Daimler AG
Annual Report 2010

Plain-text annual report

Financial Calendar 2011 Annual Press Conference February 16, 2011 Analysts’ and Investors’ Conference Call February 16, 2011 Presentation of the Annual Report 2010 March 2, 2011 Annual Meeting April 13, 2011 10:00 a.m. CEST | 4:00 a.m. EST Messe Berlin Interim Report Q1 2011 April 28, 2011 Interim Report Q2 2011 July 26, 2011 Interim Report Q3 2011 October 26, 2011 The paper used for this Annual Report was produced from cellulose sourced from certified forestry companies that operate responsibly and comply with the regulations of the Forest Stewardship Council. Daimler AG Stuttgart, Germany www.daimler.com www.daimler.mobi Key Figures Daimler Group Amounts in millions of euros Revenue Western Europe thereof Germany NAFTA thereof United States Asia thereof China Other markets 2010 2009 2008 10/09 % change 97,761 38,478 19,281 23,582 20,216 19,659 9,094 16,042 78,924 36,458 18,788 19,380 16,569 12,435 4,349 10,651 98,469 46,276 21,832 23,243 19,956 13,840 3,226 15,110 1 +24 +6 +3 +22 +22 +58 +109 +51 +1 +51 +16 +7 -22 . . . . . . . . Employees (December 31) 260,100 256,407 273,216 Investment in property, plant and equipment Research and development expenditure thereof capitalized Cash provided by / used for operating activities EBIT Value added (including discontinued operations) Net profit/loss Net profit/loss from continuing operations Earnings/loss per share (in €) Earnings/loss per share, continuing operations (in €) Total dividend Dividend per share (in €) 3,653 4,849 1,373 8,544 7,274 2,773 4,674 4,674 4.28 4.28 1,971 1.85 2,423 4,181 1,285 10,961 -1,513 -4,644 -2,644 -2,644 -2.63 -2.63 0 0.00 3,559 4,442 1,387 -786 2,730 -1,147 1,414 1,704 1.41 1.71 556 0.60 1 Adjusted for the effects of currency translation and changes in the consolidated group, increase in revenue of 19%. 0 1 0 2 t r o p e R l a u n n A r e m a D i l Innovation from Tradition. Annual Report 2010. Daimler’s Divisions > Daimler at a Glance > Financial Calendar 2011 Annual Press Conference February 16, 2011 Analysts’ and Investors’ Conference Call February 16, 2011 Presentation of the Annual Report 2010 March 2, 2011 Annual Meeting April 13, 2011 10:00 a.m. CEST | 4:00 a.m. EST Messe Berlin Interim Report Q1 2011 April 28, 2011 Interim Report Q2 2011 July 26, 2011 Interim Report Q3 2011 October 26, 2011 The paper used for this Annual Report was produced from cellulose sourced from certified forestry companies that operate responsibly and comply with the regulations of the Forest Stewardship Council. Daimler AG Stuttgart, Germany www.daimler.com www.daimler.mobi Key Figures Daimler Group Amounts in millions of euros Revenue Western Europe thereof Germany NAFTA thereof United States Asia thereof China Other markets 2010 2009 2008 10/09 % change 97,761 38,478 19,281 23,582 20,216 19,659 9,094 16,042 78,924 36,458 18,788 19,380 16,569 12,435 4,349 10,651 98,469 46,276 21,832 23,243 19,956 13,840 3,226 15,110 1 +24 +6 +3 +22 +22 +58 +109 +51 +1 +51 +16 +7 -22 . . . . . . . . Employees (December 31) 260,100 256,407 273,216 Investment in property, plant and equipment Research and development expenditure thereof capitalized Cash provided by / used for operating activities EBIT Value added (including discontinued operations) Net profit/loss Net profit/loss from continuing operations Earnings/loss per share (in €) Earnings/loss per share, continuing operations (in €) Total dividend Dividend per share (in €) 3,653 4,849 1,373 8,544 7,274 2,773 4,674 4,674 4.28 4.28 1,971 1.85 2,423 4,181 1,285 10,961 -1,513 -4,644 -2,644 -2,644 -2.63 -2.63 0 0.00 3,559 4,442 1,387 -786 2,730 -1,147 1,414 1,704 1.41 1.71 556 0.60 1 Adjusted for the effects of currency translation and changes in the consolidated group, increase in revenue of 19%. 0 1 0 2 t r o p e R l a u n n A r e m a D i l Innovation from Tradition. Annual Report 2010. Daimler’s Divisions > Daimler at a Glance > Divisions Internet | Information | Addresses Daimler Worldwide Amounts in millions of euros Mercedes-Benz Cars EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Daimler Trucks EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Mercedes-Benz Vans EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Daimler Buses EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Daimler Financial Services EBIT Revenue New business Contract volume Investment in property, plant and equipment Employees (December 31) 2010 2009 2008 10/09 % change 4,656 53,426 8.7% 2,457 3,130 940 1,276,827 96,281 -500 41,318 -1.2% 1,618 2,696 913 1,093,905 93,572 2,117 47,772 4.4% 2,246 2,994 1,060 1,273,013 97,303 1,323 24,024 5.5% 1,003 1,282 373 355,263 71,706 451 7,812 5.8% 91 267 29 224,224 14,557 215 4,558 4.7% 95 223 31 39,118 17,134 831 12,788 29,267 63,725 12 6,742 -1,001 18,360 -5.5% 597 1,116 368 259,328 70,699 26 6,215 0.4% 113 193 0 165,576 15,226 183 4,238 4.3% 78 212 5 32,482 17,188 9 11,996 25,066 58,350 14 6,800 1,607 28,572 5.6% 991 1,056 326 472,074 79,415 818 9,479 8.6% 150 228 0 287,198 16,775 406 4,808 8.4% 117 178 1 40,591 18,110 677 11,964 29,514 63,353 41 7,116 . +29 . +52 +16 +3 +17 +3 . +31 . +68 +15 +1 +37 +1 . +26 . -19 +38 . +35 -4 +17 +8 . +22 +5 +520 +20 -0 . +7 +17 +9 -14 -1 Information on the Internet. Special information on our shares and earnings development can be found in the “Investor Relations” section of our website. It includes the Group’s annual and interim reports and the company financial statements of Daimler AG. You can also find topical reports, presentations, an overview of various key figures, information on our share price, and other services. www.daimler.com/investors Publications for our shareholders: – Annual Report (German, English) – Interim Reports for the 1st, 2nd and 3rd quarters (German, English) – Sustainability Report (German, English) – Brochure: The Road to Emission-free Mobility (German, English) – Brochure: Milestones in Vehicle Safety. The Vision of Accident-free Driving (German, English) www.daimler.com/ir/reports www.daimler.com/downloads/en The financial statements of Daimler AG were prepared in accordance with German accounting principles, and the consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS). Both sets of financial statements were audited by KPMG AG Wirtschaftsprüfungsgesellschaft and an unqualified audit opinion was rendered thereon. These financial statements will be filed with the operator of the electronic version of the German Federal Gazette and published in the electronic version of the German Federal Gazette. The aforementioned publications can be requested from: Daimler AG, Investor Relations, HPC 0324, 70546 Stuttgart, Germany. The documents can also be ordered by phone or fax using the following number: +49 711 17 92287. Daimler AG 70546 Stuttgart Phone +49 711 17 0 Fax www.daimler.com www.daimler.mobi +49 711 17 22244 Investor Relations Phone +49 711 17 95277 +49 711 17 92261 +49 711 17 95256 +49 711 17 94075 Fax ir.dai@daimler.com Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Sales Organization Automotive Businesses Daimler Financial Services Europe Production locations Sales outlets Revenue in millions of euros Employees NAFTA Production locations Sales outlets Revenue in millions of euros Employees Latin America (excluding Mexico) Production locations Sales outlets Revenue in millions of euros Employees Africa Production locations Sales outlets Revenue in millions of euros Employees Asia Production locations Sales outlets Revenue in millions of euros Employees Australia/Oceania Production locations Sales outlets Revenue in millions of euros Employees 10 – 25,486 87,136 1 – 10,645 3,028 1 – 614 874 1 – 1,727 4,710 4 – 13,964 533 – – 994 – 7 – 7,953 30,617 14 – 6,166 15,749 1 – 3,740 11,434 1 – 894 1,050 5 – 4,757 12,856 – – 507 – 4 – 6,292 13,149 1 – 457 85 1 – 364 1,323 – – 171 – 1 – 386 – – – 143 – 7 – 2,421 14,566 3 – 540 1,346 2 – 1,208 1,222 1 – 175 – 2 – 130 – – – 83 – – 3,900 – 40,339 – 1,424 – 3,193 – 601 – 81 – 314 – – – 1,480 – 3,602 – 285 – 1,084 – 38 5,318 4,199 – 5 6,026 1,236 – 5 320 292 – 1 467 300 – 9 444 559 – 2 213 156 Note: Unconsolidated revenue of each division (segment revenue). Daimler Brands Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services Innovation from tradition. 125 years ago, Gottlieb Daimler and Carl Benz invented the automobile – now we are passionately shaping its future. As automotive pioneers, we see it as both motivation and a duty to continue our tradition with groundbreaking technologies and superior products. We do our very best for customers who expect the best, and we live and breathe a culture of operational excellence based on shared values. Our corporate history features numerous innova- tions and pioneering achievements; they are the basis and an ongoing incentive for our claim to leadership in the automotive industry. At the same time, our thoughts and actions are guided by the principle of sustainable mobility: We aim to successfully shape the mobility of the future. In this way, we want to create lasting added value – for our shareholders, customers, employees and society in general. Dieter Zetsche Wolfgang Bernhard Christine Hohmann-Dennhardt Wilfried Porth Andreas Renschler Bodo Uebber Thomas Weber Innovation Close Up. Pioneering achievements at Daimler have always started with attention to detail. That’s a tradition at Daimler – and has been for 125 years. In this Annual Report, we therefore present the topic of innovation from a new perspective. On pages 26 to 59, you can get a close-up impression of our latest pioneering achievements. Contents 2 - 25 To Our Shareholders 136 - 147 Sustainability   4   8  12  14  20  22 Important Events in 2010 Chairman’s Letter Board of Management Report of the Supervisory Board Members of the Supervisory Board Daimler Shares 26 - 59 Innovation Close Up 60 - 119 Management Report  62  74  89  96 98 102 103 104 114 Business and General Conditions Profitability Liquidity and Capital Resources Financial Position Daimler AG (condensed version according to HGB) Overall Assessment of the Economic Situation Events after the End of the 2010 Financial Year Risk Report Outlook 120 - 135 The Divisions 122 126 130 132 134 Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services 138 140 144 146 Sustainability at Daimler Innovation, Safety and the Environment Human Resources Social Responsibility 148 - 167 Corporate Governance 150 152 158 160 166 Report of the Audit Committee Remuneration Report Compliance Corporate Governance Report Declaration of Compliance with the German Corporate Governance Code 168 - 247 Consolidated Financial Statements 170 171 172 173 174 175 176 177 Responsibility Statement Independent Auditors’ Report Consolidated Statement of Income/Loss Consolidated Statement of Comprehensive Income/Loss Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements 248 - 252 Additional Information 248 250 251 252 Ten Year Summary Glossary Index International Representative Offices Internet | Information | Addresses Daimler Worldwide Financial Calendar 2011 Annual Report 2010 | Contents | 3 Important Events in 2010 First quarter 4 World premiere of the new E-Class convertible in Detroit. The four-seat all-year convertible completes the successful E-Class family and features the AIRCAP wind deflector; this is a world first and significantly reduces drafts inside the car when driving with the top down. British safety price for Mercedes-Benz. The United Kingdom’s biggest consumer organization for car buyers names Mercedes- Benz as the winner of its Car of the Year Award 2010 for the best safety innovation. The prize was given for ATTENTION ASSIST, which warns drivers who are becoming drowsy. New Board of Management position at Daimler. Effective February 18, 2010, the Supervisory Board appoints Dr. Wolfgang Bernhard to the newly created Board of Management position with responsibility for Production and Procurement Mercedes- Benz Cars and Mercedes-Benz Vans. Pioneering luxury sedan. With the research vehicle F 800 Style, Mercedes-Benz shows the future of premium automobiles from a new perspective at Geneva Motor Show 2010. Daimler sells its stake in Tata Motors. Daimler AG sells all of its 5.34% equity interest in Indian automotive group Tata Motors to various groups of investors. Daimler will participate in the future growth of the Indian market by strengthening its own activities there. car2go starts regular operations. After completing the car2go one-year pilot project in Ulm, Germany, the assessment of the innovative mobility concept is clearly positive. The newly founded car2go GmbH (limited liability company) plans to push forward with international commercialization. Group EBIT of €1.2 billion in first quarter. The very good development of earnings is a reflection of the ongoing upward trend in nearly all divisions. Second quarter Settlement with US authorities. Daimler AG reaches a settle- ment with the US Securities and Exchange Commission and the US Department of Justice to conclude investigations of possible violations of the US Foreign Corrupt Practices Act. Cooperation with Renault-Nissan. Daimler and Renault-Nissan agree on wide-ranging strategic cooperation. The main shared projects are a new architecture for the smart, new three- and four-cylinder engines and small vans. Start of van production in China. The first Mercedes-Benz Viano produced by Fujian Daimler Automotive rolls off the assem- bly line at the new plant in Fuzhou. Fujian Daimler Automotive is a joint venture established by the Fujian Motors Group, China Motor Corporation and Daimler in 2007. End of stock-exchange listing in New York. The Supervisory Board and the Board of Management of Daimler AG decide to end the listing of Daimler shares on the New York Stock Exchange. The Company continues to place great importance on having an international shareholder base. However, Daimler shares are mainly traded in Frankfurt, also by international investors. Daimler Financial Services announces the combination of its activities in Germany. The worldwide headquarters of Daimler Financial Services are to be relocated from Berlin to Stuttgart and brought together under one roof with the headquarters of Mercedes-Benz Bank. The aim is to create leaner processes and structures while securing the division’s competitive position. Joint venture for the development of electric vehicles in China. BYD and Daimler AG agree to establish a 50:50 joint venture, Shenzhen BYD Daimler New Technology Co. Ltd., for the development of electric vehicles for the Chinese market. Daimler Day in China. Due to the increasing importance of the Chinese market, Daimler invites investors and analysts to its first corporate day in Beijing. Daimler increases equity interest in Kamaz. Daimler increases its shareholding in Kamaz, thus strengthening the strate gic partnership with the Russian truck producer. Daimler’s economic interest in Kamaz is now 15%. To Our Shareholders | Important Events in 2010 | 5 Third quarter 6 Daimler is the most popular German company in 2010. This is the result of a representative survey carried out by TNS Emnid for accountancy firm PricewaterhouseCoopers (PwC). First Fuso Canter truck delivered in Russia. Fuso Kamaz Trucks Russia, a joint venture established in late 2009 as a strategic partnership between Daimler and Kamaz, is responsible for the production and distribution of Fuso trucks in Russia. Mercedes-Benz Citaro is the most successful city bus of all time. After twelve years of production, the 30,000th Mercedes- Benz Citaro has been delivered. This production volume is unique for city buses and demonstrates the success of a flexible modular design. Launch of Mercedes-Benz Actros in Brazil. To serve the rising demand for heavy-duty premium trucks in this growth market, the Mercedes-Benz Actros is now sold also in Brazil. As of 2012, the Actros will also be produced in the country at the Juiz de Fora plant. Board of Management position for Integrity and Legal Affairs. The Supervisory Board of Daimler AG decides to enlarge the Com- pany’s Board of Management. The new position is a logical step in the further development of the corporate structure and culture. Mercedes-Benz Atego is “Truck of the Year.” At the IAA Com- mercial Vehicles show, trade journalists from 23 European coun- tries recognize the innovative technology of the Mercedes-Benz Atego. The series-produced Atego 1222 L EEV BlueTec Hybrid is regarded by the jury as a pioneer for alternative drive systems. Mercedes-Benz CLS unveiled at the Paris Motor Show. The new CLS four-door coupe follows in the pioneering footsteps of its predecessor and is nonetheless a completely new car. The new CLS combines a strong and self-confident design with maximum efficiency. Daimler remains on a successful path. Daimler continues its positive earnings trend with third-quarter EBIT of €2.4 billion. Fourth quarter Daimler and Europcar bring car2go to Hamburg. The innova- tive mobility concept that has already been successfully tested in Ulm and Austin is to go into operation in Hamburg starting with 300 smart fortwo cars. Daimler and Europcar establish their own operating company as a joint venture. New driving simulator inaugurated at the Sindelfingen plant. The new simulator is the most powerful in the automotive industry and is the core of a €160 million investment in advanced technol- ogy at the facility in Sindelfingen. Topping out ceremony for the Kecskemét plant. The new plant in Hungary will be part of a production network with the German plant in Rastatt. As of 2012, two of the four new Mercedes-Benz models that will replace today’s A- and B-Class cars will be produced in Hungary. New generation of the Fuso Canter presented. Due to its good fuel efficiency, the entire model series already fulfills the fuel- consumption limits for trucks that are to apply in Japan as of 2015. After being launched in Japan, the new truck will also be made available in Fuso’s worldwide export markets in 2011. Start of series production of the Actros at the Aksaray plant. With the availability of its entire product range as well as local assembly, Daimler Trucks makes a long-term commitment to the Turkish market and strengthens production links between the Wörth plant in Germany and the plant at Aksaray in Turkey. The vehicles produced in Aksaray are destined for the local market and also for export. Van production in Russia. Daimler and GAZ, a Russian manu- facturer of commercial vehicles, sign a memorandum of under- standing with the goal of producing the Mercedes-Benz Sprinter in Russ ia. Engines, transmissions, axles and other components are also to be produced locally. To Our Shareholders | Important Events in 2010 | 7 “We look back on an excellent year - and our goals for this year are equally ambitious. 125 years after the invention of Daimler and Benz, we continue to take the lead in shaping the future of the automobile.” 2010 was a very successful year for your company. After the financial and economic crisis of 2008/2009 had led to massive market slumps, we succeeded in making an excellent comeback last year with double-digit growth rates in all our divisions. Demand for our products is strong, our order books are full. Many of our plants are operating at the limits of their capacity. Last year, the Group achieved total EBIT of 7.3 billion euros. Net profit amounted to 4.7 billion euros. And Daimler will be paying you, our shareholders, a dividend of €1.85 per share for 2010. Let me briefly explain the most important developments in the individual divisions: At Mercedes-Benz Cars we achieved the second-highest unit sales in our company’s history. In China, we actually sold 137 percent more cars than in the previous year. In many segments worldwide our competition was looking at our tail lights: Our S-, E- and C-Class sedans were the global market leaders. And it’s not just about the numbers. Customers and the trade press were delighted with new models such as the SLS and the new CLS. Surveys and awards tell the same story: The three-pointed star is shining bright. We are serious about “The best or nothing.” Daimler Trucks also made excellent progress in 2010. We sold 37 percent more trucks worldwide than in 2009. The new Mercedes-Benz Atego and Atego BlueTec Hybrid were voted “Truck of the Year 2011.” At Fuso we updated nearly the entire model range, and at Freightliner we launched sales of the new Coronado heavy-duty truck. Mercedes-Benz Vans, with a 35 percent increase in unit sales, grew at a similar rate to our trucks division. The Sprinter’s market share in Europe was higher than ever. With the new Vito, we offer a medium-duty van for commercial use; while the new Viano is a superior multi-passenger van. Daimler Buses once again maintained its global market leadership in the segment for buses above eight tons. Our bus division increased its unit sales by more than 20 percent – primarily due to strong demand in Latin America. To Our Shareholders | Chairman’s Letter | 9 This very pleasing overall picture is completed by the positive development at Daimler Financial Services: New business and contract volume increased significantly. Above all, our business with van and truck fleet operators and other commercial customers made very good progress. There’s no doubt about it: We can look back on an excellent year. Our goals for this year are equally ambitious – even more so as the automobile celebrates a special birthday in 2011. In this anniversary year we want to make it clear that 125 years after the invention of Daimler and Benz, we continue to take the lead in shaping the future of the automobile. And we can back up that claim with hard facts: At Mercedes-Benz Cars, we are continuing our model offensive – with the new SLK, the new generation of the C-Class, the new C-Class coupe and the new M-Class. At the same time, we are also taking on the compact segment. We begin in autumn with the new B-Class, to be followed by several other models of our new compact car family. The replacement of our model range is in full swing also at Daimler Trucks and Daimler Buses: This year, the new-generation Mercedes-Benz Citaro city bus will be launched and the new Fuso Canter truck will be available in Fuso’s worldwide export markets. In general, we are well-positioned with our product portfolio to benefit disproportionately from the global growth of the automotive industry. That applies to our traditional core markets as well as to growth markets, where we continue to develop our local presence. In China, for example, demand for the Mercedes-Benz brand is so strong that we are now building our first car engine plant outside of Germany there. We also intend to produce additional model series locally – including the GLK. In Russia, intensive preparations are underway for local production of the Sprinter. In India, we will soon launch the new “BharatBenz” truck brand. In Brazil, where we have had a very strong market position for many decades, we plan to expand our production capacity once again. 10 We expect to make further important progress in 2011 with the development of pioneering green technologies, enabling us to reduce the CO2 emissions of our vehicle fleet by a significant margin once again, to introduce the first E-Class with diesel hybrid, and to reach new milestones on the road to driving with zero local emissions. The countdown for large-series production of the electric smart has begun and the A-Class E-Cell will be delivered to customers as of this spring. 2011 is also an important year for fuel-cell drive. Three B-Class cars powered by fuel cells are making a trip around the world to demonstrate that this technology works. What’s missing is the infrastructure. That still needs to be put in place. At the same time, we are well aware that sustainable success is ultimately based on a corporate culture of excellence and integrity. That’s why we are systematically working on anchoring exemplary global business ethics throughout our Group – in part by creating a Board of Management position for the area of Integrity and Legal Affairs held by the first-class legal expert and former judge at the German Constitutional Court, Dr. Christine Hohmann-Dennhardt. This appointment also sends a clear signal that top performance is not a question of gender. We want to place more women in leading positions – and we are doing something about it. As Chancellor Angela Merkel recently congratulated your company on the 125th anniversary of the invention of the automobile, she defined in her speech “the essence of what Daimler and Benz teach us: Never stand still, keep moving forward, keep dreaming and keep opening up new frontiers.” This ability of continual renewal is indeed the key to our success – and for many of you probably an important reason to invest in Daimler. I would like to thank you for that trust on behalf of the entire Board of Management team. “Innovation from Tradition” – that’s more than just the title of this Annual Report. It’s also a principle that more than a quarter of a million Daimler employees all over the world want to live up to once again in 2011. Together, we will continue to do everything possible to justify your trust. Sincerely, Dieter Zetsche To Our Shareholders | Chairman’s Letter | 11 Board of Management From the left to the right Thomas Weber | 56 Group Research & Mercedes-Benz Cars Development Appointed until December 2013 Bodo Uebber | 51 Finance & Controlling, Daimler Financial Services Appointed until December 2014 Dieter Zetsche | 57 Chairman of the Board of Management, Head of Mercedes-Benz Cars Appointed until December 2013 Wilfried Porth | 52 Human Resources & Labor Relations Director Appointed until April 2012 Andreas Renschler | 52 Daimler Trucks Appointed until September 2013 Wolfgang Bernhard | 50 Manufacturing and Procurement Mercedes-Benz Cars & Mercedes-Benz Vans Appointed until February 2013 Member of the Board of Management since February 16, 2011: Christine Hohmann-Dennhardt | 60 Integrity and Legal Affairs Appointed until February 2014 To Our Shareholders | Board of Management | 13 Report of the Supervisory Board Dear Shareholders, the Supervisory Board dealt in detail with the operational and strategic development of the Daimler Group in eight meetings during the 2010 financial year. The Supervisory Board had to make decisions on numerous special topics in 2010, such as cooperation projects, capital measures, investments, the conclusion of agreements, Board of Management matters, details of the Articles of Incorporation etc. The Board of Management also informed the Supervisory Board about a large number of transactions not requiring the Supervisory Board’s consent and the two boards discussed those matters together, for example the development of sales structures, appoint- ments to the top management level and the expansion and restructuring of the Internal Auditing and Compliance departments. The Supervisory Board discussed the information and evalua- tions that were important for its decisions or recommen dations together with the Board of Management. The Supervisory Board meetings were regularly prepared in separate discussions by the members representing the employees and the members representing the shareholders. While the beginning of 2010 was still affected by the deep recession of the prior year, as the year progressed, there was a significant and continuous upward trend for all key figures of unit sales, reve- nue and earnings. This positive development was due partially to the market recovery of some major sales markets, but above all to the market success of Daimler’s products and services. Another factor with a sustained positive impact on earnings was the package of measures taken to enhance efficiency and reduce costs, which had been initiated by the Board of Management and monitored by the Supervisory Board since the beginning of the financial and economic crisis. Figures for the free cash flow and equity ratio of the industrial business demonstrate the Group’s sound financial position. The Supervisory Board had a thoroughly positive assessment of that pleasing development, while considering that it was not yet possible to regard the trend as dependably stable. Risk factors or uncertainty factors resulted for example from the economic situation in the United States, where experts were of the opinion that a renewed economic slump during the year 2010 could not be excluded. In China, another key market for Daimler, it was necessary to consider the possibility of a growth slowdown. In the euro zone, high levels of government debt came to be seen as a significantly negative factor at the beginning of the year, mainly triggered by the situation in Greece. Against this backdrop, the Supervisory Board supported the risk-aware approach of the Board of Management as the year progressed. Other issues about which the Board of Management continually informed the Supervisory Board, in addition to providing the usual key figures, included: – the Group’s profitability and liquidity, – the internal control and risk management system, – the cost of risk in the financial services business, – vehicles’ residual values, – the development of raw-material prices, and – the situation of suppliers. Detailed discussions were held in the year 2010 also about safe- guarding the Group’s long-term competitiveness, fundamental questions of corporate planning including financial, investment and human resources planning, developments in the companies of the Group, and the implementation of measures already initiated to secure pioneering and sustainable mobility for the future. The Supervisory Board occupied itself with those topics in close consultation with the Board of Management, and particularly intensively in a two-day strategy workshop. 14 Dr. Manfred Bischoff, Chairman of the Supervisory Board. Cooperation between the Supervisory Board and the Board of Management. In all of the Supervisory Board meetings, there was an intensive and open exchange of opinions and information concerning the position of the Group, business and financial developments, fundamental issues of corporate policy and strat- egy, and development opportunities in important growth markets as well as compliance issues. The members of the Supervisory Board regularly prepared for resolutions on transactions requir- ing Supervisory Board consent on the basis of documentation provided in advance by the Board of Management. They were supported by the relevant committees, and discussed the projects upon which decisions were to be taken with the Board of Manage- ment. All the members of the Board of Management attended all the meetings of the Supervisory Board. Furthermore, the Board of Management informed the Supervisory Board with the use of monthly reports and quarterly risk reports about the most impor- tant performance figures and submitted the interim reports to the Supervisory Board. The Supervisory Board was kept fully informed of specific matters also between its meetings, and, as required in individual cases, following consultation with the Chairman of the Supervisory Board it was requested to pass its resolutions in writing. In addition, the Chairman of the Board of Management informed the Chairman of the Supervisory Board in regular discussions about all important developments and upcoming decisions. Issues discussed at the meetings in 2010. In a meeting in February 2010, the Supervisory Board dealt with personnel mat- ters of the Board of Management. In the presence of the external auditors, the preliminary key figures of the company financial statements and the consolidated financial statements were dis- cussed, as well as possible alternatives for the dividend proposal to be made at the Annual Shareholders’ Meeting. In view of the exceptional crisis conditions in 2009 and the Group’s net loss for that year, the Supervisory Board resolved to follow the recom- mendation of the Board of Management and not to make a divi- dend proposal at the Annual Shareholders’ Meeting. The prelimi- nary key figures were published at the Annual Press Conference on February 18, 2010. After the Supervisory Board had dealt in detail with the condi- tions, in February 2010, it granted its approval to the termination by mutual agreement of investigations of possible violations of the US Foreign Corrupt Practices Act by the US Securities & Exchange Commission (SEC) and the US Department of Justice (DOJ). The final settlement was then reached with the US authorities on April 1, 2010. To Our Shareholders | Report of the Supervisory Board | 15 In early March 2010, the Supervisory Board dealt with the audited 2009 financial statements of the Company, the 2009 consoli- dated financial statements, and the combined management report for Daimler AG and the Daimler Group. As preparation, the members of the Supervisory Board were provided with compre- hensive documentation, some of it in draft form, including the Annual Report, the audit reports from KPMG on the financial statements of Daimler AG and the consolidated financial state- ments according to IFRS, the combined management report of Daimler AG and the Group, as well as drafts of the reports of the Supervisory Board and of the Audit Committee and the annual report according to Form 20-F. The Audit Committee and the Supervisory Board dealt in detail with those documents and discussed them in the presence of the auditors, who reported on the results of their audit. The Super- visory Board declared its agreement with the results of the audit, established in the framework of its own review that no objections were to be raised, and approved the financial statements presented by the Board of Management. The company financial statements of Daimler AG were thereby adopted. Subsequently, the Supervisory Board consented to the proposal made by the Board of Manage- ment that the loss for the year of Daimler AG should be offset by a withdrawal from the capital reserves and that no dividend proposal should be made at the Annual Shareholders’ Meeting. The Supervisory Board also approved the report of the Super- visory Board in its current draft. Other items dealt with were the agenda for the Annual Shareholders’ Meeting, including the proposal of a candidate to be elected as a representative of the shareholders and the updated version of the declaration of compliance. Finally, the Supervisory Board approved the external board positions and sideline business activities of the members of the Board of Management as presented in the meeting. In an extraordinary meeting held in March 2010, the Supervisory Board dealt with the status of cooperation talks with Renault- Nissan on possible cooperation in the areas of the small-car seg- ment, electric mobility, vans and light commercial vehicles, and small engines. Another subject of discussion was the classification of cooperation opportunities in the corporate and divisional strategy, including their financial and legal aspects. Furthermore, a cross-shareholding with Renault-Nissan was discussed with the goal of supporting these cooperation opportunities. In this context, the Supervisory Board approved the transfer of treasury shares equivalent to approximately a 3% equity interest in Daimler to Renault and/or Nissan in return for an equity interest of approximately 3% in each of Renault and Nissan. Other terms and conditions for the cross-shareholding were also decided upon. Two Supervisory Board meetings were held in April. In the first of those two meetings, in accordance with a proposal by the Presidential Committee, the Supervisory Board decided on two changes to the system of remuneration of the Board of Manage- ment members, taking effect on January 1, 2011. The total amount of base salary and annual bonus fundamentally remains unchanged, but is now split equally between the two components. Taking into consideration the review of remuneration in December, this change will have the effect of a neutral shift in target remuneration from the annual bonus to the fixed salary. As a result, the target annual bonus has now been reduced from 1.5 times the base salary to the same amount as the base salary. In addition, the annual bonus will no longer be paid out after the end of the financial year in full, but only 50%. The rest is due to be paid out a year later depending on the development of Daimler’s share price compared with the index Dow Jones STOXX Automobiles & Parts, which Daimler AG uses as a benchmark for the relative development of its own share price. These changes were reported in the 2010 Annual Shareholders’ Meeting. 16 In the second meeting of April 2010, the Supervisory Board dealt with the course of business and results of the first quarter, as well as with the legal settlement meanwhile reached with the US authorities. In this meeting, the Supervisory Board welcomed former US federal judge Louis Freeh in his function as the Daimler Monitor appointed in the context of the settlement, and took note of his explanation of important fundamental principles for the ongoing cooperation as he saw them. In May, among other matters, the Supervisory Board consented to the proposal by the Board of Management to terminate the listing of Daimler shares on the New York Stock Exchange and to apply for deregistration of all securities with the US Securities and Exchange Commission. After discussing the business development and results of the second quarter, the Supervisory Board authorized the Board of Manage- ment in its meeting in July to carry out a capital increase at Mit- subishi Fuso Truck and Bus Corporation, a company of the Group. In the same meeting, the Monitor provided information on the results of his first review. During the two-day strategy workshop in September, the Super- visory Board once again received detailed information on the sta- tus of compliance at the Group. In addition, it dealt in detail with the stage of implementation of the strategic goals set by the Board of Management for Daimler AG and the individual divisions in previous years. Against the backdrop of the current economic situation, the Supervisory Board discussed the stage of imple- mentation of projects initiated by the divisions, the positioning of the Group and its divisions with regard to the competition, and the brand and product strategies. Other key points included: – growth opportunities in the various markets, – analyses of competitors, – the latest trends in customer behavior, also with regard to the future development of urban mobility, – the overall technology and market strategy for safeguarding sustainable mobility, – the technological development of internal-combustion engines, – electric, hybrid and hydrogen drive systems, – management capacities and other human resources issues, and – other strategic topics. In December, the Supervisory Board dealt in detail on the basis of comprehensive documentation with the operational planning for the years 2011/2012, including discussion of existing oppor- tunities and risks and the Group’s risk management. The Super- visory Board also decided on the financing limits for the year 2011. Other matters discussed in the December meeting included corpo- rate governance and Board of Management remuneration. In this meeting, the Supervisory Board decided on specific quantitative targets for its own composition in addition to existing qualitative targets, in particular with regard to appropriate participation by women. Corporate governance. During 2010, the Supervisory Board was continually occupied with the further development of corporate governance, giving due consideration to legislative changes and developments. Since the renewal of the directors’ and officers’ insurance cover (D&O insurance) on April 1, 2010, a deductible is included for members of the Supervisory Board in the case of negligent breaches of duty in the amount of 50% of a member’s annual remuneration. To Our Shareholders | Report of the Supervisory Board | 17 In its December meeting, the Supervisory Board updated the rules of procedure of the Supervisory Board and its committees and, pursuant to Section 161 of the German Stock Corporation Act (AktG), approved the 2010 declaration of compliance with the German Corporate Governance Code as amended on May 26, 2010. An important precondition for effective cooperation in the Super- visory Board is not only the prioritized specialist expertise, but also diversity of the members in terms of their gender, ethnic origin and other personal characteristics, appropriate to the Company’s size and internationality. In connection with future proposals on candidates for election to the Supervisory Board of Daimler AG, the Supervisory Board will therefore pay due attention to achieving a balance, in particular with regard to gender and sees this as a contribution to strengthening Daimler’s claim to leadership in the automotive industry. A guideline for balance in terms of gender is the Group’s target of having 20% of top executive positions occupied by women by the year 2020. In each Supervisory Board meeting, there was a so-called executive session, in which the members of the Supervisory Board were able to discuss topics in the absence of the members of the Board of Management. The Supervisory Board arranged for an externally moderated efficiency review to be carried out during the year 2010, thus fulfilling the requirement to carry out a regular review of its efficiency in accordance with its own rules of procedure and the German Corporate Governance Code. The members of the Supervisory Board of Daimler AG are obliged to disclose potential conflicts of interest to the entire Super visory Board and not to participate in discussing or voting on topics which could lead to a conflict of interest. There were no indications of any such potential conflicts of interest in 2010. The member of the Supervisory Board who stood down as of the end of the Annual Shareholders’ Meeting on April 14, 2010, Arnaud Lagardère, was only able to attend fewer than half the meetings between the beginning of 2010 and his departure, due to other urgent commitments. Report on the work of the committees The Presidential Committee convened three times in 2010. It dealt primarily with corporate governance issues and questions of remuneration, as well as personnel matters of the Board of Management. As in previous years, compliance targets were included in the individual target agreements of the members of the Board of Management. The Audit Committee met seven times in 2010. Details of those meetings are provided in a separate report of this committee (see page 150 f). The Nomination Committee convened once in 2010. In that meet- ing, it prepared a recommendation for the Supervisory Board’s proposal on a candidate for election to the Supervisory Board of Daimler AG representing the shareholders. The proposal was prepared on the basis of specifications regarding the structure, orientation and qualification profile of the members of the Super- visory Board representing the shareholders and with due consid- eration of corporate governance requirements. As in previous years, the Mediation Committee, a body required by the provisions of the German Codetermination Act, had no occasion to take any action in 2010. The chairmen of the committees continually informed the members of the Supervisory Board about the activities of the committees and their decisions, in each case in the Supervisory Board meeting following such decisions. Personnel changes in the Supervisory Board. After the end of the Annual Shareholders’ Meeting held on April 14, 2010, a mem- ber representing the shareholders, Arnaud Lagardère, stepped down from the Supervisory Board of Daimler AG. As proposed by the Supervisory Board, Dr. Paul Achleitner was elected as a member of the Supervisory Board representing the share- holders with effect as of the end of that Annual Shareholders’ Meeting. The election proposal of the Supervisory Board was based on a recommendation made by the Nomination Committee of the Supervisory Board and a resolution by the members of the Supervisory Board representing the shareholders. 18 Personnel changes in the Board of Management. In a Super- visory Board meeting in February 2010, the Supervisory Board resolved to reappoint Dr. Dieter Zetsche and Dr. Thomas Weber as members of the Board of Management, in each case as of January 1, 2011 for three years, in accordance with resolutions of the Supervisory Board passed in the year 2006. In addition, the Super- visory Board resolved to expand the Board of Management with the addition of one position and to appoint Dr. Wolfgang Bernhard as a member of the Board of Management of Daimler AG with responsibility for Production and Procurement Mercedes-Benz Cars and for the Mercedes-Benz Vans division for three years as of February 18, 2010. In a Supervisory Board meeting in September 2010, the Super- visory Board passed a resolution on the future expansion of the Board of Management and the creation of a new Board of Management position with responsibility for Integrity and Legal Affairs. In a meeting dealing with the expansion of the Board of Management through the addition of a position for Integrity and Legal in mid-February 2011, the Supervisory Board resolved to appoint Dr. Christine Hohmann-Dennhardt, a former judge at Germany’s Federal Constitutional Court, as a member of the Board of Man- agement for a period of three years as of February 16, 2011, to make her responsible for Integrity and Legal, and to adjust the schedule of responsibilities of the Board of Management accord- ingly. In addition, the Supervisory Board resolved to reappoint Bodo Uebber as the member of the Board of Management responsible for Finance & Controlling and Daimler Financial Services for a period of three years as of December 16, 2011, in accor- dance with the relevant resolution of the Supervisory Board of the year 2006. Also in this meeting, in the presence of the external auditors, the Supervisory Board dealt with the preliminary key figures of the company and consolidated financial statements and the dividend proposal to be made to the shareholders at the Annual Meeting. The preliminary key figures were disclosed at the Annual Press Conference on February 16, 2011. Audit of the 2010 financial statements. The financial statements of Daimler AG and the combined management report for the Company and the Group for 2010 were duly audited by KPMG AG, Wirtschaftsprüfungsgesellschaft, Berlin, and were given an unqualified audit opinion. The same applies to the consolidated financial statements for 2010 prepared according to IFRS, which were supplemented with the combined management report and additional notes. The financial statements, the Board of Manage- ment’s proposal on the appropriation of profits and the auditors’ reports were submitted to the Supervisory Board for its review. In preparation, the members of the Supervisory Board were pro- vided with comprehensive documentation – some of it in draft form – including the Annual Report, the audit reports of KPMG on the company financial statements of Daimler AG and the consoli- dated financial statements according to IFRS, and the combined management report for Daimler AG and the Group, as well as drafts of the reports of the Supervisory Board and the Audit Com- mittee. A Form 20-F report no longer had to be prepared due to the delisting and deregulation in the United States. The documents presented were dealt with in detail in a meeting at the end of February, first by the Audit Committee and then by the Supervisory Board, and were discussed in the presence of the auditors, who reported on the results of their audit. The Supervisory Board declared its agreement with the results of the audit, established in the framework of its own review that no objections were to be raised, and approved the financial statements presented by the Board of Management. The company financial statements of Daimler AG are thereby adopted. The Supervisory Board also discussed the situation of the EU Commission’s antitrust investi- gations of European manufacturers of commercial vehicles, dealt with the Board of Management’s proposal on the appropriation of profits and approved that proposal. It also approved the report of the Supervisory Board in its current draft and approved the agenda for the Annual Shareholders’ Meeting in 2011. Appreciation. The Supervisory Board thanks all of the employees of the Daimler Group, the management and the departing member of the Supervisory Board for their personal contributions and special efforts, as a result of which the Group performed very well already in the first year after successfully meeting the chal- lenges of crisis year 2009. Stuttgart, February 2011 The Supervisory Board Dr. Manfred Bischoff Chairman To Our Shareholders | Report of the Supervisory Board | 19 Members of the Supervisory Board Dr. Manfred Bischoff Munich Chairman of the Supervisory Board of Daimler AG Other supervisory board memberships/directorships: Fraport AG Royal KPN N.V. SMS GmbH – Chairman UniCredit S.p.A. Voith GmbH – Chairman Erich Klemm* Sindelfingen Chairman of the General Works Council, Daimler Group and Daimler AG; Deputy Chairman of the Supervisory Board of Daimler AG Dr. Paul Achleitner Munich Member of the Board of Management of Allianz SE (since April 14, 2010) Other supervisory board memberships/directorships: Bayer AG RWE AG Allianz Investment Management SE – Chairman Allianz Global Investors AG Sari Baldauf Helsinki Former Executive Vice President and General Manager of the Networks Business Group of Nokia Corporation Other supervisory board memberships/directorships: Hewlett-Packard Company F-Secure Corporation CapMan OYj Fortum OYj Dr. Clemens Börsig Frankfurt am Main Chairman of the Supervisory Board of Deutsche Bank AG Other supervisory board memberships/directorships: Linde AG Bayer AG Emerson Electric Co. 20 Prof. Dr. Heinrich Flegel* Stuttgart Director Research Materials, Lightweight Design and Manufacturing, Daimler AG; Chairman of the Management Representative Committee, Daimler Group Dr. Jürgen Hambrecht Ludwigshafen Chairman of the Board of Executive Directors of BASF SE Other supervisory board memberships/directorships: Deutsche Lufthansa AG Jörg Hofmann* Stuttgart German Metalworkers’ Union (IG Metall), District Manager, Baden-Württemberg Other supervisory board memberships/directorships: Robert Bosch GmbH Heidelberger Druckmaschinen AG Dr. Thomas Klebe* Frankfurt am Main General Counsel of the German Metalworkers’ Union (IG Metall) Other supervisory board memberships/directorships: Daimler Luft- und Raumfahrt Holding AG ThyssenKrupp Materials International GmbH Gerard Kleisterlee Amsterdam President and CEO of Royal Philips Electronics N.V. Other supervisory board memberships/directorships: De Nederlandsche Bank N.V. Royal Dutch Shell Plc. Jürgen Langer* Frankfurt am Main Chairman of the Works Council of the Frankfurt/Offenbach Dealership, Daimler AG Ansgar Osseforth* Sindelfingen Manager Mercedes-Benz Research and Development; Member of the Works Council, Sindelfingen Plant, Daimler AG Valter Sanches* São Paulo Secretary of International Relations of Confederação Nacional dos Metalúrgicos/CUT Dr. Manfred Schneider Leverkusen Chairman of the Supervisory Board of Bayer AG Other supervisory board memberships/directorships: Linde AG – Chairman RWE AG – Chairman TUI AG Stefan Schwaab* Gaggenau Vice Chairman of the General Works Council, Daimler Group and Daimler AG; Vice Chairman of the Works Council, Gaggenau Plant, Daimler AG Jörg Spies* Stuttgart Chairman of the Works Council, Headquarters, Daimler AG (since January 5, 2010) Lloyd G. Trotter Plainville Former Vice Chairman General Electric; President & CEO of the General Electric Group’s Industrial Division; Managing Partner, Founder, GenNx360 Capital Partners Other supervisory board memberships/directorships: PepsiCo Inc. Textron Inc. Dr. h.c. Bernhard Walter Frankfurt am Main Former Spokesman of the Board of Management of Dresdner Bank AG Other supervisory board memberships/directorships: Bilfinger Berger SE – Chairman Deutsche Telekom AG Henkel AG & Co. KGaA Uwe Werner* Bremen Chairman of the Works Council, Bremen Plant, Daimler AG Lynton R. Wilson Toronto Chairman of the Board of CAE Inc.; Chancellor, McMaster University Retired from the Supervisory Board: Arnaud Lagardère Paris General Partner and CEO of Lagardère SCA (retired April 14, 2010) Helmut Lense* Stuttgart Chairman of the Works Council, Untertürkheim Plant, Daimler AG (retired December 31, 2009) Committees of the Supervisory Board: Committee pursuant to Section 27 Subsection 3 of the German Codetermination Act (MitbestG) Dr. Manfred Bischoff – Chairman Erich Klemm* Dr. Manfred Schneider Dr. Thomas Klebe* Presidential Committee Dr. Manfred Bischoff – Chairman Erich Klemm* Dr. Manfred Schneider Dr. Thomas Klebe* Audit Committee Dr. h.c. Bernhard Walter – Chairman Dr. Clemens Börsig Erich Klemm* Stefan Schwaab* Nomination Committee Dr. Manfred Bischoff – Chairman Dr. Manfred Schneider Lynton R. Wilson * Representative of the employees To Our Shareholders | Members of the Supervisory Board | 21 Daimler Shares Daimler’s share price profited in 2010 from the very positive development of the Group’s business operations and developed significantly better than the DAX. We provide analysts and investors with information in the context of comprehensive investor relations activities. Board of Management and Supervisory Board propose dividend payment of €1.85 per share. Development of Daimler’s share price and major indices Key figures per share End of 2010 End of 2009 10/09 % change In euros 2010 2009 10/09 % change Daimler’s share price (in euros) 50.73 37.23 +36 Net profit/loss (basic) DAX 30 Dow Jones Euro STOXX 50 Dow Jones Industrial Average Nikkei Dow Jones STOXX Auto Index 6,914 2,793 11,578 10,229 341 5,957 2,966 10,428 10,546 236 +16 -6 +11 -3 +44 Net profit/loss (diluted) Dividend Equity (December 31) Xetra share price: year-end 1 Highest 1 Lowest 1 1 Closing prices 4.28 4.28 1.85 35.62 50.73 54.87 30.35 -2.63 -2.63 0.00 29.99 37.23 37.65 17.44 . . . +19 +36 +46 +74 Unsettled developments on global stock exchanges. Stock markets worldwide continued their volatile and varied develop- ment in 2010. Against the backdrop of a debate about public-sector debt and the high budget deficits of some countries in the euro zone, investors at first adopted a wait-and-see approach and inter- national stock markets moved sideways. In view of increasing fears of a possible return to recession or a double dip, especially of the US economy, share prices fell to their lowest levels for the year in the summer months. Following the publication of com- panies’ half-year figures and good economic data, sentiment on international stock exchanges started to improve and the most important indices began to climb again in the second half of 2010. Share prices also benefited from the announcement of another program of quantitative easing in the United States and the gradually decreasing risk of a renewed economic slump. Widely differing economic developments in various regions were reflected in share-price movements during the year. The index of the most important stocks in the euro zone, the Dow Jones Euro STOXX 50, fell by 6% over 2010 as a whole. But Germany’s main index, the DAX, developed very positively with a plus of 16%. In addition to the robust German economy, this reflected the fact that companies with major operations outside Europe were prof- iting from the weakness of the euro. After US share prices were at first depressed by concerns about a possible double-dip of the economy, there was a distinct upward trend in the second half of the year, so the Dow Jones also gained 11% in 2010. In Japan, share-price gains in the last two months of the year were not sufficient to give the Nikkei index an overall gain for the year (-3%). Daimler shares gain substantial value during 2010 (+36%). Daimler’s share price started the year 2010 at a price of approxi- mately €37. Prices of cyclical stocks such as Daimler’s suffered in the first two months of the year from investors’ caution follow- ing the announcement of a more restrictive monetary policy by the Chinese central bank and the debt crisis in Greece. As a result of increased selling after the announcement that no divi- dend would be paid for the year 2009, Daimler’s share price fell to its low for the year of €30.35 on February 25. 22 Daimler share price (high/low), 2010 In euros Share price index 60 55 50 45 40 35 30 25 20 15 160 150 140 130 120 110 100 90 80 70 Daimler AG Dow Jones STOXX Auto Index DAX 1/10 2/10 3/10 4/10 5/10 6/10 7/10 8/10 9/10 10/10 11/10 12/10 12/31/09 2/26/10 4/30/10 6/30/10 8/31/10 10/29/10 12/31/10 A long phase of recovery set in after that. Demand for Daimler shares was boosted by investors’ growing confidence that the world economy would revive quickly and by a significant increase in car unit sales. At an analysts’ and investors’ day in Beijing at the end of May, we explained the strategy of the coming years for Mercedes-Benz Cars and announced an outlook for a sustained profitability target of 10% over our business cycle as of the year 2013. This provided further support for our share price. After very volatile movements during the second quarter, it reached a high for the first half of 2010 of €44.50 on June 21. Although the half-year results and the increased earnings guid- ance confirmed the capital market’s positive expectations for our stock, its price was reduced by profit-taking as the year pro- gressed. But a new upswing set in along with the good develop- ment of business in September. Third-quarter results and the renewed increase in earnings guidance for full-year 2010 empha- sized the long-term nature of the recovery. Following an analysts’ and investors’ day and the presentation of the mid-term outlook for Daimler’s commercial-vehicles business at our truck plant in Wörth at the end of November, and a gener- ally positive development of auto stocks, our share price stabilized at above the €50 mark. On December 10, it reached its high for the year of €54.87. During the last trading days of the year, Daimler’s share price came under pressure due to temporary concerns about the outlook for the Chinese car market for the year 2011, and closed for the year in Xetra trading at €50.73. Our market capitalization at the end of 2010 was €54.0 billion. Over the year as a whole, Daimler’s share price increased by €13.50 or approximately 36%. With this strong performance, Daimler shares developed significantly better than the DAX (+16%), but did not quite match the growth rate of the Dow Jones STOXX Auto Index (+44%). Dividend of €1.85 per share. The Board of Management and the Supervisory Board will propose to the Annual Shareholders’ Meeting that a dividend of €1.85 per share be distributed for the year 2010. The total dividend payout will amount to €1,971 million. End of listing on the New York Stock Exchange (NYSE). On May 14, 2010, Daimler informed the New York Stock Exchange (NYSE) and the general public of its intention to discontinue the listing of Daimler shares and of the 8.5% US-dollar bond issued by Daimler Finance North America LLC and due on January 18, 2031, as well as the related Daimler guarantee, and to apply for deregistration with the US Securities and Exchange Commission (SEC). Since the delisting took effect on June 7, 2010 and all securities were deregistered effective September 7, 2010, we no longer have any reporting duties pursuant to the US Securities Exchange Act 1934. The main reason for ending the NYSE listing and deregistering with the SEC is a significant change in the behavior of investors, who now trade in Daimler shares primarily in Germany and on electronic trading platforms. Another reason was to reduce the complexity of financial reporting as well as administrative costs and fees. Irrespective of the delisting and deregistration, Daimler will maintain a high degree of transpar- ency in its financial reporting and will continue to fulfill the requirements of international investors. To Our Shareholders | Daimler Shares | 23 Key figures Stock-exchange data for Daimler shares End of 2010 End of 2009 10/09 % change ISIN +0 +0 -99 +42 -20 Share capital (in millions of €) 3,058 3,045 Number of shares (in millions) thereof treasury shares Market capitalization (in billions of euros) Number of shareholders (in millions) Weighting in share indices DAX 30 Dow Jones Euro STOXX 50 Long-term credit ratings Standard & Poor’s Moody’s Fitch DBRS 1,065.6 0.2 1,061.2 37.1 54.0 1.0 7.51% 2.88% BBB+ A3 BBB+ A (low) 38.1 1.2 5.98% 2.05% BBB+ A3 BBB+ A (low) Launch of American depositary receipt (ADR) program in the United States. In September 2010, we started a sponsored Level 1 ADR program in the United States. The ADRs are traded over the counter in the USA under the symbol DDAIY. The ratio of the ADRs to the underlying ordinary shares is 1:1, i. e. one Daimler ADR represents one Daimler share. Deutsche Bank Trust Company is acting as the depositary bank for the ADR program. International shareholder structure with stable major shareholders. Daimler continues to have a broad shareholder base of approximately 1.0 million shareholders. Shareholder numbers are still decreasing because private investors in particular are reducing their portfolios. The proportion of institutional investors increased again in 2010. Aabar Investments PJSC, Abu Dhabi, holds 9.0% of Daimler’s stock and is thus still our biggest investor. The second-largest shareholder is still the Kuwait Investment Authority with 6.9% of our shares. In April 2010, Daimler AG and the Renault-Nissan Alliance agreed not only on wide-ranging strategic cooperation but also on a cross-share- holding. The Renault-Nissan Alliance received a 3.1% equity inter- est in Daimler, served from our treasury shares. As a result, the proportion of treasury shares held by Daimler fell below the disclosure threshold of 3%. At the end of the year, we held 221,418 treasury shares (0.02%). Capital Research and Management Company, Los Angeles, noti- fied us that it held 3.1% of Daimler’s shares as of May 26, 2010. BlackRock Inc., New York, informed us that it held 3.9% of our shares as of December 2009 and is still above the 3% notification threshold for large shareholders as defined by Germany’s Securi- ties Trading Act (WpHG). 24 German securities identification number Stock-exchange symbol Reuters ticker symbol Bloomberg ticker symbol DE0007100000 710000 DAI DAIGn.DE DAI:GR In total, institutional investors held 62% of our share capital at the end of 2010 and private investors held 19%. Approximately 65% of our equity was in the hands of European investors and approximately 15% was held by U S investors. The weighting of Daimler shares in major indices increased during 2010 due to the positive development of our share price. In the German DAX 30 index, our stock was ranked in 3rd position with a weighting of 7.51% at the end of the year (end of 2009: 5.98%). In the Dow Jones Euro STOXX 50 index, Daimler shares were represented with a weighting of 2.88% (end of 2009: 2.05%). Daimler shares are listed in Frankfurt and Stuttgart. Stock-exchange trading in Germany in the year 2010 amounted to 1,492 million shares (2009: 1,830 million). In addition, Daimler shares were increasingly traded on newly created multi- lateral trading platforms and in the over-the-counter market. Resumption of employee share program. In May 2010, eligible members of the workforce were once again able to acquire employee shares and make use of the newly increased tax-exempt amount. As a result, 19,400 employees acquired a total of 350,700 shares. Annual Shareholders’ Meeting affirms management’s proposals with large majorities. Our Annual Shareholders’ Meeting held on April 14, 2010 at the Berlin International Congress Centrum (ICC) was visited by approximately 4,700 share - holders (2009: 7,000). With 40.3% of the share capital repre- sented at the Annual Meeting, shareholder representation was close to the level of the prior year (2009: 41.6%). In the voting on the items of the agenda, the shareholders adopted the recom- mendations of the management with large majorities. The shareholders are able to exercise their voting rights at the Annual Meeting either in person or through a proxy of their own choice or through a proxy appointed by Daimler who is bound by their voting instructions. For Annual Shareholders’ Meeting 2011, we intend to offer the possibility of absentee voting for the first time. All documents and information on the Annual Meeting are available at www.daimler.com/ir/am. Daimler once again utilized the exhibition space at the ICC to demonstrate to the shareholders the Group’s broad spectrum of products and technological expertise, especially in the area of sustainable mobility. Shareholder structure as of December 31, 2010 By type of shareholder Shareholder structure as of December 31, 2010 By region Aabar Investments PJSC Kuwait Investment Authority Renault-Nissan Institutional investors Retail investors 9.0% 6.9% 3.1% 61.9% 19.1% Germany Europe, excluding Germany USA United Arab Emirates Kuwait Asia Rest of the world 28.2% 36.9% 15.4% 9.0% 6.9% 3.0% 0.6% Comprehensive investor relations activities. In the year 2010, the Investor Relations department once again provided timely information on the development of the Group to institutional investors, analysts, rating agencies and retail investors. Our com- munication activities for institutional investors and analysts included roadshows in the major financial centers of Europe, North America, Asia and Australia, as well as large numbers of one-on-one meetings. We carried out presentations of the Group in the context of investor conferences, in particular during the international motor shows in Geneva, Paris and Hanover. We regu- larly reported on our quarterly results via conference calls and Internet broadcasts. The presentations can be seen on our web- site at http://www.daimler.com/ir/event/e. The focus of discussions with analysts and investors was on current earnings expectations for the year 2010 as well as business developments and profitability in the various divisions and regions. Three of last year’s events are particularly noteworthy: On April 7, 2010, Daimler announced its strategic alliance with Renault- Nissan at a joint press conference. Capital-market players were informed about the cooperation with a live video broadcast on the Internet and a separate conference call with the two CEOs. On May 28, 2010, we held an analysts’ and investors’ day in Beijing with speeches and discussions on the outlook and goals of Mercedes-Benz Cars in China. On November 30, 2010, we hosted approximately 160 analysts, investors and bank represen- tatives at our truck plant in Wörth and informed them about the outlook and goals of Daimler Trucks and Daimler Buses in the various regions of the world. Internet website makes use of new possibilities. Following the thorough modernization of the Daimler Group’s website, a wide range of corporate topics were presented in 2010. Users are encouraged to take a closer look by an innovative, multi- media form of presentation with informative texts, schematic ani- mations and a lot of film material. We also revised our mobile website so that it can now be accessed optimally by mobile devices such as smart phones. In addition to the existing investor rela- tions content, all current information on Daimler’s brands and products as well as technological and innovation topics can be accessed quickly and conveniently when on the move at www.daimler.mobi. Furthermore, a new Daimler app is now available for iPhone™ and iPad™ users. They can optimally access multimedia specials, for example on the Group’s brands, products, technologies or events. Our interactive Annual Report 2009 was honored by the League of American Communications Professionals LLC (LACP) with an LACP Award in Silver. The jury particularly praised the visual design and the perceived relevance of the information to the target group. Number of online shareholders remains at a high level. Our electronic information and communication service was as popular as ever in 2010. The number of shareholders who received their invitations to the Annual Meeting by e-mail instead of by post increased from 85,000 to 90,000. We thank those share- holders for helping us to protect the environment and reduce costs. Once again in 2010, we held a lottery among the participating shareholders with 50 attractive prizes for the winners. Access and further information on the e-service for shareholders can be found on our website at https://register.daimler.com. After the optimization of our electronic annual meeting services, our online shareholders were able for the first time to print out their tickets themselves for Annual Meeting 2010. Approximately 1,400 shareholders made use of this service. To Our Shareholders | Daimler Shares | 25 The success story of motorized and individual transport began 125 years ago with the invention of the automobile by our pioneers, Gottlieb Daimler and Carl Benz. This anniversary is especially significant for Daimler. In the tradition of our company’s founders, we have put numerous technical achievements on the road since then. Daimler has always played a pioneering role and will continue to shape the future of mobility with groundbreaking innovations for automobiles and commercial vehicles. Innovation Close Up. Every pioneering achievement begins with attention to detail. The most appealing form of efficiency Thanks to an innovative technology package, the new Mercedes-Benz V6 and V8 gasoline engines achieve out- standing performance combined with low fuel consumption. Clean and efficient internal-combustion engines will form the basis of mobility for a long time to come – also for vehicles with hybrid drive. Mercedes-Benz models such as the new CLS put that new efficiency on the road in style. 28 Cylinder liner of the new V6 and V8 engines. Innovation Close Up | 29 With its unique design, refined sportiness and maximum efficiency, the all-new Mercedes-Benz CLS has admirers all over the world. 30 I t has been an exciting newcomer right from the start: the Mercedes-Benz CLS established a completely new automobile segment when the first version was launched as the world’s first four-door coupe in 2003. The new version of the CLS was unveiled in 2010. Like its predecessor, the second generation also communicates sensuousness and discernment, design and technology in a very special way. The silhouette of the CLS has become even more emotive with a new com- bination of lines and surfaces. The interior features timeless design and innovative details. The dynamism of the CLS is enhanced by its lightweight construction and efficient V6 and V8 engines that reduce fuel consumption by up to 25 percent while delivering even more power than their predecessors. So it was no surprise that the style icon was awarded the Golden Steering Wheel 2010 by the jury and readers of “Auto Bild,” “Bild am Sonntag” and other European car magazines. “Outstanding design and a highly efficient powertrain give the new CLS its unique character.” Hubert Lee, Creative Director, Mercedes-Benz Research & Development, Advanced Design, Carlsbad, California Design trendsetter and efficiency pioneer. All four V6 and V8 engines available in the Mercedes-Benz CLS offer more power and lower fuel consumption than their predecessors. Innovation Close Up | 31 The efficient E-Class convertible doesn’t follow the flow, it defines it. T he Mercedes-Benz E-Class convertible has a universal appeal. Of the new cars launched in 2010, it was voted “most beautiful convertible of 2010” by the readers of Germany’s “auto motor und sport” magazine. This open four-seater with a traditional soft top also won the Autonis design prize for its pure convertible feeling and style. The E-Class convertible appeals with clear proportions and an elegant silhouette. It is also unique “The beauty and elegance of my E-Class convertible delight me again and again. The same applies to its outstanding efficiency.” for its level of safety and excellent all-year comfort with its Stefan von Wallfeld, entrepreneur, Stuttgart innovative AIRCAP wind deflector, AIRSCARF neck-level heating, and a sound-absorbing cloth roof. The convertible awakens emotions – not only with its pioneering design and comfort but also with its engines: The next-generation V6 and V8 technology makes the open four-seater even more powerful, but at the same time cleaner and more economical. So the Mercedes-Benz E-Class convertible is the open-air star of all four seasons. 32 A wind of change for more efficiency. Innovative direct gasoline-injection engines in the Mercedes-Benz E-Class convertible provide abundant power while reducing fuel consumption and emissions. Innovation Close Up | 33 Honeycomb structure of an SCR catalytic converter as a module for reducing nitrogen oxides. 34 Fit for the future down to the last detail. SCR technology makes economical diesel engines so clean that they fulfill the world’s most stringent emission limits. As a pioneer, Daimler introduced this revolutionary exhaust technology under the name of “BLUETEC” in commercial vehicles in 2005 and in cars in 2006. Now the new Freightliner Cascadia trucks are traveling the US highways with SCR catalytic convertors. Innovation Close Up | 35 “The Freightliner Cascadia with SCR technology is my first choice to fulfill the stringent EPA 2010 emission limits in the USA.” P erfectly prepared for a clean future. After receiving several major orders, Daimler Trucks North America (DTNA) already sold approximately 20,000 BlueTec trucks of the Freightliner and Western Star brands in 2010. One of the orders was from Schneider National, Inc., one of the biggest transportation companies in the United States. Since 1996, Schneider has been using engines from Daimler subsidiary Detroit Diesel Corporation, which already Chris Lofgren, CEO Schneider National, Inc., Green Bay, Wisconsin introduced SCR technology in 2005. The innovative Detroit Diesel engines are now the most popular engines in new Freightliner trucks. Under the name of BlueTec, DTNA launched SCR exhaust treatment systems to fulfill the stringent EPA 2010 emission limits in the USA, as this technology has proven to be the most effective in reducing the emission of pollutants. With SCR catalytic con- verters, Freightliner is making use of the experience gained with Mercedes-Benz BlueTec trucks, which have already covered many millions of kilometers in Europe - safely, reliably and economically. In 2009, Schneider took part in tests of SCR technology in every- day conditions with two Cascadias, the flagship of Freightliner’s heavy-duty truck class. The transportation company has now ordered additional Cascadias with SCR exhaust systems, to help keep the wheels of the North American economy turning while protecting the environment. 36 Freightliner Trucks with clean SCR technology are on the way up. Strong performance: All new Freightliner Cascadia trucks are available with SCR exhaust treatment systems. In Europe, BlueTec trucks from Mercedes- Benz have already covered more than 20 million kilometers with the innovative SCR technology. Innovation Close Up | 37 A pioneering combination. Hybrid drive systems combine combustion engines with electric motors and represent a milestone in the further improvement of automotive efficiency. Daimler has developed a modular hybrid kit that can be used to create many versions of hybrid drive depending on performance and range of application. The Mercedes-Benz Atego BlueTec Hybrid and the Mercedes-Benz Citaro FuelCELL-Hybrid have proven their innovative strengths in practical use. 38 A pioneering combination. The lacquered copper windings of an electric motor in a hybrid drive system. Innovation Close Up | 39 The Atego BlueTec Hybrid delivers top performance. Also in terms of environmental protection. 40 At the top. As “Truck of the Year 2011,” the Mercedes-Benz BlueTec Hybrid impresses customers with its environmentally friendly drive system – but also with its contribution to sustainable local deliveries. “We have put all of our passion for trucks on the road in the Atego BlueTec Hybrid. And our expertise for economy and sustainability.” Georg Klohr, Head of Prototype Construction/Production Mercedes-Benz Atego BlueTec Hybrid, Mercedes-Benz Plant Mannheim C leanliness, safety, practicality and comfort – those are the key product features of the Mercedes-Benz Atego BlueTec Hybrid. That’s why an international jury of experts voted this innovative multi-talent as “Truck of the Year 2011.” Not only in the hybrid version, but in all models of the medium-duty delivery truck, drivers today enjoy a level of equipment that was previ- ously reserved for their long-haulage colleagues. In addition, the advanced parallel hybrid drive reduces fuel consumption and CO2 emissions by 10 to 15 percent. With the parallel hybrid, Daimler as the leading producer of commercial vehicles has also created the international standard for hybrid architecture. Following successful fleet applications, the first 50 Mercedes-Benz Atego BlueTec Hybrid of the next stage of evolution were sold to cus- tomers in late 2010. With this environmentally friendly truck, Mercedes-Benz has made progress on commercial vehicles with hybrid drive with a worldwide impact. The series-produced Atego BlueTec Hybrid is regarded as a trailblazer for alternative drive systems in delivery vehicles and was therefore rewarded in the autumn of 2010 with the “German Sustainability Prize” in the product category. Innovation Close Up | 41 “Economical, safe, clean. That’s the future of public transport – in Hamburg with the Citaro FuelCELL-Hybrid.” Günter Elste, CEO of Hamburger Hochbahn (public-transport company), Hamburg 42 Environmentally friendly by design. The Citaro FuelCELL-Hybrid provides urban mobility without any local emissions. A win-win situation. The Mercedes-Benz Citaro FuelCELL-Hybrid fulfills urban mobility requirements with a high standard of environmental compatibility and extremely good economy. C ities and urban areas can take a deep breath. Without any local emissions but with very good economy, the Mercedes- hybrid urban bus has arrived. The Citaro FuelCELL-Hybrid is also on time for the EU-supported project CHIC (Clean Hydrogen in Benz Citaro FuelCELL-Hybrid is at the forefront of sustainable European Cities), which started in Cologne in 2010. The goal is to mobility. The latest generation of environmentally friendly, integrate 26 fuel-cell buses into regular daily service in the five energy-efficient fuel-cell hybrid buses will set a benchmark for cities of Aarau, Bolzano, Milan, London and Oslo. This project public transport as of spring 2011, also as part of the NaBuZ will benefit from the experience gained in successful predeces- project (Sustainable Bus Systems of the Future) in Hamburg. sor projects in Berlin, Hamburg, Cologne and Whistler, Canada. Thanks to further improved fuel cells and hybridization with Daimler is participating in the large-scale CHIC fleet tests with lithium-ion batteries, the pioneering Citaro FuelCELL-Hybrid has the next-generation Mercedes-Benz Citaro FuelCELL-Hybrid and a range of approximately 250 kilometers and consumes only is thus shaping the future of locally emission-free public about half as much hydrogen as its predecessor: The outstanding transport. Innovation Close Up | 43 A connection for moving moments. Locally emission-free vehicles will only become properly mobile when we have a standardized battery-charging infrastructure. Together with small and medium-sized companies, Daimler has developed a uniform charging plug for all German producers. It makes battery charging and paying for the electricity as safe and easy for customers as using a mobile phone. The Mercedes-Benz Vito E- CELL and the smart fortwo electric drive are already using it. 44 Detail of the innovative charging plug of an electric vehicle. Innovation Close Up | 45 Intelligent battery charging: The Vito E-CELL charges its batteries with green electricity for a better quality of life. 46 Emission-free driving ex-factory. The Mercedes-Benz Vito E-CELL is in use with customers as the world’s first series-produced electric van. “On each of its journeys, the Vito E-CELL also transports a significant degree of innovative spirit and responsibility. Qualities that benefit its owners as well as the environment.” Dr. Joachim Wessels, Executive Board Member for Letters, Deutsche Post AG, Bonn E volution in the city. The Mercedes-Benz Vito E-CELL is ringing in a new era of clean urban transport. In 2010, Mercedes- Benz delivered the first E-CELL vans to customers in Berlin. They were from the first series of vans with electric drive to roll off the assembly line. Daimler is pushing forward with electric mobility together with companies, energy suppliers and politicians. With the Vito E-CELL, locally emission-free electric vans are now a real- ity on our roads. The pioneers of electric mobility in commercial use include Deutsche Post DHL, which uses the Vito E-CELL in every-day deliveries. A precondition for economical and environ- mentally friendly operation is an intelligent battery-charging system allowing customers to decide when to charge their vehicles themselves. The Vito E-CELL meets this requirement with its Smart Charge Communication Unit (SCCU), which enables users to charge their lithium-ion batteries when “green” and less expen- sive electricity is available. That reduces emissions and costs. A genuine benefit for the environment – and for the Vito E-CELL. It has received several prizes for its groundbreaking technology such as “Postal Technology Award 2010” and “Green Commercial of the Year” from the Irish “Fleet Transport” magazine. Innovation Close Up | 47 “More than ten years ago, the smart changed the face of cities all over the world. Today, we are pioneers of urban mobility – with our smart fortwo electric drive.” Maja Affeldt, biotech engineer, and Julian Affeldt, primary school teacher, Kleinmachnow, Berlin 48 One hundred percent fun and zero local emissions with the smart fortwo electric drive. T he new smart fortwo electric drive is electrifying Europe’s metropolises. The first fleet already caused a stir in London in 2007 and the second generation has been very popular since its launch in late 2009. Since the first of the electrically powered city cars were handed over to customers in Berlin, it has also become part of the urban lifestyle in Rome, Madrid, Zurich, Paris and London. But the environmentally friendly cosmopolitan will also demonstrate its practicality in other major cities of Europe, North America and Asia. As of 2012, the locally emission-free smart fortwo electric drive will be generally available in approxi- mately 40 smart markets, with a production volume in excess of 10,000 units. The fun of driving this car starts with a standard electric socket, which can be used to charge the lithium-ion batteries of the smart fortwo electric drive in just three hours. That gives the car a range of approximately 135 kilometers, more than enough for typical urban driving. The smart fortwo electric drive has a highly responsive rear-mounted 30kW electric motor, whose torque is fully available immediately after starting. More than 1,500 of these zero-emission trendsetters will at first be produced at the plant in Hambach, France, by the end of 2011. With the smart fortwo electric drive, the cult brand plays a pioneering role also in terms of emission-free metropolitan driving. Innovation Close Up | 49 Camera lens of Night Vision Assistant PLUS in the car windscreen. 50 A first-class outlook for safety. The infrared camera of Night View Assistant PLUS from Mercedes-Benz shows what’s going on ahead of the car on a dashboard display. Intelligent assistance systems make the automobile into a partner that can see, think ahead and react. This allows the driver to avoid accidents. Safety at the highest level can be experienced in the Mercedes-Benz S- Class. Innovation Close Up | 51 “For me, success is when I achieve my goals. And others win as well. The safety concept of my S-Class also takes full consideration of all interests.” Shen Li, entrepreneur, Shanghai D riving at night will be safer in the future: with the new Active Night Vision Assistant PLUS, another milestone in active safety from Mercedes-Benz. The further developed driver assistance in the S-Class makes night into day. Already since 2009, Active Night Vision Assistant PLUS has been able to recognize pedestrians on the road in the dark and show them on a dashboard display to warn the driver. Now, Mercedes-Benz has taken a decisive step forward and has launched the latest stage of development with a spotlight function as a world first. In the driver’s immediate field of vision, warnings of potential danger are displayed by flashing the headlights at people on the road. A positive side-effect is that the pedestrians are also warned. This means that a Mercedes-Benz S-Class equipped with the spotlight function not only protects the occupants, but also makes a significant contribution to enhancing the safety of other road users – for a completely new level of safety at night. 52 In focus: state-of-the-art safety equipment in the Mercedes-Benz S-Class. Drive through the night safely in the epitome of luxurious transport. The Mercedes-Benz S-Class offers even more safety for all road users with the new Active Night Vision Assistant PLUS. Innovation Close Up | 53 A sign of excellent customer relations. With a future-oriented download application for mobile users, Mercedes-Benz was the world’s first auto financer to provide important service functions in this way. The mobile strategy is now going a step further with the Apple iPadTM in the show- rooms of US Mercedes-Benz dealerships. 54 The electronic signature function is part of the mobile service strategy. Innovation Close Up | 55 New devices make customer service mobile. 56 The advantages are obvious. The iPadTM allows quick and direct access to the MB Advantage dealer system with customers in the showroom. M ercedes-Benz Financial has been keeping up with the market since 1982. As a partner to Mercedes-Benz dealers At vehicle points of sale and in dialogue with customers, the finance teams can access the MB Advantage dealer system and customers, Mercedes-Benz Financial is now also setting quickly and easily with the tablet computer. Already during the trends in the United States: with services that can be used with pilot project in mid-2010, it soon became clear how everyone iPhonesTM and other smartphones, and now also with the Apple involved would benefit. From new financing to leasing contracts iPadTM. This allows the intelligent acceleration of a comprehen- to the return of leased vehicles, orders can now be processed sive range of financing products for Mercedes-Benz vehicles. with greater customer focus and more efficiency. Another pio- The 355 North American Mercedes-Benz dealerships are the neering aspect is the electronic signature function, which allows first in the world to use the new mobile application in a business customers to sign documents directly on the screen. environment for innovative customer care. “With MB Advantage on iPadTM, we can access real-time information on the showroom floor. For even better and more flexible service. That’s a genuine competitive advantage.” Bernie Moreno, President of Mercedes-Benz of North Olmsted, Cleveland, Ohio Innovation Close Up | 57 We invented the automobile. And we are constantly reinventing it. With enthusiasm and passion. Daimler will safeguard mobility for future generations with innovative and sustainable vehicle concepts, a unique product mix, environmentally friendly drive systems and groundbreaking safety technologies. The year 2010 developed more favorably than expected for Daimler. Unit sales by all divisions increased by strong double-digit rates. Revenue grew by 24% to €97.8 billion and operating result (EBIT) reached €7.3 billion (2009: EBIT of minus €1.5 billion). We anticipate a generally positive devel- opment of business in the year 2011. Management Report 62 - 73 Business and General Conditions 98 - 101 Daimler AG (condensed version according to HGB) 62 63 63 65 68 68 69 71 The Group Corporate governance Information and explanation relevant to acquisitions Strategy Settlement with US authorities New Board of Management position for Integrity and Legal Affairs Economy and the industry Business development 99 100 101 101 Profitability Financial position, liquidity and capital resources Risks and opportunities Outlook 102 Overall Assessment of the Economic Situation 103 Events after the End of the 2010 Financial Year 74 - 88 Profitability 104 - 113 Risk Report 74 77 78 80 82 83 86 87 88 EBIT Financial performance measures Value added Statement of income/loss Dividend Research and development, environmental protection Employment Procurement Information technology 89 - 95 Liquidity and Capital Resources 89 90 92 93 94 95 Principles and objectives of financial management Cash flows Capital expenditure Refinancing Other financial commitments and off-balance-sheet transactions Credit ratings 96 - 97 Financial Position 104 104 106 108 112 113 113 Risks and opportunities Risk management systems Economic risks Industry and business risks Financial risks Legal risks Overall risk 114 - 119 Outlook 114 114 115 117 117 118 119 119 World economy Automotive markets Unit sales Revenue and earnings Opportunities and risks Capital expenditure Research and development Workforce 152 - 157 Remuneration Report The Remuneration Report in the Corporate Governance section on pages 152 ff is also a part of the Management Report. Management Report | Contents | 61 Business and General Conditions The Group Daimler AG is the parent company of the Daimler Group and is domiciled in Stuttgart. The main business of the Company is the development, production and distribution of cars, trucks and vans in Germany and the management of the Daimler Group. In addition to Daimler AG, the Daimler Group includes all the subsidiaries throughout the world in which Daimler AG has a direct or indirect controlling interest. Through those companies, we conduct for example our business with buses and financial services. The management reports for Daimler AG and for the Daimler Group are combined in this Management Report. Daimler can look back on a tradition now covering 125 years, a tradition that extends back to Gottlieb Daimler and Carl Benz, the inventors of the automobile, and features pioneering achieve- ments in automotive engineering. Today, the Daimler Group is a globally leading vehicle manufacturer with an unparalleled range of premium automobiles, trucks, vans and buses. The product portfolio is completed by a range of tailored automotive services. With its strong brands, Daimler is active in nearly all the countries of the world. The Group has production facilities in a total of 18 countries and approximately 8,000 sales centers worldwide. The global networking of research and development activities and of production and sales locations gives Daimler considerable potential to enhance efficiency and gain advantages in interna- tional competition. For example, we can apply our green drive technologies in a broad portfolio of vehicles while utilizing experience and expertise from all parts of the Group. In the year 2010, Daimler generated revenue of €97.8 billion. The individual divisions contributed to this total as follows: Mercedes-Benz Cars 53%, Daimler Trucks 22%, Mercedes-Benz Vans 8%, Daimler Buses 5% and Daimler Financial Services 12%. At the end of 2010, Daimler employed a total workforce of more than 260,000 people worldwide. The products supplied by the Mercedes-Benz Cars division range from the high-quality small cars of the smart brand to the premium automobiles of the Mercedes-Benz brand and to the Maybach luxury sedans. The main country of manufacture is Germany, but the division also has production facilities in the United States, China, France, South Africa, India, Vietnam and Indonesia. Worldwide, Mercedes-Benz Cars has 17 production sites at present. In order to extend our product range in the compact-car segment, we are currently constructing a new plant in Hungary, which is scheduled to go into operation in 2012. The most important markets for Mercedes-Benz Cars in 2010 were Germany with 23% of unit sales, the other markets of Western Europe (27%), the United States (17%) and China (13%). As the biggest globally active manufacturer of trucks above 6 tons gross vehicle weight, Daimler Trucks develops and produces vehicles in a global network under the brands Mercedes-Benz, Freightliner, Western Star and Fuso. The division’s 28 production facilities are in the NAFTA region (14, thereof 11 in the United States and 3 in Mexico), Asia (5), Europe (7), South America (1) and Africa (1). In Brazil, Daimler Trucks will expand its production network in 2012 with the addition of the plant in Juiz de Fora, where heavy-duty Mercedes-Benz Actros trucks as well as medium-duty Mercedes-Benz Accelo trucks will be produced for Latin American markets. Daimler Trucks’ product range includes light-, medium- and heavy-duty trucks for local and long-distance deliveries and construction sites, as well as special vehicles for municipal applications. Due to close links in terms of production technology, the division’s product range also includes the buses of the Thomas Built Buses and Fuso brands. Daimler Trucks’ most important sales markets in 2010 were Asia with 34% of unit sales, the NAFTA region (22%), Latin America excluding Mexico (16%) and Western Eu rope (16%). Mercedes-Benz Vans has production facilities at a total of seven locations in Germany, Spain, the United States, Argentina and Vietnam, and since April 2010 also in China in the context of a 50:50 joint venture, Fujian Daimler Automotive. The division’s product range comprises the Sprinter, Vito/Viano and Vario series in weight classes from 1.9 to 7.5 tons. The most important markets for vans are in Euro pe, which accounts for 77% of unit sales. The Sprinter is sold in the United States under the Freight- liner brand and since the beginning of 2010 also under the Mercedes-Benz brand. 