conclusion of a general labor-management agreement covering long-term worked-hours accounts in Germany: Starting in 2002, this will enable our employees to record additional hours worked in the form of time credits which can later be used for further training, early retirement or time off. This ensures that we have the right amount of manpower in all situations while responding to the needs of all groups of employees. New e-business applications for human resources. In 2001, we combined all employee-related e-business activities in our “DC eLife” initiative. This means that the workforce will soon be able to access all individual e-business applications through a single registration procedure via the employee portal. The system is gradually being introduced at all of our locations in Germany. Not only does the portal benefit all of the workforce by providing a better general overview, but use of the portal also helps to improve employees’ e-business skills. In this way, employees of all age groups are automatically prepared for the e-business applications of the future. Employees (Dec. 31) 2001 2000 DaimlerChrysler Group 372,470 416,501 Mercedes-Benz Passenger Cars & smart 102,223 100,893 Chrysler Group Commercial Vehicles 104,057 121,027 96,644 101,027 Sales Organization Automotive Businesses 38,733 36,857 Services Other1) 9,712 9,589 21,101 47,108 1) MTU Aero Engines, corporate research department, real estate activities, and holding and finance companies Qualification and motivation lead to success Human Resources 51 Top marks for vocational training: The foundation for our competent and committed workforce. again, more than 2,800 young people began a training program at DaimlerChrysler in Germany. Some 10,400 people are presently being trained worldwide by DaimlerChrysler in approximately 75 professions or programs of study. 372,470 employees worldwide. At December 31, 2001, DaimlerChrysler employed 372,470 people worldwide (2000: 416,501). 191,158 worked in Germany (2000: 196,861) and 104,871 in the US (2000: 123,633). The decrease in the number of employees by 44,000 was largely due to deconsolidation (primarily Adtranz and TEMIC) and measures taken in connection with turnaround programs. A thank-you to our employees. We would like to thank all our employees for their initiative, commitment and achievements. We are convinced that their skills, enthusiasm and energy will enable us to successfully shape the future of the Group. We also extend our thanks to the representatives of the employees and of the management committees for their constructive cooperation. The ePeople project links up HR processes. Within the framework of the ePeople project, in 2001 we began to raise the efficiency of web-based human-resources pro- cesses, to ensure global consistency, and to extensively network our human resources departments. In this way, the ongoing globalization of our company is reflected and supported by our human-resources activities. Executive development with LEAD. We use the LEAD (Leadership Evaluation And Development) system to standardize executive assessment and development worldwide, and to give the best individuals the possibil- ity to develop their potential throughout the Group. In 2001, this system was applied at all management levels throughout the Group for the first time. As a result we are able to identify management potential at an early stage and utilize it where it is needed, thereby ensuring that our management requirements are optimally cov- ered. LEAD is now firmly anchored in the management culture of DaimlerChrysler. Securing top talent for DaimlerChrysler. DaimlerChrysler again succeeded in recruiting young, highly qualified individuals in 2001, not least due to the activities of our national and international compa- nies and locations. The focus was on contacts with uni- versities and schools, the networks of access to interns and graduates. By directly approaching specific target groups and executing special applicant programs in various locations we make contact with the best candi- dates so that we can attract them to our company. Once 52 The DaimlerChrysler Shares Stock markets depressed by fear of recession ■ Declining stock markets for second consecutive year ■ Price falls triggered by terrorist attacks in September ■ Strong recovery in the fourth quarter ■ MSCI World Index Automobiles down 9% over the year ■ DaimlerChrysler shares performed better than DAX and MSCI World Index Automobiles in 2001 Further falls in equity prices. Shareholders’ hopes for a stock-market recovery were disappointed in 2001, mainly due to the US recession and the terrorist attacks of September 11. At the same time, economic growth slowed in Europe and Japan. International share indices reached their lowest point for the year after the attacks in the United States. The bear market was followed by a temporary strong recovery, as investors became convinced that the medium- and long-term economic effects of the attacks would not be as severe as they had initially feared. The fact that the US central bank lowered its Fed Funds Rate eleven times to 1.75%, the lowest level since 1961, was also regarded as positive. In addition, the oil price fell sharply after the events of September 11, and com- panies worldwide implemented extensive cost-cutting measures, both of which are expected to have positive effects on earnings. Despite the strong recovery in the fourth quarter, most important share indices declined for the second consecutive year in 2001. (see table on page 53). Share Price Index 140 130 120 110 100 90 80 70 60 DaimlerChrysler MSCI Automobiles Index DAX Jan. 3 2001 March 2001 May 2001 July 2001 Sep. 2001 Nov. 2001 Jan. 31 2002 Increase in DaimlerChrysler share price. DaimlerChrysler’s stock began 2001 at the low level of €44.41. In most of the first half of the year, the price fluctuated between €50 and its peak for the year of €58.19, which was reached on May 3. However, from the middle of July the price of our shares could not escape the sharp downward trend of the market, espe- cially after the effects of the terrorist attacks, and fell to a low of €27.24 over the two months to September 21. The subsequent 77% recovery to €48.35 by the end of the year was significantly stronger than that of the DAX (+46%) and of the MSCI World Index Automobiles (+24%). During this period, DaimlerChrysler’s shares recorded the second highest price rise of all automotive shares. Over the whole of the year, DaimlerChrysler’s share price rose by 8%, making it one of only four DAX stocks with an increase in value during 2001. However, by the end of January 2002, our share price had fallen by about 3% in line with a generally weak stock market. Trading volume in DaimlerChrysler stock world- wide was about 1.3 billion shares in 2001 (2000: 1.0 billion) of which 130 million shares were traded on US stock exchanges (2000: 127 million) and 1,169 million in Germany (2000: 888 million). Prize for best communication with investors. At the end of October 2001, DaimlerChrysler received the “Investor Relations Magazine Euro Award 2001” for the best communication with private investors. The prize was awarded in recognition of the Investor Relations department’s intensive support work in individual dialogue and organized events, as well as for the quality of the Investor Relations section of the corporate web-site, which is frequently used by both private and institutional investors as well as by analysts. The DaimlerChrysler Shares 53 Development of Important Indices Status End of 2001 Status End of 2000 % Change Dow Jones Industrial Average 10,022 10,787 Nasdaq Composite FTSE 100 Nikkei Dow Jones Euro Stoxx 50 DAX 30 Dow Jones Stoxx Auto Europe MSCI World Index Automobiles For comparison: DaimlerChrysler share (in €) 1,950 5,217 2,471 6,223 10,543 13,786 3,806 5,160 224 83 4,772 6,434 226 91 48.35 44.74 -7 -21 -16 -24 -20 -20 -1 -9 +8 Statistics December 31 01 US $ 01 € 00 € Capital stock (in millions) 2,322 2,609 2,609 Number of shares (in millions) 1,003.3 1,003.3 Market capitalization (in billions) 41.81 48.51 44.89 Number of shareholders (in millions) 1.9 1.9 Weighting on share index DAX 30 DJ Euro Stoxx 50 Credit rating, long-term Standard & Poor’s Moody’s 6.8% 2.2% BBB+ A3 01 € 0.73 0.73 1.00 5.1% 1.8% A A2 00 € 3.47 3.45 2.35 Net income (basic)1) Net income (diluted)1) Dividend 01 US $ 0.65 0.65 Stockholders’ equity (Dec. 31) 34.60 38.88 42.27 Share price: year-end 41.672) 48.353) 44.743) high low 52.722) 58.193) 79.973) 25.602) 27.243) 42.703) DaimlerChrysler Share Price (high/low) in € € 60 55 50 45 40 35 30 25 20 Jan. 2001 Feb. 2001 March 2001 April 2001 May 2001 June 2001 July 2001 Aug. 2001 Sep. 2001 Oct. 2001 Nov. 2001 Dec. 2001 Jan. 2002 Shareholders Structure as of Dec. 31, 2001 Deutsche Bank AG Kuwait Investment Authority 12% 7% 54% Free float 81% Institutional investors Statistics per Share 27% Retail investors Rest of the world 8% USA 17% Europe 75% 1) Excluding one-time effects 2) New York Stock Exchange. 3) Frankfurt Stock Exchange. 54 Analysis of the Financial Situation Analysis of the Financial Situation ■ Operating loss €1.3 billion (2000: €9.8 billion operating profit); adjusted for one-time effects operating profit of €1.3 billion (2000: €5.2 billion) ■ Operating result significantly impacted by restructuring measures and intense competition in North America ■ Net loss €0.7 billion (2000: €7.9 billion net income); adjusted to exclude one-time effects net income of €0.7 billion (2000: €3.5 billion) Mitsubishi Motors, a proportionate share of its restruc- turing charges amounting to €0.4 billion was recorded in 2001. A charge of €0.2 billion related to the recover- ability of lease receivables was recorded on portfolios of Capital Services in 2001. An impairment charge of €0.1 billion relating to e-business activities was recog- nized and allocated to the segments Mercedes-Benz Passenger Cars & smart, Chrysler Group and Commer- cial Vehicles. Due to the decision of the Argentine gov- ernment to reform its financial system and monetary policy, which has resulted in a floating exchange rate against the U.S. dollar since January 2002, the Group recognized a loss of €0.1 billion in 2001, which mainly affected the segments Services and Commercial Vehicles. A positive impact of €0.9 billion resulted from the Group’s share of the one-time gain arising at EADS in connection with the formation of Airbus SAS. In addition, gains resulted from the sale of the Rail Systems business unit to Bombardier (€0.3 billion), from the sale of the remaining equity interest in debitel to Swisscom (€0.3 billion), and from the sale of 60% of the Group’s interest in TEMIC to Continental (€0.2 billion). Last year’s operating profit also included one-time effects totaling €4.5 billion. The one-time effects reported in the 2001 and 2000 financial years are shown by segment in the table on page 55. Group operating loss impacted by one-time effects and intense competition in North America. For 2001, DaimlerChrysler reported an operating loss of €1.3 billion, compared to an operating profit of €9.8 billion in the prior year. The year under review was particularly affected by sizeable expenses for restructuring mea- sures and the extremely competitive market in North America. Earnings in both years were significantly influenced by one-time effects. In February 2001, the Supervisory Board of DaimlerChrysler AG approved the turnaround plan for Chrysler Group, which resulted in a charge of €3.1 billion. In addition, operating profit was impacted by a charge of €0.5 billion at the Freightliner, Sterling and Thomas Built Buses business unit resulting from the initiation of the turnaround plan and special costs associated with unforeseen market developments. Furthermore, as a result of the Group’s investment in Operating Profit (Loss) by Segments 01 US $ In millions 01 € 00 € Mercedes-Benz Passenger Cars & smart 2,627 2,951 2,145 Chrysler Group (4,701) (5,281) 501 Commercial Vehicles (458) (514) 1,212 Services Other Activities Eliminations 545 612 2,457 1,051 1,181 3,590 (237) (267) (153) DaimlerChrysler Group (1,173) (1,318) 9,752 Adjusted for one-time effects 1,197 1,345 5,213 Note: The chapters “Business Review”, “Analysis of the Financial Situation” and “Outlook” correspond to the consolidated business review report of DaimlerChrysler Group based on the Financial Statements compiled according to United States generally accepted accounting principles (U.S. GAAP). Adjusted to exclude one-time effects, the Group recorded an operating profit of €1.3 billion, which was significantly lower than the comparable prior year’s operating profit of €5.2 billion. This decline was mainly attributable to the forecasted loss at Chrysler Group and the slightly positive result of Commercial Vehicles. These segments suffered in particular from the intensely competitive situation in the North American markets. A further reduction in operating profit resulted from the Group’s share of the operating result at Mitsubishi Motors, which was mainly affected by declining unit sales. Operating profit of Mercedes-Benz Passenger Cars & smart above previous year’s level. The Mercedes-Benz Passenger Cars & smart division achieved an operating profit of €3.0 billion, exceeding the prior year’s result by €0.8 billion. Operating profit for 2001 includes an impairment charge allocated to the segment relating to the Group’s e-business activities. The prior year’s oper- ating profit included one-time charges of €0.7 billion mainly due to the strategic review of the smart brand and the initial application of the European Union’s end-of-life vehicle directive. Adjusted for these one-time effects, the division’s operating profit was slightly higher than in the prior year. The continued excellent demand for the S-Class, particularly after the successful market launch of the new SL, and the C-Class, with its strong rise in unit sales for the sedan as well as the new station wagon and sport-coupe launched in March 2001, contributed to the positive development in operating profit. However, this trend was partially offset by a decline in unit sales of E-Class vehicles due to life-cycle changes. The operating loss at smart was significantly reduced due to further sales increases of the city coupe and smart cabrio. Analysis of the Financial Situation 55 Operating results of Chrysler Group negatively impacted by restructuring and intense competition. Chrysler Group posted an operating loss of €5.3 billion in 2001 compared to an operating profit of €0.5 billion in 2000. The 2001 operating loss includes restructuring charges of €3.1 billion recorded in connection with the turnaround plan implemented in 2001 in response to an increasingly competitive and weakening U.S. auto- motive market. The turnaround plan is designed to improve Chrysler Group’s financial performance and market position. The restructuring charges primarily related to workforce reductions, asset write-downs and contract cancellation costs. The operating loss also includes impairment charges allocated to Chrysler Group relating to DaimlerChrysler’s e-business activities. Operating profit in 2000 included a charge resulting from the initial application of the European Union’s end-of-life vehicle directive. One-Time Effects included in Operating Profit (Loss) by Segments In millions 01 US $ 01 € 00 € Mercedes-Benz Passenger Cars & smart Chrysler Group Commercial Vehicles Services Other Activities Eliminations (9) (10) (729) (2,758) (3,098) (503) (565) (30) (41) 30 870 - 34 1,816 976 3,523 - - DaimlerChrysler Group (2,370) (2,663) 4,539 Operating Profit (Loss) adjusted for One-time Effects In millions Industrial Business Financial Services 01 US $ 696 501 01 € 782 563 00 € 4,621 592 DaimlerChrysler Group 1,197 1,345 5,213 56 Analysis of the Financial Situation Adjusted to exclude one-time effects, the 2001 operating loss amounted to €2.2 billion (2000: €0.5 billion operating profit). The decline mainly resulted from lower factory unit sales, an unfavorable shift in product mix, increased sales incentives, and higher customer satisfaction, depreciation and amortization costs. The decrease in unit sales, higher sales incentives and decline in market share were mainly attributable to intense competitive pressures in the North American market. This situation particularly affected two of Chrysler Group’s historically more profitable market segments of upper-middle sport utility vehicles and pick-up trucks. The deterioration in operating results was partially offset by cost reduction initiatives and other actions taken as part of the turnaround plan. Improvements resulting from higher vehicle pricing were more than offset by the higher sales incentives. Operating profit of Commercial Vehicles impacted by North American market. In 2001, the Commercial Ve- hicles segment posted an operating loss of €0.5 billion, compared with an operating profit of €1.2 billion in the prior year. The operating loss in 2001 includes one-time charges of €0.5 billion at the Freightliner, Sterling and Thomas Built Buses business unit relating to the initia- tion of the turnaround plan and special costs associated with unforeseen market developments. In addition, the operating loss includes charges of €0.1 billion mainly relating to the depreciation of the Argentine peso against the U.S. dollar as a result of the economic crisis in Argentina and allocated charges from the Group’s e-business activities. In the prior year, the segment’s operating profit was impacted by expenses relating to the initial application of the end-of-life vehicle directive passed by the European Union. Adjusted for these one-time effects, the segment’s operating profit was slightly positive (€0.1 billion), compared to an operating profit of €1.3 billion in 2000. This decline in operating profit was primarily caused by the sharp contraction of the market for commercial vehicles in North America, which led to significant price reductions for new and used vehicles and to a 34% decline in unit sales for the Freightliner, Sterling and Thomas Built Buses business unit. Further factors negatively impacting earnings were the drop in vehicle demand due to the economic crises in Argentina and Turkey and the lower demand for trucks in Western Europe. The MTU/Diesel Engines business unit – previ- ously included in the Other segment – is reported within the new Powersystems business unit as part of the Commercial Vehicles segment since the beginning of 2001. The respective prior year’s results have been reclassified in order to achieve comparability. Operating result of Services slightly below prior year. The Services division recorded an operating profit of €0.6 billion in 2001 compared to €2.5 billion in the prior year. Those results are influenced by one-time effects in both years. Operating profit for 2001 includes a one-time gain of €0.3 billion from the sale of the remaining 10% equity interest in debitel to Swisscom, which was partially offset by a charge of €0.1 billion relating to the monetary crisis in Argentina. In addition, a charge of €0.2 billion related to the recoverability of lease receivables was recorded in connection with the intended sale of parts of the portfolio of Capital Services in 2002. The operating profit of the prior year was positively impacted by one-time effects totalling €1.8 billion, which was the net result of a dilution gain in connection with Deutsche Telekom’s investment in debis Systemhaus and an impairment charge on the carrying value of leased vehicles. Excluding these one-time effects, operating profit was €0.6 billion in 2001, slightly below prior year’s level. The result was negatively influenced by continuing pressure on margins, loss reserves for the receivables of the Commercial Vehicles portfolio and residual value losses of Chrysler Group vehicles. These negative effects were offset by the use of more favorable refinancing instruments, benefits from asset/liability management and savings which were realized due to cost reduction measures initiated within the Services segment. Operating profit of the Other Activities segment influ- enced by EADS and Mitsubishi Motors. At the beginning of 2001, the Aerospace segment, which consisted of the equity method investment in EADS and the fully consolidated MTU Aero Engines business unit, was reclassified to the Other Activities segment. The previ- ous year’s figures have been adjusted accordingly. This segment also includes our equity method investments in Mitsubishi Motors and TEMIC, as well as holding and finance companies, real-estate activities and the Group’s corporate research. The Rail Systems business unit was included in the segment until its disposition to Bombardier. Analysis of the Financial Situation 57 Consolidated Statements of Income (Loss) In millions Revenues Cost of sales 01 US $ 01 € 00 € 136,072 152,873 162,384 (114,283)(128,394)(134,370) Selling, administrative and other expenses (16,317) (18,331) (18,303) Research and development (5,281) (5,933) (6,337) The operating profit of €1.2 billion achieved by the Other Activities segment was below the prior year’s level of €3.6 billion. The results of both years were strongly influenced by one-time effects. In 2001, operating profit was positively impacted by EADS (€0.9 billion) due to the Group’s share of the one-time gain arising at EADS in connection with the formation Other income 1,079 1,212 946 Reconciliation to Operating Profit (Loss) Effects of changes in German tax laws Income taxes Total income taxes Minority interests Income (loss) before extraordinary items and cumulative effects of changes in accounting principles, net of taxes Extraordinary items - gains on disposals of businesses, net of taxes Cumulative effects of changes in accounting principles: transition adjustments resulting from adoption of SFAS 133 and EITF 99-20, net of taxes (2,727) (3,064) - In millions Turnaround plan expenses – Chrysler Group Income (loss) before financial income (1,457) (1,637) 4,320 Financial income, net 137 154 156 Income (loss) before income taxes (1,320) (1,483) 4,476 Income (loss) before financial income + Pension and postretirement benefit expenses other than service cost + Operating income from affiliated, associated and related companies + Gains on disposals of - (263) 777 (1,736) - 692 692 39 777 (1,999) businesses 44 (12) + Miscellaneous 01 US $ 01 € 00 € (1,457) (1,637) 4,320 (401) (450) (228) 459 516 (35) 260 (34) 292 5,832 (39) (137) (589) (662) 2,465 - - - - 5,516 (87) Operating profit (loss) (1,173) (1,318) 9,752 of Airbus SAS, from the sale of 60% of the Group’s interest in TEMIC to Continental (€0.2 billion) and from the sale of the Rail Systems business unit (€0.3 billion). However, charges of €0.4 billion due to the restructuring program at Mitsubishi Motors had a negative impact on operating profit. In 2000, one-time income totaling €3.5 billion resulted from the exchange of the Group’s controlling interest in DaimlerChrysler Aerospace for shares in EADS and from the sale of the Fixed Installa- tions business by the Rails Systems business unit. Net income (loss) (589) (662) 7,894 Net income (loss) adjusted for one-time effects1) 650 730 3,481 Adjusted to exclude these one-time effects, the Other Activities segment achieved an operating profit of €0.2 billion in 2001, which is slightly above the comparable result of €0.1 billion in the prior year. The positive contributions from MTU Aero Engines and from EADS, whose earnings were mainly influenced by increased Airbus deliveries, compensated for the Group’s proportionate share of the loss at Mitsubishi Motors. 1) 2001: Turnaround plan Chrysler Group, restructuring of Freightliner, Sterling and Thomas Built Buses business unit, Mitsubishi Motors restructuring, charge related to the recoverability of lease receivables of the Capital Service’s portfolio, impairment charge relating to e-business activities and the economic crisis in Argentina, gain arising at EADS in the connection with the formation of Airbus SAS, sale of the remaining 10% equity interest in debitel, sale of 60% of the Group’s interest in TEMIC, sale of Adtranz. 2000: Exchange of the Group’s controlling interest in DaimlerChrysler Aerospace for shares in EADS, investment of Deutsche Telekom in debis Systemhaus, sale of Fixed Installations business, gain from dilution of equity interest in Ballard, repositioning of smart, EU directive regarding the recycling of end-of-life vehicles, impairment on carrying values of leased vehicles, effects of changes in German tax law. 58 Analysis of the Financial Situation Financial income at prior year’s level. Financial income of €0.2 billion was comparable to the prior year. In 2001, financial income was impacted by one-time effects totaling €0.7 billion. Investment income, which primarily reflects the Group’s equity method invest- ments in EADS and Mitsubishi Motors, improved mainly due to the gain at EADS in connection with the formation of Airbus SAS. This gain was partially offset by the negative impact from the Group’s share of the net loss at Mitsubishi Motors mainly resulting from restructuring expenses recorded in 2001. In addition, expenses of €0.1 billion resulted from the effects of the depreciation of the Argentine peso against the U.S. dollar due to the economic crisis in Argentina. The higher interest expense was mainly caused by increased borrowing in the industrial business. The effects on operating profit of the operative investments were allocated to the respective segment operating profits. In 2001, this resulted in a net positive contribution to operating profit of €0.5 billion, of which €0.7 billion was accounted for by the investments in EADS and Mitsubishi Motors and negative contributions of €0.2 billion by other investments. Net income after adjustments to exclude one-time effects. The 2001 net loss was €0.7 billion, compared with net income of €7.9 billion in the prior year. The Group reported a loss per share of €0.66 after earnings per share of €7.87 in 2000. The one-time charges and gains as described in the preceding paragraphs with respect to operating profit and financial income had a net negative effect of €1.4 billion on the net loss in the year under review (2000: €4.8 billion net positive effect). In addition, the prior year was affected by a one-time charge from the write-down of deferred tax assets in connection with the tax reform in Germany and effects on earnings from the first application of Statement of Financial Accounting Standards (SFAS) No. 133 and Emerging Issues Task Force (EITF) No. 99-20. In the prior year, due to accounting regulations on the use of the pooling- of-interest method, gains from the sales of businesses were recorded as extraordinary items. Net income adjusted for these one-time effects decreased by €2.8 billion to €0.7 billion. Basic earnings per share adjusted for these one-time effects amounted to €0.73, compared with €3.47 in 2000. Dividend of €1.00 per share. We propose to the Annual Meeting on April 10, 2002, that for 2001 a dividend of €1.00 per share be distributed. The amount to be distributed is €1,003 million. Analysis of the Financial Situation 59 Performance measures as an important component of corporate management. The performance measures implemented by DaimlerChrysler encourage decentral- ized responsibility, cross-divisional transparency and capital-market-oriented investment performance in all areas of the Group, thereby supporting management in its tasks of leading and developing the entire company and its individual business units. For performance purposes, we differentiate between the Group level and the operating levels of the segments and business units. At the Group level, value added is calculated as an absolute performance measure by deducting weighted average cost of capital from net operating income, an after-tax performance measure. For the determination of the Group performance measure, return on net assets (RONA), net operating income is compared to the capital employed by the Group. Return on net assets demonstrates the extent to which the DaimlerChrysler Group achieves or surpasses the rate of return required by its investors. The required rate of return, or the Group’s average cost of capital, is defined as the minimum rate of return that investors expect on invested equity and borrowings. These capital costs are mainly determined by long- term, risk-free, fixed-interest bond rates combined with a risk premium for investments in stocks. At the Group level in 2001, a cost-of-capital rate of 9.2% was used, which has been unchanged since 1998. For the industrial divisions and business units, operating profit is used as an earnings measure, a commonly accepted performance measure before interest and taxes, which accurately reflects the areas of responsibility under the control of the business unit management. The industrial businesses also use net assets, defined as assets minus non-interest-bearing liabilities, as a capital basis. The minimum required rate of return on net assets was 15.5% before taxes. For financial services activities, as is usual in this sector, return on equity is applied as a performance measure. The target rate of return on equity was 17% before taxes. The decrease of three percentage points compared to the prior year resulted from a lower average tax rate for Financial Services. Development of net assets and return on net assets. In 2001, net operating income, which is derived from net income, totaled €1.6 billion excluding one-time effects (€0.3 billion including one-time effects). In con- nection with an increase in net assets from €6.4 billion to €65.9 billion (annual average), return on net assets for the DaimlerChrysler Group amounted to 2.5% after taxes. The Mercedes-Benz Passenger Car & smart division again significantly surpassed the 15.5% (before taxes) minimum required rate of return. Chrysler Group, Commercial Vehicles and Financial Services did not achieve the minimum required rate of return, primarily due to the unsatisfactory economic situation in North America. During 2001, Chrysler Group and the Freightliner, Sterling, Thomas Built Buses business unit implemented comprehensive programs designed to improve their profitability. Net Assets and Return on Net Assets1) 00 (annual average, in billions of €) Net Assets 01 01 % 00 % Return on Net Assets DaimlerChrysler Group (after taxes) Industrial business (before interest and taxes) Mercedes-Benz Passenger Cars & smart Chrysler Group Commercial Vehicles Services2) Other Industrial Activities3) 65.9 59.5 2.5 7.4 54.7 48.8 1.4 9.5 11.1 26.6 9.2 2.2 10.9 25.0 7.6 1.1 26.7 (8.2) 0.6 1.9 26.3 2.1 16.5 9.5 5.6 4.2 7.2 10.8 Stockholders’ Equity Return on Equity4) Financial Services 9.6 6.2 5.9 9.6 1) Adjusted for one-time effects. 