As filed with the Securities and Exchange Commission on February 28, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission file number 1-12356
------------------------
DAIMLERCHRYSLER AG
(Exact name of Registrant as specified in its charter)
DAIMLERCHRYSLER AG
(Translation of Registrant's name into English)
FEDERAL REPUBLIC OF GERMANY
(Jurisdiction of incorporation or organization)
EPPLESTRASSE 225, 70567 STUTTGART, GERMANY
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Ordinary Shares, no par value Frankfurt Stock Exchange
New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Philadelphia Stock Exchange
American Depositary Notes representing 5 3/4% Subordinated New York Stock Exchange
Mandatory Convertible Notes Due June 14, 2002
Guarantee of the following securities of:
DaimlerChrysler North America Holding Corporation
7 3/8% Notes Due September 15, 2006 New York Stock Exchange
Chrysler Financial Company L.L.C.
6 5/8% Notes Due 2000 New York Stock Exchange
--------------------------
Securities registered or to be registered pursuant to Section 12(g) of the Act.
NONE
(Title of Class)
------------------------
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
NONE
(Title of Class)
------------------------
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
Ordinary Shares, no par value . . . . . . . . . 1,003,261,403
(as of December 31, 1999)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 / / Item 18 /X/
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
--------
PART I
Item 1. Identity of Directors, Senior Management and Advisers....... 2
Item 2. Offer Statistics and Expected Timetable..................... 2
Item 3. Key Information............................................. 2
Selected Financial Data................................. 3
Risk Factors............................................ 5
Item 4. Information on the Company.................................. 6
Introduction............................................ 6
Description of Business Segments........................ 8
Mercedes-Benz Passenger Cars & smart................ 8
Chrysler Group...................................... 12
Commercial Vehicles................................. 16
Services............................................ 20
Aerospace........................................... 22
Other............................................... 28
Supplies and Raw Materials.............................. 29
Government Regulation and Environmental Matters......... 30
Introduction of the Euro................................ 33
Description of Property................................. 34
Item 5. Operating and Financial Review and Prospects................ 37
Accounting Principles................................... 37
Inflation............................................... 38
Year 2000............................................... 38
Operating Results....................................... 39
1999 Compared With 1998............................. 39
1998 Compared With 1997............................. 44
Liquidity and Capital Resources......................... 48
1999 Compared With 1998 and 1997.................... 48
Research and Development................................ 50
Outlook................................................. 51
Item 6. Directors, Senior Management and Employees.................. 53
Supervisory Board....................................... 53
Board of Management..................................... 57
Compensation............................................ 59
Employees and Labor Relations........................... 61
Share Ownership......................................... 62
Item 7. Major Shareholders and Related Party Transactions........... 63
Item 8. Financial Information....................................... 64
Consolidated Financial Statements....................... 64
Other Financial Information............................. 64
Export Sales........................................ 64
Legal Proceedings................................... 64
Dividend Policy..................................... 65
Significant Changes..................................... 65
Item 9. The Offer and Listing....................................... 65
Item 10. Additional Information...................................... 68
Options to Purchase Securities from Registrant or
Subsidiaries.......................................... 68
Memorandum and Articles of Association.................. 69
Material Contracts...................................... 73
Exchange Controls....................................... 73
Taxation................................................ 73
Documents on Display.................................... 77
i
Page
--------
Item 11. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 78
Exchange Rate Risk...................................... 78
Interest Rate Risk and Equity Price Risk................ 81
Item 12. Description of Securities Other than Equity Securities...... 81
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies............. 82
Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds........................................... 82
Item 15. [Reserved].................................................. 82
Item 16. [Reserved].................................................. 82
PART III
Item 17. Financial Statements........................................ 82
Item 18. Financial Statements........................................ 82
Item 19. Exhibits.................................................... 82
ii
International Disclosure Standards
On September 28, 1999, the United States Securities and Exchange Commission
adopted international disclosure standards for foreign private issuers that will
become mandatory for annual reports relating to fiscal years ending on or after
September 30, 2000. DaimlerChrysler has prepared this Annual Report in
accordance with the new standards on a voluntary basis.
U.S. GAAP
DaimlerChrysler has prepared the consolidated financial statements included
in this Annual Report (the "Consolidated Financial Statements") in accordance
with U.S. GAAP, United States generally accepted accounting principles, except
for the use of the proportionate method of consolidation for certain joint
ventures. Under U.S. GAAP, joint ventures would be accounted for using the
equity method of accounting. DaimlerChrysler AG has received permission from the
United States Securities and Exchange Commission to prepare its consolidated
financial statements with this departure from U.S. GAAP. See Note 3 to the
Consolidated Financial Statements.
Currency Translation
Effective January 1, 1999, Germany and ten other member states of the
European Union adopted the euro of the European Monetary Union as their common
currency. They also established fixed conversion rates between their existing
sovereign currencies and the euro. The official fixed conversion rate for marks
is [EURO]1 = DM 1.95583 (the "Official Fixed Conversion Rate"). DaimlerChrysler
has translated financial statements and other financial information for periods
prior to January 1, 1999 from marks into euros using the Official Fixed
Conversion Rate. In this Annual Report, references to "euros" or "[EURO]" are to
European Monetary Union euros and references to "marks" or "DM" are to German
marks.
For the reader's convenience, some financial information has been translated
from euros into United States dollars ("dollars" or "$") at an assumed rate of
[EURO]1 = $1.0070. This rate represents the noon buying rate for euros on
December 31, 1999 in New York City as certified by the Federal Reserve Bank of
New York. The convenience translations do not mean that the euro amounts
actually represent the corresponding dollar amounts stated or could be converted
into dollars at the assumed rate. The assumed rate also differs from the rates
used in the preparation of the consolidated financial statements as of and for
the year ended December 31, 1999. Further information about rates of exchange
between euros and dollars appears in "Item 3. Key Information."
Forward-Looking Information
This Annual Report contains certain forward-looking statements and
information relating to the DaimlerChrysler Group that are based on beliefs of
its management as well as assumptions made by and information currently
available to DaimlerChrysler AG. When used in this document, the words
"anticipate," "believe," "estimate," "expect," "intend," "plan" and "project"
and similar expressions, as they relate to the DaimlerChrysler Group or its
management, are intended to identify forward-looking statements. Such statements
reflect the current views of DaimlerChrysler AG with respect to future events
and are subject to certain risks, uncertainties and assumptions. Many factors
could cause the actual results, performance or achievements of the
DaimlerChrysler Group to be materially different from any future results,
performance or achievements that may be expressed or implied by such
forward-looking statements, including, among others, changes in general economic
and business conditions, changes in currency exchange rates and interest rates,
introduction of competing products by other companies, lack of acceptance of new
products or services by the Group's targeted customers, changes in business
strategy and various other factors, both referenced and not referenced in this
Annual Report. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected, intended, planned or projected. DaimlerChrysler AG does not intend or
assume any obligation to update these forward-looking statements.
References
In this Annual Report, "DaimlerChrysler," the "DaimlerChrysler Group" or the
"Group" refers to DaimlerChrysler AG and its consolidated subsidiaries.
PART I
Item 1. Identity of Directors, Senior Management and Advisers.
Not applicable.
Item 2. Offer Statistics and Expected Timetable.
Not applicable.
Item 3. Key Information.
The selected consolidated financial data presented below as of December 31,
1999, 1998 and 1997, and for the years ended December 31, 1999, 1998, 1997 and
1996 have been taken or are derived from the audited consolidated financial
statements of DaimlerChrysler for the relevant periods. The selected
consolidated financial data as of December 31, 1996 and 1995, and for the year
ended December 31, 1995 are derived from the combined financial statements of
Daimler-Benz AG and Chrysler Corporation. The selected consolidated financial
data have been prepared in accordance with U.S. GAAP except for the use of the
proportionate method of consolidation for certain joint ventures. The business
combination of Chrysler and Daimler-Benz has been treated as a "pooling of
interests" for accounting purposes. Consequently, DaimlerChrysler has restated
the results of both companies as if they had been combined for all periods
presented. See Notes 1 and 3 to the Consolidated Financial Statements.
The financial information presented below is only a summary and should be
read together with the Consolidated Financial Statements.
2
SELECTED FINANCIAL DATA
Year Ended December 31,
---------------------------------------------------------------------------------------------
1999(1) 1999 1998(2) 1997(2) 1996(2) 1995(2)
--------- -------------- -------------- --------------- -------------- --------------
(in millions, except for ordinary share amounts)
Income Statement
Data:
Revenues............ $ 151,035 [EURO] 149,985 [EURO] 131,782 [EURO] 117,572 [EURO] 101,415 [EURO] 91,040
Income (loss) before
financial income,
income taxes and
extraordinary
items............. 9,389 9,324 7,330 5,512 5,285 (1,873)
Income (loss) before
extraordinary
items............. 5,141 5,106 4,949 6,547(3) 4,169 (1,406)
Basic earnings
(loss) per
ordinary
share........... 5.13 5.09 5.16 6.90(3) 4.24 (1.45)
Diluted earnings
(loss) per
ordinary
share........... 5.10 5.06 5.04 6.78(3) 4.20 (1.45)
Net income (loss)... 5,785 5,746 4,820 6,547(3) 4,022 (1,476)
Basic earnings
(loss) per
ordinary
share........... 5.77 5.73 5.03 6.90(3) 4.09 (1.52)
Diluted earnings
(loss) per
ordinary
share........... 5.73 5.69 4.91 6.78(3) 4.05 (1.52)
Balance Sheet Data
(end of period):
Total assets........ $ 175,889 [EURO] 174,667 [EURO] 136,149 [EURO] 124,831 [EURO] 101,294 [EURO] 91,597
Short-term financial
liabilities....... 36,979 36,721 20,475 17,341 12,855 10,226
Long-term financial
liabilities....... 27,961 27,767 19,955 17,034 11,788 11,658
Capital stock....... 2,583 2,565 2,561 2,391 2,444 2,525
Stockholders'
equity............ 36,313 36,060 30,367 27,960 22,355 19,488
Other Data:
Weighted average
number of shares
outstanding
Basic............. 1,002.9 1,002.9 959.3 949.3 981.6 982.2
Diluted........... 1,013.6 1,013.6 987.1 968.2 994.0 1,009.2
- ------------------------------
(1) Amounts in this column are unaudited and have been converted from euros into
dollars solely for the convenience of the reader at an exchange rate of
[EURO]1 = $1.0070, the noon buying rate for euros on December 31, 1999.
(2) The consolidated financial statements as of December 31, 1998, 1997, 1996
and 1995 and for the years then ended have been prepared in marks and were
translated into euros at the Official Fixed Conversion Rate.
(3) Income before extraordinary items and net income for 1997 include
[EURO]2,490 million of special non-recurring tax benefits. These tax
benefits resulted partially from a special distribution which Daimler-Benz
AG, the predecessor of DaimlerChrysler AG, paid to holders of its ordinary
shares and American Depositary Shares on June 15, 1998, and partially from
the reversal of valuation allowances previously established on deferred tax
assets. The valuation allowances resulted primarily from net operating loss
carryforwards of the Daimler-Benz group's German companies that filed a
combined tax return (ORGANSCHAFT). The tax benefit resulting from the
special distribution was [EURO]1,487 million and the tax benefit resulting
from the reversal of the valuation allowances was [EURO]1,003 million.
Without these tax benefits, the basic earnings per ordinary share in 1997
were [EURO]4.28 and the diluted earnings per ordinary share were [EURO]4.21.
Dividends
The following table sets forth the dividend paid per DaimlerChrysler
ordinary share for the year 1998 and the annual dividends paid per Daimler-Benz
ordinary share for the years 1995, 1996, and 1997. The table also discloses the
dividend amount per DaimlerChrysler ordinary share for 1999 proposed by the
Supervisory Board and the Board of Management for approval at the annual general
meeting of stockholders to be held on April 19, 2000. The table shows the
dividend amounts in euro, together with the mark and dollar equivalents, for
each of the years indicated. The table does not reflect the related tax credits
available to German taxpayers who receive
3
dividend payments. Owners of DaimlerChrysler ordinary shares who are United
States residents should be aware that they will be subject to German withholding
tax on dividends received. See "Taxation" in "Item 10. Additional Information."
Year Ended Dividend Paid
December 31, Per Ordinary Share(1,2)
- ------------ ----------------------------
1995 .............................. [EURO] -- DM -- $ --
1996 .............................. 0.55 1.08 0.75
1997 .............................. 0.80 1.57 0.87
1998 .............................. 2.35 4.60 2.50
------------------------------
1999 .............................. [EURO] 2.35 DM 4.60 $2.31
- ------------------------------
(1) The dividend amounts shown for the years 1995, 1996 and 1997 are the
dividend amounts paid by Daimler-Benz AG, adjusted for the special
distribution Daimler-Benz AG paid to holders of its ordinary shares and
American Depositary Shares on June 15, 1998. The special distribution amount
per Daimler-Benz ordinary share was [EURO]10.23. After taking into account
the approximately 20% discount to market value at which Daimler-Benz AG sold
ordinary shares in its rights offering following the special distribution,
the special distribution amount was [EURO]10.04.
(2) The mark dividend amounts shown for the years 1995, 1996 and 1997 were
translated into dollars at the noon buying rate for marks on the dividend
payment date and converted into euros at the Official Fixed Conversion Rate.
The mark dividend amount for 1998 was converted into euros at the Official
Fixed Conversion Rate and translated into dollars at the noon buying rate
for euros on the dividend payment date. The euro amount shown for 1999 was
converted into marks at the Official Fixed Conversion Rate and translated
into dollars at an exchange rate of [EURO]1 = $0.9850, the noon buying rate
for euros on February 18, 2000.
------------------------------
See also "Dividend Policy" in "Item 8. Financial Information."
Exchange Rate Information
After the introduction of the euro on January 1, 1999, the Federal Reserve
Bank of New York ceased to quote a noon buying rate for the mark. Accordingly,
the following table sets forth, for periods after January 1, 1999, the average,
high, low and period-end noon buying rates for the euro expressed as dollars per
[EURO]1. For 1995 through 1998 the table reflects the average, high, low and
period-end noon buying rates for the mark, shown after conversion into euros at
the Official Fixed Conversion Rate and expressed as dollars per [EURO]1.
Year Average(1) High Low Period-End
- ------------------------------------------------------ ---------- ---------- ---------- -----------
1995 ................................................ $ 1.3715 $ 1.4418 $ 1.2528 $ 1.3634
1996 ................................................ 1.2978 1.3626 1.2493 1.2711
1997 ................................................ 1.1244 1.2689 1.0398 1.0871
1998 ................................................ 1.1120 1.2178 1.0548 1.1733
1999 ................................................ 1.0588 1.1812 1.0016 1.0070
1999
July.......................................... 1.0719 1.0139 1.0694
August........................................ 1.0793 1.0441 1.0581
September..................................... 1.0643 1.0385 1.0643
October....................................... 1.0887 1.0518 1.0518
November...................................... 1.0506 1.0077 1.0077
December...................................... 1.0263 1.0016 1.0070
2000
January....................................... 1.0335 0.9757 0.9757
February (through February 18, 2000).......... 0.9914 0.9731 0.9850
- ------------------------------
(1) The average of the noon buying rates on the last business day of each month
during the relevant period.
------------------------------
4
On February 18, 2000, the noon buying rate for euros was [EURO]1 = $0.9850.
The prices of shares on German stock exchanges have been quoted in euros
since January 4, 1999. Fluctuations in the exchange rate between the euro and
the dollar will affect the dollar equivalent of the euro price of
DaimlerChrysler ordinary shares reported for trades on the German stock
exchanges. For this reason, exchange rate fluctuations are likely to affect the
market price of the ordinary shares on the New York Stock Exchange, as well as
the dollar amounts received upon conversion of cash dividends paid by
DaimlerChrysler AG in euros.