62 Consolidated revenue by division Corporate governance Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services 53% 22% 8% 5% 12% The Daimler Buses division with its brands Mercedes-Benz, Setra and Orion is the world’s leading manufacturer of buses and coaches above 8 tons. The product range supplied by Daimler Buses comprises city and intercity buses, coaches and bus chassis. The most important of the 15 production sites are in Germany, Turkey, Latin America, France, Spain and the NAFTA region. In 2010, 45% of Daimler Buses’ revenue was generated in Western Europe, 12% in the NAFTA markets and 27% in Latin America (excluding Mexico). While we mainly sell complete buses in Europe and the NAFTA region, our business in Latin America, Africa and Asia is focused on the production and distribution of bus chassis. The Daimler Financial Services division supports the sales of the Daimler Group’s automotive brands in nearly 40 countries. Its product portfolio primarily comprises tailored financing and leasing packages for customers and dealers, but it also provides services such as insurance, fleet management, investment prod- ucts and credit cards. The main areas of the division’s activities are in Western Europe and North America. In 2010, more than 40% of the vehicles sold by the Daimler Group were financed by Daimler Financial Services. Its contract volume of €63.7 billion covers 2.5 million vehicles. Daimler Financial Services also holds a 45% interest in the Toll Collect consortium, which operates an electronic road-charging system for trucks over 12 tons on high- ways in Germany. Through a subsidiary, Daimler holds a 22.5% equity interest in the European Aeronautic Defence and Space Company (EADS), a leading company in the aerospace and defense industries. In economic terms, Daimler owns a 15% stake in EADS, because a consortium of national and international investors owns a one-third interest in the subsidiary that holds the EADS shares. Daimler also holds a 28.4% equity interest in Tognum AG, one of the world’s leading producers of off-highway engines. Through a broad network of holdings, joint ventures and cooperations, Daimler is active in the global automotive industry and related sectors. A list of shareholdings in accordance with Section 313 of the German Commercial Code (HGB) can be found on the Internet at http://www.daimler.com/ir/results2010. Full information on the subject of corporate governance at Daimler is provided in the Corporate Governance section of this Annual Report on pages 148 ff. Corporate Governance Statement. The Corporate Governance Statement to be issued pursuant to Section 289a of the German Commercial Code (HGB) is a constituent part of this combined Management Report and can be seen on the Internet at www.daimler.com/corpgov/de. Pursuant to Section 317 Sub- section 2 Sentence 3 of the HGB, the contents of the statement pursuant to Section 289a of the HGB are not included in the audit carried out by the external auditors. Remuneration Report. A description of the system of remuner- ation and the individualized details of the remuneration of the members of the Board of Management and of the Supervisory Board are provided in the Remuneration Report on pages 152 ff. That report is also a constituent part of the Management Report. Information and explanation relevant to acquisitions (Report pursuant to Section 315 Subsection 4 and Section 289 Subsection 4 of the German Commercial Code (HGB)) Management; appointment and dismissal of members of the Board of Management. Daimler AG is a stock corporation domiciled in Germany. It is managed by a Board of Management, whose members are authorized to represent it vis-à-vis third parties. The Board of Management must have at least two members, who, in accordance with Section 84 of the German Stock Corpo- ration Act (AktG), are appointed by the Supervisory Board for a maximum period of office of five years. Reappointment or the extension of a period of office is permissible, in each case for a maximum of five years. Appointments and reappointments can only be made by a resolution of the Supervisory Board; reap- pointments may generally not be made more than one year before the end of a Board of Management member’s current period of office. The Supervisory Board appoints one of the members of the Board of Management as the Chairman of the Board of Management. In exceptional cases, a member of the Board of Management can be appointed by the court in accordance with Section 85 of the German Stock Corporation Act (AktG). The Supervisory Board can revoke the appointment of a member of the Board of Management and of the Chairman of the Board of Management if there is an important reason to do so. Management Report | Business and General Conditions | 63 to a takeover offer from a third party on the shares of any other party, or the case of a change of control of the issuer of the shares in question. Authorization to buy back shares, approved and conditional capital. On April 14, 2010, the Annual Shareholders’ Meeting revoked the authorization to acquire own shares that had been granted in the prior year to the extent that it had not yet been utilized. At the same time, the Company was again authorized during the period until April 13, 2015 to acquire own shares for certain defined purposes up to a maximum of 10% of the share capital at the time of the resolution by the Annual Shareholders’ Meeting. The purchase of the Company’s own shares is allowed, inter alia, for the following purposes: for the purpose of canceling them, offering them to third parties in connection with a corporate merger or acquisition, disposing of them in another way than offering them to all shareholders, and serving the stock option plan. Own shares in a volume of up to 5% of the share capital existing at the time of the resolution of the Annual Shareholders’ Meeting can also be acquired with the use of derivative financial instruments, whereby the period of the individual option may not exceed 18 months. By resolution of the Annual Shareholders’ Meeting held on April 8, 2009, the Board of Management was authorized with the consent of the Supervisory Board to increase the share capital of Daimler AG during the period until April 7, 2014 by issuing new registered shares of no par value in exchange for cash or non-cash contributions, wholly or in partial amounts, on one or several occasions, by up to €1,000 million (Approved Capital 2009). The Board of Management was also authorized, inter alia, under certain circumstances and with the consent of the Supervisory Board to exclude shareholders’ subscription rights. Furthermore, the Board of Management was authorized by reso- lution of the Annual Shareholders’ Meeting of April 14, 2010 with the consent of the Supervisory Board during the period until April 13, 2015 to issue convertible bonds and/or bonds with warrants or a combination of these instruments, once or several times, in a total nominal amount of up to €10 billion with a maxi- mum term of ten years, and to grant the owners/lenders of those bonds conversion or option rights to new, registered shares of no par value in Daimler AG with a corresponding amount of the share capital of up to €500 million, in accordance with the terms and conditions of those convertible bonds or bonds with warrants. The bonds can also be issued by direct or indirect majority- owned subsidiaries of Daimler AG. Accordingly, the share capital was conditionally increased by up to €500 million (Conditional Capital 2010). No use has yet been made of the authorization to issue convertible bonds and/or bonds with warrants. Purpose of the Company; amendments to the Articles of Incorporation. The general purpose for which the Company is organized is defined in Article 2 of the Articles of Incorporation. Pursuant to Section 179 of the German Stock Corporation Act (AktG), the Articles of Incorporation can only be amended by a resolution of a Shareholders’ Meeting. In accordance with Section 133 of the German Stock Corporation Act (AktG) and Article 16 Paragraph 1 of the Articles of Incorporation, resolutions of a Shareholders’ Meeting are passed with a simple majority of the votes cast, unless otherwise required by binding provisions of applicable law, and with a simple majority of the share capital represented at the Shareholders’ Meeting if this be required, and with a relative majority of the yes votes in the case of voting in accordance with Article 16 Paragraph 2 of the Articles of Incor- poration. Pursuant to Section 179 Subsection 2 of the German Stock Corporation Act (AktG), any amendment to the purpose of the Company requires a 75% majority of the share capital repre- sented at the Shareholders’ Meeting. Amendments to the Articles of Incorporation that only affect the wording can be decided upon by the Supervisory Board in accordance with Article 7 Para- graph 2 of the Articles of Incorporation. Pursuant to Section 181 Subsection 3 of the German Stock Corporation Act (AktG), amend- ments to the Articles of Incorporation take effect upon being entered in the Commercial Register. Subscribed capital. The subscribed capital of Daimler AG amounts to €3,058 million at December 31, 2010. It is divided into 1,065,641,907 registered shares of no par value. All shares confer equal rights to their holders. Each share confers the right to one vote and, with the possible exception of any new shares that are not yet entitled to a dividend, to an equal share of the profits. The rights and obligations arising from the shares are derived from the provisions of applicable law. There were 221,418 treasury shares at December 31, 2010. Restrictions on voting rights and on the transfer of shares. The Company does not have any rights from treasury shares. In the cases described in Section 136 of the German Stock Corpo- ration Act (AktG), the voting rights of treasury shares are nullified by law. Shares acquired by employees within the context of the employee share program may not be disposed of until the end of the following year. On April 7, 2010, Daimler AG and the Renault-Nissan Alliance signed a master cooperation agreement on wide-ranging strate- gic cooperation and a cross-shareholding. Renault S.A. and Nissan Motors Co. Ltd each received an equity interest of 1.55% in Daimler AG and Daimler AG received equity interests of 3.1% in each of Renault S. A. and Nissan Motors Co. Ltd. For the duration of the master cooperation agreement, but at least for five years, i) Daimler AG may not transfer its shares in Renaul S.A. and Nissan Motors Co. Ltd and ii) Renault S.A. and Nissan Motors Co. Ltd may not transfer their shares in Daimler AG, to a third party with- out prior written consent. Transfers to third parties that are not competitors of one of the issuers of the shares in question are exempted from this prohibition under certain circumstances, including the case of internal corporate transfers, transfers related 64 Change-of-control clause. Daimler AG has concluded various material agreements, as listed below, that include clauses regu- lating the possible occurrence of a change of control, as can occur as a result of a takeover bid: – A non-utilized syndicated credit line in a total amount of €7 billion, which the lenders are entitled to terminate if Daimler AG becomes a subsidiary of another company or comes under the control of one person or several persons acting jointly. – Credit agreements with lenders for a total amount of €800 million, which the lenders are entitled to terminate if Daimler AG becomes a subsidiary of another company or comes under the control of one person or several persons acting jointly. – Guarantees and securities for credit agreements of consolidated subsidiaries for a total amount of €505 million, which the lenders are entitled to terminate if Daimler AG becomes a subsidiary of another company or comes under the control of one person or several persons acting jointly. – An agreement concerning the acquisition of a majority (50.1%) of AFCC Automotive Fuel Cell Cooperation Corp., which has the purpose of further developing fuel cells for automotive appli- cations and making them marketable. In the case of a change of control of Daimler AG, the agreement provides for the right of termination by the other main shareholder, Ford Motor Com- pany, as well as for a put option for the minority shareholder, Ballard Power Systems. Control as defined by this agreement is the beneficial ownership of the majority of the voting rights and the resulting right to appoint the majority of the members of the Board of Management. – A master cooperation agreement on wide-ranging strategic cooperation with Renault S.A., Renault-Nissan B. V. and Nissan Motors Co. Ltd. in connection with cross-shareholdings. The Renault-Nissan Alliance received an equity interest of 3.1% in Daimler AG and Daimler AG received equity interests of 3.1% in each of Renault S. A. and Nissan Motors Co. Ltd. In the case of a change of control of one of the parties to the agreement, each of the other parties has the right to terminate the agree- ment. A change of control as defined by the master cooperation agreement occurs if a third party or several third parties acting jointly acquires, legally or economically, directly or indirectly, at least 50% of the voting rights in the company in question or is authorized to appoint a majority of the members of the managing board. Under the master cooperation agreement, several cooperation agreements were concluded between Daimler AG on the one side and Renault and/or Nissan on the other concerning a new architecture for small cars and the shared use of fuel-efficient diesel and gasoline engines and transmissions, as well as the development and supply of a small van, which provide for the right of termination for a party to the agreement in the case of a change of control of another party. A change of control is deemed to occur at a threshold of 50% of the voting rights or upon authorization to appoint a majority of the members of the managing board. In the case of termination of cooperation in the area of the development of small cars due to a change of control in the early phase of the cooperation, the party affected by the change of control would be obliged to bear its share of the costs of the development of shared components even if the development were terminated for that party. – An agreement regulating the exercise of voting rights in EADS N.V. In the case of a change of control, this agreement stipu- lates that Daimler AG is obliged, if so requested by the French party to the agreement, to make all efforts to dispose of its shares in EADS under appropriate conditions to a third party that is not a competitor of EADS or of the French contracting partner of Daimler AG. In this case, the French party has the right of preemption under the same conditions as offered by a third party. A change of control can also lead to the dissolution of the voting-rights consortium. According to the EADS agree- ment, a change of control has taken place if a competitor of EADS N.V. or of the French contracting party either appoints so many members of the Supervisory Board of Daimler AG that it can appoint the majority of the members of the Board of Management or holds an investment that enables it to control the day-to-day business of Daimler AG. Strategy We fundamentally transformed mobility with the invention of the automobile 125 years ago. And we aim to continue playing a groundbreaking role with the further development of mobility in the future. As pioneers of automotive engineering, we intend to make future mobility safe and sustainable. Our activities are focused on our customers’ needs. We want to inspire them with – exciting premium automobiles that set standards in the areas of design, safety, comfort, perceived value, reliability and environmental compatibility; – commercial vehicles that are the best in their respective com- petitive environment; – outstanding service packages related to those products; and – new mobility solutions, oriented towards the needs of our customers. This is our mission, and it represents what we stand for at Daimler. We have formulated this mission in the Daimler target system, which includes the targets for Daimler as a whole and for each of our businesses. Management Report | Business and General Conditions | 65 Innovation and technology leadership. We want to be the innovation leader for green technologies and safety: With “Green Technology Leadership” at Mercedes-Benz Cars and “Shaping Future Transportation” at Daimler Trucks, Mercedes-Benz Vans and Daimler Buses, we will live up to our ambitions today and in the future. Differing mobility demands require different drive- system solutions. Our portfolio of solutions ranges from the opti- mization of internal-combustion engines to hybridization to vehicles that are free of local emissions. We also intend to further strengthen our pioneering role in the fields of active and passive safety for cars and commercial vehicles. With new business ideas such as car2go and Bus Rapid Transit (BRT), we are pursuing innovative mobility concepts and business models to fulfill customers’ needs and to utilize additional growth potential (see pages142 f). Global presence and networking. Our goal as a company is to continue our profitable growth and to be among the best in the industry: in our core business, in traditional and new markets. In particular in the rapidly growing markets of China, India, Russia and Brazil, we are intensifying our local activities by establishing and developing local production and sales operations, to some extent together with local partners. Operational excellence and sustainability. We achieve opera- tional excellence by means of efficiency targets and related pro- grams in the areas of production, development, sales and admin- istration. This is based on a culture of excellence. By means of standardization and modularization, we can significantly enhance efficiency with new products, new technologies and new pro- cesses. We are improving our cost position with support from cooperations, for example with Renault-Nissan. At the same time, we are expanding our product portfolio in the small-car segment and with small vans. Due to our flexibility, for example in produc- tion at Daimler Trucks, we can cope better with market cycles. Programs such as Truck Operating System (TOS) at Daimler Trucks create a culture of learning and continuous improvement. Through this holistic management approach, all of the direct and indirect areas of the worldwide sites of Daimler Trucks are gradually improving their efficiency. Target system. Our overriding corporate goal is to achieve sus- tainable profitable growth and thus to increase the value of the Group. We intend to be among the world’s leading automotive companies. As shown in the diagram on page 67, the Daimler target system consists of six strategic dimensions. It provides a stra- tegic framework and defines in which dimensions we want to play a leading role. We aim to inspire our customers with our brands, products and services. And we strive to occupy the leading posi- tion in each market segment. With pioneering technologies, we want to be the world leader for sustainable drive systems and safety. To us, having a global presence means that we want to secure our position in traditional markets while expanding in new markets. Operational excellence and efficiency along with inspired and high-performing people are the key to our future corporate success. At the same time, our entrepreneurial activities are guided by the principle of sustainability: in the areas of econom- ics and corporate governance, environmental protection and safety, as well as in our relations with employees, customers and society in general. Since we want to anchor sustainability more firmly not only in our operations but also formally, we have included it as an additional target in the Daimler target system. Our employees direct their actions towards the corporate values of passion, respect, integrity and discipline, and they aim to set an example with ethical behavior in conformance with applicable law. Excellent products offering superior customer experience form the basis for our success. Through the constant search for the best solution and in line with the lifecycles of our prod- ucts, we are launching 16 new models at Mercedes-Benz Cars in the years 2010 and 2011 alone. We are expanding our product portfolio in all divisions to address increasing differentiation within customer segments as well as varying regional requirements. Some examples are the CLS Shooting Brake and the long version of the E-Class for China. At Daimler Trucks, we renewed a large part of our product range with five new models in the year 2010. As ever, our main goal is to be Number 1 in terms of customer satisfaction. We place high priority on our activities directed at improving product and service quality as well as on providing a range of services appropriate to our customers’ needs. Leading brands contribute towards the Daimler Group’s long- term success. Leading brands also provide customers with orien- tation, create trust and arouse the emotions. The Mercedes-Benz brand is one of the most successful and well-known brands in the world. We intend to maintain and extend this position also in the future. Our divisions’ brand strategies, such as “The best or noth- ing” at Mercedes-Benz, help us to further sharpen our brands’ profiles compared with the competition and to organize our activi- ties accordingly. 66 Superior Products and Customer Experience Innovation and Technology Leadership and Operational Excellence and Sustainability We have a clear claim to leadership also in the field of sustain- ability. We place a particular focus on environmental protection with production and products, long-term job protection, respon- sible suppliers, intact relations with society, and transparent com- munication. One of the key goals in this context is the ongoing reduction of the CO2 emissions of our cars and commercial vehicles. We intend to reduce the average CO2 emissions of our fleet of new cars in the European Union from 158 g/km in 2010 to less than 140 g/km in 2012. A key contribution will be made by our BlueDirect V6 and V8 gasoline engines with third-generation direct fuel injection, which we launched in late 2010. And within the framework of a voluntary commitment signed by various truck manufacturers, we are pursuing the goal of reducing the CO2 emissions of the heavy trucks (above 12 tons) we sell in Europe compared with base year 2005 by an average of 20% per ton- kilometer by 2020 (see pages 140 ff). We aim to have high-performing, inspired employees who direct their actions towards our corporate values and maintain the highest ethical standards. The new Board of Management position for Integrity and Legal Affairs has the task of ensuring that rules and regulations are observed and that the highest ethical standards are met. As we regard diversity within our work- force as an advantage, we are making efforts to achieve for example 20% of executive positions occupied by women by the year 2020 and to increase our internationality. Ultimately, we will grow profitably by consistently implementing the strategies derived from our target system. For all our activities, the focus is on – strengthening the core business, – growing further in new markets, – maintaining a leading position with “green” technologies, and – playing a leading part in the development of new mobility concepts and services. Ambitious return targets. We have set ourselves clear return targets. As of 2013, we aim to earn an average return on sales of 9% in our automotive business across all market and product cycles. This is based on return targets for the individual divisions of 10% for Mercedes-Benz Cars, 8% for Daimler Trucks, 9% for Mercedes-Benz Vans and 6% for Daimler Buses. Our target for the Daimler Financial Services division is a return on equity of 17%. Portfolio changes. With the goal of strengthening our core busi- ness and utilizing new growth potential, we further developed the Daimler Group’s business portfolio in 2010: In March 2010, Daimler AG sold its entire 5.34% shareholding in Tata Motors, an Indian automotive group, to various groups of investors. We achieved a cash inflow of €303 million from the sale. Daimler has an excellent starting position to utilize the growth potential for cars and commercial vehicles in India and is strength- ening its own activities in that market. It was therefore no longer necessary for Daimler to continue holding an equity interest in Tata. Management Report | Business and General Conditions | 67 Settlement with US authorities On April 1, 2010, Daimler AG reached a settlement with the United States Securities and Exchange Commission (SEC) and the US Department of Justice (DOJ) concluding investigations of possible violations of the US Foreign Corrupt Practices Act (FCPA). As part of the settlement, Daimler paid fines and penalties of US$93.6 million (approximately €70 million) and agreed to disgorge profits of US$91.4 million (approximately €68 million). Daimler had recognized provisions in a sufficient volume for this in previous years. Daimler cooperated with the SEC and the DOJ on the investiga- tions, which started in the fall of 2004. In parallel, Daimler has developed a wide-ranging compliance organization to ensure that its business practices conform to the Group’s Integrity Code and the provisions of applicable law in the future (see pages 158 f). The investigations of Daimler AG and Daimler North East Asia Ltd. carried out by the DOJ were deferred on the premise that Daimler will not violate the provisions of the FCPA during the two- year term of the agreements and will maintain a comprehensive compli ance program. This program is designed to ensure, inter alia, compliance with anti-bribery laws such as the FCPA. Upon successful satisfaction of the terms set forth, the proceedings will be dismissed without further action. In addition, former US federal judge Louis Freeh will serve for three years as an independent compliance monitor; his role will include monitoring and documenting the Company’s compli ance program. Further information on this matter is provided in Note 28 to the Consoli- dated Financial Statements. New Board of Management position for Integrity and Legal Affairs Daimler pursues the goal of creating a corporate culture that not only adheres to the provisions of applicable law, but also meets the highest ethical standards and is regarded as exemplary throughout the industry. In order to achieve this goal, the Supervisory Board decided on September 28, 2010 to create a new Board of Management position for the area of Integrity and Legal Affairs. The responsi- bilities of the new member of the Board of Management include the management of the global legal and compliance organization and related processes, as well as business ethics and the sustained anchoring of compliance and integrity throughout the Group. On April 7, 2010, Daimler AG and the Renault-Nissan Alliance reached an agreement on wide-ranging strategic cooperation that will bring both sides advantages from a series of specific projects and the shared use of best practices. In particular, this relates to a new, shared architecture for small cars, the shared use of fuel-efficient three- and four-cylinder engines and coopera- tion in the field of light commercial vehicles. In addition, a cross- shareholding was agreed upon: The Renault-Nissan Alliance received a 3.1% equity interest in Daimler, served with treasury shares, and in return Daimler received equity interests of 3.1% in each of Renault and Nissan. BYD Company Limited and Daimler AG signed an agreement on May 27, 2010 on the establishment of a 50:50 joint venture, Shenzhen BYD Daimler New Technology Co. Ltd., for the devel- opment of an electric vehicle for the Chinese market. BYD and Daimler will invest a volume of RMB 600 million (approximately €71 million) in the joint venture. The new company is to develop a new generation of electric vehicles combining Daimler’s exper - tise in automotive architecture and safety with BYD’s know-how in the fields of battery technology and electric vehicle systems. The vehicle will be sold under a new brand to be jointly created by Daimler and BYD. The brand rights will be owned by the joint venture. On June 17, 2010, Daimler AG and the European Bank for Recon- struction and Development (EBRD) successfully increased their strategic shareholding in Russian truck manufacturer Kamaz. Already on February 11, 2010, Daimler AG had signed a memo- randum of understanding on the acquisition of the 5% of Kamaz shares held by Troika Dialog Limited. As a result, Daimler increased its equity interest in Kamaz by one percentage point to 11% while the remaining 4% of Kamaz shares are legally owned by the EBRD. Due to the contractual terms and conditions, beneficial ownership of the shares held by the EBRD is assigned to Daimler under IFRS. Daimler and Foton have made a large step forward in their negotiations on the establishment of a 50:50 joint venture. After the Chinese National Development and Reform Commission approved the plans, the joint-venture agreement was signed on July 16. Daimler will contribute its technological expertise, in particular with diesel engines and emission technology. Both partners will use Foton’s Auman truck brand as a platform in China and as a basis for joint exports. The joint venture is another important milestone in the implementation of Daimler’s China strategy. On January 11, 2011, Daimler’s subsidiary Mitsubishi Fuso Truck and Bus Corporation (MFTBC) carried out a capital increase of 30 billion Japanese yen (€274 million). In this context, Daimler increased its equity interest in MFTBC from 85% to 89%; the stake held by Mitsubishi Group companies decreased to 11%. 68 One negative factor in spring was the high budget deficit in Greece and the debt problems of other European countries. The financial markets reacted with sharp fluctuations and investor and consumer uncertainty increased again. The governments of the European Union together with the International Monetary Fund were finally forced to set up a comprehensive safety net, which Ireland was then the first country to make use of in November. Already in the summer months, concerns about the stability of the upswing and fears of a renewed slip into recession increased significantly. There was a particular focus on the US economy due to its relatively low overall growth and ongoing high unemployment rates. In autumn, the US Federal Reserve therefore announced the loosening of its already very ex - pansive monetary policy and in December, the government and the opposition agreed on new financial-policy supporting actions. Over the year 2010 as a whole, the US economy achieved growth of 2.9% due to a revival in the fourth quarter. As in the previous year, the emerging economies and above all China and India were significant growth drivers in this rather uncertain environment. It was also important for global developments that the Chinese economy looked less likely to overheat, with its growth rate decreasing moderately to a more sustainable level. However, the intensifying debate about exchange rates not reflecting market realities was a very critical factor. This discussion centered mainly on the Chinese yuan, but also on the US dollar. Although the G20 summit meeting in Seoul in mid-November at first prevented any further escalation, no sustainable solution was reached to resolve the global imbalance. In this environment, exchange rates were very volatile again. The US dollar at first strengthened from $1.44 to a euro at the beginning of the year to $1.20 in mid-2010, but then weakened again by autumn to a parity of $1.40. At the end of the year, the value of the euro measured in US dollars was 7% lower than a year earlier at $1.34. With fluctuations, the euro also fell against the Japanese yen by 18% in 2010. Compared with the British pound, the euro fell by 3% over the year, also with sharp fluctuations in value. Economic growth Gross domestic product, growth rates in % 2009 2010 10 8 6 4 2 0 -2 -4 -6 -8 Total NAFTA region Western Europe Japan Asia excl. Japan Other markets Source: Global Insight The new Board of Management function is a logical step in the further development of the corporate structure and culture. In this context, Daimler’s Board of Management has decided to push forward with its compliance activities – including its rela- tions with business partners. The Daimler Group is currently rep- resented in 200 countries either with its own companies or through its business partners. Maintaining correct business prac- tices in conformance with applicable laws and regulations requires an appropriately trained compli ance organization with a world - wide reach as well as effective processes and controls. At the same time, it is and it will remain the task of the entire Board of Management and of all executives to permanently anchor through- out the Group a keen awareness of adherence to the law and regulations, as well as for business ethics (see pages 158 f). Economy and the industry The world economy. With growth of 4.0%, the world economy displayed astounding dynamism in overcoming the recent reces- sion during 2010, with growth in economic output exceeding the prior-year level already in the summer. The main drivers of this positive development were the rapidly growing emerging econo- mies, whose gross domestic product expanded by almost 7%. Although the industrialized countries posted solid growth rates with an aggregate increase in economic output of about 2.5%, with few exceptions they were still significantly lower than the rates of expansion attained in 2007 and 2008. Among the indus- trialized countries, economies with a strong dependence on exports and investment goods such as Germany (3.6%) and Japan (4.2%) profited the most from the global recovery and the result - ing significant revival of world trade. Growth in the more mature economies was generally boosted by the continuation of very expansive monetary policies and the effects of the massive stim- ulus programs of the previous year. Other factors were special and one-time effects such as restocking inventories that had been depleted during the recession. But the world economy’s overall growth dynamism slowed down again significantly as the year progressed. Management Report | Business and General Conditions | 69 Global demand for commercial vehicles also increased again significantly in 2010. But this growth was primarily driven by regions outside the triad markets of Western Europe, the United States and Japan. In the segment of medium and heavy-duty trucks, world- wide unit sales increased by approximately 35% while growth in the triad of approximately 10% was far less dynamic. The US market has recovered only hesitantly so far with growth of almost 15% in 2010 following a market collapse of nearly two thirds in the years 2006 through 2009. In Western Europe, the truck market bottomed out early in 2010 followed by a distinct upward tendency. In the full year, however, unit sales were only slightly higher than in 2009. But the German market, which is particularly important for Daimler, expanded by more than 20%. In Japan, demand increased in the segment of medium- and heavy-duty trucks by more than 25% over the full year. After the expiry of the state incentive program in September, the market weakened tempo- rarily, but it had returned to a path of moderate recovery by the end of the year. In the large emerging markets, demand for commer- cial vehicles increased substantially. The Brazilian truck market, which is important for Daimler, expanded strongly to surpass the prior-year level by 50%. The recovery of the Russian market accelerated during the year with the result that unit sales of trucks increased by a significant double-digit rate over the full year. The Indian market grew by 50% and more than 1.2 million medium- and heavy-duty trucks were sold in China (2009: 834,000), equivalent to about half the entire world market in 2010. With regard to the van markets important to Daimler, demand in Western Europe recovered moderately and unit sales were 10% higher than in 2009. The US market grew substantially (+19%), although the rate of recovery declined distinctly during the course of the year. Bus markets developed very disparately in 2010: Strong growth of 27% in Latin America (excluding Mexico) was offset by declining demand in the NAFTA region (-7%). Demand remained below prior-year levels in most of the countries of Western Europe; the region’s total market volume decreased by 9%. Global automotive markets Unit sales growth rates 2010/2009 in % Passenger cars Commercial vehicles 45 30 15 0 -15 Total Western Europe 1 Cars segment includes light-trucks 2 Medium- and heavy-duty trucks Japan USA1, 2 South America 2 China Source: German Association of the Automotive Industry (VDA), various institutions Automotive markets. After some dramatic drops in demand during the year 2009, global automotive markets expanded again significantly in 2010. At the beginning of 2010, many countries’ state incentive programs were still having an effect, so the global car market achieved double- digit growth rates in the first half of the year. Rates of expansion slowed down for a while in the second half, but demand increased again towards the end of the year and surpassed the prior-year volume by about 12% in the full year. As a result, worldwide unit sales surpassed the record level of 2007. But in regional terms, demand developed very differently. Strong growth in the Asian emerging economies, especially China and India with rates of 30% and more, was the main factor behind the expansion of the world market. Although the US market expanded overall by approximately 11%, its recovery was slightly less dynamic than had been expected at the beginning of the year. In Western Europe, state scrappage schemes gradually expired as the year progressed, so demand as of the second quarter was significantly lower than in the prior year and decreased by 5% over the full year. Of the volume markets, only the United Kingdom and Spain surpassed the prior-year level, while demand was distinctly lower in Germany (-23%), France (-2%) and Italy (-9%). In Japan, the market profited until September from state incentives and expanded by a good 7% over the full year. But after the incentive program expired, demand for cars slumped by a significant double-digit rate in the fourth quarter year on year. The development of markets in Eastern Europe and South America was generally positive. Thanks to state scrappage incentives, the Russian market recovered somewhat with growth of more than 30%, following the collapse of nearly 50% in 2009. Demand in Brazil was robust and unit sales surpassed the prior-year level by 10%, although the state support program already expired in March. As a result, Brazil attained a market volume of more than three million vehicles, making it bigger than Germany’s and the fourth-largest car market in the world. 70 Unit sales structure of Mercedes-Benz Cars Unit sales structure of Daimler Trucks Trucks Europe/Latin America Trucks NAFTA Trucks Asia 38% 22% 40% Following the sharp decline in the prior year, the Daimler Trucks division increased its unit sales by 37% in 2010. In total, we shipped 355,300 heavy-, medium- and light-duty trucks as well as buses of the Thomas Built Buses and Fuso brands last year, meaning we continue to be the biggest globally active manufac- turer of trucks above 6 tons gross vehicle weight. All of our main markets contributed to this significant growth in unit sales – Europe and the United States as well as Latin America and Japan. The Trucks Europe/Latin America unit profited from the global economic recovery and increased its unit sales by 41% to 135,200 vehicles. Growth in unit sales was particularly strong in Brazil (+45%), Eastern Europe (+139%) and Turkey (+122%). In Western Europe, we expanded our unit sales by 23% to 50,200 vehicles, defending our leading position in the segment of medium- and heavy-duty trucks with a market share of 24.3%. With sales of 79,400 units, Trucks NAFTA sold 25% more vehicles than in 2009. This was primarily due to the successful new engines as well as our increased involvement in the areas of construction applications and disposal services, especially in the Class 8 segment. We increased our market share in the medium- and heavy-duty segment (Classes 6-8) in the NAFTA region to 31.6% (2009: 29.6%) and thus gained market leadership. Sales of 140,700 units by Trucks Asia in 2010 were significantly higher than in the prior year (+41%). Growth in unit sales was particularly strong in Indonesia (+82%), but a small increase was recorded also in the Japanese domestic market (+7%). Fuso is already the market leader in some Asian emerging markets. We are in first place in the segment of light-duty trucks in Taiwan and Indonesia (see pages 126 ff). A-/B-Class C-/SLK-Class E-/CLS-Class S-/CL-/SL-Class/SLR/SLS/Maybach M-/R-/GL-/GLK-/G-Class smart 18% 27% 26% 6% 16% 7% Business development Unit sales. Daimler sold a total of 1.9 million vehicles in 2010. The level of the prior year, which had been very low due to the global economic and financial crisis, was thus surpassed by 22%. The market revival was significantly more dynamic than expected at the beginning of the year, especially for cars. The Mercedes-Benz Cars division increased its unit sales by 17% to 1,276,800 vehicles. The Mercedes-Benz brand recorded growth of 21% to 1,178,300 units. We therefore further strengthened our position in the market for premium automobiles. Our S-, E- and C-Class sedans and the E-Class station wagon are world leaders in their respective market segments. The new E-Class range, which was completed in March 2010 with the addition of the new convertible, was particularly successful. Total shipments of E-Class cars increased from 212,100 to 330,800 units in 2010. Due to the market success of the S-Class, we were able to increase unit sales by Mercedes-Benz Cars also in the luxury segment (S-, CL-, SL-Class, SLR, SLS and Maybach) by 41% to 80,400 auto- mobiles. Once again, the S-Class was the world’s best-selling luxury sedan. In the C-Class segment (C- and SLK-Class), sales increased by 6% to 341,900 units, and in the SUV segment (M-, R-, GL-, GLK- and G-Class), Mercedes-Benz actually increased its unit sales by 21% to 202,800 vehicles. Towards the end of their lifecycles, the A- and B-Class models still achieved slight growth to sales of 222,400 units (2009: 215,500). Mercedes-Benz increased its unit sales in all regions. In the United States, sales rose by 15% to 216,400 units. In Germany, we sold 265,000 vehicles (2009: 265,500) and defended our leading market position in the premium segment; 290,500 vehi- cles were shipped in the other countries of Western Europe (2009: 267,200). Business in the emerging markets developed very positively. In China, Mercedes-Benz continues to be the fastest- growing premium brand: Sales more than doubled in that market in 2010 to 156,400 units (+140%), and China was the most important market for our S-Class for the second consecutive year. All the other BRIC markets also recorded double-digit growth: Brazil (+40%), Russia (+68%) and India (+79%). Sales of the smart fortwo decreased in 2010 to 94,300 units (2009: 113,900). The new generation of the innovative two-seater has been available from dealerships since October 2010 (see pages 122 ff). Management Report | Business and General Conditions | 71 Unit sales by the Mercedes-Benz Vans division increased by 35% to 224,200 vehicles of the Sprinter, Vito/Viano and Vario models in 2010. We sold 156,800 units in Western Europe, surpassing the prior-year figure by 22%, aided by contributions from all of the region’s major markets. This enabled Mercedes- Benz Vans to maintain its market leadership in the European Union in the segment of medium-sized and large vans. Our business in the NAFTA region also developed very well: Unit sales there increased to 13,300 vans (2009: 2,600). In the promising Chinese market for high-quality vans and premium multi-purpose vehicles, Mercedes-Benz Vans sold 12,200 units. Of that total, 10,700 units were from local production, which we started in April 2010. Mercedes-Benz Vans was also very successful in Latin America and Eastern Europe in 2010. Total sales of the Sprinter increased by 37% to 143,700 units last year. We sold 77,600 of the Vito and Viano models (+34%), although the new generation of those vans was not launched until the fourth quarter (see page 130 f). With unit sales of 39,100 complete buses and bus chassis (2009: 32,500), Daimler Buses was the world’s biggest manufac- turer in the segment of buses over 8 tons gross vehicle weight in 2010. The 20% growth in unit sales was primarily the result of the positive business development for bus chassis in Latin America. In Western Europe, unit sales decreased by 1% to 7,200 buses. We felt the effect of investment cuts in the public sector in particular for city buses. Nonetheless, Daimler Buses succeeded in main- taining its leading position in Western Europe with a market share of approximately 30% (2009: 30%). In Latin America, Daimler Buses increased its unit sales of bus chassis of the Mercedes-Benz brand following a significant market recovery by 43% to 23,200 units. As a result, Daimler Buses was able to expand its market share in Latin America to 47.1% (2009: 44.7%). While the Mexican market recovered slightly, unit sales declined in the USA/Canada region (see pages 132 f). Market share In % Mercedes-Benz Cars Western Europe thereof Germany United States Japan Daimler Trucks Medium- and heavy-duty trucks Western Europe thereof Germany Heavy-duty trucks NAFTA region (Class 8) Medium-duty trucks NAFTA region (Classes 6 and 7) Medium- and heavy-duty trucks Brazil Trucks Japan Mercedes-Benz Vans Medium-sized and large vans Western Europe thereof Germany Daimler Buses Buses over 8 tons Western Europe thereof Germany Buses over 8 tons Latin America 2010 2009 10/09 Change in %-points 4.8 10.6 1.9 0.8 24.3 40.5 32.4 29.9 27.4 19.8 17.8 26.1 29.6 55.5 47.1 4.7 8.3 2.0 0.8 23.0 41.6 30.9 27.2 28.5 20.2 18.1 27.6 29.6 59.6 44.7 +0.1 +2.3 -0.1 0.0 +1.3 - 1.1 + 1.5 + 2.7 - 1.1 - 0.4 - 0.3 - 1.5 0.0 - 4.1 + 2.4 The business of the Daimler Financial Services division devel- oped very positively in the period under review. Its worldwide contract volume of €63.7 billion at the end of 2010 was 9% above the level of a year earlier. Adjusted for exchange-rate effects, there was an increase of 3%. New business grew compared with the prior year by 17% to €29.3 billion; adjusted for exchange-rate effects, the increase amounted to 11%. Growth was primarily driven by the regions of North and South America and Asia, while contract volume in Euro pe stabilized at the prior-year level. The Insurance Services unit brokered more than 839,000 insurance policies around the world in 2010, representing growth of 22% compared with the 2009. One of the main reasons why we were so successful with insurance is that we sell tailored packages of insurance cover, leasing and financing products, service contracts and additional safety equipment in the insured vehicles. We also continued to expand our business with commercial customers and fleet customers. In close cooperation with the automotive division’s sales departments, Daimler Financial Services thus made an important contribution to promoting their unit sales (see pages 134 f). 72 Consolidated revenue by region In billions of euros 2006 2007 2008 2009 2010 30 25 20 15 10 5 0 Germany Western Europe (excl. Germany) NAFTA region Asia Other markets Order situation. The Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans and Daimler Buses divisions produce vehicles to order in accordance with customers’ specifications. While doing so, we endeavor to flexibly adjust the production numbers of individual models to changing levels of demand. As a result of the worldwide economic revival and due in particular to rising demand in the emerging markets, volumes of orders received in 2010 increased significantly at all divisions following a distinct slump in 2009. At Mercedes-Benz Cars, orders returned to the high levels of the years before the economic and financial crisis. This upturn was partially caused by the market success of the new E-Class models and strong demand in China and other emerg- ing markets. At Daimler Trucks, the recovery of important markets and the great acceptance of our products resulted in a very substan- tial increase in orders received. Due to the strong improvement in demand, we ramped up the production of cars, trucks, vans and buses once again. For long periods of the year, the car plants were operating at full capacity in order to meet the market’s increased demand. The total order backlog at the end of 2010 was again significantly higher than the weak level of a year earlier. Revenue. The Daimler Group’s revenue increased in 2010 by 24% to €97.8 billion; adjusted for exchange-rate effects, there was an increase of 19%. This means that our business recovered from the worldwide sales crisis faster than we had expected at the beginning of the year, but the Group’s total revenue only reached the magnitude of 2008 and was still below the record level of the year 2007. All divisions profited from the recovery of major markets: Revenue rose at Mercedes-Benz Cars by 29% to €53.4 billion, at Daimler Trucks by 31% to €24.0 billion, at Mercedes- Benz Vans by 26% to €7.8 billion and at Daimler Buses by 8% to €4.6 billion. The Daimler Financial Services division also achieved revenue growth of 7% to €12.8 billion. In regional terms, Daimler increased its revenue primarily in Asia (+58% to €19.7 billion). The main positive impact in that region was from the favorable development of business in China (+109% to €9.1 billion). In the NAFTA region, revenue rose by 22% to €23.6 billion. The development of business in Latin America was also very dynamic, especially in Brazil (+54% to €4.2 billion). In Western Europe, however, there was only a small increase of 6% to €38.5 billion; slight growth of 3% in Germany was boosted by stronger growth of 9% in the other markets of the region. In general, the regional distribution of Daimler’s revenue has altered significantly in the past two years in favor of new markets. We now generate 35% of our business in markets outside the triad of the United States, Western Europe and Japan. In the year 2008, that proportion was still just 28%. Revenue In millions of euros Daimler Group Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services 2010 2009 10/09 % change 97,761 53,426 24,024 7,812 4,558 12,788 78,924 41,318 18,360 6,215 4,238 11,996 +24 +29 +31 +26 +8 +7 Management Report | Business and General Conditions | 73 Profitability EBIT Daimler achieved EBIT of €7.3 billion in 2010 and thus con- cluded the financial year very successfully (2009: minus €1.5 bil- lion). EBIT by segment In millions of euros Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services Reconciliation Daimler Group 2010 2009 10/09 % change 4,656 1,323 451 215 831 -202 7,274 -500 -1,001 26 183 9 -230 -1,513 . . . +17 . -12 . After the prior year had been severely impacted by the financial and economic crisis, earnings in all divisions developed much more positively than had been anticipated at the beginning of 2010. This was due not only to the general market recovery, but in par- ticular to our attractive product range and the efficiency gains we realized. There was an opposing effect on EBIT from increased research and development costs. EBIT was positively affected also by lower expenses for the com- pounding of non-current provisions (2010: €240 million; 2009: €1,003 million) and by a significantly lower annual contribution to the German Pension Protection Association (2010: expense of €23 million; 2009: expense of €164 million). The adjustment of health-care and pension benefit plans at our US subsidiary, Daimler Trucks North America, resulted in non- recurring income of €160 million in 2010. The sale of our 5.3% equity interest in Tata Motors and the positive outcome of a legal dispute involving Daimler AG in October 2010 led to additional non-recurring income in a total amount of €483 million. 74 On the other hand, the programs for the repositioning of Daimler Trucks North America and Mitsubishi Fuso Truck and Bus Corpo- ration resulted in expenses of €40 million in 2010 (2009: €340 million). The decision to restructure the business operations of Daimler Financial Services AG and Mercedes-Benz Bank AG in Germany by the end of 2012 led to expenses of €82 million in 2010, primarily related to personnel adjustments. In connec- tion with the now-completed sale of non-automotive assets, Daimler Financial Services also incurred expenses of €9 million in 2010 (2009: €100 million). Group EBIT was also reduced by €261 million representing our share of the loss incurred by EADS; our investment in that com- pany is accounted for using the equity method. Our proportionate share of the loss of EADS was primarily affected by expenses relating to the A400M military transport aircraft (€237 million). Due to the very good development of earnings in 2010 and in view of the 125th anniversary of the invention of the automobile in 2011, the Board of Management decided in December to pay out a special bonus in a volume of approximately €125 million to all persons employed by the Group, the individual amounts depend ing on each employee’s period of service. It was also decided to increase the capital of the Daimler and Benz Founda - tion from €37 million to €125 million. These expenses as well as additional expenses in connection with legal proceedings in 2010 are not allocated to the divisions, but are shown in the reconciliation of the divisions’ EBIT to Group EBIT under corpo- rate items. Group EBIT in the prior year included Chrysler-related charges of €294 million. Development of earnings In billions of euros 10 8 6 4 2 0 -2 -4 2006 2007 2008 2009 2010 The special items affecting earnings in the years 2010 and 2009 are listed in the following table. EBIT Net profit (loss) The Mercedes-Benz-Cars division posted EBIT for 2010 of €4,656 million, an improvement of €5.2 billion compared with the prior-year result. The division’s return on sales was 8.7% (2009: minus 1.2%). This excellent result is mainly a reflection of the high volume of unit sales (+17%), especially in the premium and luxury seg- ments, following the decline in demand for cars in the previous year. Above all in the United States and China, the Mercedes- Benz Cars division was able to increase its unit sales significantly because of its attractive product range. Other factors with a positive impact on earnings were a favorable product mix, improved pricing and increased efficiency. An additional positive effect came from lower expenses from the compounding of non- current provisions (2010: €140 million; 2009: €657 million). Research and development costs were higher than in the prior year. Special factors affecting EBIT In millions of euros Daimler Trucks Adjustment of health-care and pension benefit plans Repositioning of Mitsubishi Fuso Truck and Bus Corporation Repositioning of Daimler Trucks North America Daimler Financial Services Repositioning of business activities in Germany Sale of non-automotive assets Reconciliation Gain on the sale of shares in Tata Motors Income connected with the settlement of a legal dispute Anniversary bonus and allocation to Foundation Losses relating to Chrysler 2010 2009 The EBIT of €1,323 million reported by the Daimler Trucks division was also a substantial improvement on the prior year result of minus €1,001 million. The return on sales was 5.5% (2009: minus 5.5%). 160 -3 -37 -82 -9 265 218 -213 - - -245 -95 - -100 - - - -294 This earnings improvement is primarily due to the good develop- ment of unit sales, after sales of commercial vehicles had been depressed in the prior year by the sharp fall in demand for trans- port services. With its attractive product range, the division was able to increase its unit sales by 37% in 2010, with contributions from all major markets. Earnings were positively affected in 2010 also by cost-reducing actions, in particular from the repositioning of Daimler Trucks North America and Mitsubishi Fuso Truck and Bus Corporation, although the implementation of those programs still had a negative impact on earnings of €40 million in 2010 (2009: negative impact of €340 million). In addition, EBIT for 2010 includes expenses relating to the reassessment of long-term warranty and service obligations as well as higher costs for research and development. There was an opposing, positive effect from income of €160 million recognized at Daimler Trucks North America in connection with the adjustment of health-care and pension benefit plans. Lower expenses from the compounding of non-cur- rent provisions also had a positive impact (2010: €58 million; 2009: €241 million). Management Report | Profitability | 75 Return on sales In % 2007 2008 2009 2010 Return on equity In % 2007 2008 2009 2010 9 6 3 0 -3 -6 25 20 15 10 5 0 Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services In the year 2010, Mercedes-Benz Vans also achieved significant earnings growth with EBIT of €451 million (2009: €26 million). The division’s return on sales developed accordingly, improving from 0.4% to 5.8%. The reconciliation of the divisions’ EBIT to Group EBIT reflects our proportionate share of the results of our equity-method investment in EADS, other corporate gains and losses, and the effects on earnings of eliminating intra-group transactions between the divisions. The positive earnings trend resulted primarily from the increase in unit sales (+35%), especially in Western Europe, the United States and China, and also from better pricing. Charges from exchange-rate effects were more than offset by sustained efficiency improvements. The Daimler Buses division increased its EBIT to €215 million (2009: €183 million) and achieved a return on sales of 4.7% (2009: 4.3%). This earnings development mainly reflects the substantial increase in deliveries of bus chassis in Latin America. There were opposing effects from lower unit sales of complete buses in Western Europe and North America. Daimler Financial Services also improved its earnings significantly in 2010 with EBIT of €831 million (2009: €9 million). The division’s return on equity was 16.1% (2009: 0.2%). The increase in earnings after crisis year 2009 was mainly caused by lower expenses for risk provisions and higher interest margins. There were opposing, negative effects in 2010 from expenses of €82 million related to the repositioning of business operations in Germany. An additional factor was that the division disposed of non-automotive assets that were subject to leasing agreements, resulting in an expense of €9 million (2009: expense of €100 million). Daimler’s proportionate share of the net loss of EADS amounted to an expense of €261 million (2009: income of €88 million). The sharp deterioration is mainly due to the additional provisions recognized at EADS in its 2009 consolidated financial statements in connection with the A400M military transport aircraft (minus €237 million). Negative exchange-rate effects were also a factor. The income of €30 million recognized at corporate level in 2010 (2009: expense of €486 million) primarily reflects a gain of €265 million on the sale of Daimler’s 5.3% equity interest in Tata Motors and pre-tax income of €218 million related to the positive outcome of a legal dispute involving Daimler AG in October 2010. It also includes expenses totaling €213 million for an anniversary bonus and an increase in the capital of the Daimler and Benz Foun- dation as well as additional expenses in connection with legal proceedings in 2010. In the prior year, the items reported at corpo- rate level included Chrysler-related expenses totaling €294 million, partially resulting from the full disposal of Daimler’s remaining 19.9% equity interest in Chrysler. The elimination of intra-group transactions resulted in income of €29 million in 2010 (2009: income of €168 million). 76 Financial performance measures The financial performance measures used at Daimler are oriented towards our investors’ interests and expectations, and provide the foundation for our value-based management. Value added. For purposes of performance measurement, Daimler differentiates between the Group level and the divisional level. Value added is one element of the performance measure- ment system at both levels and is calculated as the difference between the operational result and the cost of capital of the average net assets in that period. Value Added = Profit Measure – Net Assets x Cost of Capital (%) Cost of Capital Alternatively, the value added of the industrial divisions can be determined by using the main value drivers, return on sales (ROS; quotient of EBIT and revenue) and net assets productivity (quotient of revenue and net assets). Value Added = Return on Sales x Net Assets Productivity – Cost of Capital (%) x Net Assets The use of ROS and net assets productivity within the context of a revenue growth strategy provides the basis for a positive development of value added. Value added shows to which extent the Group and its divisions achieve or exceed the minimum return requirements of the shareholders and creditors, thus creating additional value. Profit measure. The operational profit measure at divisional level is EBIT (earnings before interest and taxes). EBIT is calculated before interest, income taxes and results from discontinued operations, and hence reflects the divisions’ profit and loss respon- sibility. The operational profit measure used at Group level is net operating profit. It comprises the EBIT of the divisions and profit and loss effects that the divisions are not held responsible for, including results from discontinued operations, income taxes and other reconciliation items. Net assets. Net assets represent the basis for the investors’ required return. The industrial divisions are accountable for the operational net assets; all assets, liabilities and provisions which they are responsible for in day-to-day operations are therefore allocated to them. Performance measurement at Daimler Finan- cial Services is on an equity basis, in line with the usual practice in the banking business. Net assets at Group level include the net assets of the industrial divisions and the equity of Daimler Financial Services as well as the net assets from discontinued operations, income taxes and other reconciliation items for which the divisions are not held accountable. The average annual net assets are calculated from the average quarterly net assets, which are calculated as the average of net assets at the begin- ning and end of each quarter. Cost of capital. The required rate of return on net assets and hence the cost of capital is derived from the minimum rates of return that investors expect on their invested capital. The cost of capital of the Group and the industrial divisions comprises the cost of equity as well as the costs of debt and pension obliga- tions of the industrial business; the expected returns on liquidity and plan assets of the pension funds of the industrial business are considered with the opposite sign. Management Report | Profitability | 77 The cost of equity is calculated according to the capital asset pricing model (CAPM), using the interest rate for long-term risk- free securities (such as government bonds) plus a risk premium reflecting the specific risks of an investment in Daimler shares. The cost of debt is derived from the required rate of return for obligations entered into by the Group with external lenders. The cost of capital for pension obligations is calculated on the basis of discount rates used in accordance with IFRS. The expected return on liquidity is based on money market interest rates. The expected return on plan assets of the pension funds is derived from the expected return generated by the plan assets, which are invested to cover the pension obligations. The Group’s cost of capital is the weighted average of the individually required or expected rates of return; in the reporting period, the cost of capital amounted to 8% after taxes. For the industrial divisions, the cost of capital amounted to 12% before taxes; for Daimler Financial Services, a cost of equity of 13% before taxes was applied. Cost of capital In percent 2010 2009 Group, after taxes Industrial divisions, before taxes Daimler Financial Services, before taxes 8 12 13 8 12 13 Return on sales. As one of the main drivers of value added, the return on sales (ROS) is of particular importance for the assessment of the industrial divisions’ profitability. The profit- ability measure of Daimler Financial Services is not ROS, but return on equity (ROE), in line with the usual practice in the bank- ing business. Value added The Group’s value added increased by €7.4 billion to €2.8 billion, representing a return on net assets of 17.5% (2009: minus 6.6%). This was considerably higher than the minimum required rate of return of 8%. In addition to the decrease in average net assets, the improvement in value added was primarily due to the sig- nificant increase in the divisions’ operating profit. There was an opposing, negative effect in particular from the higher income- tax expense. Mercedes-Benz Cars achieved positive value added of €3.4 billion (2009: minus €1.9 billion). The division’s excellent earnings, primarily resulting from the higher volume of unit sales and an advantageous product mix as well as the decrease in average net assets caused by rising liabilities, contributed to the increase in value added. The value added of Daimler Trucks increased by €2.3 billion to €0.5 billion. The main reasons for this increase were the signifi- cant earnings improvement due to the good development of unit sales and the positive effects from the cost-reducing actions. Average net assets were almost unchanged. The Mercedes-Benz Vans division posted an increase in value added of €0.5 billion to €0.3 billion, primarily due to the significant earnings improvement resulting from higher unit sales. An addi- tional factor was that the decrease in average net assets caused by lower working capital led to a further increase in value added. Value added at Daimler Buses increased from €36 million to €71 million. In addition to a slight decrease in average net assets, this was caused by the positive earnings development. Value added also increased significantly at Daimler Financial Services (by €0.8 billion to €0.2 billion). The division’s return on equity was 16.1% (2009: 0.2%). The positive development was mainly the result of the increase in earnings caused by lower expenses for risk provisions and higher interest margins, partially offset by an increase in equity. 78 Value added Reconciliation to net operating profit/loss In millions of euros % change In millions of euros 2010 2009 10/09 2010 2009 10/09 % change Daimler Group 2,773 -4,644 Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services 3,438 499 303 71 160 -1,865 -1,808 -181 36 -599 Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services EBIT of the divisions . . . . +97 . 4,656 1,323 451 215 831 -500 -1,001 26 183 9 7,476 -1,283 Income taxes 1 Other reconciliation -2,154 -202 Net operating profit (loss) 1 Adjusted for tax effects of interest income 5,120 -589 -230 -2,102 2010 2009 10/09 % change . . . +17 . . . . . Net assets (average amounts) In millions of euros Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services 1 Net assets of the divisions Investments accounted for using the equity method 2 Assets and liabilities from income taxes 3 Other reconciliation 3 Daimler Group 1 Total equity 2 To the extent not allocated to the segments 3 Industrial business 29,338 10,146 11,373 6,863 1,228 1,200 5,156 6,720 1,728 1,221 4,671 24,593 25,713 3,119 3,591 1,278 348 2,944 -470 31,778 -11 +2 -29 -2 +10 -4 -13 -57 . -8 Management Report | Profitability | 79 Net assets at year end can be derived from the consolidated balance sheet as follows: Statement of income/loss Net assets of the Daimler Group at year-end Consolidated statement of income/loss In millions of euros % change In millions of euros 2010 2009 10/09 2010 2009 10/09 % change +24 +14 +71 +17 +6 +20 +40 +31 . . . -27 -23 . . . . . Net assets of the industrial business Intangible assets Property, plant and equipment Leased assets Inventories Trade receivables Less provisions for other risks Less trade payables Less other assets and liabilities Assets and liabilities from income taxes Total equity of Daimler Financial Services 7,444 17,544 9,611 14,056 6,964 -12,078 -7,429 -12,031 6,690 15,911 8,651 12,337 5,073 -10,655 -5,422 -9,651 718 1,586 4,865 4,670 Net assets 29,664 29,191 +11 +10 +11 +14 +37 +13 +37 +25 -55 +4 +2 Revenue Cost of sales Gross profit Selling expenses General administrative expenses Research and non-capitalized development costs Other operating income Other operating expense Share of profit/loss from invest- ments accounted for using the equity method, net Other financial income/expense, net Earnings before interest and taxes (EBIT) 1 Interest income Interest expense Profit/loss before income taxes Income taxes Net profit/loss Minority interest 97,761 -74,988 22,773 -8,861 -3,474 -3,476 971 -660 -148 149 7,274 825 -1,471 6,628 -1,954 4,674 -176 78,924 -65,567 13,357 -7,608 -3,287 -2,896 693 -503 72 -1,341 -1,513 1,136 -1,921 -2,298 -346 -2,644 4 Profit/loss attributable to shareholders of Daimler AG 1 EBIT includes expenses from the compounding of provisions and effects from the change in the discount rates (2010: minus €240 million; 2009: minus €1,003 million). -2,640 4,498 80 The Daimler Group’s total revenue increased by 23.9% to €97.8 billion in 2010 (2009: €78.9 billion); adjusted for positive currency effects, the increase was 19.1%. The revenue growth was primar- ily due to increase vehicle shipments compared with the crisis-hit weak prior year. Further information on the development of reve- nue is provided in the “Business development” section of this Management Report. Cost of sales amounted to €75.0 billion in the year under review, increasing by 14.4% compared with 2009 (€65.6 billion). The increase in cost of sales was caused by higher business volumes and the resulting increase in material and personnel expenses. There were opposing effects from further cost reductions, due in part to the efficiency-enhancing programs, and from lower expenses for risk provisions and refinancing at Daimler Financial Services. Overall, cost of sales rose at a lower rate than revenue, so gross profit accounted for a significantly higher proportion of revenue than in the prior year (23.3% compared with 16.9%). Further information on cost of sales is provided in Note 5 of the Notes to the Consolidated Financial Statements. Due to the growth in unit sales, selling expenses increased by €1.3 billion to €8.9 billion (2009: €7.6 billion). The increase is a reflection among other things of higher expenses for person- nel, IT and marketing. Partially due to efficiency-enhancing pro- grams within the sales organisation, as a percentage of revenue, selling expenses fell from 9.6% in 2009 to 9.1% in 2010. General administrative expenses increased by 5.7% to €3.5 billion in 2010 (2009: €3.3 billion). This increase was mainly the result of expenses relating to the repositioning of Daimler Financial Services in Germany and for the repositioning of Daimler Trucks North America and Mitsubishi Fuso Truck and Bus Corpo- ration. Higher other personnel expenses were also a factor. As a percentage of revenue, general administrative expenses were 3.6% (2009: 4.2%). Research and non-capitalized development costs amounted to €3.5 billion in 2010 (2009: €2.9 billion). The increase was mainly caused by higher personnel expenses and increased expenses of purchased of goods and services. The focus of research and development work was on the development of successor models as well as new generations of engines and alternative drive systems. As research and non-capitalized development expenses increased at a lower rate than revenue, their proportion of revenue fell slightly from 3.7% to 3.6%. Further information on the Group’s research and development costs is provided in the “Research and development, environmental protection” section of this Management Report. Other operating income increased to €1.0 billion (2009: €0.7 billion). This was primarily due to income recognized following the positive outcome of a legal dispute involving Daimler AG (€218 million) and gains on the sale of real estate. Other operating expense amounted to €0.7 billion (2009: €0.5 billion). Further information on the composition of other operating income and expense is provided in Note 6 of the Notes to the Consolidated Financial Statements. In 2010, our share of loss from investments accounted for using the equity method amounted to €0.1 billion and was thus lower than the prior-year result (profit of €0.1 billion). There was a negative impact primarily from Daimler’s share of the loss reported by EADS (2010: expense of €0.3 billion; 2009: income of €0.1 billion), which was mainly the result of expenses relating to the A400M program. Other financial income, net developed from an expense of €1.3 billion in 2009 to income of €0.1 billion in 2010. The improve- ment is due to lower expenses from the compounding of non-cur- rent other provisions following the decline in interest rate levels (2010: expense of €0.2 billion; 2009: expense of €1.0 billion). In addition, the Group realized a gain of €0.3 billion on the sale of its shares in Tata Motors. In the prior year, other financial expense included expenses of €0.3 billion relating to the agree- ments concluded with Chrysler. Management Report | Profitability | 81 The Group recorded net interest expense for the year 2010 of €0.6 billion (2009: net interest expense of €0.8 billion). The improvement was primarily due to lower interest expenses caused by a lower level of debt in the industrial business. This more than offset the higher expenses relating to pension and health-care obligations. Further information on interest income and expense is provided in Note 8 of the Notes to the Consolidated Financial Statements. The income-tax expense of €2.0 billion recorded in 2010 (2009: €0.3 billion) is mainly a reflection of the Group’s profit before income taxes, with opposing effects from the reversal of impairments recognized on deferred tax assets. The effective tax rate for 2010 is 29.5% (2009: minus 15.1%). The effective tax rate in 2009 reflects the fact that impairments had to be recog- nized on deferred tax assets at non-German subsidiaries and that tax expenses had to be recognized in connection with the tax assessment of previous years. Further information on income taxes is provided in Note 9 of the Notes to the Consolidated Financial Statements. The positive development of EBIT led to a significant improve- ment in net profit to €4.7 billion in 2010 (2009: net loss of €2.6 billion). Earnings per share improved accordingly to €4.28 (2009: loss per share of €2.63). Dividend per share In euros 2.50 2.00 1.50 1.00 0.50 0 2.00 1.85 1.50 0.60 2006 2007 2008 0.00 2009 2010 Dividend After deciding not to pay a dividend last year in view of the net loss in 2009, we now want our shareholders to participate again appropriately in our financial success. In setting the dividend, we aim to distribute approximately 40% of the Group’s net profit attributable to the Daimler shareholders. On this basis, the Board of Management and the Supervisory Board have decided to recom- mend to the shareholders for their approval at the Annual Meeting to be held on April 13, 2011 that a dividend of €1.85 per share be paid out. The total dividend payout will then amount to €1,971 million. 82 Road to Emission-free Mobility Optimizing our vehicles with modern conventional powertrains Hybridization for further increase in efficiency Locally emission-free driving with electric vehicles powered by fuel cells or batteries Clean fuels for internal combustion engines Energy sources for locally emission-free driving Energy for the future Research and development, environmental protection Research and development as a key success factor. Research and development play a key role at Daimler. Following the tradition of Gottlieb Daimler and Carl Benz, who invented the automobile 125 years ago, we see ourselves as pioneers and drivers of innovation in the automotive industry. In view of the fundamental technological transformation facing the entire auto- motive industry, successful research and development work is a key factor for the Daimler Group’s future success. Our research activities help us to anticipate trends as well as customers’ desires and the requirements they place on future mobility, which are then consistently integrated into series products by our development engineers. Our goal is to provide our customers with exciting products and tailored solutions for needs-oriented, safe and sustainable mobility. We organize our technology portfolio and our core competencies to ensure that we achieve this goal (see pages 140 ff.). 22,100 employees in research and development departments. Key factors for the market success of our vehicles are the exper- tise, creativity and motivation of our employees in research and development. At the end of the year 2010, 22,100 persons were employed in Daimler’s research and development departments around the world. Of that total, 14,700 persons were employed at Group Research and Mercedes-Benz Cars Development, 5,400 at the Daimler Trucks division, 900 at the Mercedes-Benz Vans division and 1,100 at Daimler Buses. More than 4,000 research and development personnel were employed outside Germany. The most important sites in our research and development network are Sindelfingen and Stuttgart-Untertürkheim in Germany. Our research and development locations in North America and Asia include Palo Alto, California and Portland, Oregon, as well as the research center for information and communication technology in Bangalore, India, and the Global Hybrid Center in Kawasaki, Japan. Furthermore, we collaborate with various renowned research institutes worldwide and participate in international exchange programs for young scientists. Effective involvement of the supplier industry. In order to achieve our ambitious research and development goals, we also make use of services provided by supplier companies. Particu- larly in view of the technological challenges facing the automotive industry and the need to bring new technologies to market maturity as quickly as possible, it is essential to coordinate our activities with supplier companies. Within the framework of joint research and development work, we ensure that the core competencies for technologies important for the future of the automobile and for the uniqueness of our brands remain at the Group. More than 2,100 patents filed. Daimler newly registered a total of 2,105 patents in the year 2010 (2009: 2,072), most of which were in the areas of drive systems and safety. More than 1,000 patent applications related to the issue of emission- free mobility, in particular electric drive systems using power from batteries or fuel cells. In the coming years, we will further extend our technology and innovation leadership across all products and brands with the help of industrial property rights. High level of research and development expenditure. We effectively continued the research and development projects important for our vehicles’ competitiveness in 2010, while further improving the efficiency and quality of our research and development work. We intend to play an active part in shaping the technological transformation facing the automotive industry with pioneering innovations also in the future. We therefore increased our research and development expenditure to €4.8 billion in 2010 (2009: €4.2 billion). In accordance with IFRS accounting regulations, we capitalized development costs in a total amount of €1.4 billion (2009: €1.3 billion). The main areas of our work were new, extremely fuel-efficient and environmentally friendly drive technologies, in line with our “Road to Emission-free Mobility” initiative. We work on optimizing conventional drive technologies and enhancing their efficiency through hybridization, as well as on electric vehicles with fuel-cell drive and battery power. Another focus is on new safety technologies: In the context of our “Vision of Accident-free Driving,” we are pursuing the goal of avoiding accidents as far as possible and of alleviating the consequences of any accidents that might still occur. Management Report | Profitability | 83 Commercial vehicles with low consumption and emissions. We have also continuously reduced the emissions of CO2 and other harmful substances by our commercial vehicles in recent years. BLUETEC technology increases the efficiency and reduces the polluting emissions of our trucks significantly: Fuel consumption falls by 2 to 5%, representing 2,000 liters less diesel per truck each year. The Mercedes-Benz Actros 1844 LS is the world’s most fuel-efficient series-produced truck, with consumption of 19.44 liters per 100 kilometers. Hybrid drive is becoming increasingly important for commercial vehicles and can reduce diesel consumption in delivery applications by up to 15%. Daimler is the world’s leading manufacturer of commercial vehicles with hybrid drive: By December 2010, we had supplied customers with about 3,000 Orion hybrid buses, approximately 1,000 Freightliner trucks and vans with hybrid drive, and more than 1,100 Fuso trucks and buses with hybrid technology. Worldwide, a total of more than 5,200 commercial vehicles from Daimler are on the road with hybrid drive. Research and development expenditure In millions of euros Daimler Group thereof capitalized Mercedes-Benz Cars thereof capitalized Daimler Trucks thereof capitalized Mercedes-Benz Vans thereof capitalized Daimler Buses thereof capitalized 2010 2009 10/09 % change 4,849 1,373 3,130 940 1,282 373 267 29 223 31 4,181 1,285 2,696 913 1,116 368 193 0 212 5 +16 +7 +16 +3 +15 +1 +38 . +5 +520 Research and development expenditure In billions of euros total thereof capitalized 5 4 3 2 1 0 2006 2007 2008 2009 2010 The most important projects at Mercedes-Benz Cars were the successor models for the A/B-Class and the M-Class and the model upgrade for the C-Class, as well as new-generation engines and alternative drive systems. Total research and development expenditure at Mercedes-Benz Cars amounted to €3.1 billion last year (2009: €2.7 billion). Daimler Trucks spent €1.3 billion on research and development (2009: €1.1 billion). The main areas there were alternative drive systems, new engines for medium and heavy-duty trucks and successor generations of existing prod- ucts. The focus of expenditure at Mercedes-Benz Vans was on the further development of engines to fulfill future emission regu- lations. The Daimler Buses division concentrated its development activities on new products, the fulfillment of new emission standards and alternative drive systems such as diesel hybrid and fuel cells. Further reduction in our cars’ CO2 emissions. Thanks to our new economical engines and our additional BlueEFFICIENCY models, we were able to reduce the average CO2 emissions of the passenger cars we sold in the European Union in the year under review to 158 grams per kilometer. What’s more, we achieved this feat despite a greater share of exceptionally high-quality and powerful vehicles in our model mix. The first of these fuel- efficient automobiles, with which we achieve additional fuel savings compared with the standard models of more than 20%, was launched in 2008. By the end of the year 2010, 85 Blue- EFFICIENCY models had become available. Meanwhile, nearly one third of our cars sold in Europe have CO2 emissions of less than 140 grams per kilometer. We will reduce fuel consumption and CO2 emissions even more in the future with innovative technologies for locally emission-free mobility. Our goal is to reduce the CO2 emissions of our new car fleet in the European Union to less than 140 grams per kilometer by 2012. In recent years, we have continuously reduced the emission of pollutants by our cars: by more than 75% since 1995 and by more than 30% in the past five years. The emission reductions achieved by our cars with our BlueTEC diesel engines are particularly impressive: by more than 90% compared with 1995 and by more than 75% compared with 2005. We are global leaders for clean diesel engines with our BLUETEC technology. Our BLUETEC automobiles fulfill the strictest emission standards and are the cleanest diesel cars in the world. 84 In the area of waste management, our guiding principle is that avoidance and recycling are better than disposal. Innovative techniques and environmentally compatible production allow us to steadily reduce our volumes of waste materials. Between 2005 and 2010, the total of production-related waste material fell by 13% to 1.0 million tons. Also in this area, we recorded an increase over the prior year – along with the substantial growth in production volumes – of 27%. But in the more relevant com- parison with 2008, there was a reduction of 10%. The figures stated for the year 2010 are based on an extrapolation of the environ- mental data currently available for 2010. The exact figures will be released with the publication of the new Sustainability Report in April 2011. We make use of comprehensive environmental management systems in our efforts to make further progress in the field of environmental protection. More than 98% of our employees worldwide work in plants whose environmental management systems have been certified according to ISO 14001 or EMAS environmental standards. €2.3 billion for environmental protection. Once again in the year 2010, we pursued the goal of preserving resources and reducing all relevant emissions. We consider the effects of all our processes – from vehicle development to production and to recycling and environmentally friendly disposal. Last year, we increased our spending on environmental protection by 8% to €2.3 billion. Extensive activities for environmental protection in production. With the help of environmentally friendly production methods, we have succeeded in recent years – with comparable production volumes – in continually reducing our plants’ energy consumption, CO2 emissions, production-related solvent emissions and noise pollution. As a result, energy consumption fell between 2005 and 2010 by 5.7% to 10.3 million megawatt hours. During the same period, CO2 emissions decreased by 3.0% to 3.7 million tons. Compared with the year 2009, both energy consumption and CO2 emissions increased last year: by 16% and 18% respectively. However, this is solely a reflection of the unusually low production volumes in the prior year caused by the worldwide sales crisis. A more relevant comparison is with the year 2008, which shows reductions in energy consumption of 5.9% and in CO2 emissions of 4.6%, despite the new inclusion of production-related fuel consumption. Without this change, the reductions would have been 6.6% for energy consumption and 4.7% for CO2 emissions. Utilization of techniques that preserve resources such as closed-cycle systems enabled us to reduce water consumption by 10.5% between 2005 and 2010. Water con- sumption was 18% higher in 2010 than in 2009, but was 10.1% lower than in 2008. Management Report | Profitability | 85 Due to the discontinuation of reduced working hours and short-time work, personnel and related expenses increased to €16.5 billion in 2010 from €13.9 billion in the prior year. Profit sharing. As a result of the unsatisfactory business development in 2009, no profit-sharing bonus could be granted for that year. Nonetheless, the employees of Daimler AG paid according to wage-tariff agreements received a special one-time bonus of 500 euros in April 2010. This was intended to show the Board of Management’s recognition of the workforce’s efforts in a difficult environment. In addition, employee shares were offered once again in May 2010, after the employee-share program had to be suspended in 2009. In view of the Group’s positive economic development in the year 2010, Daimler’s Board of Management and General Employee Council have agreed that the special efforts made by the workforce in 2010 will be rewarded with a high performance participation bonus: In Germany, each entitled employee of Daimler AG will be paid 3,150 euros at the end of April 2011. Average age. The average age of our employees worldwide in 2010 was 41.9 (2009: 41.4). In Germany, the average age of the employees of Daimler AG was 43. Along with general demographic developments, the average will increase over the coming years. This demographic change is leading to various challenges and opportunities. The objective of the measures we have initiated is to develop our employees’ productivity and to make use of their growing experience. As part of our resource management activities, we examine for example how demographic change will affect our future needs for skilled workers. This will allow us to take preventative action in order to maintain the long-term competitiveness of our workforce. Employees by division Daimler Group 260,100 Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Sales Organization Daimler Financial Services Other 96,281 71,706 14,557 17,134 48,299 6,742 5,381 Employment 260,100 employees worldwide. Due to the revival of demand, the size of our workforce increased slightly in 2010. As of December 31, we employed a total of 260,100 people worldwide, compared with 256,407 at the end of 2009. In Germany, the number of employees increased to 164,026 (2009: 162,565); 18,295 people were employed in the United States (2009: 17,697), 13,484 in Brazil (2009: 13,088) and 12,836 in Japan (2009: 14,152). At our consolidated subsidiaries in China, the headcount at the end of 2010 was 1,552 (2009: 1,166); in addition, our Chinese joint venture companies employed approximately 7,500 people. The number of apprentices and trainees was 8,841 (2009: 9,151). The parent company, Daimler AG, employed 145,796 people as of December 31, 2010 (2009: 147,052). Employment increased at the divisions Mercedes-Benz Cars (+3%) and Daimler Trucks (+1%). While the number of persons employed in the sales and marketing organization also rose (+1%), headcounts decreased at the divisions Mercedes-Benz Vans (-4%) and Daimler Financial Services (-1%). At Daimler Buses, employment was nearly unchanged. Cost savings due to package of measures taken. In 2010, it was possible to suspend the measures agreed upon by the Board of Management and the Group Employee Council in Germany in 2009 to reduce labor costs and secure employment. Due to the improving economic situation, we reduced short-time work as of January at first at the car plants and then gradually also at the truck and van plants, so by the end of the third quarter it was completely phased out. For the entire workforce, the termination of reduced working hours was agreed upon for the end of May 2010 – one month earlier than planned. In total, this package of measures, which also included savings on supplementary com- pany benefits, made an important contribution to the reduction of personnel expenses. By means of the measures taken to enhance personnel flexibility, we were able to overcome the diffi- cult economic situation without actively reducing the headcount in Germany. 86 Risk management continues to prove its worth. Also in the year 2010, we continually monitored the financial development of our suppliers in the context of our risk management. We focus in particular on security of supply, the development of working capital and the continuation of productivity-enhancing projects from the year 2009. Although some of our suppliers had to file for bankruptcy in 2010, we were able to avoid any major production losses. Due to the great importance of suppliers for our pro- duction processes, Daimler has established a Supplier Risk Board, which holds regular meetings. This board has members from various departments and if required develops action plans enabling us to react quickly to the danger of supplier insolvency. We sup- port distressed suppliers for example by making advance payments for subsequent deliveries. Sustainability in procurement. Our goal is to ensure that our business practices are sustainable along the entire value chain. Our expectations in terms of ecological and social aspects are formulated in Daimler’s sustainability guidelines for suppliers. Since the end of 2010, they have been a binding component of our terms and conditions for purchasing in Germany, which are valid for a large proportion of our suppliers. Other contracts and agreement are gradually being adapted worldwide. In addition, we apply various instruments to check and support the implemen- tation of our requirements, including supplier training courses as well as dialogues and other communication activities. Increase in employees’ average period at the Group and in the proportion of women in management positions. The average period for which Daimler employees have been at the Group increased in 2010 from 15.4 to 16.0 years. At the end of the year, Daimler Group employees in Germany had been with us for an average of 18.7 years (2009: 18.1); the average for employees of Daimler AG was 18.9 years (2009: 18.4). The aver- age period for our employees outside Germany was 11.3 years (2009: 11.0). Women accounted for 13.5% of the total workforce of Daimler AG at the end of 2010 (2009: 13.1%). In management positions of levels 1 to 4, the proportion of women increased from last year’s 10.9% to 11.6%. Procurement Goal: the world’s most effective supplier network. The Daimler Group’s procurement organization consists of three departments – Procurement Mercedes-Benz Cars and Vans, Procurement Daimler Trucks and Buses, and International Procure- ment Services for non-production materials – and is present at more than 50 locations all over the world. The goal of the pro- curement organization is to create the world’s most effective supplier network and thus to contribute to Daimler’s overall suc- cess. Performance-oriented cooperation with our suppliers. Under the motto “Commitment to Excellence,” the Daimler Supplier Network (DSN) defines the business philosophy of Daimler’s procurement organization. Its principles are performance and partnership: With the help of the external balanced scorecard, suppliers’ performance is measured in the categories quality, technology, costs and reliability. To us, partnership means fairness, dependability and credibility. The best suppliers are rewarded each year with the Daimler Supplier Award for outstanding perfor- mance. Increasing raw-material prices. After historical lows in the prior year, the prices of many raw materials increased again significantly in 2010. This development was the result above all of expansive monetary policies worldwide, rising industrial demand in emerging economies, and the interests of financial investors. Daimler pro- tects itself against price fluctuations with a number of measures, including long-term agreements and hedging transactions. Management Report | Profitability | 87 Integrated system solution for commercial-vehicle sales. Following a successful start in the Daimler TruckStores, we further developed the internet-based software solution for the used commercial-vehicle business and introduced it at Daimler Buses. All accounting-relevant transactions are processed automatically worldwide. Details of vehicles in stock, including pictures, are trans- ferred daily and automatically from the system to the TruckStore Internet portal for the sales function. Green IT makes visible contribution to sustainability. One focus of our IT work at Daimler is on sustainability issues such as green IT. We have achieved substantial savings of resources in the context of this initiative: In the IT organization, 55 million kilowatt-hours of electricity and 33,000 tons of CO2 emissions were saved within one year. This benefited not only our ecological performance, but also our profitability. The consistent focus of IT on aspects of sustainability has been emphasized by the inclusion of key figures for green IT in the IT organization’s balanced scorecard. This makes it possible to continually measure the environmental and resource-saving application of information technology. It also allows us to recognize innovative environmental potential faster and to integrate it into the processes of our business operations. Outside Daimler, the IT organization is active in the EU’s Code of Conduct for Data Centers – an environmental initiative by the European Union encour- aging companies to commit voluntarily to the use of efficient data centers. In November 2010, Daimler AG received the Gartner Data Center Excellence Award for the concept and measurable success of the Group-wide green IT initiative entitled “Think economically, act ecologically.” This prize is awarded for pioneering and strategic concepts related to the design and ecological operation of data centers. It is the most prestigious award in the international IT industry. Information technology IT as key factor for efficiency and innovation. In view of technological advances and the increasing penetration of information technology (IT) in business processes, the importance of a secure, high-performance IT system is increasing all the time. Nearly all business processes – from product development to vehicle production to sales and finance processes – are becoming ever more digitalized. Efficient and innovative IT systems therefore make a significant contribution to our business success. Approximately 4,800 employees at more than 500 locations pro- vide effective support for Daimler’s business processes with various IT applications. This includes ensuring that the system landscape is constantly functional and permanently optimized. In order to simultaneously improve efficiency, we continuously consolidate the IT system landscape and intend to reduce the number of existing systems by up to 40% by the year 2015. In 2010, we already reduced the number of applications by approxi- mately 8%. Worldwide, Daimler’s IT organization supports more than 260,000 employees as well as external business partners with an integrated network infrastructure. One of the key IT tasks is therefore to protect the flow of information against unauthorized access. Due to increasing risks and dangers for information security, we have set up a dedicated department at corporate level to work on this issue. This department defines and monitors the technical protective facilities and also takes organizational precautions such as worldwide employee training courses or the management of local IT-security executives. IT solutions support the further development of individual mobility. Both for our operating business units and for the sales organization, we have developed tailored IT solutions to support Daimler’s mobility strategy. After supporting car2go with its IT systems, Daimler’s IT specialists provided advice to the web-based car-sharing service, car2gether, and assisted with the design and implementation of its web portal. We also accom- panied the launch of the car2gether pilot project in Ulm. IT mobility services were further developed also in the sales function. Following the launch of the Apple iPhone app for the personalized contract management of financial services at Mercedes-Benz Financial, the entire Mercedes-Benz dealer network in the United States was equipped for mobile work with Apple’s 3G iPadTM. All 355 dealerships can now access Advantage®, the Mercedes-Benz dealer system, at each point of sale and at any place or time. We have also developed a function that allows cus- tomers to electronically sign documents directly on the iPad display. Since the beginning of 2010, Mercedes-Benz Financial’s IT services also include a website created solely for smartphone users. 