2) Excluding Financial Services (due to the investment of Deutsche Telekom in debis Systemhaus figures are not comparable with the prior year). 3) Due to the addition and disposition of a number of investments, figures are not comparable with the prior year. The other industrial activities include the investments in Mitsubishi Motors (since October 2000) and EADS (since July 2000) as well as MTU Aero Engines. The sold business unit Rail Systems was included through April 2001 and the business unit Automotive Electronics was included through March 2001, thereafter at equity. 4) Before taxes. 60 Analysis of the Financial Situation Due to decreased net operating income and higher net assets, the DaimlerChrysler Group reported a negative value added of €4.4 billion (calculated on the basis of a 9.2% cost of capital after taxes). Net assets are derived from the consolidated balance sheet, as shown in the following table. Net Assets1) of the DaimlerChrysler Group In millions Stockholders’ equity2) Minority interests Financial liabilities of the industrial segment Pension provisions of the industrial segment Net assets 01 € 00 € 39,184 42,713 417 519 15,701 9,508 12,608 11,114 67,910 63,854 1) Represents the value at year-end; the average for the year was €65.9 billion (2000: €59.5 billion). 2) Adjusted for the effects from the application of SFAS 133. Reconciliation to Net Operating Income In millions Net income (loss) One-time effects Net income (loss) adjusted for one-time effects Minority interests Interest expense related to industrial activities, after taxes Interest cost of pensions related to industrial activities, after taxes Net operating income 01 € 00 € (662) 7,894 1,392 (4,413) 730 3,481 (44) 12 422 241 539 649 1,647 4,383 In view of a series of changes both in the Group’s capital structure and in the requirements of the capital markets, capital costs were recalculated beginning with the year 2002. The various parameters of capital costs according to the capital-asset-pricing model led to a net reduction in the Group’s cost of capital rate to 8% after taxes. This results in a minimum required rate of return of 13% (before taxes) for the industrial business activities, and 14% (before taxes) for financial services activities. The requirements of the business units are derived by benchmarking them against the best compa- rable companies. In general, they significantly surpass the minimum rate of return and are not affected by changes in capital costs. An adequate cost-of-capital rate encourages investment in value-adding projects and utilizes appropriate growth opportunities. The goal of creating sustained value for our shareholders continues to be pursued. Increase in total assets. In 2001, the Group’s total assets grew by 4% to €207.4 billion. The main reason for this increase was the higher value of the US dollar compared with the prior year. The assets and liabilities of the Group’s U.S. companies were translated on De- cember 31, 2001 at an exchange rate of €1 = U.S. dollar 0.881 (2000: €1 = U.S. dollar 0.931), which resulted in correspondingly higher balance sheet positions in euros. Of the aggregate rise in total assets, €6.2 billion was explained by currency effects. The sale of the Rail Systems business unit to Bombardier led to the deconsolidation of Adtranz in April 2001, and therefore to a reduction in total assets of €1.9 billion. The increases in equipment on operating leases (7%) and receivables from financial services (2%) were mainly caused by the changes in exchange rates. At year end, the two positions totaled €85.5 billion or 41% of our total assets. These asset positions were offset by financial liabilities of €90.9 billion at the end of the year. Currency effects caused €3.0 billion of the increase in financial liabilities. Analysis of the Financial Situation 61 Balance Sheet Structure In billions of € Balance Sheet Structure of the Industrial Business In billions of € Fixed assets 207 45% 207 18% 199 45% 199 20% Stockholders’ equity Property, plant and equipment 109 37% 107 37% 107 31% 109 26% Stockholders’ equity 20% Accrued liabilities Non-fixed assets 50% 50% 18% 57% 43% 56% 44% Other fixed assets 16% 33% 37% Accrued liabilities Liabilities of which: Financial liabilities Inventories Receivables Liquidity 16% 14% 14% 10% 9% 00 14% 13% 10% 10% 01 35% 33% Liabilities 3% 00 2% 01 Deferred taxes and income of which: Liquidity Deferred taxes and prepaid expenses 7% 5% 01 6% 5% 00 5% 00 6% 01 Deferred taxes and income Deferred taxes and prepaid expenses Property, plant and equipment increased by 3% to €41.2 billion during the period under review. The increase resulted mainly from currency effects, which were partially offset by higher depreciation in particular at Chrysler Group in connection with the restructuring activities. Financial assets increased slightly over the preceding year, reaching an amount of €12.4 billion (2000: €12.1 billion). This increase was primarily due to the one-time gain arising at EADS in connection with the formation of Airbus SAS, which accordingly increased the book value of our equity method invest- ment in EADS. On the other hand, the book value of our equity method investment in Mitsubishi Motors fell due to the negative earnings at that company. Inventories – net of advance payments received – totaled €16.8 billion (2000: €16.3 billion) in the consoli- dated balance sheet. As well as the positive currency translation effects (€0.2 billion), the increase in invento- ries was primarily caused by the market launch of new products in the Mercedes-Benz Passenger Cars & smart segment (€0.9 billion). The deconsolidation of the Adtranz Group had an offsetting effect of €0.5 billion. Trade receivables and other receivables increased slightly to €22.6 billion (2000: €22.4 billion). A reduction of €1.6 billion in trade receivables occurred mainly due to the deconsolidation of Adtranz (€0.7 billion) and a decrease (€0.3 billion) at the Mercedes-Benz Passenger Cars & smart segment, while other receivables rose by €2.2 billion. Besides positive currency effects, an increase occurred in other receivables because of the higher market values of derivative financial instruments and higher retained interests in sold receivables. The level of liquid funds rose by 16% to €14.5 billion. This was largely a reflection of the increase in cash and cash equivalents to €11.4 billion (2000: €7.1 billion), which was primarily due to a higher cash flow from receivables sold by the financial services business and a general shift from securities into cash. The value of securities fell by 43% to €3.1 billion. 62 Analysis of the Financial Situation Stockholders’ equity declined by 8% to €39.0 billion (2000: €42.4 billion). This decline was mainly due to the dividend distribution for the 2000 financial year (€2.4 billion) and the net loss of €0.7 billion. The equity ratio, net of dividend distribution, fell by 1.8 percentage points to 18.3%. The equity ratio for the industrial business was 25.7% (2000: 31.2%). The main reason for this decline, aside from the net loss, was a capital increase carried out at Financial Services, with a corresponding reduction in equity in the industrial business. The Group’s accrued liabilities rose by €5.1 billion to €41.6 billion. This increase was primarily the result of higher provisions for warranty claims, additions to accrued liabilities in connection with the turnaround plan at Chrysler Group, and increased risk reserves at the Freightliner, Sterling and Thomas Built Buses business unit. In addition, accrued liabilities rose due to currency effects by a total of €1.1 billion. Trade liabilities and other liabilities decreased by €0.5 billion to €24.4 billion. Adjusted for positive cur- rency translation effects (€0.7 billion), the decrease was mainly explained by the deconsolidation of Adtranz (€0.8 billion) and the reduction of trade liabilities in the Mercedes-Benz Passenger Cars & smart and Commer- cial Vehicles divisions. Statement of cash flows impacted by financial services business. Cash provided by operating activities remained substantially unchanged in 2001 at €15.9 billion (2000: €16.0 billion). This resulted from the decrease in cash-effective operating result, which was nearly offset by positive effect of change in working capital. The substantial decrease in cash used for investing activities to €13.3 billion (2000: €32.7 billion) was primarily impacted by the intentionally lower expansion of the financial services business. For Financial Services, cash used for investing activities declined by €12.6 billion to €7.5 billion (2000: €20.1 billion). This was particularly due to a decrease of €7.6 billion in net additions to receivables from financial services and a €3.4 billion lower increase in equipment on operating lease. The decrease in cash used for investing activities in the industrial business was primarily a result from the net dispositions of businesses in 2001 compared to the net acquisitions of businesses in the previous year. Due to the reduced growth of the leasing and sales financing business, which is typically financed with a high proportion of debt, cash provided by financing activities decreased from €14.5 billion to €1.4 billion. Cash and cash equivalents with an original matu- rity of three months or less increased from €7.1 billion to €11.4 billion in the reporting period. Total liquidity, which also includes long-term investments and securi- ties, increased from €12.5 billion to €14.5 billion. Cash Flow In billions of € 20 15 10 5 -5 -10 -15 -20 -25 -30 1999 2000 2001 Cash provided by operating activities Cash used for investing activities Cash provided by financing activities Analysis of the Financial Situation 63 Refinancing at the DaimlerChrysler Group. On February 26, 2001, the corporate rating of the DaimlerChrysler Group was reduced by the Standard & Poor’s (S&P) rating agency from A to A-, and by Moody’s Investors Service (Moody’s) from A2 to A3. The simultaneous downgrading of the short-term credit rating from A-1 to A-2 (S&P) and from P-1 to P-2 (Moody’s) not only had the effect of making our short-term borrowing (commercial paper) more expensive, but also reduced the volume of commercial paper that can be placed, particularly in the United States. In January 2001, DaimlerChrysler therefore began to replace short-term financing with longer-term borrowings reaffirming the strategy implemented in the second half of 2000 through the issue of a multi-currency, multi-tranche corporate bond in the amount of U.S. dollar 7.1 billion. In March 2001, the Group continued and almost completed this strategy with the issue of a multi-tranche bond totaling €6.5 billion. After these two large transactions, as the year pro- gressed DaimlerChrysler was able to cover its current financing requirements with smaller transactions in the capital markets. These transactions took place through medium-term note programs in the form of public bonds and private placements. In the area of public bonds, DaimlerChrysler was able to reach new market seg- ments and groups of investors in the international capital markets by means of a first issue of bonds in Polish zloty, Slovakian koruna and Hungarian forint, and in a local capital market with a bond issue in South African rand. The 364-day tranche of the global credit facility was converted into a 2-year working capital line in 2001. Altogether, the facility established in 1999 comprises three tranches with varying periods totaling U.S. dollar 18 billion. Since its inception, this credit facility has not been utilized. Primarily as a result of weak demand in the US automotive market, at the end of October 2001, Standard & Poor’s again lowered our long-term rating from A- to BBB+. Moody’s Investors Services, however, left our rating unchanged at A3. Early recognition and consistent management of future risks. In view of the global operations of Daimler- Chrysler and the increasingly intense competition in all markets, the Group’s business units are subject to many risks which are directly connected with entrepreneurial activity. We have developed and used effective moni- toring and control systems for the early recognition and assessment of existing risks and the formulation of appropriate responses. With a view to the legal require- ments, we have integrated the Group’s early-recognition systems into a risk-management system. The risk management system is an integral component of the entire planning, controlling and reporting process and is responsible for systematically identifying, assessing, monitoring and documenting risks. Risks are identified by the management of the business segments and units applying predefined risk categories and assessed in terms of their probability of occurrence and possible extent of damage. The reporting of relevant risks is regulated by limit levels defined by management. Within the framework of risk management, we have developed and implemented measures to avoid and reduce risks and to safeguard against their potential effects. The identified risks are regularly monitored by management. The risk-management system of the Daimler- Chrysler Group aims to ensure that management reco- gnizes significant risks at an early stage and initiates compensating measures. Compliance with the Group’s uniform guidelines as defined in the risk management manual is safeguarded by our internal auditors. In addi- tion, the external auditors review the early-recognition system integrated in the risk management system in terms of its fundamental suitability for recognizing at an early stage any developments that might jeopardize the continued existence of the company. 64 Analysis of the Financial Situation Risks from general economic developments. In 2001, the world economy deteriorated significantly, and expectations for the full-year 2002 are still rather subdued. In view of the unusually high uncertainty concerning economic developments, risks exist for DaimlerChrysler’s profit outlook if the upturn we expect for the second half of 2002 does not materialize or is substantially weaker. A possible cause of prolonged economic decline in the United States would be a renewed loss of confidence among consumers and investors with a downward spiral of expectations. This could lead to a stronger drop in U.S. domestic demand and significant stock-market losses. Due to trading and capital-market links, with such a scenario the assumed economic recovery in the Group’s important markets of Western Europe would not occur. Significant growth losses would probably also occur in Asia and South America. Another potential risk is the possibility of a deeper and longer recession in Japan than has been forecast. This would not only affect one of our important export markets, but would make the restructuring process at Mitsubishi Motors more difficult. A sustained decline of the Japanese economy would also worsen the situation in some of the emerging markets in Asia, which could have a negative impact on our investment in Hyundai Motor Company. Further local risk potentials lie in a sustained economic decline in certain emerging markets in South America, Asia and Eastern Europe. Industry- and company-specific risks. In addition to general economic developments and weakening sales markets, a risk factor also arises from increasing competitive pressures. It is no longer only the traditional product features that are decisive for the sales success of a product, but to a greater extent also its price and sales promotion offers. Particularly in the U.S. automo- tive markets, after the events of September 11, 2001, price incentives on new cars were substantially raised and financing conditions were improved. Because these activities prevented stronger than originally expected market shrinkage, the danger of sustained reductions in margins and lower profitability exists. If the economic upturn does not come as expected, there is also the risk that purchases will be merely brought forward with additional sales incentives, thus increasing the probab- ility of lower unit sales in future periods. This situation could also necessitate further reductions in production capacities in the passenger car and commercial vehicle businesses. The future success of DaimlerChrysler is particu- larly dependent on the extent to which traditional product and market segments can be extended and new markets can be penetrated with innovative products. The growth of the various segments depends not least on legislation regulating consumption and emissions, as well as on energy prices. If there is a shift in demand towards smaller vehicles with lower profit margins or the need for significantly higher technologi- cal expenditures, the profitability of DaimlerChrysler will be affected. A further risk could arise connected with stronger international competition due to increasing price transparency, alternative sales channels such as the Internet, or the revision of the European Union block- exemption directive. The directive, which expires at the end of September 2002, allows automobile manu- facturers to use selective and exclusive distribution networks. The approval of a revised block-exemption directive is expected by the middle of 2002. Like other automobile manufacturers, Daimler- Chrysler is combating these risks by, among other things, efficiency improvements all along the value chain including changes to the sales organization. Cost reductions by suppliers, however, could result in additional quality risks. Analysis of the Financial Situation 65 The success of the turnaround plans for Chrysler Group, the Freightliner, Sterling and Thomas Built Buses business unit as well as Mitsubishi Motors depends crucially upon the extent to which manage- ment can continue to successfully implement the planned measures despite worsened market conditions. DaimlerChrysler’s financial services business primarily consists of the leasing and financing of Group products, mainly vehicles. Refinancing is carried out to a considerable extent through external capital markets, which involves the risk of interest rate movements. In addition, a risk of default exists in the financing business as well as residual value risks in the leasing business when vehicles are sold by the Group at the end of their leases. Through our 33% stake in EADS, we also participate indirectly in the company’s risks. The success of EADS mainly depends on the competitiveness and market success of the Airbus aircraft. The market for civil air- craft is subject to cyclical fluctuations, as the worldwide volume of orders and deliveries of new aircraft are determined by airlines’ profitability and fleet-renewal cycles. Transparency of market risks. The DaimlerChrysler Group is exposed to market risks from changes in foreign currency exchange rates, interest rates and equity prices. These changes may adversely affect DaimlerChrysler’s operating results and financial condition. The Group seeks to manage these risks through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. DaimlerChrysler controls and manages foreign exchange risk, interest rate risk and equity price risk by continually monitoring changes in key economic indicators and market information. In order to quantify the foreign exchange risk, interest rate risk and equity price risk of the Group on a continuous basis, DaimlerChrysler’s risk management control systems employ value-at-risk analyses as recommended by the Bank for International Settlements. The value-at-risk calculations employed by Daimler- Chrysler express potential losses in fair values and are based on the variance-covariance approach and assume a 99% confidence level and a holding period of five days. Estimates of volatilities and correlations are primarily drawn from the RiskMetrics™ datasets and supple- mented by additional exchange rate, interest rate and equity price information. The Group does not use financial instruments for trading or other speculative purposes. Following organizational standards in the inter- national banking industry, DaimlerChrysler maintains risk management control systems independent of Corporate Treasury and with a separate reporting line. Foreign exchange rate management. The international orientation of our business activities results in cash receipts and payments denominated in various curren- cies. Cash inflows and outflows balance themselves out if they are denominated in the same currency. Within the framework of central currency management, currency exposures are regularly assessed and hedged with suitable financial instruments according to ex- change rate expectations, which are constantly reviewed. The net assets of the Group which are invested in sub- sidiaries and affiliated companies outside the euro zone remain generally not hedged against currency risks. However, in specific circumstances, DaimlerChrysler seeks to hedge the currency risk inherent in certain of its long-term investments. The following table shows value-at-risk figures for DaimlerChrysler’s 2001 and 2000 portfolio of foreign exchange rate sensitive derivative instruments. Value-at-Risk Average for In millions of € 12.31.2001 2001 12.31.2000 Average for 2000 Exchange rate sensitive derivative financial instruments1) 368 430 541 574 1) Forward foreign exchange contracts, foreign exchange swap contracts, currency options. 66 Analysis of the Financial Situation The average and period-end values-at-risk of derivative financial instruments used to hedge exchange rate risk decreased in 2001, primarily as a result of lower foreign exchange rate volatilities and a slightly decreased foreign exchange derivatives volume. DaimlerChrysler changed the presentation of exchange rate risk from the sensitivity analysis used in previous reports to value-at-risk to have a uniform method for the measurement of exchange rate risk, interest rate risk and equity price risk that allows comparisons between the different types of market risks. Asset and liability management. DaimlerChrysler holds a variety of interest rate sensitive assets and liabilities to manage its operative and strategic liquidity require- ments. In addition, a substantial volume of interest rate sensitive assets and liabilities is related to the leasing and sales financing business. In particular, the Group’s leasing and sales financing business enters into trans- actions with customers primarily resulting in fixed rate receivables. DaimlerChrysler’s general policy is to match funding in terms of maturities and interest rates. However, for a limited portion of the receivables port- folio funding does not match in terms of maturities and interest rates. As a result, DaimlerChrysler is exposed to risks due to changes in interest rates. DaimlerChrysler coordinates funding activities of the industrial business and financial services on the Group level. It uses interest rate derivative instruments such as interest rate swaps, forward rate agreements, swaptions, caps and floors to achieve the desired interest rate maturities and asset/liability structures. The following table shows value-at-risk figures for DaimlerChrysler’s 2001 and 2000 portfolio of interest- rate sensitive financial instruments. Value-at-Risk In millions of € 12.31.2001 Average for 2001 12.31.2000 Average for 2000 Interest-rate-sensitive financial instruments 334 272 126 128 In 2001, the average and period-end values-at-risk of DaimlerChrysler’s portfolio of interest rate sensitive financial instruments increased significantly, primarily due to higher volatilities and an increased mismatch funding of the Group’s leasing and sales financing business. Equity price risk management. DaimlerChrysler also holds investments in equity securities. These securities subject DaimlerChrysler to risks due to changes in quoted market prices. DaimlerChrysler uses derivative financial instruments including futures and options to manage the risks arising from changes in equity prices. The following table shows value-at-risk figures for DaimlerChrysler’s 2001 and 2000 portfolio of equity securities. Value-at-Risk Average for In millions of € 12.31.2001 2001 12.31.2000 Average for 2000 Equity securities and related derivatives 3 22 87 95 In 2001, DaimlerChrysler changed its asset allocation policy and reduced the portfolio of equity securities. Consequently, the average and period- end values-at-risk of the equity portfolio decreased significantly. Ratings. During 2001, DaimlerChrysler’s long-term corporate rating was lowered from A to BBB+ by the Standard & Poor’s (S&P) rating agency and from A2 to A3 by Moody’s Investors Service (Moody’s). At the same time, our short-term rating was reduced from A-1 to A-2 (by S&P) and from P-1 to P-2 (by Moody’s). A further downgrade would result in rising capital costs. Analysis of the Financial Situation 67 Legal risks. 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 actions, in particular relating to product liability, pending against companies of the DaimlerChrysler Group. In the event of adverse decisions in these proceedings, DaimlerChrysler could be required to pay substantial compensatory and punitive damages, or to undertake service actions, recall campaigns or other costly actions. A number of shareholder lawsuits are pending in the United States against DaimlerChrysler and certain members of its Supervisory Board and Board of Management that allege the defendants violated U.S. securities law and committed fraud in obtaining approval from Chrysler stockholders for the business combination between Chrysler and Daimler-Benz AG in 1998. The complaints seek relief ranging from sub- stantial monetary damages to rescinding the business combination. DaimlerChrysler believes that these claims are without merit and is defending against them vigorously. Overall risk. No risks are apparent that could jeopardize the continued existence of the Group. Events after the end of the 2001 financial year. Follow- ing a decision of DaimlerChrysler’s Board of Manage- ment in 2001, DaimlerChrysler and GE Capital reached an agreement in January 2002 for GE Capital to purchase a portion of the DaimlerChrysler’s Capital Services portfolio in the United States. DaimlerChrysler will receive approximately €1.3 billion for the sale, which represents a further step towards focusing on the automotive business. The transaction is expected to be completed in the first quarter of 2002. In January 2002, DaimlerChrysler decided to exit the debis Systemhaus joint venture in March 2002 by exercising its option to sell to Deutsche Telekom the Group’s 49.9% interest in T-Systems ITS (formerly debis Systemhaus) for proceeds of €4.7 billion. No further developments beyond the ones described above have occurred since the end of the 2001 financial year which are of major significance to DaimlerChrysler and would lead to a changed assess- ment of the Group’s position. The course of business in the first two months of 2002 confirms the statements made in the section Outlook. 