For a discussion of the effect exchange rate fluctuations have on the
business and operations of DaimlerChrysler as well as the hedging techniques
used to manage the Group's exposure to such fluctuations, see "Item 5. Operating
and Financial Review and Prospects" and "Item 11. Quantitative and Qualitative
Disclosure About Market Risk."
RISK FACTORS
DaimlerChrysler is subject to various changing competitive, economic,
political and social conditions, particularly in its principal markets, North
America and Europe. These conditions are described below:
- The worldwide automotive industry is highly competitive in terms of
vehicle quality, pricing, development and introduction time, reliability,
safety, fuel economy, customer service and financing terms. Overcapacity
within the industry is likely to intensify further competitive pricing
pressure in the event of an economic downturn. The price harmonization due
to the introduction of the euro and the development of alternative
distribution channels, including the internet, are expected to contribute
to further pricing pressure.
- Because DaimlerChrysler derives a substantial portion of its revenues from
sales in North America and Europe, a significant economic downturn in
either of those regions could adversely affect the Group's profitability.
Further economic or political instability in Asia and South America would
likely delay or increase DaimlerChrysler's cost of expanding sales in
those markets.
- Government regulation of the automobile industry is extensive. Laws in
various jurisdictions regulate the emission levels, fuel economy, noise,
and safety of vehicles, as well as the levels of pollutants generated by
the plants that produce them. The cost of complying with these regulations
can be significant, and DaimlerChrysler expects to incur significant
compliance costs in the future.
- Meeting consumer demand with new vehicles developed over increasingly
shorter product development cycle times is critical to DaimlerChrysler's
continued success. DaimlerChrysler's ability to strengthen its position
within its traditional segments while expanding into additional market
segments with innovative new products will play a key role in determining
its future success. The position of the smart model within the Group's
product line up is significant in this context. Potential delays in
bringing new vehicles to market, shifts in consumer preferences, or lack
of market acceptance of its models would adversely affect
DaimlerChrysler's financial results.
- On April 1, 1999, the European Commission began an investigation of
cross-border sales of Mercedes-Benz passenger cars. DaimlerChrysler denies
these charges and is defending itself vigorously in the Commission's
pending investigation. If the Commission rules that DaimlerChrysler
violated antitrust rules by impeding sales, it is reasonably possible that
the Commission may fine DaimlerChrysler in an amount that management
believes could have a significant effect on the Group's consolidated
operating results for a particular reporting period, but should not
materially affect its consolidated financial position.
- Financial services offered in connection with the sale of vehicles involve
risks relating to increased cost of capital, consumer and dealer
insolvencies, and low residual values of lease vehicles at the end of the
contracted leasing periods.
- The commercial aircraft industry is highly cyclical and aircraft orders
depend significantly on the profitability and fleet renewal cycles of
airlines worldwide. The success of Airbus Industrie and DaimlerChrysler
Aerospace Airbus will depend on their ability to compete successfully in
terms of price, product quality and innovation.
5
- DaimlerChrysler's rail systems subsidiary Adtranz operates in an extremely
competitive environment characterized by industry overcapacity and pricing
pressure. Its return to profitability over the near term will depend, in
large part, on whether it can achieve significant cost reductions as part
of the comprehensive restructuring program initiated in 1999.
- DaimlerChrysler holds a variety of interest rate sensitive assets and
liabilities to manage the liquidity and cash needs of its day-to-day
operations. These interest rate sensitive assets and liabilities are
subject to interest rate risk which is, to some extent, reduced by the use
of derivative financial instruments. In addition, the Group is exposed to
equity price risk resulting from investments in various marketable equity
securities.
- DaimlerChrysler is subject to risks associated with cross-border
transactions, including foreign currency exchange rate risks and risks
relating to delayed payments from customers in certain countries or
difficulties in the collection of receivables generally. Changes in
regulatory requirements, tariffs and other trade barriers and price or
exchange controls could limit operations and make the repatriation of
profits difficult. In addition, the uncertainty of the legal environment
could limit DaimlerChrysler's ability to enforce effectively its rights in
certain markets.
See also "Government Regulation and Environmental Matters" and "Introduction
of the Euro" in "Item 4. Information on the Company", "Item 5. Operating and
Financial Review and Prospects," "Legal Proceedings" in "Item 8. Financial
Information" and "Item 11. Quantitative and Qualitative Disclosures About Market
Risk."
Item 4. Information on the Company.
INTRODUCTION
Organization
DaimlerChrysler AG is a stock corporation organized under the laws of the
Federal Republic of Germany. It was incorporated in Germany as Oppenheim
Aktiengesellschaft on May 6, 1998 and renamed DaimlerChrysler AG in the course
of the business combination of Daimler-Benz Aktiengesellschaft and Chrysler
Corporation. DaimlerChrysler AG's registered office is located at Epplestrasse
225, 70567 Stuttgart, Germany, telephone +49-711-17-0. Its agent for U.S.
federal securities law purposes is DaimlerChrysler North America Holding
Corporation, located at 1000 Chrysler Drive, Auburn Hills, MI 48326-2766.
History
On May 7, 1998, Daimler-Benz Aktiengesellschaft and Chrysler Corporation
entered into a business combination agreement, which their stockholders approved
on September 18, 1998. Chrysler became a wholly owned subsidiary of
DaimlerChrysler AG through a merger transaction completed on November 12, 1998
in which its shareholders received DaimlerChrysler ordinary shares. Following an
exchange offer in which more than 98% of Daimler-Benz stockholders exchanged
their Daimler-Benz ordinary shares for ordinary shares of DaimlerChrysler AG,
Daimler-Benz was merged into DaimlerChrysler AG on December 21, 1998.
Accordingly, DaimlerChrysler AG is the successor corporation to Daimler-Benz AG
and comprises the respective businesses, stockholder groups, managements and
other constituencies of Chrysler and Daimler-Benz.
Business Summary
DaimlerChrysler AG is the ultimate parent company of the DaimlerChrysler
Group. The Group provides a wide range of transportation products, including
passenger cars and commercial vehicles, commercial and military aircraft, rail
systems, and also financial and information technology services. The
DaimlerChrysler Group operates in six business segments:
6
- Mercedes-Benz Passenger Cars & smart
- Chrysler Group
- Commercial Vehicles
- Services
- Aerospace
- Other
The DaimlerChrysler Group is active primarily in Europe and in the United
States, Canada and Mexico, commonly referred to as the NAFTA region. It is also
a leading commercial vehicle manufacturer in South America. In 1999,
approximately 52% of DaimlerChrysler's revenues was derived from sales in the
United States, 19% from sales in Germany and 14% from sales in other countries
of the European Union. See "Operating Results" in "Item 5. Operating and
Financial Review and Prospects."
DaimlerChrysler's aggregate capital expenditures for property, plant and
equipment were [EURO]9.5 billion in 1999, [EURO]8.2 billion in 1998, and
[EURO]8.1 billion in 1997. Germany accounted for 34% and the United States for
50% of DaimlerChrysler's capital expenditures in 1999. In addition, as a result
of the continuing growth of the leasing and sales financing business,
expenditures for equipment on operating leases in 1999 increased to
[EURO]19.3 billion (1998: [EURO]10.2 billion; 1997: [EURO]7.2 billion). See also
"Description of Business Segments" for capital expenditures by business segment.
For a description of principal acquisitions and dispositions of businesses
during the last three years see Notes 3 and 4 to the Consolidated Financial
Statements.
Net income of DaimlerChrysler increased from [EURO]4.8 billion to
[EURO]5.7 billion. This was principally the result of expanded business volume
and gains from the divestment of the Telecom Services business, partially offset
by lower financial income, one-time tax effects and other one-time charges.
Basic and diluted earnings per share (before extraordinary items) were
[EURO]5.09 and [EURO]5.06 in 1999 compared to [EURO]5.16 and [EURO]5.04 in 1998,
respectively. After extraordinary items, basic and diluted earnings per share
were [EURO]5.73 and [EURO]5.69 in 1999, significantly higher than in 1998 when
they reached [EURO]5.03 and [EURO]4.91, respectively. See "Item 3. Key
Information" and "Item 5. Operating and Financial Review and Prospects."
As of December 31, 1999, DaimlerChrysler AG had 1,003,261,403 shares
outstanding and approximately 1.9 million stockholders. Its ordinary shares are
traded on various stock exchanges throughout the world, including the Frankfurt
Stock Exchange and the New York Stock Exchange.
Significant Subsidiaries
The following table sets forth the significant subsidiaries owned, directly
or indirectly, by DaimlerChrysler AG:
Percentage
Name of Company Owned
- ------------------------------------------------------------------------------------------------------ -----------
DaimlerChrysler North America Holding Corporation, Auburn Hills, MI, a Delaware corporation........... 100.0
DaimlerChrysler Corporation, Auburn Hills, MI, a Delaware corporation............................. 100.0
Chrysler Financial Company L.L.C., Southfield, MI, a Michigan limited liability company....... 100.0
DaimlerChrysler Motors Corporation, Auburn Hills, MI, a Delaware corporation.................. 100.0
Mercedes-Benz Credit Corporation, Norwalk, CT, a Delaware corporation............................. 100.0
DaimlerChrysler Services (debis) AG, registered in Berlin, Germany.................................... 100.0
DaimlerChrysler Luft- und Raumfahrt Holding Aktiengesellschaft, registered in Munich, Germany......... 93.8
DaimlerChrysler Aerospace AG (Dasa), registered in Munich, Germany................................ 100.0
DaimlerChrysler AG owns 100% of DaimlerChrysler North America Holding
Corporation and DaimlerChrysler Services (debis) AG, and 93.8% of
DaimlerChrysler Luft- und Raumfahrt Holding Aktiengesellschaft. DaimlerChrysler
North America Holding Corporation owns 100% of DaimlerChrysler Corporation and
Mercedes-Benz Credit Corporation. DaimlerChrysler Corporation owns 100% of
Chrysler Financial Company L.L.C. and DaimlerChrysler Motors Corporation.
DaimlerChrysler Luft- und Raumfahrt Holding Aktiengesellschaft owns 100% of
DaimlerChrysler Aerospace AG.
7
DESCRIPTION OF BUSINESS SEGMENTS
Mercedes-Benz Passenger Cars & smart
Mercedes-Benz passenger cars are world renowned for their innovative
technology, highest levels of comfort, quality and safety, and pioneering
design. In 1998, DaimlerChrysler introduced the smart, a new micro compact
passenger car that offers a trend-setting response to the challenges of urban
mobility and optimum use of resources. The Mercedes-Benz Passenger Cars & smart
division contributed approximately 24% of the Group's revenues in 1999.
PRODUCTS
MERCEDES-BENZ. The Mercedes-Benz passenger car product range consists of
the following series:
THE S-CLASS. The S-Class is a line of full-size luxury sedans ranging from
the S 320 to the S 600. It has been the main contributor over the years to the
strength of the Mercedes-Benz brand and its reputation for innovative
high-quality luxury automobiles with an uncompromised emphasis on operator and
passenger safety and superior resale value. The new S-Class with a redesigned
body style and more than 30 technological innovations was introduced in Europe
in the fall of 1998 and in the United States in the spring of 1999. It has been
exceptionally well received in the market.
The CL, a new top-of-the-line coupe, represents a unique combination of
driving performance, comfort and state-of-the-art technology. The car celebrated
its world premiere at the Geneva Auto Show in March 1999. Customers can choose
among three models, the CL 500, the CL 600 and the CL 55 AMG.
The SL roadster has been a tradition for Mercedes-Benz since the
introduction of the famous 300 SL in 1954. The present line consists of four
models ranging from the SL 280 to the SL 600. Each model offers a removable
hardtop, an electrically operated hydraulic softtop and a roll bar which extends
automatically when required.
THE E-CLASS. The E-Class represents a line of luxury sedans and station
wagons. The E-Class sedans are available in six gasoline engine versions ranging
from the E 200 to the E 55 AMG and four diesel engine versions with common-rail
technology. In June 1999, DaimlerChrysler updated the E-Class significantly by
introducing a refined bodystyle and a variety of technological and handling
improvements.
THE C-CLASS. The C-Class is a line of compact luxury sedans and station
wagons. Six gasoline engine versions, ranging from the C 180 to the C 43 AMG,
and three diesel engine versions are available. The station wagon model is not
offered in the United States. DaimlerChrysler expects to introduce a new C-Class
sedan in Europe in May 2000 and in the United States in October 2000. The SLK, a
two-seat roadster, the CLK coupe and the CLK convertible complement the C-Class
product family.
THE A-CLASS. The A-Class is a four-door hatchback with front-wheel drive
that is available in three gasoline engine versions and two diesel engine
versions with common-rail technology. DaimlerChrysler manufactures the A-Class
in Rastatt, Germany, and, since February 1999, in Juiz de Fora, Brazil, for the
South American market. The current A-Class is not offered in the United States.
THE M-CLASS. The M-Class is a line of four-by-four sport-utility vehicles
ranging from the ML 230 to the ML 55 AMG. It combines off-road capabilities with
the comfort of a passenger car. M-Class production facilities are located in
Tuscaloosa, Alabama, and, since May 1999, in Graz, Austria.
THE G-CLASS. The G-Class is a four-wheel drive cross-country vehicle that
comes in a short and a long wheel-base version and also as a convertible. Three
gasoline and two diesel engine models are currently available. The G-Class is
not offered in the United States for private use.
8
In 1998, DaimlerChrysler announced that it will develop a high-end luxury
limousine under the name "Mercedes-Benz Maybach." In 1999, DaimlerChrysler
entered into an agreement with McLaren Cars Ltd. for the design and production
of a new high-performance sports car, the SLR. The market launches of both the
Maybach and the SLR are scheduled for 2003.
SMART. In October 1998, DaimlerChrysler introduced a new micro compact car,
the smart City coupe, in Germany and other European markets. The two-seat smart
offers a trend-setting response to the challenges of urban mobility and optimum
use of resources. A diesel version of the smart, the smart cdi, was introduced
in December 1999. In New European Driving Cycle (NEDC) tests, this model
achieved a fuel efficiency performance of 3.4 liter per 100 km (approximately 69
miles per gallon). DaimlerChrysler expects to introduce a smart convertible in
March 2000. The smart is not offered in the United States.
In the high performance sports car segment, DaimlerChrysler strengthened its
position through the acquisitions of 51% of AMG GmbH in January 1999 and 40% of
TAG McLaren Holding Ltd. in January 2000.
MARKETS, SALES AND COMPETITION
In 1999, the most important markets for the Mercedes-Benz Passenger Cars &
smart segment were Germany (39% of unit sales), the remaining European Union
(28% of unit sales), the United States (18% of unit sales) and Japan (5% of unit
sales). New car registrations in Germany were 2% higher than in the previous
year, reaching 3.8 million units. In the European Union (excluding Germany) new
registrations of passenger cars increased 6% to 10.8 million units.
9
The following table sets forth the distribution of revenues and unit sales
for the Mercedes-Benz Passenger Cars & smart division by geographic market since
1997:
Revenues and Unit Sales
Year Ended December 31,
--------------------------------------------------------
1999 % change 1998 % change 1997
--------- -------- -------- ----------- --------
Revenues(1)
European Union....................... 23,191 +15 20,218 +19 16,989
Germany.......................... 14,506 +14 12,670 +14 11,084
Other............................ 8,685 +15 7,548 +28 5,905
NAFTA region......................... 9,180 +28 7,199 +39 5,194
United States.................... 8,519 +27 6,730 +39 4,831
Canada and Mexico................ 661 +41 469 +29 363
Asia................................. 3,101 +14 2,724 -15 3,197
Japan............................ 1,951 +19 1,646 -3 1,691
Other............................ 1,150 +7 1,078 -28 1,506
Other markets........................ 2,628 +7 2,446 +13 2,174
--------- ------- -------
World............................ 38,100 +17 32,587 +18 27,554
========= ======= =======
Units
European Union....................... 715,700 +17 610,200 +34 455,700
Germany.......................... 416,800 +17 355,200 +28 276,500
Other............................ 298,900 +17 255,000 +42 179,200
NAFTA region......................... 212,100 +16 182,900 +40 130,800
United States.................... 197,200 +14 172,300 +40 123,400
Canada and Mexico................ 14,900 +41 10,600 +43 7,400
Asia................................. 74,900 +13 66,500 -14 77,600
Japan............................ 49,500 +23 40,200 +2 39,400
Other............................ 25,400 -3 26,300 -31 38,200
Other markets........................ 77,600 +23 63,200 +24 51,000
--------- ------- -------
World............................ 1,080,300 +17 922,800 +29 715,100
========= ======= =======
- --------------------------
(1) [EURO] in millions.