88 Liquidity and Capital Resources Principles and objectives of financial management Financial management at Daimler consists of capital structure management, cash and liquidity management, pension asset management, market price risk management (foreign exchange rates, interest rates, commodity prices) and credit and financial country risk management. Worldwide financial management is performed within the scope of legal requirements for all Group entities by Treasury. Financial management operates within a frame- work of guidelines, limits and benchmarks, and is organizationally separate from other financial functions such as settlement, finan- cial controlling, reporting and accounting. Capital structure management designs the capital structure for the Group and its subsidiaries. Decisions regarding the capi- talization of financial services companies, as well as production, sales and financing companies, are based on the principles of cost- optimized and risk-optimized liquidity and capital resources. In addition, it is necessary to adhere to various restrictions on capital transactions and on the transfer of capital and currencies. Cash management determines the Group’s cash requirements and surpluses. The number of external bank transactions is mini- mized by the Group’s internal netting of cash requirements and surpluses. Netting is done by means of cash-concentration or cash- pooling procedures. Daimler has established standardized pro- cesses and systems to manage its bank accounts, internal cash- clearing accounts and the execution of automated payment transactions. Management of market price risks aims to minimize the impact of fluctuations in foreign exchange rates, interest rates and commodity prices on the results of the divisions and the Group. The Group’s overall exposure to these market price risks is determined to provide a basis for hedging decisions, which include the definition of hedging volumes and corresponding periods as well as the selection of hedging instruments. Decisions regarding the management of risks resulting from fluctuations in foreign exchange rates and commodity prices, as well as deci- sions on asset/liability management (interest rates), are regu- larly made by the relevant committees. Liquidity management secures the Group’s ability to meet its payment obligations at any time. For this purpose, liquidity plan- ning provides information about all cash flows from operating and financial activities in a rolling plan. The resulting financial requirements are covered by the use of appropriate instruments for liquidity management (e.g. bank credit, commercial paper, notes); liquidity surpluses are invested in the money market or the capital market to optimize risk and return. The goal is to ensure the level of liquidity regarded as necessary at optimal costs. Besides operational liquidity, Daimler keeps additional liquidity reserves which are available in the short term. These additional financial resources include a pool of receivables from the financial services business which are available for securitization in the credit market, as well as a contractually confirmed syndicated credit line in a volume of €7 billion. Management of pension assets includes the investment of pension assets to cover the corresponding pension obligations. Pension assets are held in separate pension funds and are thus not available for general business purposes. The funds are allocated to different asset classes such as equities, fixed-interest securi- ties, alternative investments and real estate, depending on the expected development of pension obligations and based on a process for risk-return optimization. The performance of asset management is measured by comparing with defined reference indices. Local custodians of the pension funds are responsible for the risk management of the individual pension funds. The Global Pension Committee limits these risks by means of a Group-wide binding guideline with due consideration of applicable laws. Additional information on pension benefit plans and similar obliga- tions is provided in Note 22 of the Notes to the Consolidated Financial Statements. Management Report | Liquidity and Capital Resources | 89 The risk volume that is subject to credit risk management includes all of Daimler’s worldwide creditor positions with financial institutions, issuers of securities, and customers in the financial services and automotive businesses. Credit risks with financial institutions and issuers of securities arise primarily from invest- ments executed as part of our liquidity management and from using derivative financial instruments. The management of these credit risks is mainly based on an internal limit system that reflects the creditworthiness of the respective financial institu - tion or issuer. The credit risk with customers of our automotive businesses results from granting them a payment period and includes the risk of default by contracted dealerships and general distributors, other corporate customers and retail customers. In connection with the export business, general distributors that according to our creditworthiness analysis are not sufficiently creditworthy are generally required to provide collateral such as first-class bank guarantees. The credit risk with end custom- ers in the financial services business is managed by Daimler Financial Services on the basis of a standardized risk manage- ment process. In this process, minimum requirements are defined for the sales financing and leasing business and standards are set for credit processes as well as for the identification, measure- ment and management of risks. Key elements for the manage- ment of credit risks are appropriate creditworthiness assessments, supported by statistical analyses and evaluation methods, as well as structured portfolio analysis and monitoring. Financial country risk management includes various aspects: the risk from investments in subsidiaries and joint ventures, the risk from the cross-border financing of Group companies in risk countries, and the risk from direct sales to customers in those countries. Daimler has an internal rating system that divides all countries in which it operates into risk categories. Equity capital transactions in risk countries are hedged against political risks with the use of investment-protection insurance such as the German government’s investment guarantees. Some cross- border receivables due from customers are protected with the use of export-credit insurance, first-class bank guarantees and letters of credit. In addition, a committee sets and restricts the level of hard-currency credits granted to financial services com- panies in risk countries. Additional information on the management of market price risks, credit defaults and liquidity risks is provided in Note 31 of the Notes to the Consolidated Financial Statements. Cash flows Condensed consolidated statement of cash flows In millions of euros Cash and cash equivalents at the beginning of the year Cash provided by operating activities Cash provided by / used for investing activities Cash provided by / used for financing activities Effect of exchange-rate changes on cash and cash equivalents Cash and cash equivalents at the end of the year 2010 2009 10/09 Change 9,800 6,912 2,888 8,544 10,961 -2,417 -313 -8,950 8,637 -7,551 1,057 -8,608 423 -180 603 10,903 9,800 1,103 Cash provided by operating activities amounted to €8.5 billion in 2010 (2009: €11.0 billion). The positive effect from the signifi- cant improvement in net profit was partially offset by the devel- opment of inventories, which increased in 2010 due to the higher production volumes but decreased substantially in the prior year. Compared with 2009, additional factors reducing cash provided by operating activities were the increased new leasing and sales financing business and the reduction in proceeds from the sale of parts of the non-automotive portfolio in the financial services business. In addition, the negative effects from increased trade receivables resulting from higher unit sales were only partially offset by an increase in trade payables. Furthermore, income- tax payments of €1.2 billion were higher than in the prior year (2009: €0.4 billion), but due to the utilization of tax-loss carry- forwards, they increased at a lower rate than operating result. Cash flows from investing activities resulted in a net cash out- flow of €0.3 billion (2009: €9.0 billion). The reduced cash outflow compared with the prior year was primarily the result of acquisi- tions and sales of securities carried out in the context of liquidity management, which led to a net cash inflow of €4.3 billion last year compared with a net cash outflow of €5.4 billion in the prior year. The reporting period was also affected by proceeds from the sale of shares in Tata Motors (€0.3 billion). There were higher cash outflows for substantially increased investments in property, plant and equipment and intangible assets, as well as for the pay- ment made in connection with the cross-shareholding with the Renault-Nissan Alliance (€0.1 billion). 90 Cash flows from financing activities resulted in a net cash out- flow of €7.6 billion, which almost solely reflects the repayment of financing liabilities. To a lower extent, there were opposing cash inflows from the issue of new shares in connection with the exercise of stock options (€0.2 billion). The net cash inflow of €1.1 billion in the prior year mainly reflects the capital increase from the issue of new shares (€1.95 billion), reduced by the pay- ment of the dividend for the year 2008 (€0.6 billion). Cash and cash equivalents increased compared with December 31, 2009 by €1.1 billion, after taking currency translation into account. Total liquidity, which also includes deposits and market- able debt securities, was reduced by €3.1 billion to €13.0 billion. The free cash flow of the industrial business, which is the parameter used by Daimler to measure the Group’s financing capability, increased by a significant €2.7 billion to €5.4 billion. The main reason for the increase in the free cash flow was the substantial improvement in the divisions’ profit contributions, which more than offset the negative effects of inventory develop- ments and higher investments in property, plant and equipment and intangible assets. The sale of the shares in Tata Motors also had a positive impact on the free cash flow. Free cash flow of the industrial business 2010 2009 10/09 Change 10,066 -741 6,544 -7,716 3,522 6,975 In millions of euros Cash provided by operating activities Cash used for investing activities Change in cash (> 3 months) and marketable debt securities included in liquidity Free cash flow of the industrial business Net liquidity of the industrial business In millions of euros Cash Marketable debt securities and term deposits Liquidity Financing liabilities Market valuation and currency hedges for financing liabilities Financing liabilities (nominal) Net liquidity Dec. 31, 2010 Dec. 31, 2009 10/09 Change 9,535 6,735 2,800 1,258 10,793 1,358 -213 1,145 11,938 5,073 11,808 -5,516 993 -4,523 7,285 -3,815 -1,015 6,874 -1,206 5,668 4,653 The net liquidity of the industrial business is calculated as the amount of cash, cash equivalents, marketable debt securities and other financial investments included in liquidity management, less the currency-hedged nominal amount of the financing liabilities. To the extent that the Group’s internal refinancing of the financial services business is provided by the companies of the industrial business, it is deducted for the calculation of the debt of the indus- trial business. At December 31, 2010, due to the application of the funds of the industrial business, the Group’s internal refi- nancing was larger than the financing liabilities originally entered into by the industrial business. This resulted in a positive value for the financing liabilities of the industrial business, and there- fore a positive component of net liquidity. Compared with a year earlier, the net liquidity of the industrial business increased by €4.7 billion to €11.9 billion. -3,893 3,878 -7,771 The increase was primarily due to the positive free cash flow. 5,432 2,706 2,726 Management Report | Liquidity and Capital Resources | 91 Net debt at Group level, which primarily results from the refinancing of the leasing and sales financing business, decreased compared with December 31, 2009 by €0.3 billion. Capital expenditure In billions of euros 4 3 2 1 0 2006 2007 2008 2009 2010 At the Mercedes-Benz Vans division, the focus of investment was for the model upgrade of the Vito/Viano, the development of new products, and our plants and sales organization. At Daimler Buses, our main investment in 2010 was in new products and our production plants. Investment in property, plant and equipment In millions of euros Daimler Group Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services 2010 2009 10/09 % change 3,653 2,457 1,003 91 95 12 2,423 1,618 597 113 78 14 +51 +52 +68 -19 +22 -14 Net debt of the Daimler Group In millions of euros Cash Marketable securities and term deposits Liquidity Financing liabilities Market valuation and currency hedges for financing liabilities Financing liabilities (nominal) Net debt Capital expenditure Dec. 31, 2010 Dec. 31, 2009 10/09 Change 10,903 9,800 1,103 2,096 12,999 -53,682 -213 -53,895 -40,896 6,342 16,142 -58,294 993 -57,301 -41,159 -4,246 -3,143 4,612 -1,206 3,406 263 Following significant reductions in the year 2009 as a result of strict liquidity management, in line with the more favorable busi- ness development, we increased our investment in property, plant and equipment to €3.7 billion in 2010 (2009: €2.4 billion). The focus was on investments in new vehicle models and new drive systems. €2.1 billion of the total volume of capital expendi- ture was in Germany. At Mercedes-Benz Cars, investments in property, plant and equip- ment increased by 52% to €2.5 billion in 2010. One focus was on the expansion of production capacities for the successor to the A/B-Class at the new plant in Kecskemét, Hungary, and at the Rastatt plant in Germany. In addition, we invested in the ramp-up of the new M-Class in Tuscaloosa, USA, and prepared for the start of C-Class production there in 2014. The main investment at the Bremen plant was for the new generation of the SLK roadster. We also invested in engine projects such as the production of the new V6 and V8 gasoline engines at the plant in Stuttgart- Bad Cannstatt, as well as in expanding our car production capaci- ties in the growth markets of China and India. Daimler Trucks invested primarily in projects for the global harmonization and standardization of engines and other main components and to enable it to fulfill stricter emission regulations. We also invested in the successor generations of existing truck models. Other areas of investment were for additional production capacities for the Actros heavy-duty truck, which has also been produced in Aksaray, Turkey, since late 2010 and will be assembled in Juiz de Fora, Brazil, as of 2012, and for the expansion of production capacities at the plant in São Bernardo do Campo, Brazil. Total investment in property, plant and equipment at Daimler Trucks amounted to €1.0 billion (2009: €0.6 billion). 92 Refinancing To cover its refinancing requirements, Daimler makes use of a broad spectrum of various financing instruments in the interna- tional money and capital markets. Daimler needs capital primarily for the financing of vehicles in the leasing and sales financing busi- ness. In addition to issuing short-term commercial paper in the money market, Daimler issues bonds in the capital market in various currencies with medium and long maturities. They include so-called benchmark issuances (large bonds with large trading volumes) as well as low-volume emissions. In addition, bank credit lines and securitized receivables are also used to cover financing requirements. In 2010, the Group covered its liquidity requirements mainly through the issuance of bonds and with bank loans. Due to the positive development of cash provided by operating activities, the funding requirement was significantly lower than in 2009. To a very small extent, funds were also raised by issuing commer- cial paper. Furthermore, the still high level of customer deposits at Mercedes-Benz Bank was used as an additional source of finance. For raising longer-term capital in the capital market, various programs are available such as the €35 billion multi-currency multi-issuer euro medium-term note program, under which the following euro benchmark bonds were successfully placed on the market in 2010: Amount in billions of euros Term in years Maturity 1.0 1.0 3.5 7.0 July 2013 January 2017 In order to diversify our refinancing, we made smaller private placements in the euro market and issued bonds in the local mar- kets of South Africa, Mexico, Argentina and Thailand. And in April 2010, the Group successfully placed an ABS transaction in an amount of US$1.0 billion with investors in the United States; in this context, Daimler made use of its US platform, Mercedes- Benz Auto Receivables Trust. At the end of 2010, Daimler had short-term and long-term credit lines totaling €24.0 billion (2009: €21.1 billion), of which €9.4 billion (2009: €0.8 billion) was not utilized. These included a new syndicated credit facility arranged with a consortium of international banks in volume of €7 billion with a maturity of five years. That credit facility was significantly over-subscribed. After signing the new credit line, Daimler prematurely terminated the two existing syndicated credit lines of US$5 billion and €3 billion. The carrying values of the main refinancing instruments and the weighted average interest rates are shown in the table below. Average interest rates Dec. 31, 2009 Dec. 31, 2010 Book value Dec. 31, 2009 Dec. 31, 2010 In % In millions of euros Bonds/notes Commercial paper Liabilities to banks 4.58 4.82 4.42 4.66 6.48 5.04 26,123 91 14,328 30,095 176 13,000 The financial instruments shown in the table above at December 31, 2010 are mainly denominated in the following currencies: 30% in US dollars, 29% in euros, 7% in Japanese yen, 7% in Brazil- ian real and 5% in British pounds. At December 31, 2009, the financial liabilities shown in the consolidated balance sheet, which include customer deposits in the direct banking business, amounted to €53,682 million (2009: €58,294 million). Detailed information on the amounts and terms of financing liabilities is provided in Notes 24 and 31 of the Notes to the Consol- idated Financial Statements. Note 31 also provides information on the maturities of the other financial liabilities. Management Report | Liquidity and Capital Resources | 93 Other financial commitments and off-balance-sheet transactions In the context of its normal business operations, the Group has entered into other financial commitments in addition to the liabili- ties shown in the consolidated balance sheet at December 31, 2010. These other financial commitments primarily relate to pur- chasing commitments and commitments to invest in replacement and expansion of property, plant and equipment. The Group has also committed to make payments in connection with rental and leasing agreements for the use of production facilities and other property, plant and equipment. In addition, particularly Daimler Financial Services has made irrevocable loan commitments within the framework of its business operations. The table below provides an overview of these other financial commitments and their maturities: In millions of euros Purchasing commitments, investments in property, plant and equipment Future lease payments under rental and leasing agreements Irrevocable loan commitments The Group’s off-balance-sheet transactions relate to transactions in the context of which Daimler has provided guarantees and thus continues to be subject to risk. However, this does not include warranties the Group provides on its products in the context of its vehicle sales. The guarantees reported by the Group (excluding product war- ranties) principally represent financial guarantees that require us to make certain payments if a guarantee holder fails to meet its financial obligations. The maximum potential obligation result- ing from these guarantees amounts to €1.1 billion at December 31, 2010 (end of 2009: €1.5 billion); the corresponding provi- sions amount to €0.2 billion at the end of the year (end of 2009: €0.2 billion). Most of the financial guarantees relate to the situations described as follows: In connection with the transfer of a majority interest in Chrysler, Daimler guaranteed payments of up to US$200 million into the Chrysler pension plans. The term of this guarantee is limited until August 2012. The Group also provided guarantees for other Chrysler obligations; at December 31, 2010, these guarantees amounted to €0.3 billion, whereby Chrysler provided €0.2 billion on an escrow account as collateral for the guaran- teed obligations. Another financial guarantee of €0.1 billion relates to bank loans of Toll Collect GmbH, the operator company of the toll-collection system for trucks in Germany. 94 within 1 year in 1-3 years Payments falling due: after 5 years in 4-5 years 6,017 297 1,624 1,086 504 262 168 396 24 149 953 - Total 7,420 2,150 1,910 Other risks arise from an additional guarantee that the Group provided for obligations of Toll Collect GmbH towards the Federal Republic of Germany. This guarantee is related to the completion and operation of the toll-collection system. A claim on this guaran- tee could primarily arise if for technical reasons toll revenue is lost or if certain contractually defined parameters are not fulfilled, if the Federal Republic of Germany makes additional claims or the final operating permit is not granted. Furthermore, arbitration proceedings have been initiated against the Group. The maximum obligation that could result from this guarantee is substantial, but cannot be reasonably estimated. Furthermore, the Group has issued a number of smaller guaran- tees, some of which specify that Daimler guarantees the financial obligations of companies which supply us with parts, vehicle components or services or which lease production facilities to us. On August 26, 2010, Standard & Poor’s affirmed its long-term credit rating for Daimler AG at BBB+ and changed its outlook from negative to stable. It justified this step with the substantial improvement in our financial risk profile during the first half of 2010. In this context, Standard & Poor’s referred to the signifi- cant increase in the Group’s profitability. The rating agency Moody’s Investors Service (Moody’s) did not alter its ratings for Daimler during the year 2010. On December 7, 2010, Moody’s affirmed its long-term rating at A3 and praised the material improvements in Daimler’s operating performance. At the same time, Moody’s made it clear that the improvements in profitability and cash-flow generation achieved in the first nine months would have to be maintained beyond the year 2010 to secure the existing level of rating. On July 19, 2010, Fitch upgraded our rating outlook from nega- tive to positive in the context of revising its ratings for European automobile manufacturers. Our long-term rating was confirmed at BBB+. As justification, Fitch referred to the continuous improve- ment in the financial profiles of European carmakers since the year 2009, the faster-than-expected recovery in global auto sales, and Fitch’s revised expectations for those companies’ key credit metrics in the coming years. On November 29, 2010, the Canadian agency DBRS confirmed the long-term rating for Daimler AG and its related companies at A (low) with a stable outlook. It stated that although our financial profile had deteriorated in the previous year due to the global economic downswing, our profitability had improved sharply year-over-year in the first three quarters of 2010. The short-term ratings of all four rating agencies remained unchanged during 2010. Buyback obligations arise for the Daimler Group from agree- ments under which we guarantee to customers certain trade-in or resale values for sold vehicles. Most of these guarantees provide the holder with the right to return purchased vehicles to the Group if the customer acquires another vehicle from Daimler. At December 31, 2010, the maximum potential obligation from these guarantees amounted to €0.7 billion (December 31, 2009: €0.7 billion); the corresponding provisions amounted to €0.1 billion at the end of 2010 (end of 2009: €0.1 billion). Further information on other financial commitments and contin- gent liabilities from guarantees granted as well as on the elec- tronic toll-collection system and related risks is provided in Note 29 (Guarantees and other financial commitments) and Note 28 (Legal proceedings) of the Notes to the Consolidated Financial Statements. Credit ratings No significant changes were made to the ratings of Daimler AG and its subsidiaries during the year under review. Only Standard & Poor’s Ratings Services (Standard & Poor’s) and Fitch Ratings (Fitch) upgraded the outlook for our long-term credit rating, whereby the upgrade issued by Fitch of an improvement from negative to positive was more significant than the change from negative to stable at Standard & Poor’s. In their publications during the year 2010, most of the rating agencies pointed out the significant improvement in Daimler’s profitability, in particular at Mercedes-Benz Cars. Another factor is that the recovery of worldwide demand for motor vehicles last year was stronger than most of the rating agencies had expected. But in view of uncertainty about the ongoing development of the automotive industry and additional costs caused by legislation on emission reductions, there have not yet been any further adjustments of our ratings. Long-term credit ratings Standard & Poor’s Moody’s Fitch DBRS Short-term credit ratings Standard & Poor’s Moody’s Fitch DBRS End of 2010 End of 2009 BBB+ A3 BBB+ A (low) A-2 P-2 F2 BBB+ A3 BBB+ A (low) A-2 P-2 F2 R-1 (low) R-1 (low) Management Report | Liquidity and Capital Resources | 95 Financial Position Intangible assets increased to €7.5 billion (December 31, 2009: €6.8 billion). The increase of €0.6 billion after adjusting for the effects of currency translation was mainly caused by capitalized development costs, which accounted for 28.3% of total develop- ment expenditure (2009: 30.7%). Capital expenditure that was significantly higher than depreciation and exchange-rate effects caused property, plant and equip- ment to increase to €17.6 billion (December 31, 2009: €16.0 billion). The investments were made at the car plants in Kecskemét, Rastatt, Tuscaloosa and Kölleda and at the truck plants in Germany, Brazil and India. Equipment on operating leases and receivables from financial services increased primarily due to exchange-rate effects by €3.9 billion to a total of €61.0 billion. The increase adjusted for exchange-rate effects was due to the higher volume of new business resulting from growth in unit sales in the automotive divisions, and mainly related to the business with end-customers. The proportion of the balance sheet total was 45% (December 31, 2009: 44%). Investments accounted for using the equity method of €4.0 billion primarily comprise the carrying amounts of our equity interests in EADS, Tognum and Kamaz. The decrease of €0.3 billion mainly relates to our investment in EADS and reflects impairments of derivative financial instruments recognized directly in equity at EADS as well as the company’s net loss for the period. Inventories increased by €1.7 billion to €14.5 billion, equi- valent to 11% of total assets. Higher production volumes and exchange-rate effects were the reasons for the increase, which primarily reflects increased stocks of finished vehicles. Due to higher unit sales and exchange-rate effects, trade receivables increased by €1.9 billion to €7.2 billion. Cash and cash equivalents increased compared with December 31, 2009 by €1.1 billion to €10.9 billion. Condensed consolidated statement of financial position Dec. 31, 2010 Dec. 31, 2009 % change 10/09 In millions of euros Assets Intangible assets Property, plant and equipment Equipment on operating leases and receivables from financial services Investments accounted for using the equity method Inventories Trade receivables Cash and cash equivalents Interest-bearing securities Other financial assets Other assets Total assets Equity and liabilities Equity Provisions Financing liabilities Trade payables Other financial liabilities Other liabilities 7,504 17,593 6,753 15,965 60,955 57,010 3,960 14,544 7,192 10,903 2,096 5,441 5,642 4,295 12,845 5,285 9,800 6,342 5,135 5,391 135,830 128,821 37,953 20,637 53,682 7,657 10,509 5,392 31,827 18,372 58,294 5,622 9,737 4,969 Total equity and liabilities 135,830 128,821 11 10 7 -8 13 36 11 -67 6 5 5 19 12 -8 36 8 9 5 The Group’s balance sheet total increased compared with December 31, 2009 by €7.0 billion to €135.8 billion. Adjusted for the effects of currency translation, the balance sheet total grew by €0.7 billion. The financial services business accounted for €67.9 billion of the balance sheet total (December 31, 2009: €65.1 billion), equivalent to 50% of the Daimler Group’s total assets (December 31, 2009: 51%). Current assets accounted for 42% of the balance sheet total, the same as a year earlier. The increases in receivables, inventories and cash and cash equivalents were offset by the reduction in marketable debt securities. Current liabilities increased to 39% of the balance sheet total (December 31, 2009: 37%), primarily due to higher trade payables and higher provisions. 96 Balance sheet structure Daimler Group In billions of euros Balance sheet structure industrial business In billions of euros 2009 2010 Assets Equity and liabilities Assets 2009 2010 Equity and liabilities Non-current assets 79 75 32 38 Equity Non-current assets 43 40 27 33 Equity Current assets 57 54 49 45 48 53 of which: Liquidity 13 136 16 129 129 136 Non-current liabilities Current assets 25 24 25 Current liabilities of which: Liquidity 11 12 12 17 18 Non-current liabilities Current liabilities 68 64 64 68 Marketable debt securities decreased compared with December 31, 2009 from €6.3 billion to €2.1 billion. These items primarily comprise debt instruments quoted in an active market and are allocated to liquidity. Financing liabilities decreased by €4.6 billion to €53.7 billion. The decrease adjusted for currency effects of €6.9 billion is mainly related to bonds and liabilities arising from customers’ deposits in Mercedes-Benz Bank’s direct banking business. Other financial assets increased from €5.1 billion to €5.4 billion. They mainly comprise investments and derivative financial instruments, as well as loans and other receivables due from third parties. The increase in investments reflects the cross-share- holding arising from the strategic cooperation with the Renault- Nissan Alliance, and was partially offset by the sale of our interest in Tata Motors. The fair values of derivative financial instruments decreased partially as a result of the weaker euro. Other assets of €5.6 billion mainly comprise deferred tax assets and reimbursements due to tax refunds (December 31, 2009: €5.4 billion). The Group’s equity increased compared with December 31, 2009 by €6.1 billion to €38.0 billion. The increase primarily reflects the net profit of €4.7 billion, boosted by exchange-rate effects and the issue of shares in connection with the acquisition of shares in Renault and Nissan. The shares in Renault and Nissan were mainly acquired with the use of treasury shares. The equity ratio was 26.5% for the Group (December 1, 2009: 24.7%) and 45.8% for the industrial business (December 31, 2009: 42.6%). The 2010 equity ratios are adjusted for the proposed dividend payment for the year 2010. Provisions account for 15% of the balance sheet total. Most of them relate to provisions for warranty claims and personnel and pension obligations, and at €20.6 billion were above the level of December 31, 2009 (€18.4 billion). The increase was mainly due to higher provisions for personnel obligations. Trade payables increased by €2.0 billion to €7.7 billion, partially due to the higher production volumes. Other financial liabilities increased to €10.5 billion (December 31, 2009: €9.7 billion). They primarily relate to residual-value guarantees, wages and salaries, derivative financial instruments and accrued interest on financing liabilities. The increase mainly resulted from the revaluation of hedging instruments due to the weakness of the euro. Other liabilities of €5.4 billion mainly comprise deferred tax liabilities, tax liabilities and accrued expenses as well as deferred income (December 31, 2009: €5.0 billion). The funded status of the Group’s pension benefit obligations, defined as the difference between the present value of the pension obligations and the fair value of pension plan assets, decreased in 2010 by €0.6 billion to minus €6.5 billion. At December 31, 2010, the present value of the Group’s pension obligations amounted to €17.7 billion, compared with €16.5 billion at the end of the prior year. The increase resulted primarily from a reduction in the discount rate for German pension benefit plans of 0.3 of a percentage point to 5.0%. The plan assets available to finance the pension obligations increased from €10.6 billion to €11.2 billion, due to the positive development of capital markets as well as contributions. Further information on pension benefit and similar obligations is provided in Note 22 of the Notes to the Consolidated Financial Statements. Management Report | Financial Position | 97 Daimler AG Condensed version according to the German Commercial Code (HGB) In addition to reporting on the Daimler Group, in this section, we also describe the development of Daimler AG. Reconciliation of the 2009 financial statements to transitional amounts according to BilMoG at January 1, 2010 Daimler AG is the parent company of the Daimler Group and is domiciled in Stuttgart. Its principal business activities comprise the development, production and distribution of cars, vans and trucks in Germany and the management of the Daimler Group. The vehicles are produced at the domestic plants of Daimler AG, under contract-manufacturing agreements by domestic and foreign subsidiaries, and by producers of special vehicles. Daimler AG distributes its products through its own sales network of 34 German sales-and-service centers, through foreign sales subsidiaries and through third parties. Unlike Daimler’s consolidated financial statements, which are prepared in accordance with the International Financial Reporting Standards (IFRS), the annual financial statements of Daimler AG are prepared according to the German Commercial Code (HGB). This results in some differences with regard to recognition and measurement, mainly relating to intangible assets, provisions, financial instruments and deferred taxes. The financial statements for the year 2010 were for the first time prepared with application of the provisions of Germany’s Accounting Law Modernization Act (BilMoG). The main effects of changing over to the new accounting regula- tions were the netting of pension plan assets with provisions for pensions, changes in the area of measuring provisions, inven- tories and amounts in foreign currencies, and a change in the presentation of treasury shares. The result of operations reported by Daimler AG improved by €254 million as a result of changing over to the new account- ing regulations according to BilMoG. The balance sheet total decreased by €7,936 million. In millions of euros Assets Non-current assets Inventories Receivables, securities and other assets Cash and cash equivalents Current assets Deferred expenses and accrued income Equity and liabilities Share capital (conditional capital €415 million) Capital reserve Retained earnings Unappropriated profit Equity Provisions for pensions and similar obligations Other provisions Total provisions Trade payables Other liabilities Total liabilities Deferred income and accrued expenses Effects of the application of BilMoG at January 1, 2010 on the statement of income/loss for 2010 The following overview shows the reconciliation of the balance sheet amounts shown in the 2009 financial statements to the “transitional amounts” according to HGB as amended by the Accounting Law Modernization Act (HGB n.F.) at the time of first application (January 1, 2010). In millions of euros Measurement of inventories Fair valuation of pension plan assets Allocation to other provisions Measurement of assets and liabilities denominated in foreign currencies Extraordinary income 98 The equity ratio increased due to the changeover to HGB n.F. to 33.0% at January 1, 2010 (December 31, 2009: 27.1%). Jan. 1, 2010 Reconcil- iation Dec. 31, 2009 37,637 5,006 20,582 2,251 27,839 53 65,529 -7,811 134 -259 -125 45,448 4,872 20,841 2,251 27,964 53 -7,936 73,465 2,938 -107 3,045 11,123 7,279 254 21,594 3,961 10,624 14,585 3,111 24,427 27,538 1,812 65,529 1,558 254 1,705 -9,020 -580 -9,600 -7 -34 -41 -7,936 11,123 5,721 0 19,889 12,981 11,204 24,185 3,118 24,461 27,579 1,812 73,465 134 38 -12 94 254 Profitability Condensed statement of income of Daimler AG The development of business in the year 2010 was primarily driven by the recovery of the world economy. The main automo- tive markets developed positively with a generally high level of demand. Unit sales were higher than the prior-year levels for all types of vehicle. After the prior year was severely impacted by the financial and economic crisis, Daimler AG posted a profit on ordinary activities of €5.6 billion in 2010 (2009: loss of €4.4 billion). The improved result is primarily due to the increased unit sales of vehicles, a favorable sales structure and the improvement in financial income/expense. Revenue increased by €15.8 billion to €63.0 billion. The revenue generated by sales of passanger cars increased by €11.7 billion to €46.1 billion due to higher unit sales and structural effects. As a result of the worldwide recovery of demand, Daimler AG also recorded a substantial increase in revenue generated by sales of trucks and vans of €4.1 billion to €16.9 billion. The result of operations in the car business was a significant profit in 2010. This was mainly due to high volumes of unit sales and an advantageous product mix. Better pricing also had a posi- tive impact on earnings. There was an opposing, negative effect on earnings from increased research and development expenses. Sales of new cars increased by 21% to 1,256,000 units* in 2010 (2009: 1,038,000 units). Car sales increased significantly, partic- ularly in the United States and China and in the premium and luxury segments. Sales rose of the S-Class by 78% to 84,000 units and of the E-Class by 47% to 320,000 units. The result of operations for trucks and vans was also significantly better than in the prior year due to higher unit sales. Unit sales of vans increased due to the positive market development by 39% to 208,000 vehicles. Unit sales of trucks reached 77,000 vehi- cles (2009: 53,000)*. The growth in unit sales of trucks and vans was mainly based on the Actros (62%), Axor (33%) and Sprinter (50%) model series. * The unit sales of Daimler AG include vehicles invoiced to companies of the Group which have not yet been sold on to external customers by those companies. Vehicle sales by production companies of the Daimler Group are not counted in the unit sales of Daimler AG. In millions of euros Revenue Cost of sales (including R&D expenses) Selling expenses Administrative expenses Other operating income/expense Financial income/expense Profit/loss on ordinary activities Extraordinary income Income tax expense Profit/loss for the year Dec. 31, 2010 Dec. 31, 2009 63,002 -54,241 -4,907 -2,194 923 3,024 5,607 254 -462 5,399 47,177 -44,503 -4,389 -2,178 -68 -403 -4,364 – -401 -4,765 Transfer from the capital reserve - 4,765 Transfer to retained earnings Balance sheet profit/loss -2,699 2,700 – – Financial income/expense improved by €3.4 billion to €3.0 billion, primarily due to improved income from equity invest- ments. The increase in investment income is mainly the result of higher profit contributions from the domestic and foreign subsidiaries of Daimler AG. Cost of sales (excluding R&D expenses) increased at a lower rate than revenue by 22.8% to €50.0 billion (2009: €40.7 billion). The increase in cost of sales was primarily due to the increase in material expenses caused by the higher unit sales. It was espe- cially apparent in direct materials and the expense of purchased services. Research and development expenses, which are included in cost of sales, increased from €3.8 billion to €4.2 billion, but decreased as a proportion of revenue from 8.0% to 6.7%. The increase in research and development expenditure was mainly the result of higher expenses for purchased goods and services. One focus of R&D expenditure was on activities for the reduction of fuel consumption and CO2 emissions, as well as the develop- ment of alternative drive systems. Other important projects were for the revision and extension of the product portfolio, in partic- ular the S-/SL-Class, the C-Class, the A-/B-Class and the smart. Cars accounted for €3.0 billion (2009: €2.8 billion) and trucks and vans accounted for €1.2 billion (2009: €1.0 billion). At the end of the year, approximately 16,000 people were employed in the area of research and development. Management Report | Daimler AG | 99 Selling expenses increased to €4.9 billion in 2010 (2009: €4.4 billion). The increase was caused by the higher volume of busi- ness and the related higher charges from impairments of receiv- ables and cost of shipping. Expenses of information technology also increased. Administrative expenses of €2.2 billion were at the level of the prior year (2009: €2.2 billion). Other operating income improved by €1.0 billion to €0.9 billion. The prior year comprised expenses in connection with Chrysler and from the amendment requirements for former AEG share holders. Extraordinary income reflects the income and expenses relat- ing to the changeover to the new accounting regulations accord- ing to BilMoG at January 1, 2010. The income tax expense amounts to €0.5 billion and primarily comprises the tax expense for the year 2010. Financial position, liquidity and capital resources Statements on changes in individual items relate to the recon- ciled balance sheet amounts at January 1, 2010. Compared to January 1, 2010, the balance sheet total increased by 17.0% to €76.7 billion. Non-current assets increased by €1.5 billion to €39.2 billion during 2010. This was primarily the result of increased equity interests in subsidiaries and associated companies and was mainly related to the strategic cooperation with Renault-Nissan. As part of the cross-shareholding, Daimler AG received a 3.1% equity interest in each of Renault and Nissan. Daimler AG placed those equity interests with a Spanish subsidiary. Capital expen- diture on property, plant and equipment (excluding leased assets of approximately €2.1 billion) mainly constituted investment for the production of the new SLK, CLS and C-Class coupe, as well as investment in engine and transmission projects for both cars and commercial vehicles. Balance sheet structure of Daimler AG Dec. 31, 2010 Jan. 1, 2010 Dec. 31, 2009 In millions of euros Assets Non-current assets Inventories Receivables, securities and other assets Cash and cash equivalents Current assets Deferred expenses and accrued income Equity and liabilities Share capital (conditional capital €602 million) Capital reserve Retained earnings Unappropriated profit Equity Provisions for pensions and similar obligations Other provisions Total provisions Trade payables Other liabilities Total liabilities Deferred income and accrued expenses 39,151 5,574 26,123 5,753 37,450 99 76,700 37,637 5,006 20,582 2,251 27,839 45,448 4,872 20,841 2,251 27,964 53 53 65,529 73,465 3,057 2,938 3,045 11,321 11,193 2,700 28,271 4,027 11,463 15,490 4,334 27,598 31,932 1,007 76,700 11,123 7,279 254 21,594 3,961 10,624 14,585 3,111 24,427 27,538 1,812 65,529 11,123 5,721 0 19,889 12,981 11,204 24,185 3,118 24,461 27,579 1,812 73,465 Inventories increased compared with January 1, 2010 by €0.6 billion to €5.6 billion, mainly relating to finished goods and our higher production volumes. Receivables, securities and other assets increased compared with January 1, 2010 by €5.5 billion to €26.1 billion. This was primarily caused by an increase in receivables due from subsid- iaries related to the financing function of the parent company of €7.8 billion. There was an opposing effect from the decrease of €3.2 billion in securities held as current assets. Cash and cash equivalents increased by €3.5 billion to €5.8 billion. 100 Risks and opportunities The business development of Daimler AG is fundamentally sub- ject to the same risks and opportunities as the Daimler Group. Daimler AG generally participates in the risks of its equity inter- ests and subsidiaries in line with the percentage of each holding. Charges may additionally arise from equity interests and subsid- iaries in connection with statutory or contractual obligations (in particular with regard to financing). The risks are described in the Risk Report. Outlook Due to the interrelations between Daimler AG and its subsidiaries and the relative size of Daimler AG within the Group, we refer to the statements in the Outlook chapter, which also largely reflect our expectations for the parent company. Daimler AG expects to post a significant profit in the year 2011 but lower than in 2010. Further increases in annual earnings are anticipated in the medium term. Gross liquidity – defined as cash and cash equivalents plus other marketable securities – of €7.0 billion was €0.3 billion above the prior-year level. Cash provided by operating activi- ties amounted to €6.7 billion in 2010 (2009: €3.3 billion). The positive effects from the significantly improved result of operations and from equity investments were partially offset by higher receivables from the supply of goods and services within the Group. Cash provided by operating activities increased also due to the increase in trade payables caused by the higher levels of production and unit sales. The cash flow from investing activities resulted in a net cash inflow of €0.4 billion in 2010 (2009: net outflow of €5.1 billion). This mainly reflects the sale of securities held as current assets. There was an opposing effect from capital expenditure for property, plant and equipment. The cash flow from financing activities resulted in a net cash outflow of €3.6 billion (2009: net inflow of €3.3 billion). This was mainly caused by the increase in financial receivables due from companies of the Group. On the other hand, borrowing increased the cash inflow from financing activities. Equity increased compared with January 1, 2010 by €6.7 billion. This change primarily resulted from the net profit, of which, pursuant to Section 58 Subsection 2 of the German Stock Corpo- ration Act (AktG), €2.7 billion was transferred to retained earn- ings, and from the strategic cooperation with Renault-Nissan. Retained earnings increased by €1.1 billion due to the transfer of treasury shares to Renault S.A. and Nissan Motor Co. Ltd. The equity ratio at December 31, 2010 was 36.9% (January 1, 2010: 33.0%). Provisions increased compared with January 1, 2010 by €0.9 billion to €15.5 billion. This was mainly related to pensions and similar obligations and provisions for derivative financial instruments. Liabilities rose by €4.4 billion to €31.9 billion. This rise mainly reflects the increases in bonds and commercial paper (plus €2.1 billion), trade payables (plus €1.2 billion) and financial liabilities to subsidiaries (plus €0.9 billion). Management Report | Daimler AG | 101 Overall Assessment of the Economic Situation On the whole, Daimler’s business developed substantially better in 2010 than we expected at the beginning of the year. Daimler has emerged strengthened and with great dynamism from the global financial and economic crisis. We made use of the years 2009 and 2010 to significantly increase our efficiency and to achieve a sustained improvement in our cost basis. We are now profiting from the fact that we steadily continued with our projects for secur- ing our future also through the financial and economic crisis. As a result, we now have a large number of new and attractive prod- ucts and pioneering technologies to offer our customers. In addi- tion, our long-term and wide-ranging involvement in markets such as China, India, Brazil and Russia started to pay off significantly in the year under review. This is due not least to the fact that the recovery of worldwide automotive demand has been driven not by our established markets, but by the growth markets of Asia and Latin America. Against this backdrop, all of Daimler’s automotive divisions significantly increased their unit sales in the year 2010. In fact, Mercedes-Benz Cars and Daimler Buses approached the levels they achieved in 2008. Daimler Trucks and Mercedes-Benz Vans posted double-digit growth rates despite the hesitant upswing of markets for commercial vehicles, but their unit sales were still below the record levels of the years before the crisis. The Daimler Group’s revenue increased at an even higher rate than its unit sales – by 24% to €97.8 billion. One reason for this development is that the structure of unit sales at Mercedes-Benz Cars shifted towards higher-value vehicles with the market success of the new E-Class models and the S-Class. The earnings turnaround was particularly impressive: After posting a loss in 2009, we achieved EBIT of €7.3 billion and net profit of €4.7 billion last year. The main contribution to this result came from Mercedes-Benz Cars. Both the Daimler Trucks division and the Mercedes-Benz Vans division significantly improved their EBIT. But Daimler Buses’ earnings were also above the prior-year level and Daimler Financial Services’ EBIT reached the very high level of €831 million (2009: €9 million). Because of this positive earnings trend, our key figures improved significantly in 2010. The Group’s overall equity ratio increased from 24.7% to 26.5% and the equity ratio of the industrial business rose from 42.6% to 45.8%. The free cash flow of the industrial business – the parameter we use to measure our financial strength – increased by €2.7 billion to €5.4 billion in 2010. This means that the net liquidity of our industrial business also improved during the course of the year: from €7.3 billion to €11.9 billion. After deciding not to pay a dividend last year in view of the net loss in 2009, we now want our shareholders to participate again appropriately in our financial success. In setting the dividend, we aim to distribute approximately 40% of the Group’s net profit attributable to the Daimler shareholders. On this basis, the Board of Management and the Supervisory Board have decided to recommend to the shareholders for their approval at the Annual Meeting to be held on April 13, 2011 that a dividend of €1.85 per share be paid out. The total dividend payout will then amount to €1,971 million. We are well prepared for the challenges of the coming years. From the starting point of a sound financial basis, we are continuing and intensifying our research and development work. During the planning period of 2011 through 2012, Daimler will invest a total of €10.3 billion in research and development activities. Our objec- tive is to strengthen Daimler’s competitive position against the backdrop of the upcoming technological challenges. We intend to convince the markets with innovative solutions for low-emission and safe mobility. With a volume of more than €10 billion, we will also significantly increase our capital expenditure in the years 2011 and 2012. The focus will be on preparing for numerous product launches as well as expanding and modernizing our production facilities. In order to penetrate markets in the developing economies, we are increasingly investing in local production capacities, especially in China, India and Russia. We can only ensure that we profit from the future growth of those markets by having an effective local presence. Daimler is a financially healthy, strong and above all innovative company. We therefore enter the year 2011 with great confidence. 102 Events after the End of the 2010 Financial Year Since the end of the 2010 financial year, there have been no occurrences other than those taken into account in the consolidated financial statements or otherwise reported on that are of major significance for Daimler. The course of business in the first two months of 2011 confirms the statements made in the Outlook section of this Annual Report. Management Report | Overall Assessment of the Economic Situation | Events after the End of the 2010 Financial Year | 103 Risk Report Risks and opportunities Daimler’s divisions are exposed to a large number of risks which are inextricably linked with their entrepreneurial activities. In order to identify, evaluate and deal consistently with those risks, we make use of effective management and control sys- tems; we have combined these systems in a uniform risk man- agement system, which is described below. Entrepreneurial activity primarily consists of creating and utilizing opportunities in order to secure and strengthen the company’s competitiveness. Entrepreneurial opportunities are not reported within our risk management system, but are included in the annual operational planning and followed up during the year in the context of periodical corporate reporting. The divisions are directly responsible for the early identification of opportunities and their utilization. Within the framework of the strategy pro- cess, longer-term opportunities for further profitable growth are identified and brought into the decision-making process. Further information on this subject is provided on page 117 of the Management Report. Risk management systems (Report and explanation provided pursuant to Section 315 Subsection 2 Number 5 and Section 289 Subsection 5 of the German Commercial Code (HGB)) The risk management system with regard to material risks and risks threatening the existence of the Group is inte - grated into the value-based management and planning system of Daimler AG and the Group. It is an integral part of the overall planning, management and reporting process in all relevant legal entities, divisions and central functions. It aims to systematically identify, assess, monitor and document material risks and risks threatening Daimler’s existence. Risk assessment principally takes place for a two-year planning period, although in the discus- sions for the derivation of medium-term and strategic goals, Daimler also identifies and monitors longer-term risks. In the context of the two-year operational planning, with the use of defined risk categories, risks are identified for the divisions and operating units, the major joint ventures and associated com- panies and the central departments, and are assessed regarding their probability of occurrence and possible extent of damage. 104 Assessment of the possible extent of damage usually takes place in terms of the risks’ impact on EBIT. In addition, risks for example with an impact on the Group’s reputation are assessed according to qualitative criteria. The reporting of relevant risks is based on fixed value limits. The responsible persons also have the task of developing, and initiating as required, measures to avoid, reduce and hedge risks. Material risks and the counter- measures taken are monitored within the framework of a regular process. As well as the regular reporting, there is also an internal reporting obligation within the Group for risks arising unexpect- edly. The Group’s central risk management department regularly reports on the identified risks to the Board of Management and the Supervisory Board. The internal control and risk management system with regard to the accounting process has the goal of ensuring the correctness and effectiveness of accounting and financial reporting. It is continually further developed and is an integral part of the accounting and financial reporting process in all relevant legal entities and central functions. The system includes principles and procedures as well as preventive and detective controls. Among other things, we regularly check that: – the Group’s uniform financial reporting, valuation and account- ing guidelines are continually updated and regularly trained and adhered to; – transactions within the Group are fully accounted for and prop- erly eliminated; – issues relevant for financial reporting and disclosure from agreements entered into are recognized and appropriately presented; – processes exist to guarantee the completeness of financial reporting; – processes exist for the segregation of duties and for the “four- eyes principle” in the context of preparing financial statements, as well as for authorization and access rules for relevant IT accounting systems. We systematically assess the effectiveness of the internal control and risk management system with regard to the corporate accounting process. At first, there is a risk analysis and a defini- tion of control. Significant risks are identified relating to the pro- cess of corporate accounting and financial reporting in the main legal entities and central functions. The controls required for the identification of risks are then defined and documented in accordance with Group-wide guidelines. Regular random tests are carried out to assess the effectiveness of the controls. Those tests constitute the basis for self-assessment of the appropriate extent and effectiveness of the controls. The results of this self- assessment are documented and reported in a global IT system. Any weaknesses recognized are eliminated with consideration of their potential effects. At the end of the annual cycle, the selected legal entities and central functions confirm the effec- tiveness of the internal control and risk management system with regard to the corporate accounting process. The Board of Management and the Audit Committee of the Supervisory Board are regularly informed about the main control weaknesses and about the effectiveness of the control mechanisms installed. However, the internal control and risk management system with regard to the accounting process cannot ensure with absolute certainty that material false statements are avoided in accounting. In order to ensure the complete presentation and assessment not only of material risks and risks threatening the existence of the Group, but also of the control and risk process with regard to the corporate accounting process, Daimler has established the Group Risk Management Committee (GRMC). It is composed of representatives of the areas of Finance & Controlling, Account- ing, Legal Affairs and Compliance, and is chaired by the Board of Management Member for Finance (CFO). The Internal Auditing department contributes material statements on the internal con- trol and risk management system. In addition to fundamental issues, the committee has the following tasks: – The GRMC creates and shapes the framework conditions with regard to the organization, methods, processes and systems we need to ensure a functioning, Group-wide and thorough control and risk management system. – The GRMC regularly reviews the effectiveness and functionality of the installed control and risk management processes. Minimum requirements can be laid down in terms of the design of the control processes and of risk management, and correc- tive measures can be commissioned as necessary or appropri- ate to eliminate any system failings or weaknesses exposed. But responsibility for operational risk management for risks threatening the existence of the Group and for the control and risk management processes with regard to the corporate accounting process remains directly with the corporate areas, companies and central functions. The provisions taken by GRMC ensure that relevant risks and any existing process weaknesses in the corporate accounting process are identified and elimi- nated as early as possible. In the Board of Management and the Audit Committee of the Supervisory Board of Daimler AG, regular reports are given regarding the current risk situation and the effectiveness, func- tionality and appropriateness of the internal control and risk management system. Furthermore, the responsible managers regularly discuss the risks of business operations with the Board of Management. The Audit Committee of the Supervisory Board is responsible for monitoring the internal control and risk management system. The Internal Auditing department monitors whether the statutory conditions and the Group’s internal guidelines are adhered to for the Group’s entire monitoring and risk management system, and if required develops appropriate measures which are initiated by the management. The external auditors audit the system for the early identification of risks that is integrated in the risk management system for its fundamental suitability for identifying risks threatening the existence of the Group; in addition, they report to the Supervisory Board on any signifi- cant weaknesses that have been discovered in the internal control and risk management system. Management Report | Risk Report | 105 Economic risks In the first year after the worst recession of the postwar period, the world economy enjoyed a relatively strong recovery, although global economic dynamism weakened somewhat towards the middle of 2010. At the same time, there was increased concern about a renewed slump (double dip). The world economy there- fore remains very fragile and sensitive to external disturbances. We see the biggest individual risks for the year 2011 in renewed financial turbulence (including currency risks), the further exacer- bation of public authorities’ debt problems, a growth slump in China, high price volatility in raw-material markets, nascent protec- tionism and the possible destabilizing effects of a too-expansive monetary policy. The development of the world economy in 2011 that is expected by the majority of economic research institu- tions, and also by Daimler, is highly dependent on the development of those risk factors. But it would only be possible for the world economy to return to a phase of recession if several of those fac- tors actually occurred. This means that there are still consider- able economic risks for Daimler’s financial position, cash flows and profitability. One important topic in the year 2010 was levels of public debt in the triad, which increased sharply as a result of the recession and the economic stimulus programs – some of them quite sub- stantial – that had been initiated. This problem will not only dampen the economic outlook for 2011, but could also have a consider- able impact on the financial markets. This applies in particular to the risk of a sovereign default; from the perspective of the financial markets, this risk has not been eliminated for several European countries, despite the rescue fund set up by the Euro- pean Union and the International Monetary Fund (IMF). There is a serious risk that after Greece and Ireland, other countries might get into refinancing difficulties. This would result in even higher volatilities on the financial markets, significant downward pressure on the euro and drastic spending cuts to reduce public deficits. These austerity efforts could become so strict that demand would fall quite severely in the countries affected, lead- ing to another recessive phase. Another risk could be that after the countries of the euro zone, the financial markets might focus on other highly indebted countries. In their attempts to resolve the crisis, central banks have applied expansive monetary policies, in some cases to a substantial extent. This applies especially to the United States and the United Kingdom. In view of the rather hesitant economic recovery, the further expansion of quantitative easing was announced in the United States in the autumn of 2010. But the further the pro- cess of economic recovery advances, the greater the potential risk that this will result in excess liquidity, in particular with regard to possible new market bubbles or higher inflation. The impact of expansive monetary policy on global exchange rates is also connected with significant risks. The US economy was still on course for a relatively moderate recovery at the end of 2010. The upswing was still generally too weak to have a positive effect on the labor market, so the unem- ployment rate has remained unusually high by American stan- dards. If the unemployment situation does not improve a little or actually gets worse, private consumption will decrease enor- mously. Another factor is the risk from the real-estate sector; if it continues its weak development, the asset positions of private households and banks could come under additional pressure. A further risk for the US economy is to be seen in insufficient lending, which is not unlikely despite the sharp increase in the money supply. This would be the case above all if banks severely limited their lending in order to reduce their own risk exposure or to improve their balance sheet ratios. In such a sce- nario, there would be a reduction in investment activity, which needs to recover before there is a sustained improvement in the labor market. The consequence would be even weaker growth in gross domestic product and possibly even stronger monetary expansion. Due to the importance of the US economy, such an unfavorable development would have a corresponding negative impact on the world economy. Furthermore, the United States still has a relatively high current account deficit and is thus dependent on capital inflows from abroad. A possible – and in the medium term inevitable – correction of the current account deficit could depress domestic demand and trigger depreciation of the US dollar. That depreciation could be additionally acceler- ated by massive movements of global currency reserves. In total, such occurrences would have negative impacts on demand for cars and commercial vehicles. 106 With few exceptions, such as Germany or Sweden, economic recovery in Western Europe has been rather moderate so far. The biggest risks for the ongoing development are to be seen in the financial markets and the consolidation of budget deficits. The countries of the euro zone in particular could come under pressure due to the continuing discussion about refinancing problems, sovereign default and banks’ problems. As the basic scenario already contains a substantial growth differential within Western Europe, this could become more extreme and increase the existing tension. Demand for and supply of credit have been rather disappointing in the economic cycle so far. If credit volumes decreased significantly, the resulting burden would be primarily on small and medium-sized enterprises. The contin- uation of the economic recovery process could be jeopardized and lead to another spate of insolvencies, possibly affecting vehi- cle dealers and automotive suppliers. There is also a risk that both private consumption and companies’ investments will be substantially weaker than assumed, which would have a corre- sponding negative impact on demand for motor vehicles. This has considerable risk potential for the Daimler Group given the importance of Germany and the other countries of Western Europe as major sales markets. The basic economic pattern for Japan is similar. Although the country’s economic growth rate was relatively strong in 2010, it was already significantly less dynamic in the second half of the year. The appreciation of the yen was a particularly nega- tive factor. If the yen stays at this high level or continues to climb, the Japanese economy will come under even more pres- sure. The enormous increase in the national debt and the high level of unemployment by Japanese standards are sources of addi- tional risk potential that should not be underestimated. A less favorable economic outlook in Japan would not only reduce the Group’s exports to that market, but would also worsen the earnings of our subsidiaries there. A sustained reduction in economic growth in China would also be financially and strategically relevant for Daimler. Concern about an investment and real-estate bubble were often apparent in China last year. In the second half of 2010, increased food prices put pressure on the inflation rate, which in the long term could jeopardize social stability. Significantly lower growth rates in China would result in distinct growth losses for the world economy and would therefore affect Daimler’s business opera- tions. Risks for the development of demand could also result from measures taken to avoid economic overheating (e.g. regional approval restrictions), especially if such measures are wide-rang- ing or stringent. An additional factor is that possible economic crises in the emerging markets where the Group has important production facilities could be highly relevant. On the other hand, crises in emerging economies where Daimler is active solely in a sales function would result in a more limited risk potential. We see an additional major risk in the development of raw-mate- rial prices. If prices were to rise sharply once again and depart even further from fundamentally justified levels, the assumed global economic outlook would be jeopardized. Raw-material markets have so far absorbed some of the excess liquidity, and with a continuation of expansive monetary policy, there is a danger of speculative bubbles. This would result in a negative impact on growth, especially in those countries that import large volumes of raw materials. However, falling raw-material prices entail substantial risks for the economic growth of raw-material export- ing emerging markets. Management Report | Risk Report | 107 Due to the competitive pressure on the automotive markets, it is essential for us to continually and successfully adapt our production and cost structures to changing conditions. If we fail to do so, this would affect the Group’s competitiveness and could once again require cost-intensive restructuring actions. The recent crisis years have also led to a worsening of the financial situation of some suppliers, dealers and vehicle importers. For this reason, it is still not possible to rule out individual or joint supporting actions by the vehicle manufactur- ers, which would have a negative impact on Daimler’s financial position, cash flows and profitability. Risks relating to the leasing and sales-financing business. Daimler’s financial services business primarily comprises the provision of financing and leasing for the Group’s products. In particular, this business involves the risk that the prices realizable for used vehicles at the end of leasing contracts are below their book values (residual-value risk). Another inherent risk is that some of the receivables due in the financial services business might not be recoverable due to customer default (credit risk). Other risks connected with the leasing and sales- financing business are the possibilities of increased refinancing costs and of potential changes in interest rates. An adjustment of credit conditions for customers in the leasing and sales- financ ing business due to higher refinancing costs could reduce the new business and contract volume of Daimler Financial Services, thus also reducing the unit sales of the automotive divisions. Daimler counteracts residual-value and credit risks by means of appropriate market analyses and creditworthiness checks. Derivative financial instruments are used to hedge against the risk of changes in interest rates. Further information on credit risks and the Group’s risk-minimizing actions is pro- vided in Note 31 of the Notes to the Consolidated Financial Statements. Risks for market access and the global networking of the Group’s facilities could arise as a result of a weakening of international free trade in favor of regional trade blocks or the emergence of protectionist tendencies. The latter could occur in particular due to competitive devaluation resulting from insufficient adjust- ment of exchange rates and an increase in speculative capital movements. A rise in bilateral free-trade agreements outside the European Union could also affect Daimler’s position in key foreign markets. Finally, the world economy could be negatively affected by a last- ing deterioration in consumer and investor confidence and by sustained deflationary tendencies, but also by inflationary tendencies. Such developments could be triggered not only by financial market problems, but also by geopolitical and military instability. That also includes the recent events in northern Africa, which certainly have the potential to have implications far beyond the region. In addition to possible effects on raw- material prices, the transfer of political instability to other coun- tries respectively regions would depress not only the regional outlook, but also the outlook for the global economy. Industry and business risks General market risks. Although the world economy enjoyed a strong recovery in 2010, there are still considerable economic risks for the development of the automotive markets. And com- petitive pressure in the automotive markets is as high as ever. Customers have meanwhile become used to a certain level of sales-supporting actions. If competitive pressure in the automotive markets becomes even tougher, possibly due to a renewed worsening of global economic developments, this could lead to the increased application of sales-promoting financing offers and other incentives once again. This would not only reduce revenues in the new-vehicle business, but would also lead to lower price levels in used-vehicle markets and thus to falling residual values. In many markets, a shift in demand towards smaller, more fuel efficient vehicles is apparent; this is the result of customers’ significantly increased sensitivity to vehicles’ environmental friendliness and the development of fuel prices. In order to enhance the attractiveness of less fuel- efficient vehicles, additional actions might become necessary with a negative impact on earnings. This, together with the shift in the model mix towards smaller vehicles with lower margins, would place an additional burden on the Group’s financial posi- tion, cash flows and profitability. 108 Production and technology risks. In order to achieve the tar- geted levels of prices, factors such as brand image, design and product quality play an important role, as well as additional technical features resulting from our innovative research and devel- opment. Convincing solutions, for example supporting accident- free driving or further improving our vehicles’ fuel consumption and emissions as with as the electrification of the drive train, are of key importance for safe and sustainable mobility. Because those solutions generally require higher advance expenditure and greater technical complexity, there is an increasing challenge to realize efficiency improvements while simultaneously fulfilling Daimler’s own quality standards. If we fail to perform this task optimally or cannot implement statutory requirements in good time, that could negatively affect the Group’s future profitability. The possible loss of acceptance for our products could have a negative impact on pricing and capacity utilization. Product quality has a major influence on a customer’s decision to buy a passenger car or commercial vehicle. At the same time, technical complexity continues to grow as a result of additional features, for example for the fulfillment of various emission and fuel-economy regulations, increasing the danger of vehicle mal- functions. Technical problems could lead to recall and repair campaigns, or could even necessitate new development work. Furthermore, deteriorating product quality can lead to higher warranty and goodwill costs. Risks related to the legal and political framework. The legal and political framework has a considerable impact on Daimler’s future business success. Regulations concerning vehicles’ emis- sions, fuel consumption and safety play a particularly impor- tant role. Complying with these varied and often diverging regula- tions all over the world requires strenuous efforts on the part of the automotive industry. We expect that we have to significantly increase our research and development spending in order to fulfill those requirements in the future. Many countries have already implemented stricter regulations to reduce vehicles’ emissions and fuel consumption, or are about to do so, one example being European regulations on exhaust emissions and fuel consump- tion. For example, the key elements of the European Union’s reg- ulation on carbon dioxide, which was passed by the EU parlia- ment at the end of 2008, call for a significant reduction in new cars’ CO2 emissions already as of 2012, and for phased improve- ments whereby the average emissions of manufacturers’ entire fleets of new cars have to meet new limits by 2015. Non-compli- ance with those limits will lead to penalty payments for manufac- turers. Similar legislation exists or has been proposed for cars in the United States, China, South Korea, Japan and Switzerland. In 2010, most of the new CO2 legislation for light-duty commer- cial vehicles was passed in the European Union. The resulting tar- gets constitute a long-term challenge in particular for Mercedes- Benz Vans. Efforts are also being made worldwide to regulate the CO2 emissions of heavy commercial vehicles. We assume that we will meet those targets. As a result of customers’ future pur- chase decisions, monetary sanctions cannot be completely ruled out in the United States. In addition to emission, consumption and safety regulations, traffic-policy restrictions for the reduction of traffic jams and pollution are becoming increasingly important in the cities and urban areas of the European Union and other regions of the world. Drastic provisions such as general vehicle- registration restrictions, for example in Beijing or Shanghai, can have a dampening effect on the development of unit sales, espe- cially in the growth markets. Daimler monitors these develop- ments and attempts to anticipate foreseeable requirements and long-term targets during the phase of product development. Management Report | Risk Report | 109 Procurement market risks. Procurement market risks arise for the Group from fluctuations in prices of raw materials. After falls in those prices at the end of 2008 and their subse- quent recovery in 2009, they have now reached a very high level once again. This recovery of prices is highly dependent on eco- nomic recovery in the various economic regions of the world. But the outlook for future price developments remains uncertain not least due to the increasing influence of institutional investors. This influence is apparent in the increased demand for raw-mate- rial investments and thus explains the high level of price volatility in the raw-material markets. In general, our scope to pass on the increased cost of raw materials and purchased components in the form of price increases for our vehicles is very limited because of intense pressure of competition in the international automobile markets. Daimler counteracts procurement risks by means of targeted commodity and supplier risk management. We attempt to reduce our dependency on individual materials in the context of commodity management, by making appropriate technological progress for example. Daimler protects itself against the volatility of raw-material prices by entering into long- term supply agreements, which make short-term risks for mate- rial supplies and the effects of price fluctuations more calculable. Furthermore, in connection with some metals, we make use of derivative price hedging instruments. Supplier risk management aims to identify suppliers’ potential financial difficulties at an early stage and to initiate suitable countermeasures. As a result of the financial market crisis, some of our suppliers’ refinancing possibilities have worsened significantly. This has necessitated individual or joint support actions by vehicle manufacturers to safeguard their own production and sales. In the context of supplier risk management, regular reporting dates are set for suppliers depending on our assessment of them, in which key per- formance indicators are reported to Daimler and any required support actions are decided upon. Information technology risks and unforeseeable events. Production and business processes could also be disturbed by unforeseeable events, such as natural disasters or terrorist attacks. Consumer confidence would be significantly affected and production could be interrupted by supply problems and intensified security measures at territorial borders. Information technology plays an important role in our business processes. Storing and exchanging data in a timely, complete and correct manner and being able to utilize fully functioning IT applications are highly important for a global company such as Daimler. Possi- ble risks, the occurrence of which could result in the interruption of our business processes due to the failure of IT systems or the loss or corruption of data, are therefore identified and evaluated over the entire life cycles of applications and IT systems. Daimler has defined suitable actions for risk avoidance and limitation of damage, continually adapts these actions to changing circum- stances, and monitors their implementation. These activities are embedded in a multi-stage IT risk management process. For example, the Group minimizes potential interruptions of operat - ing routines in the data centers by means of mirrored data sets, decentralized data storage, outsourced archiving, high-availability computers and appropriate emergency plans. In order to coun- teract the growing threat for the operation of central IT systems and the security of confidential data, we have our own risk management system for information security. Due to the wide- ranging security measures we take, most IT risks have a low probability of occurrence, but can have a significant impact on business operations if they do occur. Reputation. The general public is becoming increasingly aware of companies’ behavior in matters of ethics and sustainability. Compliance of corporate actions with applicable law and ethical principles is essential for the Daimler Group. Furthermore, cus- tomers and capital markets critically observe how the Group reacts to the technological challenges of the future and the extent to which we succeed in placing up-to-date and technologi- cally leading products on the market. Dealing securely with sensi- tive data is also a precondition for conducting business relations with customers and suppliers in a trusting and fair environment. Daimler applies comprehensive packages of measures so that risks affecting the Group’s reputation are subject to formal inter- nal controls. 110 The Group is also exposed to a number of risks because it has issued guarantees for and holds an equity interest in the system for recording and charging tolls for the use of highways in Ger- many by commercial vehicles of more than 12 metric tons gross vehicle weight. The operation of the electronic toll-collection system is the responsibility of the operator company, Toll Collect GmbH, in which Daimler holds a 45% stake and which is included in the consolidated financial statements using the equity method of accounting. In addition to Daimler’s membership of the Toll Collect consortium and its equity interest in Toll Collect GmbH, risks also arise from guarantees that Daimler AG issued support- ing obligations of Toll Collect GmbH towards the Federal Republic of Germany concerning the completion and operation of the toll system. Claims could be made under these guarantees, if toll rev- enue is lost for technical reasons or if certain contractually defined parameters are not fulfilled, if additional claims are made by the Federal Republic of Germany, or if the final operating permit is not granted. Additional information on contingent obliga- tions from guarantees granted and on the electronic toll collection system and the related risks can be found in Note 28 (Legal pro- ceedings) and Note 29 (Guarantees and other financial commit- ments) of the Notes to the Consolidated Financial Statements. Specific risks in the area of human resources. Daimler’s suc- cess is highly dependent on the expertise and commitment of its workforce. Competition for highly qualified staff and manage- ment is still very intense in the industry and the regions in which we operate. Our future success also depends on the extent to which we succeed over the long term in recruiting, integrating and retaining executives, engineers and other specialists. The application of our human resources instruments takes such personnel risks into consideration, while contributing towards the recruitment and retention of staff with high potential and exper- tise and ensuring transparency with regard to our resources. One focus of our human resources management is on the targeted personnel development and further training of our workforce. Our employees profit for example from the range of courses offered by the Daimler Corporate Academy and from the transparency created by LEAD, our uniform worldwide performance and poten- tial management system. Because of demographic developments, the Group has to cope with the changes relating to an aging workforce and has to secure a sufficient number of qualified young persons with the potential to become the next generation of highly skilled specialists and executives. Risks relating to equity holdings and cooperations as well as other business risks. Daimler bears in principle a propor- tionate share of the risks of its associated companies, of EADS and joint ventures in growth markets for example. In order to make use of additional growth opportunities, particularly in the emerging markets, cooperation with partners in joint ventures and the associated risks are of increasing significance. The Group includes associated companies and joint ventures in the con- solidated financial statements using the equity method of account- ing; any factors with a negative impact on those companies’ earnings have a proportionate negative impact on our net results. Such factors can also mean that impairment losses have to be recognized on the carrying values of the equity interests or the amounts entered on the basis of the equity method. Further- more, failures or delays in the development of joint ventures could negatively affect our growth targets in important markets. The successful implementation of cooperations with other com- panies is also of key importance to realize cost advantages and combat the competitive pressure in the automotive industry. Management Report | Risk Report | 111 Financial risks Daimler is exposed to market risks from changes in foreign cur- rency exchange rates, interest rates, commodity prices and share prices. Market risks may adversely affect Daimler’s financial position, cash flows and profitability. Daimler seeks to control and manage these risks primarily through its regular operating and financing activities and, if appropriate, through the use of deriv- ative financial instruments. As part of the risk management process, Daimler regularly assesses these risks by considering changes in key economic indicators and market information. Any market-sensitive instruments held in pension funds and other postretirement pension benefit plans, including equity and inter- est-bearing securities, are not included in the following analysis. Exchange rate risks. The Daimler Group’s global reach means that its business operations and financial transactions are con- nected with risks arising from fluctuations of foreign exchange rates, especially of the US dollar and other important currencies against the euro. An exchange rate risk arises in the operating business primarily when revenue is generated in a different currency than the related costs (transaction risk). This applies in particular to the Mercedes-Benz Cars division, as a major portion of its rev- enue is generated in foreign currencies while most of its produc- tion costs are incurred in euros. The Daimler Trucks division is also exposed to such transaction risks, but only to a minor degree because of its worldwide production network. Currency exposures are gradually hedged with suitable financial instruments (predomi- nantly foreign forward exchange contracts and foreign currency options) in accordance with exchange rate expectations, which are constantly reviewed. Exchange rate risks also exist in connec- tion with the translation into euros of the net assets, revenues and expenses of the subsidiaries of the Group outside the euro zone (translation risk); these risks are not hedged. Interest rate risks. Daimler holds a variety of interest rate sensi- tive financial instruments to manage the cash requirements of its business operations on a day-to-day basis. Most of these finan- cial instruments are held in connection with the financial services business of Daimler Financial Services, whose policy is generally to match funding in terms of maturities and interest rates. However, to a limited extent, the funding does not match in terms of maturities and interest rates, which gives rise to the risk of changes in interest rates. The funding activities of the industrial business and the financial services business are coordinated centrally at Group level. Derivative interest rate instruments such as interest rate swaps and forward rate agreements are used to achieve the desired interest rate maturities and asset/liability structures (asset and liability management). Equity price risks. Daimler holds investments; in accordance with international banking standards, Daimler does not include equity investments that the Group classifies as long-term, such as in EADS, Tognum, Kamaz, Renault and Nissan, in the assess- ment of equity price risks. Commodity price risks. Associated with Daimler’s business operations, the Group is exposed to changes in the prices of commodities. We address these procurement risks by means of concerted commodity and supplier risk management. To a minor extent, derivative commodity instruments are used to reduce some of the Group’s commodity risks, primarily the risks associated with the purchase of metals. Liquidity risks. In the normal course of business, we make use of bonds, commercial paper and securitized transactions as well as bank credit in various currencies, primarily to refinance the leasing and sales-financing business. A negative develop- ment of the capital markets could increase the Group’s financing costs. More expensive refinancing would also have an impact on the competitiveness and profitability of our financial services business; a limitation of the financial services business would have a negative effect on the automotive business. Risks from changes in credit ratings. Daimler’s creditworthi- ness is assessed by the rating agencies Standard & Poor’s, Moody’s Investors Service, Fitch Ratings and DBRS. Upgrades of the credit ratings issued by the rating agencies could reduce the Group’s cost of borrowing. Downgrades are connected with possible risks, which could have a negative impact on the Group’s financing. 