68 Statement by the Board of Management Preliminary Note The accompanying consolidated financial state- ments (consolidated balance sheets as of December 31, 2001 and 2000, consolidated statements of income (loss), cash flows and changes in stockholders’ equity for each of the financial years; 2001, 2000 and 1999) were prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). In order to comply with Section 292a 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 pub- lished 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 German Accounting Standards Committee. The consolidated financial statements and the consolidated business review report as of December 31, 2001 prepared in accordance with Section 292a 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. Statement by the Board of Management The Board of Management of DaimlerChrysler AG is responsible for preparing the accompanying financial statements. We have installed effective controlling and moni- toring systems to guarantee compliance with account- ing 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. Taking the legal requirements into consideration we have integrated the group’s early warning systems into a risk management system. This enables the Board of Management to identify significant risks at an early stage and to initiate appropriate measures. KPMG Deutsche Treuhand-Gesellschaft Aktien- gesellschaft Wirtschaftsprüfungsgesellschaft audited the consolidated financial statements, which were prepared in accordance with generally accepted accounting principles in the United States of America, and issued an unqualified audit report. Together with the independent auditors, the Su- pervisory 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. The result of this examination is included in the Report of the Supervisory Board. Jürgen E. Schrempp Manfred Gentz Independent Auditors’ Report 69 Independent Auditors’ Report The Supervisory Board DaimlerChrysler AG: We have audited the accompanying consolidated balance sheets of DaimlerChrysler AG and subsidiaries (“DaimlerChrysler”) as of December 31, 2001 and 2000, and the related consolidated statements of in- come (loss), changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of DaimlerChrysler’s management. Our responsibility is to express an opin- ion on these consolidated financial statements based on our audits. We did not audit the financial statements of DaimlerChrysler Corporation or certain of its consoli- dated subsidiaries (“DaimlerChrysler Corporation”), which statements reflect total assets constituting 29 percent at December 31, 2000, and total revenues con- stituting 42 percent and 43 percent for the years ended December 31, 2000 and 1999, of the related consoli- dated 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 in- cluded for DaimlerChrysler Corporation, is based solely on the report of the other auditors. We conducted our audits in accordance with gen- erally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 as- sessing 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 our opinion, based on our audits and the report of the other auditors, the consolidated financial state- ments referred to above present fairly, in all material respects, the financial position of DaimlerChrysler as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in con- formity with generally accepted accounting principles in the United States of America. As discussed in Note 10 to the consolidated finan- cial statements, in 2000 DaimlerChrysler adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and Emerging Issues Task Force Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets.” Stuttgart, Germany February 8, 2002 KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Prof. Dr. Wiedmann Wirtschaftsprüfer Schmid Wirtschaftsprüfer 70 Consolidated Statements of Income (Loss) Consolidated Statements of Income (Loss) (in millions, except per share amounts) Revenues Cost of sales Gross margin Selling, administrative and other expenses Research and development Other income Turnaround plan expenses – Chrysler Group Income (loss) before financial income Financial income (expense), net (therein gain on issuance of associated company stock of €747 in 2001) Income (loss) before income taxes Effects of changes in German tax law Income taxes Total income taxes Minority interests Income (loss) before extraordinary items and cumulative effects of changes in accounting principles Extraordinary items: Gains on disposals of businesses, net of taxes (therein gain on issuance of subsidiary and associated company stock of €2,418 in 2000) Losses on early extinguishment of debt, net of taxes Cumulative effects of changes in accounting principles: transition adjustments resulting from adoption of SFAS 133 and EITF 99-20, net of taxes Net income (loss) Earnings (loss) per share Basic earnings (loss) per share Income (loss) before extraordinary items and cumulative effects of changes in accounting principles Extraordinary items Cumulative effects of changes in accounting principles Net income (loss) Diluted earnings (loss) per share Income (loss) before extraordinary items and cumulative effects of changes in accounting principles Extraordinary items Cumulative effects of changes in accounting principles Net income (loss) Consolidated Year ended December 31, 2001 € 2000 € 1999 € Note 2001 (Note 1) $ 32 136,072 152,873 162,384 149,985 5 (114,283) (128,394) (134,370) (119,688) 21,789 24,479 28,014 30,297 5 6 7 8 9 11 10 33 (16,317) (18,331) (18,303) (16,063) (5,281) (5,933) (6,337) (5,737) 1,079 1,212 (2,727) (3,064) 946 – 827 – (1,457) (1,637) 4,320 9,324 137 154 (1,320) (1,483) – 692 692 39 – 777 777 44 156 4,476 (263) 333 9,657 (812) (1,736) (3,721) (1,999) (4,533) (12) (18) (589) (662) 2,465 5,106 – – – – – – 5,516 – 659 (19) (87) – (589) (662) 7,894 5,746 (0.59) (0.66) – – – – (0.59) (0.66) (0.59) (0.66) – – – – (0.59) (0.66) 2.46 5.50 (0.09) 7.87 2.45 5.44 (0.09) 7.80 5.09 0.64 – 5.73 5.06 0.63 – 5.69 The accompanying notes are an integral part of these Consolidated Financial Statements. Consolidated Statements of Income (Loss) 71 Industrial Business* Year ended December 31, Financial Services* Year ended December 31, 2001 € 2000 € 1999 € 2001 € 2000 € 1999 € (in millions) 136,020 147,260 139,929 16,853 15,124 10,056 Revenues (113,342) (120,474) (111,274) (15,052) (13,896) (8,414) Cost of sales 22,678 26,786 28,655 1,801 1,228 1,642 Gross margin (16,756) (17,059) (15,063) (1,575) (1,244) (1,000) Selling, administrative and other expenses (5,933) (6,337) (5,737) 1,160 (3,064) 842 – 691 – – 52 – (1,915) 4,232 8,546 278 146 166 327 (1,769) 4,398 8,873 743 46 (2,152) (4,340) (11) (16) 8 286 34 (2) – 104 – 88 (10) 78 153 (1) – Research and development 136 Other income – Turnaround plan expenses – Chrysler Group 778 Income (loss) before financial income Financial income (expense), net (therein gain on issuance of associated company stock of €747 in 2001) 6 784 Income (loss) before income taxes Effects of changes in German tax law Income taxes (193) Total income taxes (2) Minority interests (980) 2,235 4,517 318 230 589 Income (loss) before extraordinary items and cumulative effects of changes in accounting principles Extraordinary items: – – – 5,516 – 659 (19) 10 – – – – (980) 7,761 5,157 318 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (97) 133 – – – – – – – – Gains on disposals of businesses, net of taxes (therein gain on issuance of subsidiary and associated company stock of €2,418 in 2000) Losses on early extinguishment of debt, net of taxes Cumulative effects of changes in accounting principles: transition adjustments resulting from adoption of SFAS 133 and EITF 99-20, net of taxes – – – 589 Net income (loss) Earnings (loss) per share Basic earnings (loss) per share Income (loss) before extraordinary items and cumulative effects of changes in accounting principles Extraordinary items Cumulative effects of changes in accounting principles Net income (loss) Diluted earnings (loss) per share Income (loss) before extraordinary items and cumulative effects of changes in accounting principles Extraordinary items Cumulative effects of changes in accounting principles Net income (loss) – – – – – – – – *) Additional information about the Industrial Business and Financial Services is not required under U.S. GAAP and is unaudited. 72 Consolidated Balance Sheets 72 Financial Statements Consolidated Balance Sheets Consolidated Balance Sheets (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-therm 2001: €68,676; 2000: €71,300) 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 Total liabilities (thereof short-term 2001: €80,874; 2000: €81,516 ) Consolidated At December 31, Industrial Business* At December 31, Financial Services* At December 31, Note 2001 2001 2000 2001 2000 2001 2000 (Note 1) € € € € € € $ 12 12 18 13 14 15 16 17 18 19 9 20 2,548 2,863 3,113 2,662 2,907 36,641 41,165 40,145 41,016 40,043 201 149 206 102 11,015 12,375 12,107 11,349 10,967 1,026 1,140 32,046 36,002 33,714 3,004 3,047 32,998 30,667 82,250 92,405 89,079 58,031 56,964 34,374 32,115 14,913 16,754 16,283 15,338 15,333 1,416 5,723 6,430 7,995 6,134 7,617 296 950 378 44,071 49,512 48,673 26 30 49,486 48,643 14,409 16,188 14,396 7,512 6,414 8,676 7,982 2,739 3,077 5,378 2,636 4,195 441 1,183 10,172 11,428 7,127 8,057 6,445 3,371 682 92,027 103,389 99,852 39,703 40,034 63,686 59,818 2,679 3,010 2,436 2,930 2,350 7,660 8,606 7,907 8,480 7,782 80 126 86 125 184,616 207,410 199,274 109,144 107,130 98,266 92,144 2,322 2,609 2,609 6,485 7,286 7,286 23,536 26,441 29,461 2,374 2,668 3,053 – – – 21 34,717 39,004 42,409 29,009 35,825 9,995 6,584 371 417 519 403 506 14 37,001 41,570 36,441 40,534 35,772 1,036 13 669 80,917 90,908 84,783 15,701 9,508 75,207 75,275 12,601 14,157 15,257 13,773 14,875 384 382 9,135 10,262 9,621 7,431 7,068 2,831 2,553 102,653 115,327 109,661 36,905 31,451 78,422 78,210 4,318 4,851 5,480 (2,212) (639) 7,063 6,119 5,556 6,241 4,764 4,505 4,215 1,736 549 23 24 25 26 9 27 149,899 168,406 156,865 80,135 71,305 88,271 85,560 Total liabilities and stockholders’ equity 184,616 207,410 199,274 109,144 107,130 98,266 92,144 *) Additional information about the Industrial Business and Financial Services is not required under U.S. GAAP and is unaudited. The accompanying notes are an integral part of these Consolidated Financial Statements. Consolidated Statements of Changes in Stockholders‘ Equity 73 Consolidated Statements of Changes in Stockholders’ Equity (in millions of €) Accumulated other comprehensive income (loss) Additional paid-in capital Capital stock Retained earnings Cumulative translation adjustment Available- for-sale securities Derivative financial instru- ments Minimum pension liability Treasury stock – – – – – – – – – – (20) – (8) – – – – – (28) – 6 – – – – – Total 30,367 5,746 2,242 7,988 67 (86) 86 (2,356) (6) 36,060 7,894 812 8,706 – 1 (88) 88 (2,358) 42,409 (662) (385) (1,047) – – – – (86) 86 – – – – – – – (88) 88 – – – – Balance at January 1, 1999 2,561 7,274 20,533 (509) 528 5,746 – – – 2,431 (181) Net income Other comprehensive income (loss) Total comprehensive income Issuance of capital stock Purchase of capital stock Re-issuance of treasury stock Dividends Other – – 4 – – – – – – 63 – – – – – – (2,356) (8) 2 – – – – – – – – – – Balance at December 31, 1999 2,565 7,329 23,925 1,922 347 Net income Other comprehensive income (loss) Total comprehensive income – – – – 7,894 – – – 1,363 (149) (408) Increase in stated value of capital stock 44 (44) Issuance of capital stock Purchase of capital stock Re-issuance of treasury stock Dividends – – – – 1 – – – – – – – (2,358) – – – – – – – – – – – – – – – Balance at December 31, 2000 2,609 7,286 29,461 3,285 198 (408) (22) (662) – – 565 (137) – 71 – (884) Net loss Other comprehensive income (loss) Total comprehensive loss Purchase of capital stock Re-issuance of treasury stock Dividends – – – – – – – – – – – – – (2,358) Balance at December 31, 2001 2,609 7,286 26,441 3,850 61 (337) (906) The accompanying notes are an integral part of these Consolidated Financial Statements. – – – – – – – – – – – – (66) 66 (66) 66 – – (2,358) 39,004 74 Consolidated Statements of Cash Flows 74 Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (in millions) Net income (loss) Income (loss) applicable to minority interests Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gains on disposals of businesses Depreciation and amortization of equipment on operating leases Depreciation and amortization of fixed assets Change in deferred taxes Equity (income) loss from associated companies Cumulative effects of changes in accounting principles Change in financial instruments (Gains) losses on disposals of fixed assets/securities Change in trading securities Change in accrued liabilities Turnaround plan expenses - Chrysler Group Turnaround plan payments - Chrysler Group Changes 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 investments in businesses Proceeds from disposals of businesses Change in cash from exchange 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 (including profit transferred from subsidiaries) Proceeds from issuance of capital stock (including minority interests) Purchase of treasury stock 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, 2001 € 2000 € 1999 € (662) (44) 7,894 12 5,746 18 2001 (Note 1) $ (589) (39) (684) (768) (5,568) (1,181) 6,457 6,250 (942) (86) – (364) (534) (4) 2,515 2,727 (325) (645) 552 (746) 649 14,192 7,254 7,022 (1,058) (97) – (409) (600) (4) 2,825 3,064 (365) (725) 620 (838) 729 15,944 6,487 7,131 1,220 244 87 (90) (455) 22 1,778 – – (876) (731) (424) (714) 16,017 3,315 6,035 2,402 (23) – 247 (1,215) 495 4,001 – – (2,436) (733) 1,331 21 18,023 (15,978) (7,918) (17,951) (8,896) (19,117) (10,392) (19,336) (9,470) (583) 9,828 928 (731) 1,495 – (655) 11,042 1,043 (821) 1,680 – (480) 8,285 862 (4,883) 311 (1,351) (645) 6,575 507 (1,289) 1,336 – (116,481) (130,863) (116,507) (102,140) 47,399 68,237 (400) 2,250 127 53,251 76,662 (449) 2,528 142 44,276 63,649 (7,786) 10,224 200 41,928 51,843 (4,395) 3,719 (743) (11,827) (13,287) (32,709) (32,110) (11,065) 23,661 (9,252) (2,107) (12,431) 26,582 (10,394) (2,367) 67 (59) 75 (66) (3,238) 29,257 (9,152) (2,379) 112 (88) 9,333 13,340 (4,611) (2,378) 164 (86) 1,245 1,399 14,512 15,762 230 259 501 805 3,840 4,315 (1,679) 2,480 6,304 10,144 7,082 11,397 8,761 7,082 6,281 8,761 The accompanying notes are an integral part of these Consolidated Financial Statements. Industrial Business* Year ended December 31, Financial Services* Year ended December 31, Consolidated Statements of Cash Flows 75 Consolidated Statements of Cash Flows 75 2001 € 2000 € 1999 € (980) (46) 7,761 11 5,157 16 2001 € 318 2 (762) (5,568) (1,181) (6) 2000 € 1999 € 133 589 1 – 2 – 3,247 69 906 (13) – – (2) – 88 – – (49) (192) 109 168 4,922 6,964 105 6,280 84 537 (7) – (44) – (7) 353 – – (176) 80 (7) 2,173 10,285 630 59 97 (14) (1) – 36 – – (151) (33) 74 (91) 7,104 (14,334) (111) (15,551) (52) (16,401) (63) (91) 7,091 52 (20) 224 – (58) 4,911 26 (160) 13 – (121) 3,568 96 (144) – – (28) (131,070) (116,640) (102,112) – – (3,958) 3,333 (462) 53,251 76,662 (220) 1,150 (125) 44,276 63,649 (2,192) 1,869 (185) 41,928 51,843 (437) 386 (281) 68 5,966 1,496 (10) – 247 (1,213) 495 3,913 – – (2,387) (541) 1,222 (147) 13,101 (2,935) (9,407) (524) 3,007 411 (1,145) 1,336 – 290 6,917 (1,595) (90) – (365) (600) 3 2,472 3,064 (365) (549) 540 (831) (1,444) 5,659 207 7,047 590 185 (10) (76) (454) 22 1,742 – – (725) (698) (498) (623) 8,913 (3,617) (8,785) (3,566) (10,340) (564) 3,951 991 (801) 1,456 – 207 – – (229) 1,378 267 (422) 3,374 836 (4,723) 298 (1,351) 133 – – (5,594) 8,355 385 (5,746) (12,615) (10,372) (7,541) (20,094) (21,738) 1,264 3,100 (347) (2,356) (88) (66) 1,507 (393) 2,523 2,324 (2,370) (224) (88) 1,772 (260) 918 439 (2,373) 82 (86) (13,695) 23,482 (10,047) (11) (2,845) 26,734 (11,476) (9) 163 – 336 – 9,593 12,422 (5,050) (5) 82 – (1,280) (108) 12,740 17,042 206 471 750 53 30 1,626 (1,459) 2,199 2,689 (220) 6,400 8,026 7,859 6,400 5,660 7,859 682 3,371 902 682 55 281 621 902 (in millions) Net income (loss) Income (loss) applicable to minority interests Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gains on disposals of businesses Depreciation and amortization of equipment on operating leases Depreciation and amortization of fixed assets Change in deferred taxes Equity (income) loss from associated companies Cumulative effects of changes in accounting principles Change in financial instruments (Gains) losses on disposals of fixed assets/securities Change in trading securities Change in accrued liabilities Turnaround plan expenses - Chrysler Group Turnaround plan payments - Chrysler Group Changes 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 investments in businesses Proceeds from disposals of businesses Change in cash from exchange 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 (including profit transferred from subsidiaries) Proceeds from issuance of capital stock (including minority interests) Purchase of treasury stock 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 *) Additional information about the Industrial Business and Financial Services is not required under U.S. GAAP and is unaudited. 76 Consolidated Fixed Assets Schedule Consolidated Fixed Assets Schedule (in millions of €) Other intangible assets Goodwill Intangible assets Land, leasehold improvements and buildings including buildings on land owned by others Acquisition or Manufacturing Costs Balance at January 1, 2001 Currency change Change in consoli- dated companies Additions Reclassi- fications Disposals Balance at December 31, 2001 880 17 (104) 4,413 5,293 170 187 (724) (828) 248 137 385 52 – 52 59 16 75 1,034 3,980 5,014 20,306 384 (532) 483 600 242 20,999 Technical equipment and machinery 33,734 1,034 (615) 1,162 3,475 1,844 36,946 Other equipment, factory and office equipment Advance payments relating to plant and equipment and construction in progress 20,880 627 (313) 1,118 3,386 1,964 23,734 7,301 295 (40) 6,143 (7,513) 272 5,914 Property, plant and equipment 82,221 2,340 (1,500) 8,906 (52) 4,322 87,593 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 912 137 33 (4) 8,196 (122) 1,769 305 917 193 42 11 – 4 254 105 1,072 15 – (3) 490 (12) (5) – 105 (56) – – 51 – (56) 251 Investments and long-term financial assets 12,429 (36) (12) 2,223 Equipment on operating leases2) 42,607 2,105 (1) 17,951 1) Currency translation changes with period end rates. 2) Excluding initial direct costs. 150 1,059 95 674 362 26 548 24 143 8,574 1,871 341 369 368 1,879 12,725 14,274 48,388 – – – – – The consolidated fixed assets schedule is part of the Notes to Consolidated Financial Statements. Balance at January 1, 2001 Currency change Depreciation/Amortization Change in consoli- dated companies Additions Reclassi- fications Disposals Consolidated Fixed Assets Schedule 77 Book Value1) Balance at December 31, 2001 Balance at December 31, 2001 Balance at December 31, 2000 (in millions of €) 453 1,727 2,180 9 63 72 (58) (359) (417) 172 184 356 8,602 20,834 100 497 (163) 745 (383) 3,611 – – – (9) (6) 34 6 40 542 492 427 Other intangible assets 1,609 2,371 2,686 Goodwill 2,151 2,863 3,113 Intangible assets 101 9,174 11,825 11,704 Land, leasehold improvements and buildings including buildings on land owned by others 1,499 23,054 13,892 12,900 Technical equipment and machinery 12,634 299 (224) 3,101 20 1,756 14,074 9,660 8,246 6 2 – 123 (5) – 126 5,788 7,295 Other equipment, factory and office equipment Advance payments relating to plant and equipment and construction in progress 42,076 898 (770) 7,580 120 23 – – 192 – 1 9 – – – – – 1 (7) – (8) (30) 1 – – 3 13 2 51 – – 1 322 24 (44) 70 9,073 488 (1) 7,254 – – – – – – – – – – 3,356 46,428 41,165 40,145 Property, plant and equipment 9 13 (4) 3 – – 1 130 – (2) 929 143 792 137 Investments in affiliated companies Loans to affiliated companies 8,576 8,196 Investments in associated companies 210 1,661 1,577 Investments in related companies 1 1 10 340 368 358 305 916 184 Loans to associated and related companies Long-term securities Other loans 22 350 12,375 12,107 Investments and long-term financial assets 4,216 12,598 35,790 33,534 Equipment on operating leases2) 78 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements Foreign Currencies – The assets and liabilities of foreign subsidiaries where the functional currency is not the euro are generally translated using period-end exchange rates while the statements of income (loss) and the statements of cash flows are translated using average exchange rates during the period. Differences arising from the translation of assets and liabilities in comparison with the translation of the previous period are included as a separate component of stockholders’ equity. The assets and liabilities of foreign subsidiaries operating in highly inflationary economies are trans- lated into euro on the basis of period-end rates for mon- etary assets and liabilities and at historical rates for non-monetary items, with resulting translation gains and losses being recognized in earnings. Further, in such economies, depreciation and gains and losses from the disposal of non-monetary assets are deter- mined using historical rates. Due to the economic and political situation in Argentina, assets and liabilities of Argentine subsidiar- ies at December 31, 2001 were translated from Argen- tine peso (“ARP”) into euro using the first subsequent rate after the balance sheet date at which exchanges could be made (€1 = ARP 1.498). In addition, DaimlerChrysler recognized losses due to lower esti- mated net realizable values of assets denominated in Argentine peso and to remeasure foreign currency assets and liabilities of Argentine subsidiaries. The total pretax effect recognized in 2001 from these adjustments amounted to €177 million. Basis of Presentation 1. Summary of Significant Accounting Policies General – The consolidated financial statements of DaimlerChrysler AG (“DaimlerChrysler” or the “Group”) have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). All amounts herein are shown in euros and for the year 2001 amounts are also presented in U.S. dollars (“$”), the latter being unaudited and presented solely for the convenience of the reader at the rate of €1 = $0.8901, the Noon Buying Rate of the Federal Reserve Bank of New York on December 31, 2001. 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 also sig- nificantly influenced by activities of the financial ser- vices business. To enhance the readers’ understanding of the Group’s consolidated financial statements, the ac- companying financial statements present, in addition to the consolidated financial statements, unaudited infor- mation with respect to the financial position, results of operations and cash flows of the Group’s industrial and financial services business activities. Such information, however, is not required by U.S. GAAP and is not intended to, and does not represent the separate U.S. GAAP financial position, results of operations or cash flows of the Group’s industrial or financial services business activities. Transactions between the Group’s industrial and financial services business activities principally represent intercompany sales of products, intercompany borrowings and related interest, and other support under special vehicle financing programs. The effects of transactions between the industrial and financial services businesses have been eliminated within the industrial business columns. Consolidation – All material companies in which DaimlerChrysler has legal or effective control are consolidated. Significant investments in which DaimlerChrysler has 20% to 50% of the voting rights or the ability to exercise significant influence over operat- ing and financial policies (“associated companies”) are accounted for using the equity method. The effects of intercompany transactions have been eliminated. For business combinations accounted for using the purchase method, all assets acquired and liabilities assumed are recorded at fair value at the date of acquisition. Notes to Consolidated Financial Statements 79 The exchange rates of the significant currencies of The Group recognizes unrealized gains or losses non-euro countries used in preparation of the consoli- dated financial statements were as follows: Exchange rate at December 31, 2000 €1 = 2001 €1 = Annual average exchange rate 1999 €1 = 2000 €1 = 2001 €1 = 2.05 1.84 2.11 1.69 1.93 0.61 0.62 0.62 0.61 0.66 Currency: Brazil BRL Great Britain GBP Japan JPY 115.33 106.92 108.69 99.47 121.25 United States USD 0.88 0.93 0.90 0.92 1.07 Revenue Recognition – Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price of the transaction is fixed and determinable, and collectibility is reasonably assured. Revenues are recognized net of discounts, cash sales incentives, customer bonuses and rebates granted. Cash sales incentives are recorded as a reduction of revenue when the related revenue is recorded. Sales under which the Group conditionally guar- antees the minimum resale value of the product are accounted for as operating leases with the related rev- enues 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-comple- tion method based upon contractual milestones or performance. Revenue from finance receivables is recorded on the interest method. Receivable Sales and Retained Interests in Sold Receivables – The Group sells significant amounts of finance receivables as asset-backed securities through securitization. The Group sells a portfolio of receivables to a non-consolidated trust and remains as servicer, and 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 beneficial interest in principal balances of sold receivables and certain cash deposits provided as credit enhancements for investors. Gains and losses from the sales of finance receivables are recognized in the period in which sales occur. In determining the gain or loss for each qualify- ing sale of finance receivables, the investment in the sold receivable pool is allocated between the portion sold and the portion retained based upon their relative fair values. attributable to the change in the fair value of the retained interests, which are recorded in a manner simi- lar to available-for-sale securities, net of related income taxes as a separate component of stockholders’ equity until realized. The Group is not aware of an active mar- ket for the purchase or sale of retained interests, and accordingly, determines the estimated fair value of the retained interests by discounting the expected cash flow releases (the cash-out method) using a discount rate which is commensurate with the risks involved. In determining the fair value of the retained interests, the Group estimates the future rates of prepayments, net credit losses and forward yield curves. These estimates are developed by evaluating the historical experience of comparable receivables and the specific characteristics of the receivables purchased, and forward yield curves based on trends in the economy. An other-than-tempo- rary impairment adjustment to the carrying value of the retained interests generally is required if the ex- pected cash flows decline below the cash flows inher- ent in the cost basis of an individual retained interest (the pool-by-pool method). Other-than-temporary impairment adjustments are recorded as a component of revenue. Estimated Credit Losses – The allowance for doubt- ful accounts represents management’s estimate of the amount of asset impairment in the portfolios of finance, trade and other receivables. The Group determines the allowance for doubtful accounts based on periodical review and evaluation performed as part of the credit- risk evaluation process, historical loss experience, the size and composition of the portfolios, current eco- nomic events and conditions, the fair value and ad- equacy of collateral, and other pertinent factors. Credit exposures deemed to be uncollectible are charged against the allowance for doubtful accounts. Product-Related Expenses – Provisions for esti- mated product warranty costs are recorded in cost of sales at the time the related sale is recognized. Non- cash sales incentives that do not reduce the transaction price to the customer are classified within cost of sales. Shipping and handling costs are recorded as cost of sales. Expenditures for advertising and sales promotion and for other sales-related expenses are charged to selling expense as incurred. Research and Development – Research and development costs are expensed as incurred. Sales of Newly Issued Subsidiary Stock – Gains resulting from the issuance of stock by a Group subsid- iary or equity method investment which reduces DaimlerChrysler’s percentage ownership (“dilution gains”) are recorded in the statement of income (loss). 