In 1999, both unit sales and revenues of the Mercedes-Benz Passenger Cars &
smart division continued their upward trend. For the first time ever, the
division sold more than one million cars (1,080,300), an improvement of 17% over
the previous year. This increase in unit sales was primarily the result of the
exceptionally well-received S-Class, the ongoing success of the A-Class, the
continued popularity of the M-Class and the CLK, and the increasing market
acceptance of the smart. Unit sales in Germany reached 416,800, 17% more than in
1998. In the other member states of the European Union, unit sales rose 17% to
298,900, mainly due to more favorable market conditions in Italy and Spain. In
the United States, which is the most important non-European market for
Mercedes-Benz passenger cars, unit sales at 197,200 surpassed the previous
year's figure by 14%. This significant increase was the result of continued
strong market demand, particularly for the S-Class, and made Mercedes-Benz the
1999 top-selling luxury brand in the U.S. market. Despite difficult market
conditions, unit sales in Japan rose 23% to 49,500, making Mercedes-Benz the
leading import brand in 1999. For a discussion of changes in revenues see "Item
5. Operating and Financial Review and Prospects."
In Western Europe, the principal competitors of Mercedes-Benz passenger cars
are Audi and BMW and, depending on the market segment, Jaguar, Lexus, Porsche,
Rolls Royce, Rover, Volkswagen, Volvo and certain models of Ford, General
Motors, PSA (Peugeot/Citroen), Renault and Saab. In the United States, the
principal competitors include Acura, Audi, BMW, Ford, Infiniti, Jaguar, Lexus,
Lincoln, Porsche, Rolls Royce, Saab and Volvo
10
and, depending on the market segment, Nissan, Toyota and certain models produced
by General Motors, Mazda and Mitsubishi Motors. Principal competitors of the
smart are Volkswagen, Fiat, Ford, Peugeot, Renault, Seat, Daewoo, Daihatsu and
Suzuki.
The following table sets forth, by vehicle line, the number of units sold
since 1997:
Year Ended December 31,
-------------------------------
1999 1998 1997
--------- -------- --------
Units
S-Class (including CL and SL).......................... 98,300 58,300 62,900
E-Class................................................ 246,500 259,400 277,000
C-Class (including CLK and SLK)........................ 354,300 384,400 348,700
A-Class................................................ 206,900 136,100 6,700
M-Class................................................ 90,000 63,700 16,300
G-Class................................................ 4,400 3,800 3,500
smart.................................................. 79,900 17,100 --
--------- ------- -------
Total.............................................. 1,080,300 922,800 715,100
========= ======= =======
DISTRIBUTION
DaimlerChrysler distributes Mercedes-Benz passenger cars through a worldwide
distribution system covering 173 countries and customs areas. Sales
organizations differ in the various sales regions according to local needs and
requirements. In Germany, the Group operates a wholesale and a retail network
for Mercedes-Benz passenger cars. In other major European markets and in the
United States, Canada and Japan, Mercedes-Benz passenger cars are sold through a
Group subsidiary to an independent dealer network. In other markets, including
South America and South East Asia, Mercedes-Benz passenger cars are sold through
independent general distributors. In 1999, DaimlerChrysler began merging the
back office functions of its smart wholesale distribution network with those of
Mercedes-Benz to reduce costs. It also increased the number of smart sales
locations by teaming up with the Mercedes-Benz retail network.
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
The Mercedes-Benz Passenger Cars & smart division had [EURO]2.2 billion of
capital expenditures for fixed assets in 1999. Principal areas of investment
were the preparation for production of the upcoming successor models of the
C-Class, model year changes for the M-Class, the new technology center in
Sindelfingen, Germany, and new paint shop and stamping facilities.
Research and development projects of the division in 1999 included the
development of new models, primarily the upcoming successor models of the
C-Class, the SL, the Maybach and the SLR.
The capital expenditures for fixed assets and the research and development
expenditures of the Mercedes-Benz Passenger Cars & smart division during the
last three years are shown below:
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
Capital expenditures for fixed assets.................. 2,228 1,995 1,885
Research and development............................... 2,043 1,930 1,583
11
Chrysler Group
This segment consists of the automotive operations of DaimlerChrysler
Corporation, formerly Chrysler Corporation. DaimlerChrysler Corporation
manufactures, assembles and sells cars and trucks under the brand names
Chrysler, Jeep, Dodge and Plymouth primarily in the NAFTA region. The Plymouth
brand will be phased out through the end of the 2001 model year. The Chrysler
Group segment contributed approximately 42% of DaimlerChrysler's revenues in
1999.
PRODUCTS
The automotive design and development activities are organized into
cross-functional product development groups called "platform teams." The
platform team system seeks to improve communications and product quality, and
reduce the time required to design and develop new vehicles. The platform team
process has contributed significantly to the success of DaimlerChrysler
Corporation in recent years.
The passenger car and truck product ranges of the Chrysler, Jeep, Dodge and
Plymouth brands consist of the following vehicles:
PT CRUISER. PT Cruiser is a new vehicle concept sold under the Chrysler
brand that combines the attributes of a minivan and a sport utility vehicle at
the size and price of a small car. PT Cruiser is available with a front wheel
drive 2.4 liter four-cylinder engine and either a five speed manual or a four
speed automatic transmission. PT Cruiser is scheduled to be available in spring
2000.
NEON. Neon is a subcompact four-door front wheel drive sedan sold under the
Chrysler, Plymouth and Dodge brand names. Neon is available with a 2.0 liter
four-cylinder engine and a five speed manual or three speed automatic
transmission. In February 1999, a new redesigned Neon became available in the
NAFTA region and in Europe.
CIRRUS, STRATUS AND BREEZE. The Chrysler Cirrus, Dodge Stratus and Plymouth
Breeze are compact four-door sedans offering contemporary cab-forward styling.
Depending on the model, engine alternatives include a 2.0 liter and a 2.4 liter
four-cylinder, or a 2.5 liter V-6 engine. Cirrus, Stratus and Breeze models are
available in the NAFTA region, and the Stratus is also available in other
markets. Redesigned versions of the Cirrus and Stratus are scheduled to be
available in the summer of 2000.
INTREPID, CONCORDE, LHS AND 300M. Dodge Intrepid is a mid-size front-wheel
drive, four-door sedan offered with either a 2.7 or 3.2 liter aluminum V-6
engine. The Intrepid is available only in the NAFTA region. The Concorde is a
full-size front-wheel drive sedan available in two models and powered by either
a 2.7 liter or 3.2 liter aluminum V-6 engine. The LHS is a full-size front-wheel
drive luxury sedan powered by a 3.5 liter aluminum V-6 engine. The 300M is a
front-wheel drive sport sedan designed for international markets and powered by
a 2.7 or 3.5 liter aluminum V-6. Concorde, LHS and 300M models are available in
the NAFTA region and in other select markets.
OTHER CARS. Other cars include the Viper models, a two-seat sport roadster
and a sport coupe with a high performance V-10 powertrain; the Prowler, a sport
roadster with retro styling cues; and the Dodge Avenger and Chrysler Sebring,
two-door coupes produced by Mitsubishi Motor Manufacturing of America in its
Normal, Illinois assembly plant. Redesigned models of the Avenger and Sebring
two-door coupes are scheduled to be available in 2000. The Chrysler Sebring
Convertible is a front-wheel drive, four passenger, mid-sized convertible with a
power top and a 2.5 liter V-6 engine. Sebring is the best-selling convertible in
the NAFTA region and is also available in select international markets as the
Stratus Cabrio. A redesigned Sebring Convertible is expected to be available in
the fall of 2000.
MINIVANS. Minivans are marketed under the Chrysler, Dodge and Plymouth
brand names, and are offered in either long or short wheelbase versions.
Minivans come equipped with either front-wheel or all-wheel drive. Five
12
gasoline engines ranging from a 2.0 liter four-cylinder to a 3.8 liter V-6, plus
a 2.5 liter turbodiesel are available. In 1999, the Chrysler, Dodge and Plymouth
minivans continued to lead the market as the best-selling minivans in the world.
Redesigned Chrysler and Dodge minivans are planned for introduction in fall of
2000.
RAM PICKUP. Ram pickup trucks range from the Standard Cab to the Club and
Quad Cabs. A chassis Cab variant is also offered in three wheelbases for various
work applications.
DAKOTA. The Dakota pickup truck is available in the Standard, the Club and
the recently introduced Quad Cab body styles. Dakota competes in the compact
pickup truck segment, and has consistently been the largest compact pickup truck
available.
DURANGO. The Dodge Durango, an eight-passenger sport-utility vehicle, was
derived from the Dakota platform and competes in the compact sport-utility
market. The Durango is available with a choice of two V-8 engines, all packaged
in the bold, Dodge Ram-inspired exterior.
RAM VAN AND WAGON. The Ram Van and Wagon are Dodge's entry in the full-size
van/wagon market and are available in a variety of wheelbases and body
configurations.
JEEP GRAND CHEROKEE. The Grand Cherokee exemplifies four-wheel drive
leadership and style with an exceptional balance of power, performance, on-road
handling, security and luxury. Grand Cherokee is available in a four-door
bodystyle in both two- and four-wheel drive configurations. In the NAFTA region
it is offered with a 4.0 liter I-6 or an all-new 4.7 liter V-8 engine, and the
optional new Quadra-Drive-Registered Trademark- four-wheel drive system.
Vehicles for the NAFTA region are produced in Detroit, Michigan, and vehicles
for sale outside of the NAFTA region are produced in Graz, Austria.
JEEP CHEROKEE. The Cherokee offers excellent performance, versatility and
off-road capability along with outstanding value as one of the lowest priced
sport-utilities in its class. The Cherokee is available in two- and four-wheel
drive configurations, two-door and four-door body styles, as a left hand and
right hand drive model, and with a choice of four- and six-cylinder gasoline
engines and a diesel engine.
JEEP WRANGLER. The Wrangler is the authentic four-wheel drive vehicle that
is the icon of the Jeep brand. Wrangler is offered with four-wheel drive,
removable soft and hard top systems, and a choice of four- and six-cylinder
gasoline engines.
MARKETS, SALES AND COMPETITION
In 1999, the most important markets for the Chrysler Group segment were the
United States (83% of unit sales), Canada (8% of unit sales) and Mexico (3% of
unit sales). Retail sales in the United States and Canada amounted to 2,903,000
vehicles in 1999, which compares to 2,779,000 in 1998. For 1999, this represents
a 15.3% share of the United States and Canada car and truck market, compared to
16.0% in 1998. Industry retail sales in the United States and Canada for 1999
reached 19.0 million units, an increase of 9% over 1998.
13
The following table sets forth the distribution of revenues and unit sales
for this segment by geographic market since 1997:
Revenues and Unit Sales
Year Ended December 31,
----------------------------------------------------------
1999 % change 1998 % change 1997
--------- -------- --------- ----------- ---------
Revenues(1)
NAFTA region...................... 59,766 +14 52,339 +9 47,807
United States................. 54,052 +15 47,064 +11 42,582
Canada........................ 4,473 +9 4,113 -3 4,260
Mexico........................ 1,241 +7 1,162 +20 965
European Union.................... 2,620 +31 1,998 +10 1,816
Other markets..................... 1,699 -18 2,075 -14 2,403
--------- --------- ---------
World......................... 64,085 +14 56,412 +8 52,026
========= ========= =========
Units(2)
NAFTA region...................... 3,052,000 +5 2,905,500 +10 2,649,600
United States................. 2,693,200 +6 2,548,900 +10 2,312,400
Canada........................ 268,300 +2 261,800 -2 266,300
Mexico........................ 90,500 -5 94,800 +34 70,900
European Union.................... 93,500 +7 87,100 -7 93,400
Other markets..................... 83,800 -17 101,100 -30 144,000
--------- --------- ---------
World......................... 3,229,300 +4 3,093,700 +7 2,887,000
========= ========= =========
- ------------------------
(1) [EURO] in millions.
(2) Unit sales represent vehicle shipments by DaimlerChrysler Corporation.
------------------------------
In 1999, revenues of Chrysler Group reached a new record high, and unit
sales were the second best ever. Total unit sales increased by 4.4% to
3,229,300, due primarily to the division's success in the United States. Unit
sales in the United States were up 6% in 1999 to 2,693,200 vehicles, mainly as a
result of the success of the Jeep Grand Cherokee, Dodge Durango and the
full-size Intrepid and LHS/300M sedans. For a discussion of changes in revenues
see "Item 5. Operating and Financial Review and Prospects."
In the NAFTA region, principal competitors of the Chrysler Group division
are General Motors, Ford, Toyota, Honda and Nissan. Competition in the NAFTA
region is very intense and is likely to remain so. Due to the economic
conditions in certain markets, particularly in Asia, competitors with excess
capacity may intensify their efforts to export vehicles to the NAFTA region.
14
The following table sets forth, by vehicle line, the number of units sold
since 1997:
Year Ended December 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
Units(1)
Cars
Neon............................................ 251,200 268,200 269,900
Cirrus, Stratus and Breeze...................... 215,400 250,500 255,300
Intrepid, Concorde and LHS/300M................. 338,300 300,100 198,500
Other........................................... 101,300 120,000 139,700
Minivans............................................ 681,500 685,000 682,800
Trucks
Ram Pickup...................................... 487,100 474,700 432,400
Dakota.......................................... 171,100 160,100 166,900
Durango......................................... 219,600 182,000 33,200
Ram Van and Wagon............................... 83,100 84,400 77,800
Jeep
Grand Cherokee.................................. 380,100 270,200 311,400
Cherokee........................................ 200,500 194,500 213,900
Wrangler........................................ 100,100 104,000 105,200
--------- --------- ---------
Total........................................... 3,229,300 3,093,700 2,887,000
========= ========= =========
- ------------------------
(1) Unit sales represent vehicle shipments by DaimlerChrysler Corporation.
DISTRIBUTION
In the NAFTA region, new passenger cars and trucks are sold at retail by
dealers who have sales and service agreements with DaimlerChrysler Corporation.
The dealers purchase cars, trucks, parts and accessories from DaimlerChrysler
Corporation for sale to retail customers. In the United States, DaimlerChrysler
Corporation had 4,423 dealers at December 31, 1999, compared to 4,484 at
December 31, 1998. In Canada, the dealer network comprised 560 dealers at
December 31, 1999, compared to 578 dealers at December 31, 1998. In Mexico, the
dealer network comprised 117 dealers at December 31, 1999, compared to 114
dealers at December 31, 1998.
DaimlerChrysler Corporation also sells vehicles in various other countries
through wholly owned, affiliated and independent distributors and dealers.
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
In 1999, the Chrysler Group segment invested [EURO]5.2 billion in fixed
assets. These investments were spent primarily on completion of the Neon launch,
Dakota Quad-cab launch and the major product launches due in 2000, including the
PT Cruiser, new Minivan and Stratus/Cirrus vehicles. Investments include
improving capacity, upgrading powertrain and component facilities and
maintaining all other existing facilities.
The research and development activities of the segment in 1999 related
primarily to new product development for the products mentioned above and the
all new Cherokee replacement due to be launched in 2001. Also included are
development costs for improvement of existing products and compliance costs
associated with regulations promulgated by various governmental agencies
worldwide.