112 Risks connected with pension benefit plans. Daimler has pension benefit obligations, and to a smaller extent obligations relating to healthcare benefits, which are not completely covered by plan assets. The balance of obligations less plan assets consti- tutes the funded status for these employee-benefit plans. Even small changes in the assumptions used for the valuation of the benefit plans such as a reduction in the discount rate could lead to an increase in those obligations. On the other hand, the market value of the plan assets is determined to a large degree by developments in the capital markets. Unfavorable developments, in particular relating to equity prices and fixed-interest securi- ties, could reduce the market value. Higher obligations as well as reduced plan assets or a combination of both would have a nega- tive impact on the funded status of our benefit plans. Higher obli- gations and lower yields from the plan assets could also increase the net expenses relating to the benefit plans in the coming years. Further information on financial market risks, risk-minimizing actions and the management of those risks is provided in Note 31 of the Notes to the Consolidated Financial Instruments. Information on financial instruments and on the Group’s pension benefit plans can be found in Notes 30 and 22. Legal risks Various legal proceedings and administrative proceedings are pending against Daimler or could develop in the future. In our view, most of those proceedings constitute ordinary, routine litiga- tion that is incidental to Group’s business, some of which could also affect the Group’s reputation. We recognize provisions for litigation risks if the resulting obligations are probable and can be reasonably estimated. It is possible, however, that due to the final resolution of some of those pending lawsuits, our pro- visions could prove to be insufficient and therefore substantial additional expenditures could arise. This also applies to legal disputes for which the Group has seen no requirement to recog- nize a provision. Although the final result of any such lawsuit could have a material effect on the Group’s earnings in any par- ticular period, Daimler believes that any resulting obligations are unlikely to have a sustained effect on the Group’s cash flows, financial position or profitability. Further information on legal proceedings can be found in Note 28 of the Notes to the Consoli- dated Financial Statements. Overall risk The Group’s overall risk situation is the sum of all the individual risks of all risk categories for the divisions and the corporate functions. There are no discernible risks that, either alone or in combination with other risks, could jeopardize the continued existence of the Group. In total, risks have decreased significantly compared with crisis year 2009. But since considerable eco- nomic and industry risks still exist, setbacks on the way to regu- larly achieving our targeted growth and profitability targets cannot be completely ruled out. Management Report | Risk Report | 113 Outlook The statements made in the Outlook section are generally based on the operational planning of Daimler AG as approved by the Board of Management and Supervisory Board in December 2010 for the years 2011 and 2012. This planning is based on premises regarding the economic situation, which are derived from assess- ments made by renowned economic institutions, and on the targets set by our divisions. The prospects for our future business development presented here reflect the opportunities and risks offered by anticipated market conditions and the competitive situation. We are constantly adjusting our expectations, taking into account the latest forecasts on the development of the world economy and of automotive markets as well as our recent busi- ness development. The statements made below are based on the knowledge available to us in February 2011. World economy At the beginning of the year 2011, most leading indicators suggest that the global economic upswing will continue. However, there are also signs that the rate of economic expansion is likely to be somewhat weaker than in 2010. The ongoing uncertainty in financial markets is evidence of continued concern about the sustainability of the upswing. Particularly in the industrialized countries, the economic outlook is rather modest. The spending cuts initiated due to high state deficits will be a great challenge for many countries. And as financial consolidation is an important issue also in the private sector, the overall negative impact on total economic demand is significant. Higher levels of unemploy- ment in many countries, tight real-estate markets and under- utilized production capacities are restricting the growth of private consumption as well as investment. As world trade has also lost some of its impetus and is no longer growing as fast as last year, foreign trade cannot fully compensate for the weakness of other components of economic growth. This is especially relevant for export-oriented economies such as Germany and Japan, both of which gained a substantial contribution to overall growth from foreign trade in 2010. In the United States, employment should continue increasing in the private sector, but the gains will proba- bly be too small to reduce unemployment to a significant extent. But private consumption, a key economic driver, should be stimu- lated by the recently approved tax changes, which has now signi- ficantly improved the prospects for growth in 2011. The effects of the substantial expansion of the money supply and the ongo- ing increase in government debt on the US economy remain to be seen, however. 114 In Western Europe, the debt crisis and the resulting spending cuts are having a negative impact on total growth potential. Some economies, such as Greece, will therefore remain in the recessive phase. On the other hand, according to the more positive economic indicators at the end of the year, the outlook for the German economy has brightened considerably so that the country’s growth is expected to be significantly higher than the European average. Against this backdrop, the aggregate growth rate for the industrialized countries is likely to fall slightly to approximately 2 to 2.5% in 2011, whereby indi vidual countries’ rates will differ. Once again, substantially more impetus to the world economy will come from the emerging markets, which should expand at about two and a half times that rate. However, there have been signs in recent months of a slight growth slowdown also for those economies, especially in Asia and South America. In the case of China, a somewhat lower growth rate is actually desirable in view of the significant expansion of credit volumes and regional real-estate bubbles. In total therefore, global economic output could expand in the year 2011 by approxi- mately 3.5%. But due to ongoing consumer and investor uncertainty in many countries, the world economy remains rather fragile and thus also sensitive to external disturbances. Automotive markets According to current estimates, worldwide demand for motor vehicles will continue to grow this year, but no longer as dynami- cally as in 2010. The global car market could expand by 5 to 7%, thus reaching a new record volume. The Asian emerging markets and in particular the Chinese market will continue to play a major role. China’s importance also for the German premium manufac- turers will continue increasing this year. But the outlook remains mixed for the triad markets of Western Europe, the United States and Japan. The US market should continue its recovery, while the best that can be expected for car sales in Western Europe is that they remain at the prior-year level. The after-effects of state incentive programs are still dampening demand in some volume markets, above all in the lower market segments. In Germany, however, significant growth is now to be expected following the double-digit market decline in 2010. On the other hand, the Japanese car market is unlikely to equal its artificially high level of 2010, which was boosted by state incentives for car buyers. In addition to the Asian emerging markets, demand will continue to grow also in Latin America and Eastern Europe. In Brazil, slightly less market growth than in the prior year is anticipated, while demand in Russia should also expand at a lower rate this year. Worldwide demand for commercial vehicles this year will probably feature sharply differing market developments in the triad markets and the other regions. Market recovery is expected to accelerate in the triad of Western Europe, the United States and Japan, especially in the segment of medium-duty and heavy- duty trucks. For the NAFTA region, market growth of 20 to 25% is anticipated. Demand for trucks in Europe should increase by 15 to 20%. Following the expiry of state incentive schemes in autumn 2010, moderate volume growth is expected for the Japanese market for medium and heavy-duty trucks. Demand for trucks outside the triad will be primarily determined by the Chinese market. Since the state incentive program expired in China at the end of 2010, demand is expected to decline this year. But the Indian market should continue growing, although rather moderately. The Brazilian market, which is important for Daimler, will probably remain roughly at the high level of last year. The end of state incentives after the first quarter should be offset by ongoing strong demand from infrastructure projects. The possibility of purchases being brought forward before stricter emission limits come into force in 2012 could have an additional positive impact on the market this year. The Russian market is expected to continue its recovery, supported by a state scrappage bonus. From a global perspective, however, a slight reduction in total market volume is likely, due to anticipated lower demand in China. Growth in demand in Daimler’s currently most important van market, Europe, is expected to be moderate at between 4 and 6% this year. Demand for vans in the United States is likely to grow by a double-digit percentage. With regard to buses, we anticipate ongoing strong demand in Latin America at a similar level to the year 2010. In Western Europe, we expect no significant change in the market situation. Independently of economic developments in our markets, the regional distribution of demand has shifted significantly in recent years. The importance of the emerging markets has increased enormously not only for the industry as a whole, but especially for manufacturers of premium vehicles, and the trend is likely to continue in the coming years. This creates great challenges for the industry regarding production sites and flexibility, as well as the requirements of differing customers in a global market. Another factor is the continuing and increasing need to invest in fuel-efficient and future-oriented technologies and to develop and supply innovative and sustainable mobility and transport solutions. The companies that meet these challenges and make active use of these fundamental changes will have excellent growth prospects also in the future. But ultimately, the ability to stand out from the competition with innovations, exciting products and strong brands will be an increasingly important factor for success. Unit sales In view of the continuation of generally good market prospects as well as numerous model changes and new products, Mercedes-Benz Cars anticipates further growth in unit sales by the Mercedes-Benz brand. Thanks to our up-to-date and competitive model range, we will profit also in the year 2011 from the strong demand for our E-Class models and from the market success of the S-Class. Furthermore, the new version of the CLS coupe has been delivered to customers since late Janu - ary 2011. As of March, the new generation of the C-Class sedan and station wagon and the new SLK roadster will provide addi- tional sales impetus. The C-Class coupe will follow in June, the new version of the M-Class will be launched in September, and the roadster version of the Mercedes-Benz SLS AMG will follow in the fourth quarter. In November, the new B-Class will be launched – the first model of four new vehicles in the compact- car segment. On the engine side, we will introduce our highly efficient four, six and eight-cylinder engines and the eco-start- stop technology in additional models. This will give us a wide range of vehicles that will impress our customers – especially our fleet customers – with high performance and outstanding drivability combined with low fuel consumption. On this basis, we are putting particularly economical and environmentally friendly model versions on the road, thus further reducing the CO2 emissions of our fleet. With the new generation of the C-Class, for example, the C 220 CDI will soon be available with fuel consumption of just 4.4 liters per 100 kilometers and CO2 emissions of 117 g/km. Management Report | Outlook | 115 In addition, we want to utilize additional growth potential with our involvement in the emerging markets – especially in Russia, India and China. We are also expanding our production capacities in Brazil and Turkey. This will improve the availability of our trucks there and help us to defend or strengthen our position in those markets. At Mercedes-Benz Vans, the positive sales trend of the year 2010 should continue in 2011 and 2012. On the product side, demand will be boosted by new generations of the Vito and Viano and additional BlueEFFICIENCY models. Production in Argen- tina will change over by the end of the year 2011 to the current Sprinter model generation, thus significantly upgrading our pro duct range in South American markets. Furthermore, the Sprinter will be launched in China this year. By means of local production, we intend to significantly increase our unit sales in that market with great potential for the future. In this context, the 50:50 joint venture Fujian Daimler Automotive will produce a bus version of the Sprinter in addition to the Vito and Viano starting in 2011. Daimler Buses assumes it will maintain its globally leading posi- tion for buses above 8 tons with innovative and high-quality new products. We expect to achieve unit sales in the years 2011 and 2012 similar to the high levels of 2010. But due to the probable development of our key markets of Western Europe and Latin America, scope for growth is rather limited. Daimler Financial Services anticipates further growth in 2011 and 2012 in the financing and leasing business as well as with insurance and fleet management. We are continually expanding our product offering and combine individual financial services elements into attractive mobility solutions. On the basis of our assumptions concerning the development of automotive markets and the divisions’ planning, we expect the Daimler Group’s total unit sales to continue increasing in the years 2011 and 2012. In regional terms, we see good growth opportunities in the coming years above all in North America, the BRIC countries (China, India, Russ ia and Brazil) and South Korea. On the other hand, growth prospects in Western Europe and Japan are rather limited. But on the basis of our attractive range of automobiles, we assume that we will be able to defend our position also in these extremely competitive markets. Our overall goal is to increase the unit sales of Mercedes-Benz in each of the years 2011 and 2012. For the smart brand, due to the full availability of the new- generation smart fortwo, we anticipate unit sales in the magni- tude of the year 2010. Daimler Trucks assumes that it will increase its unit sales sub- stantially again in 2011 and 2012. Aided by the general eco- nomic recovery and the expected related growth in demand for transport services and vehicles, most of our markets will grow at double-digit rates. In Western Europe, we anticipate significant growth in unit sales following a moderate recovery in 2010, although they are likely to be below the pre-crisis level. Our unit sales should be around the level of the previous year in Eastern Europe this year. We anticipate an ongoing high level of unit sales in Latin America due to strong infrastructure demand. We also expect purchases to be brought forward there in connection with the upcoming introduction of Euro 5 regulations. Although the economic situation in the NAFTA region is improving only slowly, a significantly positive trend is apparent. We see clearly positive signals for our business also in Asia. And we expect a positive business development in Japan, despite the end of state incen- tives. Our expectations for unit sales are based on our numerous new products, including the new Atego and the Atego BlueTec Hybrid, both of which were voted Truck of the Year 2011. The new ver- sion of the Axor is the first truck of its class in the upper perfor- mance range in Germany to be fitted with Mercedes PowerShift transmission as standard equipment. PowerShift optimizes fuel consumption and enhances driving comfort. BLUETEC technol- ogy, which has already proven its worth for several years in Europe, was successfully introduced in new engines in the United States and Canada in 2010. We assume that with these new engines, we will profit even more from the replacement of aging vehicles that is expected in North America. In Japan, we presented the new long-distance truck Super Great in spring 2010. In November, the all-new Canter was launched, a light-duty truck that sets new standards in terms of economy, environmental compatibility, safety and design. The Fuso Canter Eco Hybrid is Number 1 for fuel efficiency among trucks up to five tons in Japan, and is now available also in Australia, Ireland and Hong Kong. Our wide range of safety technology was expanded for Mercedes-Benz trucks with the second generation of Active Brake Assist, which can initiate an emergency braking procedure also before station- ary obstacles if required. 116 Revenue and earnings Following the substantial increase in 2010, we assume that Daimler’s revenue will continue growing at more moderate rates in 2011 and 2012. This growth will probably be driven by all the automotive divisions. The following factors are particularly important for the earnings situation of the Daimler Group in the years 2011 and 2012: – We made use of crisis year 2009 and also of the year 2010 to achieve a sustainable improvement in our cost basis. We inten- sified the efficiency-enhancing programs running in all divisions, supplementing some of them with structural components. We will consistently continue our efforts to improve efficiency on the basis of the existing programs. – At the same time, we are now profiting from the fact that we continued with the projects designed to safeguard our future also during the financial and economic crisis. This is the reason why we can now convince our customers with a large number of highly attractive products and new technologies. Within the framework of our initiative “The Road to Emission-free Mobility,” we intend to further improve the environmental friendliness and fuel efficiency of our vehicles with the application of new technologies, while attracting and retaining customers with our typical product features. – In the BRIC countries, we have developed production facilities and distribution structures and can therefore participate in the above-average growth of those markets. – In order to secure and strengthen our competitive position, we will significantly increase our advance expenditure to safe- guard our future in the years 2011 and 2012. – The increases in raw-material prices - some of them quite sub- stantial – that we have to anticipate also for the year 2011 are likely to have a negative impact on our earnings. On the basis of current assessments, we expect Daimler to post EBIT from the ongoing business in 2011 significantly in excess of the level of the year 2010. In the coming years, we want to improve the earnings of the indi- vidual divisions and thus of the entire Group, and to achieve our return targets on a sustainable basis. We intend to profit to an above-average extent from the anticipated growth of auto- motive markets. As of the year 2013, we aim to achieve on a sustained basis an annual average return on sales for our automotive business of 9% over market and product cycles. This is based on target returns on sales for the individual divisions of 10% for Mercedes-Benz Cars, 8% for Daimler Trucks, 9% for Mercedes-Benz Vans and 6% for Daimler Buses. For the Daimler Financial Services division, we have set a target return on equity of 17%. The years 2011 and 2012 will feature high expenditure for new products and technologies and to penetrate new markets. Further- more, the numerous model changes scheduled for Mercedes- Benz Cars during the planning period will only have a positive impact on our earnings after a certain delay. Another factor to be considered is that despite their strong growth rates, the major commercial-vehicle markets will only reach their volumes of the record years before the financial and economic crisis in the medium term. After deciding not to pay a dividend last year in view of the net loss in 2009, we want our shareholders to participate again appropriately in our financial success in the coming years. In setting the dividend, we aim to distribute approximately 40% of the Group’s net profit attributable to the Daimler share- holders. On this basis, the Board of Management and the Super- visory Board have decided to recommend to the shareholders for their appro val at the Annual Meeting to be held on April 13, 2011 that a dividend of €1.85 per share be paid out. Opportunities and risks Our forecasts for the years 2011 and 2012 are based on the assumptions that political conditions will remain generally stable and that there will be no serious setback in the development of the global economy and that the upward trend of worldwide demand for motor vehicle will continue in 2011 and 2012. Additional opportunities and risks may result from the develop- ment of currency exchange rates and raw-material prices, as well as from our assessments of the future market success of our products. In our view, the biggest individual risks for the world economy are renewed financial-market turbulence including currency risks, the exacerbation of public authorities’ debt problems, a growth slump in China, high price volatilities in raw-material markets, production interruptions due to bottlenecks at supplier compa- nies, nascent protectionism, and the possible destabilizing effects of excessively expansive monetary policy. There would be reason to fear that the world economy could enter another recessive phase only if several of those factors occurred simultaneously. We have already hedged most of the risks arising for our business in the year 2011 from severe exchange-rate fluctuations. The hedging rate for the US dollar and the British pound is approxi- mately 75%. Management Report | Outlook | 117 Fundamentally, there are also good chances of a generally more positive development of the world economy. If inves tors and consumers very quickly regain confidence in the firmness of the upswing and this is also reflected in the form of increased demand and investment, growth rates could be significantly higher, partic- ularly in the industrialized countries. This applies above all if the banks support the upswing with appropriately increased lending and if the dampening effects of state financial consolidation are less significant than assumed. A rapid return to stability in the financial markets is another factor that could support the global upswing. Such a scenario would result in the possibility of a significantly more favorable business development at Daimler in the years 2011 and 2012. We see opportunities for additional unit sales and earnings in particular if the mature automotive markets of the triad markets of North America, Western Europe and Japan return faster than generally expected to their volumes of the record years 2007 and 2008. In the medium term, additional growth potential will be presented above all by the expansion of our presence in Asia and Eastern Europe. Our local activities there will enable us to utilize those opportunities. Together with our local partners, we are increasing the production of cars and vans in China and are now preparing to establish a truck joint venture which will include the produc- tion of heavy-duty truck engines. We are also expanding our pro- duction facilities for cars and setting up a new truck plant in India. In Russia, we are intensifying our partnership with truck manufacturer Kamaz, and have signed a memorandum of under- standing on production of the Sprinter with GAZ. In addition, we have started construction of a new car plant in Hungary. We see good prospects for additional growth also in Latin America and emerging markets such as Indonesia, Vietnam and Thailand. Furthermore, there will be considerable opportunities in the medium term also from the upcoming fundamental changes in automotive technology. If we succeed in our aim of playing a pioneering role for motor vehicles and concepts for sustainable mobility with innovative technologies, this should give us additional growth potential in terms of both unit sales and earnings. Investment in property, plant and equipment 2011–2012 In % Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services 60% 32% 5% 3% 0.2% Capital expenditure In the coming years, we will continue to concentrate our invest- ment budget on projects of particular importance for the market success of our products. Nonetheless, we will significantly increase our investment in property, plant and equipment in the years 2011 and 2012. This reflects on the one hand the far- reaching technological transformation of the automotive industry, in which we intend to play a leading role; but on the other hand, also the need to penetrate future growth markets with appropriate products and local production facilities. At both Mercedes-Benz Cars and Daimler Trucks, the planned investment in property, plant and equipment will be significantly higher than in the prior years. At the Mercedes-Benz Cars division, the focus will be on advance expenditure for new vehicles such as the successor models to the A- and B-Class and the new M-Class. The biggest current project is the expansion of our model range in the A/B- Class segment: Solely for that purpose, we will invest a total of approximately €1.4 billion at our sites in Rastatt and Keçskemèt, Hungary. But substantial investments are also planned for the expansion of our production capacities in the United States, China and India. Daimler Trucks will mainly invest in successor genera- tions for existing models in the coming years. Another area of investment will be to establish and expand production capacities, in order to penetrate the Indian market for example. At Mercedes- Benz Vans, the focus will be on investing in cooperation projects with Renault, in local production of the Sprinter in Russia, and in existing production plants. The key projects at Daimler Buses are advance expenditure for new models, future emission tech- nologies and alternative drive systems. Investment in property, plant and equipment 2009 2010 2011-2012 In billions of euros Daimler Group Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses 2.4 1.6 0.6 0.1 0.1 3.7 2.5 1.0 0.1 0.1 Daimler Financial Services 0.01 0.01 10.1 6.1 3.2 0.5 0.3 0.02 118 Research and development expenditure 2011–2012 In % Workforce Against the backdrop of rising production volumes and the tar- geted productivity advances, Daimler assumes that the total number of persons employed by the Group will increase slightly in the years 2011 and 2012. Forward-looking statements in this annual report: This document contains forward-looking statements that reflect our current views about future events. The words “anticipate,” “assume,” “believe,” “esti- mate,” “expect,” “intend,” “may,” “plan,” “project,” “should” and similar expres- sions are used to identify forward-looking statements. These statements are subject to many risks and uncertainties, including an adverse development of global economic conditions, in particular a decline of demand in our most impor- tant markets; a deterioration of our funding possibilities on the credit and finan- cial markets; changes in currency exchange rates; a shift in consumer prefer- ence towards smaller, lower margin vehicles; or a possible lack of acceptance of our products or services, which may limit our ability to implement prices as well as to adequately utilize our production capacities; price increases in fuel, raw materials; disruption of production due to shortages of materials, labor strikes, or supplier insolvencies; a decline in resale prices of used vehicles; the effective implementation of cost-reduction and efficiency-optimization measures; the business outlook of companies in which we hold a significant equity interest, most notably EADS; the successful implementation of strategic cooperations and joint ventures; changes in laws, regulations and government policies, partic- ularly those relating to vehicle emissions, fuel economy and safety; the resolu- tion of pending governmental investigations and the conclusion of pending or threatened future legal proceedings; and other risks and uncertainties, some of which we describe under the heading “Risk Report” in Daimler’s Annual Report. If any of these risks and uncertainties materialize, or if the assumptions under- lying any of our forward-looking statements prove incorrect, then our actual results may be materially different from those we express or imply by such statements. We do 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. Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses 62% 26% 8% 4% Research and development With our research and development activities, our goal is to further improve Daimler’s competitive position against the backdrop of upcoming technological challenges. We want to create competitive advantages by means of innovative solutions for low emissions and safe mobility. In the years 2011 and 2012, Daimler plans to spend a total of €10.3 billion on research and development activi- ties. This is approximately €1.3 billion more than in the years 2009 and 2010. We intend to increase our research and development spending at Mercedes-Benz Cars once again. The main projects are the successor models for the A- and B-Class, the M-Class and the S-Class, as well as new engines and alternative drive sys- tems. Research and development expenditure at Daimler Trucks will remain at a high level. The focus will be on developing and adapting new engine generations in order to fulfill increasingly strict emission regulations, as well as on successor generations for existing products. The further development of engines for future emission standards is an important area of research and development at Mercedes-Benz Vans and Daimler Buses. Alternative drive systems also play an important role, in particular at Daimler Buses. In addition to the aforementioned projects, Daimler has set aside substantial amounts in its research budget for new technologies with which we intend to achieve a sustained improvement in the safety, environmental compatibility and economy of road traffic. Research and development expenditure In billions of euros Daimler Group Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses 2009 2010 2011-2012 4.2 2.7 1.1 0.2 0.2 4.8 3.1 1.3 0.3 0.2 10.3 6.4 2.7 0.8 0.4 Management Report | Outlook | 119 All of Daimler’s divisions profited from the global economic upswing and from their attractive product ranges. In terms of unit sales and revenue, mainly double-digit growth rates were achieved. We were able to further improve our market position in many product areas. The Divisions 122 - 125 Mercedes-Benz Cars 132 - 133 Daimler Buses – Generally positive unit-sales trend driven by Latin America – Positive development of market share in key markets – Attractive product portfolio with pioneering drive technologies – EBIT of €215 million 134 - 135 Daimler Financial Services – High growth rates in Asia – Reorganization of business in Germany – Top marks for customer and dealer satisfaction – Very high level of EBIT at €831 million – Unit sales up by 17% – Improved market position and model mix – New E-Class models well received by the market – Lower fuel consumption due to new engines – Substantially improved profitability: EBIT of €4.7 billion and return on sales of 8.7% 126 - 129 Daimler Trucks – Strong growth in unit sales in all major markets – Global product offensive with new engines and models – Entry into new markets and growth areas – Significant increase in EBIT to €1.3 billion 130 - 131 Mercedes-Benz Vans – Unit sales up significantly to 224,200 units – Leading market position in European Union maintained – Start of production in China – EBIT of €451 million The Divisions | Contents | 121 Mercedes-Benz Cars Mercedes-Benz Cars improved its market position and achieved stronger, sustainable profitability in 2010. This positive development largely resulted from new models in the E-Class series and the market success of the S-Class. The E-Class convertible, the new CLS four-door coupe and the Mercedes-Benz SLS AMG super sports car were the fascinating new product highlights in the year under review. In addition, our new engines are now demonstrating that efficiency and performance are no longer mutually exclusive. Mercedes-Benz Cars Amounts in millions of euros 2010 2009 10/09 % change EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Production Unit sales 1 Employees (December 31) 4,656 53,426 8.7% -500 41,318 -1.2% 2,457 1,618 3,130 940 1,312,456 1,276,827 96,281 2,696 913 1,031,562 1,093,905 93,572 . +29 . +52 +16 +3 +27 +17 +3 Unit sales In thousands Mercedes-Benz thereof A/B-Class C/CLK/SLK-Class E/CLS-Class S/CL/SL-Class/ SLR/SLS/Maybach M/R/GL/GLK/ G-Class smart Mercedes-Benz Cars 1 thereof Western Europe thereof Germany NAFTA thereof United States China Japan 2010 2009 10/09 % change 1,178 222 342 331 80 203 94 1,277 636 293 256 220 160 31 975 215 323 212 57 167 114 1,094 623 298 236 203 67 27 +21 +3 +6 +56 +41 +21 -17 +17 +2 -2 +9 +9 +137 +17 1 Includes Mitsubishi vehicles manufactured and/or sold in South Africa. 122 Significant increase in unit sales, revenue and earnings. Mercedes-Benz Cars, comprising the brands Mercedes-Benz, Maybach, and smart, sold 1,276,800 vehicles in the year under review (2009: 1,093,900). With this increase of 17%, the division returned to the sales volumes of 2008 following weak market conditions in 2009. At the same time, a shift in the division’s sales structure toward higher-value models significantly increased revenue by 29% to €53.4 billion. EBIT rose to €4.7 billion (2009: minus €0.5 billion) and return on sales reached 8.7%. The overall market recovery, highly dynamic markets in Asia and the sales success of our models all contributed to this develop- ment, as did the extensive measures we took to reduce costs and improve efficiency. Mercedes-Benz gains market share in many countries. The Mercedes-Benz brand shipped 1,178,300 vehicles in 2010 (2009: 974,700), thus improving its position in many markets. Our S-, E-, and C-Class sedans are market leaders worldwide in their respective segments, as is the E-Class station wagon. Thanks to the success of our new models, we were able to boost unit sales in the E-Class segment by 56% to 330,800 vehicles in 2010. Following the introduction of the E-Class sedan, coupe, and station wagon in 2009, we launched the E-Class convertible in the spring of 2010. Worldwide unit sales for Mercedes-Benz in the luxury segment (S-, CL-, SL-Class; SLR, SLS, and Maybach) rose from 57,100 vehicles in 2009 to 80,400 during the year under review, whereby the S-Class defended its lead as the world’s best-selling luxury sedan, despite new competitors in its segment. This development was due in part to heightened demand in the Chinese market. Unit sales in the C-Class segment (C- and SLK- Class) increased by 6% to 341,900 vehicles, while unit sales in the all-terrain/SUV segment (M-, R-, GL-, GLK-, and G-Class) rose by 21% to 202,800 vehicles. As they approached the end of their life cycles, the A- and B-Class models posted a 3% increase in unit sales. As a result, sales of those cars rose to 222,400 units (2009: 215,500). The new generation of the Mercedes-Benz C-Class has been comprehensively modernized for spring 2011. Mercedes-Benz succeeded in boosting unit sales in all regions dur- ing the year under review. Despite a weak market development, we sold 265,000 vehicles in Germany, thereby reaching the sales level recorded in the prior year (2009: 265,500), allowing us to increase our market share and maintain our leading position in the premium segment. Mercedes-Benz sales in other Western European countries rose by 9% to 290,500 units (2009: 267,200). In the United States, we increased unit sales by 15% to 216,400 vehicles. Business also developed very positively in the emerging markets. In China, for example, where Mercedes-Benz remains the fastest- growing premium brand, unit sales more than doubled to 156,400 vehicles (+140%). China has now been the world’s most important market for the S-Class for two years in a row. Additional demand was generated in China in 2010 by a long-wheelbase version of the E-Class – a model that we started producing locally and exclusively for the Chinese market in May 2010. Double-digit sales increases were also recorded in the other BRIC nations Brazil (+40%), Russia (+68%) and India (+79%), as well as in the growth markets of Taiwan (+109%), South Korea (+80%) and the Middle East (+63%). The new E-Class convertible: Open-air driving pleasure for four. The E-Class convertible celebrated its world premiere at the North American International Auto Show in Detroit in January 2010. The four-seat, year-round convertible completes the successful E-Class family and features a world first in the form of the AIRCAP wind deflector, which significantly reduces air turbulence in the vehicle’s interior during open-top driving. Like all E-Class models, the convert- ible also offers outstanding levels of safety. Its safety equipment includes the ATTENTION ASSIST drowsiness detection system, the anticipatory PRE-SAFE® occupant protection system, the Intelligent Light System, and the DISTRONIC PLUS proximity control unit. Readers of Germany’s “auto motor und sport” magazine voted the vehicle “2010’s most beautiful convertible.” The first E-Class convert- ibles were delivered to customers in March 2010 and 24,500 units had been sold by the end of the year. Fascination and efficiency – the new CLS. The new four-door CLS coupe, which was presented for the first time during the Paris Motor Show at the end of September, has assumed the pioneering role that characterized its predecessor. However, the newcomer also stands out as a new and unique product. The CLS combines a powerful and confident design with the highest levels of efficiency. All CLS engines are new and offer fuel savings of up to 25% com- pared with the predecessor models. The CLS, which has been available for delivery to our customers since January 2011, was awarded the coveted Golden Steering Wheel 2010 shortly after it was unveiled at the Paris Motor Show. Additional new models in 2010. The most prominent external feature of the new R-Class generation is the model’s completely redesigned front end. On the inside, the new R-Class offers the space economy one would expect from a modern minivan. At the same time, it also boasts the comfort, high value and prestige typical of a classic Mercedes-Benz sedan. With the new-generation CL-Class, Mercedes-Benz is shifting the focus to achieving better fuel economy and lower exhaust gas emissions in the exclusive upper range segment as well. An impressive 22% reduction in fuel con- sumption has been achieved with the CL 500 BlueEFFICIENCY with the help of our all-new BlueDIRECT technology, which features spray-guided direct injection, and our customized BlueEFFICIENCY package. Economical and powerful engines. Our new engines prove that efficiency and performance are no longer mutually exclusive. We had already updated our range of four-cylinder engines in 2009, and we followed that up in 2010 with the launch of our new six and eight-cylinder units. We now offer a broad range of high-performance, low-consumption engines that can also be used flexibly in a variety of models. With a total of four new diesel and gasoline engines, the Mercedes-Benz S-Class leads the way in its segment. The new S 250 CDI BlueEFFICIENCY, for example, has been named the “world’s most fuel-efficient luxury sedan.” Despite its high output of 150 kW (204 hp), this S-Class consumes only 5.7 liters of diesel per 100 km (combined NEDC consumption), which corresponds to CO2 emissions of 149 g/km. The new V6 diesel engine in the S 350 BlueTEC delivers 190 kW (258 hp) with a combined consumption of 6.8 liters per 100 km (177 g CO2/km). The Divisions | Mercedes-Benz Cars | 123 The Mercedes-Benz SLS AMG E-CELL super sports car with pure electric drive. Thanks to its AdBlue® exhaust gas treatment system, this unit is one of the cleanest diesel engines in the world. Our newly developed six-cylinder gasoline engine is now used in the CLS 350 BlueEFFICIENCY model, for example. The vehicle’s standard ECO start/stop feature gives the model combined consumption of 6.8 liters per 100 km (159 g CO2/km). CO2 emissions further reduced. Thanks to our new economical engines and our additional BlueEFFICIENCY models, we were able to reduce the average CO2 emissions of the passenger cars we sold in the European Union in the year under review to 158 g/km. What’s more, we achieved this feat despite a greater share of exceptionally high-quality and powerful vehicles in our model mix. Our goal is to reduce the CO2 emissions of our new vehicle fleet in the EU to less than 140 g/km by 2012 (see pages 83 f and 140 ff). Locally emission-free electric vehicles in series production. At the end of 2009, the Mercedes-Benz B-Class F-CELL and the smart fortwo electric drive became the first locally emission-free vehicles manufactured under series-production conditions at Daimler. A total of 1,500 smart fortwo electric drive cars will have been leased to selected customers in Berlin and major European and US cities by the end of 2011. Half of those vehicles had already been delivered by the end of 2010. We are now manufacturing 200 Mercedes-Benz B-Class F-CELL cars with fuel-cell drive in small-batch production; these vehicles will be delivered to selected customers in Germany and the United States for use under everyday conditions between now and 2012. The third electric car from Mercedes-Benz, the A- Class E-CELL, went into production at the plant in Rastatt, Germany, in September 2010. This five-seater, which can comfortably meet everyday requirements and is ideal for families, features a battery- electric drive system. The car is based on the most recent A-Class model and offers a spacious and versatile interior and cargo area. Thanks to its two highly efficient lithium-ion batteries, which are mounted in a space-saving manner in the vehicle floor, it achieves a range of 255 km (NEDC). The approximately 500 units that have been produced are being delivered to selected customers in several European countries (including Germany, France and the Nether- lands) for use as full-service rental cars (see page 141). New-generation smart fortwo. The new model generation of the innovative two-seater has been available at dealerships since Octo- ber 2010. The smart fortwo has been made even more attractive through a new interior look, an upgraded exterior design, and even greener engines. The vehicle’s communication and entertainment systems are equipped with state-of-the-art technology, and ultra- modern propulsion is ensured by gasoline engines that have been further refined and emit less than 100 g CO2/km in the 45 kW and 52 kW versions – a new record. Unit sales of the smart brand totaled 94,300 vehicles in the year under review (2009: 113,900). Continued success for car2go. The response to the innovative car2go mobility concept, which we began offering in Ulm, Germany, in March 2009 and in Austin, Texas, in November 2009, has been very encouraging. The number of customers in Ulm increased to more than 20,500 during the year under review, while Austin currently has around 15,000 registered users. In view of the great success enjoyed by car2go in Ulm and Austin, we have decided to offer the system in other cities as well (see page 142). Maybach sedans even more glamorous. Maybach presented its high-end luxury sedans with significantly expanded high-class equip- ment and customization options at the Auto China show in Beijing in April 2010. A large new chrome radiator grille emphasizes the leg- endary brand’s exceptional status and self-confidence, while the output of the 12-cylinder engines in the Maybach 57 S and 62 S was increased to 463 kW (630 hp), despite a reduction in the pollutant emissions of all models. Unit sales of 200 Maybach models were at roughly the same level as in the prior year. Automotive fascination: the Mercedes-Benz SLS AMG. The Mercedes-Benz SLS AMG was the most important new-product high- light from our AMG performance brand in 2010. The super sports car stands for automotive fascination and high technology of the highest order, boasting purist design, systematic lightweight engi- neering and superior handling. The Mercedes-Benz SLS AMG has already won many awards, such as the Design Award of the Federal Republic of Germany in Gold, the Golden Steering Wheel from Auto Bild and the award for “Most Beautiful Sports Car” in a survey of readers of “auto motor und sport” magazine. In 2010, AMG also presented a new and highly efficient powertrain with a gasoline direct-injection biturbo V8 engine for the S- and CL-Class. 124 The ultimate luxury coupe: the new generation of the Mercedes-Benz CL-Class. Investment in the global production network. The targeted expansion of the international production network is helping us increase our competitiveness, reduce our susceptibility to exchange- rate fluctuations, and optimally benefit from growth opportunities. At the same time, substantial capital investment in our German plants underscores the fact that our German locations remain the heart of our production network. In October 2010, we celebrated the topping-out ceremony for our new car plant in Kecskemét, Hungary, after just one year of con- struction. Plans call for the Kecskemét facility to begin manufactur- ing two models of the A-Class and B-Class successor generations in 2012 in a production network with the Rastatt plant. To this end, Daimler is investing €800 million in the construction of the plant in Hungary and €600 million in the implementation of upgrades at the primary facility in Rastatt. We have also taken the initial step of expanding the production capacity of Beijing Benz Automotive Co., Ltd. (BBAC) in Beijing to 100,000 units per year to meet the rising demand for our products in China. In addition to the C-Class sedan, BBAC now also manufactures a long-wheelbase version of the E-Class exclusively for the Chinese market. Production of the latter vehicle began in May 2010. Key projects in Germany in the year under review included preparations for production of the new SLK in Bremen, the establishment of manufacturing facilities for new six and eight-cylinder gasoline engines in Bad Cannstatt, and expan- sion of engine assembly operations at MDC Power GmbH in Kölleda. Mercedes-Benz was also honored by several organizations for out- standing achievements in the areas of safety, design, value retention and service in 2010. Mercedes-Benz workshops, for example, received the highest possible marks in a test conducted by Germany’s ADAC automobile association and the Stiftung Warentest consumer advocacy group, as well as in tests conducted by other organizations. The best or nothing. The Mercedes-Benz brand is one of Daimler’s most valuable assets. It is therefore not surprising that the prestigious Interbrand rankings for 2010 once again named Mercedes-Benz the most valuable premium car brand in the world and the most valu- able German brand. We will do everything we can to improve this position even further. Accomplishing that goal will require not only fascinating products but also a self-confident brand. That is why we introduced a carefully refined brand image in 2010 – one that is based on our exceptional history. We invented the automobile and we have been shaping the industry with our ground breaking innova- tions for the past 125 years. Many technologies that are now stan- dard in the automotive industry can be traced back to our company. They include the safety cell, ABS, airbags, ESP®, the latest techno- logical highlights such as PRE-SAFE® and state-of-the-art driver assis- tance systems such as ATTENTION ASSIST drowsiness detection. This heritage by itself is enough to make customers expect more from Mercedes-Benz. For us, that means delivering the best product to our customers, no matter what the segment or system – today and in the future. Many awards for Mercedes-Benz automobiles. The measures taken to further enhance quality proved very successful in the year under review – a fact that was confirmed by external studies as well. In the most recent J. D. Power and Associates Initial Quality Study, 82,000 purchasers of model-year 2010 vehicles were surveyed 90 days after receiving their vehicles. We achieved our best results in this US survey since 1990: The C-Class finished first in its segment, while the E-Class sedan, E-Class coupe, and S-Class all finished sec- ond in their respective vehicle segments. Own factory team for the Formula 1 series; DTM winners. In its first year as a Formula 1 factory team, MERCEDES GP PETRONAS finished fourth in the Constructors’ Championship, while drivers Nico Rosberg and Michael Schumacher finished seventh and ninth respectively in the Drivers’ Championship. McLaren race cars equipped with Mercedes-Benz engines captured four Grand Prix victories during the season. Our Formula 1 team is working hard to develop a competitive vehicle that will allow it to battle for success in both the Constructors’ and Drivers’ Championships in 2011. The 2010 German Touring Car Masters (DTM) season was one of the most successful for Mercedes-Benz in the history of the series. The C-Class came out on top in nine out of 11 races. After the ninth race, it was already clear that only one of our three Mercedes driv- ers would be able to capture the title. Eventually Paul Di Resta won the championship with a total of three race victories. The Divisions | Mercedes-Benz Cars | 125 Daimler Trucks Business development at Daimler Trucks was clearly positive in 2010. Active management of market cycles, one of the four pillars of the Global Excellence strategy, ensured we were well prepared to utilize the global upturn for commercial vehicles following crisis year 2009. Continuation of the strategy program will safeguard our long-term competitiveness. Daimler Trucks Amounts in millions of euros EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Production Unit sales Employees (December 31) Unit sales In thousands Total Western Europe thereof: Germany United Kingdom France NAFTA thereof: United States Latin America (excluding Mexico) thereof: Brazil Asia thereof: Japan 126 2010 2009 10/09 % change 1,323 24,024 5.5% -1,001 18,360 -5.5% 1,003 597 1,282 373 360,896 355,263 71,706 1,116 368 235,474 259,328 70,699 . +31 . +68 +15 +1 +53 +37 +1 2010 2009 10/09 % change 355 259 55 30 6 6 77 63 58 44 120 25 44 25 4 5 62 52 37 30 87 23 +37 +25 +21 +53 +26 +24 +20 +57 +45 +39 +7 Significant increase in unit sales, revenue and EBIT. The global economy recovered in 2010, although the rate of recovery varied greatly from region to region. The economic upturn led to a substantial increase in demand for commercial vehicles and transportation services. Daimler Trucks was able to post substan- tial increases in unit sales and earnings in this favorable environ- ment. Unit sales rose by 37% to 355,300 vehicles with all of our core markets (Europe, the United States, Latin America, and Japan) contributing to this development. Revenue increased by 31% to €24.0 billion and EBIT reached €1.3 billion (2009: minus €1.0 billion). Positive sales development at Trucks Europe/Latin America. The Mercedes-Benz Trucks brand stands for “Trucks you can trust.” This means always doing everything possible for our cus- tomers and being a reliable partner. With its Actros, Axor and Atego models, Mercedes-Benz offers individual solutions in the medium and heavy-duty truck segment for long-haulage trans- port, construction and local distribution applications. The port- folio is completed with the Econic, Zetros and Unimog models offered by the Mercedes-Benz Special Trucks unit. One year after experiencing a sharp decline in unit sales, Trucks Europe/Latin America profited from the global economic recov- ery during 2010 and unit sales increased by 41% to 135,200 vehicles. With a market share of 24.3%, we expanded our leader- ship in the segment for medium and heavy-duty trucks in Western Europe (2009: 23%). Our position is particularly strong in Germany, where Mercedes-Benz Trucks was once again number one with a market share of 40.5% (2009: 41.6%). After undergoing a disproportionate decline in the prior year, unit sales in Eastern Europe more than doubled in 2010 (+11,000 to 19,000 units). We achieved a 122% increase in unit sales to 11,500 vehicles in Turkey, where we are the market leader with a share of 38% of the Turkish market (2009: 33.5%). Extremely positive economic developments in Brazil and government subsi- dies that stimulated demand led to a sales increase of 45% to 44,300 units in that country. Due to intense competition, our market share in the medium and heavy-duty truck segment in Brazil decreased slightly to 27.4% (2009: 28.5%). Trucks Europe/Latin America – the focus was on the market launch of the new Mercedes-Benz Atego and the new Mercedes-Benz Axor. Continuous investment in the further development of the product range and the expansion of our plants contributes towards safe- guarding our long-term competitiveness. Some of the results could be seen at the 2010 IAA Commercial Vehicles trade fair, where we presented a number of new products. In response to the tremen- dous increase in demand for heavy-duty long-haulage trucks in our core markets, we began assembling the Actros in Aksaray, Turkey, in late 2010 and will start production of that model in Juiz de Fora, Brazil, in 2012. Mercedes-Benz do Brasil also invested in expanding the production capacity of its São Bernardo do Campo plant by 15% to 75,000 units each year. The demands placed on commercial vehicles are continually rising, and individual solutions and conversions are becoming more and more important in the truck segment. For this reason, Mercedes- Benz Special Trucks expanded its Mercedes-Benz Custom Tailored Trucks (CTT) unit in the past two years and established a develop- ment center for special trucks in Molsheim, France. CTT, which focuses on special customer requirements related to conversions and special equipment for Mercedes-Benz trucks, celebrated its tenth anniversary in 2010. Sales growth in the NAFTA region. Trucks NAFTA is the leading truck manufacturer in North America in Classes 6 to 8. Under the Freightliner brand name, we offer customers heavy-duty trucks for long-haulage transport and medium-duty trucks mainly for local distribution applications. Heavy-duty trucks from the Western Star premium brand serve the markets for special-purpose, construction and long-haulage trucks. Since 1916, Thomas Built Buses has been the embodiment of innovative design, safety and top quality. The yellow school buses manufactured by the market leader are a common sight across the United States. With sales of 79,400 units, Trucks NAFTA sold 25% more vehicles in 2010 than in the prior year. The region is currently experi- encing a mild recovery. Our positive sales development is being achieved through our successful new EPA10-compliant engines and stepped-up activities in the sectors for construction and disposal services, particularly in the Class 8 segment. This allowed us to increase our market share in Classes 6 to 8 to 31.6%, making us the market leader in the entire NAFTA region (2009: 29.6%). Also in the United States, Trucks NAFTA is the most successful supplier in this segment with a market share of 32.6% (2009: 30.0%). In Class 8, we further increased our market share in both the NAFTA region with a share of 32.4% (2009: 30.9%) and the United States with a share of 33.9% (2009: 31.2%). This is clear evidence of customers’ strong accep- tance of our products. Daimler Trucks North America launched a repositioning program in 2008 that has since been successfully completed. In order to further consolidate our long-term competitiveness, we will continue to optimize our processes and improve our efficiency in the future. The successful implementation of the program was made possible in large part by an agreement with the United Auto Workers union (UAW) covering the four sites of Mt. Holly, Cleveland, Gastonia and Portland. Thanks to positive market developments in the NAFTA region, we increased production capacity in good time in 2010 and rehired nearly 1,100 workers. In addition, approximately 700 employees were newly recruited at our new plant in Saltillo. The Detroit Diesel engine plant in Redford, Michi- gan, also benefited from solid orders and the BlueTec engines newly introduced in the United States. We are currently investing approximately US$200 million in expanding the Detroit Diesel facility. Our commitment to developing environmentally friendly and efficient drive-system technologies was honored by the US Department of Energy at the beginning of 2010: Daimler Trucks North America will receive some US$40 million in funding over the next five years as part of the “21st Century Truck Technology Partnership.” The funds will be used for commercial-vehicle and engine development. The high level of acceptance enjoyed by our engines is confirmed by the success of the Captive Engine strat- egy at Trucks NAFTA. Today, more than 95% of our trucks in the heavy-duty segment are powered by engines we build ourselves. The Divisions | Daimler Trucks | 127 Daimler Trucks North America – market leader for heavy-duty trucks in the United States and the NAFTA region. Significant unit-sales increase by Trucks Asia. With its Canter, Fighter, and Super Great truck models and its Rosa and Aero buses, the Fuso brand has gained a reputation around the world as a quality-focused manufacturer of commercial vehicles. In addition to producing a successful range of models in the light to heavy-duty segments, Mitsubishi Fuso Truck and Bus Corporation (MFTBC) is also the competence center for light-duty trucks and state-of-the-art hybrid technology from Daimler Trucks. At 140,700 vehicles, unit sales by Trucks Asia were significantly higher in 2010 than in the prior year (+41%). Trucks Asia’s sharp increase in unit sales in Indonesia by 82% to 55,700 vehicles was accompanied by a strong 30% rise in Taiwan to 8,200 vehicles. As a result, MFTBC was able to fully participate in the upturn there. The Japanese home market displayed a slight recovery and unit sales in Japan rose by 7% to 24,800 units. Fuso is already the leader in several emerging Asian markets. We are number one, for example, in the segment for light-duty trucks in Taiwan and Indonesia. During the year under review, we consistently and very success- fully continued our program to realign MFTBC activities. The pro- gram was launched in 2009 in response to structural changes in the Japanese commercial-vehicle market. To ensure we remain well positioned and competitive in the future, we are placing great emphasis on maintaining the level of efficiency we have now achieved. In 2010, Daimler AG increased its interest in MFTBC from 85% to 89% through a capital increase of JPY30 billion (€271 million). Fuso has great expertise in developing alternative drive systems for commercial vehicles and designing and developing light-duty trucks. Building on the success of the Fuso Canter Eco Hybrid, MFTBC has expanded its hybrid development activities. In Decem- ber 2010, a new test rig was added to the Kitsuregawa test center in Japan, where hybrid drives are to be tested under various realistic conditions in the future. Widespread acceptance of new products. Innovation and cus- tomer utility in relation to future product generations are two important elements of Daimler Trucks’ Global Excellence strategy. We presented numerous new products at the 63rd IAA Commer- cial Vehicles trade fair in Hanover, Germany, all of which take their cue from successful past vehicles. The new Atego and Atego BlueTec Hybrid were both named “Truck of the Year 2011,” and the hybrid version was also honored with the German Environ- mental Technology Award and the German Sustainability Award. The new Axor is winning over customers with its standard-fitted Mercedes-Benz PowerShift automated gearshift and a new design. With the second generation of our Active Brake Assist system, which can initiate an emergency braking maneuver in critical situations, we are once again underscoring our leading role in the field of safety. The system even responds to stationary objects. At Daimler Trucks North America, we focused on the development and market launch of new environmentally friendly technologies in 2010: Our presentation at the Mid-American Trucking Show (MATS) in March 2010 highlighted our three new DD13, DD15 and DD16 engines from Detroit Diesel (DDC). These engines are equipped with selective catalytic reduction tech nology (SCR) for exhaust gas treatment and comply with the EPA10 emissions standard that came into effect in the United States in early 2010. Nearly 20,000 trucks and buses from Trucks NAFTA have been put on the road in North America with this advanced technology since the introduction of the new engine generation. Fuso started its product offensive with the launch of the new Super Great long-haulage truck on the Japa - nese market in the spring of 2010. With its 6R10 engine from Daimler Trucks’ new heavy-duty engine generation (equipped with BLUETEC technology), Fuso’s flagship model fulfills the stringent JP09 emission limits. It is also equipped with various innovative safety systems. And since June, new versions of the mediumduty truck Fuso Fighter have been available in Japan. Trucks Asia pre- sented the new Canter in Japan in November 2010. With its low fuel consumption, it sets new standards in the light-duty truck segment for efficiency, environmental friendliness, safety, and design. The Canter will also be launched in Fuso’s worldwide export markets beginning in 2011. Fuso’s introduction of the Duonic transmission marks the first time a dual-clutch transmis- sion has been made available as standard equipment in a truck. 128 Trucks Asia – the new Super Great long-haulage truck and the new Canter delivery truck form the core of the Fuso product offensive. The Fuso Canter is Daimler Trucks’ best-selling vehicle the world over and since February 2010, its standard diesel variant has complied with the Enhanced Environmentally Friendly Vehicle Standard. The Fuso Canter Eco Hybrid is number one in terms of fuel efficiency among trucks up to five tons gross vehicle weight in Japan. Altogether, more than 1,000 units have been sold world- wide to date. The vehicle is also now available outside Japan in Australia, Ireland, and Hong Kong. The world premiere of the Fuso Canter E-CELL concept truck also met with a very positive response. This model’s battery-electric drive system performs so well that a combustion engine is unnecessary. Fuso continued to move ahead consistently with its product offensive in the year under review with the introduction of its new Super Great long- haulage truck on the Japanese market in the spring of 2010. Shaping Future Transportation. Our new products and technol- ogies offer evidence of the success of the CleanDrive, SafeDrive, and ValueDrive programs from our Shaping Future Transportation initiative, which was launched in 2007. CleanDrive stands for environmentally friendly and economical commercial vehicles built by Daimler for all different types of applications. Within the framework of SafeDrive, we are pursuing the vision of accident- free driving and continually developing new safety technologies. We constantly focus also on customer utility, because operating and maintenance costs account for approximately 90% of the total cost of ownership (TCO) of a commercial vehicle. This is where the various customized services from Daimler Trucks come into play such as Charterway and the FleetBoard telemat- ics services, all of which are consolidated into the “ValueDrive” program. For ten years, Daimler FleetBoard has been developing and mar- keting telematics solutions to boost the profitability of commer- cial vehicle fleets. Key benefits here include average fuel savings of seven percent within the first three months after the system is introduced, training programs for new customers, significant savings on maintenance and repair work for longtime customers, optimal order management thanks to the FleetBoard transport management system, close to real-time transmission of vehicle locations and routes using satellite images and FleetBoard Map- ping, and a time management system that enables operators to better monitor drivers’ working and resting times and thus opti- mize order management. Outstanding global position with the Global Excellence Pro- gram. The penetration and extensive management of new mar- kets and growth sectors – another pillar of the Global Excellence strategy – was successfully continued during the year under review. In Russia, our joint ventures Fuso Kamaz Trucks Russia and Mercedes-Benz Trucks Vostok manufactured the first Fuso and Mercedes-Benz trucks to be produced in the country and launched the vehicles on the domestic market. At the end of 2010, we also signed a memorandum of understanding with Kamaz relating to cooperation on the production of axles in Russia. In addition, Kamaz is currently introducing the Truck Operating System (TOS) that Daimler Trucks uses around the world. This system forms the basis for the Operational Excellence initiative, which is part of the Global Excellence strategy. The initiative con- centrates on the rigorous reduction of material expenses and fixed costs, as well as the optimization and standardization of global processes and the increased flexibility of production plants. In India, we consolidated all the country’s truck sales activities at Daimler India Commercial Vehicles (DICV) in Chen- nai. DICV is thus also responsible for sales and marketing of Mercedes-Benz trucks in India. We also put our proving grounds into operation in the spring of 2010. In China, we received approval from the Chinese National Development and Reform Commission (NDRC) as the first major step toward establishing a 50:50 joint venture with the Chinese truck manufacturer Foton Motor, with whom we signed a joint venture agreement. In December, we signed an agreement covering the delivery of Mercedes-Benz truck components to Finnish truck manufacturer Oy Sisu Auto Ab. With this contract, Mercedes-Benz is opening up a new area of business and generating additional sales poten- tial for vehicle components. The contract involves the delivery of Mercedes-Benz Actros cabs, engines, and transmissions for 200 to 400 vehicles each year. Heavy-duty Polar Truck models will be assembled by Sisu and sold in Finland under the Sisu brand name. Plans call for the first trucks to be delivered to customers in March 2011. The Divisions | Daimler Trucks | 129 Mercedes-Benz Vans Mercedes-Benz Vans performed well in the year 2010 and maintained its position as market leader in the European Union. Start of production at the new plant in Fuzhou enables us to supply the Chinese market with locally manufactured vans. We are continuing our product offensive with new generations of the Vito and the Viano. Mercedes-Benz Vans Amounts in millions of euros 2010 2009 10/09 % change EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Production Unit sales Employees (December 31) 451 7,812 5.8% 91 267 29 26 6,215 0.4% 113 193 0 227,975 224,224 14,557 156,667 165,576 15,226 . +26 . -19 +38 . +46 +35 -4 2010 2009 10/09 % change 224,224 156,775 62,193 16,404 10,482 12,528 12,151 15,884 165,576 128,134 58,185 10,980 1,604 9,453 1,302 14,103 +35 +22 +7 +49 +553 +33 +833 +13 Unit sales Total Western Europe thereof: Germany Eastern Europe United States Latin America (excluding Mexico) China Other markets 130 Significant increases in unit sales, revenue and EBIT following market recovery. Mercedes-Benz Vans sold 224,200 vehicles during the year under review. Thanks to recovering markets and increasing demand, unit sales of the Sprinter, Vario, Vito and Viano models were 35% higher than in 2009. At €7.8 billion (2009: €6.2 billion), revenue was also significantly higher than in the prior year. EBIT substantially increased from the prior year to €451 million (2009: €26 million). Mercedes-Benz Vans records strong increase in unit sales. Mercedes-Benz Vans recorded major sales increases in Western Europe, our key sales market. At 156,800 vehicles, unit sales sur- passed the prior year’s figure by 22%. The sales situation was partic- ularly encouraging in key Western European markets such as the United Kingdom and France, which experienced an early and sus- tained recovery. As a result, unit sales there grew by 43% and 45% respectively. In Germany, unit sales increased by 7% to 62,200 vans. In Eastern Europe, the increase in unit sales by Mercedes-Benz Vans grew by a significant double-digit rate (+49%) in 2010. Mercedes-Benz Vans’ new sales organization in the United States and Canada was very successful. Since the beginning of 2010, we have been selling the Sprinter under the Mercedes-Benz and Freightliner brands through our retail network in North America, which currently numbers around 180 dealers. We are benefiting from the market success of the Sprinter, whose outstanding tech- nology, safety, efficiency and driving performance continually set new standards in its vehicle segment. During the year under review, unit sales in the NAFTA region rose to 13,300 vehicles (2009: 2,600). Mercedes-Benz Vans sold 12,200 units in 2010 in the rapidly expanding Chinese market for high-quality vans and premium multi-purpose vehicles. A total of 10,700 of those vehicles were manufactured in China, where local production commenced in spring 2010. By starting local production, we have created the right conditions to quickly and successfully participate in one of the world’s largest and fastest-growing automotive markets. The new Mercedes-Benz Viano: first class for comfort and environmental compatibility. In 2010, Mercedes-Benz Vans was also very successful in Latin America, where it increased its unit sales by 33% to 12,500 vehicles. Compared with the prior year, worldwide sales of the Sprinter rose by 37% to 143,700 units. The Vito and Viano models also posted increases, with unit sales rising by 34% to 77,600 vehicles during the start-up phase for the new vehicle generations. Moreover, Mercedes-Benz Vans was able to maintain its market leadership in the European Union’s medium-sized and large van seg- ments. The Sprinter did particularly well, achieving a market share of more than 18% of the large-van segment. This was the vehicle’s biggest market share since the expansion of the European Union to its present size. Product offensive launched at IAA Commercial Vehicles. In order to generate additional growth in existing markets, Mercedes-Benz Vans also invested in the modernization and expansion of its current product range during the year under review. As a result, we celebrated the world premieres of four new vans at the IAA Commercial Vehicles trade fair in Hanover, Germany. The new Vito for commercial use features a higher payload and is very robust, while the new Viano sets standards for safety, comfort and driving pleasure in a large van. The two models are also equipped with efficient, environmentally friendly and economical engines using BlueEFFICIENCY technology. As a result, they produce up to 15% less CO2 and consume up to 15% less fuel than the predecessor models. First customer vehicle rolls off the assembly line in China. In 2010, Mercedes-Benz Vans steadily pursued its strategy, which entails growing in new markets in addition to expanding in tradi- tional markets and maintaining its technological leadership. In 2007, we teamed up with Fujian Motors Group to form the first-ever van joint venture in China. The goal here is to leverage the growth potential of this important market. Since the start of manufacturing operations at the new plant in Fuzhou in April 2010, the 50:50 joint venture company Fujian Daimler Automotive (FDJA) has also been supplying the Chinese market with locally produced Vito and Viano vans. Beginning in 2011, we will also produce a bus version of the Sprinter in China. Agreement reached on contract production of vans in Russia. In December 2010, we signed a memorandum of understanding with GAZ, a Russian manufacturer of commercial vehicles, on pro- duction of the Mercedes-Benz Sprinter in Russia. Engines, trans- missions, axles and other components will also be produced locally, to be used in the Sprinter as well as in GAZ products. Product lineup expanded. The wide-ranging strategic partner- ship established with Renault-Nissan in April 2010 also includes collaboration on light-duty commercial vehicles. This partnership is an important step for Mercedes-Benz Vans with regard to future projects and the expansion of its product range. In this context, we will add a completely new city delivery vehicle for commercial customers to our product lineup in 2012. In addition to the penetration of new growth areas, Mercedes- Benz Vans’ strategic approach focuses on the development of environmentally friendly technologies and safety systems. At IAA Commercial Vehicles, we also presented the Mercedes-Benz Vito E-CELL – the world’s first series-produced all-electric van. Thanks to its locally emission-free drive system, the Vito E-CELL is ideal for use in inner cities and areas with very sensitive environments. A small batch of approximately 70 Vito E-CELLs was produced during the year under review and handed over to customers in Berlin and Stuttgart for testing under everyday conditions. 2,000 of these vehicles are scheduled to go on the road by 2012. Another premiere was celebrated at the IAA by the Mercedes- Benz Sprinter LGT, which can run on either liquefied gas or gasoline. Outstanding products impress experts and customers alike. In 2010, the great popularity enjoyed by Mercedes-Benz vans among customers and automotive experts alike was reflected by several awards. Our vehicles took first place in the overall Vans category of the annual image rankings conducted by the “VerkehrsRundschau” automotive magazine. And the Sprinter was ranked first among vehicles up to 3.5 tons gross vehicle weight in the readers’ choice poll conducted by EuroTransport Media and DEKRA to determine the best commercial vehicles of 2010. The Divisions | Mercedes-Benz Vans | 131 Daimler Buses In the year 2010, unit sales at Daimler Buses almost matched the record number achieved in 2008. We thus consolidated our global market leadership as the world’s largest manufacturer of buses over eight tons – a position that has remained unchallenged for many years. We resolutely continue to forge ahead with alternative drive technologies. Daimler Buses Amounts in millions of euros 2010 2009 10/09 % change EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Production Unit sales Employees (December 31) 215 4,558 4,7% 95 223 31 39,405 39,118 17,134 183 4,238 4.3% 78 212 5 32,666 32,482 17,188 +17 +8 . +22 +5 +520 +21 +20 -0 2010 2009 10/09 % change 39,118 7,168 2,635 3,878 23,215 1,462 3,395 32,482 7,219 2,831 3,899 16,286 1,976 3,102 +20 -1 -7 -1 +43 -26 +9 Unit sales Total Western Europe thereof Germany NAFTA Latin America (excluding Mexico) Asia Other markets 132 Increased demand in Latin America boosts unit sales, revenue and earnings. With unit sales of 39,100 (2009: 32,500) complete buses and bus chassis and revenue of €4.6 billion (2009: €4.2 billion), Daimler Buses was the world’s leading pro- ducer of buses and chassis over eight tons gross vehicle weight also in 2010. The 20% increase in unit sales at Daimler Buses was mainly the result of the positive business development for chassis in Latin America. For market-related reasons, unit sales in Western Europe were slightly lower than in the prior year. At €215 million, EBIT was higher than in the prior year (2009: €183 million), with the increase mainly due to the positive sales development in Latin America. Positive development of market share in key markets. In Western Europe, the Daimler Buses brands Mercedes-Benz and Setra offer the complete range of city buses, intercity buses and coaches, as well as Mercedes-Benz bus chassis. Unit sales in this region decreased by 1% to 7,200 units. Thanks primarily to our attractive product lineup, the coach segment suffered only a moder- ate drop in sales compared with the prior year. Unit sales of city buses decreased significantly in 2010 due to the reluctance of pub- lic transport operators to place new orders. On the other hand, unit sales of bus chassis developed positively in Europe. Daimler Buses succeeded in maintaining its leading market position in Western Europe with a market share of approximately 30% (2009: 30%). In the sharply contracting North American market, Daimler Buses’ unit sales decreased by 29% to 800 units in 2010. Orion hybrid buses accounted for 32% of total unit sales in North America. In Mexico, Daimler Buses produces and sells complete buses and bus chassis of the Mercedes-Benz brand. This region suffered more than any other from the economic crisis in 2009 but recovered slightly in the year under review. Our unit sales in Mexico of 3,100 buses and chassis were 12% higher than in the prior year. With an increase in market share to 53.6% (2009: 51.8%), Daimler Buses further consolidated its market leadership in the country. 60 years of Setra – the ongoing success story of the bus with a unibody construction. Bus Rapid Transit. With highly efficient transport solutions such as Bus Rapid Transit (BRT), Daimler Buses is helping to meet the rising demand for mobility in a sustainable way. BRT is an efficient and affordable transportation system that consists of one or more separate lanes on which high-capacity buses travel at frequent inter- vals. They are linked to intelligent computer-controlled traffic man- agement systems, such as those used for traffic-light prioritization. In addition to real-time traffic management, this makes it possible for operators to offer high-speed transportation. It is also possible to quickly establish bus routes with BRT. These systems have been introduced at many locations, including South Africa, where they played a role during the 2010 soccer World Cup. At that event, Daimler Buses contributed its expertise on intelligent transporta- tion systems and delivered 460 Mercedes-Benz buses. Expansion of activities in India’s promising market. Daimler Buses is consistently expanding its involvement in India. In early 2010, Daimler Buses presented its new three-axle coach for the luxury segment at Auto Expo in New Delhi. The coach comes with a Mercedes-Benz chassis and the body is assembled by the Indian partner company, Sutlej Motors Ltd. We delivered a total of around 100 buses to Indian bus operators in 2010. In Latin America (excluding Mexico), Daimler Buses was able to boost sales of Mercedes-Benz bus chassis by 43% to 23,200 units, after markets there had rebounded significantly. Our unit sales in the region therefore returned to their pre-crisis level, enabling Daimler Buses to increase its market share in the region to 47.1% (2009: 44.7%). Daimler Buses resolutely continues to forge ahead with alternative drive technologies. A total of 16 Mercedes-Benz Citaro G BlueTec hybrid buses have been delivered to customers since the vehicle was first presented to the public in 2009. These hybrid buses are being tested successfully in six European cities. Thanks to their pioneering drive technology, they are the only buses to date that can travel for up to five kilometers at a stretch solely on electric power. In addition, the Clean Hydrogen in European Cities (CHIC) project was launched in Cologne in 2010. This EU-funded project makes it possible to integrate 26 fuel-cell buses into regular-service opera- tions in five European cities. Daimler Buses is one of at least three manufacturers participating in the project and is supplying fuel-cell hybrid buses. The project marks an important step on the path toward the comprehensive introduction and marketing of hydrogen- powered fuel-cell buses. The aim is to gradually create fleets of fuel-cell buses and the required infrastructure. In the next step, the experience gained during the project will be incorporated into the creation of fuel-cell fleets and infrastructures in 14 European regions. In this way, Daimler Buses is promoting the spread of locally emis- sion-free drive technology and responding to the global challenges we face today. As a result of climate change, global population growth and urbanization, all modes of transport should supplement one another in an effective and networked system. Buses play a key role in this endeavor. The Divisions | Daimler Buses | 133 Daimler Financial Services The financial services business recovered distinctly during the year under review. Asia provided signifi- cant impetus and our operations in North and South America were very profitable again. Daimler Financial Services continued to be among the top performers in terms of customer and dealer satisfaction. Daimler Financial Services Amounts in millions of euros 2010 2009 10/09 % change In Germany, Mercedes-Benz Bank’s contract volume was at the prior-year level of €16.1 billion. The deposit volume in the direct banking business decreased from €12.6 billion to €10.9 billion as we shifted our focus from liquidity to profitability during the year. EBIT Revenue New business Contract volume Investment in property, plant and equipment Employees (December 31) 831 12,788 29,267 63,725 12 6,742 9 11,996 25,066 58,350 14 6,800 . +7 +17 +9 -14 -1 Strong performance by the financial services division. Daimler Financial Services’ business developed very favorably during the year under review. Worldwide contract volume of €63.7 billion was 9% higher than the prior-year level. Adjusted for exchange- rate effects, contract volume grew by 3%. New business increased by 17% to €29.3 billion. Adjusted for exchange-rate effects, the increase was 11%. EBIT was very high at €831 million (2009: €9 million). Successful continuation of “Captive #1.” Daimler Financial Services continued to implement its “Captive #1” strategic program during the year under review. The aims of this program include further improving customer and dealer satisfaction, boosting efficiency and profitability, and achieving sustainable growth. Due to the global economic and financial crisis, the division’s focus was on reducing costs and ensuring sufficient refinancing in 2009. However, sustainable profitable growth is now once again playing a greater role at Daimler Financial Services. This is especially true in the Chinese and Brazilian markets, and the scheduled launch of operations in India in 2011 promises to generate additional growth. Business remains stable in Europe. Our financial services business remained stable in Europe in 2010. At €29.2 billion, contract volume was 2% higher than a year earlier. Adjusted for exchange-rate effects, there was a slight increase of 1%. New business of €14.8 billion was 8% higher than the prior-year level. Developments were very mixed in European markets during the year under review. Some Central and Eastern European countries continued to suffer from the effects of the global financial and economic crisis. In those countries, the division focused on strength- ening its collections management and improving remarketing processes. Contract volume once again grew significantly in other European markets such as Portugal (+23%), Sweden (+17%) and the United Kingdom (+16%). Growth was also achieved in Russia (+25%). Business reorganized in Germany. Daimler Financial Services and Mercedes-Benz Bank have decided to reorganize their busi- ness activities in Germany. In October, we reached an agreement with the employee council on the basic principles of the realign- ment. In particular, it stipulates that by the end of 2012, all business activities will be concentrated at three locations in Germany instead of the current nine. In the medium term, this reorganization will generate cost advantages of about €40 million each year. As a result of the reorganization, the headquarters of Daimler Financial Services will move in 2012 from Berlin to Stuttgart, where it will be co-located under one roof with the headquarters of Mercedes-Benz Bank. Mercedes-Benz Bank will set up a new service center in Berlin by 2012, where it will concentrate its functions for the commercial financial services business for Daimler vehicles, which is currently carried out at eight branches and at the Mercedes-Benz Bank headquarters in Stuttgart. Growth in North and South America. Contract volume of €25.9 billion in North and South America was 13% higher than in 2009. Adjusted for exchange-rate effects, there was an increase of 4%. New business increased by 22% to €10.9 billion. Daimler Financial Services grew noticeably in Mexico, Brazil and Argen- tina, with contract volume rising by a total of 30% to €4.1 billion. 134 Daimler Financial Services attracted many new customers last year; new business increased by a significant 17 percent. Mercedes-Benz Financial Services expanded its offering for smart phones and other mobile internet devices in the United States, allowing flexible and convenient payment of leasing and financing installments. Beginning in the second quarter of 2010, all Mercedes-Benz dealerships in the USA were equipped with Apple iPads®, which enable sales staff to directly access the dealer system at the point of sale. This step not only increases the flexibility and effectiveness of sales negotiations, but also makes it easier for customers to return leased vehicles. Strong growth in Asia. Contract volume rose by 28% to €8.7 billion in the Africa & Asia/Pacific region. Adjusted for exchange- rate effects, contract volume increased by 7%. New business of €3.6 billion was 45% higher than in the prior year. All of the region’s markets contributed to this expansion. Growth was particularly strong in China, where contract volume rose by 101% to €958 million. Contract volume increased by double- digit rates also in other markets of the region, including South Korea (+51%), Thailand (+28%), Australia (+25%), South Africa (+24%) and Japan (+14%). With the rapid growth in the region, risk manage- ment has continued to be a priority to assure continued portfolio quality. Growing business with insurance. The Insurance Services unit brokered more than 839,000 policies worldwide in 2010, representing an increase of 22% compared with the prior year. This growth was achieved by effectively combining insurance services with leasing and financing products, service contracts and additional safety features in the vehicles. Other growth factors included the consistent utilization of business opportu- nities in growth markets such as China and the increased brokerage of insurance products to cash buyers. In 2010, Daimler Financial Services concluded further partner- ship agreements with international insurance companies. For example, it signed a framework agreement with Allianz SE regu- lating the two companies’ collaboration in the global motor insurance business. The contracts stipulate that damaged vehicles are to be brought to Mercedes-Benz repair shops. With this agreement, we ensure that our customers receive top-quality service while also generating additional business for our spare parts and repair business. Growth in the fleet business with commercial customers. During the year under review, Daimler Financial Services once again expanded its business with commercial customers and fleet operators. It played a major role in supporting sales and increasing the proportion of financed Mercedes-Benz vehicles in commercial fleets. At 112,000 units, new business in this segment was 35% higher than in the prior year. Contract volume rose by 5% to 303,000 units. This shows that Daimler Financial Services’ high level of reliability during the financial and economic crisis and the resulting rise in customer trust are now paying off. The products offered in this segment range from financing, leasing and full-service leasing to fleet management services for owner- operators and major international customers. Top rankings for customer and dealer satisfaction. Daimler Financial Services achieved top marks in a number of global customer and dealer satisfaction surveys during the year under review. Mercedes-Benz Financial Services in the United States came in first in the overall dealer satisfaction category of the J. D. Power survey. Mercedes-Benz Bank in Germany was once again voted the best premium-segment financial services provider in the Autohaus BankenMonitor 2010 survey. In the United King- dom, Mercedes-Benz Financial Services once again took first place in the Sewells survey of dealer satisfaction. Mercedes-Benz Financial Services was voted number one also in an AC Nielsen survey of dealer satisfaction in Australia and in industry-wide dealer satisfaction surveys in Russia, Portugal and the Czech Republic. Toll Collect system continues to run smoothly. The system for collecting truck tolls on German highways continued to run smoothly and without any disturbances. A total of 665,600 on-board units for automatic toll collection were in use at the end of the year. Tolls were collected for a total distance of 25.8 billion kilometers during 2010. Daimler Financial Services holds a 45% stake in the Toll Collect consortium. The Divisions | Daimler Financial Services | 135 Daimler is committed to the principle of sustainability and has a holistic view of this issue. So for us, economic, social and ecological responsibility are inseparable from each other. Sustainability 138 - 139 Sustainability at Daimler – 125 years of sustainability – The principle of sustainability is a fixed element of our corporate strategy – Goal of sustained increase in enterprise value – Daimler Sustainability Board supplements established management structures – Intensive dialogue with stakeholders 140 - 143 Innovation, Safety and the Environment – €4.8 billion invested in research and development – Further reductions in fuel consumption and CO2 emissions – Fuel-efficient and environmentally friendly engines for cars and commercial vehicles – Four zero-emission vehicles in series production – Innovative concepts for urban mobility – New technologies for more safety 144 - 145 Human Resources – Slight workforce growth – Measures taken to ensure future supply of qualified staff – Employees qualified in new technologies – Promotion of diversity throughout the Group – High standard of health care 146 - 147 Social Responsibility – Social commitment as an element of our corporate activities – Clear regulations for the award of project funds – Disaster relief provided in Haiti and Pakistan – Support for various neighborhood projects at our sites Detailed reporting on the issue of sustainability. Detailed information is provided in our separate Sustainability Report. It describes transparently and factually the sustainability aspects of the past year. The web-based Interactive Sustainability Report supplements our sustainability reporting with additional details and information (http://sustainability2010.daimler.com). In 2011, the new Sustainability Report will be available as of the middle of April in time for the Annual Shareholders’ Meeting. Further information on the subject of sustainability can be found on our website at http://www.daimler.com/sustainability Sustainability | Contents | 137 Sustainability at Daimler Sustainability is an integral part of our corporate strategy. Efficient management structures support the implementation of sustainability policies in all of our divisions. We continued the intensive dialogue with our stakeholders in 2010. – Environmental sustainability: Environmental protection, innovation and safety are the biggest challenges our company faces in its commitment to sustainability. Our passenger cars and commercial vehicles are among the leaders in their respec- tive market segments in terms of environmental protection and safety. As we explore new mobility concepts, we are extend- ing our focus beyond the vehicle itself and are testing environ- mentally compatible approaches to urban mobility. Also in the production of our vehicles, we carefully plan every production step to be as environmentally compatible as possible. – A sustainable society: Daimler regards itself as an active member of our society. That is why we are committed to acting in the best interests of our employees, our customers and the people who live and work near our business locations. After all, we benefit from highly motivated and well-qualified employees, satisfied customers and good relations with our stakeholders that are based on mutual trust. We want to create value for society, and through our donations, sponsorships and founda- tions, we help people in need, promote intercultural under- standing, and support the arts, culture, education, science and sports. Management structures that promote sustainability. Since 2008, the Daimler Sustainability Board has been complementing and networking our established sustainability management structures and supporting the divisions in their implementation of measures that promote sustainability. In May 2009, Dr. Thomas Weber, the Daimler Board of Management member responsible for Group Research and Mercedes-Benz Cars Development, became the new chairman of this top-level committee. 125 years of the automobile. Carl Benz changed the world on January 29, 1886. He registered his “vehicle with gas-engine drive” under patent number 37435 with the Berlin Patent Office. This date marks the birth of the automobile, and the roots of today’s Daimler AG reach back to that time. Sustainability is an essential condition for such a long and successful corporate history. Only sustainable business practices can secure a company’s continued existence, growth and financial success over the long term. Not least for that reason, we feel bound in the tradition of our founders, Carl Benz and Gottlieb Daimler, to the principle of sustainability. Our sustainability strategy. We intend to enhance the value of our company over the long term. And we can do that only if we define value creation holistically and measure the success of our business operations not only in terms of financial figures but also in terms of their social acceptance. The principle of sustainability is therefore an essential component of our corporate strategy. In addition, we are firmly committed to the ten principles of the Global Compact, the labor standards of the International Labor Organization (ILO), and the OECD guidelines for multinational companies. Effective and coordinated strategies and initiatives ensure that sustainability principles are firmly established in our business operations. These strategies are firmly anchored in our Group-wide sustainability management system by means of concrete actions and measurable target indicators: – Economic sustainability: Profitable growth and long-term business success ensure our commitment to sustainable development. As the technological pacemaker of the automo- tive industry, we aim to stand out because of our top perfor- mance and to shape the future of safe and environmentally friendly mobility. The foundation of our business operations is corporate management based on a sense of responsibility, building on systematic corporate governance and unequivocal principles of compliance, and demanding irreproachable ethical behavior from every single employee and manager. 