80 Notes to Consolidated Financial Statements and straight-line depreciation is preferable in these circumstances. The effect of this change on the net loss of 2001 was not significant. Leasing – The Group is a lessee of property, plant and equipment and lessor of equipment, principally passenger cars and commercial vehicles. All leases that meet certain specified criteria intended to represent situations where the substantive risks and rewards of ownership have been transferred to the lessee are accounted for as capital leases. All other leases are accounted for as operating leases. Equipment on operating leases, where the Group is lessor, is valued at acquisition cost and depreciated over its estimated useful life of 1 to 30 years using the straight-line method. Long-Lived Assets – The Group accounts for long- lived assets in accordance with the provisions of SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” This Statement requires that long-lived assets and cer- tain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recov- erable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be gener- ated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Non-fixed Assets – Non-fixed assets represent the Group’s inventories, receivables, securities and cash, including amounts to be realized in excess of one year. In the accompanying notes, the portion of assets and li- abilities to be realized and settled in excess of one year has been disclosed. Marketable Securities and Investments – Securities and investments are accounted for at fair value, if readily determinable. Unrealized gains and losses on trading securities, representing securities bought princi- pally for the purpose of near term sales, are included in earnings. Unrealized gains and losses on available- for-sale securities are included in accumulated other comprehensive income, net of applicable taxes. All other securities are recorded at cost. Unrealized losses on all marketable securities and investments that are other than temporary are recognized in earnings. Earnings Per Share – Basic earnings per share is calculated by dividing net income by the weighted av- erage number of shares outstanding. 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 33). Net income represents the earnings of the Group after minority interests. Intangible Assets – Purchased intangible assets, other than goodwill, are valued at acquisition cost and are amortized over their respective useful lives (2 to 10 years) on a straight-line basis. Goodwill derived from acquisitions that were completed before July 1, 2001, is capitalized and amortized over 3 to 40 years. The Group periodically assesses the recoverability of its goodwill based upon projected future undiscounted cash flows. Goodwill acquired in business combinations after June 30, 2001, and intangible assets with an indefinite useful life acquired after June 30, 2001, were not amortized in accordance with Statement of Finan- cial Accounting Standards (“SFAS”) 142, “Goodwill and Other Intangible Assets” (see New Accounting Pro- nouncements). Goodwill acquired in business combina- tions that were completed before July 1, 2001, and intangible assets with an indefinite useful life acquired before July 1, 2001, were amortized until December 31, 2001. Property, Plant and Equipment – Property, plant and equipment is valued at acquisition or manufactur- ing costs less accumulated depreciation. Depreciation expense is recognized using either the declining bal- ance method until the straight-line method yields larger expenses or the straight-line method. The costs of inter- nally produced equipment and facilities include all di- rect costs and allocable manufacturing overhead. Costs of the construction of certain long-term assets include capitalized interest which is amortized over the esti- mated useful life of the related asset. The following use- ful lives are assumed: buildings – 10 to 50 years; site improvements – 5 to 33 years; technical equipment and machinery – 3 to 30 years; and other equipment, factory and office equipment – 2 to 33 years. For the Group’s subsidiaries in Germany, depre- ciation expense for property, plant and equipment placed in service before January 1, 2001 is being recog- nized using either the straight-line method or the declining balance method until the straight-line method yields larger expenses. Property, plant and equipment placed in service at these companies after December 31, 2000 is depreciated using the straight-line method of depreciation. This change in accounting principle for new additions beginning January 1, 2001 was made to reflect improvements in the design and flexibility of manufacturing machinery and equipment and improve- ments in maintenance practices. These improvements have resulted in more uniform productive capacities and maintenance costs over the useful life of an asset, Notes to Consolidated Financial Statements 81 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”). Certain of the Group’s U.S. inventories are valued using the last-in, first-out method (“LIFO”). Manufacturing costs com- prise direct material and labor and applicable manufac- turing overheads, including depreciation charges. Financial Instruments – DaimlerChrysler uses de- rivative financial instruments such as forward foreign exchange contracts, swaps, options, futures, swaptions, forward rate agreements, caps and floors for hedging purposes. Effective January 1, 2000, DaimlerChrysler adopted SFAS 133, “Accounting for Derivative Instru- ments and Hedging Activities,” as amended by SFAS 137 and 138 (see Note 10). SFAS 133 requires that all derivative instruments are recognized as assets or liabilities on the balance sheet and measured at fair value, regardless of the purpose or intent for holding them. Changes in the fair value of derivative instru- ments are recognized periodically either in earnings or stockholders’ equity (as a component of other com- prehensive income), depending on whether the deriva- tive is designated as a hedge of changes in fair value or cash flows. For derivatives designated as fair value hedges, changes in fair value of the hedged item and the derivative are recognized currently in earnings. For derivatives designated as cash flow hedges, fair value changes of the effective portion of the hedging instru- ment are recognized in accumulated other comprehen- sive income on the balance sheet until the hedged item is recognized in earnings. The ineffective portion of the fair value changes are recognized in earnings immedi- ately. SFAS 133 also requires that certain derivative instruments embedded in host contracts be accounted for separately as derivatives. Prior to the adoption of SFAS 133, derivative instruments which were not designated as hedges of specific assets, liabilities, or firm commitments were marked to market and any resulting unrealized gains or losses recognized in earnings. If there was a direct connection between a derivative instrument and an underlying transaction and a derivative was so desig- nated, a valuation unit was formed. Once allocated, gains and losses from these valuation units, which were used to manage interest rate, equity price and currency risks of identifiable assets, liabilities, or firm commitments, did not affect earnings until the underly- ing transaction was realized. Further information on the Group’s financial instruments is included in Note 30. Accrued Liabilities – The valuation of pension and postretirement benefit liabilities is based upon the pro- jected unit credit method in accordance with SFAS 87, “Employers’ Accounting for Pensions,” and SFAS 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” An accrued liability for taxes and other contingencies is recorded when an obligation to a third party has been incurred, the payment is probable and the amount can be reasonably estimated. Accrued liabilities relating to personnel and social costs are valued at their net present value where appropriate. Use of Estimates – Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of as- sets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Due to current economic conditions and events in 2001, it is possible that these conditions and events could have a significant effect on such estimates made by management. New Accounting Pronouncements – In September 2000, the Financial Accounting Standards Board (“FASB”) issued SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities – a replacement of FASB Statement No. 125.” This statement revised the standards of account- ing for securitizations and other transfers of financial assets and collateral and requires certain financial statement disclosures. SFAS 140 was effective for transactions occurring after March 31, 2001. Adoption of this replacement standard did not have a material effect on DaimlerChrysler’s consolidated financial statements (see Note 31). During 2000, the Emerging Issues Task Force reached a final consensus on Issue 00-14, “Accounting for Certain Sales Incentives.” The issue requires that an entity recognizes sales incentives at the latter of (1) the date at which the related revenue is recorded by the entity or (2) the date at which the sales incentive is of- fered. The issue also requires that when recognized, the reduction in or refund of the selling price of the product or service resulting from any cash sales incentive should be classified as a reduction of revenue. If the sales incentive is a free product or service delivered at the time of the sale, the cost of the free product or ser- vice should be classified as cost of sales. The consensus reached in the issue was effective for DaimlerChrysler in its financial statements beginning April 1, 2001. DaimlerChrysler applied the consensus prospectively in 2001. The adoption of Issue 00-14 did not have a material impact on the Group’s consolidated financial statements. 82 Notes to Consolidated Financial Statements In July 2001, the FASB issued SFAS 141, “Busi- In connection with the transitional impairment ness Combinations,” and SFAS 142. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 141 also specifies the types of acquired intan- gible assets that are required to be recognized and reported separately from goodwill and those acquired intangible assets that are required to be included in goodwill. SFAS 142 requires that goodwill no longer be amortized, but instead tested for impairment at least annually. SFAS 142 also requires recognized intangible assets with a definite useful life to be amortized over their respective estimated useful lives and reviewed for impairment in accordance with SFAS 121 and subse- quently, SFAS 144 after its adoption (see below). Any recognized intangible asset determined to have an indefinite useful life will not be amortized, but instead tested for impairment in accordance with SFAS 142 until its life is determined to no longer be indefinite. DaimlerChrysler adopted the provisions of SFAS 141 as of July 1, 2001, and SFAS 142 is effective Janu- ary 1, 2002. Goodwill that was acquired in a business combination completed after June 30, 2001, and any in- tangible asset determined to have an indefinite useful life that was acquired after June 30, 2001 were not amortized. Goodwill acquired in business combinations completed before July 1, 2001, and intangible assets with indefinite useful lives acquired before July 1, 2001, were amortized until December 31, 2001. SFAS 142 requires the Group to evaluate its exist- ing intangible assets and goodwill and to make any necessary reclassifications in order to conform with the new separation requirements at the date of adoption. Upon adoption of SFAS 142, the Group is also required to reassess the useful lives and residual values of all intangible assets and make any necessary amortization period adjustments by March 31, 2002. evaluation, SFAS 142 requires DaimlerChrysler to per- form an assessment of whether there is an indication that goodwill is impaired as of January 1, 2002. To ac- complish this, DaimlerChrysler is currently (1) identify- ing its reporting units, (2) determining the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intan- gible assets to those reporting units, and (3) determin- ing the fair value of each reporting unit. This first step of the transitional assessment is required to be com- pleted by June 30, 2002. If the carrying value of any reporting unit exceeds its fair value, then detailed fair values for each of the assigned assets (excluding good- will) and liabilities will be determined to calculate the amount of goodwill impairment, if any. This second step is required to be completed as soon as possible, but no later than December 31, 2002. Any transitional impairment loss resulting from the adoption will be recognized as the effect of a change in accounting prin- ciple in the Group’s statement of income (loss). Because of the extensiveness of the efforts needed to comply with the adoption of these statements, it is not practi- cable to reasonably estimate the impact on the Group’s financial statements. In June 2001, the FASB issued SFAS 143, “Ac- counting for Asset Retirement Obligations.” The state- ment applies to legal obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for cer- tain obligations of lessees. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and subse- quently allocated to expense over the asset’s useful life. The Group expects to adopt SFAS 143 on January 1, 2003. DaimlerChrysler is currently determining the impact of the adoption of SFAS 143. Notes to Consolidated Financial Statements 83 3. Equity Method Investments At December 31, 2001, the significant investments in companies accounted for under the equity method were the following: Company European Aeronautic Defence and Space Company EADS N.V. (“EADS”) Mitsubishi Motors Corporation (“MMC”) Ownership percentage 33.0% 37.3% Further information with respect to the transac- tions which resulted in the Group’s holdings in EADS and MMC is presented in Note 4 (Acquisitions and Dis- positions) and Note 11 (Extraordinary Items). The aggre- gate quoted market prices as of December 31, 2001, for DaimlerChrysler’s shares in EADS and MMC were €3,637 million and €1,056 million, respectively. The carrying value of the significant investments exceeded DaimlerChrysler’s share of the underlying reported net assets by approximately €1,049 million at December 31, 2001. The excess of the Group’s initial investment in equity method companies over the Group’s ownership percentage in the underlying net assets of those companies is attributed to fair value ad- justments, if any, with the remaining portion classified as goodwill. The fair value adjustments and goodwill are accounted for in the respective equity method investment balances. Under the equity method, invest- ments are stated at initial cost and are adjusted for sub- sequent contributions and DaimlerChrysler’s share of earnings, losses and distributions. Because the finan- cial statements of EADS and MMC are not available sufficiently timely for the Group to apply the equity method currently, DaimlerChrysler’s share of the earnings or losses of EADS and MMC are recorded on a three month lag. Goodwill relating to the Group’s in- vestments in EADS and MMC was being amortized us- ing an useful life of 20 years until December 31, 2001. After December 31, 2001, such goodwill will no longer be amortized as a result of adopting SFAS 142. The total investment, including goodwill, will continue to be evaluated for impairment when conditions indicate that a decline in fair value below the carrying amount is other than temporary. In August 2001, the FASB issued SFAS 144, “Ac- counting for the Impairment or Disposal of Long-Lived Assets.” SFAS 144 retains the current requirement to recognize an impairment loss only if the carrying amounts of long-lived assets to be held and used are not recoverable from their expected undiscounted future cash flows. However, goodwill is no longer required to be allocated to these long-lived assets when determining their carrying amounts. SFAS 144 requires that a long-lived asset to be abandoned, exchanged for a similar productive asset, or distributed to owners in a spin-off be considered held and used until it is disposed. SFAS 144 requires the depreciable life of an asset to be abandoned be revised. SFAS 144 requires all long-lived assets to be disposed of by sale be recorded at the lower of its carrying amount or fair value less cost to sell and to cease depreciation (amorti- zation). Therefore, discontinued operations are no longer measured on a net realizable value basis, and future operating losses are no longer recognized before they occur. SFAS 144 is effective January 1, 2002. The adoption of SFAS 144 is not expected to have a material impact on the Group’s financial statements. 2. Scope of Consolidation Scope of Consolidation – DaimlerChrysler comprises 470 German and non-German subsidiaries (2000: 485) and 1 joint venture (2000: 1). A total of 102 (2000: 108) companies are accounted for in the consolidated finan- cial statements using the equity method of accounting. During 2001, 98 subsidiaries were included in the con- solidated financial statements for the first time. A total of 113 subsidiaries were no longer included in the con- solidated group. Significant effects of changes in the consolidated group on the consolidated balance sheets and the consolidated statements of income (loss) are explained further in the notes to the consolidated finan- cial statements. A total of 296 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 (2000: 255). The effect of such non-consolidated subsidiaries for all years presented on consolidated assets, revenues and net income (loss) of DaimlerChrysler was approxi- mately 1%. In addition, 5 (2000: 6) companies adminis- tering pension funds whose assets are subject to restrictions have not been included in the consolidated financial statements. The consolidated financial state- ments include 96 associated companies (2000: 74) ac- counted 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 operations or cash flows of the Group. 84 Notes to Consolidated Financial Statements 4. Acquisitions and Dispositions On October 18, 2000, DaimlerChrysler acquired a 34% equity interest in MMC for approximately €2,200 mil- lion. At the closing date of the transaction, the Group also purchased MMC bonds with an aggregate face value of JPY19,200 million and a stated interest rate of 1.7% for €206 million, which are convertible into shares of MMC stock. The bonds are only convertible by DaimlerChrysler in the event that its ownership per- centage would be diluted below 34% upon conversion of previously issued convertible bonds. To the extent not converted, the bonds and accrued interest are due on April 30, 2003. In June 2001, Volvo AB sold its 3.3% interest in MMC, plus its operational contracts with MMC, to DaimlerChrysler for $297 million (€343 mil- lion) increasing DaimlerChrysler’s interest in MMC to 37.3%. In August 2000, DaimlerChrysler signed a sale and purchase agreement with the Canadian company Bombardier Inc. for the sale of DaimlerChrysler Rail Systems GmbH (“Adtranz”). With the closing of the transaction on April 30, 2001, control over the opera- tions of Adtranz was transferred to Bombardier on May 1, 2001. Accordingly, the operating results of Adtranz are included in the consolidated financial statements of DaimlerChrysler through April 30, 2001. The sales price of $725 million was received during 2001. Bom- bardier has asserted claims for sales price adjustments under the terms of the sale and purchase agreement as well as claims for alleged breaches of contract and misrepresentation, and seeks total damages of approxi- mately €1 billion. The sale and purchase agreement limits the amount of such price adjustments to €150 million, and to the extent legally permissible, the amount of other claims to an additional €150 million. The Group intends to defend itself vigorously against such claims. The agreement calls for submission of disputes to arbitration and Bombardier has notified DaimlerChrysler that it intends to do this with respect to its claims. Due to uncertainties with respect to the ultimate outcome of these claims, the Group has recog- nized a partial after-tax gain of €237 million on the sale of Adtranz, representing the maximum possible adjustment to the sales price and the aforementioned maximum amount with respect to any further claims in accordance with the sale and purchase agreement. The following tables present summarized U.S. GAAP financial information for EADS and MMC (amounts shown on a 100% basis in millions of €) which are the basis for applying the equity method in the Group’s consolidated financial statements: EADS Income statement information: Revenues Net income (loss) Balance sheet information: Fixed assets Non-fixed assets Total assets Stockholders’ equity Minority interests Accrued liabilities Other liabilities Total liabilities and stockholders’ equity MMC Income statement information: Revenues Net loss Balance sheet information: Fixed assets Non-fixed assets Total assets Stockholders’ equity Minority interests Accrued liabilities Other liabilities Total liabilities and stockholders’ equity For the period from acquisition to Decem- ber 31, 2000 Twelve months ended December 31, 2001 27,004 10,578 2,598 (482) At December 31, 2001 2000 26,505 20,563 22,119 21,592 48,624 42,155 11,409 9,262 598 328 11,149 10,450 25,468 22,115 48,624 42,155 For the period from acquisition to Decem- ber 31, 2000 Twelve months ended December 31, 2001 30,057 7,754 (1,209) (124) At December 31, 2001 2000 11,974 12,802 12,697 16,452 24,671 29,254 1,528 2,840 (61) 21 5,800 5,626 17,404 20,767 24,671 29,254 Notes to Consolidated Financial Statements 85 In April 2001, DaimlerChrysler completed the sale In September 2000, DaimlerChrysler acquired 100% of the outstanding shares of the Canadian com- pany Western Star Trucks Holdings Ltd. for approxi- mately €500 million. The acquisition was accounted for using the purchase method of accounting and resulted in goodwill of approximately €380 million, which was being amortized on a straight-line basis using an useful life of 20 years until December 31, 2001. After Decem- ber 31, 2001, goodwill will no longer be amortized, but instead tested for impairment at least annually. Information on the exchange of the Group’s con- trolling interest in DaimlerChrysler Aerospace for shares of EADS and the related initial public offering of EADS in July 2000 is included in Note 11. Due to an initial public offering in March 1999 as well as to the selling of a substantial portion of its re- maining interests in September 1999, DaimlerChrysler Services AG, a wholly-owned subsidiary of DaimlerChrysler, reduced its remaining interest in debitel AG to 10% (see Note 11). In January 2001, the Group sold its remaining 10% interest in debitel AG to Swisscom for net proceeds of €305 million. The trans- action resulted in a pretax gain of €292 million which is included in financial income (expense), net. In the first quarter of 1999, DaimlerChrysler acquired the remaining outstanding shares of Adtranz from Asea Brown Boveri for €441 million. of 60% of the interest in its Automotive Electronics activities to Continental AG for €398 million, resulting in a pretax gain of €209 million. The agreement confers on Continental the option to acquire from the Group, and DaimlerChrysler the option to sell to Continental, the Group’s remaining 40% interest in the Automotive Electronics activities. The DaimlerChrysler option is exercisable from April 1, 2002 through July 31, 2004. The Continental option is exercisable from November 1, 2004 through October 31, 2005. The price for the re- maining 40% interest ranges from €225 million to €235 million, depending upon when the option is exercised and various other factors. DaimlerChrysler accounts for the remaining interest in its Automotive Electronics ac- tivities using the equity method subsequent to the sale. In October 2000, DaimlerChrysler acquired all the remaining outstanding shares of Detroit Diesel Corpo- ration for approximately €500 million. The acquisition of the remaining 78.6% interest in Detroit Diesel was accounted for using the purchase method of accounting and resulted in goodwill of approximately €310 million, which was being amortized on a straight-line basis us- ing an useful life of 20 years until December 31, 2001. After December 31, 2001, goodwill will no longer be amortized, but instead tested for impairment at least annually. In October 2000, DaimlerChrysler and Deutsche Telekom combined their information technology activities in a joint venture. As part of the agreement, Deutsche Telekom received a 50.1% interest in T-Systems ITS (formerly debis Systemhaus) through a capital investment in T-Systems ITS (see Note 11 and Note 34). In September 2000, DaimlerChrysler purchased a 9% equity interest in Hyundai Motor Company for approximately €450 million. DaimlerChrysler holds a 10% ownership interest at December 31, 2001 and is accounting for its investment in Hyundai as an available-for-sale security. 86 Notes to Consolidated Statements of Income (Loss) Notes to Consolidated Statements of Income (Loss) The impairment relates principally to the carrying val- ues of the manufacturing facility, equipment and tool- ing. In addition, charges of €255 million were recorded related to fixed cost reimbursement agreements with MCC smart suppliers. The charges were recorded in cost of sales (€494 million) and other expenses (€42 million) for the year 2000. In 2000, DaimlerChrysler recorded an impairment charge in cost of sales of approximately €500 million for certain leased vehicles in the Services segment. Declining resale prices of used vehicles in the North American and the U.K. markets required the Group to re-evaluate the recoverability of the carrying values of its leased vehicles. This re-evaluation was performed using product specific cash flow information. As a result, the carrying values of these leased vehicles were determined to be impaired as the identifiable undiscounted future cash flows from such vehicles were less than their respective carrying values. In ac- cordance with SFAS 121, the resulting pre-tax impair- ment charges represent the amount by which the car- rying values of such vehicles exceeded their respective fair market values. Personnel expenses included in the statement of income (loss) are comprised of: (in millions of €) Year ended December 31, 2001 2000 1999 Wages and salaries 20,073 21,836 21,044 Social levies Net pension cost (see Note 23a) Net postretirement benefit cost (see Note 23a) Other expenses for pensions and retirements 3,193 3,428 3,179 630 327 931 1,173 830 783 26 79 221 25,095 26,500 26,158 5. Functional Costs and Other Expenses Selling, administrative and other expenses are com- prised of the following: (in millions of €) Year ended December 31, 2001 2000 1999 Selling expenses 11,823 11,666 10,087 Administration expenses 5,539 5,921 5,333 Goodwill amortization and write-downs Other expenses 184 785 279 437 215 428 18,331 18,303 16,063 As discussed in Note 7, the DaimlerChrysler Su- pervisory Board approved a multi-year turnaround plan for the Chrysler Group in February 2001. The related charges are presented as a separate line item on the ac- companying consolidated statements of income (loss) and are not reflected in cost of sales or selling, admin- istrative and other expenses. In October 2001, the DaimlerChrysler Board of Management approved a turnaround plan for its North American truck subsidiary Freightliner. The turn- around plan is designed to return Freightliner to sus- tainable profitability and comprises four main ele- ments: material cost savings, production cost savings, overhead reductions and improvements to the existing business model. The implementation of the turnaround plan resulted in charges of €310 million, reflecting employee termination benefits of €83 million, asset impairment charges of €170 million, and other costs to exit certain activities of €57 million (see Note 23b). The charges were recorded in cost of sales (€173 mil- lion) and selling, administrative and other expenses (€137 million) in 2001. Employee termination benefits related to voluntary and involuntary severance mea- sures affect 4,440 hourly and salaried employees. Based on its investment in MMC and the corre- sponding strategic alliance entered into in the fourth quarter 2000, DaimlerChrysler conducted a review of its compact car strategy in 2000, and concluded that it was necessary to revise the current strategic plan for the smart brand, including restructuring of supplier contracts. As a result, the carrying values of certain of the brand’s long-lived assets were determined to be impaired as the identifiable, undiscounted future cash flows from the operation of such assets were less then their respective carrying values. In accordance with SFAS 121, DaimlerChrysler recorded an impairment charge of €281 million. The impairment charge repre- sents the amount by which the carrying values of such assets exceeded their respective fair market values. Notes to Consolidated Statements of Income (Loss) 87 Number of employees (annual average): The net charges recorded for the plan in 2001 were €3,064 million (€1,934 million net of taxes) and are presented as a separate line item on the accompa- nying consolidated statement of income (loss) (€2,555 million and €509 million would have otherwise been reflected in cost of sales and selling, administrative and other expenses, respectively). The initial charges of €3,047 million were recorded in February 2001 with the approval of the turnaround plan. Additional charges of €268 million resulted from the subsequent impairment and disposal costs associated with a component plant as well as costs for a special early retirement program. The return to income adjustments of €251 million include revi- sions of estimates based upon information currently available or actual settlements. These adjustments reflect lower than anticipated costs associated with workforce reduction initiatives, including the involun- tary severance benefits, and favorable resolution of supplier contract cancellation claims. The pretax amounts for turnaround plan charges consisted of the following: (in millions of €) Workforce reductions Asset write- downs Other costs Total Reserve balance at January 1, 2001 Initial charges Additional charges Adjustments Net charges Payments Amount charged against assets Currency translation adjustment Reserve balance at December 31, 2001 – 1,403 93 (122) 1,374 (211) – 836 148 – – 808 3,047 27 268 – (129) (251) 984 706 3,064 – (154) (365) (695) (984) (63) (1,742) 38 506 – – 21 59 510 1,016 Year ended December 31, 2001 2000 1999 Hourly employees Salaried employees 244,938 270,814 279,124 122,094 165,117 170,539 Trainees/apprentices 12,512 13,663 13,898 379,544 449,594 463,561 In 2001, 28 people (2000: 28 people; 1999: 14,851 people) were employed in joint venture compa- nies. In 2001, the total remuneration paid by Group companies to the members of the Board of Manage- ment of DaimlerChrysler AG amounted to €22.0 mil- lion, and the remuneration paid to the members of the Supervisory Board of DaimlerChrysler AG for services in all capacities to the Group totaled €2.4 million. Dis- bursements to former members of the Board of Man- agement of DaimlerChrysler AG and their survivors amounted to €14.7 million. An amount of €155.0 mil- lion has been accrued for pension obligations to former members of the Board of Management and their survivors. As of December 31, 2001, no advances or loans existed to members of the Board of Management of DaimlerChrysler AG. 6. Other Income Other income includes gains on sales of property, plant and equipment (€104 million, €106 million and €132 million in 2001, 2000 and 1999, respectively) and rental income, other than relating to financial services leasing activities (€191 million, €178 million and €153 million in 2001, 2000 and 1999, respectively). In 2001, gains on sales of companies of €465 million were rec- ognized in other income. 