15
The capital expenditures for fixed assets and research and development
expenditures of the Chrysler Group segment during the last three years are shown
below:
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
Capital expenditures for fixed assets.................. 5,224 3,920 4,501
Research and development............................... 2,000 1,695 1,512
INTERNATIONAL COOPERATIONS
In Austria, Jeep Grand Cherokees are assembled under an assembly contract
with Steyr-Daimler-Puch Fahrzeugtechnik AG & Co. The segment's automotive
operations in the Asia-Pacific region include the assembly of Jeep Cherokees for
distribution in China by Beijing Jeep Corporation, Ltd., a minority-owned joint
venture. In addition, DaimlerChrysler Corporation has an agreement for the
assembly of right-hand-drive Jeep vehicles in Thailand. Operations in South
America include manufacturing facilities in Venezuela, where Neons, Jeep
Cherokees and Grand Cherokees are assembled, Brazil, where Dakota pickup trucks
are manufactured, and Argentina, where Jeep Cherokees and Grand Cherokees are
assembled. In January 1997, DaimlerChrysler Corporation entered into a joint
venture agreement with Bayerische Motoren Werke AG to manufacture a small
gasoline engine in Brazil for use in both Chrysler and BMW vehicles.
DaimlerChrysler Corporation also has a minority interest in a company with
assembly facilities in Egypt.
Commercial Vehicles
DaimlerChrysler manufactures and sells commercial vehicles under the brand
names Mercedes-Benz, Freightliner, Sterling, Setra and Thomas Built Buses. With
facilities throughout the world, the Group has a very strong network for the
production and assembly of commercial vehicles and core components. It also has
a worldwide distribution and service network. Commercial Vehicles contributed
approximately 17% of the Group's revenues in 1999.
PRODUCTS
VANS. Worldwide, the product lines consist of three series of Mercedes-Benz
vans in categories of 2 metric tons (t) to 7.5t gross vehicle weight (GVW), the
Vito and V-Class, the Sprinter and the Vario. In spring 1999, DaimlerChrysler
restyled the Vito and the V-Class, which is a passenger minivan derived from the
Vito. A new Mercedes-Benz compact van, the Vaneo, is expected to enter the
market at year-end 2001. The Vaneo is designed for use as a family vehicle and
for commercial purposes. DaimlerChrysler manufactures its Mercedes-Benz vans in
Germany and Spain for the European market and in Argentina for the South
American market.
TRUCKS. The European Mercedes-Benz truck lines consist of the Actros in the
heavy weight category, the Atego in the light, medium and heavy weight category
and the Econic, a vehicle concept that can be adopted for a variety of special
applications. Complementing this line-up is the Unimog, a four-wheel drive
vehicle which is designed for special purpose applications such as street
maintenance, certain construction industry uses, fire-fighting, forestry and
agriculture. In January 1999, a jury of 18 European motor journalists voted the
Atego "Truck of the Year."
In the United States and Canada, the Group operates through its wholly owned
subsidiary Freightliner Corporation. Freightliner manufactures trucks in Classes
5 through 8 (from 16,000 lbs. GVW to 33,000 lbs. GVW and over). In 1998,
Freightliner acquired the heavy truck product line of Ford Motor Company, which
it offers under the brand name "Sterling." Through American La France,
Freightliner is active in the market for custom fire truck chassis. It also
manufactures chassis for trucks, buses and motorhomes in Classes 3 through 7
(from 10,000 lbs. GVW to 33,000 lbs. GVW). Mercedes-Benz Mexico manufactures
Mercedes-Benz trucks primarily for sale in the NAFTA region.
16
Mercedes-Benz do Brasil develops and produces Mercedes-Benz trucks for the
South American markets. The new generation of trucks is based on the cab-over
engine design of the Atego. The African, Asian and Australian continents are
supplied by European factories and manufacturing operations in Brazil, South
Africa, Nigeria, Indonesia, Iran and Australia.
BUSES. The bus product lines consist of complete buses for city, intercity
and touring purposes and bus chassis which are completed by local bus builders
in various countries. The division's operating companies develop their own bus
designs based on national requirements and adapt their models to the specific
market needs of each region. Moreover, numerous cooperation partners throughout
the world manufacture buses or bus chassis under license. In Europe, the
division markets buses under the Mercedes-Benz and Setra brand names. In 1998,
Freightliner acquired the U.S. school bus body manufacturer Thomas Built Buses.
In June 1999, Freightliner and the British company Mayflower Corporation plc
formed a joint venture company, Thomas Dennis Co. LLC, in which Freightliner's
subsidiary Thomas Built Buses holds 51% and Mayflower's U.S. subsidiary Walter
Alexander holds 49%. The new joint venture focuses primarily on the production
of low-floor buses for the NAFTA region.
POWERTRAIN. The Powertrain business unit of DaimlerChrysler designs and
manufactures a full line of powertrain components consisting of diesel engines,
transmissions, axles and steering systems. It sells these components to other
divisions and business units of DaimlerChrysler and to third party customers. It
began to supply truck diesel engines to Freightliner in 1999. The Powertrain
business unit also manufactures industrial diesel engines which are widely used
as propulsion units in off-highway applications.
In the United States, DaimlerChrysler cooperates with the U.S. engine
manufacturer Detroit Diesel Corporation in several joint development, production
and marketing projects involving commercial vehicle and industrial diesel
engines. To support this cooperation, a U.S. affiliate of DaimlerChrysler AG
holds a 20% common equity investment in Detroit Diesel. The cooperation also
extends to MTU Motoren- und Turbinen-Union Friedrichshafen GmbH which is
primarily engaged in joint projects with Detroit Diesel involving the design,
development and marketing of diesel engines of various displacements and power
ranges for off-highway applications.
MARKETS, SALES AND COMPETITION
The market for commercial vehicles depends significantly on general economic
conditions since they directly influence transportation needs and the
availability of funds for capital investment. In 1999, sales of commercial
vehicles continued to experience significant growth in Western Europe and
particularly the NAFTA region. Market growth in Western Europe was largely the
result of the high demand for heavy trucks of 16t GVW or more (+15%). Sales for
all manufacturers in the NAFTA region were up approximately 23% to 441,500
vehicles in the Class 6 through 8 categories that are particularly important for
Freightliner and Sterling. However, in various South American countries,
especially in Brazil, demand fell considerably as a result of the economic
crisis plaguing the region. Markets also performed poorly in some Asian
countries, Turkey and Eastern Europe.
In Germany, registrations of new commercial vehicles increased 10% to
324,300 units. DaimlerChrysler sold 21% of its commercial vehicles in the German
market in 1999. The remaining European Union market accounted for an additional
28% of the division's 1999 unit sales. Outside Europe, the NAFTA region and
South America are the most important markets for the division.
17
The following table sets forth the distribution of revenues and unit sales
for the Commercial Vehicles division by geographic market since 1997:
Revenues and Unit Sales
Year Ended December 31,
-------------------------------------------------------
1999 % change 1998 % change 1997
-------- -------- -------- ----------- --------
Revenues(1)
European Union.......................... 12,754 +11 11,448 +14 10,082
Germany............................. 7,046 +11 6,355 +12 5,660
Other............................... 5,708 +12 5,093 +15 4,422
NAFTA region............................ 10,408 +50 6,937 +45 4,770
United States....................... 9,164 +53 5,989 +48 4,033
Canada.............................. 844 +40 604 +27 474
Mexico.............................. 400 +16 344 +31 263
South America........................... 1,346 -35 2,082 -2 2,131
Brazil.............................. 849 -37 1,353 -7 1,448
Other............................... 497 -32 729 +7 683
Other markets........................... 2,187 -19 2,695 -11 3,029
------- ------- -------
World............................. 26,695 +15 23,162 +16 20,012
======= ======= =======
Units
European Union.......................... 267,100 +8 247,100 +12 221,200
Germany............................. 114,500 +7 107,500 +11 96,600
Other............................... 152,600 +9 139,600 +12 124,600
NAFTA region............................ 193,000 +54 125,600 +46 86,300
United States....................... 171,800 +59 107,800 +49 72,500
Canada.............................. 12,800 +20 10,700 +37 7,800
Mexico.............................. 8,400 +18 7,100 +18 6,000
South America........................... 44,600 -23 57,700 +5 54,900
Brazil.............................. 30,100 -24 39,400 +5 37,500
Other............................... 14,500 -21 18,300 +5 17,400
Other markets........................... 50,200 -15 59,300 +8 55,000
------- ------- -------
World............................. 554,900 +13 489,700 +17 417,400
======= ======= =======
- ------------------------------
(1) [EURO] in millions.
------------------------------
Worldwide unit sales of the division increased significantly from 489,700 in
1998 to 554,900 vehicles in 1999, setting a new record for the third consecutive
year. Sales of vans and trucks reached 226,400 (+3%) and 283,800 (+20%) units,
respectively. Sales of buses increased 37% to 44,700 units in 1999.
Unit sales in Germany increased 7% to 114,500. In the European Union
(excluding Germany) unit sales rose 9% from 139,600 in 1998 to 152,600 in 1999.
This increase resulted primarily from the success of Mercedes-Benz vans and
trucks, especially in France, Italy and Spain. Due to the continued success of
the Actros and Atego truck lines, DaimlerChrysler strengthened its position as
the European market leader in the category of trucks over 6t GVW with a European
Union market share of 24% (1998: 23%). DaimlerChrysler's European Union market
share for vans between 2t and 6t GVW increased to 19% (1998: 18%). The bus
brands Mercedes-Benz and Setra maintained their leading position in the European
Union with a combined market share of 25% in 1999 (1998: 26%).
18
In the United States, retail sales in the Class 6/7 segment for all
manufacturers showed a strong 20% increase to 179,100 vehicles (1998: 149,200
units). In the Class 8 heavy duty segment unit sales for all manufacturers rose
25% to 262,400 (1998: 209,400). Through the addition of the Sterling truck lines
and the buses produced by Thomas Built Buses, DaimlerChrysler further increased
its market shares in the Class 6/7 segment from 19% in 1998 to 23% in 1999 and
in the Class 8 segment from 33% in 1998 to 37% in 1999.
As a result of the unfavorable economic conditions in South America, 1999
sales of trucks for all manufacturers fell in Brazil to 46,900 (1998: 51,200)
units and in Argentina to 10,600 (1998: 13,300) units. Nevertheless,
DaimlerChrysler was able to defend its dominant position in the market for
trucks above 6t GVW with a market share of approximately 36% in both Brazil and
Argentina.
For a discussion of changes in revenues see "Item 5. Operating and Financial
Review and Prospects."
The primary sales market for Mercedes-Benz vans is Western Europe. Principal
competitors in this market are Fiat (IVECO), Volkswagen, Ford, Renault and PSA
(Peugeot/Citroen).
In the truck market segment, competitors vary in each geographical region.
In the two most important truck markets for DaimlerChrysler, Western Europe and
the NAFTA region, its principal competitors are the following:
Western Europe NAFTA Region
(over 6t GVW) (Classes 5 through 8)
- -------------- ---------------------
Volvo/Scania Navistar
Fiat (IVECO) Paccar
MAN (Kenworth/Peterbilt)
Renault Ford
Paccar (DAF) Renault (Mack)
Volvo/Scania
General Motors
Principal competitors in the bus sector (over 8t GVW) include Volvo/Scania,
Irisbus, a joint venture of Fiat and Renault, MAN, Dennis and Auwaerter
(Neoplan) in Western Europe and Volvo/Scania and Volkswagen in South America.
The following table sets forth, by vehicle category, the unit sales of the
division since 1997:
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
Units
Vans(1)............................................. 226,400 220,400 193,900
Trucks(2)........................................... 283,800 236,700 192,700
Buses............................................... 44,700 32,600 30,800
------- ------- -------
Total........................................... 554,900 489,700 417,400
======= ======= =======
- ------------------------------
(1) The figures for 1999 and 1998 include sales of pickup trucks (L 200)
manufactured by Mercedes-Benz South Africa under an agreement with
Mitsubishi Motors Corporation.
(2) Including chassis manufactured by Freightliner for motorhomes and
walk-in-vans.
DISTRIBUTION
In Germany, DaimlerChrysler operates a wholesale and a retail network for
its commercial vehicles. In other major European markets, subsidiaries of
DaimlerChrysler AG provide the wholesale function to a network of independent
dealers. Outside Europe commercial vehicles are generally sold by the sales
organization of the respective production company or through independent general
distributors.
19
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
Capital expenditures of the Commercial Vehicles segment for fixed assets
amounted to [EURO]0.8 billion in 1999. Principal areas of investment were the
preparation for the production of the new compact van, the Vaneo, and the new
cab-over engine truck generation for the South American market.
Research and development projects focused on new products, especially the
Vaneo and a new Setra bus, and successor models of existing product lines,
primarily the Sprinter.
The table below shows the capital expenditures for fixed assets and the
research and development expenditures of the Commercial Vehicles segment during
the last three years:
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
Capital expenditures for fixed assets.................. 770 832 601
Research and development............................... 827 714 602
Services
DaimlerChrysler conducts its services business through its wholly-owned
subsidiary DaimlerChrysler Services (debis) AG. The services business consists
of two business units: Financial Services and IT Services. Services contributed
approximately 7% of the Group's revenues in 1999.
In the first quarter of 1999, DaimlerChrysler combined the financial
services activities of debis and Chrysler Financial Company L.L.C. It also
reduced debis' equity stake in the telecommunications services company debitel
from 52.4% to 10% by selling 10% through an initial public offering in the first
quarter of 1999, and 32.4% to Swisscom in the third quarter of 1999. Following
the divestiture of the majority of debis' interest in debitel, the Services
segment no longer comprises a separate Telecom Services business unit.
The following table sets forth the revenues generated by Services since
1997:
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
Financial Services(1)................................... 10,015 7,745 6,390
IT Services............................................. 2,917 2,167 1,548
Other(2)................................................ -- 1,498 1,466
------ ------ -----
Total............................................... 12,932 11,410 9,404
====== ====== =====
- ------------------------------
(1) Figures for 1998 and 1997 have been restated to reflect the combination of
the financial services activities of debis and Chrysler Financial
Company L.L.C.
(2) The 1998 and 1997 revenues in this category primarily represent the Group's
telecom services activities which were sold in 1999.
------------------------------
BUSINESS UNITS AND SERVICES
FINANCIAL SERVICES. The Financial Services business unit, which now
includes the operations of the former Chrysler Financial Services segment, is
one of the leading financial services providers in the world outside the banking
and insurance sector. It is divided into three areas of responsibility: NAFTA
region and World excluding NAFTA region for automotive financial services and
Capital Services for non-automotive financial services. Financial Services
offers customized financing and leasing packages, primarily in connection with
the sale of DaimlerChrysler automotive products. In addition to consumer and
dealer automotive financing, it also provides dealer facility development and
management and insurance-related activities. The insurance activities are
conducted by debis Assekuranz and Chrysler Insurance Company and include direct
insurance (mainly dealer
20
property and casualty insurance), insurance and reinsurance brokerage and risk
consulting and risk management services to companies within the Group, to
DaimlerChrysler employees and to third party industrial customers worldwide.
In the area of Capital Services, the Financial Services business unit offers
customer-oriented financing concepts for various non-automotive products and
activities, such as the sale of aircraft, rail systems, marine vessels or
commercial real estate and infrastructure projects. Capital Services also
includes the trading and consulting activities previously conducted by debis
Trading.
In 1999, the Financial Services business unit continued to expand its
business volume and accounted for approximately 77% of Services' revenues. See
"Item 5. Operating and Financial Review and Prospects."
IT SERVICES. debis Systemhaus is one of Germany's leading independent
providers of comprehensive IT services. It provides a wide range of services
including consulting (PLAN), development of software solutions (BUILD) and
operation of applications, computer centers, networks and desktops (RUN). IT
Services concentrates on IT solutions for specific industries, such as
manufacturing, retail and distribution, transportation, telecommunications,
financial services and the public sector. In 1999, IT Services was able to
improve further its international market presence, especially through the
acquisitions of the French company Soleri and the Spanish company Eltec and
significant IT outsourcing orders received from customers in Italy, the
Netherlands, South Africa, Spain and Switzerland.