138 Locally emission-free around the world: Three Mercedes-Benz B-Class F-Cell cars demonstrate Daimler’s claim to leadership in the field of sustainable mobility. Another task of the Sustainability Board is to analyze and evaluate our Group’s performance in the area of sustainability. Whenever they see room for improvement, the members of this committee develop decision-making tools. In cooperation with the Sustain- ability Office, which operates at the working level, the Sustainability Board supports the Board of Management in its efforts to develop a consensus concerning issues relevant to sustainability. Our stakeholders: a corrective force on the road to sustain- ability. Back in 2008, we intensified the dialogue with our stake- holders and established the Daimler Sustainability Dialogue. This annual forum brings scientists, politicians and other public figures together with representatives of Daimler’s top manage- ment. The aim is to promote an in-depth dialogue concerning critical issues and to engage in a joint search for practical solutions. A total of 130 participants came together at the third Daimler Sustainability Dialogue, which was held in Stuttgart in November 2010. After an introductory talk by Dr. Dieter Zetsche, the event focused on workshops dealing with the following issues: electric mobility, sustainable mobility systems, job security during the economic crisis, demographic developments, human rights, supplier management and community relations. The results of the work- shops will be further developed in the following 12 months, and they will serve as starting points for the next Sustainability Dialogue. In July 2010, we were one of the first German companies to initiate a dialogue with stakeholders in China on the issue of sustainability. The conference under the title of Daimler Sustain- ability Forum – Ethical Standards and Corporate Social Respon- sibility was held in the United Nations pavilion in the Expo Park in Shanghai. Voluntary commitment to responsible actions. In Berlin on November 25, 2010, top executives and entrepreneurs from 21 German companies signed a “Mission statement for responsible actions in business.” With the other signatories, Daimler sub- scribes to the social market economy and fair rules in global com- petition. Based on six principles, the chief executives and managing directors committed to a style of management oriented towards success and values compatible with the social market economy. According to this mission statement, competition is essential but profits may not be achieved by illegally harming third parties. In addition, the companies see it as a duty to con- tinually search for ways to utilize resources for the benefit of mankind, and thus to do business more sustainably. The principles included in this mission statement are to be put into practice together with employees and social partners, and are to become a constitutive element of the management process. Transparent reporting on sustainability. We published our first sustainability report in 1993, thus laying the foundation for our ongoing reporting on sustainability issues. The year 2010 saw the publication of our sixth Group-wide sustainability report, 360 DEGREES, which is prepared in accordance with the guide- lines of the Global Reporting Initiative (GRI). It provides a detailed and comprehensive sustainability analysis of the previous finan- cial year and is supplemented by an interactive online sustainability report that contains more detailed and extensive information (http://sustainability.daimler.com). We will present the new sustainability report at the Annual Shareholders’ Meeting in mid-April 2011. The electronic Daimler Sustainability Newsletter provides information at regular intervals about our activities in the area of sustainability. You can subscribe to the newsletter at sustainability@daimler.com. Further information is available online at http://sustainability.daimler.com Sustainability | Sustainability at Daimler | 139 Innovation, Safety and the Environment Research and development have always played a key role at Daimler. Our goal is to make mobility safe and sustainable by means of innovative vehicles and customized transportation concepts. To achieve this goal, we develop fascinating automobiles, cutting-edge drive concepts and trendsetting safety systems. in many small steps. What is therefore required is a differentiated approach, which is reflected by Daimler’s customer-focused threefold drive-system mix: – We are optimizing the fuel efficiency of conventional vehicles. – We are developing hybrid drive systems - particularly for large cars, buses and light-duty trucks for delivery service. – And we are working on all-electric drive systems that use batteries and fuel cells. Research results and the experience we have gained through our successful large-scale projects for the testing of alternative vehicle and drive concepts have allowed us to create the precon- ditions for driving with zero local emissions. In addition, we have expanded our company’s business operations into future- oriented areas such as the development and production of lithium-ion batteries and fuel-cell drive. What’s more, our strategic partnerships provide us with direct access to the key technol- ogies of the future. Further reductions in fuel consumption and CO2 emissions. Thanks to combustion engines that have been optimized in numerous ways, downsizing concepts featuring superchargers, and new transmission systems, we have significantly reduced the fuel consumption and CO2 emissions of our cars and commer- cial vehicles over the past several years. Our range of car engines was almost completely updated in 2009 and 2010, allow- ing us to offer a broad spectrum of vehicles that consume little fuel despite their outstanding driving performance. We were able to further reduce the CO2 emissions of our fleet of new vehicles in 2010, even though the proportion of high-performance premium automobiles has grown. Our extensive range of particularly economical BlueEFFICIENCY models contributed to this reduction in fuel consumption. As a result, the CO2 emissions of our entire fleet of cars in the European Union decreased to 158 grams per kilometer in 2010, despite various opposing effects such as a market shift towards larger cars. Innovation from tradition. In the tradition of our founders Carl Benz and Gottlieb Daimler, research and development have always played a key role at our company. This is particularly true today, when we are faced with the task of reinventing the auto- mobile because of the accelerated pace of technological develop- ment and the challenges posed by climate change and environ- mental protection. We invested a total of €4.8 billion in research and development in 2010 (2009: €4.2 billion). At the end of 2010, approximately 22,100 men and women were employed at Corporate Research and in the development departments of Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans and Daimler Buses. Patents provide evidence of innovative strength. The inven - tion of the automobile was followed at Daimler and its predeces- sor companies in the past 125 years by more than 80,000 patents registered worldwide, whereby quality has always had priority over quantity. This is shown for example by the Patent Asset Index of WHU – Otto Beisheim School of Management: Daimler is ahead of the competition in terms of competitive impact per patent, a key indicator for companies’ innovative strength. Today, Daimler has a wide-ranging patent portfolio of more than 19,600 industrial property rights and a broad spec- trum of trademarks and protected designs. Our goal is emission-free mobility. The automobile is entering a new era. Oil reserves are finite, and their use is contributing to climate change. At the same time, the need for mobility is grow- ing worldwide, and individual transport is steadily increasing, with associated effects on the climate and the environment in general. Our aim is therefore to substantially reduce our vehicles’ fuel consumption and emissions here and now, and to completely eliminate them in the long term. We develop innovative vehicle concepts that are specifically designed to safeguard the mobility of future generations. One of the primary technological develop- ments in this respect is the electrification of the powertrain. Over the past 30 years, Daimler engineers have applied for patents on more than 750 inventions for electric vehicles with battery drive and more than 1,000 inventions for fuel-cell drive, of which more than 380 were in the area of lithium-ion technology. The path to electric mobility will not be taken in one great leap but instead 140 E-drive on the move: pre-series electric vehicles from Daimler. BlueDirect engines set new fuel-efficiency standards. Innova- tive technologies will enable us to further reduce the fuel con- sumption and CO2 emissions of our vehicles. The BlueDirect V6 and V8 engines with third-generation gasoline direct injection, which we introduced in late 2010, will help make this possible, as they set the fuel efficiency standards in this segment. In combi- nation with the enhanced seven-speed 7G-TRONIC PLUS automatic transmission, the standard-fitted ECO start/stop function, and the new reduced-friction converter technology, these new engines can cut fuel consumption by more than 20%. We have set our- selves the goal of reducing the average CO2 emissions of our new-vehicle fleet in the European Union to less than 140 g/km by 2012. We are steadily introducing fuel-efficient technologies in all vehicle segments, as demonstrated by models such as the S 250 CDI BlueEFFICIENCY, which is the world’s first “five- liter” vehicle in the luxury segment. It is also the first car in its class with CO2 emissions of less than 150 grams per kilometer. Environmentally friendly technologies for trucks and buses. BLUETEC is not only one of Daimler’s key technologies, but also a synonym for diesel engines for cars and commercial vehicles with low pollutant emissions and enhanced fuel economy. Back in 2005, we introduced the first Mercedes-Benz Actros heavy-duty truck with BLUETEC technology. As the pioneer of this technology, Daimler Trucks has consistently improved the system. We now offer BLUETEC not only in Western Europe but also in North America and Japan. We had sold more than 380,000 BLUETEC commercial vehicles by the end of 2010. That indicates how well this technology is being accepted by our customers, and it contributes considerably to cutting fuel consumption and pollutant emissions. The EEV (Enhanced Environmentally Friendly Vehicle) emissions standard for engines is even stricter than Euro 5, requiring one- third lower particulate emissions. To meet this standard, we have further enhanced our engines and the BLUETEC technology. As a result, we now can meet the stringent emission limits even without additional exhaust gas aftertreatment. Daimler Trucks is now expanding its range of environmentally friendly vehicles by gradually introducing EEV variants into certain power classes of trucks and buses. BlueTec EEV has been part of the expanded range of the Mercedes-Benz Econic since January 2010. In Feb- ruary 2010, the Fuso Canter became Daimler’s first vehicle to be delivered as an EEV-compliant truck in all power classes as standard. In the context of a voluntary commitment signed by various truck manufacturers, we are pursuing the goal of reducing the CO2 emissions of the heavy-duty trucks (above 12 tons) we sell in Europe compared with the base year of 2005 by an average of 20% per ton-kilometer by the year 2020. Four zero-emission vehicles in series production. At the end of 2009, the Mercedes-Benz B-Class F-CELL and the smart fortwo electric drive became the first locally emission-free vehicles manufactured by Daimler under series-production conditions (see page 124). They were followed last year by the Vito E-CELL van and the Mercedes-Benz A-Class E-CELL. The Vito E-CELL, which has been delivered to customers since September, is a fully fledged van for everyday use and is the world’s first electric van to be series produced. With a payload of about 900 kilograms and a fully usable cargo area, the Vito E-CELL can take on all of the usual transport tasks for a vehicle of its class. This quiet, zero-exhaust van was produced in a small batch of 100 vehicles, of which 50 are being used in Berlin and the others in the greater Stuttgart area. Another 2,000 units of this innovative van will be manufactured in early 2011. The A-Class E-CELL has battery- electric drive. The vehicle is fully suited for everyday use and as a family car, and its two highly efficient lithium-ion batteries give it a range of more than 250 km (NEDC). The approximately 500 units of the vehicle are being delivered to selected customers in several European countries for use as full-service rental cars. Fuel cells in everyday use. Due to their range and suitability for everyday use, electric vehicles with fuel cells are a promising alternative to conventional automobiles as we head toward sustain- able mobility. With its numerous patents and the world’s most- tested fleet of fuel-cell vehicles, Daimler leads the development of fuel-cell technology for automotive use. The latest generation of our fuel-cell vehicles includes the B-Class F-CELL and the Citaro FuelCELL Hybrid bus. The B-Class F-CELL boasts superior driving performance and demonstrates its suitability for everyday use in many ways, such as offering a range of about 400 km. A total of approximately 200 B-Class F-CELL vehicles are scheduled to be produced and tested in everyday use by customers in Germany and the United States. Sustainability | Innovation, Safety and the Environment | 141 Citaro G BlueTec Hybrid: milestone for fuel efficiency and low emissions. The Mercedes-Benz Citaro FuelCELL Hybrid bus features a highly ecological concept. It generates no pollutant emissions and is almost noiseless, making it ideal for use in congested downtown areas. To date, a total of 36 Mercedes-Benz Citaro fuel-cell buses have proven their worth with 12 public transport operators on three continents. Mercedes-Benz buses have demonstrated the suitability of fuel-cell drive for everyday use in more than 140,000 hours of operation, during which they were driven more than 2.2 million kilometers. German Sustainability Award for the Mercedes-Benz Atego BlueTec Hybrid. The prize presented in November 2010 by the German Sustainability Award Foundation honors companies that combine business success with social responsibility and nature conservation. The award jury came to the conclusion that the Mercedes-Benz Atego BlueTec Hybrid is an environmentally friendly vehicle with which Daimler is setting benchmarks world- wide. The Mercedes-Benz Atego’s innovative hybrid drive marks the first time that Daimler is offering this especially low-emission technology in Europe ex works. Parallel hybrid drive reduces fuel consumption and exhaust emissions by up to 15% and also makes it possible to reduce noise. The first batch of 50 Atego BlueTec Hybrids was delivered to German customers in the distri- bution sector in early 2011. The Mercedes-Benz Atego BlueTec Hybrid underscores our position as the world market leader for hybrid-drive commercial vehicles. The Mercedes-Benz Citaro G BlueTec Hybrid in everyday use. The new Citaro G BlueTec Hybrid buses, which have been put into service in several European cities since early 2010, cut die- sel consumption and CO2 emissions by 20 to 30% and operate without emissions and almost noiselessly for portions of a route. To date, the Citaro G BlueTec Hybrid is the only hybrid bus that can cover some of its route almost noiselessly while running solely on electricity, without using the diesel engine. Propulsion is provided by four electric wheel-hub motors that obtain their electricity from one of the world’s largest lithium-ion batteries in mobile use. If required, electricity can also be provided by a gener- ator driven by a diesel engine that is relatively small for the Citaro’s vehicle class. Electricity is also generated when braking during downhill driving, for example. 142 Innovative concepts for urban mobility. Existing infrastructure and transportation systems are increasingly reaching their limits, particularly when it comes to fulfilling the need for fast and com- fortable transport in metropolitan areas. But these are exactly the applications that offer great opportunities for new and sus- tainable mobility concepts such as car2go, car2gether, and Bus Rapid Transit. The innovative car2go mobility concept, which we launched in Ulm, Germany, in March 2009 and in Austin, Texas, in November 2009, is particularly notable for its flexibility. The car2go vehicles are distributed throughout their respective operating areas, where they can be rented on the spur of the moment, used as long as desired, and left in any parking space within the system’s operating area. The number of customers in Ulm rose to more than 20,500 in 2010, and over 230,000 rental contracts were pro- cessed completely automatically. In Austin, meanwhile, around 15,000 users rented the vehicles more than 120,000 times. In response to this success, car2go will now be introduced in addi- tional cities worldwide. Beginning in spring 2011, for example, we will offer car2go in Hamburg, Germany, in cooperation with the car rental company Europcar. The vehicle used will be the smart car2go edition – the world’s first car-sharing automobile to be produced for this purpose ex works. Among other things, this model has a more fuel-efficient gasoline engine, automatic trans- mission with start/stop function, an all-new generation of telematic systems and a solar roof. Following car2go, Daimler developed another innovative urban mobility concept known as car2gether, which was launched last autumn with two pilot projects in Ulm and Aachen, Germany. The concept encompasses an online ride-sharing community and takes advantage of the many communication possibilities of mobile Internet applications. This system enables users to organize ride-sharing opportunities on their smartphones while they are on the go or on their computers at home, almost in real time. Daimler is the world’s first automaker to test this kind of mobility in a pilot project, investigating the potential of a smart and mod ern ride-sharing service that was designed especially for metropolitan areas. Active blind-spot assistant: an innovation for active safety. Daimler is relying on Bus Rapid Transit (BRT) solutions to meet the growing transportation needs of large cities and regions that are undergoing rapid population growth. BRT systems consist of one or more trunk lines with regular service buses traveling at frequent intervals and fed by several feeder lines coming from all parts of a city. Separate bus lanes with their own traffic-light settings enable the vehicles to make quick progress even during rush hour. In addition, the system is easily adaptable to each city’s specific conditions. Daimler Buses has a team of experts providing support with the planning, implementation, and enhancement of customized BRT systems. BRT is already being successfully used in cities such as Nantes, Istanbul, Bogotá, and Mexico City. On the “Road to Accident-free Driving.” Vehicle safety is one of our core areas of expertise and a key component of our prod- uct strategy. No other manufacturer worldwide invests more in the development of life-saving safety systems than Daimler. For more than 60 years, our developments have led the way world- wide in safety for cars, trucks, vans, and buses. We regard our commitment to enhancing road safety as an expression of our sense of responsibility toward society and an approach that is in the interest of all road users. That is why we are systematically progressing along the “Road to Accident-free Driving.” This endeavor is also being honored by third parties. For example, the indepen- dent European safety association Euro NCAP recognized the Mercedes-Benz brand with two Euro NCAP Advanced Rewards for its PRE-SAFE® occupant protection system and PRE-SAFE® brake assistance system in 2010. Innovations boost active safety. In order to further boost active safety, we expanded our range of proven technologies – the anti- lock braking system (ABS), Electronic Stability Program® (ESP®), Brake Assist Plus, and PRE-SAFE® braking - by adding two new safety innovations in 2010: Active Blind Spot Assist and Active Lane Keeping Assist. In the commercial vehicle sector, the sec- ond generation of Active Brake Assist marks another milestone in safety innovation. Active Blind Spot Assist warns the driver when it detects the risk of a collision during a lane change. To make this possible, short-range radar sensors monitor the area immediately adjacent to and behind the vehicle. In addition to issuing a warning, Active Blind Spot Assist uses ESP® to brake the wheels on the opposite side of the vehicle so that the automobile leaves its collision course. A display in the instrument cluster warns the driver at the same time. If an accident cannot be avoided despite the adjust- ment of the vehicle’s direction, Active Blind Spot Assist can still reduce the severity of the impact. Active Lane Keeping Assist, which is also connected to ESP®, kicks in when the vehicle crosses a solid line to the right or left of the lane without the driver activating the turn-indicator light. In this case, Active Lane Keeping Assist uses ESP® to brake the opposing wheels in order to prevent the vehicle from leaving the lane. A display in the instrument cluster warns the driver at the same time. If the vehicle crosses a broken lane marking, the system activates an electric motor in the steering wheel. This produces a brief vibration – a subtle but effective command to counter steer immediately. In commercial vehicles, additional safety is provided by Active Brake Assist 2. Like its predecessor, this system uses radar to continuously determine how a vehicle’s speed differs from that of the vehicle ahead of it. However, the new version also measures the distance to stationary obstacles. If an accident becomes unavoidable with unchanged vehicle speed and direction, the driver initially receives a visual warning in the form of an illuminated red triangle, after which an alarm also sounds. If the situation becomes more critical, the system initiates braking. The warning system is designed in such a way that drivers can get out of criti- cal situations without requiring the system to automatically brake the vehicle. For this reason and to avoid endangering any vehicles coming up from behind, Active Brake Assist responds to stationary obstacles with only 50% of the maximum braking force. Mercedes-Benz’ Active Brake Assist 2 has certain major advantages over systems that are currently under development. For one thing, the proven radar technology is not affected by weather or lighting conditions, and it is also active throughout a truck’s entire speed range. Sustainability | Innovation, Safety and the Environment | 143 Human Resources Our employees are provided with high-quality training and support. We aim to ensure that we have a competitive workforce also in the future. In response to demographic developments, we have launched a variety of initiatives designed to maintain and strengthen the performance of our workforce and to attract young employees with high potential. Human Resources Employees (December 31) Daimler Group Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Sales & Marketing Organization Daimler Financial Services Other 2010 2009 10/09 % change 260,100 256,407 96,281 71,706 14,557 17,134 48,299 6,742 5,381 93,572 70,699 15,226 17,188 47,625 6,800 5,297 +1 +3 +1 -4 -0 +1 -1 +2 Workforce development. As of December 31, 2010, the Daimler Group employed 260,100 men and women worldwide. This figure was 3,693 more than in the prior year. The increase was caused on the one hand by additions to the consolidated Group, which were mainly companies incorporated into the Mercedes-Benz Cars division and the sales and marketing organization. On the other hand, personnel numbers increased due to the upturn in demand as well. Further information on the development of our workforce – in particular in the individual regions and divisions – is povided in the Management Report on page 86 of this Annual Report. Comprehensive range of training courses. Providing our em- ployees with high-quality training and support is one of our key concerns. We regard employee development as a continuing pro- cess, which is why we begin our activities in daycare centers and schools. Our Genius initiative, for example, provides children and teenagers with valuable insights into pioneering technologies and careers in the automotive industry in order to get them excited about engineering professions and Daimler at an early age. 144 Training continues to have a very high priority at Daimler, and is maintained at a recognized high level of quality. Training courses for technical and commercial professions as well as programs at the Cooperative State University are key elements of our efforts to secure young talent so that our company will remain success- ful over the long term. We had 8,841 apprentices and trainees worldwide at the end of 2010 (2009: 9,151). A total of 2,034 young people (2009: 2,341) began their occupational training in Germany during the year under review. Apprentices who perform well are offered attrac- tive job opportunities. In 2010, 84% of the apprentices at Daimler AG were hired after completing their training (2009: 89%). The number of people we train and subsequently hire is based on our company’s needs and future development. We have an agree- ment with the employee council regarding the number of appren- ticeships we will offer in the medium term. At Daimler AG, these apprenticeships totaled 1,250 in 2010; there will be 1,150 in 2011 and 1,050 in 2012. Securing and promoting young talent. In 2010, we once again provided more than 500 university graduates and young people with initial work experience worldwide with first-class entry-level positions in which to begin their careers. Through our CAReer corporate talent program, we focused our hiring efforts on strate- gic areas such as green technology. Women currently comprise 35% of CAReer participants, and our trainees come from about 20 different countries. Our Daimler Student Partnership (dsp) program, which currently has approximately 100 active partici- pants, also contributes substantially to strategically securing and promoting young talent at the company. We aim to contact potential new employees and attract them to our company while they are still at university. We are also investing in our existing human resources through new Daimler Academic programs. They enable outstanding employees to earn bachelor’s, master’s, or MBA degrees either by studying full-time or while working. The first batch of employ- ees to be supported in this manner began their studies in the winter semester of 2010. In a future step, the program will be expanded to countries outside Germany. Employees with many different skills and experience work together at Daimler on shaping the future of the automobile. In addition to the advancement of women, we are also focusing on many other aspects of diversity, including topics such as generation management and internationality. Healthy employees in a healthy company. Daimler provides workplace-related preventive support to ensure that its employ- ees remain healthy over the long term. Highly qualified emer- gency medical personnel provide accident victims with first aid at our company locations. Our plant medical services assist employees who are suffering from health-related problems or require occupational health examinations. We take preventive action against increased physical strain and the associated health risks by incorporating ergonomic measures and assessment methods, whose suitability has been proven in labor research, into the entire product-creation process. Another method that is greatly helping employees to stay healthy is integration management. One focus of these activities is on reintegrating employees with disabilities. In 2010, we created binding regulations and guidelines for dealing with health data throughout Germany in order to support responsible and success- ful management behavior. A “thank you” to our workforce. The Board of Management would like to take this opportunity to thank all of our employees for their support during the crisis and for their efforts during the subsequent phase of recovery. Without the flexibility of our workforce, this achievement would not have been as great as it was. We would also like to thank the employee representatives for their great commitment and constructive cooperation. Employee qualification. “You never stop learning” is an expres- sion that has been true for many generations and is becoming even more relevant today. As a result of our employees’ own moti- vation and our targeted range of qualification programs and courses, we ensure that our employees can exercise the full range of their capabilities, particularly with regard to new technologies. In the year under review, we invested €202 million in the training and continuing education of our employees in Germany alone (2009: €207 million); each of our employees received on average 2.3 days of training in 2010 (2009: 2.4 days). We apply a range of different qualification measures to maintain our technological leadership. We are the leading company in Germany in the training and further training of electrical special- ists, for example. Since 2006, more than 1,000 employees at Daimler AG in Germany have been trained in high-voltage tech- nology. Over the next three years, more than 30,000 executives and employees throughout the Group are scheduled to take part in the Green Qualification Program, which offers training courses in environmentally friendly technologies. The participants will include specialists along the entire value chain (from development to sales and service) worldwide. Diversity management. In its commitment to a varied work- force and diversity management, Daimler is promoting employee diversity, creating networks and making the company fit for the future. This is because diversity management is a success factor not only from a social point of view but also from an economic one. Diversity management has been established at Daimler since 2005. One of its focuses is on promoting women to executive positions (gender diversity). At the end of 2010, the proportion of executive positions at the Daimler Group around the world that were held by women was 9%. We intend to increase this propor- tion to 20% by the year 2020. This objective takes account of industry-specific facts and constitutes a realistic target on the basis of the current workforce situations of 13.5% women at Daimler AG and 15% at the Daimler Group. Another important aspect that we have considered in setting an appropriate target is the proportion of female students of engineering subjects. This is currently between 5 and 20% in Western Europe. Sustainability | Human Resources | 145 Social Responsibility We regard our social commitment as a fundamental element of our business activities. We therefore support the interests of society as a whole and are involved in the communities where we do business. In 2010, we continued our activities in the areas of corporate volunteering, foundations and community relations, and we supported various initiatives with donations and sponsorship. The reasons for our policy of social commitment. Our company interacts in many different ways with its social envi- ronment in all the places where we have business locations. We regard these relationships as both an opportunity and an obligation. They affect the roles we play as an employer, client, service provider and automaker, as well as our overall sense of being a corporate citizen. We aim to create value for all of our stakeholders. That is why we are involved in society in general and at our business locations, and why we help to develop regulatory frameworks for society. We regard this as a fundamental component of our business activities. We provide social support through donations, spon- sorship, corporate volunteering, foundations and community relations – with a clear focus on certain themes. We promote cultural activities, education, science, sports and health, as well as charitable projects, and we also provide speedy short-term assistance for the victims of natural catastrophes. In the process, we take into account the specific requirements of our business locations as well as the interests of society in general, and we prioritize close contacts with local communities and social institutions. Transparent management. We set high quality standards for our social involvement and we have created transparent struc- tures and clear lines of responsibility for our distribution of financial aid. Our Donations and Sponsorship Committee makes its decisions on the basis of well-defined support criteria. We regis- ter all of the Group’s activities in the areas of donations and sponsorship in a database. In 2009, we also approved sponsor- ship guidelines as a basis for a transparent awards process. It is designed to help ensure that our donations are in compli- ance with current legal requirements and ethical standards. We decide on specific regional areas of activity in close coordi- nation with our national subsidiaries and production locations. In 2010, Daimler provided financial support totaling more than €51 million for socially oriented projects and charitable institu- tions. In addition, we increased the capital of the Daimler and Benz Foundation by €88 million. We also act in accordance with clear guidelines when making donations to political parties. According to these rules, dona- tions to political parties generally require authorization from the Board of Management and are at present only permitted for parties in Germany. Donations. Our donation activities focus on the promotion of science and education, support for charitable projects, and disaster relief. Because disaster relief has to be quick and effec- tive, we established a special process for it in 2009. This enabled us to react promptly to the earthquake in Haiti in January and the catastrophic floods in Pakistan in July and August 2010, and to support the appropriate aid projects. Since 2009, Daimler has also supported, among other institu- tions, Deutsche Cleft-Kinder-Hilfe, a charitable organization that supports the comprehensive treatment of children with cleft palates all over the world. In India, we funded the construction of a new aid center in Mumbai aimed at helping local people to help themselves, and we are supporting its ongoing operation. Sponsorship in the fields of education, sports and culture. Through our sponsorship activities, we aim to promote sustain- able development in key areas of social responsibility. This refers in particular to education, the environment, the arts and culture in those places where we have business locations. For example, we have been a sponsor of the Stuttgart Staatsgalerie art museum for many years, thus creating cultural and educational opportunities for Daimler employees and their families and many others. 146 With Genius, Daimler aims in particular to get girls interested in science and technology. Since 2007, Mercedes-Benz has cooperated with the German Soccer Association to award an annual Integration Award in line with the motto “Soccer: many cultures – one passion.” The award pays tribute to soccer projects for children and young people that promote integration. Offering material and financial support with a total value of €150,000, the Integration Award is one of the largest financial awards in Germany in the area of social commitment. Corporate volunteering and other activities for the common good. We consider it important to be a good neighbor at our business locations, and we therefore participate in local social projects focusing on education and training. In 2010, we estab- lished “Genius - Daimler’s Young Knowledge Community” in order to get more children and young people enthusiastic about tech- nology and the natural sciences. In addition, many of our employees volunteer to work in neigh- borhood projects. For example, Daimler Financial Services employ- ees have been working since 2005 in the “Beyond Basics” pro- gram at Thirkell Elementary School in Detroit, Michigan, which promotes the education of pupils from socially disadvantaged families. A total of 650 children participated in the program in 2010. During the Day of Caring, which Daimler Financial Services organized once again at 15 locations all over the world last year, a total of approximately 2,000 employees donated their time and skills to help socially disadvantaged people. Support through foundations. In a number of countries, we have established foundations that enable us to focus our initia- tives that address social issues. They include the Daimler and Benz Foundation, which was founded in Germany in 1986, the Daimler Fund in the German Donors’ Association for the Promo- tion of Sciences and Humanities, and the Daimler Foundation in Japan, which supports charitable projects and cultural programs. At the end of 2010, on the occasion of the 125th anniversary of the automobile, the Board of Management decided to increase the capital of the Daimler and Benz Foundation to €125 million. The Laureus Sport for Good Foundation, of which Daimler is a co-founder, uses the power of sports to address the social chal- lenges of our time. It is now one of the world’s biggest social initiatives. The foundation has the support of 46 legendary sportsper sons and is actively involved in 80 socially oriented sports projects on every continent. It has meanwhile helped more than one million children and young people. Community relations. As an employer and customer, we aim to help enhance the competitiveness of the regions in which we operate and help them meet their social, environmental and educa- tional policy challenges. That is why we participate in solving regulatory issues and shaping political frameworks. The issues we discuss with political decision-makers include the traffic infrastructure, new mobility concepts and electric mobility. More details of projects supported by the Group and activities related to our social commitment can be found in the Daimler Sustainability Report and on our website under the heading of “Sustainability” (www.daimler.com/sustainability). Sustainability | Social Responsibility | 147 Daimler’s Board of Management and Supervisory Board are committed to the principles of good corporate governance. All of our activities are based on the principles of responsible, transparent and sustainable management and supervision. Corporate Governance 150 - 151 Report of the Audit Committee 160 - 165 Corporate Governance Report 152 - 157 Remuneration Report – Principles of Board of Management remuneration – Board of Management remuneration in 2010 – Commitments upon termination of service – Remuneration of the Supervisory Board 158 - 159 Compliance – Compliance principles – Compliance organization – Systematic compliance risk management – Highest expectations also of business partners – Comprehensive compliance services and worldwide training – Our understanding and general conditions – Daimler’s corporate bodies – Shares held by the Board of Management and the Supervisory Board – Directors’ dealings – Risk management, financial reporting and transparency – Integrity 166 - 167 Declaration of Compliance with the German Corporate Governance Code – Deviations from the recommendations of the Code – Deviations from the suggestions of the Code Corporate Governance | Contents | 149 Report of the Audit Committee Dear Shareholders, Seven meetings of the Audit Committee were held in 2010. These meetings were regularly attended by, in addition to the members of the Audit Committee, the Chairman of the Super- visory Board, the Chairman of the Board of Management, the member of the Board of Management responsible for Finance and Controlling (CFO), and the external auditors. The heads of specialist departments were also present for the appropriate items of the agenda. In addition, the Chairman of the Audit Committee held regular individual discussions, for example with the external auditors, the CFO, the heads of Corporate Accounting, Internal Auditing, Corporate Compliance and Legal, and the Group’s inde- pendent Compliance Monitor. The Chairman of the Audit Com- mittee first informed the Audit Committee about the results of those bilateral discussions. The Chairman of the Audit Committee then reported to the Supervisory Board about the activities of the Com- mittee and about its meetings and discussions in the following Supervisory Board meetings. In a meeting in mid-February 2010 attended by the external audi- tors, the Audit Committee dealt with the preliminary figures of the annual company and consolidated financial statements, pos- sible alternatives for a dividend proposal, and the recommenda- tion of the Board of Management not to pay a dividend. In view of the unusual crisis conditions in the year 2009 and the Group’s net loss for that year, the Audit Committee recommended to the Supervisory Board that the recommendation of the Board of Management should be followed and that no dividend proposal should be made to the shareholders at the Annual Shareholders’ Meeting. The preliminary figures were published at the Annual Press Conference on February 18, 2010. In a meeting attended by the external auditors at the beginning of March 2010, the Audit Committee dealt with the annual company financial statements, the annual consolidated financial statements and the combined management report for Daimler AG and the Daimler Group for the year 2009, each of which had been issued with an unqualified audit opinion by the external auditors. In preparation, the members of the Audit Committee and the other members of the Supervisory Board were provided with comprehensive documentation, including the Annual Report, the audit reports of KPMG on the annual financial statements of Daimler AG and the annual consolidated financial statements according to IFRS, the combined management report for Daimler AG and the Daimler Group, drafts of the reports of the Supervisory Board and of the Audit Committee, and the annual report according to Form 20-F. Reports by the Internal Auditing department and the external auditors revealed no indications of any deficiencies of 150 the internal control and risk management system. As a result, the Audit Committee recommended that the Supervisory Board should approve the annual financial statements and once again affirmed its recommendation to the Supervisory Board to adopt the recommendation of the Board of Management that no dividend proposal should be made to the shareholders at the Annual Share- holders’ Meeting. Also in this meeting, the Audit Committee dealt with the draft agenda of the 2010 Annual Shareholders’ Meeting, with the annual audit plan of the Internal Auditing department for the year 2010, and accepted an activity report from the Corpo- rate Compliance department. Furthermore, the Audit Committee dealt with the fees paid to the external auditors in the year 2009, discussed the fees agreed for the year 2010, and approved a list of permissible non-audit services to be provided by the external auditors in the 2010 financial year. The Audit Committee regularly examined the qualifications and independence of the external auditors and the implementation of the principles decided upon for the approval of non-audit ser- vices provided by the external auditors. After receiving the approval of the Annual Shareholders’ Meeting, the Audit Commit- tee engaged KPMG AG, Wirtschaftsprüfungsgesellschaft, Berlin, to conduct the 2010 annual audit, negotiated the audit fee of the external auditors, determined the important audit issues for the year 2010, and informed the Supervisory Board accordingly. In the meetings during the year 2010 relating to the quarterly results, the Audit Committee dealt with the interim financial reports including the related risk reports. In those meetings, it accepted reports on the provision of non-audit services by the external auditors and activity reports from the Corporate Compli- ance department, the Internal Auditing department and the independent Compliance Monitor. In this context, the Chairman of the Audit Committee is also involved in setting and evaluating the annual compliance targets for the Board of Management. The Audit Committee also dealt with notifications that were received confidentially, and if desired anonymously, through the Group’s own whistleblower system and processed internally by the Business Practices Office. Another key area of the Audit Committee’s work in 2010 was its own duties of control, which had been made more specific by the German Accounting Law Modernization Act (BilMoG). In this context, the Committee held an additional meeting in which it dealt, supported by statements from the external auditors and the Bernhard Walter, Chairman of the Audit Committee. Internal Auditing department, with the effectiveness of the exist- ing systems of internal control and risk management, of internal auditing and of compliance management, also going beyond the area of accounting. For this purpose, the Audit Committee dealt with the activity reports of the Internal Auditing and Corporate Compliance departments, as well as with the systematic aspects of risk management and risk reporting and with the functionality of the systems in use. For many years, a key element of the Group’s internal control system has been internal control over financial reporting in accordance with Section 404 of the Sar- banes-Oxley Act. In this context, the Audit Committee held a dis- cussion with the Board of Management about the continuation under other conditions of external audits according to Section 404 of the Sarbanes-Oxley Act, which are no longer mandatory due to deregistration with the US SEC and delisting from the New York Stock Exchange. Concerning this matter, in the meeting of the Audit Committee in July, Daimler presented a risk-oriented approach for reviewing the accounting-related internal control systems that had previously been discussed with the external auditors, which provides for the external auditors to issue a statement of opinion containing the results of their (future) audit of this issue. The Committee also received the annual activity report of the Group’s Data Protection Officer and received information on Treasury risk management and investment strategy, on the extent of the Group’s insurance cover and on the status and management of the pension funds. Other matters discussed at the additional meeting were the method of calculating key financial indicators at Daimler, the ongoing development of account- ing regulations resulting from the German Accounting Law Modernization Act (BilMoG), amendments to the International Financial Reporting Standards, and fundamental legal ques tions relating to the activities of members of the Supervisory Board and the Audit Committee. In a meeting in September 2010, the Audit Committee dealt with the results and recommendations of the first report of the Compliance Monitor. The stage of implementation and the requirements for the further development of internal guidelines for securing compliance were discussed intensively. management report for Daimler AG and the Daimler Group and the proposal made by the Board of Management on the appropria- tion of profits. In preparation, the members of the Audit Commit- tee and the other members of the Supervisory Board were pro- vided with comprehensive documentation, some of which was in draft form, including the Annual Report, the audit reports of KPMG on the annual financial statements of Daimler AG and the annual consolidated financial statements according to IFRS, the combined management report for Daimler AG and the Daimler Group, and drafts of the reports of the Supervisory Board and of the Audit Committee. It was no longer necessary to prepare a report according to Form 20-F due to the delisting and deregis- tration in the United States. The audit reports and significant accounting matters were discussed with the external auditors. The Audit Committee of Daimler AG also dealt with the monitoring of the accounting process, the effectiveness of the system of internal control, of the risk management system and of the internal auditing system, and questions of compliance including anti- trust issues. This includes the further development and required adjustments within the Group-wide compliance structures and activities that were decided upon by the Board of Management. Following intensive reviews and discussion of the documentation, the Audit Committee recommended that the Supervisory Board should approve the annual financial statements and adopt the Board of Management’s proposal on the appropriation of profits. The Audit Committee also approved the report of the Audit Committee in its current version. Furthermore, in that meeting, the Audit Committee also dealt with the draft agenda of the 2011 Annual Shareholders’ Meeting and the annual audit plan of the Internal Auditing department. As in previous years, the Audit Committee once again conducted a self-evaluation of its own activities in 2010. This did not result in any need for action with regard to the Committee’s tasks or with regard to the content or procedure of its meetings. Stuttgart, February 2011 The Audit Committee In two meetings attended by the external auditors at the end of February 2011, the Audit Committee reviewed the annual com- pany financial statements for 2010 and the annual consolidated financial statements for 2010 together with the combined Dr. h. c. Bernhard Walter Chairman Corporate Governance | Report of the Audit Committee | 151 Remuneration Report On the basis of the approved remuneration system, the Super- visory Board decides at the beginning of the year on the base and target remuneration for the individual members of the Board of Management and decides upon the success parameters relevant for the variable components of remuneration in the coming year. Furthermore, once a year, individual goals are agreed for the com- ing year between the Chairman of the Supervisory Board, the Chairman of the Board of Management and each member of the Board of Management for his specific area of responsibility; these goals are then taken into consideration after the end of the financial year when the annual bonus is decided upon by the Supervisory Board. In this way, the individual base and target remuneration and the relevant performance parameters are set by the beginning of each year. These details require the approval of the Supervisory Board. On this basis, after the end of each year, target achievement is measured and the actual remuneration is calculated by the Presidential Committee and submitted to the Supervisory Board for its approval. The system of Board of Management remuneration in 2010. The remuneration system continues to comprise a fixed base salary (approximately 20% of the target remuneration), an annual bonus (approximately 30% of the remuneration), and a variable component of remuneration with a medium-term and long-term incentive effect (approximately 50% of the target remuneration). The latter reflects the recommendations of the German Corporate Government Code through its link to the share price and to addi- tional challenging comparative parameters, and takes account of both positive and negative developments. The details of the system are as follows: The base salary is fixed cash remuneration relating to the entire year, oriented towards the area of responsibility of each Board of Management member, and paid out in twelve monthly install- ments. In the first six months of 2010, this was reduced due to a voluntary waiver in the context of the economic crisis by the members of the Board of Management of 15% of their base salaries, effective as of May 1, 2009. The Remuneration Report summarizes the principles that are applied to determine the remuneration of the Board of Manage- ment of Daimler AG and explains both the level and the structure of its members’ remuneration. It also describes the principles and level of remuneration of the Supervisory Board. The Remu- neration Report is part of the Management Report for Daimler AG and for the Group. Principles of Board of Management remuneration Goals. The remuneration system for the Board of Management aims to remunerate its members commensurately with their areas of activity and responsibility and in compliance with appli- cable law, so that Daimler is an attractive employer also for first-class executives. By means of adequate variability, the system should also clearly and directly reflect the joint and individual performance of the Board of Management members and the long-term sustainable performance of the Group. Practical implementation. For each upcoming financial year, the Presidential Committee at first prepares a review by the Supervisory Board of the system and level of remuneration on the basis of a comparison with competitors. The main focus is on checking for appropriateness, based on a horizontal and verti- cal comparison. In this context, the following aspects are given particular attention in relation to a group of comparable companies in Germany: – the effects of the individual fixed and variable components, that is, the methods behind them and their reference parameters, – the relative weighting of the components, i.e. the relationship between the fixed base salary and the short-term and long- term variable components, – the ratio of an average employee’s salary to that of a member of the Board of Management, and the resulting target remuner- ation consisting of base salary, annual bonus and long-term remuneration, also with consideration of entitlement to retire- ment pension and fringe benefits. In carrying out this review, the Presidential Committee and the Supervisory Board consult independent external advisors, above all to facilitate a comparison with remuneration systems common in the market. If the review results in a need for changes to the remuneration system for the Board of Management, the Presiden- tial Committee submits proposals for such changes to the entire Supervisory Board for its approval. 152 The annual bonus is variable cash remuneration, the level of which is primarily linked to the operating profit of the Daimler Group (EBIT), a set of targets determined by the Supervisory Board and the actual result for the prior year, and optionally to other key figures and targets (for 2010: total shareholder return and compliance) as well as the individual performance of the Board of Management members in the past financial year. Reference parameters: – 50% relates to a comparison of actual EBIT in 2010 with EBIT targeted for 2010. – 50% relates to a comparison of actual EBIT in 2010 with actual EBIT in 2009. Amount with 100% target achievement: In the year 2010, 1.5 times the base salary, set with consider- ation of a market comparison. Range of target achievement: 0 – 200%, i.e. the annual bonus has an upper limit of three times the base salary and may also be zero. On the basis of the resulting degree of target achievement, depending on predefined key figures, an amount of up to 10% can be added or deducted. Furthermore, the Supervisory Board has the possibility, based for example on the aforementioned agreed targets, to take account of the personal performance of the individual Board of Management members with an addition or deduction of up to 25%. Once again in 2010, additional individual targets were agreed upon with the Board of Management with regard to the develop- ment and sustained function of a compliance system. The com- plete or partial non-achievement of individual compliance targets can be reflected by a deduction of up to 25% from the individual target achievement. However, the compliance targets cannot result in any increase in individual target achievement, even in the case of full accomplishment. The Performance Phantom Share Plan is an element of remu- neration with long-term incentive effects. Its opportunity and risk potential is primarily linked with the development of Daimler’s share price through the granting of phantom shares. At the beginning of the plan, medium-term performance targets are set for a period of three years whose accomplishment has an effect on the number of phantom shares that are earned. Payouts under the 2010 plan occur after four years in cash at the price of Daimler shares that is then valid. For the granting of phantom shares, the Supervisory Board specifies an absolute amount in euros in the context of setting the annual target remuneration. The number of phantom shares granted is calculated by dividing that amount by the relevant average share price over a long period. This average price is definitive not only for granting phantom shares under the new plan, but also for payment under the plan granted four years previously. Half of the net amount paid out must be used to buy ordinary Daimler shares until the guidelines for share ownership are fulfilled (see below); those shares must then be held permanently. Reference parameters for Plan 2010: – 50% relates to the Group’s return on sales compared with a group of competitors (BMW, Fiat, Ford, Honda, Paccar, Renault, Toyota, Volvo and Volkswagen). For the measurement of this success criterion, the competitors’ average return on sales is calculated over a period of three years, whereby the best and worst value is not taken into consideration. The extent that Daimler’s return on sales deviates by plus or minus two per- centage points from the average thus calculated is deemed to be the range of target achievement. This means that target achievement is 200% if Daimler’s return on sales is two percentage points or more above the calculated average. Target achievement is 0% if Daimler’s return on sales is two percentage points or more below the calculated average. – 50% relates to the Group’s return on net assets in relation to cost of capital. This criterion stands for the value created by the Group. The extent that Daimler’s return on net assets deviates over a period of three years by plus or minus two percentage points from a target of 8% is deemed to be the range of target achievement. This means that target achievement is 200% if Daimler’s return on net assets is 10% or more. Target achieve- ment is 0% if Daimler’s return on net assets is 6% or less. Value upon allocation: Determined annually in relation to a market comparison; for 2010, approximately 2 to 2.5 times the base salary. Range of target achievement: 0 to 200%, i.e. the plan has an upper limit and may also be zero. Value of the phantom shares on payout: In line with the calculated share price and the number of shares achieved according to the aforementioned criteria. Payout is in any case limited to 2.5 times the share price at the beginning of the plan. During the four-year period, the phantom shares earn a dividend equivalent whose amount is related to the dividend paid on real Daimler shares in the respective year. With regard to share-based remuneration, any subsequent change in the defined perfor- mance targets or reference parameters is ruled out. Guidelines for share ownership. As a supplement to these three components of remuneration, Stock Ownership Guidelines have been approved for the Board of Management. These guide- lines require the members of the Board of Management to invest a portion of their private assets in Daimler shares over several years and to hold those shares until the end of their Board of Man- agement membership. The number of shares to be held has been set in relation to triple the annual base salary for the Chairman of the Board of Management and double the annual base salary for the other members of the Board of Management. In fulfillment of the guidelines, half of the net payment made out of a Perfor- mance Phantom Share Plan is generally to be used to acquire ordinary shares in the Company, but the required shares can also be acquired in other ways. Corporate Governance | Remuneration Report | 153 Board of Management remuneration in 2010 Total Board of Management remuneration in 2010. The total remuneration granted by Group companies to the members of the Board of Management of Daimler AG is calculated as the total of the amounts of remuneration paid in cash (base salary and annual bonus), the value of the share-based remuneration at the time when granted in February 2010 (Performance Phantom Share Plan – PPSP), and taxable non-cash benefits. The share price relevant for the payout amount of the PPSP in four years’ time can deviate significantly from the share price relevant when granted. Total remuneration comprises €4.8 million as fixed, i.e. non-per- formance-related remuneration (2009: €4.8 million) €13.5 million as short-term variable remuneration, i.e. short-term performance- related remuneration (2009: €1.8 million), and €7.5 million as variable performance-related remuneration with a long-term incentive effect granted in 2010 (2009: €5.2 million). This adds up to a total of €25.8 million for the year 2010 (2009: €11.8 million). Implementation of the Act on the Appropriateness of Man­ agement Board Remuneration/Adjustment of the remuner­ ation system in 2011. Against the backdrop of the German Act on the Appropriateness of Management Board Remuneration (VorstAG), the Supervisory Board of Daimler AG commissioned an expertise on the system of Board of Management remuneration by external auditors in late 2009. As a result, the remuneration system described above was confirmed as complying with the provisions of applicable law. On this basis and due to the diffi- cult economic situation at the beginning of the year, the Supervi- sory Board decided not to change the remuneration system in 2010. This remuneration system was approved by the Annual Shareholders’ Meeting in April 2010 with a majority of 95.97% of the votes cast. The 2010 Annual Shareholders’ Meeting was already informed about the adjustment of remuneration as of the year 2011. The total of base salary and annual bonus will be divided equally between those two components. This change at first has the effect of a neutral shift within the target remuneration from the annual bonus to the fixed salary. As a result, the target bonus has been reduced from 1.5 times the base salary to the same amount as the base salary, thus reducing the maximum amount of annual bonus to be paid to 200% of the fixed salary. The range of target achievement and the reference parameters remain unchanged. In addition, the annual bonus is no longer paid out after the end of the year in full, but only 50%. The rest is paid out one year later in the form of a bonus/malus (reward/penalty) arrangement, depending on the development of Daimler’s share price compared with an automotive index (Auto-STOXX, see pages 22 ff.), which Daimler uses as a criterion for the relative performance of its share price. Board of Management remuneration 2010 In thousands of euros Dr. Dieter Zetsche Dr. Wolfgang Bernhard Wilfried Porth Andreas Renschler 1 Bodo Uebber 2 Dr. Thomas Weber Total Base salary Waiver Short-term vari- able remuneration (annual bonus) Long-term variable remuneration (PPSP) Number Value when granted (2010: at share price €30.61) (2009: at share price €18.82) 2010 2009 2010 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 1,530 1,530 472 535 382 575 575 660 660 545 545 4,317 3,692 ­ 115 - 153 ­ 30 ­ 39 - 53 ­ 43 - 58 ­ 50 - 66 ­ 41 - 55 ­ 318 - 385 4,819 689 1,487 1,679 172 1,771 305 2,079 297 1,679 245 80,269 114,967 29,554 32,108 35,829 51,317 38,383 54,975 34,078 48,809 13,514 1,708 250,221 270,068 2,457 2,164 905 983 1,079 966 997 930 1,043 919 7,464 4,979 Total 8,691 4,230 2,834 3,158 501 3,382 1,788 3,686 1,821 3,226 1,654 24,977 9,994 1 PPSP amount after deduction of remuneration of €17,732 received as a board member of an affiliated company. 2 PPSP amount after deduction of remuneration of €177,321 received as a board member of an affiliated company. 154 Once again, basic salaries were reduced due to the voluntary waiver by the members of the Board of Management of 15% of their base salaries, which was in effect from May 1, 2009 until June 30, 2010. The increase in the total of base salaries compared with the prior year reflects the increased number of Board of Management members. The table on page 154 shows the base salaries and variable remuneration of the active members of the Board of Management for the year 2010 compared with 2009. It is necessary to take into consideration that Dr. Bernhard was newly appointed to the Board of Management with effect as of February 18, 2010. The granting of taxable non-cash benefits in kind, i.e. primarily the provision of company cars and the reimbursement of expenses for security precautions, resulted in benefits for the members of the Board of Management worth the following amounts: Taxable non-cash benefits and other benefits In thousands of euros Dr. Dieter Zetsche Dr. Wolfgang Bernhard Wilfried Porth Andreas Renschler Bodo Uebber 1 Dr. Thomas Weber Total 2010 2009 133 52 101 148 217 162 813 112 346 251 114 252 1,075 1 2010: Including an anniversary bonus of €55,000. Commitments upon termination of service Retirement provision. The pension agreements of some Board of Management members include a commitment to an annual retirement pension, calculated as a proportion of the former base salary and depending on the number of years of service. Those pension rights were granted until 2005 and remain valid, but have been frozen at that level. Retirement pensions start upon request when the term of service ends at or after the age of 60, or are paid as disability pensions if the term of service ends before age 60 due to disability. The agreements provide for a 3.5% annual increase in benefits (with the exception of that Wilfried Porth’s benefits will be adjusted in accordance with applicable law). The agreements include a provision by which a spouse of a deceased Board of Manage- ment member is entitled to 60% of that member’s pension. The amount can increase by up to 30 percentage points depend- ing on the number of dependent children. Effective as of January 1, 2006, we substituted the pension agreements of the Board of Management members with a new arrangement, the so-called pension capital system. Under this system, each Board of Management member is credited with a capital component each year. This capital component com- prises an amount equal to 15% of the sum of the Board of Man- agement member’s fixed base salary and the annual bonus that was actually achieved, multiplied by an age factor equivalent to a certain rate of return, at present 6% (Wolfgang Bernhard and Wilfried Porth: 5%). The benefit from this pension plan is pay- able at the age of 60 at the earliest. Corporate Governance | Remuneration Report | 155 Service costs for pension obligations according to IFRS amounted to €1.945 million in 2010 (2009: €1.660 million). The present value of the total defined benefit obligation accord- ing to IFRS amounted to €49.327 million at December 31, 2010 (December 31, 2009: €41.588 million). Taking age and period of service into account, the individual entitlements, service costs and present values are as follows: Individual entitlements, service costs and present values for Board of Management pension plans in 2009/2010 In thousands of euros Dr. Dieter Zetsche Dr. Wolfgang Bernhard Wilfried Porth Andreas Renschler Bodo Uebber Dr. Thomas Weber Total Annual pension (as regulated until 2005) as of age 60 Service cost (for pension and pension capital) Present value of obligations (for pension and pension capital) 1,050 1,050 156 156 250 250 275 275 300 300 2,031 2,031 712 629 205 118 88 243 215 397 362 270 240 1,945 1,534 26,149 22,706 410 3,715 3,002 6,102 5,078 5,357 4,301 7,594 6,501 49,327 41,588 2010 2009 2010 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 Commitments upon early termination of service. No sever- ance payments are foreseen for Board of Management members in the case of early termination of their service contracts. Solely in the case of early termination of a service contract by mutual consent, Board of Management service contracts include a commitment to payment of the base salary and provision of a company car until the end of the original service period. Such persons are only entitled to payment of the performance-related component of remuneration pro rata for the period until they leave the Company. Entitlement to payment of the performance- related component of remuneration with a long-term incentive effect is defined by the exercise conditions specified in the respec- tive plans. For the period beginning after the end of the original service period, departing Board of Management members can receive payments in the amounts of the pension commitments granted as described in the previous section, as well as the use of a company car. In the case of those persons receiving pay- ments until the age of 60, possibly reduced due to other sources of income, the aforementioned increased amounts also apply. Sideline activities of Board of Management members. The members of the Board of Management should accept manage- ment board or supervisory board positions and/or any other administrative or honorary functions outside the Group only to a limited extent. Furthermore, members of the Board of Manage- ment require the consent of the Supervisory Board before com- mencing any sideline activities. This ensures that neither the time required nor the remuneration paid for such activities leads to any conflict with the members’ duties to the Group. Insofar as such sideline activities are memberships of other supervisory boards or comparable boards, they are disclosed in the Notes to the Consolidated Financial Statements of Daimler AG and on our website. No remuneration is paid to Board of Management members for board positions held at other companies of the Group. Loans to members of the Board of Management. In 2010, no advances or loans were made to members of the Board of Management of Daimler AG. Payments made to former members of the Board of Manage- ment of Daimler AG and their survivors. Payments made in 2010 to former members of the Board of Management of Daimler AG and their survivors amounted to €17.5 million (2009: €16.1 million). Pension provisions for former members of the Board of Management and their survivors amounted to €197.1 million at December 31, 2010 (2009: €192.8 million). 156 156 Remuneration of the Supervisory Board Supervisory Board remuneration in 2010. The remuneration of the Supervisory Board is determined by the Shareholders’ Meeting of Daimler AG and is governed by the Company’s Articles of Incorporation. The new regulations for Supervisory Board remuneration approved by the Annual Shareholders’ Meeting in April 2008 specify that the members of the Supervisory Board receive, in addition to the refund of their expenses and the cost of any value-added tax incurred by them in performance of their office, fixed remuneration of €100,000, with three times that amount for the Chairman of the Supervisory Board, twice that amount for the Deputy Chairman of the Supervisory Board and the Chairman of the Audit Committee, 1.5 times that amount for the chairmen of the other Supervisory Board committees and members of the Audit Committee, and 1.3 times that amount for members of the other Supervisory Board committees. Mem- bers of a Supervisory Board committee are only entitled to remu- neration for such membership if the committee has actually convened to fulfill its duties in the respective year. If a member of the Supervisory Board exercises several of the aforementioned functions, he or she is to be remunerated solely for the function with the highest remuneration. In April 2009, the Supervisory Board decided to make a solidarity contribution with regard to the measures taken to reduce labor costs, and to waive 10% of the members’ respective components of individual remuneration for the period of May 1, 2009 until June 30, 2010. The individual remuneration of the members of the Supervisory Board is shown in the table below. The members of the Supervisory Board and its committees receive a meeting fee of €1,100 for each Supervisory Board meeting and committee meeting that they attend. Except for the remuneration paid to the members of the Super- visory Board representing the employees in accordance with their contracts of employment, no remuneration was paid for services provided personally beyond the aforementioned board and com- mittee activities, in particular for advisory or agency services. The remuneration paid in 2010 to the members of the Supervisory Board of Daimler AG for their services to the Group therefore totaled €2.7 million (2009: €2.6 million). Loans to members of the Supervisory Board. In 2010, no advances or loans were made to members of the Supervisory Board of Daimler AG. Supervisory Board remuneration Name In euros Dr. Manfred Bischoff Erich Klemm 1 Dr. Paul Achleitner Sari Baldauf Dr. Clemens Börsig Prof. Dr. Heinrich Flegel Dr. Jürgen Hambrecht Jörg Hofmann 1 Dr. Thomas Klebe 1, 3 Gerard Kleisterlee Arnaud Lagardère Jürgen Langer 1 Ansgar Osseforth 4 Valter Sanches 2 Dr. Manfred Schneider Stefan Schwaab 1 Jörg Spies 1 Lloyd G. Trotter Function(s) remunerated Total in 2010 Chairman of the Supervisory Board, the Presidential Committee and the Nomination Committee Deputy Chairman of the Supervisory Board, the Presidential Committee and the Audit Committee Member of the Supervisory Board (since April 14, 2010) Member of the Supervisory Board Member of the Supervisory Board and the Audit Committee Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board and the Presidential Committee Member of the Supervisory Board Member of the Supervisory Board (until April 14, 2010) Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board, the Presidential Committee and the Nomination Committee Member of the Supervisory Board and the Audit Committee Member of the Supervisory Board (since January 5, 2010) Member of the Supervisory Board 298,543 208,672 73,934 102,301 155,982 102,301 102,301 102,301 148,583 101,201 25,644 103,291 103,291 103,291 136,973 158,072 102,305 102,301 Dr. h.c. Bernhard Walter Uwe Werner 1 Lynton R. Wilson 1 The employee representatives have stated that their board remuneration is to be transferred to the Hans-Böckler Foundation, in accordance with the Member of the Supervisory Board and Chairman of the Audit Committee Member of the Supervisory Board and the Nomination Committee Member of the Supervisory Board 205,592 102,301 133,893 guidelines of the German Trade Union Federation. The Hans-Böckler Foundation is a German not-for-profit organization of the German Trade Union Federation. 2 Mr. Sanches has directed that his board remuneration is to be paid to the Hans-Böckler Foundation. 3 Dr. Klebe also received remuneration and meeting fees of €13,700 for his board services at Daimler Luft- und Raumfahrt Holding AG. These amounts are also to be transferred to the Hans-Böckler Foundation. 4 Mr. Osseforth has directed that a portion of his board remuneration is to be paid to a German foundation for adult education (“Treuhandstiftung Erwachsenenbildung”). Corporate Governance | Remuneration Report | 157 Compliance Our understanding of compliance and our principles. Integ- rity is one of our four corporate values. It is the foundation of our actions and of our success as a globally active group of compa- nies. We are convinced that financial success can only be sustain- able if it is achieved legally and correctly. What does compliance mean in this context? We understand it as adherence to all appli- cable laws, rules and regulations and to our related internal guidelines. We can only establish a sustained culture of compli- ance if each individual internalizes the rules and accepts responsibility. Correct business practice and sustainable growth are closely interlinked, because in the long term, communities of values are also communities of value creation. In 2010, we car- ried out for the first time a survey on our Integrity Code and our anti-corruption guidelines, in order to gain an overview of our employees’ attitude and knowledge. The results of the survey will help us to improve the quality of the guidelines and the related processes. Settlement with the US authorities. The investigations in the United States of Daimler AG and three other companies of the Group concerning possible violations of the Foreign Corrupt Prac- tices Act were terminated on April 1, 2010. In the coming years, Judge Louis Freeh, a former US federal judge and director of the FBI, will regularly report to the US authorities on the effective- ness of our compliance program in the role of our Compliance Monitor. The Group fully supports the Monitor in carrying out his tasks. On the other hand, the Monitor’s activities will help us to improve the effectiveness and efficiency of our compliance program. Further development of compliance organization. In the third quarter of 2010, the Supervisory Board decided to create a new Board of Management position, Integrity and Legal Affairs, thus further developing our compliance organization. The tasks of the new Board of Management member include managing the global legal and compliance organization, business ethics and the sustained anchoring of integrity and compliance throughout the Group. The Chief Compliance Officer is the head of the Group Compliance department. In the future, he will report directly to the Board of Management member for Integrity and Legal Affairs and will regularly inform the Audit Committee of the Supervisory Board of his activities. 158 Systematic compliance risk management. The Corporate Compliance Operations department (CCO) defines the annual anti-corruption program and supports its implementation worldwide. In a systematic risk analysis, all companies and entities of the Daimler Group are assessed and classified in terms of their corruption risk. The crucial aspects include business activities, the business environment, and country-specific evaluation in a corruption awareness index developed by Transparency International, an anti-corruption organization. Subsequently, we implement an individually adapted program for the prevention of corruption on the basis of risk assessments in the companies and units. The local compliance managers deployed worldwide are particu- larly important as contact persons and as an interface to Corpo- rate Compliance Operations. Approximately 90 specifically quali- fied local compliance managers look after more than 180 companies and business units at our worldwide sites. They support the local management with adherence to the anti-corruption regulations and regularly report both within their business units and to the Group’s headquarters. In 72 sales companies and business units, we have also estab- lished standardized control systems which help to secure correct behavior in conformance with applicable regulations. The effec- tiveness of the controls is assessed by our Internal Auditing department and by the companies themselves in standardized annual self-assessments. In order to minimize the risk of corrup- tion, the existing standard process for reviewing transactions with public authorities and government clients in countries with an increased risk of corruption is being further developed. Expansion of worldwide training. Once again, more than 111,000 employees participated in the web-based training on Daimler’s Integrity Code in 2010. In addition to the issue of corruption prevention, we also covered the aspects of environmen- tal protection, respect for human rights, dealing with conflicts of interest and appearing in public. In addition, more than 21,000 employees from sales companies and sales departments passed through the web-based training on the prevention of corruption. The training includes more than 140 presence courses worldwide with more than 3,500 participants from functions that are particu- larly exposed to risk. Furthermore, the Group’s top management level underwent a specific course of anti-corruption training. The highest expectations also of business partners. Correct behavior is a precondition for a trusting partnership and coopera- tion. We therefore expect our business partners to behave in full conformance with applicable regulations. Anyone acting on Daimler’s behalf must fulfill the highest ethical standards. To minimize the risk of corruption, we therefore carry out a risk-based integrity test with business partners who support Daimler with sales transactions, and enter into contractual arrangements with those partners, making clear our expectations in terms of adherence to the law. Standard processes support behavior that conforms to applicable regulations. Compliance cannot be delegated. Executives are role models and are the first points of contact for their staff; they therefore bear special responsibility for correct behavior. For this reason, the fundamental importance of compli- ance is firmly anchored in our qualification programs for execu- tives and junior managers, as well as in our talent-promotion activi- ties. Only those employees who consistently orient their decisions and processes towards applicable rules and regulations can be given additional responsibility. In addition, we set specific compli- ance targets for chief executives, heads of finance, sales manag- ers and after-sales managers in units where there is an increased risk of corruption. In the future, we will link the variable element of executive remuneration more closely with compliant behavior. Wide-ranging compliance activities. In addition to line manag- ers and local contact persons, the Daimler Group also has head- quarters departments for compliance matters. All of the Group’s employees can contact the Compliance Consultation Desk with specific questions on the prevention of corruption. And the most common questions and answers with regard to compliance advice are accessible in an online database. In accordance with the Group’s policy of the “Zero-Tolerance-Principle” and the corporate guidelines on disciplinary actions, there is no scope for discretion in connection with behavior that is against the law or contrary to applicable regulations. The contact point for accepting, documenting and processing any suspected misconduct is the whistleblower system, the Business Practices Office (BPO). Not only our employees but also external persons can report any indications of suspected misconduct through various channels – worldwide and at any time on a confi- dential basis – if desired also anonymously. Employees are required and executives are obliged to report any concrete suspi- cion of violations of criminal law or of the Daimler Integrity Code to the BPO. The protection of whistleblowers is also regu- lated with binding effect. Processing reported indications of suspected misconduct was significantly accelerated in 2010 as a result of process improvements. To enhance transparency, we pass on all the significant reported indications of suspected misconduct in anonymous form to the top management once each quarter. As a result of case analyses, processes can be altered if required so that future damage is avoided. Corporate Governance | Compliance | 159 Corporate Governance Report Our understanding At Daimler, good corporate governance goes beyond the mere fulfillment of statutory provisions. The Board of Management and the Supervisory Board have the goal of aligning the Group’s man- agement and supervision with national and international bench- marks, in order to secure the continued success of the Group and its strong traditions by means of sustained value creation and to contribute to the safeguarding of mobility as an element of individual freedom. General conditions The legal framework for corporate governance at Daimler AG, as a German stock corporation, is based on German law, in particular the Stock Corporation Act (AktG), the Codetermination Act (MitbestG) and legislation concerning capital markets, as well as on the Articles of Incorporation of Daimler AG. Daimler AG is obliged by the German Stock Corporation Act (AktG) to apply a dual management system featuring strict sepa- ration between the Board of Management and the Supervisory Board (two-tier board). With this system, the Company’s Board of Management is responsible for the executive functions while the Supervisory Board advises and monitors the Board of Manage- ment. No person may be a member of the two boards at the same time. Daimler’s corporate bodies Shareholders’ Meeting. The Company’s shareholders exercise their rights in the Company, in particular their voting rights, at the Shareholders’ Meeting. Each share in Daimler AG entitles its owner to one vote. There are no Daimler shares with multiple voting rights, no preferred stock, and no maximum voting rights. Documents and information relating to the Shareholders’ Meet- ing can be found on our website at www.daimler.com/ir/am (see also page 24). The Annual Shareholders’ Meeting is generally held within four months after the end of a financial year. The Company facilitates the exercise of voting rights for the shareholders by appointing proxies who are bound by the shareholders’ voting instructions. The Company’s Articles of Incorporation also authorize the Board of Management to permit postal voting. Among other matters, the Annual Shareholders’ Meeting decides on the appropriation of distributable profits, the ratification of the actions of the members of the Board of Management and the Supervisory Board, the election of the external auditors and the election of the members of the Supervisory Board representing the shareholders. The Annual Meeting also makes other decisions, especially on amendments to the Articles of Incorporation, capital measures, and the approval of certain intercompany agreements. Shareholders can submit countermotions on resolutions proposed by the Board of Management and the Supervisory Board and can challenge resolutions passed by the Shareholders’ Meeting in a court of law. The influence of the Shareholders’ Meeting on the management of the Company is limited by law, however. The Shareholders’ Meeting can only make management decisions if it is requested to do so by the Board of Management. Supervisory Board. In accordance with the German Codetermi- nation Act (MitbestG), the Supervisory Board of Daimler AG com- prises 20 members. Half of them are elected by the shareholders at the Annual Meeting. The other half comprises members who are elected by the Company’s employees who work in Germany. The members representing the shareholders and the members representing the employees are equally obliged by law to act in the Company’s best interests. The Supervisory Board has given itself a set of rules of procedure, which regulate not only its duties and responsibilities and the personal requirements placed upon its members, but above all the convening, preparation and chairing of its meetings and the procedure of passing resolutions. The rules of procedure of the Supervisory Board can be seen on our website at www.daimler. com/dai/rop. With regard to its own composition, the Supervisory Board has stipulated in its rules of procedure that more than half of the members of the Supervisory Board representing the shareholders are to be independent in order to allow the Board of Manage- ment to be advised and monitored independently. The rules of procedure also stipulate that no person may be a member of the Supervisory Board who is a member of a board of, or advises, a significant competitor of Daimler AG or its subsidiaries, or who is subject to any other conflicts of interest. The Supervisory Board of Daimler AG fulfills these criteria in its present composition. 160 Governance Structure Shareholders (Annual Meeting of shareholders) Election of shareholder representatives Supervisory Board (10 shareholder and 10 employee representatives), Nomination Committee, Audit Committee, Presidential Committee, Mediation Committee Appointments, monitoring, consulting Board of Management (7 Board members) One member representing the shareholders, the Chairman of the Supervisory Board, is a former member of the Board of Manage- ment. After stepping down from the Board of Management of Daimler AG in December 2003, he was elected to the Supervisory Board following a cooling-off period of more than two years in April 2006, and was elected as its Chairman following a cooling- off period of more than three years in April 2007. Three mem- bers of the Supervisory Board are members of the board of man- agement of a listed company, but including their positions at Daimler AG, they do not hold more than three supervisory board positions outside their own groups at listed companies or in supervisory boards or committees of companies with compara- ble requirements. The rules of procedure of the Supervisory Board specify that can- didates for election as representatives of the shareholders who are to hold the position for a full period of office should generally not be over the age of 68 at the time of the election. Proposals of candidates for election as members representing the shareholders of Daimler AG take into consideration, as well as the requirements of applicable law, the Articles of Incorporation and the German Corporate Governance Code (HGB), a list of cri- teria of qualifications and experience. They include market knowledge in the regions important to Daimler, expertise in the management of technologies, and experience in certain man- agement functions. An additional guarantee for productive work in the Supervisory Board, which should include persons not only with special competencies but also with an international outlook and openness for social issues, is the members’ personal individ- ual diversity with regard to gender, ethnic origin or other personal characteristics. With proposals of candidates for election as representatives of the shareholders, the Supervisory Board therefore considers the overall balance, with regard in particular to gender but also to other aspects, and sees this as added value for the Supervisory Board in its entirety. The guideline with regard to gender balance is the Company’s target of achieving a proportion of 20% women in executive positions by the year 2020 (of the Supervisory Board members representing the share- holders at December 31, 2010, 10% are women). With regard to ensuring sufficient internationality, a proportion of more than one third of non-German members is deemed to be appropriate and is currently fulfilled. The Supervisory Board’s duties include appointing and recalling the members of the Board of Management, deciding on and regularly reviewing the system of Board of Management remu- neration, and determining the individual total remuneration of the members of the Board of Management. With due consideration of the Group’s international operations, the Supervisory Board pays particular attention to the issue of diversity also in connection with the composition of the Board of Management, for example with regard to gender, ethnic origin and other personal characteristics. The Supervisory Board monitors and advises the Board of Man- agement in its management of the Company. At regular intervals, the Supervisory Board receives reports from the Board of Man- agement on the Group’s strategy, corporate planning, profitability and business developments. The Supervisory Board has retained the right of approval for transactions of fundamental importance. Following discussions with the external auditors and its own review, the Supervisory Board approves the annual company financial statements and the annual consolidated financial statements with due consideration of the external auditors’ audit reports, as well as the results of the review carried out by the Audit Committee. The Supervisory Board reports to the Annual Shareholders’ Meeting on the results of its own review. The members of the Supervisory Board attend in their own responsibility such courses of training and further training as might be necessary for the performance of their tasks and are supported by the Company in doing so. In addition to courses already offered, Daimler AG will make appropriate offers to the members of its Supervisory Board as required also in the future. The contents of such courses could include the subjects of tech- nological and economic developments, accounting and financial reporting, internal control and risk management systems, compli- ance, new legislation and board of management remuneration. Corporate Governance | Corporate Governance Report | 161 The Supervisory Board has formed four committees, which per- form to the extent legally permissible the tasks assigned to them in the name of and on behalf of the entire Supervisory Board: the Presidential Committee, the Nomination Committee, the Audit Committee and the Mediation Committee. The committee chairpersons report to the entire Supervisory Board on the com- mittees’ work at the latest in the meeting of the Supervisory Board following each committee meeting. The Supervisory Board has issued rules of procedure for each of its committees. These rules of procedure can also be seen on our website at www.daimler.com/dai/rop; the current members of the Supervisory Board are listed at www.daimler.com/supervisoryboard and of its committees at www.daimler.com/dai/sbc. The members of the Supervisory Board and its committees are also listed on pages 20 and 21 of this Annual Report. The Presidential Committee is composed of the Chairman of the Supervisory Board, his Deputy and two other members, who are elected by a majority of the votes cast on the relevant resolution of the Supervisory Board. The Presidential Committee makes recommendations to the Supervisory Board on the appointment of members of the Board of Management and is responsible for their contractual affairs. It submits proposals to the Supervisory Board on the design of the remuneration system for the Board of Management and on the appropriate individual remuneration of its members, and decides on the granting of consent to sideline activities of Board of Management members. In addition, the Presidential Committee decides on questions of corporate governance, on which it also makes recommendations to the Supervisory Board. It supports and advises the Chairman of the Supervisory Board and his Deputy, and prepares the meet- ings of the Supervisory Board. The Nomination Committee is composed of at least three members, who are elected by a majority of the votes cast by the members of the Supervisory Board representing the sharehold- ers, and is the only Supervisory Board Committee comprised solely of members representing the shareholders. It makes recommendations to the Supervisory Board concerning persons to be proposed for election as members of the Supervisory Board representing the shareholders at the Annual Shareholders’ Meeting. In doing so, it takes into consideration the specific goals that the Supervisory Board has set for its own composition. Furthermore, it defines the requirements for each specific position to be occupied. The Audit Committee is composed of four members, who are elected by a majority of the votes cast on the relevant resolution of the Supervisory Board. The Chairman of the Audit Committee must have special expertise in the field of accounting and should also have special expertise and experience in the field of internal control procedures. All the other members of the Audit Commit- tee should have special expertise in the field of accounting, business administration or finance. The Supervisory Board is convinced of the independence of the Chairman of the Audit Committee, Dr. h.c. Bernhard Walter, and the other member of the Audit Committee representing the shareholders, Dr. Clemens Börsig. Both of them have special expertise and experience in the application of accounting principles and internal monitoring systems, which qualify them as financial experts. The Audit Committee deals with questions of accounting and risk management, the internal monitoring system, internal auditing, compliance and the annual external audit. At least once a year, it discusses with the Board of Management and the external auditors the effectiveness, functionality and appropriateness of the internal monitoring systems and the risk management system, and discusses with the Board of Management the effective- ness and appropriateness of the internal auditing system and compliance management. Furthermore, it regularly receives reports on the work of the Internal Auditing department and the compli- ance organization. At least four times a year, the Audit Committee receives a report from the Business Practices Office, which has been established to deal with complaints and information about any breaches of guidelines, criminal offences or dubious accounting, financial reporting or auditing, and is regularly informed about how such cases are dealt with. The Audit Committee discusses the interim reports on the first quarter, first half and first nine months of the year with the Board of Management. On the basis of the report of the external audi- tors, the Audit Committee reviews the annual company financial statements and the annual consolidated financial statements and discusses them with the external auditors. It makes a proposal to the Supervisory Board on the appropriation of profits and on the adoption of the annual company financial statements of Daimler AG and on the approval of the annual consolidated finan- cial statements. The Committee also makes recommendations for the proposal on the selection of external auditors, assesses those auditors’ suitability and independence, and, after the external auditors are elected by the Annual Meeting, it commissions them to conduct the annual audit of the company and consoli- dated financial statements and to review the interim reports, negotiates an audit fee, and determines the focus of the annual audit. 