7. Turnaround Plan for the Chrysler Group The DaimlerChrysler Supervisory Board approved a multi-year turnaround plan for the Chrysler Group in February 2001. Key initiatives for the turnaround plan over the period 2001 through 2003 include a workforce reduction of 26,000 employees and an elimination of excess capacity. The workforce reduction is being achieved through retirements, special programs, attri- tion and layoffs. The reduction affected represented and non-represented hourly and salary employees. To eliminate excess capacity, the Chrysler Group is idling, closing or disposing of certain manufacturing plants, eliminating shifts and reducing line speeds at certain manufacturing facilities, and adjusting volumes at com- ponent, stamping and powertrain facilities. 88 Notes to Consolidated Statements of Income (Loss) Workforce reduction charges relate to early retire- 8. Financial Income, net ment incentive programs (€725 million) and involun- tary severance benefits (€649 million). The voluntary early retirement programs, accepted by 9,261 employ- ees as of December 31, 2001, are formula driven based on salary levels, age and past service. In addition, 7,174 employees were involuntarily affected by the plan. The amount of involuntary severance benefits paid and charged against the liability in 2001 was €131 million. As a result of the planned idling, closing or dis- posal of manufacturing facilities, the carrying values of the assets held for use at these plants were determined to be impaired as the identifiable, undiscounted future cash flows from the operation of such assets were less than their respective carrying values. In accordance with the provisions of SFAS 121, the Chrysler Group recorded an impairment charge of €984 million. The impairment charge represents the amount by which the carrying values of the property, plant, equipment and tooling exceeded their respective fair market values as determined by third party appraisals or comparative market analyses developed by the Chrysler Group. Other costs primarily include supplier contract cancellation costs. Other key initiatives of the plan include additional cost reduction and revenue enhancing measures. Spe- cifically, in an effort to reduce costs, suppliers are be- ing requested to voluntarily reduce the prices charged for materials and services over the period January 1, 2001 through 2002. Under the revenue enhancement measures of the turnaround plan, certain dealer pro- grams were replaced with a new performance-based incentive program under which dealers may earn cash payments based on levels of achievement compared to pre-assigned monthly retail sales objectives. (in millions of €) Income (loss) from investments of which from affiliated companies €(2) (2000: €24; 1999: €41) Gains, net from disposals of investments and shares in affiliated and associated companies Write-down of investments and shares in affiliated companies Income (loss) from companies included at equity Income (loss) from investments, net Other interest and similar income of which from affiliated companies €31 (2000: €20; 1999: €17) Year ended December 31, 2001 2000 1999 24 73 19 320 1 41 (109) (54) (19) 97 (244) 332 (224) 23 64 1,483 1,268 1,382 Interest and similar expenses (1,760) (988) (729) Interest income, net (277) 280 653 Income from securities and long-term receivables Write-down of securities and long-term receivables Other, net Other financial income (loss), net 291 161 913 (16) (3) (17) (176) (58) (1,280) 99 154 100 156 (384) 333 In 2001, EADS, an equity method investment of the Group, created a new company, Airbus SAS, and contributed all of its Airbus activities into the new company for a 100% ownership interest. Also in 2001, Airbus SAS issued new shares to BAe Systems in ex- change for all of its Airbus activities. As a result of this transaction, EADS’ ownership interest in Airbus SAS, which is consolidated by EADS, was diluted to 80%. DaimlerChrysler recognized under U.S. GAAP its share of the gain resulting from the formation of Airbus SAS in the amount of €747 million in income (loss) from companies included at equity. In 1999, realized and unrealized net losses on derivative financial instruments of €1,078 million were included in other, net. The Group capitalized interest expenses related to qualifying construction projects of €275 million (2000: €181 million; 1999: €163 million). Notes to Consolidated Statements of Income (Loss) 89 9. Income Taxes Income (loss) before income taxes consists of the following: (in millions of €) Germany Year ended December 31, 2001 2000 1999 4,498 2,729 2,688 Non-German countries (5,981) 1,747 6,969 (1,483) 4,476 9,657 Income tax expense (benefit) are comprised of the following components: (in millions of €) Current taxes Germany Year ended December 31, 2001 2000 1999 793 (45) 1,074 Non-German countries (512) 1,160 1,538 Deferred taxes Germany 637 1,490 836 Non-German countries (1,695) (606) 1,085 (777) 1,999 4,533 For German companies, the deferred taxes at De- cember 31, 2001 are calculated using a federal corpo- rate tax rate of 25% (2000: 25%; 1999: 40%) plus a soli- darity surcharge of 5.5% for each year on federal corpo- rate taxes payable plus the after federal tax benefit rate for trade tax of 12.125% (2000: 12.125%; 1999: 9.3%). Including the impact of the surcharge and the trade tax, the tax rate applied to German deferred taxes amounts to 38.5% (2000: 38.5%; 1999: 51.5%). In 2000, the German government enacted new tax legislation which, among other changes, reduced the Group’s statutory corporate tax rate for German compa- nies from 40% on retained earnings and 30% on distrib- uted earnings to a uniform 25%, effective for the Group’s year beginning January 1, 2001. The signifi- cant other tax law change is the exemption from tax for certain gains and losses from the sale of shares in affiliated and unaffiliated companies. The effects of the reduction in the tax rate and other changes on the de- ferred tax assets and liabilities of the Group’s German companies were recognized in the year of enactment. As a result, a net charge of €263 million is included in the consolidated statement of income (loss) in 2000. The effects of the reduction in the tax rate resulted in deferred tax expense of €373 million. The exemption from tax for certain gains from the sale of shares resulted in deferred tax benefit of €110 million due to the elimination of the net deferred tax liabilities on the net unrealized gains. In 1999, the tax laws in Germany were changed including a reduction in the retained corporate income tax rate from 45% to 40% and the broadening of the tax base. The effects of the changes in German tax laws were recognized as a net charge of €812 million in the consolidated statement of income (loss) in 1999. The ef- fects of the reduction in the tax rate on the deferred tax assets and liabilities of the Group’s German companies as of December 31, 1998 amounted to €290 million. The broadening of the tax base resulted in tax expense of €522 million. The effect of the tax law changes in Germany in 2000 and 1999 are reflected separately in the reconcili- ations presented below. For the years ending December 31, 2000 and 1999, the German corporate tax law applied a split-rate imputation with regard to the taxation of the earnings of a corporation. In accordance with the tax law in effect for those fiscal years, retained corporate income was initially subject to a federal corporate tax of 40% plus a solidarity surcharge of 5.5% for each year on fed- eral corporate taxes payable. Including the impact of the surcharge, the federal corporate tax rate amounted to 42.2%. Upon distribution of certain retained earnings generated in Germany to stockholders, the corporate in- come tax rate on the earnings was adjusted to 30%, plus a solidarity surcharge of 5.5% for each year on the distribution corporate tax, for a total of 31.65% for each year, by means of a refund for taxes previously paid. Under the new German corporate tax system, during a 15 year transition period beginning on January 1, 2001, the Group will continue to receive a refund on the distribution of retained earnings which existed as of December 31, 2000. 90 Notes to Consolidated Statements of Income (Loss) A reconciliation of expected income taxes to actual Deferred income tax assets and liabilities are income tax expense (benefit) determined using the ap- plicable German corporate tax rate of 25% (2000: 40%; 1999: 40%) plus a solidarity surcharge of 5.5% on fed- eral corporate taxes plus the after federal tax benefit rate for trade taxes of 12.125% (2000: 9.3%; 1999: 9.3%) for a combined statutory rate of 38.5% in 2001 (2000: 51.5%; 1999: 51.5%) is as follows: Year ended December 31, 2001 2000 1999 summarized as follows: (in millions of €) At December 31, 2000 2001 Property, plant and equipment 365 463 Investments and long-term financial assets Equipment on operating leases Inventories Receivables (571) 2,305 4,973 Net operating loss and tax credit carryforwards 96 (346) (966) Retirement plans Trade tax rate differential (50) (28) (24) (191) – – Other accrued liabilities Liabilities Deferred income Other (in millions of €) Expected expense (benefit) for income taxes Tax rate differential with non- German countries Gains from sales of business interests (Adtranz, TEMIC, debitel) Changes in valuation allowances on German deferred tax assets Tax effect of equity method investments Amortization of non-deductible goodwill Tax free income and non- deductible expenses Effect of changes in German tax laws Dividend distribution credit at DC AG Other Actual expense (benefit) for income taxes 29 – 23 (25) 113 (12) Valuation allowances Deferred tax assets 5 (76) – – 6 52 48 33 36 263 812 (491) (505) 83 163 Property, plant and equipment Equipment on operating leases Inventories Receivables Securities Prepaid expenses Retirement plans Other accrued liabilities (777) 1,999 4,533 Taxes on undistributed earnings of non-German subsidiaries In 2000 and 1999, income tax credits from dividend distributions reflected the tax benefits from the dividend distributions of €2.35 per Ordinary Share to be paid for those years. Other Deferred tax liabilities Deferred tax liabilities, net 2,135 1,986 689 697 800 664 1,369 1,400 3,078 1,669 3,682 3,442 6,340 4,756 1,113 1,114 1,162 1,330 423 427 21,053 18,051 (145) (335) 20,908 17,716 (4,095) (3,609) (8,286) (7,569) (385) (303) (2,542) (2,341) (448) (33) (482) (481) (4,794) (4,409) (673) (1,010) (514) (486) (530) (519) (22,749) (20,760) (1,841) (3,044) At December 31, 2001, the Group had corporate and trade tax net operating losses (“NOLs”) amounting to €4,668 million (2000: €4,061 million) and credit carryforwards amounting to €1,552 million (2000: €776 million), determined in accordance with U.S. GAAP. The corporate tax NOLs and credit carryforwards relate to losses of non-German compa- nies and German non-Organschaft companies and are partly limited in their use to the Group. The valuation allowances on deferred tax assets of German and non- German operations decreased by €190 million. The re- duction in the valuation allowance is mainly due to the sale of Adtranz. In future periods, depending 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 decrease. Net deferred income tax assets and liabilities in (in millions of €) the consolidated balance sheets are as follows: At December 31, 2001 thereof non- current Total At December 31, 2000 thereof non- current Total (in millions of €) Deferred tax assets 3,010 425 2,436 1,576 Deferred tax liabilities (4,851) (4,761) (5,480) (4,938) Deferred tax liabilities, net (1,841) (4,336) (3,044) (3,362) DaimlerChrysler recorded deferred tax liabilities for non-German withholding taxes of €371 million (2000: €351 million) on €7,421 million (2000: €7,028 million) in cumulative undistributed earnings of non- German subsidiaries and additional German tax of €143 million (2000: €135 million) on the future payout of these foreign dividends because the earnings are not intended to be permanently reinvested in those opera- tions. The Group did not provide income taxes or non- German withholding taxes on €13,899 million (2000: €15,543 million) in cumulative earnings of non-German subsidiaries because the earnings are intended to be in- definitely reinvested in those operations. It is not prac- ticable to estimate the amount of unrecognized deferred tax liabilities for these undistributed foreign earnings. Including the items charged or credited directly to related components of stockholders’ equity and the ex- pense (benefit) for income taxes of extraordinary items and from changes in accounting principles, the expense (benefit) for income taxes consists of the following: Notes to Consolidated Statements of Income (Loss) 91 Year ended December 31, 2001 2000 1999 (777) 1,999 4,533 – – – 324 470 (53) – – (31) (507) (338) (155) (1,284) 1,932 4,817 Expense (benefit) for income taxes before extraordinary items Income tax expense of extraordinary items Income tax benefit from changes in accounting principles Stockholders’ equity for employee stock option expense in excess of amounts recognized for financial purposes Stockholders’ equity for items in other comprehensive income 10. Cumulative Effects of Changes in Accounting Principles Beneficial Interests in Securitized Financial Assets: Adop- tion of EITF 99-20 - As of July 1, 2000, DaimlerChrysler adopted EITF 99-20 which specifies, among other things, how a transferor that retains an interest in a securitization transaction, or an enterprise that pur- chases a beneficial interest, should account for interest income and impairment. The cumulative effect of adopt- ing EITF 99-20 was a charge of €99 million (net of income tax benefits of €58 million). Derivative Financial Instruments and Hedging Activities: Adoption of SFAS 133 and SFAS 138 - DaimlerChrysler elected to adopt SFAS 133 on January 1, 2000. Upon adoption of this Statement, DaimlerChrysler recorded a net transition adjustment gain of €12 million (net of income tax expense of €5 million) in the statement of income (loss) and a net transition adjustment loss of €349 million (net of in- come tax benefit of €367 million) in accumulated other comprehensive income. Adoption of SFAS 138 did not have an impact on the Group’s consolidated statement of income (loss). 92 Notes to Consolidated Statements of Income (Loss) In 2000, Ballard Power Systems Inc., a developer of fuel cells and related power generation systems, is- sued additional common shares to its shareholders. DaimlerChrysler elected not to purchase additional shares thereby reducing its ownership interest. The dilution of its ownership interest resulted in an extra- ordinary gain of €73 million. In March 1999, DaimlerChrysler Services AG sold a portion of its interests in debitel AG in an initial pub- lic offering of its ordinary shares for proceeds of €274 million. In September 1999, DaimlerChrysler Services AG sold an additional portion of its remaining interests in debitel AG to Swisscom for proceeds of €924 million. The sales resulted in an extraordinary after-tax gain of €659 million (net of income tax expense of €481 mil- lion) and reduced DaimlerChrysler Services AG’s inter- est in debitel to 10%. See Note 4 for the sale of the remaining 10% interest in 2001. The gains from each of the foregoing transactions are reported as extraordinary items in the consolidated statements of income (loss) for the years 1999 and 2000 because U.S. GAAP requires such presentation when a significant disposition of assets or businesses occurs within two years subsequent to accounting for a business combination using the pooling-of-interests method. In 1999 the Group extinguished €51 million of long-term debt resulting in an extraordinary after tax loss of €19 million (net of income tax benefit of €11 million). 11. Extraordinary Items In October 2000, Adtranz sold its fixed installations business which primarily focuses on rail electrification and traction power to Balfour Beatty for €153 million resulting in an extraordinary after-tax gain of €89 mil- lion (net of income tax expense of €52 million). In October 2000, DaimlerChrysler and Deutsche Telekom combined their information technology activi- ties in a joint venture. In accordance with an agreement announced on March 27, 2000, Deutsche Telekom re- ceived a 50.1% interest in T-Systems ITS through an in- vestment of approximately €4.6 billion for new shares of T-Systems ITS. In 2000, the transaction resulted in an extraordinary after-tax gain of €2,345 million. The agreements also confer on Deutsche Telekom the op- tion to acquire from the Group, and on DaimlerChrysler the option to sell to Deutsche Telekom, the Group’s 49.9% interest in T-Systems ITS. DaimlerChrysler accounts for its interest in T-System using the equity method. The DaimlerChrysler option was exercised in January 2002 (see Note 34). In July 2000, the Group exchanged its controlling interest in DaimlerChrysler Aerospace for shares of EADS, which subsequently completed its initial public offering. EADS is a global aerospace and defense company which was established through a merger of Aerospatiale Matra S.A., DaimlerChrysler Aerospace AG and Construcciones Aeronauticas S.A. (“CASA”). DaimlerChrysler accounted for the shares of EADS received in the exchange at their fair value on that date and recorded an extraordinary gain of €3,009 million. The Group accounts for its 33% interest in EADS using the equity method of accounting. DaimlerChrysler has the right to sell all of its ownership interest in EADS to certain French shareholders. This put option may be exercised immediately in the event of a voting deadlock on certain matters or at certain times after three years. The price is based on the average closing mid-market price of EADS shares during the 30 trading days prior to the exercise of the put option. Notes to Consolidated Balance Sheets 12. Intangible Assets and Property, Plant and 14. Inventories Notes to Consolidated Balance Sheets 93 Equipment, net Information with respect to changes in the Group’s in- tangible assets and property, plant and equipment is presented in the Consolidated Fixed Assets Schedule included herein. Intangible assets represent principally goodwill and intangible pension assets. Property, plant and equipment includes buildings, technical equipment and other equipment capitalized under capital lease agreements of €148 million (2000: €140 million). Depreciation expense and impairment charges on assets under capital lease arrangements were €13 million (2000: €188 million; 1999: €32 mil- lion). 13. Equipment on Operating Leases, net Information with respect to changes in the Group’s equipment on operating leases is presented in the Con- solidated Fixed Assets Schedule included herein. Of the total equipment on operating leases, €35,015 million represent automobiles and commercial vehicles (2000: €32,639 million). Noncancellable future lease payments due from customers for equipment on operating leases at December 31, 2001 are as follows: (in millions of €) Raw materials and manufacturing supplies Work-in-process thereof relating to long-term contracts and programs in process €– (2000: €1,967) 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 €110 (2000: €608) At December 31, 2000 2001 2,251 2,495 3,038 5,232 11,904 10,726 97 309 17,290 18,762 (536) (2,479) 16,754 16,283 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 €1,102 million (2000: €1,058 mil- lion). (in millions of €) 2002 2003 2004 2005 2006 thereafter 8,560 4,425 2,528 812 244 352 16,921 15. Trade Receivables (in millions of €) Receivables from sales of goods and services Long-term contracts and programs, unbilled, net of advance payments received Allowance for doubtful accounts At December 31, 2000 2001 7,052 8,506 24 200 7,076 8,706 (646) (711) 6,430 7,995 As of December 31, 2001, €136 million of the trade receivables mature after more than one year (2000: €261 million). 94 Notes to Consolidated Balance Sheets 16. Receivables from Financial Services 17. Other Receivables (in millions of €) Receivables from: Sales financing Finance leases Initial direct costs Unearned income Unguaranteed residual value of leased assets At December 31, 2000 2001 (in millions of €) At December 31, 2000 2001 Receivables from affiliated companies 1,250 1,341 38,882 37,193 Receivables from related companies1) 1,041 1,379 17,400 19,031 56,282 56,224 248 177 (6,833) (8,021) 1,417 1,183 51,114 49,563 Retained interests in sold receivables and subordinated asset backed certificates 5,482 4,816 Other receivables and other assets 9,141 7,817 Allowance for doubtful accounts 16,914 15,353 (726) (957) 16,188 14,396 Allowance for doubtful accounts (1,602) (890) 49,512 48,673 1) Related companies include entities which have a significant ownership in DaimlerChrysler or entities in which the Group holds a significant investment. As of December 31, 2001, €35,551 million of the financing receivables mature after more than one year (2000: €28,138 million). As of December 31, 2001, €2,584 million of the other receivables mature after more than one year (2000: €2,101 million). Sales financing and finance lease receivables consist of retail installment sales contracts secured by automobiles and commercial vehicles. Contractual maturities applicable to receivables from sales financing and finance leases in each of the years following December 31, 2001 are as follows: 18. Securities, Investments and Long-Term Financial Assets Information with respect to the Group’s investments and long-term financial assets is presented in the Consolidated Fixed Assets Schedule included herein. Securities included in non-fixed assets are comprised of the following: (in millions of €) 2002 2003 2004 2005 2006 thereafter (in millions of €) Debt securities Equity securities Equity-based funds Debt-based funds 16,820 10,484 9,005 6,932 4,310 8,731 56,282 At December 31, 2000 2001 1,632 2,791 120 91 601 397 1,234 1,589 3,077 5,378 Actual cash flows will vary from contractual maturities due to future sales of finance receivables, prepayments and charge-offs. Notes to Consolidated Balance Sheets 95 At December 31, 2000 Fair value Unrealized Gain Loss Carrying amounts and fair values of debt and equity securities included in securities and invest- ments for which fair values are readily determinable are classified as follows: At December 31, 2001 (in millions of €) Available-for-sale Trading Securities Investments and long-term financial assets available-for-sale Cost Fair value Unrealized Gain Loss Cost 2,645 2,613 460 464 3,105 3,077 731 987 3,836 4,064 34 6 40 316 356 66 2 68 4,859 4,918 246 187 451 460 9 – 5,310 5,378 255 187 60 843 1,304 128 6,153 6,682 737 992 276 463 The aggregate costs, fair values and gross unreal- ized holding gains and losses per security class are as follows: At December 31, 2001 (in millions of €) Equity securities Debt securities issued by the German government and its agencies Municipal securities Debt securities issued by non-German governments Corporate debt securities Equity-based funds Debt-based funds Asset-backed securities Other marketable debt securities Available-for-sale Trading Cost Fair value Unrealized Gain Loss Cost At December 31, 2000 Fair value Unrealized Gain Loss 819 1,083 333 69 1,333 1,880 855 308 112 27 131 301 96 112 27 134 305 91 1,239 1,234 241 410 247 367 – – 3 7 – – 7 – – – – 3 5 5 1 43 122 24 652 536 323 123 25 656 537 397 1,692 1,590 178 842 180 834 1 1 5 6 80 14 3 18 – – 1 5 6 116 1 26 3,376 3,600 350 126 5,702 6,222 983 463 460 464 6 2 451 460 9 – 3,836 4,064 356 128 6,153 6,682 992 463 The estimated fair values of investments in debt securities, by contractual maturity, are shown below. Expected maturities may differ from contractual matu- rities because borrowers may have the right to call or prepay obligations with or without penalty. (in millions of €) 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, 2000 2001 1,412 2,704 390 422 202 735 430 76 2,426 3,945 96 Notes to Consolidated Balance Sheets Proceeds from disposals of available-for-sale secu- rities were €2,432 million (2000: €9,422 million; 1999: €2,481 million). Gross realized gains from sales of available-for-sale securities were €419 million (2000: €275 million; 1999: €627 million), while gross realized losses were €144 million (2000: €140 million; 1999: €4 million). DaimlerChrysler uses the specific identifica- tion method as a basis for determining cost and calcu- lating realized gains and losses. Other securities classified as cash equivalents were approximately €7.3 billion and €4.3 billion at De- cember 31, 2001 and 2000, respectively, and consisted primarily of purchase agreements, commercial paper and certificates of deposit. 19. Liquid Assets Liquid assets recorded under various balance sheet captions are as follows: (in millions of €) At December 31, 1999 2000 2001 Cash and cash equivalents*) originally maturing within 3 months originally maturing after 3 months 11,397 7,082 8,761 31 45 338 Total cash and cash equivalents 11,428 7,127 9,099 Securities Other 3,077 5,378 8,969 20 5 133 14,525 12,510 18,201 *) Cash and cash equivalents are mainly comprised of cash at banks, cash on hand and checks in transit The following represents supplemental informa- tion with respect to cash flows: (in millions of €) Interest paid Year ended December 31, 2000 2001 1999 4,616 5,629 3,315 Income taxes paid (refunded) (624) 775 1,883 20. Prepaid Expenses Prepaid expenses are comprised of the following: (in millions of €) Prepaid pension cost Other prepaid expenses At December 31, 2000 2001 7,584 6,799 1,022 1,108 8,606 7,907 As of December 31, 2001, €7,632 million of the total prepaid expenses mature after more than one year (2000: €6,819 million). 21. Stockholders’ Equity Number of Shares Issued and Outstanding DaimlerChrysler had issued and outstanding 1,003,271,998 registered Ordinary Shares of no par value at December 31, 2001 (2000: 1,003,271,911). Each share represents a nominal value of €2.60 of capital stock. Treasury Stock In 2001, DaimlerChrysler purchased approximately 1.4 million (2000: 1.4 million; 1999: 1.2 million) Ordinary Shares in connection with an employee share purchase plan, of which 1.2 million (2000: 1.4 million; 1999: 1.2 million) were re-issued to employees and the remaining 0.2 million in 2001 were resold in the market. 