In 1999, IT Services accounted for 23% of the Services segment's revenues.
It generated approximately 75% of its revenues with customers outside the
DaimlerChrysler Group.
MARKETS, SALES AND COMPETITION
The following table sets forth the distribution of Services' revenues by
geographic market since 1997:
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
European Union....................................... 5,705 6,138 5,125
Germany.......................................... 4,196 4,553 3,900
Other............................................ 1,509 1,585 1,225
NAFTA region......................................... 6,356 4,696 3,947
United States.................................... 5,491 4,522 3,937
Canada and Mexico................................ 865 174 10
Other markets........................................ 871 576 332
------ ------ -----
World............................................ 12,932 11,410 9,404
====== ====== =====
------------------------
Services generated approximately 32% of its total 1999 business volume in
Germany, 12% in other European Union countries, 49% in the NAFTA region and 7%
in other markets. The growth in revenues in 1999 was the result of increased
business activity in both Financial Services and IT Services.
In 1999, the Financial Services business unit processed approximately
1,993,000 new leasing and finance contracts with a total value of
[EURO]50.7 billion, an increase of approximately 44% in new contract value
compared to 1998 when it processed new contracts with a total value of
[EURO]35.2 billion. This increase was attributable to the continued growth of
DaimlerChrysler's automotive businesses and an improved and more extensive range
of services. The average monthly payment for new vehicle installment sale
contracts in 1999 was [EURO]524. The average new contract balance amounted to
[EURO]23,286 and the average original term was 49 months.
21
The following table sets forth the number and total value of new contracts
and the total number and value of contracts outstanding at December 31, 1999 in
the Financial Services business unit:
Value Value
New ([EURO] in Total ([EURO] in
Contracts millions) Contracts millions)
--------- ---------- --------- ----------
United States(1)........................ 1,275,661 33,492 3,595,078 70,513
Germany(1).............................. 239,131 6,093 435,798 9,328
Canada(1)............................... 178,638 3,439 427,869 6,855
United Kingdom(1)....................... 41,318 1,217 89,490 2,428
Italy................................... 40,600 813 70,159 1,200
France.................................. 24,563 654 51,782 1,070
Japan(1)................................ 22,945 784 58,321 1,541
Mexico.................................. 19,289 460 50,999 928
Switzerland............................. 13,261 413 20,998 533
Netherlands............................. 13,077 433 29,971 913
Other(1)................................ 124,515 2,892 161,600 3,914
--------- ------ --------- ------
Total............................... 1,992,998 50,690 4,992,065 99,223
========= ====== ========= ======
- ------------------------------
(1) Includes portfolios of activity conducted by Financial Services which have
been included in several asset-backed receivables transactions by that
business unit in these countries.
------------------------------
Competitors in the leasing and financial services area include leasing and
finance subsidiaries of banks and financial institutions and of other automobile
manufacturers to the extent they do not limit their leasing and financial
services activities to their own automobile brands. In the field of IT services,
which are primarily provided by debis Systemhaus, principal competitors include
IBM, EDS, CSC, Sema and Atos. debis Assekuranz competes primarily with
AON/Jauch & Huebener and the Marsh Group. Chrysler Insurance Company's main
competitor in the U.S. dealer market is Universal Underwriters (Zuerich Group).
CAPITAL EXPENDITURES
Capital expenditures for fixed assets, largely data processing equipment,
increased 14% in 1999 to [EURO]324 million (1998: [EURO]285 million). Additions
to equipment on operating leases increased 124% to [EURO]16.1 billion (1998:
[EURO]7.2 billion).
Aerospace
Principal Aerospace activities include the development, production and sale
of commercial aircraft, helicopters, defense and civil systems, aero engines,
military aircraft, satellites, and space infrastructure. DaimlerChrysler's
subsidiary DaimlerChrysler Aerospace (Dasa) is the German partner (with a 37.9%
share) in the European Airbus consortium Airbus Industrie. Aerospace contributed
approximately 6% of the Group's revenues in 1999.
22
The following table sets forth the revenues generated by the Aerospace
business units since 1997:
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
Commercial Aircraft/Helicopters........................... 3,937 3,508 2,966
Defense and Civil Systems................................. 1,655 1,687 1,409
Aero Engines.............................................. 1,740 1,655 1,513
Military Aircraft......................................... 848 765 659
Satellites................................................ 446 629 725
Space Infrastructure...................................... 552 526 544
Other(1).................................................. 13 -- --
----- ----- -----
Total................................................. 9,191 8,770 7,816
===== ===== =====
- ------------------------------
(1) The 1999 revenues in this category primarily relate to research activities
conducted by DaimlerChrysler Aerospace's research department for third
parties.
------------------------------
Aerospace revenues for 1999 were [EURO]9.2 billion, an increase of 5% over
1998. This increase was primarily due to increased deliveries of Airbus aircraft
which had significant positive effects on the Commercial Aircraft business. See
"Item 5. Operating and Financial Review and Prospects."
In the fourth quarter of 1999, DaimlerChrysler agreed to combine the
business of DaimlerChrysler Aerospace AG, with the businesses of the French
aerospace company, Aerospatiale Matra S.A., and the Spanish aerospace company,
Construcciones Aeronauticas S.A. (CASA), in a new company called European
Aeronautic Defence and Space Company (EADS). Upon closing of the transaction,
EADS will be the largest aerospace company in Europe, based on 1998 estimated
pro forma sales of approximately [EURO]21 billion and a workforce of
approximately 96,000 employees. It will own 80% of Airbus Industrie.
DaimlerChrysler will retain its aircraft engine subsidiary, MTU Motoren- und
Turbinen-Union Muenchen GmbH. See also "Material Contracts" in "Item 10.
Additional Information."
In October 1999, DaimlerChrysler Aerospace AG, Aerospatiale Matra S.A. and
Marconi Electronic Systems Ltd., which subsequently merged with British
Aerospace plc to become BAe Systems plc, signed a formation agreement for a
trinational European space company to be named Astrium. Astrium is expected to
combine the space systems businesses of DaimlerChrysler Aerospace and Matra
Marconi Space, a joint venture of Aerospatiale Matra and BAe Systems, in the
first half of 2000. Following the EADS transaction, EADS will hold 75% and BAe
Systems will hold 25% of Astrium.
At December 31, 1999, DaimlerChrysler AG owned 93.8% of the capital stock of
DaimlerChrysler Luft- und Raumfahrt Holding Aktiengesellschaft, which is the
holding company of DaimlerChrysler Aerospace. The remaining outstanding shares
of capital stock are owned almost entirely by the State of Hamburg which,
subject to certain conditions and procedures, may require that DaimlerChrysler
AG purchase its shares.
BUSINESS UNITS AND PRODUCTS
COMMERCIAL AIRCRAFT/HELICOPTERS. The commercial aircraft/helicopter
business includes the activities of DaimlerChrysler Aerospace Airbus GmbH and
its subsidiaries and the production of helicopters for military and civil
applications by the Eurocopter group.
COMMERCIAL AIRCRAFT. DaimlerChrysler Aerospace Airbus conducts the German
activities within Airbus Industrie, a consortium of four European aerospace
companies. These activities include the final assembly of the Airbus A321 and
the A319 which is performed in Hamburg. DaimlerChrysler Aerospace Airbus also
manufactures a variety of fuselage sections and vertical stabilizers for all
Airbus models, installs interior furnishings and is responsible for the wing
integration of all widebody Airbus aircraft.
23
Airbus Industrie is responsible for sales, marketing and product support of
all Airbus aircraft. DaimlerChrysler Aerospace Airbus and the French aerospace
company, Aerospatiale Matra, each have a 37.9% interest in the consortium; BAe
Systems plc of the United Kingdom owns 20%; and the Spanish company
Construcciones Aeronauticas S.A. (CASA), holds 4.2%. DaimlerChrysler Aerospace
Airbus contributes on average one-third to the value of the aircraft produced by
the European Airbus program.
The product line of Airbus Industrie includes the following models:
- A340. The A340 is a four engine, long range aircraft currently offered in
three sizes between 239 and 440 passenger seats with a range between 6,400
and 8,000 nautical miles. Airbus Industrie is developing two new versions
of the A340, the A340-500 and the A340-600. These versions will have up to
485 passenger seats and a range of up to 8,500 nautical miles. Deliveries
of these new models are expected to commence in the year 2002.
- A330. The A330 is one of the world's largest twin-engine medium/long haul
aircraft seating between 253 and 440 passengers with a range of 4,800 to
6,450 nautical miles.
- A320. The A320, a two-engine 150- to 180-seat aircraft with a range of up
to 3,000 nautical miles, is the most successful Airbus aircraft program to
date.
- A321. The A321 is a stretched version of the A320 that seats 185 to 220
passengers and is designed as a short/medium haul aircraft with a range of
up to 3,000 nautical miles. DaimlerChrysler Aerospace Airbus assembles the
A321 in Hamburg.
- A319. The A319 is a reduced-size version of the A320, seating between 124
and 145 passengers. It has a range from 1,800 to 3,700 nautical miles.
DaimlerChrysler Aerospace Airbus assembles the A319 in its Hamburg
facility. A new short-range version of the A 319, the A318, is currently
under development. It is designed to satisfy demand for aircraft in the
100- to 130-seat range. The first flight of the A318, for which sales
efforts started in late 1998, is scheduled for the end of 2001.
- A310. The A310 is a two-engine aircraft with a range of up to 5,200
nautical miles that seats between 220 and 280 passengers depending on its
layout.
- A300-600. This model is a medium-range two-engine aircraft accommodating
between 266 and 361 passengers. It has a range of up to 4,150 nautical
miles. A cargo version of this model, the A300-600F, completes the
line-up.
- A300-600ST BELUGA. The A300-600ST Beluga is a high-volume transporter that
was primarily developed for the transportation of Airbus components.
Airbus Industrie is engaged in the predevelopment of the A3XX, an all-new
high-capacity aircraft. Two versions are in the planning stage, one would be
capable of carrying 555 passengers, the other 655 passengers. Further decisions
relating to this project are expected to be taken in 2000 and will be based on
updated demand information received from airlines. DaimlerChrysler Aerospace
also participates in the development of a new military transport aircraft, the
A400M, through Airbus Military Company S.A.S. which was founded in 1999. Other
partners in this joint venture company are Airbus Industrie, Aerospatiale Matra,
BAe Systems, Casa, Finmeccanica, Flabel and Tusas.
HELICOPTERS. The helicopter business of Aerospace is conducted through the
French-German Eurocopter group. The Eurocopter group comprises the combined
helicopter business of DaimlerChrysler Aerospace and Aerospatiale Matra.
DaimlerChrysler Aerospace and Aerospatiale Matra hold 40% and 60%, respectively,
of the capital stock of Eurocopter Holding, S.A. which holds 75% of the
operating company Eurocopter S.A. The remaining 25% of the capital stock of
Eurocopter S.A. is owned by Aerospatiale Matra. The product line of the
Eurocopter group includes single-engine light helicopters, as well as
twin-engine light- and medium-weight helicopters. The Eurocopter group
participates in the development and production of the Tiger escort helicopter
24
and has a 66% share of the program for the development of the NH90 tactical
transport and naval helicopter. The fourth prototype of the NH90 began in-flight
testing in May 1999. In June 1999, Eurocopter received an order to deliver 160
Tiger helicopters to France and Germany (80 each).
DEFENSE AND CIVIL SYSTEMS. This business unit is active in the areas of
defense and dynamics systems, radar and radio systems, command and information
systems and systems technology. Its principal activities include development and
manufacture of products in the categories of radar technology, radio
communications and electronic warfare; reconnaissance, command, control and
information systems, mission planning systems, digital map systems, telescopic
antenna tower systems, mobile field hospitals and simulation and training
systems; antitank and ground-to-air missiles, surface missile systems and
standoff weapons. Through Nortel Dasa Network Systems, a joint venture with
Northern Telecom, this business unit is also engaged in the development of
telecommunications network components, including systems for the integration of
mobile and landline telecommunications networks. Defense and Civil Systems
restructured its business through the acquisition of the German defense
electronics activities of Siemens AG in 1998, and, in 1999, the purchase of a
33% interest in the South African company Reutech Radar Systems and the sale of
Elekluft GmbH.
AERO ENGINES. The Aero Engines business unit consists of MTU Motoren- und
Turbinen-Union Muenchen GmbH and its subsidiaries. It is involved in the
development, production and product support of propulsion systems for aircraft.
In the area of engines for commercial and executive aircraft, MTU Muenchen
primarily works with the engine manufacturers Pratt & Whitney, a subsidiary of
United Technologies, Inc., and General Electric. Pratt & Whitney and MTU
Muenchen jointly develop and manufacture the PW4000 turbofan engine family, the
PW2000 jet engine series, the PW305 and PW306 jet engines and the PW500 turbofan
engine family. Since February 1999, the two companies are also developing a new
engine program, the PW6000 series. MTU Muenchen's cooperation with General
Electric relates primarily to the General Electric CF6 engine family for which
MTU Muenchen manufactures parts and components.
In other projects MTU Muenchen's cooperation partners include Rolls-Royce
plc, Snecma and Japanese aircraft engine manufacturers. In the V2500 jet engine
program MTU Muenchen cooperates with Pratt & Whitney, Rolls-Royce plc and
Japanese Aero Engines Corporation. In the military area MTU Muenchen is engaged
in the development of the EJ200 engine for the Eurofighter/Typhoon and the
MTR390 engine for the Tiger helicopter. MTU Muenchen is also one of the leading
providers of maintenance and repair services for jet engines. See also
"International Cooperations."
MILITARY AIRCRAFT. Because of the technical complexity and the high
development costs of the products, DaimlerChrysler Aerospace undertakes most
projects in this area on a joint venture basis with other European and United
States companies. Military Aircraft is focusing primarily on the
Eurofighter/Typhoon program. Production of the Eurofighter began in 1998 and
deliveries are expected to commence in 2002. Germany intends to acquire 180, the
United Kingdom 232, Italy 121 and Spain 87 aircraft. The Military Aircraft
business unit also continues to be involved in the Panavia program
(modernization and servicing of Tornado aircraft) and the manufacturing of
certain Airbus components.
DaimlerChrysler Aerospace is also involved in other aircraft programs,
including the Experimental Program Vector, a follow-up program of the X-31A, and
it is actively engaged in programs involving design, development and
implementation of capability upgrades and maintenance, technological and
logistical support relating to the F4 Phantom, the Breguet Atlantique, the NATO
Awacs E-3A, the Transall C160 and the MiG-29. Other programs involve
reconnaissance systems, training and flight simulation systems and maintenance
and overhaul of military aircraft.
SATELLITES. The Satellites business unit is focusing on several satellite
programs and projects commissioned by the European Space Agency (ESA):
Envisat-1, a successor program to the ERS-2 (European Remote Sensing Satellite);
the Horizon 2000 scientific satellite program consisting of the Cluster
satellites; the XMM (X-Ray Multi-Mirror Mission), the largest scientific x-ray
satellite to date; and Rosetta, a satellite program designed to explore
25
the origin of the solar system. Other projects include the development and
production of three meteorological satellites as part of the Meteosat program,
and the participation in Globalstar, a worldwide mobile communications satellite
system consisting of 48 low earth orbit satellites which were positioned by the
end of 1999.
SPACE INFRASTRUCTURE. Space Infrastructure concentrates on the development
and production of orbital systems. These activities include programs involving
space stations and launcher systems and the development of new technologies.
Specific projects in which DaimlerChrysler Aerospace participates include the
space laboratory COF (Columbus Orbital Facility) for the International Space
Station (ISS), the space transporter ATV (Automated Transfer Vehicle), the ERA
(European Robotic Arm) program and the Ariane 4 and 5 launcher programs.