162 The Audit Committee receives reports from the external auditors on all accounting matters that might be regarded as critical and on any material weaknesses of the internal monitoring and risk management system with regard to accounting. Finally, the Audit Committee approves services provided by the firm of exter- nal auditors or its affiliates to Daimler AG or to companies of the Daimler Group that are not directly related to the annual audit. The Board of Management requires the consent of the Supervi- sory Board for certain types of transaction of fundamental impor- tance. At regular intervals, the Board of Management reports to the Supervisory Board on corporate strategy, corporate planning, profitability and business developments, as well as on the inter- nal control system, the risk management system and compliance issues. Significant deviations are reported without delay. When making appointments to executive positions at the Group, the Board of Management gives due consideration to the issue of diversity, with regard for example to the criteria of age, gender and internationality. Diversity-management activities include diversity workshops, the development of internal networks, exter- nal cooperation with educational facilities, and membership of selected initiatives. A key area of action is the targeted promotion of women. The proportion of women in top executive positions is to increase from the current 9% to 20% by the year 2020. By means for example of flexible working-time arrangements, setting up day-nurseries close to workplaces, and a special mentoring program for women, Daimler has already succeeded in increasing the proportion of women in top executive positions continuously since 2005. The Board of Management has also given itself a set of rules of procedure, which can be seen on our website at www.daimler. com/dai/rop. In addition to specifying the responsibilities of its members, they also describe the procedure to be observed when passing resolutions and ways to avoid conflicts of interest. Information on the remuneration of the Board of Management including the performance phantom share plan and on the remuneration of the Supervisory Board is provided on pages 152 ff. of this Annual Report. The Mediation Committee is composed of the Chairman of the Supervisory Board and his Deputy, as well as one member of the Supervisory Board representing the employees and one member of the Supervisory Board representing the shareholders, each elected with a majority of the votes cast. It is formed solely to perform the functions laid down in Section 31 Subsection 3 of the German Codetermination Act (MitbestG). Accordingly, the Mediation Committee has the task of making proposals on the appointment of members of the Board of Management if in the first vote the majority required for the appointment of a Board of Management member of two thirds of the members of the Supervisory Board is not achieved. Board of Management. As of December 31, 2010, the Board of Management of Daimler AG comprised six members. Information on their areas of responsibility and curriculum vitae is posted on our website at www.daimler.com/dai/bom. The members of the Board of Management and their areas of responsibility are also listed on pages 12 and 13 of this Annual Report. No member of the Board of Management holds more than three supervisory board positions at other listed companies or in supervisory boards of companies with comparable requirements. With the consent of the Supervisory Board, the Board of Manage- ment sets the Group’s strategic focus. Its members have joint responsibility for managing the Group’s business. The Board of Management prepares the consolidated interim reports, the annual company financial statements of Daimler AG and the annual consolidated financial statements. It has estab- lished a risk management system and monitors that system. In addition, the Board of Management is responsible for adherence to the provisions of applicable law, official regulations and the Group’s internal guidelines, and works to secure compliance with those rules and regulations by the companies of the Group. Fur- ther information on compliance is summarized in the Compliance section on pages 158 and 159 of this Annual Report. Corporate Governance | Corporate Governance Report | 163 Shares held by the Board of Management and the Supervisory Board, directors’ dealings At December 31, 2010, the members of the Board of Manage- ment held a total of 1.2 million shares or share options of Daimler AG (0.110% of the shares issued). At the same date, members of the Supervisory Board held a total of 0.1 million shares or share options of Daimler AG (0.006% of the shares issued). In 2010, the transactions in shares of Daimler AG or related financial instruments listed in the table below took place involving members of the Board of Management and the Supervisory Board (and, pursuant to the provisions of Section 15a of the German Securities Trading Act (WpHG), involving persons in a close relationship with the aforementioned persons). Daimler AG discloses these transactions without delay after receiving notification of them. This information is also available on our website at www.daimler.com/dai/dd/en. Directors’ dealings (pursuant to Section 15a of the German Securities Trading Act (WpHG)) in the year 2010 Date Name Function Type and place of transaction Number Price Total volume Nov. 25, 2010 Andreas Renschler Member of the Board of Management Acquisition of shares by exercise of options (off-market) 40,000 €51.52 €2,060,800 Nov. 25, 2010 Andreas Renschler Member of the Board of Management Sale of new shares (Frankfurt) Nov. 26, 2010 Andreas Renschler Member of the Board of Management Nov. 25, 2010 Bodo Uebber Member of the Board of Management Acquisition of shares by exercise of options (off-market) Acquisition of shares by exercise of options (off-market) Nov. 25, 2010 Bodo Uebber Member of the Board of Management Sale of new shares (Frankfurt) Nov. 25, 2010 Bodo Uebber Member of the Board of Management Acquisition of shares by exercise of options (off-market) Nov. 25, 2010 Bodo Uebber Member of the Board of Management Sale of new shares (Frankfurt) Nov. 25, 2010 Bodo Uebber Member of the Board of Management Acquisition of shares by exercise of options (off-market) Nov. 25, 2010 Bodo Uebber Member of the Board of Management Sale of new shares (Frankfurt) Nov. 25, 2010 Bodo Uebber Member of the Board of Management Nov. 25, 2010 Dr. Thomas Weber Member of the Board of Management Acquisition of shares by exercise of options (off-market) Acquisition of shares by exercise of options (off-market) Nov. 25, 2010 Dr. Thomas Weber Member of the Board of Management Sale of new shares (Frankfurt) Nov. 25, 2010 Dr. Thomas Weber Member of the Board of Management Nov. 25, 2010 Dr. Dieter Zetsche Member of the Board of Management Acquisition of shares by exercise of options (off-market) Acquisition of shares by exercise of options (off-market) Nov. 25, 2010 Dr. Dieter Zetsche Member of the Board of Management Sale of new shares (Frankfurt) Nov. 25, 2010 Dr. Dieter Zetsche Member of the Board of Management Acquisition of shares by exercise of options (off-market) 40,000 8,000 €51.81 €34,40 €2,072,400 €275,200 47,000 €43.57 €2,047,790 47,000 18,000 18,000 18,000 18,000 13,000 €51.81 €34.40 €51.81 €51.52 €51.81 €43.57 €2,435,070 €619,200 €932,580 €927,360 €932,580 €566,410 19,000 €51.52 €978,880 19,000 1,000 €51.81 €51.52 €984,390 €51,520 231,000 €51.52 €11,901,120 231,000 19,000 €51.81 €51.52 €11,968,110 €978,880 Nov. 4, 2010 Gregor Zetsche Closely related natural person Sale of new shares (Frankfurt) 1,425 €50.00 €71,250 164 Risk management, financial reporting and transparency Risk management at the Group. Daimler has a risk manage- ment system commensurate with its position as a company with global operations (see pages 104 ff.). The risk management system is one component of the overall planning, controlling and reporting process. Its goal is to enable the Company’s manage- ment to recognize significant risks at an early stage and to initiate appropriate countermeasures in a timely manner. The Supervi- sory Board deals with the risk management system in particular with regard to the approval of the operational planning. The Audit Committee discusses at least once a year the effectiveness, functionality and appropriateness of the risk management sys- tem with the Board of Management and the external auditors. In addition, the Audit Committee deals with the risk report once each quarter. The Chairman of the Supervisory Board has regular contacts with the Board of Management to discuss not only the Group’s strategy and business development, but also the issue of risk management. The Corporate Audit department monitors adherence to the legal framework and Group standards by means of targeted audits and initiates appropriate actions as required. Accounting principles. The consolidated financial statements of the Daimler Group are prepared in accordance with the International Financial Reporting Standards (IFRS), as adopted by the European Union, and with the supplementary standards to be applied according to Section 315a Subsection 1 of the German Commercial Code (HGB). Details of the IFRS are provided in this Annual Report in the Notes to the Consolidated Financial State- ments (see Note 1). The annual financial statements of Daimler AG, which is the parent company, are prepared in accordance with the accounting standards of the German Commercial Code (HGB). Both sets of financial statements are audited by external auditors. Transparency. We maintain close contacts with our sharehold- ers in the context of comprehensive investor relations activities. We regularly inform our shareholders, financial analysts, share- holder associations, the media and the interested public about the situation of the Group and any significant changes in its business (see pages 24 f). We have posted an overview of all the significant information dis- closed in the year 2010 on our website at www.daimler.com/ir/ annualdoc10. Irrespective of deregistering Daimler’s shares from the United States Securities and Exchange Commission (SEC) and ending our listing on the New York Stock Exchange in 2010, the Com- pany will continue to maintain a high standard of transparency in its financial reporting. Fair disclosure. All new facts that are communicated to financial analysts and institutional investors are simultaneously also made available to all shareholders and the interested public. If any information is made public outside Germany as a result of the regulations governing capital markets in the respective countries, we also make this information available without delay in Ger- many in the original version or at least in English. In order to ensure that information is provided quickly, Daimler makes use of the Internet and other methods of communication. Financial calendar. All the dates of important disclosures (e.g. annual reports and interim reports) and the date of the Annual Shareholders’ Meeting are announced in advance in a financial calendar. The financial calendar can be seen inside the rear cover of this annual report and on our website at www.daimler.com/ir/ calendar. Integrity Integrity Code. The Integrity Code is a set of guidelines for behavior, which has been in effect since 1999 and was revised in 2003, defining a binding framework for the actions of all our employees worldwide. Among other things, the guidelines define correct behavior in international business and in any cases of conflicts of interest, questions of equal treatment, proscription of corruption, the role of internal control systems and the duty to comply with applicable law as well as other internal and exter- nal regulations. The Principles of Social Responsibility are also a component of the Integrity Code. In those principles, Daimler expresses its commitment to internationally recognized human rights and employee rights. Daimler expects all of its employees to adhere strictly to the provisions of the Integrity Code. The full text of the Integrity Code is posted on our website at www.daimler.com/dai/guidelines. Code of Ethics. We introduced our Code of Ethics in July 2003. This code addresses the members of the Board of Management and persons with special responsibility for the contents of financial disclosure. The provisions of the code aim to prevent mistakes by the persons addressed and to promote ethical behavior as well as the complete, appropriate, accurate, timely and clear disclosure of information on the Group. The wording of the Code of Ethics can be seen on our website at www.daimler.com/dai/ guidelines. Corporate Governance | Corporate Governance Report | 165 Declaration of Compliance with the German Corporate Governance Code Section 161 of the German Stock Corporation Act (AktG) requires the Board of Management and the Supervisory Board of a listed stock corporation to declare each year that the recom- mendations of the „German Corporate Governance Code Govern- ment Commission“ as published by the Federal Ministry of Jus- tice in the official section of the electronic Federal Gazette have been and are being met or, for which reasons which recommen- dations have not been or are not being applied. Permanent public access to such declaration must be given on the website of the Company. The German Corporate Governance Code (“Code”) contains rules with varying binding effects. Apart from outlining aspects of the applicable German Stock Corporation Law, it contains recom- mendations from which companies are permitted to deviate. However, if they do so, they must disclose this each year. Accord- ing to § 161 AktG, deviations from the recommendations of the Code have to be explained. The Code further contains suggestions which can be ignored without giving rise to any disclosure require- ment. The Board of Management and the Supervisory Board of Daimler AG have decided to disclose and explain not only deviations from the Code’s recommendations (see I.) but also – without being legally obliged to do so – deviations from its suggestions (see II.). For the period since the last compliance declaration of April 2010 until July 1, 2010, the following declaration refers to the Code as amended on June 18, 2009. For the corporate gover- nance practice of Daimler AG since July 2, 2010, this declaration refers to the requirements of the Code as amended on May 26, 2010, published in the electronic Federal Gazette on July 2, 2010. The Board of Management and the Supervisory Board of Daimler AG declare that as a rule both the recommendations and the suggestions of the „German Corporate Governance Code Govern- ment Commission“ have been and are being met. The Board of Management and the Supervisory Board of Daimler AG also intend to follow the recommendations and suggestions of the German Corporate Governance Code in the future. The following recom- mendations and suggestions are the only ones that have not been and are not being applied: I. Deviations from the recommendations of the German Corporate Governance Code 1. Deductible with the D&O insurance for the Supervisory Board (Code Clause 3.8, Paragraph 3). The Directors’ and Officers’ Liability insurance (D&O insurance) obtained by Daimler AG also refers to the members of the Supervisory Board. As no insurance coverage for intentional acts and omissions and for breaches of duty knowingly committed is assumed, a deductible only comes into question in the context of negligent breaches of duty. Since the renewed D&O insurance policy as of April 1, 2010 such deductible for the members of the Supervisory Board is provided for negligent breach of duty amounting to 50% of the respective remuneration. Since the remuneration structure of the Supervisory Board is limited to a fixed remuneration without success-related compo- nents the setting of a deductible for members of the Supervisory Board of one and a half times of the fixed annual remuneration compared to the members of the Board of Management, whose remuneration consists of fixed and success-related components, would lead to a disproportionate economic result. Against this background the Supervisory Board decided on a deductible for its members amounting to 50% of the respective remuneration, which exceeds the legal mandatory deductible for the members of the Board of Management in relation to the total remuneration. 2. Concrete Objectives for the Composition of the Supervisory Board (Code Clause 5.4.1, Sentence 2). Over and above the existing quality objectives the Supervisory Board has decided on December 9, 2010 on concrete figures for its composition, under special consideration of an adequate proportional repre- sentation of women. 166 3. Compensation of the Supervisory Board (Code Clause 5.4.6, Paragraph 2, Sentence 1). The Supervisory Board receives adequate compensation that contains fixed and function- related elements, where applicable, as well as attendance fees. The Articles of Incorporation provide for a base annual fee for each Member of the Supervisory Board. This base annual fee increases according to the respective field of responsibility with taking over further functions within the Supervisory Board, as taking a membership or the Chair of Supervisory Board Commit- tees or the Chair or Deputy Chair of the Supervisory Board. If a member of the Supervisory Board exercises several of the afore- mentioned functions, he/she shall be remunerated solely according to the function with the highest remuneration. We believe that a function-related compensation system is also more appro- priate for the oversight role of Supervisory Board members than performance-related compensation because it eliminates any potential conflicting interests that might arise from decisions of the Supervisory Board with possible influence on performance criteria. Thus the Supervisory Board does not receive performance- related compensation. II. Deviations from the suggestions of the German Corporate Governance Code 1. Broadcast of the Annual Meeting (Code Clause 2.3.4). The Annual Meeting of Daimler AG is broadcast on the internet through the end of the Board of Management’s report. Continu- ing the broadcast after this point, particularly broadcasting comments made by individual shareholders could be construed as interfering with privacy rights. The fact that, at the forefront, transmission of the entire Annual Shareholders Meeting requires legitimation by the Articles of Incorporation or Rules of Proce- dure adopted by the Shareholders’ Meeting itself, points out that, in due consideration, privacy rights of the shareholder are not per se subordinated to a transmission interest. For this reason the company will go on not to broadcast the entire Annual Meeting. 2. Variable compensation of the Supervisory Board relating to the company’s long-term success (Code Clause 5.4.6 Paragraph 2, Sentence 2). We refer to the comments on I. 3. with regard to the introduction of performance-related compen- sation for the members of the Supervisory Board. Stuttgart, in December 2010 The Supervisory Board The Board of Management Corporate Governance | Declaration of Compliance with the German Corporate Governance Code | 167 The Consolidated Financial Statements presented as follows have been prepared in accordance with the International Financial Reporting Standards (IFRS). They also include additional requirements set forth in Section 315a (1) of the German Commercial Code (HGB). Contents 170 Responsibility Statement 171 Independent Auditors’ Report Consolidated Statement of Income/Loss Consolidated Statement of Comprehensive Income/Loss Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements 172 173 174 175 176 177 177 186 188 189 189 191 191 192 192 195 196 197  1. Significant accounting policies  2. Accounting estimates and assessments  3. Significant acquisitions and dispositions of interests in companies and of other assets and liabilities  4. Revenue  5. Functional costs  6. Other operating income and expense  7. Other financial income/expense, net  8. Interest income and expense  9. Income taxes 10. Intangible assets 11. Property, plant and equipment 12. Equipment on operating leases 198 13. Investments accounted for using the equity method 199 201 201 202 202 203 14. Receivables from financial services 15. Marketable debt securities 16. Other financial assets 17. Other assets 18. Inventories 19. Trade receivables 204 207 211 217 218 219 219 220 220 222 225 231 239 243 243 244 246 246 247 20. Equity 21. Share-based payment 22. Pensions and similar obligations 23. Provisions for other risks 24. Financing liabilities 25. Other financial liabilities 26. Other liabilities 27. Consolidated statement of cash flows 28. Legal proceedings 29. Guarantees and other financial commitments 30. Financial instruments 31. Risk management 32. Segment reporting 33. Capital management 34. Earnings/loss per share 35. Related party relationships 36. Remuneration of the members of the Board of Management and the Supervisory Board 37. Principal accountant fees 38. Additional information Consolidated Financial Statements | Contents | 169 Responsibility Statement in accordance with Section 37y (1) of the WpHG (German Securities Trading Act) in conjunction with Section 297 (2), 4 and Section 315 (1), 6 of the HGB (German Commercial Law) To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the Group management report, which has been combined with the management report for DAG, includes a fair review of the development and performance of the business and the position of the Group, together with a descrip- tion of the principal opportunities and risks associated with the expected development of the Group. Stuttgart, February 28, 2011 Dieter Zetsche Wolfgang Bernhard Christine Hohmann-Dennhardt Wilfried Porth Andreas Renschler Bodo Uebber Thomas Weber 170 In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs as adopted by the EU, the additional requirements of German commercial law pursuant to § 315a Abs. 1 HGB and IASB-IFRS and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development. Stuttgart, February 28, 2011 KPMG AG Wirtschaftsprüfungsgesellschaft Prof. Dr. Nonnenmacher Wirtschaftsprüfer Meyer Wirtschaftsprüfer Independent Auditors’ Report We have audited the consolidated financial statements prepared by the Daimler AG, Stuttgart, comprising statement of income (loss), statement of comprehensive income (loss), statement of financial position, statement of changes in equity, statement of cash flows and notes to the consolidated financial statements together with the report on the position of the Company and the Group for the business year from January 1 to December 31, 2010. The preparation of the consolidated financial statements and the group management report in accordance with IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315a Abs. [paragraph] 1 HGB [Handelsgesetzbuch “German Commercial Code”] are the responsi- bility of the parent company’s management. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit. In addition, we have been instructed to express an opinion as to whether the consolidated financial statements comply with IFRS as promulgated by the International Accounting Standards Board (IASB-IFRS). We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW) [Institute of Public Auditors in Germany]. Those standards require that we plan and perform the audit such that misstatements materially affecting the presen- tation of the net assets, financial position and results of opera- tions in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Know- ledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstate- ments are taken into account in the determination of audit pro- cedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the frame- work of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the account ing and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. Consolidated Financial Statements | Responsibility Statement | Independent Auditors’ Report | 171 Consolidated Statement of Income/Loss Consolidated Note Year ended December 31, 2009 2010 Industrial Business (unaudited additional information) Year ended December 31, 2009 2010 Daimler Financial Services (unaudited additional information) Year ended December 31, 2009 2010 In millions of euros Revenue Cost of sales Gross profit Selling expenses General administrative expenses Research and non-capitalized development costs Other operating income Other operating expense Share of profit/loss from investments accounted for using the equity method, net Other financial income/expense, net Earnings before interest and taxes (EBIT) 1 Interest income Interest expense Profit/loss before income taxes Income taxes Net profit/loss Profit (-)/loss attributable to minority interest Profit/loss attributable to shareholders of Daimler AG 4 5 5 5 5 6 6 13 7 8 8 9 97,761 -74,988 22,773 -8,861 -3,474 -3,476 971 -660 -148 149 7,274 825 -1,471 6,628 -1,954 4,674 -176 78,924 -65,567 13,357 -7,608 -3,287 -2,896 693 -503 72 -1,341 -1,513 1,136 -1,921 -2,298 -346 -2,644 4 4,498 -2,640 84,973 -63,912 21,061 -8,517 -2,951 -3,476 879 -569 -141 157 6,443 821 -1,457 5,807 -1,681 4,126 66,928 -54,268 12,660 -7,303 -2,838 -2,896 589 -460 65 -1,339 -1,522 1,132 -1,907 -2,297 -350 -2,647 12,788 -11,076 1,712 -344 -523 – 92 -91 -7 -8 831 4 -14 821 -273 548 11,996 -11,299 697 -305 -449 – 104 -43 7 -2 9 4 -14 -1 4 3 Earnings/loss per share (in €) for profit/loss attributable to shareholders of Daimler AG 34 Basic 4.28 -2.63 4.28 Diluted 1 EBIT includes expenses from compounding of provisions and effects of changes in discount rates (2010: minus €240 million; 2009: minus €1,003 million). -2.63 The accompanying notes are an integral part of these consolidated financial statements. 172 Consolidated Statement of Comprehensive Income/Loss 1 In millions of euros Net profit/loss Unrealized gains from currency translation adjustments Unrealized gains/losses from financial assets available for sale Unrealized losses from derivative financial instruments Unrealized gains/losses from investments accounted for using the equity method Other comprehensive income, net of taxes Thereof income/loss attributable to minority interest Thereof income attributable to shareholders of Daimler AG Total comprehensive income/loss Thereof income attributable to minority interest Thereof income/loss attributable to shareholders of Daimler AG 1 For other information regarding comprehensive income/loss, see Note 20. Consolidated 2010 2009 4,674 1,200 -121 -484 -449 146 -86 232 4,820 90 4,730 -2,644 267 247 -308 195 401 103 298 -2,243 99 -2,342 The accompanying notes are an integral part of these consolidated financial statements. Consolidated Financial Statements | Consolidated Statement of Income | Consolidated Statement of Comprehensive Income | 173 Consolidated Statement of Financial Position In millions of euros Assets Intangible assets Property, plant and equipment Equipment on operating leases Investments accounted for using the equity method Receivables from financial services Marketable debt securities Other financial assets Deferred tax assets Other assets Total non-current assets Inventories Trade receivables Receivables from financial services Cash and cash equivalents Marketable debt securities Other financial assets Other assets Sub-total current assets Assets held for sale from non-automotive leasing portfolios Total current assets Total assets Equity and liabilities Share capital Capital reserves Retained earnings Other reserves Treasury shares Equity attributable to shareholders of Daimler AG Minority interest Total equity Provisions for pensions and similar obligations Provisions for income taxes Provisions for other risks Financing liabilities Other financial liabilities Deferred tax liabilities Deferred income Other liabilities Total non-current liabilities Trade payables Provisions for income taxes Provisions for other risks Financing liabilities Other financial liabilities Deferred income Other liabilities Total current liabilities Total equity and liabilities Consolidated Note At December 31, 2009 2010 Industrial Business (unaudited additional information) At December 31, 2009 2010 Daimler Financial Services (unaudited additional information) At December 31, 2009 2010 10 11 12 13 14 15 16 9 17 18 19 14 15 16 17 3 20 22 23 24 25 9 26 23 24 25 26 7,504 17,593 19,925 3,960 22,864 766 3,194 2,613 408 78,827 14,544 7,192 18,166 10,903 1,330 2,247 2,621 57,003 – 57,003 135,830 3,058 11,905 20,553 864 -7 36,373 1,580 37,953 4,329 2,539 5,548 27,861 1,883 675 1,824 79 44,738 7,657 1,229 6,992 25,821 8,626 1,269 1,545 53,139 135,830 6,753 15,965 18,532 4,295 22,250 1,224 2,793 2,233 496 74,541 12,845 5,285 16,228 9,800 5,118 2,342 2,352 53,970 310 54,280 128,821 3,045 11,864 16,163 632 -1,443 30,261 1,566 31,827 4,082 2,774 4,696 33,258 2,148 509 1,914 75 49,456 5,622 509 6,311 25,036 7,589 1,397 1,074 47,538 128,821 7,450 17,544 9,611 3,917 -45 15 2,015 2,108 214 42,829 14,056 6,964 -51 9,535 1,243 -5,282 -1,335 25,130 – 25,130 67,959 33,088 4,141 2,537 5,367 3,480 1,824 -1,813 1,481 74 17,091 7,429 382 6,711 -4,838 6,058 766 1,272 17,780 67,959 6,690 15,911 8,651 4,241 -24 85 2,634 1,830 305 40,323 12,337 5,073 -37 6,735 4,988 -4,312 -1,346 23,438 – 23,438 63,761 27,157 3,901 2,772 4,585 13,390 1,985 -2,987 1,305 66 25,017 5,422 75 6,070 -7,874 6,280 755 859 11,587 63,761 54 49 10,314 43 22,909 751 1,179 505 194 35,998 488 228 18,217 1,368 87 7,529 3,956 31,873 – 31,873 67,871 4,865 188 2 181 24,381 59 2,488 343 5 27,647 228 847 281 30,659 2,568 503 273 35,359 67,871 63 54 9,881 54 22,274 1,139 159 403 191 34,218 508 212 16,265 3,065 130 6,654 3,698 30,532 310 30,842 65,060 4,670 181 2 111 19,868 163 3,496 609 9 24,439 200 434 241 32,910 1,309 642 215 35,951 65,060 The accompanying notes are an integral part of these consolidated financial statements. 174 Consolidated Statement of Changes in Equity 1 Share capital Capital reserves Retained earnings Currency translation adjustment Financial assets available- for-sale Derivative financial instruments Share of investments accounted for using the equity method Equity attributable to share- holders of Daimler AG Treasury shares Minority interest Total equity Other reserves In millions of euros Balance at January 1, 2009 Net loss Unrealized gains/losses Deferred taxes on unrealized gains/losses Total comprehensive income/loss Dividends Share-based payment Issue of new shares Other Balance at December 31, 2009 Net profit Unrealized gains/losses Deferred taxes on unrealized gains/losses Total comprehensive income/loss Dividends Share-based payment Capital increase/ Issue of new shares Acquisition of treasury shares Issue and disposal of treasury shares Other 2,768 10,204 – – – – – – – – – – – 1 277 – 1,676 -17 3,045 11,864 – – – – – – – – – – – 4 13 156 – – – – -110 -9 Balance at December 31, 2010 3,058 1 For other information regarding changes in equity, see Note 20. 20,553 11,905 19,359 -2,640 – – -2,640 -556 – – – 16,163 4,498 – – -487 – 274 – 23 – 255 -8 576 – -431 123 274 247 -308 – – – – -213 – 1,152 – – – – 270 - -128 – – – – 268 – -696 222 – 102 -17 85 – – – – 307 – -461 – 7 212 146 4,498 1,152 -121 -484 -315 – – – – -108 – – – – – – – – – – – – – – – – – – – – – – – – – 939 149 -216 -8 -1,443 – – – – – – – – 31,222 -2,640 200 98 -2,342 -556 1 1,953 -17 1,508 -4 141 -38 99 -101 – – 60 32,730 -2,644 341 60 -2,243 -657 1 1,953 43 -1,443 30,261 1,566 31,827 – – – – – – – -54 4,498 -133 365 4,730 – 4 169 -54 1,490 1,272 176 -148 62 90 -93 – 5 – – -9 12 – -7 4,674 -281 427 4,820 -93 4 174 -54 1,272 3 36,373 1,580 37,953 The accompanying notes are an integral part of these consolidated financial statements. Consolidated Financial Statements | Consolidated Statement of Financial Position | Consolidated Statements of Changes in Equity | 175 Consolidated Statement of Cash Flows 1 In millions of euros Net profit/loss adjusted for Depreciation and amortization Other non-cash expense and income Gains (-)/losses on disposals of assets Change in operating assets and liabilities Inventories Trade receivables Trade payables Receivables from financial services Vehicles on operating leases Other operating assets and liabilities Cash provided by/used for operating activities Additions to property, plant and equipment Additions to intangible assets Proceeds from disposals of property, plant and equipment and intangible assets Investments in businesses Proceeds from disposals of businesses Acquisition of securities (other than trading) Proceeds from sales of securities (other than trading) Change in other cash Cash provided by/used for investing activities Change in short-term financing liabilities Additions to long-term financing liabilities Repayment of long-term financing liabilities Dividends paid Proceeds from issuance of share capital (including minority interest) Purchase of treasury shares Internal equity transactions Cash provided by/used for financing activities Effect of foreign exchange rate changes on cash and cash equivalents Net increase/decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Consolidated Industrial Business (unaudited additional information) Daimler Financial Services (unaudited additional information) 2010 2009 2010 2009 2010 2009 4,674 3,364 434 -366 -955 -1,493 1,778 -823 -571 2,502 8,544 -3,653 -1,555 329 -163 365 -11,710 16,035 39 -313 -28 13,828 -21,482 -93 278 -54 – -7,551 423 1,103 9,800 10,903 -2,644 3,264 -563 -34 4,232 1,795 -902 3,148 1,766 899 10,961 -2,423 -1,422 280 -141 67 -17,782 12,407 64 -8,950 -2,332 24,900 -22,807 -657 1,953 – – 1,057 -180 2,888 6,912 9,800 4,126 3,335 1,839 -367 -1,018 -1,499 1,763 103 39 1,745 10,066 -3,641 -1,548 320 -163 362 -11,710 15,603 36 -741 203 -4,484 -2,474 -86 278 -54 -286 -6,903 378 2,800 6,735 9,535 -2,647 3,231 738 -35 4,267 1,787 -876 -615 167 527 6,544 -2,409 -1,415 268 -139 61 -16,560 12,407 71 -7,716 -1,347 6,887 -3,377 -654 1,952 – 7 3,468 -225 2,071 4,664 6,735 548 29 -1,405 1 63 6 15 -926 -610 757 -1,522 -12 -7 9 – 3 – 432 3 428 -231 18,312 -19,008 -7 – – 286 -648 45 -1,697 3,065 1,368 3 33 -1,301 1 -35 8 -26 3,763 1,599 372 4,417 -14 -7 12 -2 6 -1,222 – -7 -1,234 -985 18,013 -19,430 -3 1 – -7 -2,411 45 817 2,248 3,065 1 For other information regarding consolidated statements of cash flows, see Note 27. The accompanying notes are an integral part of these consolidated financial statements. 176 Notes to the Consolidated Financial Statements 1. Significant accounting policies General information The consolidated financial statements of Daimler AG and its subsidiaries (“Daimler” or “the Group”) have been prepared in accordance with Section 315a of the German Commercial Code (HGB) and International Financial Reporting Standards (IFRS) and related interpretations as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union. Daimler AG is a stock corporation organized under the laws of the Federal Republic of Germany. The company is entered in the Commercial Register of the Stuttgart District Court under No. HRB 19360 and its registered office is located at Mercedesstraße 137, 70327 Stuttgart, Germany. IFRSs issued but neither EU endorsed nor yet adopted. In November 2009, the IASB published IFRS 9 Financial Instru- ments as part of its project of a revision of the accounting guidance for financial instruments. Requirements for financial lia bilities were added to IFRS 9 in October 2010. The require- ments for financial liabilities were carried forward unchanged from IAS 39, with the exception of certain changes to the fair value option for financial liabilities that address the consideration of own credit risk. The new standard provides guidance on the accounting of financial assets and financial liabilities as far as classification and measurement are concerned. The standard will be effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The Group will not early adopt IFRS 9 Financial Instruments for 2011. Daimler will determine the expected effects on the Group’s consolidated financial statements. The consolidated financial statements of Daimler AG are presented in euros (€). Other IFRSs issued but not required to be adopted are not expected to have a significant influence on the Group’s financial position, financial performance or statement of cash flows. The Board of Management authorized the consolidated financial statements for publication on February 28, 2011. Basis of preparation Applied IFRSs. The accounting policies applied in the consoli- dated financial statements comply with the IFRSs required to be applied as of December 31, 2010. In January 2008, the IASB published revisions of IFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial Statements. Major changes are: (a) the requirement that assets acquired, liabilities assumed and equity interests be consistently measured at fair value on the acquisition date; (b) costs incurred in an acquisition are to be recognized in the income statement of the period; (c) option of measuring any non-controlling interest in entities acquired at fair value; and (d) once control is obtained, all other increases and decreases in ownership interest are reported in equity. Daimler will adopt the standards prospectively as of January 1, 2010. Presentation. Presentation in the statement of financial posi- tion differentiates between current and non-current assets and liabilities. Assets and liabilities are classified as current if they mature within one year or within a longer operating cycle. Deferred tax assets and liabilities as well as assets and provisions for pensions and similar obligations are presented as non-current items. The consolidated statement of income/ loss is presented using the cost-of-sales method. Commercial practices with respect to certain products manu- factured by the Group necessitate that sales financing, including leasing alternatives, be made available to the Group’s custom- ers. Accordingly, the Group’s consolidated financial statements are significantly influenced by the activities of its financial services business. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 177 To enhance readers’ understanding of the Group’s consolidated financial statements, unaudited information with respect to the results of operations and financial position of the Group’s industrial and financial services business activities are pro- vided in addition to the audited consolidated financial statements. Such information, however, is not required by IFRS and is not intended to, and does not represent the separate IFRS results of operations and financial position of the Group’s industrial or financial services business activities. Eliminations of the effects of transactions between the industrial and financial services businesses have generally been allocated to the industrial busi- ness columns. To enhance readers’ understanding of the Group’s financial posi- tion, the Group decided to present marketable debt securities in the statement of financial position and notes thereto separately so that it is possible to determine liquidity directly from the statement of financial position. These debt instruments, classified as available-for-sale financial assets, form part of the Group’s liquidity management function and were previously reported within “Other financial assets.” The prior-year presentation has been adjusted accordingly (for further information see Note 15). Measurement. The consolidated financial statements have been prepared on the historical cost basis with the exception of certain items such as available-for-sale financial assets, deriva- tive financial instruments, hedged items and pensions and similar obligations. The measurement models applied to those exceptions are described below. Risks and uncertainties. Daimler’s financial position, results of operations and cash flows are subject to numerous risks and uncertainties. For example, a renewed downturn of the global economy, renewed financial turbulence or a growth slump in China could cause actual results to differ from current expectations. Additional parameters which may cause actual results to differ from current expectations include further increases in overca- pacity and the intensity of competition in the automotive industry; dependence on suppliers, especially single-source suppliers; a permanent shift in consumer preference towards smaller cars; implementation of new technologies; fluctuations in currency exchange rates, interest rates and commodity prices; the resolu- tion of significant legal proceedings and governmental investi- gations; and environmental and other government regulations. Principles of consolidation. The consolidated financial state- ments include the financial statements of Daimler AG and, in general, the financial statements of Daimler AG’s subsidiaries, including special purpose entities which are directly or indirectly controlled by Daimler AG. Control means the power, directly or indirectly, to govern the financial and operating policies of an entity so that the Group obtains benefits from its activities. The financial statements of consolidated subsidiaries are generally prepared as of the reporting date of the consolidated financial statements, except for Mitsubishi Fuso Truck and Bus Corpora- tion (MFTBC), a significant subgroup which is consolidated with a one-month time lag. Adjustments are made for significant events or transactions that occur during the time lag. The financial statements of Daimler AG and its subsidiaries included in the consolidated financial statements have been prepared using uniform recognition and valuation principles. All significant intercompany accounts and transactions relating to consolidated subsidiaries and consolidated special purpose entities have been eliminated. Business combinations are accounted for using the purchase method. Changes in equity interests in Group subsidiaries that reduce or increase Daimler’s percentage ownership without loss of control are accounted for as an equity transaction between owners. As an additional funding source, Daimler transfers finance receiv- ables, in particular receivables from the leasing and automotive business, to special purpose entities. Daimler thereby principally retains significant risks of the transferred receivables. Accord- ing to IAS 27 Consolidated and Separate Financial Statements and the Standing Interpretations Committee (SIC) Interpreta- tion 12 Consolidation – Special Purpose Entities, these special purpose entities have to be consolidated by the transferor. The transferred financial assets remain on Daimler’s consoli- dated statement of financial position. 178 Investments in associated companies and joint ventures. Associated companies are equity investments in which Daimler has the ability to exercise significant influence over the financial and operating policies of the investee. Joint ventures are those entities over whose activities Daimler has joint control with partners, which are established by contractual agreement and requiring unanimous consent for strategic financial and oper- ating decisions. Associated companies and joint ventures are accounted for using the equity method. At the acquisition date, the excess of the cost of Daimler’s initial investment in equity method companies over the Group’s proportionate reassessed ownership interest is recognized as investor level goodwill and included in the carrying amount of the investment accounted for using the equity method. Foreign currency translation. Transactions in foreign currency are translated at the relevant foreign exchange rates prevailing at the transaction date. Gains and losses from the subsequent measurement of financial assets and liabilities denominated in foreign currency are recognized in profit and loss (except for available-for-sale equity instruments and financial liabilities designated as a hedge of a net investment in a foreign operation). Assets and liabilities of foreign companies for which the functional currency is not the euro are translated into euros using period- end exchange rates. The translation adjustments generated after the transition to IFRS on January 1, 2005 are presented directly in equity. The consolidated statements of income/loss and cash flows are translated into euros using average exchange rates during the respective periods. If the carrying amount exceeds the recoverable amount of an investment in any associated company or joint venture, the carrying amount of the investment is reduced to the recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. An impairment loss is recognized in the statement of income in the line item “Share of profit/loss from investments accounted for using the equity method, net.” Income and expenses from the sale of investments accounted for using the equity method are shown in the same line item. Profits from transactions with associated companies and joint ventures are eliminated by reducing the carrying amount of the investment. The exchange rates of the US dollar, the most significant foreign currency for Daimler, were as follows: Exchange rate at December 31 Average exchange rate First quarter Second quarter Third quarter Fourth quarter 2010 1 € = 1.3362 1.3829 1.2709 1.2910 1.3590 2009 1 € = 1.4406 1.3029 1.3632 1.4303 1.4785 Daimler’s share of any dilution gains and losses reported by its investees accounted for under the equity method are recognized in share of profit/loss from investments accounted for using the equity method, net. Accounting policies For the investments in the European Aeronautic Defence and Space Company EADS N.V. (EADS), Tognum AG (Tognum) and Kamaz OAO (Kamaz), the Group’s proportionate share of the results of operations is included in Daimler’s consolidated financial statements with a three-month time lag because the financial statements of those associated companies are not made available in good time to Daimler. Adjustments are made for all significant events or transactions that occur during the time lag (see also Note 13). Revenue recognition. Revenue from sales of vehicles, service parts and other related products is recognized when the risks and rewards of ownership of the goods are transferred to the customer, the amount of revenue can be estimated reliably and collectability is reasonably assured. Revenue is recognized net of sales reductions such as cash discounts and sales incen- tives granted. Daimler uses sales incentives in response to a number of market and product factors, including pricing actions and incentives offered by competitors, the amount of excess industry production capacity, the intensity of market competition and consumer demand for the product. The Group may offer a variety of sales incentive programs at any point in time, including cash offers to dealers and consumers, lease subsidies which reduce the consumers’ monthly lease payment, or reduced financing rate programs offered to costumers. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 179 Revenue from receivables from financial services is recognized using the effective interest method. When loans are issued below market rates, related receivables are recognized at present value and revenue is reduced for the interest incentive granted. Research and non-capitalized development costs. Expenditure for research and development that does not meet the conditions for capitalization according to IAS 38 Intangible Assets is expensed as incurred. The Group offers an extended, separately priced warranty for certain products. Revenue from these contracts is deferred and recognized into income over the contract period in proportion to the costs expected to be incurred based on historical informa- tion. In circumstances in which there is insufficient historical information, income from extended warranty contracts is recognized on a straight-line basis. A loss on these contracts is recognized in the current period if the sum of the expected costs for services under the contract exceeds unearned revenue. For transactions with multiple deliverables, such as when vehicles are sold with free or reduced in price service programs, the Group allocates revenue to the various elements based on their estimated fair values. Sales in which the Group guarantees the minimum resale value of the product, such as sales to certain rental car companies, are accounted for similar to an operating lease. The guarantee of the resale value may take the form of an obligation by Daimler to pay any deficiency between the proceeds the customer receives upon resale in an auction and the guaranteed amount, or an obligation to reacquire the vehicle after a certain period of time at a set price. Gains or losses from the resale of these vehicles are included in gross profit. Revenue from operating leases is recognized on a straight-line basis over the lease term. Among the assets subject to “Operating leases” are Group products which are purchased by Daimler Financial Services from independent third-party dealers and leased to customers. After revenue recognition from the sale of the vehicles to independent third-party dealers, these vehicles create further revenue from leasing and remarketing as a result of lease contracts entered into. The Group estimates that the revenue recognized following the sale of vehicles to dealers equals approximately the additions to leased assets at Daimler Financial Services. Additions to leased assets at Daimler Financial Services were approximately €5 billion in 2010 (2009: approximately €4 billion). Borrowing costs. Borrowing costs are expensed as incurred unless they are directly attributable to the acquisition, construc- tion or production of a qualifying asset and therefore are part of the cost of that asset. Government grants. Government grants related to assets are deducted in calculating the carrying amount of the asset and are recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense. Government grants which compensate the Group for expenses, are recognized as other financial income in same periods as the expenses themselves. Interest income and expense. Interest income and expense includes interest expense from liabilities, interest income from investments in securities, cash and cash equivalents and interest as well as changes in fair values related to interest rate hedging activities. Income and expense resulting from the allo- cation of premiums and discounts is also included. Furthermore, the interest component of pensions and similar obligations is presented in this line item. An exception to the afore mentioned principles is made for Daimler Financial Services. In this case, the interest income and expense and the result from derivative financial instruments are disclosed under revenue and cost of sales, respectively. Other financial income/expense, net. Other financial income/ expense, net includes all income and expense from financial transactions which are not included in interest income and expense, and for Daimler Financial Services not included in revenue and cost of sales. For example, expense from the com- pounding of interest on provisions for other risks is recorded in this line item. 180 Income taxes. Current income taxes are determined based on the respective local taxable income of the period and local tax rules. In addition, current income taxes include adjust- ments for uncertain tax payments or tax refunds for periods not yet assessed as well as interest expense and penalties on the underpayment of taxes. Deferred taxes are included in income taxes and reflect changes in deferred tax assets and liabilities except for changes recognized directly in equity. Deferred tax assets or liabilities are determined based on tem- porary differences between financial reporting and the tax basis of assets and liabilities including differences from consolidation, loss carryforwards and tax credits. Measurement is based on the tax rates expected to be effective in the period in which an asset is realized or a liability is settled. For this purpose, the tax rates and tax rules are used which have been enacted or sub- stantively enacted at the reporting date. Deferred tax assets are recognized to the extent that taxable profit at the level of the relevant tax authority will be available for the utilization of the deductible temporary differences. Daimler recognizes a valua- tion allowance for deferred tax assets when it is unlikely that a corresponding amount of future taxable profit will be available or when Daimler no longer has control over the tax advantage. Tax benefits resulting from uncertain income tax positions are recognized at the best estimate of the tax amount expected to be paid. Earnings/loss per share. Basic earnings/loss per share are calculated by dividing profit or loss attributable to shareholders of Daimler AG by the weighted average number of shares out- standing. Diluted earnings/loss per share additionally reflect the potential dilution that would occur if all stock option plans were exercised. Goodwill. For acquisitions, goodwill represents the excess of the consideration transferred over the fair values assigned to the separately identifiable assets acquired and liabilities assumed. Other intangible assets. Intangible assets acquired are mea- sured at cost less accumulated amortization. If necessary, accumulated impairment losses are recognized. Intangible assets with indefinite lives are reviewed annually to determine whether indefinite-life assessment continues to be appropriate. If not, the change in the useful-life assessment from indefinite to finite is made on a prospective basis. Intangible assets other than development costs with finite use- ful lives are generally amortized on a straight-line basis over their useful lives (3 to 10 years) and are tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period for intangible assets with finite useful lives is reviewed at least at each year-end. Changes in expected useful lives are treated as changes in accounting estimates. The amortization expense on intangible assets with finite useful lives is recorded in functional costs. Development costs are recognized if the conditions for capital- ization according to IAS 38 are met. Subsequent to initial recogni- tion, the asset is carried at cost less accumulated amortization and accumulated impairment losses. Capitalized development costs include all direct costs and allocable overheads and are amortized straight-line over the expected product life cycle (2 to 10 years). Amortization of capitalized development costs is an element of the manufacturing costs and is allocated to those vehicles and components by which they were generated and is included in cost of sales when the inventory (vehicles) is sold. Property, plant and equipment. Property, plant and equip- ment are measured at acquisition or manufacturing costs less accumulated depreciation. If necessary, accumulated impair- ment losses are recognized. The costs of internally produced equipment and facilities include all direct costs and allocable overheads. Acquisition or manufacturing costs include the esti- mated costs of dismantling and removing the item and restoring the site, if any. Plant and equipment under finance leases are stated at the lower of present value of minimum lease payments or fair value less the respective accumulated depreciation and any accumulated impairment losses. Depreciation expense is recognized using the straight-line method. The residual value of the asset is considered. Property, plant and equipment are depreciated over the following useful lives: Buildings and site improvements Technical equipment and machinery Other equipment, factory and office equipment 10 to 50 years 6 to 25 years 2 to 30 years Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 181 Leasing. Leasing includes all arrangements that transfer the right to use a specified asset for a stated period of time in return for a payment, even if the right to use such asset is not explicitly described in an arrangement. The Group is a lessee of property, plant and equipment and a lessor of its products. It is evaluated on the basis of the risks and rewards of a leased asset whether the ownership of the leased asset is attributed to the lessee (finance lease) or to the lessor (operating lease). Rent expense on operating leases where the Group is lessee is recognized over the respective lease terms on a straight-line basis. Equip- ment on operating leases where the Group is lessor is carried initially at its acquisition or manufacturing cost and is depreciated to its expected residual value over the contractual term of the lease, on a straight-line basis. The same accounting principles apply to assets if Daimler sells such assets and leases them back from the buyer. Impairment of non-financial assets. Daimler assesses at each reporting date whether there is an indication that an asset may be impaired. If such indication exists, or when annual impair- ment testing for an asset is required (goodwill, other intangible assets with indefinite useful lives and intangible assets not yet in use), Daimler estimates the recoverable amount of the asset. The recoverable amount is determined for each individual asset unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets (cash-generating units). The recoverable amount is the higher of fair value less costs to sell and value in use. Daimler deter- mines the recoverable amount as fair value less costs to sell and compares it with the carrying amount (including goodwill). Fair value is measured by discounting future cash flows using a risk- adjusted interest rate. Cash flows which influence the assess- ment of residual values are estimated on the basis of multi-year planning. Periods not covered by the forecast are taken into account by recognizing a residual value, which principally does not consider any growth rates. If fair value less costs to sell can- not be determined or is lower than the carrying amount, value in use is calculated. If the carrying amount exceeds the recover- able amount, an impairment charge is recognized amounting to the difference. An assessment for assets other than goodwill is made at each reporting date as to whether there is any indication that previ- ously recognized impairment losses may no longer exist or may have decreased. If this is the case, Daimler records a partial or an entire reversal of the impairment. Thereby, the carrying amount is increased to its recoverable amount. However, the increased carrying amount shall not exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognized in prior years. Non-current assets held for sale and disposal groups. Non- current assets held for sale or disposal groups are classified as held for sale and disclosed separately in the statement of finan- cial position. The assets or disposal groups are then measured at the lower of carrying amount and fair value less costs to sell and are no longer depreciated. If fair value less costs to sell sub- sequently increases, any impairment loss previously recognized is reversed. The reversal is restricted to the impairment losses previously recognized for the assets concerned. Inventories. Inventories are measured at the lower of cost and net realizable value. The net realizable value is the estimated selling price less any remaining costs to sell. The cost of inven- tories is based on the average cost principle and includes costs incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost also includes production overheads based on normal capacity. Financial instruments. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial instru- ments in the form of financial assets and financial liabilities are generally presented separately. Financial instruments are recognized as soon as Daimler becomes a party to the contrac- tual provisions of the financial instrument. 182 Upon initial recognition, financial instruments are measured at fair value. For the purpose of subsequent measurement, financial instruments are allocated to one of the categories men- tioned in IAS 39 Financial Instruments: Recognition and Measure- ment. Transaction costs directly attributable to acquisition or issuance are considered by determining the carrying amount if the financial instruments are not measured at fair value through profit or loss. If the transaction date and the settlement date (i.e. the date of delivery) differ, Daimler uses the transaction date for purposes of initial recognition or derecognition. Financial assets. Financial assets primarily comprise receivables from financial services, trade receivables, receivables from banks, cash on hand, derivative financial assets and marketable securi- ties and investments. Financial assets at fair value through profit or loss. Financial assets at fair value through profit or loss include those financial assets designated as held for trading. Financial assets such as shares and interest-bearing securities are classified as held for trading if they are acquired for the pur- pose of selling in the near term. Derivatives, including embed- ded derivatives separated from the host contract, are also clas- sified as held for trading unless they are designated as effective hedging instruments. Gains or losses on financial assets held for trading are recognized in profit or loss. Loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, such as receivables from financial services or trade receivables. After initial recognition, loans and receivables are subsequently carried at amortized cost using the effective interest method less any impairment losses, if necessary. Gains and losses are recognized in the statement of income when the loans and receivables are derecognized or impaired. Interest effects on the application of the effective interest method are also recognized in profit or loss. Available-for-sale financial assets. Available-for-sale financial assets are non-derivative financial assets that are designated as available for sale or that are not classified in any of the pre- ceding categories. This category includes, among others, equity instruments and debt instruments such as government bonds, corporate bonds and commercial paper. After initial measurement, available-for-sale financial assets are measured at fair value, with unrealized gains or losses being recognized in equity within other reserves (reserves from available-for-sale financial assets). If objective evidence of impairment exists or if changes occur in the fair value of a debt instrument resulting from currency fluctuations, these changes are recognized in profit or loss. Upon disposal of financial assets, the accumulated gains and losses recognized in equity resulting from measurement at fair value are recognized in profit or loss. If a reliable estimate of the fair value of an unquoted equity instrument, such as investments in German limited liability companies, cannot be made, this instrument is measured at cost (less any impairment losses). Interest earned on these financial assets is generally reported as interest income using the effective interest method. Dividends are recognized in profit or loss when the right of payment has been established. Cash and cash equivalents. Cash and cash equivalents consist primarily of cash on hand, checks, demand deposits at banks as well as debt instruments and certificates of deposits with an original term of up to three months. Cash and cash equivalents correspond with the classification in the consolidated statement of cash flows. Impairment of financial assets. At each reporting date, the carrying amounts of the financial assets other than those to be measured at fair value through profit or loss are assessed to determine whether there is objective evidence of impairment (e.g. a debtor is facing serious financial difficulties or there is a substantial change in the technological, economic, legal or market environment of the debtor). For quoted equity instruments, a significant or prolonged de- cline in fair value is additional objective evidence for a possible impairment. Daimler has defined criteria for the significance and duration of a decline in fair value. A decline in fair value is deemed significant if it exceeds 20% of the carrying amount of the investment; a decline is deemed prolonged if the carry- ing amount exceeds the fair value for a period longer than nine months. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 183 Loans and receivables. The amount of the impairment loss on loans and receivables is measured as the difference between the carrying amount of the asset and the present value of expected future cash flows (excluding expected future credit losses that have not been incurred), discounted at the original effective interest rate of the financial asset. The amount of the impairment loss is recognized in profit or loss. Financial liabilities at fair value through profit or loss. Financial liabilities at fair value through profit or loss include financial liabilities held for trading. Derivatives, including embedded deriva- tives separated from the host contract, are classified as held for trading unless they are designated as effective hedging instru- ments in hedge accounting. Gains or losses on liabilities held for trading are recognized in profit or loss. If, in a subsequent reporting period, the amount of the impair- ment loss decreases and the decrease can be attributed objec- tively to an event occurring after the impairment was recog- nized, the impairment loss recorded in prior periods is reversed and recognized in profit or loss. In most cases, an impairment loss on loans and receivables (e.g. receivables from financial services including finance lease receivables, trade receivables) is recorded using allowance accounts. The decision to account for credit risks using an allow- ance account or by directly reducing the receivable depends on the estimated probability of the loss of receivables. When receivables are assessed as uncollectible, the impaired asset is derecognized. Available-for-sale financial assets. If an available-for-sale financial asset is impaired, the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in the state- ment of income/loss, is reclassified from direct recognition in equity to the statement of income/loss. Reversals with respect to equity instruments classified as available for sale are recognized in equity. Reversals of impairment losses on debt in- struments are reversed through the statement of income/loss if the increase in fair value of the instrument can be objectively attributed to an event occurring after the impairment losses were recognized in income/loss. Financial liabilities. Financial liabilities primarily include trade payables, liabilities to banks, bonds, derivative financial liabilities and other liabilities. Financial liabilities measured at amortized cost. After initial recognition, financial liabilities are subsequently measured at amortized cost using the effective interest method. Derivative financial instruments and hedge accounting. Daimler uses derivative financial instruments such as forward contracts, swaps, options, futures, swaptions, forward rate agreements, caps and floors mainly for the purpose of hedging interest rate and currency risks that arise from its operating, financing, and investing activities. Embedded derivatives are separated from the host contract which is not measured at fair value through profit or loss, if the analysis shows that the economic characteristics and risks of embedded derivatives are not closely related to those of the host contract. Derivative financial instruments are measured at fair value upon initial recognition and at each subsequent reporting date. The fair value of listed derivatives is equal to their positive or negative market value. If a market value is not available, fair value is calculated using standard financial valuation models such as discounted cash flow or option pricing models. Derivatives are presented as assets if their fair value is positive and as liabili- ties if the fair value is negative. If the requirements for hedge accounting set out in IAS 39 are met, Daimler designates and documents the hedge relationship from the date a derivative contract is entered into as either a fair value hedge or a cash flow hedge. In a fair value hedge, the fair value of a recognized asset or liability or an unrecognized firm commitment is hedged. In a cash flow hedge, the variabil- ity of cash flows to be received or paid related to a recognized asset or liability or a highly probable forecast transaction is hedged. The documentation of the hedging relationship includes the objectives and strategy of risk management, the type of hedging relationship, the nature of risk being hedged, the identi- fication of the hedging instrument and the hedged item, as well as a description of the method used to assess hedge effectiveness. The hedging transactions are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are regularly assessed to determine that they have actually been highly effective throughout the financial reporting periods for which they are designated. 184 Changes in the fair value of derivative financial instruments are recognized periodically in either earnings or equity, as a com- ponent of other reserves, depending on whether the derivative is designated as a hedge of changes in fair value or cash flows. For fair value hedges, changes in the fair value of the hedged item and the derivative are recognized currently in earnings. For cash flow hedges, fair value changes in the effective portion of the hedging instrument are recognized in other reserves, net of applicable taxes. Amounts taken to equity are reclassified to the statement of income/loss when the hedged transaction affects the statement of income/loss. The ineffective portions of fair value changes are recognized in profit or loss. If derivative financial instruments do not or no longer qualify for hedge accounting because the qualifying criteria for hedge accounting are not or are no longer met, the derivative financial instruments are classified as held for trading. Pensions and similar obligations. The measurement of defined benefit plans for pensions and other post-employment benefits (medical care) in accordance with IAS 19 Employee Benefits is based on the projected unit credit method. For the valuation of defined post-employment benefit plans, differences between actuarial assumptions used and actual results and changes in actuarial assumptions result in actuarial gains and losses, which generally have to be amortized in future periods. Amortization of unrecognized actuarial gains and losses arising after the tran- sition to IFRS on January 1, 2005 is recorded in accordance with the “corridor approach.” This approach requires partial amor- tization of actuarial gains and losses in the following year with an effect on earnings if the unrecognized gains and losses exceed 10 percent of the greater of (1) the defined post-employment benefit obligation or (2) the fair value of the plan assets. In such cases, the amount of amortization recognized by the Group is the resulting excess divided by the average remaining service period of active employees expected to receive benefits under the plan. Expenses resulting from the compounding of pension benefit obligations and other post-employment benefit obligations as well as the expected returns on plan assets are presented within interest expense and interest income. The amortization of unrecognized actuarial gains and losses is also included in these line items. Other expenses resulting from providing pen- sion benefits and other post-employment benefits are allocated to the functional costs in the consolidated statement of income/ loss. Gains or losses on the curtailment or settlement of a defined benefit plan are recognized when the curtailment or settlement occurs. Provisions for other risks and contingent liabilities. A provi- sion is recognized when a liability to third parties has been incurred, an outflow of resources is probable and the amount of the obligation can be reasonably estimated. Provisions with an original maturity of more than one year are discounted to the present value of the expenditures expected to settle the obliga- tion at the end of the reporting period. In particular, restructur- ing provisions are recognized when the Group has a detailed formal plan that has either commenced implementation or been announced. Provisions are regularly reviewed and adjusted as further information develop or circumstances change. The provision for expected warranty costs is established when the product is sold, upon lease inception, or when a new war- ranty program is initiated. Estimates for accrued warranty costs are primarily based on historical experience. Daimler records the fair value of an asset retirement obligation from the period in which the obligation is incurred. Restructuring provisions arise from planned programs that mate- rially change the scope of business performed by a segment or business unit or the manner in which business is conducted. In most cases, restructuring expenses include termination benefits and compensation payments due to the termination of agreements with suppliers and dealers. Share-based payment. Share-based payment comprises cash-settled liability awards and equity-settled equity awards. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 185 The fair value of equity awards is generally determined by using a modified Black-Scholes option pricing model at grant date and represents the total payment expense to be recognized dur- ing the service period with a corresponding increase in equity (paid-in capital). Liability awards are measured at fair value at each balance sheet date until settlement and are classified as provisions. The expense of the period comprises the addition to and the reversal of the provision between two balance sheet dates and the dividend equivalent paid during the period. Presentation in the consolidated statements of cash flows. Interest and taxes paid as well as interest and dividends received are classified as cash provided by operating activities. Dividends paid are shown in cash provided by/used for financing activities. 2. Accounting estimates and assessments In the consolidated financial statements, to a certain degree, estimates, assessments and assumptions have to be made which can affect the amounts and reporting of assets and lia bil- ities, the reporting of contingent assets and liabilities on the balance sheet date and the amounts of income and expense reported for the period. The major topics affected by such estimates, assessments and assumptions are described as follows. Actual amounts may differ from the estimates. Changes in the estimates, assessments and assumptions can have a material impact on the consolidated financial statements. Recoverable amounts of cash-generating units and invest- ments accounted for using the equity method. In the context of impairment tests for non-financial assets, estimates have to be made to determine the recoverable amounts of cash-generating units. Assumptions have to be made in particular with regard to future cash inflows and outflows for the planning period and the following periods. The estimates include assumptions regard ing future market share and the growth of the respective markets as well as regarding the products’ profitability. On the basis of the impairment tests carried out, the recoverable amounts are substantially larger than the net assets of the Group’s cash-generating units. When objective evidence of impairment is present, estimates and assessments also have to be made to determine the recoverable amount of an equity-method financial investment. The determination of the recoverable amount is based on assumptions regarding future business developments for the determination of the expected future cash flows of that financial investment. See Note 13 for the presentation of carrying values and fair values of equity-method financial investments in listed companies. Equipment on operating leases. Daimler regularly reviews the factors determining the values of its leased vehicles. In particu- lar, it is necessary to estimate the residual values of vehicles at the end of their leases, which constitute a substantial part of the expected future cash flows from leased assets. In this context, assumptions have to be made regarding the future supply of and demand for vehicles, as well as the development of vehicle prices. Those assumptions are determined either by qualified estimates or by expertise provided by third parties; qualified estimates are based on publicly available data with consideration of internally available additional information such as historical experience of price developments and recent sale prices. The residual values thus determined serve as a basis for systematic depreciation; changes in residual values lead either to prospective adjustments to the systematic depreciation or, in the case of a significant drop in expected residual values, to impairment. If systematic depreciation is prospectively adjust- ed, changes in estimates of residual values do not have a direct effect but are equally distributed over the remaining periods of the lease contracts. Collectability of receivables from financial services. The Group regularly estimates the risk of default on receivables from financial services. Many factors are taken into consideration in this context, including historical loss experience, the size and composition of our portfolios, current economic events and conditions and the estimated fair values and adequacy of collateral. Changes in economic conditions can, beside changes in our customers’ creditworthiness, lead to changes in used vehicle prices which would have a direct effect on the market values of the vehicles assigned as collateral. Changes to the estimation and assessment of these factors influence the allowance for credit losses with a resulting impact on the Group’s net results. See also Notes 14 and 31 for further information. 186 Pension obligations. To calculate the present values of defined- benefit pension obligations, it is necessary among other things to determine discounting factors. The discounting factors are to be determined by reference to market yields at the end of the reporting period on high quality corporate bonds in the respec- tive markets. In addition, at the beginning of the financial year, Daimler has to estimate the expected returns on plan assets on the basis of market expectations for the types of investments included in the plan assets. The level of the discount rate has a material effect on the funded status of the pension plans and the expected return on plan assets has a significant effect on net periodic pension costs. Due to the use of the corridor approach, changes in the assumptions do not directly affect the consolidated statement of financial position or the consolidated statement of income/loss. Further information in this context is provided in Note 22. Income taxes. For the calculation of deferred tax assets, assump- tions have to be made regarding future taxable income and the time of realization of the deferred tax assets. In this context, we take into consideration, among other things, the projected earnings from business operations, the effects on earnings of the reversal of taxable temporary differences, and realizable tax strategies. As future business developments are uncertain and are sometimes beyond Daimler’s control, the assumptions to be made in connection with accounting for deferred tax assets are connected with a substantial degree of uncertainty. On each balance sheet date, Daimler carries out impairment tests on deferred tax assets on the basis of the planned taxable income in future financial years; if Daimler assesses that the probability of future tax advantages being partially or fully unrealized is more than 50%, the deferred tax assets are impaired. Further information is provided in Note 9. Product warranties. The recognition and measurement of provisions for product warranties is generally connected with estimates. The Group provides various types of product war- ranties depending on the type of product and market conditions. Provisions for product warranties are generally recognized when vehicles are sold, upon lease inception, or when new warranty programs are initiated. Based on historical warranty claim expe- rience, assumptions have to be made on the type and extent of future warranty claims and customer goodwill, as well as on possible recall or buyback campaigns for each model series. In addition, the estimates also include assumptions on the amounts of potential repair costs per vehicle and the effects of possible time or mileage limits. The provisions are regularly adjusted to reflect new information. Further information on provisions for other risks is provided in Note 23. Legal proceedings. Various legal proceedings, claims and gov- ernmental investigations are pending against Daimler AG and its subsidiaries on a wide range of topics. Adverse decisions in one or more of those proceedings could require us to pay substantial compensatory and punitive damages or to undertake service actions, recall campaigns or other costly actions. Litigation and governmental investigations often involve complex legal issues and are connected with a high degree of uncertainty. Accordingly, the assessment of whether an obligation exists on the balance sheet date as a result of an event in the past, and whether a future cash outflow is likely and the obligation can be reliably esti mat- ed, largely depends on estimations by the management. Daimler regularly evaluates the current stage of legal proceed- ings, also with the involvement of external legal counsel. It is therefore possible that the amounts of the provisions for pend- ing or potential litigation will have to be adjusted due to future developments. Changes in estimates and premises can have a material effect on the Group’s future profitability. The end of a legal dispute can result in Daimler having to make payments in excess of the provisions recognized for that purpose. It is also possible that the outcome of individual cases for which no provisions could be recognized might force the Group to make payments whose amounts or range of amounts could not be reli ably estimated at December 31, 2010. Although the final outcome of such cases can have a material effect on Daimler’s earnings or cash flows in a certain reporting period, in our assessment, any such resulting obligations will not have a sus tained impact on the Group’s financial position. Further information on legal proceedings is provided in Note 28. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 187 Tata Motors. In March 2010, the Group sold its equity interest of approximately 5% in Tata Motors Limited to various groups of investors through the capital market. This transaction resulted in a cash inflow of €303 million and a gain before income taxes of €265 million in 2010. The gain is included in “other financial income/expense, net” in the consolidated statement of income/ loss and in the reconciliation from total segments’ EBIT to Group EBIT within the segment reporting. Chrysler. Based on a binding term sheet signed in April 2009, Daimler and Cerberus entered into a redemption agreement in June 2009. In connection with this agreement, Daimler gave up its 19.9% equity interest in Chrysler Holding LLC (Chrysler Holding). As a result, since June 3, 2009, Daimler no longer has any equity interest in Chrysler Holding or its subsidiaries and all Daimler representatives resigned from the boards of Chrysler Holding and its subsidiaries. The binding term sheet also provided for a settlement agree- ment covering issues relating to Chrysler which Daimler, the US Pension Benefit Guaranty Corporation (PBGC), Chrysler LLC (Chrysler) and Cerberus entered into in June 2009. Among other matters, Chrysler and Cerberus waived all claims that might arise from the representations and warranties made in the contribution agreement dated August 3, 2007, including claims by Cerberus that Daimler allegedly improperly managed certain issues in the period between the signing of the contri- bution agreement and the conclusion of the transaction, as well as certain other claims against Daimler. In connection with this settlement agreement, Daimler paid US$200 million into Chrysler’s pension plans in each of June 2009 and June 2010. The remaining amount of US$200 million is due in the second quarter of 2011. The 2007 Daimler pension guarantee of US$1 billion vis-à-vis the PBGC has been replaced by a new guarantee in an amount of US$200 million that will remain in place until August 2012. 3. Significant acquisitions and dispositions of interests in companies and of other assets and liabilities Acquisitions Renault-Nissan. In April 2010, within the framework of a wide- ranging strategic cooperation with the Renault-Nissan Alliance, the Group entered into a cross-shareholding structure. In this regard, Daimler received a 3.1% equity interest in Renault SA (Renault) as well as 3.1% of the shares of Nissan Motor Company Ltd. (Nissan) from Renault in an equivalent total amount of €1.3 billion. Daimler used treasury shares for the acquisi - tions and additionally paid €90 million in cash. See Note 20 for infor mation on the number of treasury shares used. Dispositions Daimler Financial Services. Most of the non-automotive assets subject to finance leases that were presented separately as held for sale in the consolidated statement of financial position at December 31, 2009 (€310 million) were sold in 2010. These transactions resulted in a cash inflow of €274 million and a pre- tax expense of €1 million in 2010. In the third quarter of 2010, the Group reclassified the remaining non-automotive assets presented as held for sale to receivables from financial services, as the criteria for a held for sale classification were no longer met. In 2010, the measurement of these assets resulted in a pre- tax gain of €1 million. In 2009, the measurement of the assets classified as held for sale at fair value resulted in a pre-tax expense of €69 million. Moreover, in 2010, the Group sold additional non-automotive assets subject to finance leases which were previously shown under receivables from financial services. These transactions resulted in a cash inflow of €187 million and a pre-tax expense of together €9 million in 2010 (including a pre-tax expense of €35 million from the measurement of these assets). Also in 2009, Daimler Financial Services achieved a cash-inflow of €825 million from the sale of non-automotive finance leases. These sales resulted in a pre-tax expense of €31 million. The results of the above-mentioned transactions are included in “cost of sales” in the consolidated statement of income/ loss. The expense is allocated to the Daimler Financial Services segment. 188 5. Functional costs Cost of sales. Cost of sales includes the following items: In millions of euros Cost of goods sold Depreciation of equipment on operating leases Refinancing costs at Daimler Financial Services Impairment losses on receivables from financial services Other cost of sales 2010 2009 -64,604 -3,404 -2,021 -536 -4,423 -74,988 ­54,276 ­3,450 ­2,211 ­853 ­4,777 ­65,567 Selling expenses. In 2010, selling expenses amounted to €8,861 million (2009: €7,608 million). Selling expenses include direct selling costs as well as selling overhead expenses and consist of personnel costs, material costs and other selling costs. General administrative expenses. General administrative expenses amounted to €3,474 million in 2010 (2009: €3,287 million) and comprise expenses which were not attributable to production, sales, research and development functions, includ­ ing personnel expenses, depreciation and amortization on fixed and intangible assets, and other administrative costs. Research and non-capitalized development costs. Research­ and non­capitalized development costs were €3,476 million in 2010 (2009: €2,896 million) and primarily comprise personnel expenses and material costs. Amortization expense of capitalized development costs are recognized in cost of sales and amounted to €719 million in 2010 (2009: €647 million). Moreover, the settlement agreement provides for the forgive­ ness of Daimler’s receivables in connection with a subordinated loan and a credit line for Chrysler’s automotive business which was drawn in 2008. The Group provided the credit line in connec­ tion with the transaction contracted on August 3, 2007. The nominal amounts of these receivables, which were fully impaired at December 31, 2008, were US$0.4 billion and US$1.5 billion. However, the forgiveness of the US$1.5 billion second lien loan by Daimler was subject to the condition that certain unsecured creditors of Chrysler, represented by a committee under US bank­ ruptcy law, will not bring litigation against Daimler in the course of the current Chrysler bankruptcy proceedings. In the third quarter 2009, the committee of the unsecured creditors filed a complaint with the bankruptcy court. In consequence, the forgiveness was rescinded (see also Note 28). The contractual agreements described above negatively impacted 2009 EBIT by €379 million; these results are included in the reconciliation of total segments’ EBIT to Group EBIT. In connection with the legal transfer of Chrysler’s international sales activities to Chrysler in the first quarter of 2009 and due to the valuation of Chrysler­related assets, the Group recorded a total gain before income taxes of €85 million in 2009. This gain is included in the reconciliation of total segments’ EBIT to Group EBIT in the segment reporting. 4. Revenue Revenue at Group level consists of the following: In millions of euros Sales of goods Rental and leasing business Interest from the financial services business at Daimler Financial Services Sales of services 2010 2009 84,573 9,971 2,862 355 97,761 66,772 8,886 2,885 381 78,924 Revenue by segment and region is presented in Note 32. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 189 Optimization programs. Measures and programs with implemen- tation costs that materially impacted EBIT are briefly described below: Daimler Financial Services. In May 2010, the Board of Manage- ment decided to restructure the business activities of Daimler Financial Services AG and Mercedes-Benz Bank AG in Germany by the end of 2012. Among other effects, this repositioning will result in streamlined structures and simplified processes. Expenses recorded in this regard in 2010 primarily relate to personnel measures. Mitsubishi Fuso Truck and Bus Corporation (MFTBC). In May 2009, the Board of Management of Daimler AG decided on a major realignment of the operations of its subsidiary MFTBC. Measures provided for in the plan included the streamlining of the product portfolio, the realignment of manufacturing sites, the streamlining of the retail network in Japan, and other efficiency improvements. In connection with these measures, the Group targeted, among other things, the relocation and idling of selected production sites, headcount reductions of up to 2,300 employees by the end of 2010, and a reduction of the dealer network. Daimler Trucks North America (DTNA). In response to continuing depressed demand across the industry and structural changes in the company’s core markets, the Group adopted a wide-rang- ing plan in October 2008 to optimize and reposition the busi- ness operations of its subsidiary Daimler Trucks North America (DTNA). Measures provided for in the plan included the discon- tinuation of the Sterling Trucks brand in 2009, further consolida- tion of the production network in the NAFTA region, capacity adjustments, including the closing of two manufacturing plants in 2009 and 2010. In addition, the plan included headcount reduc- tions of up to 3,500 employees, which were primarily accomplished in 2009. Based on new information available, the Group decided in 2009 not to proceed with the closing of one truck manufactur- ing plant, which was originally scheduled for 2010. The following table shows implementation costs as well as income and expense resulting from the reassessment of assumptions of measures and programs that materially impacted the EBIT of individual segments. Furthermore, the table shows the cash outflows resulting from the implementation of the measures and programs and the balance of the respective provisions: In millions of euros Daimler Financial Services EBIT Cash outflow Balance of provision as of December 31 Daimler Trucks Mitsubishi Fuso Truck and Bus Corporation (MFTBC) EBIT Cash outflow Balance of provision as of December 31 Daimler Trucks North America LLC (DTNA) EBIT Cash outflow Balance of provision as of December 31 2010 2009 -82 6 76 -3 103 32 -37 68 6 – – – -245 31 156 -95 151 34 Income and expenses associated with these programs are included in the following line items within the consolidated statement of income/loss: In millions of euros Cost of sales Selling expenses General administrative expenses Research and non-capitalized development costs Other operating expense 2010 2009 4 -12 -117 3 – -122 -72 -159 -91 -14 -4 -340 190 Personnel expenses and number of employees. Personnel expenses included in the consolidated statement of income/ loss as well as the average number of people employed are as follows: Other operating expense consists of the following: In millions of euros and number of people employed Other miscellaneous expenses 2010 2009 Loss on sales of property, plant and equipment In millions of euros 2010 2009 -73 -587 -660 -56 -447 -503 Personnel expenses -16,454 -13,928 People employed thereof trainees/apprentices 258,120 13,272 258,628 12,911 Information on the remuneration of the current and former members of the Board of Management and the current members of the Supervisory Board is included in Note 36. 