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 an aggregate nominal amount of €256 million and to issue Ordinary Shares of up to an aggregate nominal amount of €26 million to employees. In April 2000, the Group’s shareholders agreed to increase the nominal amount of capital stock per share from approximately €2.56 (originating from the conver- sion of Deutsche Marks into euros) to €2.60. This re- sulted in an increase of capital stock and an equivalent decrease of additional paid-in capital of €44 million. The conditional and authorized capital as described in the Articles of Association were adjusted accordingly. DaimlerChrysler is authorized to issue convertible bonds and notes with warrants in a nominal volume of up to €15 billion with a term of up to 20 years by April 18, 2005. The convertible bonds and notes with warrants shall grant to the holders or creditors option or conversion rights for new shares in DaimlerChrysler in a nominal amount not to exceed €300 million of capital stock. DaimlerChrysler is also entitled to grant up to 96,000,000 rights (representing up to a nominal amount of approximately €250 million of capital stock) with respect to the DaimlerChrysler Stock Option Plan by April 18, 2005. DaimlerChrysler is authorized through October 11, 2002, to acquire treasury stock for certain defined purposes up to a maximum nominal amount of €260 million of capital stock, representing approximately 10% of issued and outstanding capital stock. Notes to Consolidated Balance Sheets 97 Convertible Notes In June 1997, DaimlerChrysler issued 5.75% subordi- nated mandatory convertible notes due June 14, 2002 with a nominal amount of €66.83 per note. These con- vertible notes represent at the date of issue a nominal amount of €508 million including 7,600,000 notes which may be converted into 0.86631 newly issuable shares of DaimlerChrysler AG 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 of DaimlerChrysler AG per note to be determined on the basis of the average mar- ket price for the shares during the last 20 trading days before June 8, 2002. During 2001, 87 (2000: 92; 1999: 665) DaimlerChrysler Ordinary Shares were issued upon exercise. During 1996, DaimlerChrysler Luxembourg Capi- tal S.A., a wholly-owned subsidiary of DaimlerChrysler, issued 4.125% bearer notes with appertaining warrants due July 5, 2003, in the amount of €613 million (with a nominal value of €511 each) entitling the bond holders to subscribe for a total of 12,366,324 shares (7,728,048 of which represent newly issued shares totaling €383 million) of DaimlerChrysler. According to the note agreements the option price per share is €42.67 in con- sideration of exchange of the notes or €44.49 in cash. During 2001, no options for the subscription of newly issued DaimlerChrysler Ordinary Shares (2000: 10,416; 1999: 1,517,468) were exercised. Comprehensive Income The changes in the components of other comprehensive income (loss) are as follows: (in millions of €) Unrealized gains (losses) on securities: Year ended December 31, 2001 Tax effect Pretax Net Pretax 2000 Tax effect Net Pretax 1999 Tax effect Net Unrealized holding gains (losses) (129) 149 20 (250) 46 (204) 292 (163) 129 Reclassification adjustments for (gains) losses included in net income (loss) (46) (111) (157) 61 Net unrealized gains (losses) (175) 38 (137) (189) (6) 40 55 (623) (149) (331) 313 150 (310) (181) Net gains (losses) on derivatives hedging variability of cash flows: Unrealized derivative gains (losses) (708) 257 (451) (1,932) 978 (954) Reclassification adjustments for (gains) losses included in net income (loss) Net derivative gains (losses) Foreign currency translation adjustments Minimum pension liability adjustments Other comprehensive income (loss) 829 121 598 (1,436) (892) (50) (33) 552 507 (307) 522 1,113 (567) 546 71 (819) 411 (408) 565 1,474 (111) 1,363 2,431 (884) (385) 8 474 (2) 338 6 (13) 812 2,087 155 2,242 – – – – – – – 5 – – – 2,431 (8) Miscellaneous The minority stockholders of Dornier GmbH, a subsid- iary of DADC Luft- und Raumfahrt Beteiligungs AG, have the right, exercisable at any time, to exchange their shareholdings in Dornier for cash or holdings in DaimlerChrysler AG or its subsidiary DaimlerChrysler Luft- und Raumfahrt Holding Aktiengesellschaft. Some of the Dornier minority stockholders partially exercised this right in 2001 and exchanged some of their shareholdings in Dornier for cash and/or holdings in DaimlerChrysler Luft- und Raumfahrt Holding Aktiengesellschaft. To the extent that they have made use of their right to exchange their shareholdings for holdings of DaimlerChrysler Luft- und Raumfahrt Hold- ing Aktiengesellschaft, they have the right to exchange this new shareholding for cash or for DaimlerChrysler Ordinary Shares. This right has already been partially exercised. Under the German corporation law (Aktiengesetz), the amount of dividends available for distribution to shareholders is based upon the unappropriated accu- mulated earnings of DaimlerChrysler AG (parent com- pany only) as reported in its statutory financial state- ments determined in accordance with the German com- mercial code (Handelsgesetzbuch). For the year ended December 31, 2001, DaimlerChrysler management has proposed a distribution of €1,003 million (€1 per share) of the 2001 earnings of DaimlerChrysler AG as a dividend to the stockholders. 98 Notes to Consolidated Balance Sheets 22. Stock-Based Compensation The Group currently has various stock appreciation rights (“SARs”) plans, two stock option plans and a performance-based stock award plan. Stock Appreciation-Based Plans In 1999, DaimlerChrysler established a stock apprecia- tion rights plan (the “SAR Plan 1999”) which provides eligible employees of the Group with the right to re- ceive cash equal to the appreciation of DaimlerChrysler Ordinary Shares subsequent 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 SARs expire ten years from the grant date. The exercise price of a SAR is equal to the fair market value of DaimlerChrysler’s Ordinary Shares on the date of grant. On February 24, 1999, the Group issued 11.4 million SARs at an exercise price of €89.70. Outstanding at beginning of year Granted Exchange of stock Options for SARs Exercised Forfeited Outstanding at year-end SARs exercisable at year-end The Group grants performance-based stock awards to certain eligible employees with performance periods of three years and track the value of DaimlerChrysler Ordinary Shares. The amount ulti- mately earned in cash compensation at the end of a performance period is based on the degree of achieve- ment of corporate goals. The Group issued 0.9 million performance-based stock awards in 2001 (2000: 0.7 million; 1999: 0.7 million). As discussed below, in the second quarter of 1999 DaimlerChrysler converted all options granted under its existing stock option plans from 1997 and 1998 into SARs. In conjunction with the consummation of the merger between Daimler-Benz and Chrysler in 1998, the Group implemented a SAR plan through which 22.3 million SARs were issued at an exercise price of $75.56 each. The initial grant of SARs replaced Chrysler fixed stock options that were converted to DaimlerChrysler Ordinary Shares as of the consummation of the merger. SARs which replaced stock options that were exercis- able at the time of the consummation of the merger were immediately exercisable at the date of grant. SARs related to stock options that were not exercisable at the date of consummation of the merger became ex- ercisable in two installments; 50% on the six-month and one-year anniversaries 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, 2001, 2000 and 1999 is presented below (SARs in millions): 2001 Weighted- average exercise price Number of SARs 2000 Weighted- average exercise price 1999 Weighted- average exercise price Number of SARs Number of SARs 44.5 €82.87 45.8 €80.25 22.2 €64.58 – – – – – – – – – – – – 11.4 89.70 15.2 79.79 (2.2) 64.91 (2.0) 85.93 (1.3) 78.52 (0.8) 76.07 42.5 84.75 44.5 82.87 45.8 80.25 42.5 €84.75 33.6 €80.63 26.8 €72.77 Compensation expense or benefit (representing the reversal of previously recognized expense) on SARs and performance-based stock awards is recorded based on changes in the market price of DaimlerChrysler Ordinary Shares and, in the case of performance-based stock awards, the attainment of certain performance goals. For the year ended December 31, 2001, the Group recognized compensation expense of €17 million and for the years ended December 31, 2000 and 1999, the Group recognized compensation benefits of €44 million and €106 million, respectively, for SARs and performance-based stock awards. Notes to Consolidated Balance Sheets 99 Stock Option Plans In April 2000, the Group’s shareholders approved the DaimlerChrysler Stock Option Plan 2000 which pro- vides for the granting of stock options for the purchase of DaimlerChrysler Ordinary Shares to eligible employees. Options granted under the Stock Option Plan 2000 are exercisable at a reference price per DaimlerChrysler Ordinary Share determined in ad- vance plus a 20% premium. The options become exer- cisable in equal installments on the second and third anniversaries from the date of grant. All unexercised options expire ten years from the date of grant. If the market price per DaimlerChrysler Ordinary Share on the date of exercise is at least 20% higher than the reference price, the holder is entitled to receive a cash payment equal to the original exercise premium of 20%. In May 2000, certain shareholders challenged the ap- proval of the Stock Option Plan 2000 at the stockhold- ers’ meeting on April 19, 2000. In October 2000, the Stuttgart District Court (Landgericht Stuttgart) dis- missed the case and the Stuttgart Court of Appeals (Oberlandesgericht Stuttgart) dismissed an appeal in June 2001. The shareholders appealed the decision of the Stuttgart Court of Appeals (a Revision) to the Fed- eral Supreme Court (Bundesgerichtshof) in July 2001. Since the approval of the Stock Option Plan 2000, the Group issued 33.9 million options during the years 2001 and 2000 at reference prices of €55.80 and €62.30, respectively. DaimlerChrysler established, based on share- holder approvals, the 1998, 1997 and 1996 Stock Option Plans (former Daimler-Benz plans), which provide for the granting of 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 certain specified periods each year, each convertible bond may be converted into 201 DaimlerChrysler Ordinary Shares, if the market price per share on the day of conversion is at least 15 % higher than the predetermined conversion price and the options (granted in 1998 and 1997) have been held for a 24 month waiting period. The specific terms of these plans are as follows: Bonds granted in 1996 1997 1998 Stated interest rate Conver- sion price Due July 2006 5.9% €42.62 July 2007 5.3% €65.90 July 2008 4.4% €92.30 In the second quarter of 1999, DaimlerChrysler converted all options 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. Analysis of the stock options issued to eligible employees is as follows (options in millions): Balance at beginning of year Options granted Bonds sold Converted Forfeited Repayment Exchanged for SARs Outstanding at year-end Exercisable at year-end 2001 Average conversion price per share Number of stock options 2000 Average conversion price per share Number of stock options 1999 Average conversion price per share Number of stock options 15.3 €74.65 0.1 €42.62 15.5 €79.63 18.7 66.96 15.2 74.76 – – – – (0.4) 70.08 – – – – – – – – – – – – – – – – – – – – – – (0.2) 79.10 (15.2) 79.79 33.6 70.43 15.3 74.65 0.1 42.62 0.1 €42.62 0.1 €42.62 0.1 €42.62 100 Notes to Consolidated Balance Sheets a) Pension Plans and Similar Obligations Pension plans and similar obligations are comprised of the following components: (in millions of €) At December 31, 2000 2001 Pension liabilities (pension plans) 2,612 1,838 Accrued postretirement health and life insurance benefits Other benefit liabilities 9,442 8,636 593 677 12,647 11,151 As described in Note 5 and Note 7, DaimlerChrysler implemented in 2001 restructuring plans at Freightliner and Chrysler Group, including certain workforce reduction initiatives. The impacts from settlements and curtailments of these turnaround plans on the pension and postretirement obligations are contained in the following disclosures. 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 pen- sion plans are based on salary earned in the last year or last five years of employment while others are fixed plans depending on ranking (both wage level and position). At December 31, 2001, plan assets were invested in diversified portfolios that consisted primarily of debt and equity securities, including 2.0 million shares of DaimlerChrysler Ordinary Shares with a market value of €93 million in a U.S. plan. Assets and income accru- ing on all pension trust and relief funds are used solely to pay pension benefits and administer the plans. Compensation expense of €19 million was recog- nized in 2001 in connection with the stock option plans (2000: expense of €13 million). No compensa- tion expense was recognized in 1999. Miscellaneous DaimlerChrysler applies APB Opinion 25, “Ac- counting for Stock Issued to Employees,” and related interpretations in accounting for its stock-based com- pensation plans. If compensation expense had been based upon the fair value at the grant date, consistent with the methodology prescribed under SFAS 123, “Ac- counting for Stock Based Compensation,” the Group’s net loss and basic and diluted loss per share in 2001 would have increased by approximately €72 million (basic loss per share: €0.07; diluted earnings loss per share: €0.07). In 2000, the Group’s net income and basic and diluted earnings per share would have been reduced by approximately €12 million (basic earnings per share: €0.01; diluted earnings per share: €0.01). No additional compensation expense would have been recorded for the year ended December 31,1999 under SFAS 123. The fair value of the DaimlerChrysler stock op- tions issued in 2001 and 2000 was calculated at the grant date based on a trinomial tree option pricing model which considers the terms of the issuance. The underlying assumptions and the resulting fair value per option are as follows (at grant dates): Expected dividend yield Expected volatility Risk-free interest rate Expected lives (in years) Fair value per option 2001 2000 4.6 % 3.8 % 33.0 % 25.0 % 4.2 % 4.8 % 3 3 €12.15 €9.50 23. Accrued Liabilities Accrued liabilities are comprised of the following: (in millions of €) Pension plans and similar obligations (see Note 23a) Income and other taxes Other accrued liabilities (see Note 23b) 2001 Due after one year Total At December 31, 2000 Due after one year Total 12,647 11,650 11,151 10,200 2,393 651 2,192 474 26,530 10,104 23,098 7,901 41,570 22,405 36,441 18,575 Notes to Consolidated Balance Sheets 101 The following information with respect to the Group’s pension plans is presented by German Plans and non-German Plans (principally comprised of plans in the U.S.): A reconciliation of the funded status to the amounts recognized in the consolidated balance sheets is as follows: At December 31, 2001 Non- German Plans German Plans At December 31, 2000 Non- German Plans German Plans (in millions of €) At December 31, 2001 Non- German Plans German Plans At December 31, 2000 Non- German Plans German Plans Funded status*) 2,980 14 1,671 (4,084) (in millions of €) Change in projected benefit obligations: Projected benefit obligations at beginning of year Foreign currency exchange rate changes Service cost Interest cost 9,579 21,878 13,123 19,578 – 1,026 – 1,403 198 404 612 1,696 242 696 433 1,570 Plan amendments 1 109 2 148 Actuarial (gains) losses Dispositions Acquisitions and other Settlement/ curtailment loss Benefits paid 613 563 (732) (257) (179) (765) (3,365) (31) 140 25 144 411 2 964 – – (483) (1,761) (531) (1,377) Projected benefit obli- gations at end of year 10,483 24,139 9,579 21,878 Unrecognized actuarial net gains (losses) Unrecognized prior service cost Unrecognized net obligation at date of initial application Net liability (asset) recognized Amounts recognized in the consolidated balance sheets consist of: Prepaid pension cost Accrued pension liability Accumulated other comprehensive income Net liability (asset) recognized (2,168) (4,112) (123) 1,102 (5) (3,261) (8) (3,496) – (24) – (153) 807 (7,383) 1,540 (6,631) – (7,584) – (6,799) 298 (95) (35) – – (1,357) (110) 807 (7,383) 1,540 (6,631) 2,164 448 1,540 Intangible assets – (137) Change in plan assets: Fair value of plan assets at beginning of year Foreign currency exchange rate changes Actual return on plan assets Employer contributions Plan participant contributions Dispositions Acquisitions and other 7,908 25,962 7,034 25,823 *) Difference between the projected benefit obligations and the fair value of plan assets. – 1,199 – 1,897 (720) (1,309) 458 (755) 713 843 1,419 30 29 – 25 – (865) (579) – – – 17 (15) 303 Benefits paid (398) (1,747) (409) (1,365) Fair value of plan assets at end of year 7,503 24,125 7,908 25,962 102 Notes to Consolidated Balance Sheets The measurement dates for the Group’s pension plans in Germany are September 30 and in the U.S. are November 30 or December 31. Assumed discount rates and rates of increase in remuneration used in calculat- ing the projected benefit obligations together with long- term rates of return on plan assets vary according to the economic conditions of the country in which the pension plans are situated. The weighted-average as- sumptions used in calculating the actuarial values for the principal pension plans were as follows (in %): German Plans 2000 2001 1999 Non-German Plans 2000 2001 1999 Weighted-average assumptions: Discount rate Expected return on plan assets Rate of compensation increase 6.0 7.9 3.0 6.5 7.9 3.0 6.0 7.7 2.8 7.4 10.1 5.4 7.7 10.2 5.5 7.5 9.8 5.9 The components of net pension cost were as follows for the years ended December 31, 2001, 2000 and 1999: 2001 Non- German Plans German Plans 2000 Non- German Plans German Plans 1999 Non- German Plans German Plans 198 404 612 1,696 242 696 433 1,570 267 756 430 1,185 (649) (2,750) (625) (2,487) (223) (1,872) – – – – (11) 356 148 – 161 (157) 1 162 625 468 3 1 – 1 318 – 318 (18) 371 146 (6) 9 – 9 1 – – 1 41 214 129 2 802 129 – – 802 129 (in millions of €) Service cost Interest cost Expected return on plan assets Amortization of: Unrecognized net actuarial (gains) losses Unrecognized prior service cost Unrecognized net obligation Other Net periodic pension cost (benefit) Settlement/curtailment loss Net pension cost The accumulated benefit obligations and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were €10,224 million and €7,934 million, respectively, as of Decem- ber 31, 2001 and €1,697 million and €343 million, respectively, as of December 31, 2000. Other Postretirement Benefits Certain DaimlerChrysler operations in the U.S. and Canada provide postretirement health and life insur- ance benefits to their employees. Upon retirement from DaimlerChrysler the employees may become eligible for continuation of these benefits. The benefits and eligibility rules may be modified periodically. At December 31, 2001, plan assets were invested in diversified portfolios that consisted primarily of debt and equity securities. Notes to Consolidated Balance Sheets 103 The following information is presented with respect to the Group’s postretirement benefit plans: (in millions of €) At December 31, 2000 2001 Change in accumulated postretirement benefit obligations: Accumulated postretirement benefit obligations at beginning of year 12,857 10,527 Assumed discount rates and rates of increase in remuneration used in calculating the accumulated postretirement benefit obligations together with long- term rates of return on plan assets vary according to the economic conditions of the country in which the plans are situated. The weighted-average assumptions used in calculating the actuarial values for the postretirement benefit plans were as follows (in %): 2001 2000 1999 Weighted-average assumptions at December 31: Discount rate 7.4 7.7 7.7 Expected return on plan assets Health care inflation rate in following (or “base”) year Ultimate health care inflation rate (2005) 10.5 10.4 10.0 6.9 7.5 5.8 5.0 5.0 5.0 The components of net postretirement benefit cost were as follows for the years ended December 31, 2001, 2000 and 1999: (in millions of €) 2001 2000 1999 Service cost Interest cost 257 1,033 208 873 209 702 Expected return on plan assets (346) (308) (169) Amortization of: Unrecognized net actuarial (gains) losses Unrecognized prior service cost Other Net periodic postretirement benefit cost (7) 82 – 5 54 (2) 10 31 – 1,019 830 783 Settlement/curtailment loss 154 – – Net postretirement benefit cost 1,173 830 783 Foreign currency exchange rate changes Service cost Interest cost Plan amendments Actuarial losses Settlement/curtailment loss Acquisitions and other Benefits paid Accumulated postretirement benefit obligations at end of year 652 257 1,033 (18) 941 186 (13) 829 208 873 444 523 – 107 (800) (654) 15,095 12,857 Change in plan assets: Fair value of plan assets at beginning of year 2,995 2,816 Foreign currency exchange rate changes Actual losses on plan assets Employer contributions Benefits paid 167 (181) 9 (8) 224 (55) 16 (6) Fair value of plan assets at end of year 2,982 2,995 A reconciliation of the funded status to the liabil- ity recognized for accrued postretirement health and life insurance benefits in pension plans and similar obligations is as follows: (in millions of €) Funded status*) At December 31, 2000 2001 12,113 9,862 Unrecognized actuarial net losses (1,828) (270) Unrecognized prior service cost Net liability recognized (843) (956) 9,442 8,636 *) Difference between the accumulated postretirement obligations and the fair value of plan assets. 104 Notes to Consolidated Balance Sheets The following schedule presents the effects of a one-percentage-point change in assumed health care cost trend rates: (in millions of €) Effect on total of service and interest cost components Effect on accumulated postretirement benefit obligations Prepaid Employee Benefits In 1996 DaimlerChrysler established a Voluntary Employees’ Beneficiary Association (“VEBA”) trust for payment of non-pension employee benefits. At Decem- ber 31, 2001 and 2000, the VEBA had a balance of €3,648 million and €3,586 million, respectively, of which €2,848 million and €2,864 million, respectively, were designated and restricted for the payment of postretirement health care benefits. Contributions to the VEBA trust during the year ended December 31, 1999 were €727 million. No contributions to the VEBA trust were made in 2001 and 2000. b) Other Accrued Liabilities Other accrued liabilities consisted of the following: (in millions of €) At December 31, 2000 2001 Accrued warranty costs and price risks 9,213 7,715 Accrued losses on uncompleted contracts Restructuring 549 1,190 804 260 Accrued personnel and social costs 2,386 2,503 Accrued sales incentives Other 3,771 3,588 9,421 8,228 26,530 23,098 Accruals for restructuring comprise certain employee termination benefits and costs which are directly associated with plans to exit specified activities. The changes in these provisions are summarized as follows: (in millions of €) Termination benefits Exit costs Total liabilities 1-Percen- tage Point Increase 1-Percen- tage Point Decrease 170 (140) Balance at January 1, 1999 Utilizations and transfers 1,681 (1,421) Reductions Additions Balance at December 31, 1999 Utilizations and transfers Reductions Additions Balance at December 31, 2000 560 (321) (15) 183 407 (229) (43) 16 151 75 21 (9) 101 188 (56) (34) 11 109 635 (300) (24) 284 595 (285) (77) 27 260 Utilizations and transfers (947) (275) (1,222) Reductions Additions Balance at December 31, 2001 (135) (144) (279) 1,504 573 927 617 2,431 1,190 In connection with the Group’s restructuring, provisions were recorded for termination benefits of €1,504 million (2000: €16 million; 1999: €183 million), in 2001 principally within Chrysler Group (see Note 7) and Freightliner (see Note 5), in 2000 principally within Mercedes-Benz Passenger Cars & smart and Commercial Vehicles and in 1999 principally within in- dustrial businesses and DaimlerChrysler Aerospace. In connection with these restructuring efforts, the Group effected workforce reductions of approximately 17,700 employees (2000: 2,600; 1999: 2,400) and paid termi- nation benefits of €269 million (2000: €135 million; 1999: €239 million), of which €227 million (2000: €120 million; 1999: €168 million) were charged against pre- viously established liabilities. At December 31, 2001 the Group had liabilities for estimated future termina- tions for approximately 6,800 employees. Exit costs in 2001 primarily result from the restructuring within Chrysler Group and Freightliner. In 2000 and 1999 exit costs primarily result from the restructuring of industrial businesses. Notes to Consolidated Balance Sheets 105 Aggregate nominal amounts of financial liabilities maturing during the next five years and thereafter are as follows: (in millions of €) Financial liabilities 2002 2003 2004 2005 2006 there- after 33,900 15,953 9,372 8,849 8,421 13,615 At December 31, 2001, the Group had unused short-term credit lines of €5,796 million (2000: €15,216 million) and unused long-term credit lines of €20,322 million (2000: €12,819 million). The credit lines include an $18 billion revolving credit facility with a syndicate of international banks. The credit agreement is comprised of a multi-currency revolving credit facility which allows DaimlerChrysler AG and several subsidiaries to borrow up to $5 billion until 2006, a U.S. dollar revolving credit facility which al- lows DaimlerChrysler North America Holding Corpora- tion, a wholly-owned subsidiary of DaimlerChrysler AG, to borrow up to $6 billion available until 2004, and a multi-currency revolving credit facility for working capital purposes which allows DaimlerChrysler AG and several subsidiaries to borrow up to $7 billion until 2003. A part of the $18 billion facility serves as a back-up for commercial paper drawings. 24. Financial Liabilities (in millions of €) 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: €10,712 (2000: €7,673) Liabilities to financial institutions of which due in more than five years: €2,702 (2000: €2,088) Liabilities to affiliated companies of which due in more than five years: €– (2000: €–) Loans, other financial liabilities of which due in more than five years: €66 (2000: €51) Liabilities from capital lease and residual value guarantees of which due in more than five years €209 (2000: €226) Long-term financial liabilities At December 31, 2000 2001 17,726 8,094 7,480 19,917 7,183 6,294 361 86 345 205 1,106 985 33,942 35,840 47,632 40,773 Maturities 2003– 2097 2003– 2019 8,194 6,800 71 149 82 118 987 1,103 56,966 48,943 90,908 84,783 Weighted average interest rates for notes/bonds, commercial paper and liabilities to financial institutions are 6.3%, 3.3% and 5.4%, respectively, at December 31, 2001. Commercial paper is denominated in euros and U.S. dollars and includes accrued interest. Bonds and li- abilities to financial institutions are largely secured by mortgage conveyance, liens and assignment of receiv- ables of approximately €1,804 million (2000: €1,858 million). 106 Notes to Consolidated Balance Sheets 25. Trade Liabilities (in millions of €) Trade liabilities 26. Other Liabilities (in millions of €) Liabilities to affiliated companies Liabilities to related companies Other liabilities As of December 31, 2001, other liabilities include tax liabilities of €620 million (2000: €683 million) and social benefits due of €877 million (2000: €713 million). 27. Deferred Income As of December 31, 2001, €1,911 million of the total deferred income is to be recognized after more than one year (2000: €1,057 million). At December 31, 2001 Due after five years Due after one year Total At December 31, 2000 Due after five years Due after one year Total 14,157 12 1 15,257 33 1 At December 31, 2001 Due after five years Due after one year Total At December 31, 2000 Due after five years Due after one year Total 416 293 9,553 10,262 _ _ 828 828 – – 232 232 536 794 1 – 8,291 1,283 9,621 1,284 1 – 161 162 Other Notes 107 Other Notes 28. Litigation and Claims A number of shareholder lawsuits, including a class ac- tion lawsuit, are pending in the United States against DaimlerChrysler and certain members of its Supervi- sory Board and Board of Management. The lawsuits allege that the defendants violated U.S. securities law and committed fraud in obtaining approval from Chrysler stockholders for the business combination between Chrysler and Daimler-Benz AG in 1998. The class action lawsuit also alleges that DaimlerChrysler made false and misleading statements in 1999 and 2000 regarding its prospects for the year 2000. The complaints seek relief ranging from substantial mon- etary damages to rescinding the business combination. DaimlerChrysler believes that these claims are without merit and is defending itself against them vigorously. Motions to dismiss all lawsuits are pending before the court. Various other claims and legal proceedings have been asserted or instituted against the Group, including product liability and other lawsuits, some of which purport to be class actions. In the event of adverse deci- sions in these proceedings, DaimlerChrysler could be required to pay substantial compensatory and punitive damages, or undertake service actions, recall cam- paigns or other costly actions. 