MARKETS, SALES AND COMPETITION
In 1999, market demand for commercial aircraft and commercial aircraft
engines was weaker than in the previous year. Orders for jet aircraft with more
than 100 seats declined to 867 units (1998: 1,222 units). However, due to a high
order backlog, deliveries in 1999 increased to 914 aircraft compared to 792
units in 1998. Demand for maintenance and repair services was stronger than in
1998.
In spite of continued budget constraints in Germany and other countries of
the Western hemisphere, public spending for defense products was higher than in
the previous year. Demand in the market for satellites and space infrastructure
systems for commercial applications showed a substantial increase in 1999 while
public spending in this area stagnated.
The following table sets forth the distribution of Aerospace revenues by
geographic market since 1997:
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
European Union......................................... 7,313 6,730 6,013
Germany............................................ 2,702 2,604 2,207
Other.............................................. 4,611 4,126 3,806
NAFTA region........................................... 1,457 1,496 1,239
United States...................................... 1,322 1,414 1,193
Canada and Mexico.................................. 135 82 46
Asia................................................... 267 244 208
Other markets.......................................... 154 300 356
----- ----- -----
World.............................................. 9,191 8,770 7,816
===== ===== =====
------------------------------
The Airbus aircraft built by the partners of Airbus Industrie compete
primarily with aircraft produced by Boeing. In the international military
aircraft market, DaimlerChrysler Aerospace competes primarily as a member of the
Panavia and Eurofighter consortia. Competitors of these consortia are Boeing,
Lockheed Martin, Dassault and certain manufacturers in Russia and the Ukraine.
Major competitors of the Eurocopter group include Sikorsky, Boeing, Westland,
Agusta, Bell Textron and, with respect to some special applications, helicopter
manufacturers from Poland and Russia.
In the German defense systems market, the Defense and Civil Systems business
unit competes in some areas with Diehl and STN Atlas. Outside of Germany,
Defense and Civil Systems operates exclusively through international
cooperations. These cooperations, which are primarily active in the missile
area, compete with Thomson-CSF, Hughes, Raytheon, Lockheed Martin and Boeing.
Space Infrastructure competes in the area of communications satellites with
Alenia Spazio in Europe and Hughes Space and Lockheed Martin in the United
States. Competitors in the launcher area are Lockheed Martin and Boeing in the
United States and some manufacturers in Russia, the Ukraine, China and Japan.
26
Through MTU Muenchen DaimlerChrysler Aerospace participates in several
international aircraft engine cooperations which compete in some areas with
Pratt & Whitney, General Electric, Snecma, Rolls-Royce plc, Volvo Aero and
FiatAvio SpA.
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
Capital expenditures for fixed assets were [EURO]336 million in 1999
compared with [EURO]326 million in 1998. They related primarily to capacity
increases in the Commercial Aircraft/Helicopters business unit intended to
address the high order backlog for commercial aircraft.
Research and development expenditures decreased slightly in 1999 to
[EURO]2,005 million (1998: [EURO]2,047 million). Of this amount,
[EURO]458 million was attributable to projects funded by the Group
(1998: [EURO]367 million). In 1999, 77% of DaimlerChrysler Aerospace's total
research and development expenditures was customer-funded (1998: 82%). Research
and development projects of Commercial Aircraft/Helicopters included the Airbus
programs and new helicopter models. The primary research and development
projects of the Defense and Civil Systems business unit included missile
systems; radar systems; control, command and communications systems; and
civilian products. The Aero Engines business unit emphasized the EJ200 engine
program, additional development work on engines for regional aircraft and
research work directed at engine technologies leading to lower emissions,
reduced noise and lower fuel consumption. Military Aircraft continued to perform
development work on the Eurofighter/Typhoon, the Tornado upgrade program and on
Airbus components; the Satellites and Space Infrastructure business units
focused on the various ESA programs and the Ariane program.
The capital expenditures for fixed assets and the research and development
expenditures of Aerospace during the last three years are shown below:
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
Capital expenditures for fixed assets.................. 336 326 255
Research and development............................... 2,005 2,047 2,233
of which: Company funded projects................ 458 367 316
Third party projects................... 1,547 1,680 1,917
INTERNATIONAL COOPERATIONS
In addition to the Airbus consortium, the comprehensive cooperation with
Pratt & Whitney and the participation in the Eurofighter consortium,
DaimlerChrysler Aerospace participates in a number of other cooperative efforts.
DaimlerChrysler Aerospace and Nortel Ltd. of the United Kingdom, a subsidiary of
the Canadian company Northern Telecom Ltd., cooperate in a joint venture which
provides products and services in the telecommunications field. The Group is
also involved in three joint ventures with Thomson-CSF S.A. in the areas of
weapons components, missile propulsion systems and gallium arsenide technology.
A joint venture with China Aerospace Corporation focuses on satellites for
communication and earth observation. In 1998, Matra BAe Dynamics acquired a 30%
equity interest in LFK-Lenkflugkoerpersysteme GmbH through which DaimlerChrysler
Aerospace conducts its guided missile activities. MTU Muenchen expanded its
aircraft engine repair and maintenance business by entering into joint ventures
with Canadian Airlines in 1998 and Honeywell (formerly Allied Signal) and Snecma
in 1999. The Defense and Civil Systems business unit established a strategic
partnership through the acquisition of a 33% interest in the South African
company Reutech Radar Systems in 1999.
27
Other
This segment includes the operating businesses Rail Systems, Automotive
Electronics and MTU/Diesel Engines. In 1999, this segment contributed
approximately 4% of the DaimlerChrysler Group's total revenues. The following
table sets forth, by business unit, the revenues generated since 1997:
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
Rail Systems.............................................. 3,562 1,658 1,631
Automotive Electronics.................................... 890 754 557
MTU/Diesel Engines........................................ 959 921 878
Other Businesses(1)....................................... 441 193 955
----- ----- -----
Total................................................. 5,852 3,526 4,021
===== ===== =====
- ------------------------------
(1) The 1997 revenues in this category represent primarily the Group's
semiconductor activities which were sold in 1998. The 1999 and 1998 revenues
principally derive from the management of real estate projects including
Potsdamer Platz.
------------------------------
The increase in 1999 revenues of the Rail Systems business unit is primarily
due to the full consolidation of Adtranz following DaimlerChrysler's acquisition
of ABB Asea Brown Boveri's 50% interest in Adtranz. The 1998 and 1997 revenue
figures represent the pro rata share in Adtranz' revenues reflecting
DaimlerChrysler's previous 50% ownership interest in the company. For a
discussion of revenues of this segment see "Item 5. Operating and Financial
Review and Prospects."
RAIL SYSTEMS. The Rail Systems activities of the Group are conducted by
Adtranz. In the first quarter of 1999, DaimlerChrysler acquired ABB's 50%
interest in Adtranz for $472 ([EURO]441) million. Adtranz is one of the leaders
in the global rail transportation market. Its products and services include
people movers, light rail vehicles, metros, diesel and electric regional and
intercity multiple units, electric and diesel locomotives, high speed trains,
signaling systems, fixed installations, and customer support.
In December 1999, Rail Systems began implementation of a comprehensive
restructuring program. The goal of this program is to achieve a turnaround in
operating results in 2000. The program primarily aims at concentration on key
areas of expertise and cost-cutting through the elimination of excess capacity
and efficiency improvements in production and organizational structure.
AUTOMOTIVE ELECTRONICS. The Automotive Electronics activities conducted
through TEMIC TELEFUNKEN microelectronic GmbH and its subsidiaries focus on
electronic systems for engines, safety systems and applications that enhance
driving comfort. Major product areas are powertrain and chassis, antilock
braking systems, occupant safety devices, sensor systems, vehicle body
electronics and automotive electric motors.
MTU/DIESEL ENGINES. The Group conducts its MTU/Diesel Engines business
through MTU Motoren- und Turbinen-Union Friedrichshafen GmbH, one of the world's
leading suppliers of high-grade propulsion systems for land, marine and
rail-bound vehicles as well as energy-supply applications based on diesel
engines, gas engines or gas turbines and the new technologies of
high-temperature fuel cells and electrolysis. MTU Friedrichshafen also produces
drive shafts for passenger cars and lightweight commercial vehicles. Its
subsidiary L'Orange manufactures injection systems for high-power diesel
engines.
28
MARKETS, SALES AND COMPETITION
The following table sets forth the distribution of revenues of this segment
by geographic market since 1997:
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
European Union......................................... 4,080 2,295 2,637
Germany............................................ 2,497 1,395 1,533
Other.............................................. 1,583 900 1,104
NAFTA region........................................... 707 421 411
United States...................................... 658 390 390
Canada and Mexico.................................. 49 31 21
Asia................................................... 407 443 592
Other markets.......................................... 658 367 381
----- ----- -----
World.............................................. 5,852 3,526 4,021
===== ===== =====
------------------------------
The increase in 1999 revenues is primarily due to the full consolidation of
Adtranz following DaimlerChrysler's acquisition of ABB's 50% interest in
Adtranz. The 1998 and 1997 revenue figures represent the pro rata share in
Adtranz' revenues reflecting DaimlerChrysler's previous 50% ownership interest
in the company. For a discussion of revenues of this segment see "Item 5.
Operating and Financial Review and Prospects."
Principal competitors of Adtranz are Siemens, Alstom and Bombardier. TEMIC
competes with Bosch, Siemens, TRW and Nippondenso. Principal competitors of
MTU/Diesel Engines in the diesel engines business include Caterpillar and
Cummins.
CAPITAL EXPENDITURES; RESEARCH AND DEVELOPMENT
In 1999, the Group spent [EURO]0.6 billion on fixed assets of the businesses
included in this segment (1998: [EURO]0.8 billion). At TEMIC, investments
consisted primarily of funding for increased production capacity. MTU/Diesel
Engines directed its capital expenditures at capacity expansion for the engine
series 2000/4000 and improvements and replacements of production facilities.
Adtranz invested primarily in the modernization of its production facilities.
During 1999, research and development activities at MTU/Diesel Engines
focused primarily on new application fields for the engine series 2000 and 4000
and the development of a new medium speed engine for the upper power-output
range. At Adranz, development activities concentrated on new vehicle
technologies and standardized product platforms to improve the ability to
respond to market requirements regarding product pricing, product quality and
delivery periods. Research and development work at TEMIC was primarily directed
at motor management systems and electronic systems designed to enhance vehicle
safety and comfort. The Group's research and development expenditures for these
activities in 1999 were [EURO]312 million (1998: [EURO]185 million).
SUPPLIES AND RAW MATERIALS
In 1999, the DaimlerChrysler Group purchased goods and services from
suppliers around the world with a total value of approximately
[EURO]94.9 billion (1998: [EURO]79.6 billion). Mercedes-Benz Passenger Cars &
smart accounted for 24% of this volume, Chrysler Group for 46%, Commercial
Vehicles for 19%, Services for 2%, Aerospace for 5%, and Other for 4%.
DaimlerChrysler enters into long-term supply agreements for the purchase of
various commodities used to manufacture vehicles. It also purchases commodities
on the spot market from time to time. In particular, DaimlerChrysler uses large
amounts of steel and aluminum. The price of steel was relatively stable in 1999,
while the price of aluminum increased significantly.
29
Following the business combination, DaimlerChrysler integrated its worldwide
procurement and supply activities within a single Global Procurement and Supply
function. In addition, it combined the components of the Tandem program of
Daimler-Benz and the Extended Enterprise-Registered Trademark- program of
Chrysler to form an expanded Extended Enterprise-Registered Trademark- concept.
The new concept is an integrative approach designed to maximize the efficiency
of supply chains by involving not only the finished component supplier but also
sub-suppliers, raw material suppliers, and transportation carriers.
DaimlerChrysler also initiated a new cost management process on the basis of
total costs over the life-cycle of production components and tools.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Government regulation of the automobile industry is extensive. Laws in
various jurisdictions regulate the emission levels, fuel economy, noise, and
safety of vehicles, as well as the levels of pollutants generated by the plants
that produce them. The cost of complying with these regulations can be
significant, and DaimlerChrysler expects to incur significant compliance costs
in the future. However, DaimlerChrysler management recognizes leadership in
environmental protection as an increasingly important competitive factor in the
marketplace.
Vehicle Emissions
U.S. STANDARDS. FEDERAL. The Clean Air Act directs the Environmental
Protection Agency (EPA) to establish and enforce national ambient air quality
standards. As part of that directive, the EPA has imposed tailpipe emission
control standards on passenger cars and light trucks, including minivans, sport
utility vehicles, and pickup trucks. The standards in effect for model year
1994-2003 passenger cars and light trucks are known as Tier 1 standards.
Manufacturers are obligated to recall vehicles that fail to meet those standards
for ten years or 100,000 miles, whichever occurs first. Separate standards are
in effect for heavy-duty commercial vehicles.
On December 21, 1999, the EPA adopted Tier 2 standards that establish for
the first time the same stringent tailpipe emission requirements for passenger
cars and light trucks. Tier 2 standards will be phased in over model years
2004-2009. The EPA also adopted regulations that require gasoline refiners to
produce cleaner burning fuels by reducing or eliminating pollutants such as
lead, sulfur and benzene, by adding oxygen and detergents, and by developing
alternative fuels such as alcohol, liquefied petroleum gas, and natural gas.
The Tier 2 standards present a significant technological challenge to the
automobile industry, particularly with respect to diesel engines. Manufacturers,
including DaimlerChrysler, will not be able to sell vehicles in the United
States that do not meet the standards. Complying with these news standards will
require further research and development achievements on the part of the
automotive industry.
CALIFORNIA STANDARDS. The State of California sets its own stringent
emission control standards for passenger cars and light trucks under the low
emission vehicle program run by the California Air Resources Board (CARB).
The standards in effect for model years 1994-2003 will be succeeded by more
restrictive standards to be phased in over model years 2004-2007. Meeting these
new standards will require significant progress in the development of engine,
exhaust system, and fuel technologies.
An important part of California's low emissions vehicle program is the
introduction of zero-emission vehicles. CARB initially issued regulations
mandating that a specified percentage of all model year 1998 and later vehicles
sold by each manufacturer in California be zero-emission vehicles. CARB later
modified that mandate as part of an agreement with seven vehicle manufacturers
that requires them to provide zero-emission vehicle demonstrations in California
through the 2002 model year and to continue investing in the research and
development of battery technology. Beginning with model year 2003, 10% of the
passenger cars and light trucks sold each year by a manufacturer in California
must be certified as zero-emission vehicles that produce no emissions of
regulated pollutants.
DaimlerChrysler participates in a consortium of vehicle manufacturers,
electric utilities and the U.S. Department of Energy, which was formed to
develop battery technology that would qualify electric vehicles as zero-emission
vehicles. Development of a commercially viable electric vehicle will require
further intensive
30
research. Compared to conventional vehicles, electric vehicles today cost
significantly more, have a much more limited range between recharges, require a
long time to recharge, and lack a nationwide infrastructure of recharging
stations. Without new battery technology, manufacturers, including
DaimlerChrysler, may be forced to take costly actions such as reducing the
number of non-zero-emission vehicles they sell in California or selling electric
vehicles below cost.
OTHER STATES. Twelve northeastern states and the District of Columbia
formed the Ozone Transport Commission to coordinate their efforts to reduce
ground-level ozone. The commission initially recommended that its members adopt
California's low emission vehicle program. As an alternative, the U.S.
automotive industry proposed a national low emission vehicle program that
requires manufacturers to sell low emission vehicles within participating
jurisdictions beginning with the 1999 model year, and nationwide beginning with
the 2001 model year. All commission members participate in the national program
except Maine, Massachusetts, New York and Vermont, which adopted the California
program.
New York and Massachusetts also adopted the zero-emission vehicle mandate
for model years before 2003 that California initially adopted and later
rescinded. Federal courts invalidated the adoption of those mandates upon
challenge by the automotive industry. An appeal of the Massachusetts ruling is
pending before the U.S. Court of Appeals for the First Circuit.