6. Other operating income and expense Other operating income consists of the following: In millions of euros Gains on sales of property, plant and equipment Government grants and subsidies Rental income, other than income relating to financial services Reimbursements under insurance policies Other miscellaneous income 2010 2009 148 110 45 22 646 971 44 137 51 20 441 693 Government grants and subsidies contain mainly reimbursements of social insurance contributions, granted by the Federal Employ- ment Agency related to short-time work in the German produc- tion plants, as well as reimbursements relating to current partial retirement contracts. Other miscellaneous income includes reimbursements of non- income related taxes, income from employee canteens and other miscellaneous items. In 2010, other miscellaneous income comprises a pretax income of €218 million related to the posi- tive outcome of a legal dispute involving Daimler AG in October 2010. Other miscellaneous expenses include losses from sales of current assets, changes in other provisions and other miscel- laneous items. In view of the 125th anniversary of the invention of the automo- bile in 2011, the Board of Management decided in December 2010 to increase the capital of the charitable Daimler and Benz Foundation from €37 million to €125 million. The expenses of €88 million as well as additional expenses in connection with legal proceedings in 2010 are included in other miscellaneous expenses in 2010. 7. Other financial income/expense, net In millions of euros Expense from compounding of provisions and effects of changes in discount rates 1 Miscellaneous other financial income/expense, net 2010 2009 -240 389 149 -1,003 -338 -1,341 1 Excluding the expense from compounding provisions for pensions and similar obligations. In 2010, income of €0.3 billion from the sale of the equity inter- est in Tata Motors is included in miscellaneous other financial income/expense, net. In 2009, payments and the commitment to further payments into the Chrysler pension plans resulted in expenses of €0.4 billion and are included in miscellaneous other financial income/expense, net. In addition, income of €0.1 billion in connection with the revaluation of loans, receivables and other assets relating to Chrysler is included in 2009 miscellaneous other financial income/expense, net. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 191 8. Interest income and expense Income taxes are comprised of the following components: 2010 2009 2010 2009 In millions of euros Interest income Expected return on pension and other post-employment benefit plan assets Interest and similar income Interest expense Interest cost for pension and other post-employment benefit plans Interest and similar expense 622 203 825 -1,011 -460 -1,471 671 465 1,136 -950 -971 -1,921 9. Income taxes Profit/loss before income taxes consists of the following: In millions of euros Current taxes Germany Non-German countries Deferred taxes Germany Non-German countries -464 -1,237 -376 123 -1,954 -423 -472 883 -334 -346 The current tax expense includes tax benefits at German and foreign companies of €101 million (2009: tax expense of €237 million) recognized for prior periods. The deferred tax expense (2009: tax benefit) is comprised of the following components: In millions of euros Germany Non-German countries 2010 2009 In millions of euros 2010 2009 2,318 4,310 6,628 -2,543 245 -2,298 Deferred taxes due to temporary differences due to tax loss carry forwards and tax credits -253 1,205 -1,458 549 218 331 The profit/loss before income taxes in Germany includes the income/loss from investments accounted for using the equity method if the shares of those companies are held by German companies. For German companies, the deferred taxes were calculated using a federal corporate tax rate of 15%, a solidarity tax surcharge of 5.5% for each year on federal corporate taxes, plus a trade tax of 14%. In total, the tax rate applied for the calculation of German deferred taxes amounted to 29.825%. For non-German companies, the deferred taxes at period-end were calculated using the tax rates of the respective countries. 192 A reconciliation of expected income tax expense/benefit to actual income tax expense determined using the applicable German combined statutory rate of 29.825% is included in the following table: In respect of each type of temporary difference and in respect of each type of unutilized tax losses and unutilized tax credits, the deferred tax assets and liabilities before offset are summa- rized as follows: In millions of euros 2010 2009 In millions of euros At December 31, 2009 2010 Expected income tax expense (2009: tax benefit) -1,977 Foreign tax rate differential Trade tax rate differential Tax law changes Change of valuation allowance on deferred tax assets Tax-free income and non-deductible expenses Other Actual income tax expense -65 38 -22 259 -143 -44 -1,954 685 74 40 -2 -695 -509 61 -346 Intangible assets Property, plant and equipment Equipment on operating leases Inventories Investments accounted for using the equity method Receivables from financial services Other financial assets Tax loss and tax credit carry forwards Provisions for pensions and similar obligations In 2010, the Group released valuation allowances on deferred tax assets of foreign subsidiaries while in 2009, the Group had to record additional valuation allowances on deferred tax assets of foreign subsidiaries. The resulting tax expenses and benefits are included in the line “change of valuation allowance on deferred tax assets.” Tax-free income and non-deductible expenses include all other effects at foreign and German companies relating to tax-free income and non-deductible expenses, for instance tax-free gains included in net periodic pension costs at the German companies and tax-free results of our equity-method investments. More- over, the line also includes the following effects: In 2010, Daimler realized tax-free gains on the sale of Daimler’s equity interest in Tata Motors. In 2009, adjustments regarding transfer pricing risks at our former investment Chrysler in Canada caused an additional tax expense. The Daimler Group has to account for this obligation. Furthermore, additional tax expenses are included relating to tax assessments and estimations for prior years. Other provisions Liabilities Deferred income Other Valuation allowances Deferred tax assets, gross Development costs Other intangible assets Property, plant and equipment Equipment on operating leases Inventories Receivables from financial services Other financial assets Other assets Provisions for pensions and similar obligations Other provisions Taxes on undistributed earnings of non-German subsidiaries Other Deferred tax liabilities, gross Deferred tax assets, net 81 673 917 695 16 168 3,336 4,970 607 2,048 1,427 863 78 15,879 -3,578 12,301 -1,795 -88 -1,066 -2,582 -142 -727 -181 -296 -2,882 -235 -50 -319 -10,363 1,938 84 646 659 562 15 117 3,324 5,770 620 1,874 882 751 74 15,378 -3,096 12,282 -1,598 -67 -999 -3,159 -132 -805 -110 -257 -2,851 -264 -46 -270 -10,558 1,724 Deferred tax assets and deferred tax liabilities were offset if the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority and if there is the right to set off current tax assets against current tax liabilities. In the state- ment of financial position, the deferred tax assets and liabilities are not divided into current and non-current. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 193 In 2010, the increase in deferred tax assets, net, amounted to €214 million (2009: €621 million) and was composed of: In millions of euros 2010 2009 Deferred tax expense (2009: tax benefit) -253 549 Deferred tax benefit (2009: tax expense) on financial assets available-for-sale charged or credited directly to related components of equity Deferred tax benefit on derivative financial instruments charged or credited directly to related components of equity Income tax expense (2009: benefit) for deduction in excess of compensation expense for equity-settled employee stock option plans Other neutral changes 1 1 Primarily effects from currency translation. 7 -8 212 123 -1 249 . -43 Including the items charged or credited directly to related com- ponents of equity without an effect on earnings (including items charged or credited from investments accounted for using the equity method), the expense for income taxes consists of the following: In millions of euros Income tax expense Income tax benefit recorded in other reserves Income tax expense (2009: benefit) for deduction in excess of remuneration expense for equity-settled employee stock option plans 2010 2009 -1,954 427 -1 -1,528 -346 60 . -286 The valuation allowances relate to deferred tax assets of foreign companies and – although income tax benefits from the reversal of valuation allowances of €259 million were recorded in net profit/loss – increased in the statement of financial position by €482 million from December 31, 2009 to December 31, 2010. This is on the one hand a result of the neutral increase due to currency translation effects. On the other hand, additionally capital losses resulted out of our former investment Chrysler. Due to the valuation allowance on those capital losses, the additional capital loss and the valuation allowance did not affect net profit. The deferred tax assets on capital losses were completely adjusted by valuation allowances; the carry forward periods of those losses are limited and can only be used by capital gains. At December 31, 2010, the valuation allowance on deferred tax assets relates, among other things, to capital losses (€1,335 million), to corporate tax net operating losses (€1,107 million) and to tax credit carryforwards (€427 million). Of the total amount of deferred tax assets adjusted by a valuation allowance, deferred tax assets for capital losses amounting to €1,233 million expire in 2014 and €102 million expire in 2015 and deferred tax assets for corporate tax net operating losses amounting to €157 million expire in 2011, €227 million expire in 2012, €205 million expire in 2013, €15 million expire in 2014, €267 million expire in 2015, €129 million expire at various dates from 2016 through 2030 and €107 million can be carried forward indefinitely. Of the deferred tax assets for tax credit carryforwards adjusted by a valuation allowance €154 million expire at various dates from 2012 through 2015, €5 million expire at various dates from 2016 through 2030 and €268 million can be carried forward indefinitely. Further- more, the valuation allowance primarily relates to temporary differences and net operating losses for state and local taxes at the US companies. Daimler believes that it is more likely than not that those deferred tax assets cannot be utilized. In 2010 and prior years, respectively, the Group had taxable losses in sev- eral subsidiaries in some countries. After offsetting the deferred tax assets with deferred tax liabilities, the deferred tax assets not subject to valuation allowances amounted to €1,089 million for those foreign subsidiaries. Daimler believes it is more likely than not that due to future taxable income, deferred tax assets which are not subject to valuation allowances can be utilized. In future periods Daimler’s estimate of the amount of deferred tax assets that are considered realizable may change, and hence the valuation allowances may increase or decrease. Daimler recorded deferred tax liabilities for German tax of €50 million (2009: €46 million) on €3,323 million (2009: €3,082 million) in cumulative undistributed earnings of non-German subsidiar- ies on the future payout of these foreign dividends to Germany because, as of today, the earnings are not intended to be perma- nently reinvested in those operations. The Group did not recognize deferred tax liabilities on retained earnings of non-German subsidiaries of €9,578 million (2009: €6,413 million) because these earnings are intended to be indefinitely reinvested in those operations. If the dividends are paid out, an amount of 5% of the dividends will be taxed under the German taxation rules and, if applicable, with non-German withholding tax. Additionally, income tax consequences could arise if the dividends first had to be distributed by a non-German subsidiary to a non-German holding company. Normally, the distri- bution would lead to an additional income tax expense. It is not practicable to estimate the amount of taxable temporary differ- ences for these undistributed foreign earnings. The Group has various unresolved issues concerning open income tax years with the tax authorities in a number of jurisdictions. Daimler believes that it has recognized adequate provisions for any future income taxes that may be owed for all open tax years. 194 10. Intangible assets Intangible assets developed as follows: In millions of euros Acquisition or manufacturing costs Balance at January 1, 2009 Additions due to business combinations Other additions Reclassifications Disposals Other changes 1 Balance at December 31, 2009 Additions due to business combinations Other additions Reclassifications Disposals Other changes 1 Balance at December 31, 2010 Amortization Balance at January 1, 2009 Additions Reclassifications Disposals Other changes 1 Balance at December 31, 2009 Additions Reclassifications Disposals Other changes 1 Balance at December 31, 2010 Carrying amount at December 31, 2009 Carrying amount at December 31, 2010 1 Primarily changes from currency translation. Development costs (internally generated) Other intangible assets (acquired) Goodwill (acquired) Total 10,684 58 1,426 – -1,336 10 10,842 – 1,568 – -331 195 2,127 58 140 – -321 -21 1,983 – 190 – -166 149 2,156 12,274 1,390 181 – -285 -9 1,277 168 – -155 100 1,390 706 766 4,571 828 – -1,299 -11 4,089 887 – -311 105 4,770 6,753 7,504 893 – – – – 32 925 – – – – 9 934 233 – – – -2 231 – – – -26 205 694 729 7,664 – 1,286 – -1,015 -1 7,934 – 1,378 – -165 37 9,184 2,948 647 – -1,014 – 2,581 719 – -156 31 3,175 5,353 6,009 At December 31, 2010, goodwill of €426 million (2009: €388 million) relates to the Daimler Trucks segment and €199 million (2009: €189 million) relates to the Mercedes-Benz Cars segment. The total amortization expense for intangible assets is included in the consolidated statement of income/loss in the following line items: Non-amortizable intangible assets are primarily comprised of goodwill and development costs for projects which have not yet been completed (carrying amount at December 31, 2010: €2,906 million; carrying amount at December 31, 2009: €2,753 million). In addition, other intangible assets with a carrying amount at December 31, 2010 of €161 million (2009: €137 million) are not amortizable. Other non-amortizable intangible assets mainly comprise trademarks, which relate to the Daimler Trucks seg- ment and can be utilized without restrictions. In millions of euros Cost of sales Selling expenses General administrative expenses Research and non-capitalized development costs 2010 2009 810 37 35 5 887 735 39 50 4 828 Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 195 11. Property, plant and equipment Property, plant and equipment developed as follows: Land, leasehold improvements and buildings including buildings on land owned by others Technical equipment and machinery Other equipment, factory and office equipment Advance pay- ments relating to plant and equipment and construction in progress In millions of euros Acquisition or manufacturing costs Balance at January 1, 2009 Additions due to business combinations Other additions Reclassifications Disposals Other changes 1 Balance at December 31, 2009 Additions due to business combinations Other additions Reclassifications Disposals Other changes 1 13,162 18,540 15,413 15 146 241 -130 62 15 551 208 -482 130 13,496 18,962 – 246 201 -236 358 – 471 352 -857 191 2 845 484 -765 139 16,118 – 1,053 587 -690 424 Balance at December 31, 2010 14,065 19,119 17,492 Depreciation Balance at January 1, 2009 Additions Reclassifications Disposals Other changes 1 Balance at December 31, 2009 Additions Reclassifications Disposals Other changes 1 7,139 13,495 289 3 -87 60 725 -95 -445 100 7,404 13,780 300 -3 -116 81 781 28 -816 85 11,509 1,422 92 -677 90 12,436 1,396 -25 -618 324 Balance at December 31, 2010 7,666 13,858 13,513 1,133 – 913 -933 -92 11 1,032 – 2,023 -1,140 -33 78 1,960 18 – – – 5 23 – – -17 – 6 Carrying amount at December 31, 2009 Carrying amount at December 31, 2010 1 Primarily changes from currency translation. 6,092 6,399 5,182 5,261 3,682 3,979 1,009 1,954 Total 48,248 32 2,455 – -1,469 342 49,608 – 3,793 – -1,816 1,051 52,636 32,161 2,436 – -1,209 255 33,643 2,477 – -1,567 490 35,043 15,965 17,593 Property, plant and equipment include buildings, technical equipment and other equipment capitalized under finance lease arrangements with a carrying amount of €453 million (2009: €350 million). In 2010, depreciation expense on assets under finance lease arrangements amounted to €69 million (2009: €72 million). 196 12. Equipment on operating leases Equipment on operating leases developed as follows: Minimum lease payments. Non-cancelable future lease payments to Daimler for equipment on operating leases are due as follows: At December 31, 2009 2010 3,794 4,255 213 8,262 3,550 3,842 155 7,547 In millions of euros Acquisition or manufacturing costs Balance at January 1, 2009 Additions due to business combinations Other additions Reclassifications Disposals Other changes 1 Balance at December 31, 2009 Additions due to business combinations Other additions Reclassifications Disposals Other changes 1 Balance at December 31, 2010 Depreciation Balance at January 1, 2009 Additions Reclassifications Disposals Other changes 1 Balance at December 31, 2009 Additions Reclassifications Disposals Other changes 1 Balance at December 31, 2010 Carrying amount at December 31, 2009 Carrying amount at December 31, 2010 1 Primarily changes from currency translation. In millions of euros 24,928 – Maturity within one year between one and five years later than 5 years 10,759 – -11,162 -23 24,502 – 11,643 – -11,498 1,036 25,683 6,256 3,450 – -3,723 -13 5,970 3,404 – -3,930 314 5,758 18,532 19,925 As of December 31, 2009, equipment on operating leases with a carrying amount of €643 million is pledged as security for liabilities from ABS transactions which are related to a securiti- zation transaction of future lease payments on operating leases and related vehicles (see also Note 24). Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 197 13. Investments accounted for using the equity method Key financial figures of investments accounted for using the equity method are as follows: Amounts in millions of euros December 31, 2010 Equity interest (in %) Market value (based on listed share prices) Equity investment 2 Equity result (2010) 2 December 31, 2009 Equity interest (in %) Market value (based on listed share prices) Equity investment 2 Equity result (2009) 2 1 Also including joint ventures accounted for using the equity method. 2 Including investor-level adjustments. The following table presents summarized IFRS financial informa- tion on investments accounted for using the equity method, which was the basis for applying the equity method in the Group’s consolidated financial statements: In millions of euros Income statement information 2 2010 Sales Net profit/loss 2009 Sales Net profit/loss Balance sheet information 3 2010 Total assets Equity Liabilities 2009 Total assets Equity Liabilities EADS Tognum BBAC Kamaz Others 1 Total 22.5 3,197 2,415 -261 22.5 2,583 3,112 88 28.4 737 672 9 28.4 433 671 -9 50.0 – 175 86 50.0 – 79 10 15.0 188 177 -4 10.0 105 87 -7 – – 521 22 – – 346 -10 – – 3,960 -148 – – 4,295 72 EADS Tognum BBAC Kamaz Others 1 Total 44,567 -1,021 43,478 711 78,441 10,552 67,889 73,889 13,706 60,183 2,462 97 2,594 101 2,611 720 1,891 2,407 632 1,775 1,804 123 685 7 1,416 288 1,128 647 146 501 1,731 -27 960 -51 1,651 736 915 1,738 723 1,015 3,502 44 1,759 4 3,586 1,558 2,028 2,538 1,132 1,406 54,066 -784 49,476 772 87,705 13,854 73,851 81,219 16,339 64,880 1 Also including joint ventures accounted for using the equity method. 2 Figures of EADS, Tognum and Kamaz principally relate to the period from October 1 to September 30. Figures of Kamaz for 2009 relate to the period from January 1 to September 30. Figures of BBAC relate to the period from January 1 to December 31. 3 Figures of EADS, Tognum and Kamaz as of September 30. Figures of BBAC as of December 31. 198 EADS. The Group reports its investment in and its proportion- ate share in the results of the European Aeronautic Defence and Space Company EADS N.V. (EADS) in the reconciliation of total segments’ assets to Group assets and total segments’ EBIT to Group EBIT, respectively, in the segment reporting. As a result of the recognition of the proportionate share in EADS’ results with a three-month time lag, Daimler recognized its share in the loss provisions regarding the A400M military trans- porter program established at EADS for the purpose of their 2009 consolidated financial statements in its equity result for 2010. The Group’s proportionate share in those expenses was €237 million. On March 13, 2007, a subsidiary of Daimler which holds Daimler’s 22.5% interest in EADS issued equity interests to investors in exchange for €1,554 million of cash. As a result of this transac- tion, the Group reports a minority interest in its consolidated statement of financial position representing the investor’s owner- ship in the consolidated subsidiary that issued the equity interest. The amount reported as minority interest reflects the investor’s 33% share in the net assets of that subsidiary. In connection with this transaction, between July 1, 2010 and September 30, 2010, Daimler had the option to exchange the newly issued equity interests for a 7.5% equity interest in EADS or for cash equivalent to the fair value of the 7.5% equity interest in EADS at that time. In March 2010, Daimler decided not to make use of this option. Therefore, Daimler will continue to base its equity- method accounting of EADS on a 22.5% equity interest. Tognum. The Group reports its investment and its proportionate share in the results of Tognum AG in the reconciliation of total segments’ assets to Group assets and total segments’ EBIT to Group EBIT, respectively, in the segment reporting. BBAC. The investment and the proportionate share in the results of Beijing Benz Automotive Co., Ltd. (BBAC) are allocated to the Mercedes-Benz Cars segment. Kamaz. Resulting from its representation on the board of direc- tors of Kamaz OAO (Kamaz) and its significant contractual rights under the terms of a shareholder agreement, the Group can exercise significant influence on Kamaz. Therefore, the Group accounts for its equity interest in Kamaz using the equity method; the investment and the proportionate share in the results of Kamaz are allocated to the Daimler Trucks segment. In 2010, the Group and the European Bank for Reconstruction and Devel- opment (EBRD) completed an increase in their strategic invest- ments in Kamaz. Daimler has thus increased its equity interest in Kamaz by one percentage point to 11%, while the remaining 4% are legally held by EBRD. Due to the contractual situation Daimler is deemed to be the economic owner of the shares held by EBRD pursuant to IFRS. Others. Included in other investments is the Group’s investment in Tesla Motors, Inc. (Tesla). Daimler’s equity interest amounted to 7.9% as of December 31, 2010 (2009: 9.09%). The fair value and the carrying amount of its investment were €149 million and €36 million as of December 31, 2010, respectively. Resulting from its representation on the board of directors of Tesla and its significant contractual rights under the terms of a shareholder agreement, the Group can exercise significant influence on Tesla. Therefore, the Group accounts for its equity interest in Tesla using the equity method; the investment and the proportionate share in the results of Tesla are allocated to the Mercedes-Benz Cars segment. 14. Receivables from financial services Receivables from financial services are comprised of the following: In millions of euros Receivables from Retail Wholesale Other Gross carrying amount Allowances for doubtful accounts Carrying amount, net Current At December 31, 2010 Total Non-current Current At December 31, 2009 Total Non-current 12,436 6,131 76 18,643 -477 18,166 21,363 1,091 1,017 23,471 -607 22,864 33,799 7,222 1,093 42,114 -1,084 41,030 11,835 4,808 125 16,768 -540 16,228 20,772 1,001 1,105 22,878 -628 22,250 32,607 5,809 1,230 39,646 -1,168 38,478 Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 199 Types of receivables. Retail receivables include loans and finance leases to end users of the Group’s products who purchased their vehicle either from a dealer or directly from Daimler. The total expense relating to impairment losses on receivables from financial services amounted to €536 million in 2010 (2009: €853 million). Wholesale receivables represent loans for floor financing pro- grams for vehicles sold by the Group’s automotive businesses to dealers or loans for assets purchased by dealers from third parties, primarily used vehicles traded in by dealers’ customer or real estate such as dealer showrooms. Other receivables mainly represent non-automotive assets from contracts of the financial services business with third parties. All cash flow effects attributable to receivables from financial services are presented within cash provided by/used for operating activities in the consolidated statement of cash flows. Allowances. Changes in the allowance account for receivables from financial services were as follows: Credit risks. The following chart gives an overview of credit risks included in receivables from financial services: In millions of euros Receivables, neither past due nor impaired individually Receivables past due, not impaired individually less than 30 days 30 to 59 days 60 to 89 days 90 to 119 days 120 days or more Total At December 31, 2009 2010 37,827 35,270 1,195 367 99 52 255 1,968 1,235 41,030 1,219 442 121 78 184 2,044 1,164 38,478 2010 2009 Carrying amount, net Receivables impaired individually In millions of euros Balance at January 1 Charged to costs and expenses Amounts written off Reversals Currency translation and other changes Balance at December 31 1,168 534 -439 -241 62 1,084 934 850 -446 -165 -5 1,168 Receivables not subject to an individual impairment assessment are grouped and subject to collective impairment allowances to cover credit losses. The carrying amount of receivables from financial services of which the terms have been renegotiated and that would other- wise be past due or impaired as of December 31, 2010 was €399 million (2009: €260 million). Further information on financial risks and nature of risks is pro- vided in Note 31. Finance leases. Finance leases consist of leasing contracts for which all substantial risks and rewards incidental to the leasing objects are transferred to the lessee. 200 Maturities of the finance lease contracts are comprised as follows: In millions of euros Contractual future lease payments Unguaranteed residual values Gross investment Unearned finance income Gross carrying amount Allowances for doubtful accounts Carrying amount, net < 1 year 1 year up to 5 years > 5 years Total < 1 year At December 31, 2010 1 year up to 5 years At December 31, 2009 > 5 years Total 4,036 740 4,776 -530 4,246 -189 4,057 6,526 915 7,441 -846 6,595 -275 6,320 1,076 165 1,241 -271 970 -19 951 11,638 1,820 13,458 -1,647 11,811 -483 11,328 4,103 740 4,843 -621 4,222 -191 4,031 6,461 975 7,436 -1,168 6,268 -284 5,984 1,807 209 2,016 -334 1,682 -6 1,676 12,371 1,924 14,295 -2,123 12,172 -481 11,691 Sale of receivables. Based on market conditions and liquidity needs, Daimler may sell portfolios of retail and wholesale receiv- ables to third parties (i.e. special purpose entities). At the time of the sale, Daimler determines whether the legally transferred receivables meet the criteria for derecognition in conformity with the appropriate provisions. If the criteria are not met, the receivables continue to be recognized in the Group’s consoli- dated statement of financial position. As of December 31, 2010, the carrying amount of receivables from financial services sold but not derecognized for accounting purposes amounted to €1,254 million (2009: €1,006 million). The associated risks and rewards are similar to those with respect to receivables from financial services that have not been trans- ferred. For information on the related total liabilities associated with these receivables sold but not derecognized, see Note 24. 15. Marketable debt securities As of December 31, 2010, marketable debt securities with a carrying amount of €2,096 million are presented separately in the consolidated statement of financial position. In 2009 and 2008, the carrying amounts of €6,342 million and €814 million were included in other financial assets. Thereof, non-current debt securities amounted to €766 million (2009: €1,224 million; 2008: €103 million). The prior-year presentation has been adjusted accordingly. The marketable debt securities are part of the Group’s liquidity management and comprise debt instruments which are quoted in an active market and are classified as available-for-sale. Further information on marketable debt securities is provided in Note 30. 16. Other financial assets The item “other financial assets” shown in the consolidated statement of financial position is comprised of the following classes: In millions of euros Available-for-sale financial assets Thereof equity instruments recognized at fair value through profit or loss Thereof equity instruments carried at cost Derivative financial instruments used in hedge accounting Financial assets recognized at fair value through profit or loss Other receivables and financial assets Current At December 31, 2010 Total Non-current Current At December 31, 2009 Total Non-current – – – 345 565 1,337 2,247 2,199 1,485 714 471 166 358 3,194 2,199 1,485 714 816 731 1,695 5,441 – – – 474 504 1,364 2,342 1,084 385 699 600 714 395 2,793 1,084 385 699 1,074 1,218 1,759 5,135 Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 201 In 2010, equity instruments carried at cost with a carrying amount of €23 million (2009: €8 million) were sold. The realized gains from the sales were €23 million in 2010 (2009: losses of €7 million). As of December 31, 2010, the Group principally did not intend to dispose of any reported equity instruments carried at cost. Financial liabilities recognized at fair value through profit or loss relate exclusively to derivative financial instruments, which are not used in hedge accounting. Further information on other financial assets is provided in Note 30. 17. Other assets The non-financial other assets are comprised as follows: In millions of euros Reimbursements due to income tax refunds Reimbursements due to other tax refunds Reimbursements due to the Medicare Act (USA) Other expected reimbursements Prepaid expenses Others Current At December 31, 2010 Total Non-current Current At December 31, 2009 Total Non-current 525 1,181 . 339 298 278 2,621 31 17 112 26 81 141 408 556 1,198 112 365 379 419 584 989 – 385 225 169 3,029 2,352 176 20 122 14 52 112 496 760 1,009 122 399 277 281 2,848 Other expected reimbursements predominantly relate to recovery claims from our suppliers in connection with issued product warranties. 18. Inventories In millions of euros Raw materials and manufacturing supplies Work-in-process Finished goods, parts and products held for resale Advance payments to suppliers At December 31, 2009 2010 1,509 2,002 10,974 59 14,544 1,517 1,626 9,666 36 12,845 The amount of write-down of inventories to net realizable value recognized as expense in cost of sales was €269 million in 2010 (2009: €299 million). At December 31, 2010, €1,403 million (2009: €1,482 million) of the total inventories were carried at net realizable value. Inventories that are expected to be turned over after more than twelve months amounted to €718 million at Decem- ber 31, 2010 (2009: €634 million) and are primarily spare parts. Based on the requirement to provide collateral for certain vested employee benefits in Germany, the value of company cars included in inventories at Daimler AG in an amount of €482 million (2009: €457 million) was pledged as collateral to the Daimler Pension Trust e.V. The carrying amount of inventories recognized during the period by taking possession of collateral held as security amounted to €124 million in 2010 (2009: €136 million). The utilization of these assets occurs in the context of normal business cycle. 202 19. Trade receivables Credit risks. The following chart gives an overview of credit risks included in trade receivables: In millions of euros Gross carrying amount Allowances for doubtful accounts Carrying amount, net At December 31, 2009 2010 7,598 -406 7,192 5,675 -390 5,285 At December 31, 2009 2010 In millions of euros Receivables neither past due nor impaired individually Receivables past due, not impaired individually 4,327 3,026 As of December 31, 2010, €25 million of the trade receivables mature after more than one year (2009: €8 million). Allowances. Changes in the allowance account for trade receivables were as follows: In millions of euros Balance at January 1 Charged to costs and expenses Amounts written off Currency translation and other changes Balance at December 31 2010 2009 390 86 -73 3 406 620 50 -281 1 390 The total expenses relating to the impairment losses of trade receivables amounted to €176 million in 2010 (2009: €186 million). less than 30 days 30 to 59 days 60 to 89 days 90 to 119 days 120 days or more Total Receivables impaired individually Carrying amount, net 665 153 51 48 308 1,225 1,640 7,192 512 110 62 34 394 1,112 1,147 5,285 Receivables not subject to an individual impairment assessment are grouped and subject to collective impairment allowances to cover credit losses. Further information on financial risk and nature of risks is provided in Note 31. Sale of receivables. Based on market conditions and liquidity needs, Daimler may sell portfolios of trade receivables to third parties. At the time of the sale, Daimler determines whether the legally transferred receivables meet the criteria for derecogni- tion in conformity with the appropriate provisions. If the criteria are not met, the receivables continue to be recognized in the Group’s consolidated statement of financial position. As of December 31, 2010, the carrying amount of trade receivables sold, but not derecognized for accounting purposes amounted to €83 million (2009: €38 million). For information on the liabilities related to sold but not derecognized receivables, see Note 24. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 203 Insofar as the resolution issued by the Annual Meeting on April 9, 2008 authorizing Daimler AG to acquire, until October 9, 2009, treasury shares for certain predefined purposes had not been utilized, it was terminated by resolution of the Annual Meeting on April 8, 2009. Simultaneously, Daimler AG was authorized again to acquire, until October 8, 2010, treasury shares for certain predefined purposes i. e. for the purpose of cancella - tion or using them for business combinations or to acquire compa- nies, up to 10% of the share capital as of the day of the resolution. As of December 31, 2009, Daimler AG held a treasury stock of 37.1 million shares, that were repurchased in 2008. The unused authorization of the Annual Meeting on April 8, 2009, to acquire treasury shares until October 8, 2010, was terminated by resolution of the Annual Meeting on April 14, 2010. Simulta- neously, Daimler was again authorized to acquire until April 13, 2015 treasury shares, i. e. for the purpose of cancellation or for using them for business combinations or to acquire companies up to 10% of the share capital issued as of the day of the resolu- tion. This authorization has not been exercised yet. Approximately 32.9 million shares representing €94 million of the share capital, or approximately 3.1% of the share capital in an amount of total €1,278 million were transferred in 2010 when the Group entered into a cross-shareholding structure with Renault SA and Nissan Motors Company (see also Note 3). 2.4 million of these shares, representing €7 million or approximately 0.23% of the share capital in an amount of €90 million were sold at the stock exchange to settle a cash obligation of this trans- action. 20. Equity See also the consolidated statements of changes in equity. The share capital is divided into no par value shares. All shares are fully paid up. Each share grants the right to one vote at the Annual Meeting of Daimler AG and, if applicable, with the exception of any new shares potentially not entitled to dividend, to an equal portion of the profits as defined by the dividend distribution resolved at the Annual Meeting. 2010 2009 In millions of shares Shares issued on January 1 Reacquired shares not cancelled (share buy-back program) previous years Shares outstanding on January 1 Creation of new shares by exercise of stock options Creation of new shares by capital increase Utilization of treasury shares to enter into a cross-shareholding structure between Daimler AG, Renault SA and Nissan Motor Company Ltd Repurchase of treasury shares by exercise of a forward contract to settle obligations towards former AEG shareholders Utilization of treasury shares due to the settlement of obligations towards former AEG shareholders Shares outstanding on December 31 Reacquired shares not cancelled (share buy-back program) Shares issued on December 31 1,061 -37 1,024 5 – 35 -1 3 1,066 – 1,066 964 -37 927 1 96 – – – 1,024 37 1,061 Share buy-back program. On April 9, 2008, the Annual Meet- ing authorized Daimler AG to acquire, until October 9, 2009, treasury shares for certain predefined purposes, i. e. for the purpose of using them for business combinations or to acquire companies or to meet the subscription rights arising from stock option programs, up to 10% of the share capital issued as of the day of the resolution. Between June 18, 2008 and October 23, 2008, Daimler AG partly exercised the authorization by repurchasing a total of 37.3 million shares representing approxi- mately 3.87% of the share capital as of the time of the Annual Meeting. In 2008 0.2 million shares repurchased were used to meet subscription rights arising from stock option programs. 204 Through a final verdict reached by the higher regional court in Frankfurt am Main in November 2009, the exchange ratio specified in the domination and profit and loss transfer agree- ment between the former Daimler-Benz AG and the former AEG AG from 1988 as well as the compensation payment for unpaid AEG dividends determined in this agreement were increased for the benefit of those AEG shareholders. In 2010, approximately 1.5 million own shares representing €4 million or approximately 0.15% of the share capital were repurchased at a purchase price of €40 million by exercising a forward con- tract. This forward was concluded with regard to the litigation mentioned above but without any obligation to purchase shares. In 2010, obligations of former AEG shareholders were settled using approximately 3.1 million own shares in an amount of total €108 million. 1.2 million treasury shares thereof, represent- ing €3 million or approximately 0.11% of the share capital were sold to generate revenue of €44 million to settle cash obligations of former AEG shareholders resulting from the litigation. The remaining 1.9 million shares, representing €6 million or approxi- mately 0.19% of the share capital were transferred to former AEG shareholders to cover obligations to deliver additional Daimler shares. As of December 31, 2010, 0.2 million treasury shares repre- senting €1 million of the share capital or approximately 0.02% of the share capital repurchased under the resolution issued at the Annual Meeting on April 9, 2008 are still held by Daimler AG. Employee share purchase plan. In 2010 0.4 million Daimler shares were purchased and reissued to employees in connec- tion with an employee share purchase plan. In 2009, Daimler neither purchased nor reissued Daimler shares to employees. Authorized capital. By way of a resolution adopted at the Annual Meeting on April 9, 2008, the Board of Management was autho- rized, with the consent of the Supervisory Board, to increase Daimler AG’s share capital in the period until April 8, 2013 by a total of €500 million in exchange for cash contributions and furthermore by a total of €500 million in exchange for non-cash contributions (Authorized Capital I and II) and with the consent of the Supervisory Board to exclude shareholders’ subscription rights under certain conditions. In March 2009, Daimler AG’s share capital was increased under partial utilization of the autho- rized capital of €2,768 million in the amount of €276 million to €3,044 million in exchange for cash contributions, excluding any shareholders’ subscription rights, by issuing 96.4 million new registered no par value shares at an issue price of €20.27 per share to an indirect subsidiary of Aabar Investments PJSC (Aabar), Abu Dhabi. Resulting transaction costs of €7 million (net of taxes) were deducted from capital reserves. By resolution of the Annual Meeting on April 8, 2009, the Board of Management was authorized again, with the consent of the Supervisory Board, to increase Daimler AG’s share capital in the period until April 7, 2014 by a total of €1,000 million in one lump sum or by separate partial amounts at different times by issuing new, registered no par value shares in exchange for cash and/or non-cash contributions (Approved Capital 2009). Among other things, the Board of Management was authorized with the consent of the Supervisory Board to exclude share- holders’ subscription rights under certain conditions. In this context, the Annual Meeting further resolved to cancel the former Authorized Capital I and II with effect as of the time when the new Approved Capital 2009 becomes effective, but only to the extent that it had not been utilized. Conditional capital. By resolution of the Annual Meeting on April 14, 2010, the Board of Management, with the consent of the Supervisory Board, was authorized until April 13, 2015 to issue once or several times convertible and/or warrant bonds or a com- bination of these instruments (“bonds”) with a total face value of up to €10.0 billion and a maturity of no more than ten years. The Board of Management is allowed to grant the holders of these bonds conversion or warrant rights for new registered no par value shares in Daimler AG with an allocable portion of the share capital of up to €500 million in accordance with the details defined in the terms and conditions of the bonds. The bonds can also be issued by majority-owned direct or indirect subsid- iaries of Daimler AG. Accordingly, share capital is conditionally increased by an amount of up to €500 million (Conditional Capital 2010). The authorization to issue convertible and/or warrant bonds has not yet been exercised. Stock option plans. As of December 31, 2010, 11 million options from stock option plans granting subscription rights on new shares representing €32 million of the share capital had not yet been exercised. Dividends. Under the German Stock Corporation Act (AktG), the dividend that can be distributed to shareholders is based on the unappropriated earnings reported in the annual financial statements of Daimler AG (parent company only) in accordance with the German Commercial Code (HGB). For the year ended December 31, 2010, the Daimler management will propose to the shareholders at the Annual Meeting to distribute €1,971 million (€1.85 per no-par-value share entitled to dividend) of the unappro- priated earnings of Daimler AG as a dividend to the shareholders. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 205 The table below shows the changes in other reserves directly recognized in equity: Before taxes Taxes In millions of euros Unrealized gains from currency translation adjustments 1,200 Financial assets available for sale Unrealized gains/losses Income (-)/expense reclassified through profit or loss Unrealized gains/losses from financial assets available for sale Derivative financial instruments Unrealized gains/losses Income (-)/expense reclassified through profit or loss Unrealized gains/losses from derivative financial instruments Investments accounted for using the equity method Unrealized gains/losses Income (-)/expense reclassified through profit or loss Unrealized gains/losses from investments accounted for using the equity method Other comprehensive income/loss 137 -265 -128 -987 291 -696 -523 -134 -657 -281 – 3 4 7 301 -89 212 165 43 208 427 2010 Net of taxes 1,200 140 -261 -121 -686 202 -484 -358 -91 -449 146 Before taxes Taxes 2009 Net of taxes 267 255 – 255 -17 -414 -431 441 -191 250 341 – -8 – -8 54 69 123 -116 61 -55 60 267 247 – 247 37 -345 -308 325 -130 195 401 In the line item “Unrealized gains/losses from investments accounted for using the equity method,” the amounts of 2010 include the following components (amounts attributable to shareholders of Daimler AG only): unrealized gains from currency translation adjustments before taxes and net of taxes of €40 million (2009: unrealized gains before taxes and net of taxes of €31 million), unrealized losses from financial assets available for sale before taxes of €15 million and net of taxes of €19 million (2009: unrealized gains before taxes of €28 million and net of taxes of €26 million) and unrealized losses from derivative finan- cial instruments before taxes of €486 million and net of taxes of €336 million (2009: unrealized gains before taxes of €42 and net of taxes of €27 million). The changes in other reserves directly recognized in equity attrib utable to minority interest are as follows: In millions of euros Unrealized gains/losses from currency translation adjustments Unrealized gains/losses from investments accounted for using the equity method Other comprehensive income/loss Before taxes Taxes 48 -196 -148 – 62 62 2010 Net of taxes 48 -134 -86 Before taxes Taxes -7 148 141 – -38 -38 2009 Net of taxes -7 110 103 206 21. Share-based payment As of December 31, 2010, the Group has the 2007-2010 Perfor- mance Phantom Share Plans (PPSP) and the Stock Option Plans 2001-2004 outstanding. The unexercised rights from Stock Option Plan 2000 expired on April 21, 2010. The exercisable stock options of 2003 and 2004 are equity-settled share-based payment instruments and are measured at fair value at the date of grant. The PPSP are cash-settled share-based payment instruments and are measured at their respective fair values at the balance sheet date. The PPSP are paid off at the end of the stipulated holding period; earlier, pro-rated payoff is possible only if certain defined conditions are met. PPSP 2006 was paid off as planned in the first quarter of 2010. In millions of euros PPSP SOP In millions of euros PPSP SOP The effects of share-based payment arrangements on the con- solidated statement of income/loss and statement of financial position were as follows (before income taxes): In millions of euros PPSP SOP Remuneration expense 2009 2010 Provision at December 31, 2009 2010 -69 -4 -73 -31 -1 -32 124 – 124 72 – 72 Expenses in the consolidated statement of income/loss result- ing from rights of current members of the Board of Management are as follows: Dr. Dieter Zetsche 2009 2010 Dr. Wolfgang Bernhard 2009 2010 Wilfried Porth 2009 2010 -3.5 -2.0 -1.7 -0.1 -0.6 – – – -0.9 – -0.3 – Andreas Renschler 2009 2010 Bodo Uebber 2009 2010 Dr. Thomas Weber 2009 2010 -1.6 – -0.7 – -1.7 -0.9 -0.8 -0.1 -1.5 -0.8 -0.7 -0.1 The details shown in the overview do not represent any paid or committed remuneration, but refer to expense which has been calculated according to IFRS. Details regarding remuneration of the members of the Board of Management in 2010 can be found in the Remuneration Report (see page 152). The number of phantom shares that vest will depend on the achievement of corporate performance goals based on competi- tive and internal benchmarks (return on net assets and return on sales). Performance Phantom Share Plans. In 2010, the Group adopted a Performance Phantom Share Plan (PPSP), similar to that used from 2005 to 2009, under which eligible employees are granted phantom shares entitling them to receive cash payments after four years. The amount of cash paid to eligible employees is based on the number of vested phantom shares (determined over a three-year performance period) multiplied by the quoted price of Daimler’s ordinary shares (calculated as an average price over a specified period at the end of the four years of service). For the plans granted in 2009 and 2010, the quoted price of Daimler’s ordinary shares to be used for the payout is limited to 2.5 times the Daimler share price at the date of grant. The Group recognizes a provision for awarding the PPSP. Since payment per vested phantom share depends on the quoted price of one Daimler ordinary share, the quoted price almost completely represents the fair value of each phantom share. The proportionate remuneration expenses for the individual years are determined on the basis of the year-end quoted price of Daimler ordinary shares and the estimated target achievement. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 207 Stock Option Plans. In April 2000, the Group’s shareholders approved the Daimler Stock Option Plan (SOP), which grants stock options for the purchase of Daimler ordinary shares to eligible employees. Options granted under the SOP are exercisable at a reference price per Daimler ordinary share, which is determined in advance, plus a 20% premium. The options become exercis- able in equal installments at the earliest on the second and third anniversaries of the date of grant. All unexercised options expire ten years after the date of grant. If the market price per Daimler 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%. No new stock options were granted after 2004. In the event of exercise, the Group has generally issued ordinary shares so far. The table below shows the basic terms of the SOP (in millions): Year of grant 2001 2002 2003 2004 Options granted to the Board of Management in 2004 for which – according to the recommendations of the German Corporate Governance Code – the Presidential Committee can impose a limit, or reserve the right to impose a limit in the event of exceptional and unpredictable developments, are measured at their intrinsic values as of December 31. Analysis of the stock options issued is as follows: Balance at beginning of the year Options granted Exercised Disposals/Forfeited Outstanding at year-end Exercisable at year-end 208 Reference price Exercise price Options granted Options outstanding Options exercisable At December 31, 2010 €55.80 €42.93 €28.67 €36.31 €66.96 €51.52 €34.40 €43.57 18.7 20.0 20.5 18.0 4.6 1.8 1.9 2.8 4.6 1.8 1.9 2.8 Number of stock options in millions 2010 Average exercise price euros per share Number of stock options in millions 2009 Average exercise price euros per share 22.4 – -4.5 -6.8 11.1 11.1 56.57 – 45.04 70.07 52.90 52.90 24.3 – -0.2 -1.7 22.4 22.4 56.61 – 34.40 60.15 56.57 56.57 The weighted average share price of Daimler ordinary shares during the exercise period was €50.42 (2009: €35.07). As of December 31, 2010, the weighted average remaining contractual life of outstanding stock options was 1.5 years (2009: 2.1 years). Analysis of the stock options issued to the current members of the Board of Management is as follows: Dr. Dieter Zetsche Balance at beginning of year Options granted Exercised Disposals/Forfeited Outstanding at year-end Exercisable at year-end Weighted maturity Dr. Wolfgang Bernhard Balance at beginning of year Options granted Exercised Disposals/Forfeited Outstanding at year-end Exercisable at year-end Weighted maturity Wilfried Porth Balance at beginning of year Options granted Exercised Disposals/Forfeited Outstanding at year-end Exercisable at year-end Weighted maturity Number of stock options in millions 2010 Average exercise price euros per share Number of stock options in millions 2009 Average exercise price euros per share 1.0 – -0.3 -0.1 0.6 0.6 52.99 – 51.52 74.76 49.04 49.04 1.5 years 1.0 – – – 1.0 1.0 52.99 – – – 52.99 52.99 2.0 years Number of stock options in millions 2010 Average exercise price euros per share Number of stock options in millions 2009 Average exercise price euros per share – – – – – – – – – – – – – – – – – – – – – – – – – – Number of stock options in millions 1 2010 Average exercise price euros per share Number of stock options in millions 2009 Average exercise price euros per share . – . . . . 65.40 – 51.52 74.76 66.96 66.96 0.3 years . – – – . . 65.40 – – – 65.40 65.40 1.0 years 1 For number of stock options partially no disclosure due to rounding. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 209 Andreas Renschler Balance at beginning of year Options granted Exercised Disposals/Forfeited Outstanding at year-end Exercisable at year-end Weighted maturity 1 For number of stock options partially no disclosure due to rounding. Bodo Uebber Balance at beginning of year Options granted Exercised Disposals/Forfeited Outstanding at year-end Exercisable at year-end Weighted maturity 1 For number of stock options partially no disclosure due to rounding. Dr. Thomas Weber Balance at beginning of year Options granted Exercised Disposals/Forfeited Outstanding at year-end Exercisable at year-end Weighted maturity Number of stock options in millions 1 2010 Average exercise price euros per share Number of stock options in millions 2009 Average exercise price euros per share 0.2 – . . 0.1 0.1 51.88 – 48.67 74.76 48.46 48.46 1.7 years 0.2 – – – 0.2 0.2 51.88 – – – 51.88 51.88 2.2 years Number of stock options in millions 1 2010 Average exercise price euros per share Number of stock options in millions 2009 Average exercise price euros per share 0.1 – -0.1 . . . 49.51 – 43.34 74.76 66.96 66.96 0.3 years 0.1 – – – 0.1 0.1 49.51 – – – 49.51 49.51 2.8 years Number of stock options in millions 1 2010 Average exercise price euros per share Number of stock options in millions 2009 Average exercise price euros per share 0.2 – . . 0.2 0.2 43.61 – 51.52 74.76 40.56 40.56 2.1 years 0.2 – – – 0.2 0.2 43.61 – – – 43.61 43.61 2.8 years 1 For number of stock options partially no disclosure due to rounding. With regard to the figures shown in the above table, it has to be considered that benefits from the stock option plans only arise if the Daimler share price exceeds the hurdle which has been individually defined for each stock option plan and if the owner of the stock options realizes an exercise. 210 As variable compensation, only the difference between the reference and exercise price of the respective stock option plan is paid out. The average exercise price is only a statistical factor, which results from the weighted average of the exercise prices shown in the table for the basic terms of the SOP. The sum of rights shown here is calculated from the addition of the different amounts of options that were granted in the years 2000 to 2004. 22. Pensions and similar obligations Provisions for pension benefit plans and similar obligations are comprised of the following components: In millions of euros Provision for pension benefits Provision for other post-employment benefits At December 31, 2009 2010 3,449 880 4,329 3,158 924 4,082 Defined benefit pension plans. Provisions for pension benefits were solely made for defined entitlements to active or former employees. Under a defined benefit pension plan, beneficiar- ies obtain an entitlement to a defined benefit when the insured case occurs. Daimler provides pension benefits with defined entitlements to almost all of its employees. The majority of the active employees are entitled to pay-related defined pension benefits. Under these plans, employees earn benefits for each year of service. The benefits earned per year of service are dependent on the salary level and age of the respective employees. Principally, the defined benefit pension plans provided by Daimler vary according to the economic, tax and legal circum- stances of the country concerned. Generally, defined benefit pension plans also provide benefits for invalidity and death. The defined benefit obligations are funded in large part with assets in pension funds. Defined contribution pension plans. To a minor degree, Daimler additionally provides defined contribution pension benefits. For defined contribution plans, Daimler makes defined contributions to external insurances or funds. Basically, there are no further contractual obligations or risks for Daimler in excess of the defined contributions. The Group also pays contributions to govern- mental pension schemes. In 2010, the total cost from payments made under defined contribution plans amounted to €1.2 billion (2009: €1.0 billion). These payments are primarily related to governmental pension plans. Other post-employment benefits. Certain foreign subsidiaries of Daimler, mainly in the United States provide their employees with post-employment health care benefits with defined entitle- ments, which have to be accounted for as defined benefit plans. These obligations are funded to a small extent through reim- bursement rights and plan assets. The following table provides key data for other post-employment benefits: In millions of euros Present value of defined benefit obligations Fair value of plan assets and reimbursement rights Funded status Net periodic cost/income for other-postemployment benefits 2010 2009 1,056 130 -926 1,040 149 -891 76 -102 As a result of the adjustment of defined health care and pension benefits at our subsidiary Daimler Trucks North America, the Group recorded a pre-tax gain of €160 million in 2010. The gain is mainly included in cost of sales in the consolidated statement of income/loss and is allocated to the Daimler Trucks segment. This pre-tax gain is included in the 2010 net periodic cost/in- come for defined health care and pension benefits, as presented in this Note. Details of defined pension benefit plans Funded status. The following information with respect to the funded status of the Group’s defined pension benefit plans is presented separately for German plans and non-German plans. In 2006, the non-German plans were principally comprised of plans in the United States still including the Chrysler plans. In 2007, as a result of the deconsolidation of Chrysler, the Group’s provisions for pension benefits and the corresponding plan assets decreased significantly. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 211 The funded status has developed since 2006 as follows: In millions of euros Present value of defined benefit obligations Less fair value of plan assets Funded status In millions of euros Present value of defined benefit obligations Less fair value of plan assets Funded status At December 31, 2010 Non-German plans German plans Total At December 31, 2009 Non-German German plans plans Total At December 31, 2008 Non-German German plans plans Total 17,684 11,177 -6,507 15,040 9,542 -5,498 2,644 1,635 -1,009 16,529 10,624 -5,905 14,183 9,197 -4,986 2,346 1,427 -919 15,044 10,110 -4,934 12,780 8,796 -3,984 2,264 1,314 -950 At December 31, 2007 Non-German German plans plans Total At December 31, 2006 Non-German German plans plans Total 15,686 13,774 -1,912 13,539 12,073 -1,466 2,147 1,701 -446 37,466 35,176 -2,290 14,728 11,542 -3,186 22,738 23,634 896 The reconciliation of the funded status to the net amounts of defined benefit pension plans recognized in the consolidated statement of financial position is as follows: In millions of euros Funded status Unrecognized actuarial net losses Unrecognized past service cost Net amounts recognized Thereof recognized in: Other assets Thereof recognized in: Provisions for pensions and similar obligations At December 31, 2010 Non-German plans German plans -5,498 2,741 – -2,757 – -2,757 -1,009 379 – -630 62 -692 Total -6,507 3,120 – -3,387 62 -3,449 At December 31, 2009 Non-German German plans plans -4,986 2,458 – -2,528 – -2,528 -919 327 1 -591 39 -630 Total -5,905 2,785 1 -3,119 39 -3,158 212 Present value of defined pension benefit obligations and fair value of plan assets. The development of these metrics in the reported periods is as follows: German plans 2010 Non-German plans Total German plans 2009 Non-German plans Total In millions of euros Present value of the defined benefit obligation at January 1 16,529 14,183 2,346 15,044 12,780 2,264 Current service cost Interest cost Contributions by plan participants Actuarial losses Past service cost/income (-) Curtailments Settlements Pension benefits paid Currency exchange-rate and other changes Present value of the defined benefit obligation at December 31 Thereof pension plans financed with plan assets Thereof pension plans financed without plan assets Fair value of plan assets at January 1 Expected return on plan assets Actuarial gains/losses Actual return/losses on plan assets Contributions by the employer Contributions by plan participants Settlements Benefits paid Currency exchange-rate and other changes Fair value of plan assets at December 31 337 859 7 620 -8 -24 -93 -744 201 264 734 4 518 -18 – – -647 2 17,684 16,404 1,280 15,040 13,873 1,167 73 125 3 102 10 -24 -93 -97 199 2,644 2,531 113 295 847 57 1,134 4 – -101 -733 -18 16,529 15,300 1,229 10,624 9,197 1,427 10,110 609 226 835 345 2 -85 -660 116 11,177 503 168 671 246 – – -572 – 9,542 106 58 164 99 2 -85 -88 116 660 -32 628 602 3 -89 -645 15 1,635 10,624 226 734 54 1,015 – – . -626 – 14,183 13,058 1,125 8,796 568 -116 452 500 – – -551 – 9,197 69 113 3 119 4 – -101 -107 -18 2,346 2,242 104 1,314 92 84 176 102 3 -89 -94 15 1,427 Experience adjustments. The experience related adjustments, which are the differences between the earlier actuarial assump- tions applied and actual developments, are as shown in the following table (based on the pension benefit plans and plan assets at December 31): In millions of euros Present value of defined benefit obligation Fair value of plan assets 2010 2009 2008 At December 31, 2006 2007 550 226 -43 -32 -194 -3,970 154 -238 45 1,685 Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 213 Composition of plan assets. At December 31, 2010, plan assets were invested in diversified portfolios that consisted primarily of debt and equity securities. Plan assets and income from plan assets are used solely to pay pension benefits and to adminis- ter the plans. The Group’s plan asset allocations are presented in the following table: In % of plan assets Equity securities Debt securities Alternative investments Real estate Liquidity and other plan assets Alternative investments consist of private equity and debt invest- ments as well as investments in commodities and hedge funds. Assumptions. The measurement date for the Group’s defined benefit pension obligations and plan assets is generally December 31. The measurement date for the Group’s net periodic pension cost is generally January 1. The assumptions used to calculate 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 Group used the following weighted average assumptions to determine pension benefit obligations: Plan assets German plans At December 31, 2009 2010 Plan assets Non-German plans At December 31, 2009 2010 34 46 11 4 5 26 49 8 4 13 41 43 4 3 9 45 40 4 3 8 In % German plans At December 31, 2009 2010 Non-German plans At December 31, 2009 2010 Discount rates Expected long-term remuneration increases 1 Expected increase in cost of living 2 1.7 1 For most German plans, expected increases in long-term remuneration are not a part of the benefit formula. 2 For most non-German plans, expected increases in cost of living are not a part of the benefit formula. 5.0 – 5.3 – 1.8 4.7 3.7 – 5.1 3.9 – 214 The Group used the following weighted average assumptions to determine net periodic pension cost: German plans 2009 2010 Non-German plans 2009 2010 In % Discount rates 5.3 Expected long-term returns on plan assets Expected long-term remuneration increases 1 Expected increase in cost of living 2 1.8 1 For most German plans, expected increases in long-term remuneration are not a part of the benefit formula. 2 For most non-German plans, expected increases in cost of living are not a part of the benefit formula. 5.5 – 5.9 6.5 - 1.8 5.1 7.0 3.9 – 5.0 7.2 3.7 – Multi-employer plans. Daimler participates in some collec- tively bargained defined benefit pension plans maintained by more than one employer. The Group accounts for these plans in its consolidated financial statements as defined contribution plans because the information required to use defined benefit accounting is not available in a timely manner and in sufficient detail. The Group cannot exercise direct control over such plans and the plan-trustees have no legal obligation to share information directly with participating employers. Higher contributions by the Group to such a pension plan could result in particular when an underfunded status exceeds a specific level. Discount rates. The discount rates for German and non-German pension plans are determined annually as of December 31 on the basis of high-quality corporate bonds with maturities and values matching those of the pension payments. Expected return on plan assets. The expected long-term rates of return for German and non-German plan assets are primarily derived from the asset allocations of plan assets and expected future returns for the various asset classes in the portfolios. Temporary variability in the asset allocations of plan assets does not result in adjustments of the expected long-term rates of return. For the determination of the expected long-term rates of return, our investment committees survey banks and large asset portfolio managers about their expectations for future returns for the relevant market indices. The allocation-weighted average return expectations serve as an initial indicator for the expected rate of return on plan assets for each pension fund. In addition, Daimler considers long-term actual plan assets’ results and historical market returns in its evaluation in order to reflect the long-term character of the plan assets. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 215 Net periodic pension cost. The components of net periodic pension cost included in the consolidated statement of income/ loss were as follows: In millions of euros Current service cost Interest cost Expected return on plan assets Amortization of net actuarial losses Past service cost/income Curtailments and settlements Net periodic pension cost Total German plans 2010 Non-German plans Total German plans 2009 Non-German plans -337 -859 609 -79 17 7 -642 -264 -734 503 -66 18 – -543 -73 -125 106 -13 -1 7 -99 -295 - 847 660 -27 -5 -17 -531 -226 -734 568 -14 – – -406 -69 -113 92 -13 -5 -17 -125 Net periodic pension cost is included in the following line items within the consolidated statements of income/loss: In millions of euros Cost of sales Selling expenses General administrative expenses Research and non-capitalized development costs Interest income Interest expense 2010 2009 -197 -51 -32 -33 609 -938 -642 -172 -70 -37 -38 660 -874 -531 Expected payments. In 2011, Daimler expects to make cash contributions of €0.6 billion to its pension plans. In addition, the Group expects to make pension benefit payments of €0.1 billion under pension benefit schemes without plan assets. 216 23. Provisions for other risks The development of provisions for other risks is summarized as follows: In millions of euros Balance at December 31, 2009 Thereof current Thereof non-current Additions Utilizations Reversals Addition of accrued interest and effects of changes in discount rates Currency translation and other changes Balance at December 31, 2010 Thereof current Thereof non-current Product warranties. Daimler issues various types of product warranties, under which it generally guarantees the perfor- mance of products delivered and services rendered for a certain period or term. The provision for these product warranties covers expected costs for legal and contractual warranty claims, as well as expected costs for policy coverage, recall campaigns and buyback commitments. The provision for buyback commit- ments represents the expected costs related to the Group’s obligation, under certain conditions, to repurchase a vehicle from a customer. Buy-backs may occur for a number of reasons in- cluding litigation, compliance with laws and regulations in a partic- ular region and customer satisfaction issues. The utilization date of product warranties depends on the incidence of the warranty claims and can span the entire term of the product warranties. Sales incentives. The provisions for sales incentives relate to obligations for expected reductions in revenue already recog- nized. These include bonuses, discounts and other price reduction commitments, which are entered into with contractual partners in the reporting period or in previous periods but will not be paid until subsequent periods. Product warranties Sales incentives Personnel and social costs Other Total 5,489 2,874 2,615 2,682 -2,628 -131 119 109 5,640 2,783 2,857 914 914 – 1,079 -705 -76 1 54 1,267 1,265 2 2,054 803 1,251 1,816 -793 -75 75 40 3,117 1,693 1,424 2,550 1,720 830 1,280 -782 -674 45 97 2,516 1,251 1,265 11,007 6,311 4,696 6,857 -4,908 -956 240 300 12,540 6,992 5,548 Personnel and social costs. Provisions for personnel and social costs primarily comprise expected expenses of the Group for employee anniversary bonuses, profit sharing arrangements, management bonuses as well as early retirement and partial retirement plans. The additions recorded to the provisions for profit sharing and management bonuses in the reporting year usually result in cash outflows in the following year. Other. Provisions for other risks comprise, among others, expected costs in connection with liability and litigation risks, obligations under the EU End-of-Life Vehicles Directive and environmental protection risks. They also include provisions for other taxes and various other risks. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 217 24. Financing liabilities In millions of euros Notes/bonds Commercial paper Liabilities to financial institutions Deposits in the direct banking business Liabilities from ABS transactions Liabilities from finance lease Loans, other financing liabilities Current At December 31, 2010 Total Non-current Current At December 31, 2009 Total Non-current 10,322 91 6,295 7,856 595 80 582 15,801 – 8,033 3,020 519 419 69 26,123 91 14,328 10,876 1,114 499 651 7,972 176 6,066 9,403 753 49 617 22,123 – 6,934 3,195 539 348 119 30,095 176 13,000 12,598 1,292 397 736 25,821 27,861 53,682 25,036 33,258 58,294 Based on market conditions and liquidity needs, Daimler may sell certain receivables and future lease payments resulting from equipment on operating leases to third parties. As of December 31, 2010, liabilities relating to these transactions, which do not meet all the criteria for derecognition, are accounted in the value of €1,197 million (2009: €1,330 million). The respective liabilities are reported under liabilities from ABS transactions in the amount of €1,114 million (2009: €1,292 million) and under liabilities to financial institutions in the amount of €83 million (2009: €38 million). Liabilities from finance leases relate primarily to leases of property, plant and equipment which transfer substantially all risks and rewards to the Group as lessee. Future minimum lease payments under finance leases at December 31, 2010 amounted to €780 million (2009: €588 million). The recon- ciliation of future minimum lease payments from finance lease arrangements to the corresponding liabilities is as follows: Future minimum lease payments At December 31, 2009 2010 Interest included in future minimum lease payments At December 31, 2009 2010 Liabilities from finance lease arrangements At December 31, 2009 2010 105 233 442 780 61 160 367 588 25 84 172 281 12 62 117 191 80 149 270 499 49 98 250 397 In millions of euros Maturity within one year between one and five years later than five years 218 25. Other financial liabilities Other financial liabilities are composed of the following items: In millions of euros Derivative financial instruments used in hedge accounting Financial liabilities recognized at fair value through profit or loss Liabilities from residual value guarantees Liabilities from wages and salaries Other Miscellaneous other financial liabilities Current At December 31, 2010 Total Non-current Current At December 31, 2009 Total Non-current 468 662 1,016 1,005 5,475 7,496 8,626 390 488 659 – 346 1,005 1,883 858 1,150 1,675 1,005 5,821 8,501 10,509 141 273 1,338 896 4,941 7,175 7,589 67 402 1,115 – 564 1,679 2,148 208 675 2,453 896 5,505 8,854 9,737 Financial liabilities recognized at fair value through profit or loss relate exclusively to derivative financial instruments which are not used in hedge accounting. Further information on other financial liabilities is provided in Note 30. 26. Other liabilities Other liabilities are composed of the following items: In millions of euros Income tax liabilities Miscellaneous other liabilities Current At December 31, 2010 Total Non-current Current At December 31, 2009 Total Non-current 169 1,376 1,545 73 6 79 242 1,382 1,624 56 1,018 1,074 74 1 75 130 1,019 1,149 Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 219 27. Consolidated statement of cash flows 28. Legal proceedings Cash provided by operating activities. The changes in other operating assets and liabilities are as follows: In millions of euros Provisions Financial instruments Miscellaneous other assets and liabilities 2010 2009 1,648 -60 914 2,502 203 -44 740 899 Cash provided by operating activities includes the following cash flows: In millions of euros Interest paid Interest received Income taxes paid, net Dividends received 2010 2009 -523 92 -1,189 38 -894 471 -358 109 The line item other non-cash expense and income within the reconciliation of net profit to cash provided by operating activities primarily comprises deferred taxes and the Group’s share in the profit/loss of companies accounted for using the equity method. Cash used for financing activities. Cash used for financing activities includes cash flows from hedging the currency risks of financial liabilities. In 2010, cash used for financing activities included payments for the reduction of the outstanding finance lease liabilities of €75 million (2009: €71 million). Various legal proceedings, claims and governmental investiga- tions are pending against Daimler AG and its subsidiaries on a wide range of topics, including vehicle safety, emissions, fuel economy, financial services, dealer, supplier and other contractual relationships, intellectual property rights, product warranties, environmental matters, and shareholder matters. Some of these proceedings allege defects in various components in several different vehicle models or allege design defects relating to vehicle stability, pedal misapplication, brakes or crashworthiness. Some of these proceedings are filed as class action lawsuits that seek repair or replacement of the vehicles or compensation for their alleged reduction in value, while others seek recovery for damage to property, personal injuries or wrongful death. Adverse decisions in one or more of these proceedings could require us to pay substantial compensatory and punitive damages or undertake service actions, recall campaigns or other costly actions. In mid-January 2011 the European Commission carried out anti- trust investigations of European commercial vehicle manufacturers, including Daimler AG. Daimler is taking the Com mission’s initial suspicion very seriously and is also – parallel to the Commission’s investigations – carrying out its own extensive internal inves- tigation to clarify the underlying circumstances. If antitrust infringe- ments are discovered, the European Commission can impose considerable fines depending on the gravity of the infringement. In accordance with IAS 37.92 the Group does not provide fur- ther information on this anti-trust investigation and the associated risk for the Group, especially with regard to the measures taken in this context, in order not to impair the outcome of the proceed- ing. On April 1, 2010, Daimler announced a settlement of the previ- ously disclosed US Securities and Exchange Commission (SEC) and US Department of Justice (DOJ) investigations into possible violations by Daimler of the anti-bribery, record-keeping, and internal-controls provisions of the US Foreign Corrupt Practices Act (FCPA). 220 Pursuant to the settlement reached with the SEC, the SEC filed a civil complaint against Daimler AG in the US District Court for the District of Columbia (the Court). Without admitting or de- nying the allegations in the complaint, Daimler AG consented to the entry by the Court of a final judgment. Pursuant to the Court’s judgment: (i) Daimler AG disgorged US$91.4 million in profits, (ii) Daimler AG is enjoined from violating the anti-bribery, record-keeping and internal-controls provisions of the FCPA, and (iii) the Honorable Louis J. Freeh is Daimler AG’s post-settle- ment monitor for a three-year period. Pursuant to the settlement reached with the DOJ, Daimler AG entered into a deferred-prosecution agreement with a two- year term under which the DOJ filed with the Court a two-count criminal information against Daimler AG charging it with: (i) conspiracy to violate the record-keeping provisions of the FCPA, and (ii) violating the record-keeping provisions of the FCPA. Herewith, Daimler AG agreed to pay a maximum criminal fine of US$93.6 million, to engage the Honorable Louis J. Freeh as post-settlement monitor for a three-year period, and to continue to implement a compliance and ethics program designed to prevent and detect violations of the FCPA and other applicable anti-corruption laws. In addition, a China-based subsidiary, Daimler North East Asia, Ltd. (DNEA), entered into a deferred- prosecution agreement with the same term with the DOJ under which the DOJ filed with the Court a two-count criminal information against DNEA. In addition, a Russia-based subsidiary, Mercedes-Benz Russia S.R.O. (MB Russia), and a Germany-based subsidiary, Daimler Export and Trade Finance GmbH (ETF), each entered into plea agreements with the DOJ with a three-year probation period under which they pleaded guilty to: (i) conspiracy to violate the anti- bribery provisions of the FCPA, and (ii) violating the anti-bribery provisions of the FCPA. Under their respective plea agree- ments, the Court sentenced MB Russia to pay a criminal fine of US$27.36 million and sentenced ETF to pay a criminal fine of US$29.12 million. These amounts were deducted from the maximum fine Daimler AG agreed to pay (US$93.6 million). As a result of the SEC and DOJ settlements, Daimler paid a total of US$185 million in fines and civil disgorgement. Daimler previously recognized sufficient provisions to cover these fines. In addition, Daimler has taken personnel and remedial actions to ensure that its conduct going forward complies with the FCPA and similar applicable laws, including establishing a company- wide compliance organization and evaluating and revising Daimler’s governance policies and internal-control procedures. The failure to comply with the terms and conditions of either the SEC or the DOJ settlement, including the terms of the deferred- prosecution agreements, could result in resumed prosecution and other regulatory sanctions. Communications with and provision of documents to the offices of German public prosecutors regarding the matters that have been under investigation by the DOJ and SEC have taken place. On August 17, 2009, the Official Committee of Unsecured Creditors of OldCarCo LLC (formerly Chrysler LLC) filed a lawsuit with the United States Bankruptcy Court, Southern District of New York, against Daimler AG, Daimler North America Corpo- ration and others. The Committee has been substituted by the Liquidation Trust, which claims unspecified damages based on theories of constructive fraudulent transfer and other legal theories, alleging that the consideration received in certain trans- actions effected in connection with the investment by Cerberus in Chrysler LLC was not fair consideration. Daimler has submitted miscellaneous legal defense arguments and considers these claims and allegations of the Liquidation Trust to be without merit and will defend itself vigorously. The Federal Republic of Germany initiated arbitration proceedings against Daimler Financial Services AG, Deutsche Telekom AG and Toll Collect GbR and submitted its statement of claims in August 2005. It seeks damages, contractual penalties and the transfer of intellectual property rights to Toll Collect GmbH. In particular, the Federal Republic of Germany is claiming – lost revenue of €3.33 billion for the period September 1, 2003 through December 31, 2004 plus interest at 5% per annum over the respective base rate since submission of claims (amount as of November 21, 2010 at €1.4 billion), – and contractual penalties of approximately €1.65 billion through July 31, 2005 plus interest at 5% per annum over the respective base rate since submission of claims (amount as of November 21, 2010 at €282 million), – plus refinancing costs of €115 million. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 221 Since, among other things, some of the contractual penalties are dependent on time and further claims for contractual penalties have been asserted by the Federal Republic of Germany, the amount claimed as contractual penalties may increase. Defendants submitted their response to the statement of claims on June 30, 2006. The Federal Republic of Germany delivered its reply to the arbitrators on February 15, 2007, and the defendants delivered their rebuttal on October 1, 2007 (see also Note 29). The arbitrators held the first hearing on June 16 and 17, 2008. Additional briefs from the claimant and the defendants were filed since then. A hearing of witnesses and experts took place be- tween December 6 and 14, 2010. Further written statements shall be submitted by the Parties until May 20, 2011. Daimler believes the claims are without merit and will continue to defend itself vigorously. Litigation is subject to many uncertainties and Daimler cannot predict the outcome of individual matters with assurance. The Group establishes provisions in connection with pending or threatened litigation if a loss is probable and can be reason- ably estimated. Since these provisions, which are reflected in the Group’s consolidated financial statements, represent estimates, it is reasonably possible that the resolution of some of these matters could require us to make payments in excess of the amounts accrued in an amount or range of amounts that could not be reasonably estimated at December 31, 2010. It is also rea- sonably possible that the resolution of some of the matters for which provisions could not be made may require the Group to make payments in an amount or range of amounts that could not be reasonably estimated at December 31, 2010. Although the final resolution of any such matters could have a material effect on Daimler’s operating results and cash flows for a particular reporting period, Daimler believes that it should not materially affect the Group’s financial position. 29. Guarantees and other financial commitments Guarantees. The following table shows the amounts of provi- sions and liabilities at December 31 which have been estab- lished by the Group in connection with its issued guarantees (excluding product warranties): In millions of euros Financial guarantees Guarantees under buy-back commitments Other guarantees Amount recognized as a liability At December 31, 2009 2010 227 66 106 399 183 66 105 354 Financial guarantees. Financial guarantees principally rep- resent contractual arrangements that require the Group as the guarantor to make certain payments if guarantee holders fail to meet their financial obligations. The maximum potential obli- gation resulting from these guarantees amounted to €1,140 million at December 31, 2010 (December 31, 2009: €1,493 million). These amounts include guarantees, which the Group issued for the benefit of Chrysler in connection with the Chrysler trans- actions entered into in 2007 and 2009. These guarantees relate to Chrysler’s pension obligations and certain other finan- cial obligations of Chrysler. For a portion of these financial guarantees, Chrysler provided collateral to an escrow account. See Note 3 for the amounts and further information. Guarantees under buy-back commitments. Guarantees under buy-back commitments represent arrangements whereby the Group guarantees specified trade-in or resale values for sold vehicles. Such guarantees provide the holder with the right to return purchased vehicles to the Group, the right being primarily contingent on the future purchase of vehicles or services. Residual value guarantees related to arrangements for which revenue recognition is precluded due to the Group’s obligation to repurchase assets sold to unrelated guaranteed parties are not included in those amounts. 222 Beginning in June 2006, the Federal Republic of Germany began reducing monthly payments to Toll Collect GmbH by €8 million in partial set-off against amounts claimed in the arbitration proceeding referred to below. This offsetting may require the consortium members to provide additional operating funds to Toll Collect GmbH. The operating agreement calls for the submission of all disputes related to the toll collection system to arbitration. The Federal Republic of Germany has initiated arbitration proceedings against Daimler Financial Services AG, Deutsche Telekom AG and the consortium. According to the statement of claims received in August 2005, the Federal Republic of Germany is seeking damages including contractual penalties and reimbursement of lost revenue that allegedly arose from delays in the operability of the toll collection system. See Note 27 for additional information. Each of the consortium members (including Daimler Financial Services AG) has provided guarantees supporting the obligations of Toll Collect GmbH towards the Federal Republic of Germa- ny relating to the completion and operation of the toll collection system, which are subject to specific triggering events. In ad- dition, Daimler AG has guaranteed bank loans obtained by Toll Collect GmbH. The guarantees are described in detail below: – Guarantee of bank loans. Daimler AG issued a guarantee to third parties up to a maximum amount of €105 million for bank loans which could be obtained by Toll Collect GmbH. This amount represents the Group’s 50% share of Toll Collect GmbH’s external financing guaranteed by its shareholders. Other guarantees. Other guarantees principally comprise pledges or indemnifications related to the quality or timing of performance by third parties or participations in performance guarantees of consortiums. As of December 31, 2010, the best estimate for obligations under other guarantees for which no provisions had yet been recorded was €50 million (2009: €37 million). In 2002, our subsidiary Daimler Financial Services AG, Deutsche Telekom AG and Compagnie Financière et Industrielle des Auto- routes S.A. (Cofiroute) entered into a consortium agreement in order to jointly develop, install, and operate under a contract with the Federal Republic of Germany (operating agreement) a system for the electronic collection of tolls for all commercial vehicles over 12 tons GVW using German highways. Daimler Financial Services AG and Deutsche Telekom AG each hold a 45% equity interest and Cofiroute holds the remaining 10% equity interest in both the consortium (Toll Collect GbR) and the joint venture company (Toll Collect GmbH) (together Toll Collect). According to the operating agreement, the toll collection system had to be operational no later than August 31, 2003. After a delay of the launch date of the toll collection system, which resulted in a loss of revenue for Toll Collect and in payments of contrac - tual penalties for delays, the toll collection system was introduced on January 1, 2005 with on-board units that allowed for slightly less than full technical performance in accordance with the tech- nical specification (phase 1). On January 1, 2006, the toll collec- tion system was installed and started to operate with full effective- ness as specified in the operating agreement (phase 2). On December 20, 2005, Toll Collect GmbH received a preliminary operating permit as specified in the operating agreement. Toll Collect GmbH expects to receive the final operating permit, and continues to operate the toll collection system under the pre- liminary operating permit in the interim. Failure to perform various obligations under the operating agree- ment may result in penalties, additional revenue reductions and damage claims that could become significant over time. However, penalties and revenue reductions are capped at €150 million per year until the final operating permit has been issued and at €100 million per year following the issuance of the final operating permit. These cap amounts are subject to a 3% increase for every year of operation. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 223 The Group has also entered into operating leases for property, plant and equipment. In 2010, Daimler recognized as expense rental payments of €491 million (2009: €513 million). Future minimum lease payments under long-term lease agreements are due as follows (nominal amounts): In millions of euros Maturity within one year between one and three years between four and five years later than five years At December 31, 2009 2010 297 504 396 953 2,150 304 524 427 1,117 2,372 In addition, the Group issued loan commitments for a total of €1.9 billion and €1.6 billion as of December 31, 2010 and 2009, respectively. These loan commitments are unused as of those dates. – Equity maintenance undertaking. The consortium members have the obligation to contribute, on a joint and several basis, additional funds to Toll Collect GmbH as may be necessary for Toll Collect GmbH to maintain a minimum equity (based on German Commercial Code accounting principles) of 15% of total assets (a so-called “equity maintenance undertaking”). This obligation will terminate on August 31, 2015, when the operating agreement expires, or earlier if the agreement is terminated. Such obligation may arise if Toll Collect GmbH is subject to revenue reductions caused by underperformance, if the Federal Republic of Germany is successful in claiming lost revenue against Toll Collect GmbH for any period the system was not fully operational, or if Toll Collect GmbH incurs penalties that may become payable under the above mentioned agreements. If such penalties, revenue reductions or other events reduce Toll Collect GmbH’s equity to a level below the minimum equity percentage agreed upon, the consortium members are obligated to fund Toll Collect GmbH’s operations to the extent necessary to reach the required minimum equity. Cofiroute’s risks and obligations are limited to €70 million. Daimler Financial Services AG and Deutsche Telekom AG are jointly obliged to indemnify Cofiroute for amounts exceeding this lim itation. While Daimler’s maximum future obligation resulting from the guarantee of the bank loan can be determined (2010: €105 million), the Group is unable to reasonably estimate the amount or range of amounts of possible loss resulting from the financial guarantee in form of the equity maintenance undertaking due to the various uncertainties described above, although it could be material. Only the guarantee for the bank loan is included in the above disclosures for financial guarantees. Obligations associated with product warranties are also not included in the above disclosures. See Note 23 for provisions relating to such obligations. Other financial commitments. In connection with its production programs, Daimler has committed to purchase various volumes of parts and components over extended periods. The Group also has entered into service arrangements for the provision of future services. In addition, the Group has committed to purchase or invest in the construction and maintenance of production facilities. Amounts under the latter arrangements represent commitments to purchase plant or equipment in the future. As of December 31, 2010, total other financial commitments amounted to €7.4 billion (2009: €4.5 billion). 224 30. Financial instruments Carrying amounts and fair values of financial instruments The following table shows the carrying amounts and fair values of the Group’s financial instruments. The fair value of a financial instrument is the price at which a party would accept the rights and/or obligations of that financial instrument from another inde- pendent party. Given the varying influencing factors, the reported fair values can only be viewed as indicators of the prices that may actually be achieved on the market. In millions of euros Financial assets Receivables from financial services Trade receivables Cash and cash equivalents Marketable debt securities Available-for-sale financial assets Other financial assets Available-for-sale financial assets 1 Financial assets recognized at fair value through profit or loss Derivative financial instruments used in hedge accounting Other receivables and assets Financial liabilities Financing liabilities Trade payables Other financial liabilities Financial liabilities recognized at fair value through profit or loss Derivative financial instruments used in hedge accounting Miscellaneous other financial liabilities At December 31, 2010 Carrying amount Fair value At December 31, 2009 Carrying amount Fair value 41,030 7,192 10,903 41,107 7,192 10,903 38,478 5,285 9,800 38,510 5,285 9,800 2,096 2,096 6,342 6,342 2,199 731 816 1,695 66,662 53,682 7,657 1,150 858 8,501 2,199 731 816 1,695 66,739 55,419 7,657 1,150 858 8,501 71,848 73,585 1,084 1,218 1,074 1,759 1,084 1,218 1,074 1,759 65,040 65,072 58,294 5,622 675 208 8,854 73,653 59,677 5,622 675 208 8,854 75,036 1 Includes equity interests measured at cost of €714 million (2009: €699 million), whose fair value can not be determined with sufficient reliability. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 225 The fair values of financial instruments were calculated on the basis of market information available on the balance sheet date. The following methods and premises were used: Receivables from financial services. The fair values of receiv- ables from financial services with variable interest rates are estimated to be equal to the respective carrying amounts since the interest rates agreed and those available on the market do not significantly differ. The fair values of receivables from financial services with fixed interest rates are determined on the basis of discounted expected future cash flows. The discounting is based on the current interest rates at which similar loans with identical terms could have been borrowed as of December 31, 2010 and December 31, 2009. Trade receivables and cash and cash equivalents. Due to the short terms of these financial instruments, it is assumed that their fair values are equal to the carrying amounts. Marketable debt securities and other financial assets. Financial assets available for sale include: – debt and equity instruments measured at fair value; these instruments were measured using quoted market prices at December 31. Otherwise, the fair value measurement of these debt and equity instruments is based on inputs that are either directly or indirectly observable on active markets. – equity interests measured at cost; for these financial instruments fair values could not be determined because market prices or fair values are not available. These equity interests comprise investments in non-listed companies for which no objective evidence existed at the balance sheet date that these assets are impaired and whose fair values cannot be determined with sufficient reliability. It is assumed that the fair values approximate the carrying amounts. Financial assets recognized at fair value through profit or loss include derivative financial instruments not used in hedge accounting. These financial instruments as well as derivative financial instruments used in hedge accounting comprise: – derivative currency hedging contracts; the fair values of currency forwards and cross currency interest rate swaps are determined on the basis of the discounted estimated future cash flows using market interest rates appropriate to the re- maining terms of the financial instruments. Currency options were measured using price quotations or option pricing models using market data. – derivative interest rate hedging contracts; the fair values of interest rate hedging instruments (e.g. interest rate swaps, forward rate agreements) are calculated on the basis of the discounted estimated future cash flows using the market inter- est rates appropriate to the remaining terms of the financial instruments. Interest options were measured using price quo- tations or option pricing models using market data. – derivative commodity hedging contracts; the fair values of commodity hedging contracts (e.g. commodity forwards) are determined on the basis of current reference prices in consideration of forward premiums and discounts. Other receivables and assets are carried at amortized cost. Because of the predominant short maturities of these financial instru- ments in general, it is assumed that the fair values approximate the carrying amounts. Financing liabilities. The fair values of bonds, loans and de- posits in the direct banking business are calculated as the present values of the estimated future cash flows. Market interest rates for the appropriate terms are used for discounting. On account of the short terms of commercial papers it is assumed that the carrying amounts of these financial instruments approximate their fair values. 226 Trade payables. Due to the short maturities of these financial instruments, it is assumed that their fair values are equal to the carrying amounts. Other financial liabilities. Financial liabilities recognized at fair value through profit or loss include derivative financial instru- ments not used in hedge accounting. For information regarding these financial instruments as well as derivative financial in- struments used in hedge accounting see the notes above under marketable debt securities and other financial assets. Miscellaneous other financial liabilities are carried at amortized cost. Because of the short maturities of these financial instru- ments in general, it is assumed that the fair values approximate the carrying amounts. Financial assets and liabilities measured at fair value are classified into the following fair value hierarchy: Total Level 1 1 At December 31, 2010 Level 3 3 Level 2 2 Total Level 1 1 At December 31, 2009 Level 3 3 Level 2 2 In millions of euros Assets measured at fair value Financial assets available for sale 3,581 2,150 1,431 Financial assets recognized at fair value through profit or loss Derivative financial instruments used in hedge accounting Liabilities measured at fair value Financial liabilities recognized at fair value through profit or loss Derivative financial instruments used in hedge accounting 731 816 5,128 1,150 858 2,008 – – 2,150 – – – 731 816 2,978 1,150 858 2,008 – – – – – – – 6,727 1,218 1,074 9,019 675 208 883 940 5,787 – – 940 – – – 1,218 1,074 8,079 675 208 883 – – – – – – – 1 Fair value measurement based on quoted prices (unadjusted) in active markets for identical assets or liabilities. 2 Fair value measurement based on inputs for the asset or liability that are observable on active markets either directly (i. e. as prices) or indirectly (i. e. derived from prices). 3 Fair value measurement based on inputs for the asset or liability that are not observable market data. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 227 The carrying amounts of financial instruments presented according to IAS 39 measurement categories are as follows: Net gains or losses At December 31, 2009 2010 The following table shows the net gains or losses of financial instruments included in the consolidated statement of income/ loss (not including derivative financial instruments used in hedge accounting): 29,702 7,192 1,695 38,589 2,096 2,199 4,295 26,787 5,285 1,759 33,831 6,342 1,084 7,426 In millions of euros Financial assets and liabilities recognized at fair value through profit or loss 1 Financial assets available for sale Loans and receivables Financial liabilities measured at cost 2010 2009 -613 353 -237 255 -407 38 -546 -130 731 1,218 1 Financial instruments classified as held for trading purposes. These figures comprise financial instruments that are not used in hedge accounting. Net gains and losses of financial assets and liabilities recog- nized at fair value through profit or loss include primarily gains and losses attributable to changes in fair value. Net gains and losses on financial assets available for sale include realized income from these investments and gains or losses from sales transactions. Net gains and losses on loans and receivables are mainly com- prised of impairment losses and recoveries that are charged to cost of sales, selling expenses and other financial income/ expense, net. Net gains and losses on financial liabilities measured at cost mainly include gains and losses from the valuation of liabilities denominated in foreign currencies. In millions of euros Assets Receivables from financial services 1 Trade receivables Other receivables and assets Loans and receivables Marketable debt securities Other financial assets Available-for-sale financial assets Financial assets recognized at fair value through profit or loss 2 Liabilities Trade payables Financing liabilities 3 Other financial liabilities 4 Financial liabilities measured at cost Financial liabilities recognized at fair value through profit or loss 2 7,657 51,986 8,274 67,917 5,622 56,567 8,671 70,860 1,150 675 The table above does not include cash and cash equivalents or the carrying amounts of derivative financial instruments used in hedge accounting as these financial instruments are not assigned to an IAS 39 measurement category. 1 This does not include lease receivables of €11,328 million (2009: €11,691 million) as these are not assigned to an IAS 39 measurement category. 2 Financial instruments classified as held for trading purposes. These figures comprise financial instruments that are not used in hedge accounting. 3 This does not include liabilities from finance leases of €499 million (2009: €397 million) or liabilities from non-transference of assets of €1,197 million (2009: €1,330 million) as these are not assigned to an IAS 39 measurement category. 4 This does not include liabilities from financial guarantees of €227 million (2009: €183 million) as these are not assigned to an IAS 39 measurement category. 228 Total interest income and total interest expense Total interest income and total interest expense for financial assets or financial liabilities that are not measured at fair value through profit or loss are structured as follows: The changes in fair value of these hedging instruments and the offsetting changes in the value of underlying transactions are as follows: In millions of euros Total interest income Total interest expense 2010 2009 In millions of euros Net losses from hedging instruments Net gains from underlying transactions -66 67 -31 53 2010 2009 2,881 -2,322 2,983 -2,943 Please refer to Note 1 for qualitative descriptions of accounting for financial instruments (including derivative financial instruments). Information on derivative financial instruments Use of derivatives. The Group uses derivative financial in- struments for hedging interest rate risks, currency risks and commodity price risks. For these purposes the Group mainly uses currency forward transactions, cross currency interest rate swaps, interest rate swaps, options and commodity forwards. Fair values of hedging instruments. The table below shows the fair values of hedging instruments: In millions of euros Fair value hedges Cash flow hedges At December 31, 2009 2010 240 -282 425 441 Fair value hedges. The Group uses fair value hedges primarily for hedging interest rate risks. These figures also include the portions of derivative financial instruments excluded from the hedge effectiveness test and the ineffective portions. Cash flow hedges. The Group uses cash flow hedges for hedging currency risks, interest rate risks and commodity price risks. Unrealized pre-tax gains and losses on the measurement of derivatives, which are recognized in equity without an effect on earnings, are as follows: In billions of euros Unrealized losses 2010 2009 1.0 . Reclassifications of pre-tax gains/losses from equity to the statement of income/loss are as follows: In millions of euros Revenue Cost of sales Interest income Interest expense 2010 2009 -265 11 – -37 -291 707 -63 – -230 414 Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 229 The unrealized gains and losses on the measurement as well as reclassifications from equity to income do not include gains and losses from derivatives of investments which are accounted for using the equity method (see Note 20 for further information). The consolidated net loss for 2010 includes net gains (before income taxes) of €2 million (2009: net losses of €1 million) from the valuation of derivative financial instruments which were ineffective for hedging purposes. In 2010, the discontinuation of cash flow hedges resulted in gains of €3 million (2009: €18 million). The maturities of the interest rate hedges and cross currency interest rate hedges correspond with those of the underlying transactions. As of December 31, 2010, Daimler utilized derivative instruments with a maximum maturity of 44 months as hedges for currency risks arising from future transactions. Nominal values of derivative financial instruments. The following table shows the nominal values of derivative financial instruments: In millions of euros Hedging of currency risks from receivables/liabilities Forward exchange contracts Cross currency interest rate swaps Hedging of currency risks from forecasted transactions Forward exchange contracts and currency options Hedging of interest rate risks from receivables/liabilities Interest rate swaps Hedging of commodity price risks from forecasted transactions Forward commodity contracts December 31, 2010 thereof Fair Value Hedges and Cash Flow Hedges Nominal values December 31, 2009 thereof Fair Value Hedges and Cash Flow Hedges Nominal values 7,192 9,475 – 1,950 2,115 14,154 – 923 24,032 23,199 13,525 13,029 21,312 17,430 20,500 18,424 831 62,842 736 43,315 411 50,705 327 32,703 Hedging transactions for which the effects from the mark- to-market valuation of the hedging instrument and the underly- ing transaction offset each other to a large extent in the consoli dated statement of income/loss are predominantly not classified for hedge accounting treatment. Explanations regarding the hedging of exchange rate risks, inter- est rate risks and commodity price risks can be found in Note 31 “Risk management” in the sub-item “Finance market risk.” 230 31. Risk management Credit risk General information on financial risk As a result of its businesses and the global nature of opera- tions, Daimler is exposed to market risks from changes in foreign currency exchange rates, interest rates and equity prices, while commodity price risks arise from procurement. In addition, the Group is exposed to credit risks mainly from its lease and financing activities and from trade receivables. With regard to the lease and financing activities credit risks arise from operating lease contracts, finance lease contracts and financing contracts. Furthermore, the Group is exposed to liquidity risks relating to its credit and market risks or a deterioration of its operating business or financial market disturbances. If these financial risks materialize, they could adversely affect Daimler’s financial position, cash flows and profitability. Daimler has established guidelines for risk controlling procedures and for the use of financial instruments, including a clear segre- gation of duties with regard to operating financial activities, settle- ment, accounting and the respective controlling. The guidelines upon which the Group’s risk management processes are based are designed to identify and analyze these risks throughout the Group, to set appropriate risk limits and controls and to monitor the risks by means of reliable and up-to-date administrative and information systems. The guidelines and systems are regularly reviewed and adjusted to changes in markets and products. The Group manages and monitors these risks primarily through its operating and financing activities and, if required, through the use of derivative financial instruments. Daimler does not use derivative financial instruments for purposes other than risk man- agement. Without these derivative financial instruments, the Group would be exposed to higher financial risks (additional information on financial instruments and especially on the nominal values of the derivative financial instruments used is included in Note 30). Daimler regularly evaluates its financial risks with due consideration of changes in key economic indica- tors and up-to-date market information. Any market sensitive instruments, including equity and debt se- curities, that the funds hold to finance pension and other post-employment benefit obligations are not included in this quantitative and qualitative analysis. Please refer to Note 22 for additional information regarding Daimler’s pension plans and funds. Credit risk is the risk of economic loss arising from a counter- party’s failure to repay or service debt according to the contrac- tual terms. Credit risk encompasses both the direct risk of default and the risk of a deterioration of creditworthiness as well as concentration risks. The maximum risk positions of financial assets which generally are subject to credit risk are equal to their carrying amounts and are shown in the following table: In millions of euros Liquid assets Receivables from financial services Trade receivables Derivative financial instruments used in hedge accounting (assets only) Derivative financial instruments not used in hedge accounting (assets only) Loan commitments Other receivables and financial assets See also Note Maximum risk position 2010 Maximum risk position 2009 12,999 16,142 41,030 7,192 38,478 5,285 816 1,074 731 1,910 1,695 1,218 1,587 1,759 14 19 16 16 29 16 Liquid assets. Liquid assets consist of cash and cash equiva- lents and marketable debt securities classified as available for sale. With the investment of liquid assets, the banks and issuers of securities are selected very carefully and diversified in accor- dance with a limit system. In connection with the financial mar- ket crisis, the limit system was adjusted and the Group reduced most of the limits. The limits and their utilizations are reas- sessed continuously. In this assessment Daimler also considers the credit risk assessment of its counterparties by the capital markets. In line with the Group’s risk policy, most liquid assets are held in investments with an external rating of “A” or better. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 231 Scoring systems are applied for the assessment of the default risk of retail and small business customers. Corporate custom- ers are evaluated using internal rating instruments and external credit bureau data if available. The scoring and rating results as well as the availability of security and other risk mitigation instruments, such as pre-payments, guarantees and, to a lower extent, residual debt insurances, are essential elements for credit decisions. Significant financing loans and finance leases to corporate customers are evaluated individually for impairment. An individual loan or finance lease is considered impaired when there is objective evidence that the Group will be unable to collect all amounts due as specified by the contractual terms. Examples of objective evidence that loans or finance lease receivables are impaired include the following factors: significant financial difficulty of the borrower, the probability that the borrower falls bankrupt or become delinquent or defaults on its installment payments, and restructured or renegotiated contracts to avoid delinquency. The vast majority of loans and finance lease receivables related to retail or small business customers are grouped into homoge- neous pools and collectively assessed for impairment. Objective evidence that loans and finance lease receivables are impaired includes, for example, adverse changes in the payment status of borrowers included in the pool and an unfavorable change in the economic conditions affecting the portfolio with similar risk characteristics. If single loans and lease receivables are identified to be indi- vidually impaired, procedures are initiated to take possession of the asset financed or leased or, alternatively, to renegotiate the impaired contract. Restructuring policies and practices are based on the indicators or criteria which, in the judgment of local management, indicate that repayment will probably continue and that the total proceeds expected to be derived from the renegotiated contract exceed the expected proceeds to be derived from repossession and remarketing. For the carrying amounts of the receivables relating to renegotiated loans that would other- wise be past due or impaired, please refer to Note 14. Further details on receivables from financial services and the balance of the recorded impairments are also provided in Note 14. Receivables from financial services. Daimler’s financing and leasing activities are primarily focused on supporting the sale of the automotive products of the Group. As a consequence of these activities, the Group is exposed to credit risk, which is monitored and managed based on defined standards, guidelines and procedures. Daimler Financial Services manages its credit risk irrespective of whether it is related to an operating lease or a finance lease contract. For this reason, statements concerning the credit risk of Daimler Financial Services refer to the entire leasing business, unless specified otherwise. The exposure to credit risk from financing and lease activities is monitored based on the portfolio subject to credit risk. The portfolio subject to credit risk is an internal control quantity that consists of receivables from financial services, the portion of the operating lease portfolio that is subject to credit risk and the volumes from dealer inventory financing. Receivables from financial services comprise claims arising from finance lease contracts and repayment claims from financing loans. The operating lease portfolio is reported under “equipment on oper- ating leases” in the Group’s consolidated financial statements. In addition, the Daimler Financial Services segment is exposed to credit risk from irrevocable loan commitments to retailers and end customers. At December 31, 2010, irrevocable loan com- mitments of Daimler Financial Services amounted to €1,722 million, of which €1,436 million had a maturity of less than one year, €262 million had maturities between 2 and 3 years, and €24 million had maturities between 3 and 4 years. In 2009, irrevo- cable loan commitments of Daimler Financial Services amounted to €1,503 million, of which €651 million had a maturity of less than one year, and €852 million had maturities between 2 and 3 years. The Daimler Financial Services segment has guidelines at a global as well as at a local level which set the framework for effective risk management. In particular, these rules deal with minimum requirements for all risk-relevant credit processes, the evalu- ation of customer quality, requests for collateral as well as the treatment of unsecured loans and non-performing claims. The limitation of concentration risks is implemented primarily by global limits, which refer to single customer exposures. As of December 31, 2010, exposure to the top 15 customers did not exceed 4.2% (2009: 4.5%) of the total portfolio. With respect to its financing and lease activities, the Group takes collateral for customer transactions. The value of collater- al generally depends on the amount of the financed assets. Usually, the financed vehicles serve as collateral, secured by certificate of ownership. Furthermore, Daimler Financial Services mitigates the credit risk from financing and lease activ- ities, for example through advance payments from customers. 232 Trade receivables. Trade receivables are mostly receivables from worldwide sales activities of vehicles and spare parts. The credit risk from trade receivables encompasses the default risk of customers, e.g. dealers and general distribution companies, other corporate and private customers. Daimler manages its credit risk from trade receivables on the basis of internal guidelines. A significant part of the trade receivables from each country’s domestic business is secured by various country-specific types of collateral. These types include, for instance, conditional sales, guarantees and sureties as well as mortgages and cash deposits. In addition, Group companies guard against credit risk via credit assessments. For trade receivables from export business, Daimler also evaluates each general distribution company’s creditworthiness by means of an internal rating process and its country risk. In this context, the year-end financial statements and other relevant information on the general distribution companies such as the payment history are used and assessed. Depending on the creditworthiness of the general distribution companies, Daimler usually establishes credit limits and limits credit risks with the following types of collateral: – credit insurances, – first-class bank guarantees and – letters of credit. These procedures are defined in the export credit guideline, which has Group-wide validity. Appropriate provisions are recognized for the risks inherent in trade receivables. For this purpose, all receivables are regularly reviewed and impairments are recognized if there is any ob- jective indication of non-performance or other contractual viola- tions. In general, material individual receivables and receivables whose realizability is jeopardized are assessed individually. Taking country-specific risks and any collateral into consideration, the other receivables are grouped by similarity of contract and tested for impairment collectively. Further information on trade receivables and the status of impairments recognized is provided in Note 19. Derivative financial instruments. The Group does not use derivative financial instruments for purposes other than risk management. Daimler manages the credit risk exposure in connection with derivative financial instruments through a limit system, which is based on the review of each counterparty’s financial strength. This system limits and diversifies the credit risk. As a result, Daimler is exposed to credit risk only to a low extent with respect to its derivative financial instruments. According to the Group’s risk policy, most derivatives are contracted with counterparties who have an external rating of “A” or better. Other receivables and financial assets. With respect to other receivables and financial assets in 2009 and 2010, Daimler is exposed to credit risk only to a low extent. Liquidity risk Liquidity risk comprises the risk that a company cannot meet its financial obligations in full. Daimler manages its liquidity by holding adequate volumes of liquid assets and maintaining syndicated credit facilities in addition to the cash inflows generated by its operating business. The liquid assets comprise cash and cash equivalents as well as debt instruments classified as held for sale. The Group can dispose of these liquid assets at short notice. In general, Daimler makes use of a broad spectrum of financial instruments to cover its funding requirements. Depending on funding requirements and market conditions, Daimler issues commercial paper, bonds and financial instruments secured by receivables in various currencies. Credit lines are also used to cover financing requirements. In addition, customer deposits at Mercedes-Benz Bank have been used as a further source of refinancing. The funds raised are primarily used to finance the cash needs of the lease and financing business as well as working capital and capital expenditure requirements. According to internal guidelines, the refunding of the lease and financing business is generally carried out with matching maturities of cash flows. At year-end 2010 liquidity amounted to €13.0 billion (2009: €16.1 billion). In light of the financial and economic crisis and the resulting risks, the Group deliberately increased its liquidity in 2009. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 233 At year-end 2010 the Group had short-term and long-term credit lines totaling €24.0 billion, of which €9.4 billion was not utilized. These credit lines include a syndicated €7.0 billion credit facility of Daimler AG with 5 year tenor which was signed in October 2010. This syndicated facility serves as a back-up for commercial paper drawings and provides funds for general corporate purposes. At the end of 2010, this facility was unused. From an operating point of view, the management of the Group’s liquidity exposures is centralized by a daily cash pooling pro- cess. This process enables Daimler to manage its liquidity surplus and liquidity requirements according to the actual needs of the Group and each subsidiary. The Group’s short-term and mid- term liquidity management takes into account the maturities of financial assets and financial liabilities and estimates of cash flows from the operating business. Information on the Group’s financing liabilities is also provided in Note 24 to the consolidated financial statements. The following table provides an insight into how the liquidity sit- uation of the Group is affected by the cash flows from financial liabilities and financial guarantees as of December 31, 2010. Liquidity runoff 1 In millions of euros Financing liabilities 2 Derivative financial instruments 3 Trade payables 4 Other financial liabilities excluding derivatives Irrevocable loan commitments of the Daimler Financial Services segment and of Daimler AG 5 Financial guarantees 6 Total 1 The values were calculated as follows: Total 2011 2012 2013 2014 2015 ≥ 2016 60,413 27,885 12,238 7,827 5,498 1,648 5,317 2,631 7,657 8,501 1,910 1,140 82,252 1,627 7,655 7,496 1,624 1,140 47,427 693 2 340 102 – 195 – 332 160 – 109 – 113 24 – 4 – 60 – – 3 – 160 – – 13,375 8,514 5,744 1,712 5,480 (a) If the counterparty can request payment at different dates, the liability is included on the basis of the earliest date on which Daimler can be required to pay. The customer deposits of Mercedes-Benz Bank are considered in this analysis to mature within the first year. (b) The cash flows of floating interest financial instruments are estimated on the basis of forward rates. 2 The stated cash flows of financing liabilities consist of their undiscounted principal and interest payments. 3 The undiscounted sum of the net cash outflows of the derivative financial instruments are shown for the respective year. For single time bands, this may also include negative cash flows from derivatives with an overall positive fair value. 4 The cash outflows of trade payables are undiscounted. 5 The maximum available amounts are stated. 6 The maximum potential obligations under the issued guarantees is stated. It is assumed that the guarantees are called within the first year. 234 The Monte Carlo simulation uses random numbers to generate possible changes in market risk factors over the holding period. The changes in market risk factors indicate a possible change in the portfolio value. Running multiple repetitions of this simu- lation leads to a distribution of portfolio value changes. The value at risk can be determined based on this distribution as the portfolio value loss which is reached or exceeded with a probability of 1%. In accordance with the risk management standards of the inter- national banking industry, Daimler maintains its financial controlling system independent of Corporate Treasury and with a separate reporting line. Exchange rate risk. Transaction risk and currency risk man- agement. The global nature of Daimler’s businesses exposes cash flows and earnings to risks arising from fluctuations in exchange rates. These risks primarily relate to fluctuations be- tween the US dollar and the euro. In the operating vehicle businesses, the Group’s exchange rate risk primarily arises when revenue is generated in a currency that is different from the currency in which the costs of gener- ating the revenue are incurred (so-called transaction risk). When the revenue is converted into the currency in which the costs are incurred, it may be inadequate to cover the costs if the value of the currency in which the revenue is generated declined in the interim relative to the value of the currency in which the costs were incurred. This risk exposure primarily affects the Mercedes- Benz Cars segment, which generates a major portion of its reve- nue in foreign currencies and incurs manufacturing costs primarily in euros. The Daimler Trucks segment is also subject to transaction risk, but to a lesser extent because of its global production network. The Mercedes-Benz Vans and Daimler Buses segments are also directly exposed to transaction risk, but only to a minor degree compared to the Mercedes-Benz Cars and Daimler Trucks segments. In addition, through its proportionate share in the results of its equity investment in EADS, the Group is indirectly exposed to transaction risk. Finance market risks The global nature of its businesses exposes Daimler to signifi- cant market risks resulting from fluctuations in foreign currency exchange rates and interest rates. In addition, the Group is exposed to market risks in terms of commodity price risk associ- ated with its business operations, which the Group hedges partially through derivative financial instruments. The Group is also exposed to equity price risk. If these market risks mate- rialize, they will adversely affect the Group’s financial position, cash flows and profitability. Daimler manages market risks to minimize the impact of fluc- tuations in foreign exchange rates, interest rates and commodity prices on the results of the Group and its segments. The Group calculates its overall exposure to these market risks to provide the basis for hedging decisions, which include the selection of hedging instruments and the determination of hedging volumes and the corresponding periods. Decisions regarding the man- agement of market risks resulting from fluctuations in foreign exchange rates, interest rates (asset-/liability management) and commodity prices are regularly made by the relevant Daimler risk management committees. As part of its risk management system, Daimler employs value at risk analyses as recommended by the Bank for International Settlements. In performing these analyses, Daimler quantifies its market risk exposure to changes in foreign currency exchange rates and interest rates on a continuous basis by predicting the maximum loss over a target time horizon (holding period) and confidence level. The value at risk calculations employed: – express potential losses in fair values, and – assume a 99% confidence level and a holding period of five days. Daimler calculates the value at risk for exchange rate and interest rate risk according to the variance-covariance approach. The value at risk calculation method for commodity hedging instru- ments is based on the Monte Carlo simulation. When calculating the value at risk by using the variance- covariance approach, Daimler first computes the current fair value of the Group’s financial instruments portfolio. Then the sensitivity of the portfolio value to changes in the relevant market risk factors, such as particular foreign currency exchange rates or interest rates of specific maturities, is quantified. Based on expected volatilities and correlations of these market risk factors which are obtained from the RiskMetrics™ dataset, a statis- tical distribution of potential changes in the portfolio value at the end of the holding period is computed. The loss which is reached or exceeded with a probability of only 1% can be deduced from this calculation and represents the value at risk. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 235 hedging horizon, which usually varies from one to three years, as well as the average hedge ratios. Reflecting the character of the underlying risks, the hedge ratios decrease with increasing maturities. At year-end 2010, the centralized foreign exchange management showed an unhedged position in the automotive business for the underlying forecasted cash flows in US dollars in calendar year 2011 of 28%. The corresponding figure at year- end 2009 for calendar year 2010 was 30%. The lower unhedged position compared to last year contributes to a lower exposure of cash flows to currency risk with respect to the US dollar. The hedged position of the operating vehicle businesses is de- termined by the amount of derivative currency contracts held. The derivative financial instruments used to cover foreign currency exposure are primarily forward foreign exchange contracts and currency options. Daimler’s guidelines call for a mixture of these instruments depending on the view of market conditions. Value at risk is used to measure the exchange rate risk inherent in these derivative financial instruments. Cash inflows and outflows of the business segments are offset if they are denominated in the same currency. This means that the exchange rate risk resulting from revenue generated in a particular currency can be offset by costs in the same currency, even if the revenue arises from a transaction independent of that in which the costs are incurred. As a result, only the net ex- posure is subject to transaction risk. In addition, natural hedging opportunities exist to the extent that currency exposures of the operating businesses of individual segments offset each other at Group level, thereby reducing overall currency exposure. These natural hedges eliminate the need for hedging to the extent of the matched exposures. To provide an additional natural hedge against any remaining transaction risk exposure, Daimler gen- erally strives to increase cash outflows in the same currencies in which the Group has a net excess inflow. In order to mitigate the impact of currency exchange rate fluctuations for the operating business (future transactions), Daimler continually assesses its exposure to exchange rate risks and hedges a portion of those risks by using derivative financial instruments. These hedging transactions mainly represent macro hedges. Daimler’s Foreign Exchange Committee (FXCo) manages the Group’s exchange rate risk and its hedging transactions through currency derivatives. The FXCo consists of the Chief Financial Officer, the head of the Investor Relations & Treasury, and the heads of the Controlling departments of the relevant segments as well as Corporate Controlling. The Cor- porate Treasury department assesses foreign currency exposures and carries out the FXCo’s decisions concerning foreign cur- rency hedging through transactions with international financial institutions. Risk Controlling regularly informs the Board of Management of the actions taken by Corporate Treasury based on the FXCo’s decisions. The Group’s targeted hedge ratios for forecasted operating cash flows in foreign currency are indicated by a reference model. On the one hand, the hedging horizon is naturally limited by uncertainty related to cash flows that lie far in the future, and, on the other hand, it may be limited by the fact that appropriate currency contracts are not available. This reference model aims to protect the Group from unfavorable movements in exchange rates while preserving some flexibility to participate simultaneously in favorable developments. Based on this reference model and depending on the market outlook, the FXCo determines the 236 The following table shows the period-end, high, low and average value at risk figures for the 2010 and 2009 portfolio of the de rivative financial instruments, which were entered into primarily in connection with the operative vehicle businesses. The aver - age exposure has been computed on an end-of-quarter basis. The offsetting transactions underlying the derivative financial instruments are not included in the following value at risk presen- tation. In millions of euros Exchange rate risk (from derivative financial instruments) Period-end High Low 2010 Average Period-end High Low 2009 Average 558 590 346 507 177 692 165 337 The increase of the vehicle sales forecasts in the course of 2010 led to an increase of the foreign currency hedge volume in the operative vehicle businesses. Because the stated foreign currency value at risk refers to the portfolio of the derivative foreign currency hedging contracts, the pronounced increase of the value at risk in 2010 is mainly attributable to the increase of the hedge volume. The Group’s investments in liquid assets generally do not result in currency risk, as this is governed by internal guidelines. Transaction risks arising from payables in foreign currencies that result from the Group’s refinancing on money and capital markets are generally hedged against currency risks at the time of refinancing in accordance with Daimler’s internal guidelines. The Group uses appropriate derivative financial instruments (e.g. cross currency interest rate swaps) to hedge against currency risk. Since currency risks arising from the Group’s refinancing in foreign currencies and the respective hedging transactions principally offset each other these financial instruments are not included in the above presented value at risk calculation. Effects of currency translation. For purposes of Daimler’s con- solidated financial statements, the income and expenses and the assets and liabilities of subsidiaries located outside the euro zone are converted into euros. Therefore, period-to-period changes in average exchange rates may cause translation effects that have a significant impact on, for example, revenue, segment results (earnings before interest and taxes – EBIT) and net profit or loss of the Group. Unlike exchange rate trans- action risk, exchange rate translation risk does not neces - sarily affect future cash flows. The Group’s equity position reflects changes in book values due to exchange rates. Daimler does not hedge against exchange rate translation risk. Interest rate risk. Daimler uses a variety of interest rate sensitive financial instruments to manage the liquidity and cash needs of its day-to-day operations. A substantial volume of interest rate sensitive assets and liabilities results from the leas- ing and sales financing business operated by the Daimler Financial Services segment. The Daimler Financial Services companies enter into transactions with customers that pri - marily result in fixed-rate receivables. Daimler’s general policy is to match funding in terms of maturities and interest rates, where economically feasible. However, for a limited portion of the receivables portfolio in selected and developed markets, the Group does not match funding in terms of maturities in order to take advantage of market opportunities. As a result, Daimler is exposed to risks due to changes in interest rates. In this regard, the Group does not create liquidity risks. An asset/liability committee consisting of members of the Daimler Financial Services segment, the Corporate Treasury department and the Corporate Controlling department manages the interest rate risk relating to Daimler’s leasing and financing activities by setting targets for the interest rate risk position. The Treasury Risk Management department and the local Daimler Financial Services companies are jointly responsible for achieving these targets. As a separate function, the Daimler Financial Services Risk Management department monitors target achievement on a monthly basis. In order to achieve the targeted interest rate risk positions in terms of maturities and interest rate fixing periods, Daimler generally uses derivative financial instruments, such as interest rate swaps, forward rate agreements, swaptions and caps and floors. Daimler assesses its interest rate risk position by comparing assets and liabilities for corresponding maturities, including the impact of the relevant derivative financial instru- ments. The interest rate risk hedges represent primarily micro hedges. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 237 Derivative financial instruments are also used in conjunction with the refinancing related to the industrial business. Daimler coordinates the funding activities of the industrial and financial services businesses at the Group level. The following table shows the period-end, high, low and average value at risk figures for the 2010 and 2009 portfolio of interest rate sensitive financial instruments and derivative financial instruments of the Group, including the derivative financial instru- ments of the leasing and sales financing business. In this respect, the table shows the interest rate risk regarding the unhedged posi- tion of interest rate sensitive financial instruments. The average values have been computed on an end-of-quarter basis. In millions of euros Period-end High Low 2010 Average Period-end High Low 2009 Average Interest rate risk 49 52 33 45 49 49 33 41 The value at risk of the interest rate sensitive financial instru- ments in 2010 is almost unchanged in comparison to 2009. Commodity price risk. Daimler is exposed to the risk of changes in raw material prices in connection with procuring raw ma terials and manufacturing supplies used in production. Some of the raw material price risk, primarily relating to forecasted pro curing of certain metals, is mitigated with the use of derivative financial instruments. These hedges represent macro hedges. For precious metals, central commodity management shows an unhedged position of 26% of the forecasted commodity purchas- es at year-end for calendar year 2011. The corresponding figure at year-end 2009 was 27% for calendar year 2010. The following table shows the period-end, high, low and average value at risk figures for the 2010 and 2009 portfolio of derivative financial instruments used to hedge raw material price risk. The average exposure has been computed on an end-of-quarter basis. The offsetting transactions underlying the derivative financial instruments are not included in the following value at risk presentation. Period-end High Low 2010 Average Period-end High Low 2009 Average 52 52 27 38 24 35 21 27 In millions of euros Commodity price risk (from derivative financial instruments) 238 The increase of the vehicle sales forecasts in the course of 2010 led to an increase of the commodity hedge volume. Because the stated commodity value at risk refers to the portfolio of the derivative commodity hedging contracts, the increase of the value at risk in 2010 is primarily attributable to the increase of the hedge volume. In addition, the increased commodity prices and commodity price volatilities contributed to the increase of the commodity value at risk in 2010. Equity price risk. Daimler holds investments in marketable equity securities. In line with international banking standards, the Group does not include these investments which it classifies as long-term investments in its equity price risk assessment. 32. Segment reporting Reportable segments. The reportable segments of the Group are Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans, Daimler Buses and Daimler Financial Services. The segments are largely organized and managed separately according to nature of products and services provided, brands, distribution channels and profile of customers. The vehicle segments develop and manufacture passenger cars and off-road vehicles, trucks, vans and buses. Mercedes-Benz Cars sells its passenger cars and off-road vehicles under the brand names Mercedes-Benz, smart and Maybach. Daimler Trucks distributes its trucks under the brand names Mercedes-Benz, Freightliner, Western Star and Fuso. The vans of the Mercedes-Benz Vans segment are primarily sold under the brand name Mercedes- Benz. Daimler Buses sells completely built-up buses under the brand names Mercedes-Benz, Setra and Orion. In addition, Daimler Buses produces and sells bus chassis. The vehicle segments also sell related spare parts and accessories. The Daimler Financial Services segment supports the sales of the Group’s vehicle segments worldwide. Its product portfolio mainly comprises tailored financing and leasing packages for customers and dealers. The segment also provides services such as insurance, fleet management, investment products and credit cards. Management reporting and controlling systems. The Group’s management reporting and controlling systems principally use accounting policies that are the same as those described in Note 1 in the summary of significant accounting policies under IFRS. The Group measures the performance of its operating segments through a measure of segment profit or loss which is referred to as “EBIT” in our management and reporting system. EBIT is the measure of segment profit/loss used in segment reporting and comprises gross profit, selling and general admin istrative expenses, research and non-capitalized develop- ment costs, other operating income and expense, and our share of profit/loss from investments accounted for using the equity method, net, as well as other financial income/expense, net. Intersegment revenue is generally recorded at values that approximate third-party selling prices. Segment assets principally comprise all assets. The industrial business segments’ assets exclude income tax assets, assets from defined pension benefit plans and other post-employment benefit plans and certain financial assets (including liquidity). Segment liabilities principally comprise all liabilities. The industrial business segments’ liabilities exclude income tax liabilities, liabilities from defined pension benefit plans and other post- employment benefit plans and certain financial liabilities (including financing liabilities). Pursuant to risk sharing agreements between Daimler Financial Services and the respective vehicle segments the residual value risks associated with the Group’s operating leases and its finance lease receivables are primarily borne by the vehicle segments that manufactured the leased equipment. The terms of the risk sharing arrangement vary by segment and geographic region. Non-current assets comprise of intangible assets, property, plant and equipment and equipment on operating leases. Capital expenditures for property, plant and equipment and intan- gible assets reflect the cash effective additions to these property, plant and equipment and intangible assets as far as they do not relate to capitalized borrowing costs or goodwill and finance leases. The effects of certain legal proceedings are excluded from the operative results and liabilities of the segments, if such items are not indicative of the segments’ performance, since their re- lated results of operations may be distorted by the amount and the irregular nature of such events. This may also be the case for items that refer to more than on reportable segment. With respect to information about geographical regions, revenue is allocated to countries based on the location of the customer; non-current assets are disclosed according to the physical location of these assets. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 239 Segment information as of and for the years ended December 31, 2010 and 2009: In millions of euros 2010 Revenue Intersegment revenue Total revenue Mercedes- Benz Cars Daimler Trucks Mercedes- Benz Vans Daimler Buses Daimler Financial Services Total Segments Reconciliation Consolidated 51,721 1,705 53,426 21,961 2,063 24,024 7,517 295 7,812 4,487 71 4,558 12,075 713 12,788 97,761 4,847 102,608 – 97,761 -4,847 -4,847 – 97,761 Segment profit/loss (EBIT) 4,656 1,323 451 215 831 7,476 -202 7,274 Thereof share of profit/loss from investments accounted for using the equity method Segment assets Thereof investments accounted for using the equity method 80 32 -5 – -7 100 -248 -148 36,206 17,342 4,555 3,118 67,871 129,092 6,738 135,830 311 374 63 7 43 798 3,162 3,960 Segment liabilities 25,833 9,799 3,432 2,055 63,006 104,125 -6,248 97,877 Additions to non-current assets 8,246 2,294 685 Thereof capital expenditures for intangible assets Thereof capital expenditures for property, plant and equipment Depreciation and amortization of non-current assets Thereof amortization of intangible assets Thereof depreciation of property, plant and equipment 1,021 445 2,457 1,003 3,014 1,018 658 1,586 129 602 54 91 449 74 207 351 36 95 145 10 68 5,618 17,194 -190 17,004 7 12 1,563 3,658 -8 -5 1,555 3,653 2,039 6,665 103 6,768 16 13 887 2,476 – 1 887 2,477 240 Mercedes- Benz Cars Daimler Trucks Mercedes- Benz Vans Daimler Buses Daimler Financial Services Total Segments Reconciliation Consolidated In millions of euros 2009 Revenue Intersegment revenue Total revenue 40,205 1,113 41,318 16,633 1,727 18,360 Segment profit/loss (EBIT) -500 -1,001 Thereof share of profit/loss from investments accounted for using the equity method -3 -4 6,002 213 6,215 26 -13 4,173 65 4,238 183 – 11,366 630 11,996 78,379 3,748 82,127 545 -3,748 -3,203 78,924 – 78,924 9 7 -1,283 -230 -1,513 -13 85 72 Segment assets 32,452 14,317 4,585 2,806 65,059 119,219 9,602 128,821 Thereof investments accounted for using the equity method 101 220 60 2 54 437 3,858 4,295 Segment liabilities 21,978 8,020 3,109 1,728 60,389 95,224 1,770 96,994 Additions to non-current assets 8,263 1,518 Thereof capital expenditures for intangible assets Thereof capital expenditures for property, plant and equipment Depreciation and amortization of non-current assets Thereof amortization of intangible assets Thereof depreciation of property, plant and equipment 967 1,618 2,732 597 1,511 427 597 1,045 129 619 574 9 113 476 74 229 318 4,527 15,200 -560 14,640 10 78 7 14 132 2,571 11 59 19 14 1,420 2,420 6,956 830 2,432 2 3 -242 -2 4 1,422 2,423 6,714 828 2,436 Mercedes-Benz Cars. In 2009, as a result of the agreement with McLaren Group Ltd. to change the form of cooperation, the Group incurred a pre-tax expense of €87 million (see also Note 35). Also in 2009, a risk sharing agreement between Daimler and its independent dealers in connection with residual values was modified, which resulted in a non-cash effective pre-tax expense of €79 million. Daimler Trucks. In 2010, as a result of the adjustment of de- fined health care and pension benefits at our subsidiary Daimler Trucks North America (DTNA), the Group recorded a non-cash effective pre-tax gain of €160 million which is included in the segment’s EBIT. In addition, in 2010 and 2009, pre-tax expenses of €37 million and €95 million, respectively, associated with the decision to optimize and reposition the business operations of DTNA are included in the segment’s EBIT. Of the 2009 amount, €68 million relate to non-cash charges. Also in 2010 and 2009, the major realignment of the business operations of Mitsubishi Fuso Truck and Bus Corporation (MFTBC) led to pre-tax charges of €3 million and €245 million, respectively. From these amounts, €13 million and €50 million relate to non-cash charges, respectively. For further information on these optimization programs, see also Note 5. Daimler Financial Services. In 2010, the Board of Management decided to restructure the business activities of Daimler Financial Services AG and Mercedes-Benz Bank AG in Germany by the end of 2012. In this regard pre-tax expenses of €82 million resulted in 2010, of which €76 million were non-cash effective (see also Note 5). In 2010 and 2009, pre-tax expenses of €9 million and €100 million, respectively, resulted from the sale and the valuation of non-automotive assets held for sale (see also Note 3). Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 241 The reconciliation includes corporate items for which headquar- ters are responsible. Transactions between the segments are eliminated in the context of consolidation and the eliminated amounts are included in the reconciliation. Within the reconciliation to Group EBIT, the line item “Other cor- porate items” in 2010 includes a pre-tax income of €218 million related to the positive outcome of a legal dispute involv- ing Daimler AG and a pre-tax gain of €265 million on the sale of Daimler’s equity interest in Tata Motors. Due to the very good development of earnings in 2010 and in view of the 125th anni- versary of the invention of the automobile in 2011, the Board of Management committed in December 2010 to pay out a anni- versary bonus in an amount of approximately €125 million to all persons employed by the Group, the individual amounts depending on each employee’s period of service. The Group also committed to increase the capital of the Daimler and Benz Foundation from €37 million to €125 million. These expenses, as well as additional expenses in connection with legal proceed- ings, are also included in this line item. In 2009, other corporate items reflect Chrysler-related expenses totaling €294 million. Reconciliations. Reconciliations of the total segment amounts to respective items included in financial statements are as follows: In millions of euros Total segments’ profit/loss (EBIT) Share of profit/loss from investments accounted for using the equity method 1 Other corporate items Eliminations Group EBIT Interest income Interest expense Profit/loss before income taxes 2010 2009 7,476 -1,283 -248 17 29 7,274 825 -1,471 6,628 85 -483 168 -1,513 1,136 -1,921 -2,298 Total segments’ assets 129,092 119,219 Investments accounted for using the equity method 1 Income tax assets 2 Unallocated financial assets (including liquidity) and assets from defined benefit plans 2 Other corporate items and eliminations Group assets Total segments’ liabilities Income tax liabilities 2 Unallocated financial liabilities and liabilities from defined benefit plans 2 Other corporate items and eliminations Group liabilities 3,162 2,605 3,858 2,536 11,777 -10,806 135,830 104,125 1,887 3,488 -11,623 97,877 13,346 -10,138 128,821 95,224 950 10,709 -9,889 96,994 1 Includes mainly the Group’s proportionate shares in the investments and results of EADS and Tognum. For further information see Note 13. 2 Industrial business Revenue and non-current assets by region. Revenue from external customers is as follows: Germany Western Europe 1 United States Other American countries Asia Other countries Consolidated 19,281 18,788 19,197 17,670 20,216 16,569 9,112 6,159 19,659 12,435 10,296 7,303 97,761 78,924 In millions of euros 2010 2009 1 Excluding Germany. 242 The split of non-current assets by region is as follows: In millions of euros Germany USA Other countries 2010 2009 24,985 10,154 9,883 45,022 23,452 8,937 8,861 41,250 33. Capital management “Net assets” and “value added” represent the basis for capital management at Daimler. The assets and liabilities of the segments in accordance with IFRS provide the basis for the determination of net assets at Group level. The industrial segments are account- able for the operational net assets; all assets, liabilities and provisions which they are responsible for in day-to-day operations are therefore allocated to them. Performance measurement at Daimler Financial Services is on an equity basis, in line with the usual practice in the banking business. Net assets at Group level additionally include assets and liabilities from income taxes as well as other corporate items and eliminations. The average annual net assets are calculated from the average quarterly net assets. The cost of capital of the Group’s average net assets is reflected in “value added.” Value added shows to which extent the Group achieves or exceeds the minimum return requirements of the shareholders and creditors, thus creating additional value. The required rate of return on net assets, and thus the cost of capital, are derived from the minimum rates of return that inves- tors expect on their invested capital. The Group’s cost of capi- tal comprises the cost of equity as well as the costs of debt and pension obligations of the industrial business; in addition, the expected returns on liquidity and on the plan assets of the pension funds of the industrial business are considered with the oppo- site sign. In the reporting period, the cost of capital used for our internal capital management amounted to 8% after taxes. The objective of capital management is the optimization of the cost of capital, which is achieved on the one hand by the man- agement of the net assets which are in the operational responsi- bility of the segments. In addition, taking into account legal regulations, Daimler strives to optimize the capital structure and, consequently, the cost of capital under cost and risk aspects. 34. Earnings/loss per share The computation of basic and diluted earnings/loss per share for net profit/loss attributable to shareholders of Daimler AG is as follows: The average quarterly net assets are calculated as an average of the net assets at the beginning and the end of the quarter and are as follows: In millions of euros Profit/loss attributable to shareholders of Daimler AG 2010 2009 Diluting effects in net profit/loss Profit/loss attributable to shareholders of Daimler AG – diluted In millions of shares Weighted average number of shares outstanding – basic Dilutive effect of stock options Weighted average number of shares outstanding – diluted 10,146 11,373 6,863 1,228 1,200 5,156 6,720 1,728 1,221 4,671 24,593 25,713 3,119 1,278 348 3,591 2,944 -470 29,338 31,778 In millions of euros Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services 1 Net assets of the segments Investments accounted for using the equity method 2 Assets and liabilities from income taxes 3 Other corporate items and eliminations 3 Net assets Daimler Group 1 Equity 2 Unless allocated to segments 3 Industrial business 2010 2009 4,498 – -2,640 – 4,498 -2,640 1,050.8 1,003.8 0.7 – 1,051.5 1,003.8 The computations of diluted earnings/loss per share for 2010 and 2009, do not include stock options for the acquisition of 9.3 million and 22.4 million Daimler ordinary shares, respectively, that were issued in connection with the stock option plan, because the options’ underlying exercise prices were higher than the average market prices of Daimler ordinary shares in those periods. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 243 35. Related party relationships Associated companies and joint ventures. Most of the goods and services supplied within the ordinary course of business between the Group and related parties comprise transactions with associated companies and joint ventures and are included in the following table: Sales of goods and services and other income Purchases of goods and services and other expense 2010 2009 2010 2009 Receivables At December 31, 2009 2010 Payables At December 31, 2009 2010 In millions of euros Associated companies Joint ventures 797 2,251 990 1,242 163 342 1,132 140 218 457 155 236 55 154 28 188 A large proportion of the sales and purchases of goods and services with associated companies result from business relations with Tognum AG. In connection with the Group’s 45% equity interest in Toll Collect, Daimler has provided guarantees supporting the obligations of Toll Collect GmbH which are not included in the table above (see Note 29 for further information). In 2009, income and expenses resulting from transactions with Chrysler that occurred before the redemption of the remaining 19.9% equity interest in Chrysler Holding LLC (Chrysler Holding) on June 3, 2009 are included in the above table in the line “Associated companies.” Therein included is a gain before income taxes of €0.1 billion in connection with the legal transfer of Chrysler’s international sales activities to Chrysler in the first quarter of 2009. In addition, the Group has agreed to pay US$600 million in total to Chrysler’s pension plans in connection with the redemption of the 19.9% equity interest in Chrysler Holding (see Note 3); the respective expenses resulting from this agreement are also included in the above table. Due to the redemption of the equity interest in Chrysler Holding, re ceivables and payables at December 31, 2009 did not have to be reported. Furthermore, in November 2009, in connection with the re- alignment of the Group’s Formula 1 activities, Daimler agreed with McLaren Group Ltd. (McLaren), at that time one of Daimler’s associated companies, to change the form of cooperation. In two steps, McLaren will buy-back the 40% equity interest in McLaren owned by the Daimler Group; in November 2009, McLaren already took over a 28.6% interest from Daimler. The remaining stake will be acquired by McLaren at a fixed price by the end of 2011. As of December 31, 2009, the carrying amount of the Group’s remaining investment in McLaren amounted to €26 million. In the context of the transaction, the Group has consented to compensate for its existing obligations, for ex- ample to support McLaren’s research and development activities until the end of 2011, with a lump sum payment. In addition, the Group committed to continue supplying McLaren with Formula 1 engines until the end of 2012. The agreement between Daimler and McLaren Automotive Ltd., a wholly owned subsidiary of McLaren Group Ltd., relating to the production of the Mercedes McLaren SLR sports car was terminated at the end of 2009. As a result of disposing of its equity interest, the Daimler Group no longer has a significant influence on McLaren’s business oper- ations. For this reason, in November 2009, the Group ceased to account for its equity interest in McLaren using the equity method of accounting. Income and expenses resulting from transactions with McLaren that occurred before that date are included in the above table. As a result of the agreement with McLaren, the Group recorded expenses of €87 million in 2009 that were allocated to the Mercedes-Benz Cars segment and are not reflected in the above table. 244 From time to time, companies of the Daimler Group purchase goods and services (primarily advertising) from and sell or lease vehicles or provide financial services to companies of the Lagardère Group in the ordinary course of business. Arnaud Lagardère, who became a member of the Supervisory Board of Daimler AG in April 2005 and left the board on April 14, 2010, is the general partner and Chief Executive Officer of Lagardère SCA, a publicly traded company and the ultimate parent company of the Lagardère Group. For information on the remuneration of board members, see Note 36. Shareholders. The Group distributes vehicles in Turkey through a dealership which also holds a minority interest in one of the Group’s subsidiaries. In addition, the Group has business rela- tionships with vehicle importers in certain other countries that also hold minority interests in Group companies. Revenue gen- erated by these transactions amounted to €0.3 billion in 2010 (2009: €0.2 billion). Related to these transactions, the Group incurred expenses of €22 million in 2010 (2009: €27 million), resulting primarily from the depreciation of purchased vehicles. Contributions to plan assets. In 2010 and 2009, the Group made contributions of €345 million (2009: €602 million) to its external funds to cover pension and other post employment benefits. For further information, see Note 22. At the end of 2009, based on contractual arrangements, the Group agreed with Kamaz OAO, another associated company, to establish two joint ventures. The purpose of the joint ventures is the distribution and, with respect to some truck lines, the assembly of Mercedes-Benz and Fuso trucks and the sale of Mercedes-Benz and Setra buses in Russia. These two joint ventures started large parts of their business activities in 2010. In addition, at the end of 2010, Daimler signed a memorandum of understanding with Kamaz to produce axles in a joint venture in Russia. The transactions with joint ventures predominantly comprise the business relationship with Beijing Benz Automotive Co., Ltd. (BBAC). BBAC assembles and distributes Mercedes-Benz vehicles for the Group in China. Further major parts of sales and purchases of goods and ser- vices relate to joint ventures in Austria and Taiwan. These joint ventures distribute cars and spare parts of the Group. Since the middle of 2010 substantial business relations relate to the Chinese joint venture Fujian Daimler Automotive Co. Ltd. (FJDA). FJDA produces and distributes vans under the brand name Mercedes-Benz in China. Board members. Throughout the world, the Group has business relationships with numerous entities that are customers and/ or suppliers of the Group. Those customers and/or suppliers include companies that have a connection with some of the members of the Supervisory Board or of the Board of Management of Daimler AG or its subsidiaries. Board of Management and Supervisory Board members may also purchase goods and services from Daimler AG or its sub- sidiaries as customers. When such business relationships exist transactions are concluded on the basis of customary market conditions. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 245 36. Remuneration of the members of the Board of Management and the Supervisory Board No advances or loans were made to members of the Board of Management or members of the Supervisory Board of Daimler AG. Remuneration granted to the members of the Board of Management and the Supervisory Board affecting net profit/ loss for the period ended December 31 was as follows: In millions of euros Remuneration granted to the members of the Board of Management Fixed remuneration Short-term variable remuneration Variable remuneration with a long-term incentive effect Post-employment benefits (service cost) Termination benefits Remuneration granted to the members of the Supervisory Board 2010 2009 4.8 13.5 13.5 1.9 – 33.7 2.7 36.4 4.8 1.8 4.5 1.7 – 12.8 2.6 15.4 Expenses for variable remuneration with long-term incentive effect, shown in the table above, result from the ongoing mea- surement at fair value at each balance sheet date of all rights granted and not yet forfeited under the Performance Phantom Share Plans (PPSP). In addition, the measurement at fair value of the stock options granted in 2004 is included. In 2010, the active members of the Board of Management were granted 250,221 (2009: 270,068) million phantom shares in connection with the PPSP; the fair value of these phantom shares at the grant date was €7.5 million (2009: €5.2 million). According to Section 314 Subsection 1 Number 6a of the German Commer- cial Code (HGB) the overall remuneration granted to the members of the Board of Management, excluding service cost resulting from entitlements to post-employment benefits, amounted to €25.8 million (2009: €11.8 million). For additional information on share-based payment of the members of the Board of Manage- ment see Note 21. Except for the remuneration paid to the members of the Supervisory Board representing the employees in accordance with their contracts of employment, the members of the Supervisory Board are solely granted short-term benefits. No remuneration was paid for services provided personally beyond the board and committee activities, in particular for advisory or agency services in 2010 and 2009. The payments made in 2010 to former members of the Board of Management of Daimler AG and their survivors amounted to €17.5 million (2009: €16.1 million). The pension provisions for former members of the Board of Management and their survi- vors amounted to €197.1 million as of December 31, 2010 (2009: €192.8 million). Information regarding the remuneration of the members of the Board of Management and of the Supervisory Board is disclosed on an individual basis in the Remuneration Report, which is part of the Management Report (see page 152 f.). 37. Principal accountant fees The principal accountant fees for services of KPMG consist of the following: In millions of euros Annual audit thereof domestic Other attestation services thereof domestic Tax consultation services thereof domestic Other services thereof domestic 2010 2009 30 14 13 9 . . 1 1 44 26 12 20 13 . . 1 . 47 In 2010 €17 million (2009: €14 million) related to fees for annual audits and €9 million (2009: €14 million) related to fees for other attestation services paid to KPMG AG Wirtschaftsprüfungs- gesellschaft and its affiliated companies (which together form KPMG Europe LLP). The annual audit fees are for the audit of the consolidated financial statements and the individual financial statements both of Daimler AG and of all subsidiaries included in the Group’s consolidated financial statements. Fees for other attestation services concern in particular the review of the inter- im IFRS financial statements. This item also includes audits of the internal-control system as well as project-related audits performed in the context of the introduction of IT systems and other voluntary audits. 246 38. Additional information Information on investments. The statement of investments of Daimler AG according to Section 313 Subsection 2 of the German Commercial Code (HGB) is made available on Daimler’s website at http://www.daimler.com/ir/results2010. Several consolidated companies of Daimler AG qualify for Section 264 Subsection 3 and Section 264b of the German Commercial Code (HGB), and the consolidated financial statements of Daimler AG therefore release these subsidiaries from the requirements to disclose their annual financial statements or from the require- ment to prepare a management report or notes to the finan- cial statements. The respective companies are indicated in the statement of investments. German Corporate Governance Code. The Board of Manage- ment and the Supervisory Board of Daimler AG have issued a declaration pursuant to Section 161 of the German Stock Corporation Act and have made it permanent available to their shareholders on Daimler’s website at http://www.daimler.com/company/organization-and- management/corporate-governance/declaration. Third-party companies. At December 31, 2010, the Group was a shareholder of the following companies that meet the criteria of a significant third-party company as defined by the German Corporate Governance Code: Name of the company Renault SA 2 Nissan Motor Company Ltd. 3 Headquarters of the company Equity interest in % 1 Total equity in millions of euros Net profit in millions of euros Boulogne-Billancourt, France 3.1 22,757 3,490 Tokyo, Japan 3.1 28,579 323 1 As of December 31, 2010. 2 Based in IFRS consolidated financial statements for the year ended December 31, 2010. 3 Based on national consolidated financial statements for the year ended March 31, 2010. Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 247 Ten Year Summary 1 Amounts in millions of euros From the statements of income Revenue Personnel expenses 2 Research and development expenditure thereof capitalized Operating profit (loss)/EBIT Operating margin Income (loss) before income taxes and extraordinary items Net operating income/ Net operating profit (loss) as % of net assets (RONA) Net income (loss)/Net profit (loss) Net income (loss) per share (€)/ Net profit (loss) per share (€) Diluted net income (loss) per share (€)/ Diluted net profit (loss) per share (€) Total dividend Dividend per share (€) From the balance sheets Property, plant and equipment Leased equipment Other non-current assets Inventories Liquid assets Other current assets Total assets Shareholders’ equity thereof share capital Equity ratio Group Equity ratio industrial business Non-current liabilities Current liabilities 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 150,422 147,408 136,437 142,059 25,095 24,163 24,287 24,216 95,209 24,650 99,222 101,569 23,574 20,256 98,469 15,066 5,848 – -1,346 -0.9% 5,942 – 6,827 4.6% 5,571 – 5,686 4.2% 5,658 – 5,754 4.1% 3,928 591 2,873 3.0% 3,733 715 4,992 5.0% 4,148 990 8,710 8.6% 4,442 1,387 2,730 2.8% 78,924 13,928 4,181 1,285 -1,513 -1.9% 97,761 16,454 4,849 1,373 7,274 7.4% -1,703 6,439 596 3,535 2,426 4,902 9,181 2,795 -2,298 6,628 332 0.5% -593 6,116 9.4% 5,098 1,467 2.5% 448 3,165 5.7% 2,466 4,834 10.0% 4,215 4,032 8.3% 3,783 4,123 10.5% 3,985 1,370 4.4% 1,414 -2,102 -6.6% -2,644 5,120 17.5% 4,674 -0.59 5.06 0.44 2.43 4.09 3.66 3.83 1.41 -2.63 4.28 -0.59 1,003 1.00 5.03 1,519 1.50 0.44 1,519 1.50 2.43 1,519 1.50 4.08 1,527 1.50 3.64 1,542 1.50 3.80 1,928 2.00 1.40 556 0.60 -2.63 0 0.00 4.28 1,971 1.85 41,180 36,002 – 16,754 14,536 – 36,285 28,243 – 15,642 12,439 – 32,933 24,385 – 14,948 14,296 – 34,017 26,711 – 16,805 11,666 – 35,295 34,236 76,200 19,699 8,063 32,747 36,949 67,507 18,396 8,409 54,519 53,626 14,650 19,638 39,686 14,086 15,631 31,403 16,087 18,672 42,077 16,805 6,912 31,672 207,616 187,527 178,450 182,872 228,012 217,634 135,094 132,225 38,928 35,076 34,486 33,522 35,957 37,346 38,230 32,730 15,965 18,532 40,044 12,845 9,800 17,593 19,925 41,309 14,544 10,903 31,635 31,556 128,821 135,830 37,953 31,827 2,609 18.3% 25.7% – – 2,633 17.9% 24.9% – – 2,633 18.5% 26.1% – – 2,633 17.5% 25.2% – – 2,647 15.1% 23.7% 96,823 95,232 8,016 2,673 16.5% 27.1% 90,452 89,836 9,861 2,766 26.9% 43.7% 47,998 48,866 12,912 39,187 2,768 24.3% 42.7% 47,313 52,182 3,106 3,045 24.7% 42.6% 49,456 47,538 7,285 31,466 31,778 3,058 26.5% 45.8% 44,738 53,139 11,938 29,338 Net liquidity industrial business -4,768 380 1,774 2,193 Net assets (average) 66,094 65,128 59,572 55,885 48,313 48,584 248 Amounts in millions of euros From the statements of cash flows 2 Investments in property, plant and equipment Depreciation and amortization Cash provided by (used for) operating activities investing activities financing activities Free cash flow of the industrial business From the stock exchanges Share price at year-end Frankfurt (€) New York (US $) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 8,896 7,145 6,614 6,386 – – – – 6,480 7,363 5,874 7,169 4,247 4,146 3,559 3,023 2,423 3,264 15,944 15,909 13,826 11,060 11,032 14,337 7,146 -786 10,961 -13,287 -10,839 -13,608 -16,682 -10,237 -15,857 26,479 1,859 -1,392 -5,490 7,271 2,518 3,877 2,549 1,757 -1,284 2,423 2,396 2,679 -25,204 7,637 -4,812 -2,915 -3,915 -8,950 1,057 2,706 3,653 3,364 8,544 -313 -7,551 5,432 48.35 41.67 29.35 30.65 37.00 46.22 35.26 48.05 43.14 51.03 46.80 61.41 66.50 95.63 26.70 38.28 37.23 53.30 50.73 – Average shares outstanding (in millions) 1,003.2 1,008.3 1,012.7 1,012.8 1,014.7 1,022.1 1,037.8 957.7 1,003.8 1,050.8 Average diluted shares outstanding (in millions) 1,003.2 1,013.9 1,012.7 1,014.5 1,017.7 1,027.3 1,047.3 959.9 1,003.8 1,051.5 Ratings Credit rating, long-term Standard & Poor’s Moody’s Fitch DBRS BBB+ BBB+ A3 – – A3 – – BBB A3 BBB A3 BBB+ BBB+ A (low) A (low) BBB A3 BBB+ BBB Baa1 BBB+ BBB+ A3 A- A- A3 A- BBB+ A3 BBB+ BBB+ A3 BBB+ A (low) A (low) A (low) A (low) A (low) A (low) Average annual number of employees 379,544 370,677 370,684 379,019 296,109 277,771 271,704 274,330 258,628 258,120 1 For the years 2001 through 2004, figures according to US GAAP, since 2005 according to IFRS. 2 Until August 3, 2007, including Chrysler. Additional Information | Ten Year Summary | 249 Glossary BlueEFFICIENCY. Efficiency packages for saving fuel. They include various measures taken inside engines, bodywork weight savings, tires with low roll resistance, aerodynamic optimizations, the ECO start­stop function etc. In this way, fuel consumption can be reduced by more than 20%. CSR – corporate social responsibility. A collective term for the social responsibility assumed by companies, including economical, ecological and social aspects. EBIT. Earnings before interest and taxes are the measure of operating profit before taxes (see pages 74 ff). BLUETEC. A combination of inner­engine measures to reduce emissions and the treatment of exhaust gases. It improves diesel engines’ efficiency for cars and commercial vehicles by optimizing their combustion, and reduces their emissions with SCR catalysts. Equity method. Accounting and valuation method for share­ holdings in associated companies and joint ventures, as well as subsidiaries that are not fully consolidated. BRIC. This abbreviation stands for the four countries of Brazil, Russia, India and China. Code of Ethics. The Daimler Code of Ethics applies to the members of the Board of Management and senior executives who have special responsibility for the contents of financial reporting. The regulations contained in the Code are designed to prevent miscon­ duct and to ensure ethical behavior and the correct disclosure of information on the Group. Compliance. By the term compliance, we understand adherence to all laws, rules, regulations and voluntary commitments that are relevant for our business, as well as the related internal policies and guidelines of the Daimler Group. Consolidated Group. The consolidated Group is the total of all those companies that are included in the consolidated financial statements. Corporate governance. The term corporate governance applies to the proper management and supervision of a company. The structure of corporate governance at Daimler AG is determined by Germany’s Stock Corporation Act (AktG), Codetermination Act (MitbestG) and capital­market legislation. Cost of capital. The cost of capital is the product of the average amount of capital employed and the cost­of­capital rate. The cost­of­capital rate is derived from the investors’ required rate of return (see pages 77 ff). Fair value. The amount for which an asset or liability could be exchanged in an arm’s length transaction between knowledgeable and willing parties who are independent of each other. Goodwill. Goodwill represents the excess of the cost of an acquired business over the fair values assigned to the separately identifiable assets acquired and liabilities assumed. Hybrid drive. Hybrid drive systems combine combustion engines with electric motors, which can be operated separately or together depending on the type of vehicle and driving situation. IFRS – International Financial Reporting Standards. The IFRS are a set of standards and interpretations for companies’ external accounting and financial reporting developed by an independent private­sector committee, the International Accounting Standards Board (IASB). Integrity Code. Our Integrity Code has been in use since 1999 and was revised and expanded in 2003. It sets out a binding framework for the actions of all our employees worldwide. Lithium-ion batteries. They are at the heart of future electric drive systems. Compared to conventional batteries, lithium­ion batteries are considerably smaller and characterized by signifi­ cantly higher power density, short charging times and long lives. Net assets. Net assets represent the capital employed by the Group and the industrial divisions. The relevant capital basis for Daimler Financial Services is equity capital (see pages 77 ff). 250 NEDC – New European Driving Cycle. A measuring method used in Europe for the objective assessment of vehicles’ fuel consumption. Net operating profit. Net operating profit is the relevant parameter for measuring the Group’s operating performance after taxes. Rating. An assessment of a company’s creditworthiness issued by rating agencies. ROE – return on equity. The profitability of Daimler Financial Services is measured by return on equity (ROE). ROE is defined as a quotient of EBIT and shareholders’ equity. ROS – return on sales. The profitability of the industrial divisions is measured by return on sales (ROS). ROS is defined as a quotient of EBIT and revenue. Sustainability. Sustainability means using natural resources in such a way that they continue to be available to fulfill the needs of future generations. In the view of the Daimler Group, sustainable business operations have to give due consideration to economic, ecological and social aspects. Value at risk. This measures the potential future loss (related to market value) for a given portfolio in a certain period and for which there is a certain probability that it will not be exceeded. Value added. Value added indicates the extent to which operating profit exceeds the cost of capital. When value added is positive, return on net assets is higher than the cost of capital (see pages 77 ff). Index Annual Meeting Capital expenditure Cash flow Change of control CO2 reductions Code of Ethics Compliance Consolidated Group Corporate governance Dividend EADS Earnings per share (EPS) EBIT Financial income Fuel cells Global excellence Goodwill Hybrid drive Income taxes Independent auditors’ report Integrity Code Investor Relations Liabilities Net assets Net profit Pension obligations Portfolio changes Profitability Ratings Remuneration system Revenue ROE – return on equity ROS – return on sales Segment reporting Shareholders’ equity Shares Strategy Sustainability Unit sales Value added 24, 160 92, 116 90 f, 176, 220 64 84 f, 140 ff 165 158 f 178 f 63, 148 ff 23, 82, 117 63, 65, 76, 199 22, 244 74 ff 81 f, 191 42, 141 f 129 195 38 ff, 140 ff 192 ff 171 165 25 97, 218 ff 77 ff 82, 172, 173 89, 97, 211 ff 67 f 74 ff 95 152 ff, 246 73, 189 77 f 77 f 239 ff 97, 101, 204 22 ff, 64 65 ff 136 ff 71 f, 122, 126, 130, 132 77 ff Additional Information | Glossary | Index | 251 International Representative Offices Argentina, Buenos Aires Tel. +54 11 4808 8719 Fax +54 11 4808 8702 Denmark, Copenhagen Tel. +45 3378 5520 Fax +45 3378 5525 Australia, Melbourne Tel. +61 39 566 9104 Fax +61 39 566 9110 Austria, Salzburg Tel. +43 662 447 8212 Fax +43 662 447 8334 Belgium, Brussels Tel. +32 2 23311 33 Fax +32 2 23311 50 Egypt, Cairo Tel. +20 2 529 9100 Fax +20 2 529 9105 France, Paris Tel. +33 1 39 23 5400 Fax +33 1 39 23 5442 Germany, Berlin Tel. +49 30 2594 1100 Fax +49 30 2594 1109 Japan, Tokyo Tel. +81 44330 7071 Fax +81 44330 5831 Korea, Seoul Tel. +82 2 6456 2555 Fax +82 2 6459 2599 Macedonia, Skopje Tel. +389 2 2580 000 Fax +389 2 2580 401 Slovakia, Bratislava Tel. +42 1 2492 94900 Fax +42 1 2492 94904 South Africa, Pretoria Tel. +27 12 677 1502 Fax +27 12 666 8191 Spain, Madrid Tel. +34 91 484 6161 Fax +34 91 484 6019 Malaysia, Kuala Lumpur Tel. +603 2246 8811 Fax +603 2246 8812 Taiwan, Taipei Tel. +886 2 2715 9696 Fax +886 2 2719 2776 Brazil, Sao Paulo Tel. +55 11 4173 7171 Fax +55 11 4173 7118 Great Britain, Milton Keynes Tel. +44 190 8245 800 Fax +44 190 8245 802 Mexico, Mexico City Tel. +52 55 4155 2540 Fax +52 55 4155 2495 Thailand, Bangkok Tel. +66 2344 6101 Fax +66 2676 6234 Bulgaria, Sofia Tel. +359 2 919 8813 Fax +359 2 945 4818 Canada, Toronto Tel. +1 416 847 7500 Fax +1 416 425 0598 China, Beijing Tel. +86 10 8417 8177 Fax +86 10 8417 8077 Croatia, Zagreb Tel. +385 1 344 1251 Fax +385 1 344 1258 Greece, Kifissia Tel. +30 210 629 6700 Fax +30 210 629 6710 Hungary, Budapest Tel. +36 1 887 7002 Fax +36 1 887 7001 India, Pune Tel. +91 2135 673 800 Fax +91 2135 673 951 Indonesia, Jakarta Tel. +62 21 3000 3600 Fax +62 21 8689 9103 Czech Republic, Prague Tel. +42 0 2710 77700 Fax +42 0 2710 77702 Italy, Rome Tel. +39 06 4144 2405 Fax +39 06 4121 9097 Netherlands, Utrecht Tel. +31 3024 7 1259 Fax +31 3029 8 7258 Poland, Warsaw Tel. +48 22 312 7200 Fax +48 22 312 7201 Romania, Bucharest Tel. +40 21 2004 501 Fax +40 21 2004 670 Russia, Moscow Tel. +7 495 745 2616 Fax +7 495 745 2614 Singapore, Singapore Tel. +65 6849 8321 Fax +65 6849 8621 Turkey, Istanbul Tel. +90 212 867 3330 Fax +90 212 867 4518 United Arab Emirates, Dubai Tel. +97 14 8075 202 Fax +97 14 8833 201 USA, Washington Tel. +1 202 414 6746 Fax +1 202 414 6790 Vietnam, Ho Chi Minh-City Tel. +848 3588 9100 Fax +848 3895 8714 252 Divisions Internet | Information | Addresses Daimler Worldwide Amounts in millions of euros Mercedes-Benz Cars EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Daimler Trucks EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Mercedes-Benz Vans EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Daimler Buses EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Daimler Financial Services EBIT Revenue New business Contract volume Investment in property, plant and equipment Employees (December 31) 2010 2009 2008 10/09 % change 4,656 53,426 8.7% 2,457 3,130 940 1,276,827 96,281 -500 41,318 -1.2% 1,618 2,696 913 1,093,905 93,572 2,117 47,772 4.4% 2,246 2,994 1,060 1,273,013 97,303 1,323 24,024 5.5% 1,003 1,282 373 355,263 71,706 451 7,812 5.8% 91 267 29 224,224 14,557 215 4,558 4.7% 95 223 31 39,118 17,134 831 12,788 29,267 63,725 12 6,742 -1,001 18,360 -5.5% 597 1,116 368 259,328 70,699 26 6,215 0.4% 113 193 0 165,576 15,226 183 4,238 4.3% 78 212 5 32,482 17,188 9 11,996 25,066 58,350 14 6,800 1,607 28,572 5.6% 991 1,056 326 472,074 79,415 818 9,479 8.6% 150 228 0 287,198 16,775 406 4,808 8.4% 117 178 1 40,591 18,110 677 11,964 29,514 63,353 41 7,116 . +29 . +52 +16 +3 +17 +3 . +31 . +68 +15 +1 +37 +1 . +26 . -19 +38 . +35 -4 +17 +8 . +22 +5 +520 +20 -0 . +7 +17 +9 -14 -1 Information on the Internet. Special information on our shares and earnings development can be found in the “Investor Relations” section of our website. It includes the Group’s annual and interim reports and the company financial statements of Daimler AG. You can also find topical reports, presentations, an overview of various key figures, information on our share price, and other services. www.daimler.com/investors Publications for our shareholders: – Annual Report (German, English) – Interim Reports for the 1st, 2nd and 3rd quarters (German, English) – Sustainability Report (German, English) – Brochure: The Road to Emission-free Mobility (German, English) – Brochure: Milestones in Vehicle Safety. The Vision of Accident-free Driving (German, English) www.daimler.com/ir/reports www.daimler.com/downloads/en The financial statements of Daimler AG were prepared in accordance with German accounting principles, and the consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS). Both sets of financial statements were audited by KPMG AG Wirtschaftsprüfungsgesellschaft and an unqualified audit opinion was rendered thereon. These financial statements will be filed with the operator of the electronic version of the German Federal Gazette and published in the electronic version of the German Federal Gazette. The aforementioned publications can be requested from: Daimler AG, Investor Relations, HPC 0324, 70546 Stuttgart, Germany. The documents can also be ordered by phone or fax using the following number: +49 711 17 92287. Daimler AG 70546 Stuttgart Phone +49 711 17 0 Fax www.daimler.com www.daimler.mobi +49 711 17 22244 Investor Relations Phone +49 711 17 95277 +49 711 17 92261 +49 711 17 95256 +49 711 17 94075 Fax ir.dai@daimler.com Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Sales Organization Automotive Businesses Daimler Financial Services Europe Production locations Sales outlets Revenue in millions of euros Employees NAFTA Production locations Sales outlets Revenue in millions of euros Employees Latin America (excluding Mexico) Production locations Sales outlets Revenue in millions of euros Employees Africa Production locations Sales outlets Revenue in millions of euros Employees Asia Production locations Sales outlets Revenue in millions of euros Employees Australia/Oceania Production locations Sales outlets Revenue in millions of euros Employees 10 – 25,486 87,136 1 – 10,645 3,028 1 – 614 874 1 – 1,727 4,710 4 – 13,964 533 – – 994 – 7 – 7,953 30,617 14 – 6,166 15,749 1 – 3,740 11,434 1 – 894 1,050 5 – 4,757 12,856 – – 507 – 4 – 6,292 13,149 1 – 457 85 1 – 364 1,323 – – 171 – 1 – 386 – – – 143 – 7 – 2,421 14,566 3 – 540 1,346 2 – 1,208 1,222 1 – 175 – 2 – 130 – – – 83 – – 3,900 – 40,339 – 1,424 – 3,193 – 601 – 81 – 314 – – – 1,480 – 3,602 – 285 – 1,084 – 38 5,318 4,199 – 5 6,026 1,236 – 5 320 292 – 1 467 300 – 9 444 559 – 2 213 156 Note: Unconsolidated revenue of each division (segment revenue). Divisions Internet | Information | Addresses Daimler Worldwide Amounts in millions of euros Mercedes-Benz Cars EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Daimler Trucks EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Mercedes-Benz Vans EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Daimler Buses EBIT Revenue Return on sales Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Daimler Financial Services EBIT Revenue New business Contract volume Investment in property, plant and equipment Employees (December 31) 2010 2009 2008 10/09 % change 4,656 53,426 8.7% 2,457 3,130 940 1,276,827 96,281 -500 41,318 -1.2% 1,618 2,696 913 1,093,905 93,572 2,117 47,772 4.4% 2,246 2,994 1,060 1,273,013 97,303 1,323 24,024 5.5% 1,003 1,282 373 355,263 71,706 451 7,812 5.8% 91 267 29 224,224 14,557 215 4,558 4.7% 95 223 31 39,118 17,134 831 12,788 29,267 63,725 12 6,742 -1,001 18,360 -5.5% 597 1,116 368 259,328 70,699 26 6,215 0.4% 113 193 0 165,576 15,226 183 4,238 4.3% 78 212 5 32,482 17,188 9 11,996 25,066 58,350 14 6,800 1,607 28,572 5.6% 991 1,056 326 472,074 79,415 818 9,479 8.6% 150 228 0 287,198 16,775 406 4,808 8.4% 117 178 1 40,591 18,110 677 11,964 29,514 63,353 41 7,116 . +29 . +52 +16 +3 +17 +3 . +31 . +68 +15 +1 +37 +1 . +26 . -19 +38 . +35 -4 +17 +8 . +22 +5 +520 +20 -0 . +7 +17 +9 -14 -1 Information on the Internet. Special information on our shares and earnings development can be found in the “Investor Relations” section of our website. It includes the Group’s annual and interim reports and the company financial statements of Daimler AG. You can also find topical reports, presentations, an overview of various key figures, information on our share price, and other services. www.daimler.com/investors Publications for our shareholders: – Annual Report (German, English) – Interim Reports for the 1st, 2nd and 3rd quarters (German, English) – Sustainability Report (German, English) – Brochure: The Road to Emission-free Mobility (German, English) – Brochure: Milestones in Vehicle Safety. The Vision of Accident-free Driving (German, English) www.daimler.com/ir/reports www.daimler.com/downloads/en The financial statements of Daimler AG were prepared in accordance with German accounting principles, and the consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS). Both sets of financial statements were audited by KPMG AG Wirtschaftsprüfungsgesellschaft and an unqualified audit opinion was rendered thereon. These financial statements will be filed with the operator of the electronic version of the German Federal Gazette and published in the electronic version of the German Federal Gazette. The aforementioned publications can be requested from: Daimler AG, Investor Relations, HPC 0324, 70546 Stuttgart, Germany. The documents can also be ordered by phone or fax using the following number: +49 711 17 92287. Daimler AG 70546 Stuttgart Phone +49 711 17 0 Fax www.daimler.com www.daimler.mobi +49 711 17 22244 Investor Relations Phone +49 711 17 95277 +49 711 17 92261 +49 711 17 95256 +49 711 17 94075 Fax ir.dai@daimler.com Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Sales Organization Automotive Businesses Daimler Financial Services Europe Production locations Sales outlets Revenue in millions of euros Employees NAFTA Production locations Sales outlets Revenue in millions of euros Employees Latin America (excluding Mexico) Production locations Sales outlets Revenue in millions of euros Employees Africa Production locations Sales outlets Revenue in millions of euros Employees Asia Production locations Sales outlets Revenue in millions of euros Employees Australia/Oceania Production locations Sales outlets Revenue in millions of euros Employees 10 – 25,486 87,136 1 – 10,645 3,028 1 – 614 874 1 – 1,727 4,710 4 – 13,964 533 – – 994 – 7 – 7,953 30,617 14 – 6,166 15,749 1 – 3,740 11,434 1 – 894 1,050 5 – 4,757 12,856 – – 507 – 4 – 6,292 13,149 1 – 457 85 1 – 364 1,323 – – 171 – 1 – 386 – – – 143 – 7 – 2,421 14,566 3 – 540 1,346 2 – 1,208 1,222 1 – 175 – 2 – 130 – – – 83 – – 3,900 – 40,339 – 1,424 – 3,193 – 601 – 81 – 314 – – – 1,480 – 3,602 – 285 – 1,084 – 38 5,318 4,199 – 5 6,026 1,236 – 5 320 292 – 1 467 300 – 9 444 559 – 2 213 156 Note: Unconsolidated revenue of each division (segment revenue). Financial Calendar 2011 Annual Press Conference February 16, 2011 Analysts’ and Investors’ Conference Call February 16, 2011 Presentation of the Annual Report 2010 March 2, 2011 Annual Meeting April 13, 2011 10:00 a.m. CEST | 4:00 a.m. EST Messe Berlin Interim Report Q1 2011 April 29, 2011 Interim Report Q2 2011 July 27, 2011 Interim Report Q3 2011 October 27, 2011 The paper used for this Annual Report was produced from cellulose sourced from certified forestry companies that operate responsibly and comply with the regulations of the Forest Stewardship Council. Financial Calendar 2011 Annual Press Conference February 16, 2011 Analysts’ and Investors’ Conference Call February 16, 2011 Presentation of the Annual Report 2010 March 2, 2011 Annual Meeting April 13, 2011 10:00 a.m. CEST | 4:00 a.m. EST Messe Berlin Interim Report Q1 2011 April 28, 2011 Interim Report Q2 2011 July 26, 2011 Interim Report Q3 2011 October 26, 2011 The paper used for this Annual Report was produced from cellulose sourced from certified forestry companies that operate responsibly and comply with the regulations of the Forest Stewardship Council. Daimler AG Stuttgart, Germany www.daimler.com www.daimler.mobi Key Figures Daimler Group Amounts in millions of euros Revenue Western Europe thereof Germany NAFTA thereof United States Asia thereof China Other markets 2010 2009 2008 10/09 % change 97,761 38,478 19,281 23,582 20,216 19,659 9,094 16,042 78,924 36,458 18,788 19,380 16,569 12,435 4,349 10,651 98,469 46,276 21,832 23,243 19,956 13,840 3,226 15,110 1 +24 +6 +3 +22 +22 +58 +109 +51 +1 +51 +16 +7 -22 . . . . . . . . Employees (December 31) 260,100 256,407 273,216 Investment in property, plant and equipment Research and development expenditure thereof capitalized Cash provided by / used for operating activities EBIT Value added (including discontinued operations) Net profit/loss Net profit/loss from continuing operations Earnings/loss per share (in €) Earnings/loss per share, continuing operations (in €) Total dividend Dividend per share (in €) 3,653 4,849 1,373 8,544 7,274 2,773 4,674 4,674 4.28 4.28 1,971 1.85 2,423 4,181 1,285 10,961 -1,513 -4,644 -2,644 -2,644 -2.63 -2.63 0 0.00 3,559 4,442 1,387 -786 2,730 -1,147 1,414 1,704 1.41 1.71 556 0.60 1 Adjusted for the effects of currency translation and changes in the consolidated group, increase in revenue of 19%. 0 1 0 2 t r o p e R l a u n n A r e m a D l i Innovation from Tradition. Annual Report 2010. Daimler’s Divisions > Daimler at a Glance > 

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