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 mat- ters 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 rea- sonably estimated. The term “reasonably possible” is used herein to mean that the chance of a future trans- action or event occurring is more than remote but less than likely. Although the final resolution of any such matters could have a material effect on the Group’s con- solidated operating results for the particular reporting period in which an adjustment of the estimated reserve is recorded, the Group believes that any resulting adjustment should not materially affect its consolidated financial position. 29. Commitments and Contingencies Contingent liabilities not recognized on the consoli- dated balance sheets are presented at their contractual values and include the following: (in millions of €) Guarantees Notes payable Contractual guarantees Pledges of indebtedness of others At December 31, 2000 2001 3,669 8,018 32 408 430 21 354 455 4,539 8,848 Contingent liabilities principally represent guaran- tees of indebtedness of non-consolidated affiliated com- panies and third parties and commitments by Group companies as to contractual performance by joint ven- ture 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 pending or may be asserted against DaimlerChrysler concerning environmental matters. Estimates of future costs of such environmen- tal matters are inevitably imprecise due to numerous uncertainties, including the enactment of new laws and regulations, the development and application of new technologies, the identification of new sites for which DaimlerChrysler may have remediation responsibility and the apportionment and collectibility of remediation costs among responsible parties. DaimlerChrysler establishes reserves for these environmental matters when a loss is probable and reasonably estimable. It is reasonably possible that the final resolution of some of these matters may require DaimlerChrysler to make expenditures, in excess of es- tablished reserves, over an extended period of time and in a range of amounts that cannot be reasonably esti- mated. Although the final resolution of any such mat- ters could have a material effect on DaimlerChrysler’s consolidated operating results for the particular report- ing period in which an adjustment of the estimated reserve is recorded, DaimlerChrysler believes that any resulting adjustment should not materially affect its consolidated financial position. DaimlerChrysler periodically initiates voluntary service actions and recall actions to address various customer satisfaction, safety and emissions issues related to vehicles it sells. DaimlerChrysler establishes reserves for product warranty, including the estimated cost of these service and recall actions, when the re- lated 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 inevi- tably imprecise due to numerous uncertainties, includ- ing the enactment of new laws and regulations, the number of vehicles affected by a service or recall ac- tion, 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 ser- vice and recall actions may require DaimlerChrysler to make expenditures, in excess of established reserves, over an extended period of time and in a range of amounts that cannot be reasonably estimated. Although the ultimate cost of these service and recall actions could have a material effect on DaimlerChrysler’s con- solidated operating results for the particular reporting 108 Other Notes 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 certain production programs the Group has committed to certain levels of outsourced manufactured parts and components over extended periods at market prices. The Group may be required to compensate suppliers in the event the committed vol- umes are not purchased. The Group has also committed to investments in the construction and maintenance of production facilities to a usual extent. Total rentals under operating leases, charged as an expense in the statement of income (loss), amounted to €819 million (2000: €881 million; 1999: €964 mil- lion). Future minimum lease payments under noncan- cellable rental and lease agreements which have initial or remaining terms in excess of one year at December 31, 2001 are as follows: (in millions of €) 2002 2003 2004 2005 2006 thereafter Operating leases 603 457 369 307 279 813 30. Information About Financial Instruments and Derivatives a) Use of Financial Instruments The Group conducts business on a global basis in nu- merous major international currencies and is, therefore, exposed to adverse movements in foreign currency ex- change rates. The Group also issues bonds, commercial paper and medium-term-notes in various currencies. As a consequence of issuing these types of financial in- struments, the Group is exposed to risks from changes in interest and foreign currency exchange rates. DaimlerChrysler holds financial instruments, such as financial investments, variable- and fixed-interest bear- ing securities and equity securities that subject the Group to risks from changes in interest rates and mar- ket prices. DaimlerChrysler manages the various types of market risks by using derivative financial instru- ments. Without these instruments, the Group’s market risks would be higher. Based on regulations issued by regulatory authori- ties for financial institutions, the Group has established guidelines for risk controlling procedures and for the use of financial instruments, including a clear segrega- tion of duties with regard to operating financial activi- ties, settlement, accounting and controlling. Market risks are quantified according to the “value-at-risk” method, which is commonly used among banks. Using historical variability of market data, potential changes in value resulting from changes of market prices are calculated on the basis of statistical methods. b) Fair value of Financial Instruments The fair value of a financial instrument is the price at which one party would assume the rights and/or duties of another party. Fair values of financial instruments have been determined with reference to available mar- ket information at the balance sheet date and the valua- tion methodologies discussed below. Considering the variability of their value-determining factors, the fair values presented herein are only an estimation of the amounts that the Group could realize under current market conditions. The carrying amounts and fair values of the Group’s financial instruments are as follows: At December 31, 2001 Fair value Carrying amount At December 31, 2000 Fair value Carrying amount (in millions of €) Financial instruments (other than derivative instruments): Assets: Financial assets 1,209 1,209 1,930 1,930 Receivables from financial services Securities Cash and cash equivalents Other Liabilities: Financial liabilities Derivative instruments: Assets: Currency contracts Interest rate contracts 49,512 49,678 48,673 49,377 3,007 3,007 5,378 5,378 11,428 11,428 7,127 7,127 20 20 5 5 90,908 94,513 84,783 86,265 477 477 306 306 1,011 1,011 556 556 Equity contracts 4 4 3 3 Liabilities: Currency contracts Interest rate contracts 806 806 1,257 1,257 1,434 1,434 1,004 1,004 Equity contracts 4 4 1 1 Other Notes 109 The carrying amounts of cash and other receiv- ables 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 sum- marized below: Financial Assets and Securities – The fair values of securities were estimated using quoted market prices. The Group has certain equity investments in related and affiliated companies not presented in the table, as these investments are not publicly traded and determi- nation of fair values is impracticable. c) Credit Risk The Group is exposed to credit-related losses in the event of non-performance by counterparties to financial instruments. Counterparties to the Group’s financial in- struments represent, in general, international financial institutions. DaimlerChrysler does not have a signifi- cant exposure to any individual counterparty, based on the rating of the counterparties performed by estab- lished rating agencies. The Group believes the overall credit risk related to utilized derivatives is insignifi- cant. Receivables from Financial Services – The carrying d) Accounting for and Reporting of Financial amounts of variable rate finance receivables were estimated to approximate their fair values since the contract rates of those receivables approximate current market rates. The fair values of fixed rate finance re- ceivables were estimated by discounting expected cash flows using the current interest rates at which compa- rable loans with identical maturity would be made as of December 31, 2001 and 2000. 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 interest rates. Financial Liabilities – The fair value of publicly traded debt was estimated using quoted market prices. The fair values of other long-term notes and bonds were estimated by discounting future cash flows using mar- ket interest rates. The carrying amounts of commercial paper and borrowings under revolving credit facilities were assumed to approximate fair value due to their short maturities. Interest Rate Contracts – The fair values of existing instruments to hedge interest rate risks (e.g. interest rate swap agreements) were estimated by discounting expected cash flows using market interest rates over the remaining term of the instrument. Interest rate options are valued on the basis of quoted market prices or on estimates based on option pricing models. Currency Contracts – The fair values of forward foreign exchange contracts were based on European Central Bank reference exchange rates adjusted for the respective interest rate differentials (premiums or discounts). Currency options were valued on the basis of quoted market prices or on estimates based on option pricing models. Equity Contracts – The fair values of existing instruments to hedge equity price risk (e. g. futures or options) were determined on the basis of quoted market prices or on estimates based on option pricing models. Instruments (Other than Derivative Instruments) The income or expense of the Group’s financial instru- ments (other than derivative instruments), with the exception of receivables from financial services and fi- nancial liabilities related to leasing and sales financing activities, is recognized in financial income, net. Inter- est income on receivables from financial services and gains and losses from sales of receivables are recog- nized as revenues. Interest expense on financial liabili- ties related to leasing and sales financing activities are recognized as cost of sales. The carrying amounts of the financial instruments (other than derivative instru- ments) are included in the consolidated balance sheets under their related captions. e) Accounting for and Reporting of Derivative Instruments and Hedging Activities Foreign Currency Risk Management As a consequence of the global nature of DaimlerChrysler’s businesses, its operations and its re- ported financial results and cash flows are exposed to the risks associated with fluctuations in the exchange rates of the U.S. dollar, the euro and other world cur- rencies. The Group’s businesses are exposed to trans- action risk whenever revenues of a business are denominated in a currency other than the currency in which the business incurs the costs relating to those revenues. This risk exposure primarily affects the Mercedes-Benz Passenger Cars & smart segment. The Mercedes-Benz Passenger Cars & smart segment generates its revenues mainly in the currencies of the countries in which cars are sold, but it incurs manufacturing costs primarily in euros. 110 Other Notes In order to mitigate the impact of currency ex- change rate fluctuations, DaimlerChrysler continually assesses its exposure to currency risks and hedges a portion of those risks through the use of derivative financial instruments. Responsibility for managing DaimlerChrysler’s currency exposures and use of currency derivatives is centralized within the Group’s Currency Committee. The Currency Committee, which consists of two separate subgroups, one for the Group’s vehicle businesses and one for MTU Aero Engines, is comprised of members of senior management from each of the respective businesses as well as from Cor- porate Treasury and Risk Controlling. Corporate Trea- sury implements decisions concerning foreign currency hedging taken by the Currency Committee. Risk Con- trolling regularly informs the Board of Management of the actions of Corporate Treasury based on the deci- sions of the Currency Committee. Interest Rate and Equity Price Risk Management DaimlerChrysler holds a variety of interest rate sensi- tive assets and liabilities to manage the liquidity and cash needs of its day-to-day operations. In addition a substantial volume of interest rate sensitive assets and liabilities is related to the leasing and sales financing business which is operated by DaimlerChrysler Services. In particular, the Group’s leasing and sales financing business enters into transactions with customers, primarily resulting in fixed rate receivables. DaimlerChrysler’s general policy is to match funding in terms of maturities and interest rates. However, for a limited portion of the receivables portfolio funding does not match in terms of maturities and interest rates. As a result, DaimlerChrysler is exposed to risks due to changes in interest rates. DaimlerChrysler coordinates funding activities of the industrial business and finan- cial services on the group level. The Group uses inter- est rate derivative instruments such as interest rate swaps, forward rate agreements, swaptions, caps and floors to achieve the desired interest rate maturities and asset/liability structures. DaimlerChrysler does not enter into these types of derivative financial instruments for purposes other than risk management. The Group assesses interest rate risk by continu- ally identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Group maintains risk management control systems independent of Corporate Treasury to monitor interest rate risk attributable to both DaimlerChrysler’s outstanding or forecasted interest rate exposures as well as its offsetting hedge positions. The risk manage- ment control systems involve the use of analytical tech- niques, including value-at-risk analyses, to estimate the expected impact of changes in interest rates on the Group’s future cash flows. DaimlerChrysler also holds investments in equity securities. These securities subject DaimlerChrysler to risks due to changes in quoted market prices. DaimlerChrysler uses derivative financial instruments including futures and options to manage the risks arising from changes in equity prices. The Group assesses equity price risk by continu- ally monitoring changes in key economic, industry and market information and maintains risk management control systems independent of Corporate Treasury to monitor risks attributable to both DaimlerChrysler’s in- vestments as well as its offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including value-at-risk analyses, to estimate the potential loss and manage the risks of the Group’s investments. Information with Respect to Fair Value Hedges Gains and losses in fair value of recognized assets and liabilities and firm commitments of operating transac- tions as well as gains and losses on derivative financial instruments designated as fair value hedges of these recognized assets and liabilities and firm commitments are principally recognized currently in revenues, as the principal transactions being hedged involve sales of the Group’s products. Net gains and losses in fair value of both recognized financial assets and liabilities and de- rivative financial instruments designated as fair value hedges of these financial assets and liabilities are recognized currently in financial income, net. For the year ended December 31, 2001, net losses of €17 million (2000: net gains of €15 million) were recognized in revenues and financial income, net, re- presenting principally the component of the derivative instruments’ gain or loss excluded from the assessment of hedge effectiveness and the amount of hedging ineffectiveness. Other Notes 111 Information with Respect to Cash Flow Hedges Changes in the value of forward foreign currency ex- change contracts and currency options designated and qualifying as cash flow hedges of forecasted transac- tions are reported in accumulated other comprehensive income. These amounts are subsequently reclassified into earnings, as a component of the value of the fore- casted transaction, in the same period as the forecasted transaction affects earnings. Changes in the fair value of interest rate swaps designated as hedging instru- ments of variability of cash flows associated with vari- able-rate long-term debt are also reported in accumu- lated other comprehensive income. These amounts are subsequently reclassified into financial income, net, as a yield adjustment in the same period in which the related interest on the floating-rate debt obligations affect earnings. For the year ended December 31, 2001, net losses of €12 million (2000: net losses of €3 million), repre- senting principally the component of the derivative in- struments’ gain/loss excluded from the assessment of the hedge effectiveness and the amount of hedge inef- fectiveness, were recognized in revenues and financial income, net. Also included in earnings are gains of €1 million for the year ended December 31, 2001 (2000: gains of €2 million), reclassified from accumulated other com- prehensive income as a result of the discontinuance of foreign currency cash flow hedges because it was probable that the original forecasted transaction would not occur. It is anticipated that €101 million of net losses in- cluded in accumulated other comprehensive income at December 31, 2001, will be reclassified into earnings during the next year. As of December 31, 2001, DaimlerChrysler held derivative financial instruments with a maximum maturity of 44 months to hedge its exposure to the variability in future cash flows from foreign currency forecasted transactions. Information with Respect to Hedges of the Net Investment in a Foreign Operation In specific circumstances, DaimlerChrysler seeks to hedge the currency risk inherent in certain of its long- term investments, where the functional currency is other than the euro, through the use of derivative and non-derivative financial instruments. For the year ended December 31, 2001, net gains of €53 million (2000: net gains of €104 million) hedging the Group’s net investments in certain foreign operations were included in the cumulative translation adjustment. f) Accounting for and Reporting of Financial Instruments (Prior to Adoption of SFAS 133) For periods prior to January 1, 2000, financial instru- ments, including derivatives, purchased to offset the Group’s exposure to identifiable and committed trans- actions with price, interest or currency risks were accounted for together with the underlying business transactions (“hedge accounting”). Gains and losses on forward contracts and options hedging firm foreign currency commitments were deferred off-balance sheet and were recognized as a component of the related transactions, when recorded (the “deferral method”). However, a loss was not deferred if deferral would have lead to the recognition of a loss in future periods. In the event of an early termination of a currency exchange agreement designated as a hedge, the gain or loss continued to be deferred and was included in the settlement of the underlying transaction. Interest differentials paid or received under interest rate swaps purchased to hedge interest risks on debt were recorded as adjustments to the effective yields of the underlying debt (“accrual method”). In the event of an early termination of an interest rate related derivative designated as a hedge, the gain or loss was deferred and recorded as an adjustment to interest income, net over the remaining term of the underlying financial instrument. All other financial instruments, including deriva- tives, purchased to offset the Group’s net exposure to price, interest or currency risks, but which were not designated as hedges of specific assets, liabilities or firm commitments were marked to market and any resulting unrealized gains and losses were recognized currently in financial income, net. The carrying amounts of derivative instruments were included under other assets and accrued liabilities. Derivatives purchased by the Group under macro- hedging techniques, as well as those purchased to offset the Group’s exposure to anticipated cash flows, did not generally meet the requirements for applying hedge accounting and were, accordingly marked to market at each reporting period with unrealized gains and losses recognized in financial income, net. When the Group met the requirements for hedge accounting and designated the derivative financial instrument as a hedge of a committed transaction, subsequent unreal- ized gains and losses were deferred and recognized along with the effects of the underlying transaction. 112 Other Notes 31. Retained Interests in Sold Receivables and Sales of Actual and projected credit losses for receivables Finance Receivables securitized were as follows: The fair value of retained interests in sold receivables was as follows: (in millions of €) At December 31, 2000 2001 Fair value of estimated residual cash flows, net of prepayments, from sold receivables, before expected future net credit losses Expected future net credit losses on sold receivables Fair value of net residual cash flows from sold receivables Restricted cash accounts Retained subordinated securities Retained interests in sold receivables, at fair value 5,311 4,319 (787) (389) 4,524 3,930 2 956 202 684 Actual and projected credit losses Percentages as of: 1998 Receivables securitized in 2000 2001 1999 December 31, 2001 2.8% 2.2% December 31, 2000 December 31, 1999 2.1% 1.6% 1.1% 1.0% 2.4% 1.7% 1.2% Static pool losses are calculated by summing the actual and projected future credit losses and dividing them by the original balance of each pool of assets. The amount shown above for each year is a weighted average for all securitizations during that year and outstanding at December 31, 2001. Certain cash flows received and paid to 5,482 4,816 securitization trusts were as follows: (in millions of €) 2001 2000 Proceeds from new securitizations 18,219 15,883 Proceeds from collections reinvested in previous wholesale securitizations 56,040 46,285 Amounts reinvested in previous wholesale securitizations Servicing fees received Receipt of cash flows on retained interest in securitized receivables (56,040) (46,122) 353 283 580 435 At December 31, 2001, the significant assump- tions used in estimating the residual cash flows from sold receivables and the sensitivity of the current fair value to immediate 10% and 20% adverse changes are as follows: (in millions of €) Impact on fair value based on adverse 10% change 20% change Assumption percentage Prepayment speed, monthly 1.5% (8) (14) Estimated net credit losses as a percentage of receivables sold Residual cash flow discount rate, annualized 1.3% (66) (132) 12.0% (65) (127) These sensitivities are hypothetical and should be used with caution. The effect of a variation in a particu- lar assumption on the fair value of the retained interest is calculated without changing any other assumption; in reality, changes in one assumption may result in changes in another, which might magnify or counteract the sensitivities. Other Notes 113 The outstanding balance, delinquencies and net credit losses of sold receivables and other receivables, of those financial services businesses that sell receiv- ables, as of and for the years ended December 31, 2001 and 2000, respectively, were as follows: Retail receivables Wholesale receivables Total receivables managed Less: receivables sold Receivables held in portfolio Outstanding balance at 2000 2001 Delinquencies > 60 days at 2000 2001 Net credit losses for the year ended 2000 2001 58,224 46,377 17,448 17,747 75,672 64,124 584 24 608 232 19 251 691 18 709 576 2 578 (42,763) (37,904) (182) (117) (310) (251) 32,909 26,220 426 134 399 327 During the year ended December 31, 2001, DaimlerChrysler sold €19,290 million (2000: €17,122 million) and €57,372 million (2000: €38,778 million) retail and wholesale receivables, respectively. From these transactions, the Group recognized gains of €414 million (2000: €181 million) and €182 million (2000: €156 million) on sales of retail and wholesale receivables, respectively. Significant assumptions used in measuring the residual interest resulting from the sale of retail and wholesale receivables, were as follows (weighted aver- age rates for securitizations completed during the year) at December 31, 2001 and 2000: 2001 Retail 2000 Wholesale 2000 2001 Prepayment speed assumption (monthly rate) Estimated remaining lifetime net credit losses (an average percentage of sold receivables) Residual cash flows discount rate (annual rate) 1.0-1.5% 1.0-1.5% *) *) 2.4% 1.2% 0.0% 0.0% 12.0% 12.0% 10.0% 10.0% *) For the calculation of wholesale gains, the Group estimated the average wholesale loan liquidated in 210 days. 32. Segment Reporting In 2001, DaimlerChrysler reorganized some of its busi- ness segments resulting in changes in the composition of its reportable segments. Following the exchange in July 2000 of the Group’s controlling interest in DaimlerChrysler Aerospace for a non-controlling equity method interest in EADS, DaimlerChrysler transferred the remaining businesses of the former Aerospace seg- ment and the investment in EADS to the Other Activi- ties segment. In January 2001, DaimlerChrysler com- bined the operations of MTU/Diesel Engines, which was previously part of the Other Activities segment, with the Mercedes-Benz powertrain business in a new Powersystems business unit within Commercial Ve- hicles segment. DaimlerChrysler has reclassified prior period amounts to conform its segment presentation to the new structure. Information with respect to the Group’s industry segments follows: Mercedes-Benz Passenger Cars & smart. This seg- ment includes activities related mainly to the develop- ment, 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 re- search, design, manufacture, assembly and sale of cars and trucks under the brand names Chrysler, Jeep® and Dodge and related automotive 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 acces- sories. The products are sold mainly under the brand names Mercedes-Benz and Freightliner. Services. The activities in this segment extend to the marketing of services related to financial services (principally retail and lease financing for vehicles and dealer financing), insurance brokerage, trading and in- formation technology. In October 2000, the information technology activities were contributed into a joint venture. The Group’s 49.9% interest in T-Systems ITS is included at equity subsequent to that date. For the exercise in January 2002 of DaimlerChrysler’s option to sell its interest, see Note 34. Other Activities. Represents principally the indus- trial businesses including MTU Aero Engines and the Group’s equity method investments in MMC, EADS and Automotive Electronics. Other Activities also contains corporate research, real estate activities and holding and financing companies. 