EUROPEAN STANDARDS. Current vehicle emission control standards in the
European Union are generally no more restrictive than U.S. standards. However,
the EU Commission and the European Parliament have adopted a directive that
establishes increasingly stringent emission standards for passenger and light
commercial vehicles for model years 2000 (EURO 3) and 2005 and subsequent (EURO
4). Under the directive, manufacturers will be obligated to recall vehicles that
fail to meet those standards for five years or 80,000 kilometers, whichever
occurs first. Standards for heavy commercial vehicles have been adopted by the
EU Commission and the European Parliament for model years 2000 (EURO 3), 2005
(EURO 4, stage 1) and 2008 and subsequent (EURO 4, stage 2). DaimlerChrysler
believes that its passenger cars and commercial vehicles will comply with the
European standards.
CANADIAN AND MEXICAN STANDARDS. Canada and Mexico have also established
vehicle emission control standards. Canadian standards are comparable to U.S.
federal standards, while Mexican standards are generally less stringent.
However, Mexico has adopted standards beginning with model year 2001, that are
similar to those now applicable in the United States.
Compliance with new emission control standards will present significant
technological challenges to vehicle manufacturers and will likely require
significant expenditures. Examples of these challenges include the development
of improved battery, catalytic converter, and flexible or alternative fuel
technologies. Manufacturers who are unable to develop commercially viable
technologies within the time frames established by the new standards will be
limited in the number and types of vehicles and engines they are able to sell in
their principal markets.
Vehicle Fuel Economy
U.S. STANDARDS. Under the federal Motor Vehicle Information and Cost
Savings Act, a manufacturer is subject to significant penalties for each model
year its vehicles do not meet Corporate Average Fuel Economy standards, commonly
referred to as the CAFE standards. CAFE standards for passenger cars and
light-duty trucks are currently 27.5 miles per gallon and 20.7 miles per gallon,
respectively. A manufacturer earns credits by exceeding CAFE standards. Credits
earned for the three preceding model years and credits projected to be earned
for the next three model years can be used to meet CAFE standards in the current
model year, except that credits earned in respect of cars may not be used for
trucks.
DaimlerChrysler expects to meet current U.S. domestic fleet CAFE standards
for both passenger cars and light-duty trucks, although it will likely use
credits to meet the standard for light-duty trucks. However, increased demand
for larger light-duty trucks could jeopardize its ability to comply with that
standard and require it to take
31
additional costly steps, including the sale of ethanol flexible fuel vehicles.
DaimlerChrysler did not meet the CAFE standards for the 1999 model year vehicle
fleet imported into the United States, and may be required to pay a penalty of
between $5-10 million.
More stringent CAFE standards may be adopted as a way of reducing "green
house gas" carbon dioxide emissions by increasing fuel economy. These emissions
are said to contribute to global warming, which has become a matter of
international concern. In 1997, the United States signed the Kyoto Protocol to
the United Nations Framework Convention on Climate Change. This protocol calls
for the United States to reduce its fossil energy use substantially during years
2008-2012. Although the protocol is non-binding unless ratified by the U.S.
Senate, the United States is considering ways to achieve the called-for
reductions, including more stringent CAFE standards, higher fuel costs and
restrictions on fuel usage. These actions would be costly to DaimlerChrysler and
could significantly restrict the products it is able to offer in the United
States.
In addition to conventional gasoline powered vehicles, DaimlerChrysler
manufactures vehicles that operate on compressed natural gas, liquid petroleum
gas, and electricity, and flexible fuel vehicles capable of operating on both
gasoline and ethanol blend fuels.
EUROPEAN STANDARDS. The European Union also signed the Kyoto Protocol and
agreed to reduce carbon dioxide emissions substantially during years 2008-2012.
In early 1999, the European Union entered into a voluntary agreement with the
European automotive manufacturers association which establishes an emission
target of 140 grams of carbon dioxide per kilometer for the average new car sold
in the European Union in 2008. That target represents an average reduction in
passenger vehicle fuel usage of 25 percent, measured from 1995 levels. The
European Union has reaffirmed its goal of reducing carbon dioxide emissions from
new passenger cars to an average of 120 grams per kilometer by 2010. Vehicle
manufacturers have agreed to reexamine in 2003 whether further reductions are
possible by 2010. Achievement of these reductions will require European vehicle
manufacturers, including DaimlerChrysler, to improve engine and overall
efficiency and reduce vehicle weight.
Vehicle Safety
The U.S. National Traffic and Motor Vehicle Safety Act of 1966 requires new
vehicles and equipment sold in the United States to meet various safety
standards established by the National Highway Traffic Safety Administration
(NHTSA). These standards include those relating to passenger restraint systems,
fuel systems and collision impact protection. The Safety Act also authorizes
NHTSA to investigate complaints relating to vehicle safety and to order
manufacturers to recall and repair vehicles found to have safety related
defects. The cost of such recalls can be substantial depending on the nature of
the repair and the number of vehicles affected.
Vehicle safety regulations in Canada are similar to those in the United
States. Vehicles sold in Europe are subject to comparable vehicle safety
regulations established by the European Union or by individual countries. In
1999, the EU Commission proposed to expand existing vehicle safety regulations
by a directive on pedestrian protection. Countries in South America and Asia
have also established vehicle safety regulations.
In response to an increase in air bag related fatalities in low speed
crashes, NHTSA issued a rule in 1997 that permits manufacturers to reduce the
speed at which air bags inflate in future model year vehicles. NHTSA proposed a
new air bag rule in 1998, which it supplemented in 1999. This proposal would
impose numerous and potentially costly testing requirements. DaimlerChrysler
offers "de-powered" passenger side air bags for most of its 1998 and later model
year vehicles. It also conducts a separate child-oriented educational air bag
safety campaign.
Stationary Source Regulation
DaimlerChrysler's assembly, manufacturing and other operations in the United
States must meet a substantial number of regulatory requirements under various
federal laws, including the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act, the Pollution Prevention Act of 1990 and the
Toxic Substances Control Act. State laws parallel and, in some cases, impose
more stringent requirements than federal law.
32
Together these laws impose severe restrictions on airborne and waterborne
emissions and discharges of pollutants, the handling of hazardous materials, and
the disposal of wastes. Similar requirements apply to its operations in Europe
and Canada. Increasing governmental regulation and environmental enforcement is
likely in Mexico.
In 1999, the EU Commission proposed a directive that would require
automobile manufacturers to take back end-of-life passenger cars (up to 9 seats)
and trucks (up to 3.5t total weight) free of charge beginning January 1, 2006.
The proposed directive would affect all end-of-life-vehicles in the European
Union. If adopted, the directive would impose additional costs on automobile
manufacturers which could be significant. In Germany, automobile manufacturers
are currently required to take back up to twelve year old passenger cars free of
charge. Older vehicles and batteries are also taken back for disposal or
recycling but manufacturers are allowed to charge their costs. In addition,
German manufacturing facilities are subject to enhanced noise restrictions.
Environmental Matters
In the United States, the EPA and various state agencies have notified
DaimlerChrysler Corporation that it may be a potentially responsible party for
the cost of cleaning up hazardous waste storage or disposal facilities pursuant
to the Comprehensive Environmental Response, Compensation and Liability Act and
other federal and state environmental laws. A number of lawsuits allege that
DaimlerChrysler Corporation violated environmental laws and seek to recover
costs associated with remedial action. It is only one of a number of potentially
responsible parties who may be found to be jointly and severally liable for
remediation costs at the 93 sites involved in the foregoing matters at
December 31, 1999. It may also incur remediation costs at an additional 46 of
its active or deactivated facilities.
Pollution remediation is also a potentially significant issue in Germany at
some older sites, including plants and the Group's own service outlets. These
remediation issues involve nine principal sites.
Estimates of future costs of such environmental matters are inevitably
imprecise due to numerous uncertainties, including the enactment of new laws and
regulations, the development and application of new technologies, the
identification of new sites for which DaimlerChrysler may have remediation
responsibility and the apportionment and collectibility of remediation costs
among responsible parties. DaimlerChrysler establishes reserves for these
environmental matters when the loss is probable and reasonably estimable. It is
possible that final resolution of some of these matters may require
DaimlerChrysler to make expenditures in excess of established reserves, over an
extended period of time and in a range of amounts that cannot be reasonably
estimated. Although final resolution of any such matters could have a material
effect on DaimlerChrysler's consolidated operating results for the particular
reporting period in which an adjustment of the estimated reserve is recorded,
DaimlerChrysler believes that any resulting adjustment should not materially
affect its consolidated financial position.
DaimlerChrysler is committed to reducing the environmental impact of its
operations and products beyond currently applicable regulatory requirements
where this is technically and financially feasible. DaimlerChrysler's policy is
environmental protection in pursuit of sustainable development. This policy is
laid down in the environmental guidelines and designed to further minimize the
environmental effects generally associated with the type of manufacturing
operations conducted by DaimlerChrysler. DaimlerChrysler has installed
environmental management systems in both its plant operations and its
development departments to consider environmental effects already at the
planning stage of a new manufacturing process or product. DaimlerChrysler
publishes environmental reports summarizing the use of resources and measures
undertaken to minimize further the environmental impact of the Group's products
and operations.
INTRODUCTION OF THE EURO
On January 1, 1999, eleven member states of the European Union -- Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal and Spain -- introduced the euro as their common legal currency for
"paperless" transactions (euro zone). Since then, funds denominated in the
currency of one
33
participating member state are converted into the currency of another
participating member state based on a fixed conversion rate. It is anticipated
that by February 28, 2002, the euro will be the official legal tender for the
participating member states and that the national currencies of those member
states will then be withdrawn from circulation.
DaimlerChrysler has adopted the euro as its corporate currency throughout
its operations as of January 1, 1999. The introduction of the euro necessitated
changes in information technology and other systems in order to accommodate the
use of the euro in financial reporting. DaimlerChrysler adapted all of its
internal processes and systems operating in the currencies of the participating
member states to the euro. It spent an aggregate amount of approximately
[EURO]100 million on this project, primarily in 1997 and 1998.
Recognizing its significant manufacturing and transactional activity within
Europe, DaimlerChrysler believes that it will realize significant long-term
benefits from the euro by capitalizing on the greater market transparency and
efficiency resulting from the introduction of a single European currency.
Productivity gains with respect to products manufactured and sold in the eleven
participating member states will no longer be offset by exchange rate
fluctuations. As sales and production costs will both be calculated in euro, it
will also be easier for DaimlerChrysler to monitor its price competitiveness in
the participating member states. In addition, the introduction of the euro
should over time produce the following effects:
BUSINESS AND COMPETITIVE IMPLICATIONS. It is expected that the euro will
result in greater market efficiency and will foster a more competitive economic
environment within and among the participating member states. The fact that the
pricing of products and services will be more transparent through the use of a
single common currency is likely to lead to increased price harmonization within
the participating member states. However, management believes there will also be
significant opportunities to take advantage of these potential developments by
enhancing its marketing strategies and reducing production costs. Costs of funds
may be relatively lower due to increased competition among financial
intermediaries resulting in downward pressure on fees and other transaction
costs due to the elimination of, for example, currency exchange and hedging
activities. There can be no assurance, however, whether and to what extent the
introduction of the euro will affect the business, financial condition and
results of operations of DaimlerChrysler, or whether it will be able to realize
any strategic or operational benefits from the introduction of the euro. See
also "Risk Factors" in "Item 3. Key Information."
CURRENCY AND FOREIGN EXCHANGE EXPOSURE. Transition to the euro with its
fixed exchange rates among national currencies of participating member states
has eliminated the need for exchange transactions in those currencies. For
DaimlerChrysler, this leads to savings in transaction and hedging costs of
approximately [EURO]50 million annually. See "Item 11. Quantitative and
Qualitative Disclosures About Market Risk."
DESCRIPTION OF PROPERTY
At December 31, 1999, the DaimlerChrysler Group had 187 manufacturing
facilities worldwide of which 51 are located in Germany and 42 in the United
States. Most of the remaining facilities are located in Argentina, Brazil,
Canada, Indonesia, Mexico, South Africa, Spain and Turkey. The Group also has
other properties, including office buildings, spare parts centers, research
laboratories, testing tracks and warehouses, mainly in Germany and in the United
States. The Group owns most of its manufacturing facilities and other
properties.
34
The following table sets forth a list of all principal production and other
facilities of the DaimlerChrysler Group throughout the world:
PRODUCTION FACILITIES
Mercedes-Benz Passenger Cars & smart
GERMANY
- Berlin................................. Manufacturing plant for engines and
components
- Bremen................................. Bodywork and assembly plant
- Hamburg................................ Manufacturing plant for chassis parts
- Rastatt................................ Bodywork and assembly plant
- Sindelfingen........................... Bodywork and assembly plant
- Stuttgart-Untertuerkheim............... Manufacturing plant for engines, axles and
gearboxes
UNITED STATES
- Tuscaloosa, Alabama.................... Bodywork and assembly plant
BRAZIL
- Juiz de Fora........................... Bodywork and assembly plant
FRANCE
- Hambach................................ Bodywork and assembly plant
SOUTH AFRICA
- East London............................ Bodywork and assembly plant
Chrysler Group
UNITED STATES
- Belvidere, Illinois.................... Bodywork and assembly plant
- Dayton, Ohio........................... Manufacturing plant for thermal products
- Detroit, Michigan...................... Bodywork and assembly plants, manufacturing
plants for engines and glass
- Fenton, Missouri....................... Bodywork and assembly plants
- Huntsville, Alabama.................... Manufacturing plant for automotive
electronics
- Indianapolis, Indiana.................. Foundry for engine blocks
- Kenosha, Wisconsin..................... Manufacturing plant for engines
- Kokomo, Indiana........................ Transmission plants, aluminum die castings
plant
- New Castle, Indiana.................... Forging, machining and assembly plant for
components
- Newark, Delaware....................... Bodywork and assembly plant
- Sterling Heights, Michigan............. Bodywork and assembly plant, stamping and
subassembly plant
- Toledo, Ohio........................... Bodywork and assembly plant, machining plant
for components
- Trenton, Michigan...................... Manufacturing plant for engines
- Twinsburg, Ohio........................ Stamping and subassembly plant
- Warren, Michigan....................... Bodywork and assembly plant, stamping and
subassembly plant
AUSTRIA
- Graz................................... Bodywork and assembly plants
CANADA
- Bramalea............................... Bodywork and assembly plant
- Windsor................................ Assembly plants
35
MEXICO
- Mexico City............................ Bodywork and assembly plant
- Saltillo............................... Bodywork and assembly plant
- Toluca................................. Bodywork and assembly plant
Commercial Vehicles
GERMANY
- Duesseldorf............................ Bodywork and assembly plant, manufacturing
plant for steering systems
- Gaggenau............................... Bodywork and assembly plant, manufacturing
plant for axles and transmissions
- Kassel................................. Manufacturing plant for axles
- Ludwigsfelde........................... Bodywork and assembly plant
- Mannheim............................... Bodywork and assembly plant, manufacturing
plant for engines
- Ulm.................................... Bodywork and assembly plant
- Woerth................................. Bodywork and assembly plant
UNITED STATES
- Cleveland, North Carolina.............. Bodywork and assembly plant
- High Point, North Carolina............. Bodywork and assembly plant
- Mt. Holly, North Carolina.............. Bodywork and assembly plant
- Portland, Oregon....................... Bodywork and assembly plant
ARGENTINA
- Buenos Aires........................... Bodywork and assembly plant
BRAZIL
- Sao Bernardo do Campo.................. Bodywork and assembly plant
CANADA
- St. Thomas............................. Bodywork and assembly plant
MEXICO
- Santiago Tianguistenco................. Assembly plant
SPAIN
- Barcelona.............................. Manufacturing plant for engines,
transmissions and axles
- Vitoria................................ Bodywork and assembly plant
TURKEY
- Aksaray................................ Bodywork and assembly plant, manufacturing
plant for engines and axles
- Hosdere................................ Assembly plant
Aerospace
GERMANY
- Friedrichshafen........................ Manufacturing plant for space systems and
defense and civil systems
- Hamburg................................ Manufacturing plant for aircraft
- Manching............................... Manufacturing plant for military aircraft
- Muenchen............................... Manufacturing plant for aircraft engines
- Muenchen-Ottobrunn..................... Manufacturing plant for space systems
36
Other
GERMANY
- Friedrichshafen........................ Manufacturing plant for diesel engines
- Hennigsdorf............................ Manufacturing plant for rail systems
- Ingolstadt............................. Manufacturing plant for automotive
electronics
- Nuernberg.............................. Manufacturing plant for automotive
electronics
UNITED STATES
- Pittsburgh, Pennsylvania............... Manufacturing plant for rail systems
HUNGARY
- Budapest............................... Manufacturing plant for automotive
electronics
MEXICO
- Cuautla................................ Manufacturing plant for automotive
electronics
SWEDEN
- Vasteras............................... Manufacturing plant for rail systems
UNITED KINGDOM
- Derby.................................. Manufacturing plant for rail systems
OTHER FACILITIES
GERMANY
- Berlin................................. Potsdamer Platz real estate project,
including debis headquarters
- Stuttgart-Moehringen................... DaimlerChrysler headquarters
- Ulm.................................... Research center
UNITED STATES
- Auburn Hills, Michigan................. DaimlerChrysler headquarters and technology
center
Some of the Group's principal facilities are subject to mortgages and other
security interests granted to secure indebtedness to financial institutions. As
of December 31, 1999, the total amount of indebtedness secured by these
facilities was [EURO]1.4 billion, which related almost exclusively to the
Potsdamer Platz real estate project.