114 Other Notes The Group’s management reporting and control- Sales and revenues related to transactions be- ling systems are substantially the same as those de- scribed in Note 1 in the summary of significant account- ing policies (U.S. GAAP). The Group measures the per- formance of its operating segments through “Operating Profit.” Segment Operating Profit is defined as income (loss) before financial income included in the consoli- dated statement of income (loss), modified to exclude pension and postretirement benefit expenses other than service costs, to include pretax operating income (loss) from affiliated and associated companies, to in- clude financial income (loss) from related companies, and to include or exclude certain miscellaneous items. tween 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 are allocated according to the location of the respective units. Capital expenditures represent the purchase of property, plant and equipment. Segment information as of and for the years ended December 31, 2001, 2000 and 1999 follows: (in millions of €) 2001 Revenues Intersegment sales Total revenues Operating Profit (Loss) Identifiable segment assets Capital expenditures Depreciation and amortization 2000 Revenues Intersegment sales Total revenues Operating Profit (Loss) Identifiable segment assets Capital expenditures Depreciation and amortization 1999 Revenues Intersegment sales Total revenues Operating Profit (Loss) Identifiable segment assets Capital expenditures Depreciation and amortization Mercedes-Benz Passenger Cars & smart Chrysler Group Com- mercial Vehicles Services Other Activities Elimi- nations Consoli- dated 44,002 62,676 27,084 14,975 4,136 – 152,873 3,703 807 1,488 1,876 371 (8,245) – 47,705 63,483 28,572 16,851 4,507 (8,245) 152,873 2,951 (5,281) (514) 612 1,181 (267) (1,318) 20,558 63,325 16,232 100,570 31,200 (24,475) 207,410 2,061 5,083 1,484 112 1,853 5,364 922 7,071 168 197 (12) 8,896 (217) 15,190 40,822 67,405 28,521 15,322 10,314 – 162,384 2,878 967 1,283 2,204 301 (7,633) – 43,700 68,372 29,804 17,526 10,615 (7,633) 162,384 2,145 501 1,212 2,457 3,590 (153) 9,752 19,355 53,660 15,879 94,369 34,298 (18,287) 199,274 2,096 6,339 1,128 282 2,038 3,878 847 6,603 547 425 – 10,392 (204) 13,587 35,592 63,666 26,328 10,662 13,737 – 149,985 2,508 419 1,281 2,270 347 (6,825) – 38,100 64,085 27,609 12,932 14,084 (6,825) 149,985 2,703 5,051 1,157 2,039 241 (179) 11,012 17,611 49,825 12,498 77,266 37,955 (20,488) 174,667 2,228 5,224 809 324 1,580 3,346 715 3,348 886 527 (1) 9,470 (187) 9,329 Other Notes 115 Capital expenditures for equipment on operating leases for 2001, 2000 and 1999 for the Services seg- ment amounted to €14,334 million, €15,551 million and €16,401 million, respectively. The Operating Profit of the Mercedes-Benz Passenger Cars & smart segment for the year ended December 31, 2000, includes €470 million of non-cash charges related to the adoption of the European Union’s directive regarding end-of-life vehicles and related to fixed cost reimbursement agreements with MCC smart suppliers. For the year ended December 31, 2001, Operating Loss of the Chrysler Group segment includes €1,715 million of non-cash turnaround plan charges, other than depreciation and amortization. The Operating Loss of the Commercial Vehicles segment for the year ended December 31, 2001, includes €353 million of non-cash turnaround plan and other charges, other than depreciation and amorti- zation. For the years ended December 31, 2001 and 2000, Operating Profit of the Services segment includes €41 million and €1 million, respectively, from the equity investment in T-Systems ITS, representing the Group’s percentage share of the Operating Profit of T-Systems ITS. In addition, Operating Profit of the Services seg- ment for the year ended December 31, 2000, includes a €2,315 million gain on the transaction involving T-Sys- tems ITS (see Note 11). For the year ended December 31, 1999, Operating Profit of the Services segment includes pretax gains on the sales of shares in debitel of €1,140 million (see Note 11). At December 31, 2001 and 2000, the identifiable assets of the Services segment includes €2,193 million and €2,152 million, respectively, of the investment in T-Systems ITS. For the year ended December 31, 2001, Operating Profit of the Other Activities segment includes €694 million from EADS and MMC, the significant compa- nies accounted for using the equity method, including a €876 million gain from the formation of Airbus SAS. For the year ended December 31, 2000, Operating Profit of the Other Activities segment includes €3,259 million from EADS and MMC, including a €3,303 mil- lion gain in connection with the exchange of the Group’s controlling interest in DaimlerChrysler Aero- space for shares in EADS (see Note 11). At December 31, 2001 and 2000, the identifiable assets of the Other Activities segment includes €5,393 million and €5,143 million, respectively, of investments in these equity method investees. A reconciliation to Operating Profit (Loss) follows: (in millions of €) 2001 2000 1999 Income (loss) before financial income (1,637) 4,320 9,324 Pension and postretirement benefit expenses other than service costs Operating income (loss) from affiliated, associated and related companies Gains on disposals of businesses Miscellaneous (450) (228) 379 516 (35) 17 292 5,832 1,140 (39) (137) 152 Consolidated operating Profit (loss) (1,318) 9,752 11,012 Revenues from external customers presented by geographic region are as follows: (in millions of €) 2001 2000 1999 *) Excluding Germany. Germany European Union*) United States Other American countries Other countries Consoli- dated Asia 23,157 22,483 81,132 13,585 6,208 6,308 152,873 25,988 24,360 84,503 14,762 5,892 6,879 162,384 28,393 21,567 78,104 11,727 4,796 5,398 149,985 116 Other Notes Germany accounts for €20,584 million of long- term assets (2000: €17,450 million; 1999: €14,711 mil- lion), the United States for €58,850 million (2000: €51,996 million; 1999: €43,036 million) and other countries for €12,971 million (2000: €19,633 million; 1999: €12,701 million). 33. Earnings (Loss) per Share The computation of basic and diluted earnings (loss) per share for “Income (loss) before extraordinary items and cumulative effects of changes in accounting principles” is as follows: (in millions of € or millions of shares except earnings (loss) per share) Year ended December 31, 1999 2001 2000 Stock options issued in 2001 and 2000 were not included in the computation of diluted earnings per share for the years ended December 31, 2001 and 2000, because the options’ underlying exercise prices were greater than the average market prices for DaimlerChrysler Ordinary Shares on December 31, 2001 and 2000, respectively. Income tax charges of €263 million and €812 mil- lion relating to changes in German tax laws were in- cluded in the consolidated statement of income (loss) for the years ended December 31, 2000 and 1999, respectively, and resulted in a reduction of basic and diluted earnings per share of €0.26 and €0.26 in 2000 and €0.81 and €0.80 in 1999, respectively (see Note 9). 34. Subsequent Events In January 2002, DaimlerChrysler exercised its option to sell to Deutsche Telekom the Group’s 49.9% interest in T-Systems ITS for proceeds of €4.7 billion. The sale is expected to close in March 2002 with the termina- tion of the joint venture. Following a decision of DaimlerChrysler’s Board of Management in 2001, DaimlerChrysler and GE Capital reached an agreement in January 2002 for GE Capital to purchase a portion of the DaimlerChrysler’s Capital Services portfolio in the United States. DaimlerChrysler will receive approxi- mately €1.3 billion for the sale. The transaction is expected to be completed in the first quarter of 2002. Income (loss) before extra- ordinary items and cumulative effects of changes in account- ing principles – basic Interest expense on convertible bonds and notes (net of tax) Income (loss) before extra- ordinary items and cumulative effects of changes in account- ing principles – diluted (662) 2,465 5,106 – 18 18 (662) 2,483 5,124 Weighted average number of shares outstanding – basic Dilutive effect of convertible bonds and notes Weighted average number of shares outstanding – diluted 1,003.2 1,003.2 1,002.9 – 10.7 10.7 1,003.2 1,013.9 1,013.6 Earnings (loss) per share before extraordinary items and cumulative effects of changes in accounting principles Basic Diluted (0.66) (0.66) 2.46 2.45 5.09 5.06 Because the Group reported a loss before extraor- dinary items and cumulative effects of changes in accounting principles for the year ended December 31, 2001 the diluted loss per share does not include the antidilutive effects of convertible bonds and notes. Had the company reported income before extraordinary items and cumulative effects of changes in accounting principles for the year ended December 31, 2001, the weighted average number of shares outstanding would have potentially been diluted by 10.7 million shares resulting from the conversion of bonds and notes. Members of the Supervisory Board Hilmar Kopper Frankfurt am Main Chairman of the Supervisory Board of Deutsche Bank AG Chairman Udo Richter*) Bremen Chairman of the Works Council, Bremen Plant, DaimlerChrysler AG (since December 14, 2001) Members of the Supervisory Board 117 Stephen P. Yokich *) Detroit President of International Union United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) Committees of the Supervisory Board: Committee pursuant to Section 27, Subsection 3 of the German 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 Stefan Schwaab Bernhard Walter Retired from the Supervisory Board: Wolf Jürgen Röder *) Frankfurt am Main Member of the Executive Council of German Metalworkers’ Union 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, EADS Deutschland GmbH Stefan Schwaab *) Gaggenau Vice Chairman of the Corporate Works Council, DaimlerChrysler AG, Vice Chairman of the Works Council, Gaggenau Plant, DaimlerChrysler AG G. Richard Thoman Stamford Former President and former Chief Executive Officer of Xerox Corporation, Senior Advisor to Evercore Partners Bernhard Walter Frankfurt am Main Former Chairman of the Board of Managing Directors of Dresdner Bank AG Robert E. Allen Short Hills, N.J. Retired Chairman of the Board and Chief Executive Officer of AT&T Corp. retired April 11, 2001 Lynton R. Wilson Toronto Chairman of the Board of CAE Inc.; Chairman of the Board of Nortel Networks Corporation Dr.-Ing. Mark Wössner Gütersloh Former CEO and former Chairman of the Supervisory Board of Bertelsmann AG Bernhard Wurl *) Frankfurt am Main Head of Department reporting to the Executive Council, German Metalworkers’ Union Willi Böhm *) Wörth Senior Manager Wage Accounting, Member of the Works Council, Wörth Plant, DaimlerChrysler AG retired December 13, 2001 Lord Browne of Madingley London Group Chief Executive of BP p.l.c. retired April 11, 2001 *) Representative of the employees Erich Klemm *) Sindelfingen Chairman of the Corporate Works Council, DaimlerChrysler Group and DaimlerChrysler AG Deputy Chairman Manfred Göbels *) Stuttgart Director, Services and Mobility Concept, Chairman of the Management Representative Committee, DaimlerChrysler Group Earl G. Graves New York Chairman and CEO of Earl G. Graves Ltd. (since April 12, 2001) Prof. Victor Halberstadt Amsterdam Professor of Public Economics at Leiden University, Netherlands (since April 12, 2001) Robert J. Lanigan Toledo Chairman Emeritus of Owens-Illinois, Inc.; Founder Partner, Palladium Equity Partners Helmut Lense *) Stuttgart Chairman of the Works Council, Untertürkheim Plant, DaimlerChrysler AG Peter A. Magowan San Francisco President of San Francisco Giants Gerd Rheude *) Wörth Chairman of the Works Council, Wörth Plant, DaimlerChrysler AG 118 Report of the Supervisory Board Report of the Supervisory Board The Supervisory Board and the Board of Manage- ment met in five meetings during the 2001 financial year to discuss intensively the business situation of DaimlerChrysler, the future strategic development of the Group and its divisions, and various other issues. The Presidential Committee met four times in 2001, primarily to deal with Board of Management issues, and to prepare the meetings of the Supervisory Board. The Financial Audit Committee convened twice with the independent auditors to discuss the financial statements for 2000 and the financial statements for the first half of 2001. The Committee engaged KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, an auditing firm, for the annual audit, and also determined the audit emphasis for 2001. The Mediation Committee, a body stipulated by the German Law of Industrial Codetermination, was not required to convene in 2001. In each of its meetings the Supervisory Board was fully informed by the Board of Management regarding the situation of the company, particularly its business and financial status, the personnel situation, business developments at the company and its holdings, investment plans and basic business-policy questions. In addition, there was regular monthly reporting in which the company’s key performance figures were presented, and written reports were submitted on special matters. The Chairman of the Supervisory Board was also regularly kept informed through separate discussions with the Board of Management. In 2001, the agendas of the Supervisory Board were dominated by the further implementation of the strategy pursued since 1995 of concentration on the automotive business and related services. The course was set for the company’s future also in terms of per- sonnel with the reappointment of Jürgen E. Schrempp and Jürgen Hubbert, and the continuity and stability of top management were secured. Another major topic was the implementation of restructuring measures in various business units. After the terrorist attacks of September 11, their consequences for DaimlerChrysler were discussed in detail. Some of the other matters that were dealt with were personnel questions and the planned successors to important positions, as well as corporate governance at the DaimlerChrysler Group. The meeting in February 2001 dealt with the 2000 consolidated and individual financial statements, prepa- rations for the Annual Meeting, and medium-term planning including the extent of refinancing for 2001. Particular attention was paid to Chrysler Group’s turnaround plan, and the Supervisory Board received detailed reports on the situation at Mitsubishi Motors Corporation (MMC). The current stage of plans to build a small car with MMC was also discussed in this context. Furthermore, the Supervisory Board consented to the sale of a majority interest in the TEMIC Group to Continental AG. In April 2001, the strategy of the Mercedes-Benz Passenger Cars & smart division was discussed inten- sively. There was also a detailed report on the imple- mentation of the turnaround plan at Chrysler Group. In addition, the Supervisory Board consented to the acqui- sition of a 3.3% equity interest in MMC from Volvo and the continuation of existing contracts between Volvo and MMC. This made it possible to extend the strategi- cally important cooperation with MMC from passenger cars to commercial vehicles. In the July meeting, the Supervisory Board dis- cussed the future strategy of the Commercial Vehicles division, with a focus on the cooperation in Asia with MMC and the South Korean Hyundai Motor Company, particularly in the engine business. The interim report on the first half of 2001 was presented, and information was given on the appointment of KPMG as independent auditors for the 2001 financial year and on the main areas of this audit. At the end of the meeting the Super- visory Board consented to the restructuring of the fuel-cell alliance with Ford and Ballard Power Systems in order to simplify future cooperation in this field. The meeting at the end of September was domi- nated by discussion of the consequences of the terrorist attacks in the United States. The Supervisory Board expressed its deep shock and sadness, and emphasized its feelings of solidarity with the victims of the attacks. Future political and economic developments and their significance for the company were intensively dis- cussed with the Board of Management. The situation of the aerospace activities were also on the agenda. In ad- dition, the Supervisory Board was informed of manage- ment developments within the Group. In this meeting Report of the Supervisory Board 119 the Supervisory Board unanimously extended into the year 2005 the appointments of Jürgen E. Schrempp as Chairman of the Board of Management and Jürgen Hubbert as member of the Board of Management with responsibility for the Mercedes-Benz Passenger Cars & smart division. Rüdiger Grube was appointed as deputy member of the Board of Management for a period of three years with responsibility for corporate develop- ment. In December, the Supervisory Board discussed the premises for economic developments in the following years in order to create a basis for the next medium- term planning in February 2002. There was also a pre- sentation on the work of the newly established Execu- tive Automotive Committee (EAC). This focused mainly on the potential for further intensive cooperation between the individual brands and divisions. The DaimlerChrysler financial statements for 2001 and the business review report were audited by KPMG Deutsche Treuhand-Gesellschaft Aktiengesell- schaft Wirtschaftsprüfungsgesellschaft, Berlin and Frankfurt/Main, and certified without qualification. The same applies to the consolidated financial statements according to US GAAP. These are prepared in euros and supplemented by a business review report and additional notes pursuant to Section 292a of the German Commercial Code (HGB). In accordance with Section 292a of the HGB, the US GAAP consolidated financial statements presented in this report grant exemption from the obligation to produce consolidated 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. They 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 results of the statutory audit and has established that there are no objections to be made. In its meeting on February 19, 2002, the Supervi- sory Board took note of the consolidated financial state- ments for 2001, approved, and thereby adopted, the financial statements of DaimlerChrysler AG for 2001, and consented to the appropriation of earnings pro- posed by the Board of Management. Further major top- ics at that meeting were the medium-term corporate planning for 2002-2004, including investment, human resources and earnings objectives, as well as the scope of financing limits for the year 2002. In April 2001, Mr. Robert E. Allen and Lord Browne of Madingley retired from their positions as members of the Supervisory Board representing the shareholders. In the 2001 Annual Meeting Mr. Earl G. Graves and Prof. Victor Halberstadt were elected as their successors. In December 2001, Mr. Willi Böhm retired from the Supervisory Board after many years as a representative of the employees. Mr. Udo Richter was appointed as his successor. The Supervisory Board expresses its gratitude to the retired members, the DaimlerChrysler Board of Management and the company’s employees for their exceptional individual efforts in the year 2001. Stuttgart-Möhringen, February 2002 The Supervisory Board Hilmar Kopper Chairman 120 Major Subsidiaries of the DaimlerChrysler Group Major Subsidiaries of the DaimlerChrysler Group Ownership1) in % Stockholders’ equity in millions2) of € Revenues3) in millions of € Employment at year-end 2001 2000 2001 2000 Mercedes-Benz Passenger Cars & smart Micro Compact Car smart GmbH, Renningen Mercedes-Benz U.S. International, Inc., Tuscaloosa DaimlerChrysler India Private Limited, Poona DaimlerChrysler South Africa (Pty.) Ltd., Pretoria4) 100.0 100.0 100.0 100.0 76 277 60 221 996 775 3,155 3,025 62 42 1,037 1,888 347 728 1,795 329 1,807 1,325 4,450 4,395 Chrysler Group DaimlerChrysler Corporation, Auburn Hills4) 100.0 17,098 63,483 68,372 107,369 125,953 DaimlerChrysler Canada Inc., Windsor DaimlerChrysler de Mexico S.A. de C.V., Mexico City 100.0 100.0 6) 6) 15,692 16,2775) 13,052 17,242 9,414 8,5915) 10,287 10,919 Commercial Vehicles EvoBus GmbH, Stuttgart4) Mercedes-Benz Lenkungen GmbH, Düsseldorf Mercedes-Benz España S.A., Madrid Detroit Diesel Corporation, Detroit Freightliner LLC, Portland4) Mercedes-Benz Mexico S.A. de C.V., Mexico City4) DaimlerChrysler do Brasil Ltda., São Bernardo do Campo DaimlerChrysler Argentina S.A., Buenos Aires4) P.T. DaimlerChrysler Indonesia, Jakarta4) Mercedes-Benz Türk A.S., Istanbul MTU Friedrichshafen GmbH, Friedrichshafen 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 95.0 66.9 88.4 274 29 250 484 355 94 366 88 56 121 442 1,986 2,036 10,969 11,302 261 2,752 1,849 8,072 626 259 2,601 2,075 1,295 5,262 6,342 1,308 4,950 6,238 9,945 12,810 16,332 778 967 1,197 1,731 2,018 10,958 10,865 322 153 478 698 138 827 1,128 1,034 957 1,231 3,364 6,200 1,143 1,251 4,175 6,028 Major Subsidiaries of the DaimlerChrysler Group 121 Vehicle Sales Organization Mercedes-Benz USA, Inc., Montvale4) DaimlerChrysler France S.A.S., Le Chesnay4) DaimlerChrysler Belgium Luxembourg S.A., Brussels DaimlerChrysler Nederland B.V., Utrecht4) DaimlerChrysler UK Ltd., Milton Keynes4) DaimlerChrysler Danmark AS, Copenhagen DaimlerChrysler Sverige AB, Malmo DaimlerChrysler Italia S.p.A., Rome4) DaimlerChrysler Schweiz AG, Zurich Mercedes-Benz Hellas S.A., Athens DaimlerChrysler Japan Co., Ltd., Tokyo Ownership1) in % Stockholders‘ equity in millions2) of € Revenues3) in millions of € Employment at year-end 2001 2000 2001 2000 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 272 171 71 56 128 22 22 199 52 38 97 11,396 10,907 3,252 1,160 1,193 4,769 289 459 2,934 1,128 199 3,002 1,135 1,148 3,957 286 478 2,676 1,072 222 2,511 2,705 1,549 2,190 655 679 1,508 1,990 622 647 1,535 1,120 361 439 537 419 157 457 344 421 528 397 157 412 DaimlerChrysler Australia/Pacific Pty. Ltd., Mulgrave/ Melbourne4) 100.0 187 967 1,001 729 834 Services DaimlerChrysler Services AG, Berlin DaimlerChrysler Bank GmbH, Stuttgart DaimlerChrysler Services Leasing GmbH, Stuttgart DaimlerChrysler Services North America L.L.C., Southfield Chrysler Capital Company L.L.C., Stamford DaimlerChrysler Insurance Company, Southfield debis Financial Services Inc., Norwalk 100.0 100.0 100.0 100.0 100.0 100.0 100.0 989 545 36 0 342 1,712 7,654 11,200 944 173 206 112 121 348 0 280 1,557 4,799 90 207 330 314 309 1,483 1,024 6) 6) 4,341 4,059 23 97 152 46 134 185 Other Activities MTU Aero Engines GmbH, Munich4) 100.0 489 2,487 2,106 7,839 7,162 European Aeronautic Defence and Space Company EADS, N.V., Amsterdam7) 33.0 9,852 14,043 10,585 100,187 88,028 Mitsubishi Motors Corporation, Tokyo8) 37.3 1,990 14,176 15,296 66,700 72,000 1) Relating to the respective parent company. 2) Stockholders’ equity taken from national financial statements; stockholders’ equity converted at year-end exchange rates. 3) Converted at average annual exchange rates. 4) Preconsolidated financial statements. 5) Included in the revenues of the preconsolidated financial statements. 6) Included in the consolidated financial statements of the parent company. 7) Details based on the financial statements of the group of June 30, 2001 (stockholders’ equity at June 30, 2001; revenues in first half of 2001 resp. 2000; employees at June 30, 2001 resp. June 30, 2000) 8) Details based on the financial statements of the group of September 30, 2001 (stockholders’ equity at September 30, 2001; revenues April through September 2001 resp. 2000; employees at September 30, 2001 resp. September 30, 2000) 122 Six-Year Summary Six-Year Summary Amounts in millions of € 1996 1997 1998 1999 2000 2001 From the statements of income: Revenues Personnel expenses of which: Wages and salaries Research and development costs Operating profit (loss) Operating margin Financial results Income (loss) 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 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 exchanges: 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 101,415 117,572 131,782 149,985 162,384 152,873 21,648 23,370 25,033 26,158 26,500 25,095 17,143 18,656 19,982 21,044 21,836 20,073 5,751 6,212 6.1% 408 5,693 – – 4,022 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 7,395 6,008 9,752 (1,318) 6.0% (0.9%) 156 154 4,476 (1,483) 4,383 7.4% 7,894 7.87 7.80 3.47 3.45 1,647 2.5% (662) (0.66) (0.66) 0.73 0.73 2,356 2,358 2,358 1,003 2.35 3.36 2.35 3.36 2.35 3.36 1.00 – 23,111 28,558 29,532 36,434 40,145 41,165 7,905 11,092 14,662 27,249 33,714 36,002 54,888 68,244 75,393 93,199 99,852 103,389 12,851 17,325 19,073 18,201 12,510 14,525 101,294 124,831 136,149 174,667 199,274 207,410 22,355 27,960 30,367 36,060 42,409 39,004 2,444 2,391 2,561 2,565 2,609 2,609 31,988 35,787 34,629 37,695 36,441 41,570 41,672 54,313 62,527 90,560 109,661 115,327 25,496 34,375 40,430 64,488 84,783 90,908 114% 123% 133% 179% 200% 233% 36,989 45,953 47,601 55,291 75,349 87,532 41,950 50,918 58,181 83,315 81,516 80,874 – – – – 85% 79% 66% 67% 64% 45,252 50,062 53,174 59,489 65,882 – – A + A 1 A + A 1 A A 2 BBB+ A3 6,721 4,891 4,427 1,159 8,051 7,225 5,683 1,456 8,155 9,470 10,392 8,896 10,245 19,336 19,117 17,951 4,937 1,972 5,655 3,315 6,645 6,487 7,580 7,254 9,956 12,337 16,681 18,023 16,017 15,944 (8,745) (14,530) (23,445) (32,110) (32,709) (13,287) – – 981.6 994.0 – – 83.60 96.06 77.00 78.25 44.74 41.20 48.35 41.67 949.3 968.2 959.3 1,002.9 1,003.2 1,003.2 987.1 1,013.6 1,013.9 1,003.2 419,758 421,661 433,939 463,561 449,594 379,544 1) Excluding one-time positive tax effects, especially due to extra distribution of €10.23 per share. 2) For our stockholders who are taxable in Germany. There is no tax credit from 2001 due to a change in the corporate income tax system. International Representative Offices 123 International Representative Offices Berlin Phone +49 30 25 94 11 00 +49 30 25 94 11 09 Fax Abidjan Phone +225 21 75 1001 +225 21 75 1090 Fax Abu Dhabi Phone +97 14 8833 200 +97 14 8833 201 Fax Kiev Phone +380 44 235 5251 +380 44 235 5288 Fax Ljubljana Phone +386 61 1883 797 +386 61 1883 799 Fax London Phone +44 193 28 67 350 +44 193 28 60 738 Fax Bangkok Phone +662 676 6222 1000 +662 676 5550 Fax Madrid Phone +34 91 484 6161 +34 91 484 6019 Fax Beijing Phone +86 10 6590 0158 +86 10 6590 6237 Fax Brussels Phone +32 2 23311 33 +32 2 23311 80 Fax Budapest Phone +361 451 2233 +361 451 2201 Fax Buenos Aires Phone +54 11 4801 3585 +54 11 4808 8702 Fax Cairo Phone +20 2 524 6127 +20 2 524 6700 Fax Caracas Phone +58 241 87 444 60 +58 241 87 444 62 Fax Hanoi Phone +84 8 8958 710 +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 Melbourne Phone +61 39 566 9104 +61 39 566 6210 Fax Mexico City Phone +52 5081 7376 +52 5081 7674 Fax Moscow Phone +7 095 797 5350 +7 095 797 5352 Fax New Delhi Phone +91 1 1410 4959 +91 1 1410 5226 Fax Paris Phone +33 1 39 23 5400 +33 1 39 23 5442 Fax Pretoria Phone +27 12 677 1502 +27 12 666 8191 Fax Rome Phone +39 06 4144 2405 +39 06 4121 9097 Fax São Paulo Phone +55 11 4173 7171 +55 11 4173 7118 Fax Sarajevo Phone +387 33 664 376 +387 33 664 469 Fax Seoul Phone +82 2 735 3496 +82 2 737 8965 Fax Singapore Phone +65 849 8321 +65 849 8493 Fax Skopje Phone +389 2 114 016 +389 2 114 754 Fax Sofia Phone +359 2 91 988 Fax +359 2 945 40 14 Taipei Phone +886 2 2783 9745 +886 2 2788 6965 Fax Tashkent Phone +998 71 120 6374 +998 71 120 6674 Fax Teheran Phone +98 21 204 6047 +98 21 204 6126 Fax Tel Aviv Phone +972 9957 9091 +972 9957 6872 Fax Tokyo Phone +81 3 5572 7172 +81 3 5572 7126 Fax Warsaw Phone +48 22 697 7040 +48 22 654 8633 Fax Washington D.C. Phone +1 202 414 6747 +1 202 414 6716 Fax Windsor, Ontario Phone +1 519 973 2851 +1 519 973 2460 Fax Zagreb Phone +38 51 489 1500 +38 51 489 1501 Fax 124 Addresses & Information Addresses DaimlerChrysler AG 70546 Stuttgart Germany Phone Fax www.daimlerchrysler.com +49 711 17 0 +49 711 17 94022 DaimlerChrysler Corporation Auburn Hills, MI 48326-2766 USA Phone www.daimlerchrysler.com +1 248 576 5741 DaimlerChrysler Services AG 10875 Berlin Germany Phone Fax www.daimlerchryslerservices.com +49 30 2554 0 +49 30 2554 2525 MTU Aero Engines GmbH Postfach 500640 80976 Munich Germany Phone Fax www.mtu.de +49 89 1489 0 +49 89 1489 5500 Information Publications for our shareholders: DaimlerChrysler Annual Report (German, English) Form 20-F (English) DaimlerChrysler Interim Reports for 1st, 2nd and 3rd quarters (German, English) DaimlerChrysler Environment Report (German and English) The financial statements of DaimlerChrysler Aktiengesellschaft prepared in accordance with German GAAP were audited by KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft, Wirtschaftsprüfungsgesellschaft, and an unqualified opinion was rendered thereon. These financial statements will be published in the Bundesanzeiger (Federal Official Gazette) and filed at the Commercial Register in Stuttgart. The financial statements may be obtained from DaimlerChrysler free of charge. These publications can be requested from: DaimlerChrysler AG 70546 Stuttgart Germany The information can also be ordered by phone or fax under the following number: +49 711 17 92287 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 DaimlerChrysler online Additional information on DaimlerChrysler is available on the Internet: www.daimlerchrysler.com Financial Diary 2002 Annual Results Press Conference February 20, 2002 10:00 a.m. Mercedes-Benz Technology Center (MBTC) Sindelfingen Analysts’ and Investors’ Conference February 20, 2002 3:00 p.m. Stuttgart-Möhringen Annual Meeting April 10, 2002 10:00 a.m. Messe Berlin (Berlin Exhibition Center) Interim Report Q1 2002 April 30, 2002 Interim Report Q2 2002 July 18, 2002 Interim Report Q3 2002 October 23, 2002 Investor Relations contact Stuttgart Phone Fax New York +49 711 17 92261 17 95277 +49 711 17 94075 17 94109 Phone Fax +1 212 909 9081 +1 212 909 9085 Auburn Hills Phone Fax +1 248 512 2950 +1 248 512 2912 DaimlerChrysler AG Stuttgart, Germany Auburn Hills, USA www.daimlerchrysler.com 

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