DaimlerChrysler believes that the Group's principal manufacturing facilities
and other significant properties are in good condition and that they are
adequate to meet the needs of the DaimlerChrysler Group. As part of its
strategic planning process, in view of continuing overcapacity in the automobile
industry, DaimlerChrysler is reviewing worldwide capacity requirements,
especially in South America.
Item 5. Operating and Financial Review and Prospects.
ACCOUNTING PRINCIPLES
U.S. GAAP
The Consolidated Financial Statements have been prepared in accordance with
U.S. GAAP except for the use of the proportionate method of consolidation for
certain joint ventures. Under U.S. GAAP, joint ventures would be accounted for
using the equity method of accounting. DaimlerChrysler has received permission
from the United States Securities and Exchange Commission to prepare its
consolidated financial statements with this departure from U.S. GAAP. See
Note 3 to the Consolidated Financial Statements.
37
Operating Profit
In 1997 the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 131 entitled "Disclosures about Segments of
an Enterprise and Related Information." In response, the Group adopted a
definition of "Operating Profit" as the measurement standard for performance of
its business segments. Segment Operating Profit is defined as income before
financial income, income taxes and extraordinary items included in the
consolidated statement of income, modified to exclude certain pension and
post-retirement benefit costs, to include certain financial income, net, and to
include or exclude certain miscellaneous items. See Note 30 to the Consolidated
Financial Statements.
The Euro
Beginning January 1, 1999 DaimlerChrysler adopted the euro as its corporate
currency. Accordingly, DaimlerChrysler has prepared its 1999 consolidated
financial statements in euros. The consolidated financial statements for prior
years have been prepared using marks as the reporting currency and have been
restated in euros for each period presented using the Official Fixed Conversion
Rate. Therefore, the consolidated financial statements for prior years depict
the same trends that would have been presented had they been presented in marks.
However, because they were originally prepared using marks, they are not
necessarily comparable to financial statements of a company which originally
prepared its financial statements in a European currency other than the mark and
restated them in euros. See Note 1 to the Consolidated Financial Statements,
"Introduction of the Euro" in "Item 4. Information on the Company," and "Risk
Factors" in "Item 3. Key Information."
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." This Standard
requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains and losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. With the issuance
of SFAS 137, "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB
Statement No. 133," this Standard is effective for fiscal years beginning after
June 15, 2000. DaimlerChrysler plans to adopt SFAS 133 effective January 1,
2000. The new Standard will permit the Group to apply hedge accounting for
certain foreign currency derivative contracts on qualifying forecasted
transactions. Under the Group's current accounting policies such contracts are
marked to market with unrealized gains and losses impacting current earnings.
Accordingly, application of the new Standard in accounting for such foreign
currency derivative contracts may result in lower current period earnings
volatility relating to the Group's foreign currency risk management in periods
of significant changes in exchange rates.
INFLATION
The rates of inflation on an annual average basis in Germany during 1999,
1998 and 1997 were 0.6%, 1.0% and 1.9%, respectively. The inflation rates on an
annual average basis in the United States for those years were 2.2%, 1.6% and
2.3%, respectively. The effects of inflation on the Group's operations have not
been significant in recent years.
YEAR 2000
DaimlerChrysler has not experienced any significant Y2K related disruptions
to its operations. It successfully implemented a comprehensive Y2K compliance
program that included assessment, testing, remediation, and contingency planning
in the areas of critical business computer systems, critical plant floor
equipment, production and critical non-production suppliers, vehicle components,
end-user computing, and dealer systems.
The Group estimates its total Y2K compliance costs to be approximately
[EURO]240 million. DaimlerChrysler's total estimated costs do not include costs
relating to information technology projects accelerated as a result of the Y2K
issue.
38
OPERATING RESULTS
The DaimlerChrysler Group is conducting its business activities through six
business segments: (1) Mercedes-Benz Passenger Cars & smart; (2) Chrysler Group;
(3) Commercial Vehicles; (4) Services; (5) Aerospace; and (6) Other. During the
year 1999, DaimlerChrysler combined the financial services activities of debis
and Chrysler Financial Company L.L.C. and reallocated some other activities
among the business segments. Prior period figures have been restated and the
discussion of prior period operating results has been adjusted to reflect these
changes. The information and discussion below regarding the six business
segments should be read in conjunction with Notes 2 and 30 to the Consolidated
Financial Statements included in Item 18. The following table sets forth
revenues and operating profit (loss) for each of the six business segments
during the last three fiscal years:
DaimlerChrysler Group
Business Segment Revenues And Operating Profit (Loss)(1)
([EURO] in millions)
Year Ended December 31,
------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
Operating Operating Operating
Profit Profit Profit
Revenues (Loss) Revenues (Loss) Revenues (Loss)
-------- --------- -------- --------- -------- ---------
Mercedes-Benz Passenger Cars &
smart............................... 38,100 2,703 32,587 1,993 27,554 1,716
Chrysler Group........................ 64,085 5,051 56,412 4,255 52,026 3,412
Commercial Vehicles................... 26,695 1,067 23,162 946 20,012 342
Services.............................. 12,932 2,039 11,410 985 9,404 777
Aerospace............................. 9,191 730 8,770 623 7,816 284
Other................................. 5,852 (399) 3,526 (130) 4,021 (214)
Eliminations.......................... (6,870) (179) (4,085) (79) (3,261) (87)
------- ------ ------- ------ ------- -----
Total............................. 149,985 11,012 131,782 8,593 117,572 6,230
======= ====== ======= ====== ======= =====
- --------------------------
(1) For additional segment information see Note 30 to the Consolidated Financial
Statements.
1999 Compared With 1998
DAIMLERCHRYSLER GROUP
In 1999, Group revenues increased 14% from [EURO]131.8 billion to
[EURO]150.0 billion. The increase was primarily due to higher revenues in the
three automotive segments and to the full consolidation of Adtranz' 1999
financial results in DaimlerChrysler's consolidated financial statements
following its acquisition of the remaining outstanding shares of Adtranz from
ABB Asea Brown Boveri. Revenues of Mercedes-Benz Passenger Cars & smart rose 17%
to [EURO]38.1 billion and Chrysler Group revenues went up 14% to
[EURO]64.1 billion. Revenues of Commercial Vehicles reached [EURO]26.7 billion,
an improvement of 15% compared to 1998. The Rail Systems business unit
contributed [EURO]3.6 billion to Group revenues compared to [EURO]1.7 billion in
1998, when Adtranz was consolidated on a pro-rata basis reflecting
DaimlerChrysler's then 50% ownership interest.
In 1999, cost of sales reached [EURO]118.2 billion, an increase of 14%. Cost
of sales was higher in all segments and was commensurate with revenue
improvements achieved by the segments. Cost of sales as a percentage of revenues
was 79% in both 1999 and 1998.
Selling expenses were [EURO]11.7 billion in 1999 compared to
[EURO]10.1 billion in 1998, a 16% rise. General administrative expenses in 1999
were [EURO]5.1 billion, slightly less than in 1998 when they reached
[EURO]5.2 billion.
39
Research and development funded by the Group amounted to [EURO]5.7 billion
in 1999 compared to [EURO]5.0 billion in the previous year. In addition, the
Group undertook research and development projects for third party customers
funded by these customers (mainly the German government and ESA) in the amount
of [EURO]1.8 billion in 1999 (1998: [EURO]1.7 billion).
In 1999, DaimlerChrysler achieved an operating profit of [EURO]11.0 billion
compared to [EURO]8.6 billion in 1998. This 28% increase in operating profit was
considerably higher than the 14% expansion in revenues. Contributions to Group
operating profit by business segment are shown in the table on page 39. The 1999
operating profit includes gains from the sale of most of DaimlerChrysler's
investment in the telecommunications company debitel of [EURO]1.1 billion,
partially offset by charges for restructuring measures in the Rail Systems
business unit and other one-time effects. After adjustment for one-time effects
included in operating profit in both 1999 and 1998, operating profit increased
by 20% to [EURO]10.3 billion. These one-time effects are described in more
detail in the discussion of the segment contributions below. The growth in
operating profit was largely attributable to higher business volume in all
segments, the market success of DaimlerChrysler's premium passenger cars and
light trucks, especially the Mercedes-Benz S-Class and the Jeep Grand Cherokee,
and more favorable exchange rates, primarily between the euro and the dollar.
The improvement in operating profit was also the result of synergies achieved in
the first year after the business combination, primarily due to cost savings in
procurement and supply, and the sales organization.
Group net income increased from [EURO]4.8 billion to [EURO]5.7 billion. This
was principally the result of expanded business volume and gains from the
divestment of the Telecom Services business, partially offset by lower financial
income, one-time tax effects and other one-time charges affecting operating
profit. Net income in 1998 was burdened by merger costs and a loss from the
early extinguishment of debt. Income before financial income, income taxes and
extraordinary items increased 27% to [EURO]9.3 billion. Financial results
decreased from [EURO]0.8 billion to [EURO]0.3 billion, mainly due to charges
from the mark-to-market valuation of derivative financial instruments which did
not qualify for hedge accounting, partially offset by higher gains on sales of
securities. Changes in German tax law that were adopted in 1999 reduced the
income tax rate applicable to corporations from previously 45% to 40%. While the
changes will result in future tax savings for DaimlerChrysler, they triggered a
current revaluation of the Group's deferred tax assets in 1999. This revaluation
combined with the effect of a broader tax base which included an additional tax
imposed on foreign dividend distributions resulted in a negative one-time effect
of [EURO]0.8 billion. Basic and diluted earnings per ordinary share (before
extraordinary items) were [EURO]5.09 and [EURO]5.06 in 1999, compared to
[EURO]5.16 and [EURO]5.04 in 1998, respectively. After extraordinary items,
basic and diluted earnings per ordinary share were [EURO]5.73 and [EURO]5.69 in
1999, significantly higher than in 1998 when they reached [EURO]5.03 and
[EURO]4.91, respectively.
MERCEDES-BENZ PASSENGER CARS & SMART
Revenues of the Passenger Cars Mercedes-Benz & smart division rose 17% to
[EURO]38.1 billion. The increase was mainly the result of the very strong
performance of the new S-Class, the A-Class and the M-Class. Total unit sales
increased 17% from 922,800 cars in 1998 to an all-time high of 1,080,300 in
1999. Unit sales of the E-class were somewhat lower than in 1998, but recovered
in the second half of 1999 after the introduction of the updated model. Lower
unit sales were reported for the C-class, principally due to the planned
introduction of a completely new model during the year 2000.
At [EURO]14.5 billion, revenues from sales in Germany were 14% higher than
in 1998. Germany remains the most important market for the Mercedes-Benz
Passenger Cars & smart division with unit sales of 416,800 in 1999, 17% more
than in the prior year. The German market accounts for 39% of the division's
worldwide passenger car unit sales (1998: 38%). In the other European Union
member states, revenues of the Mercedes-Benz Passenger Cars & smart division
were 15% higher than in 1998, reaching [EURO]8.7 billion, while unit sales
increased 17% to 298,900 units. These increases were primarily due to the market
success of the division's products in all major European markets. Market
conditions were especially favorable in Italy and Spain. In the United States,
revenues amounted to [EURO]8.5 billion, 27% more than in 1998, while unit sales
improved 14% to 197,200 units, setting a record for the fourth consecutive year
for the highest sales volume ever achieved by the division in this market. This
significant
40
increase was the result of continued strong demand and the exceptional
performance of the new S-class. Despite difficult market conditions, revenues in
Japan were 19% higher reaching [EURO]2.0 billion, while unit sales increased by
9,300 to 49,500 vehicles.
Operating profit of the Mercedes-Benz Passenger Cars & smart division jumped
36% to [EURO]2.7 billion (1998: [EURO]2.0 billion). This increase was primarily
due to the record level of unit sales for the division coupled with the
favorable development of exchange rates, mainly between the euro and the dollar.
These beneficial effects were partially offset by higher expenses associated
with product adjustments and repositioning of the smart.
CHRYSLER GROUP
The Chrysler Group division achieved record revenues of [EURO]64.1 billion
compared with [EURO]56.4 billion for 1998. This increase in revenues reflects
increased unit sales, an improved product mix, higher vehicle pricing and more
favorable dollar to euro exchange rates, partially offset by higher sales
incentives.
In 1999, the Chrysler Group sold 3.2 million units, 4% more than the year
before. Worldwide unit sales increased as a result of the strong performance of
the new Jeep Grand Cherokee, the Dodge Durango and the full-size sedans
(Intrepid, LHS/300M), partially offset by lower unit sales of the mid-size
sedans (Breeze, Cirrus, Stratus) and Neons. In the NAFTA region, total sales
increased 5% to 3,052,000 units. Unit sales outside the NAFTA region dropped to
177,300 in 1999, a decrease of 10,900 units or 6%. This decline was primarily
caused by continuing economic difficulties in the South American markets.
The division's operating profit improved by 19%, climbing to
[EURO]5.1 billion in 1999 compared with [EURO]4.3 billion in 1998. This increase
resulted from increased unit sales, improvements in product mix, favorable
vehicle pricing, decreased warranty costs and favorable dollar to euro exchange
rates, partially offset by higher sales incentives, increased research and
development costs and higher depreciation due to an intensified capital
spending. Operating results were also burdened by a [EURO]139 million charge for
lump-sum retiree payments related to the 1999 UAW collective bargaining
agreement.
Revenues and operating profit of the Chrysler Group division derive
principally from the U.S. and Canadian automotive marketplaces. Retail industry
sales (including fleet sales) of new cars and trucks in the U.S. and Canada were
19.0 million units in 1999, compared with 17.4 million units in 1998, an
increase of 9%.
The U.S. and combined U.S. and Canada retail sales and market share data for
the Chrysler Group in 1999 and 1998 are set forth below:
Year Ended December 31,
----------------------------------
Increase/
1999 1998 (Decrease)
--------- --------- ----------
U.S. Retail Market(1)
Car sales................................................... 745,275 739,217 6,058
Car market share............................................ 8.6% 9.1% (0.5%)
Truck sales (including minivans)............................ 1,893,286 1,770,794 122,492
Truck market share.......................................... 21.7% 22.6% (0.9%)
Combined car and truck sales................................ 2,638,561 2,510,011 128,550
Combined car and truck market share......................... 15.2% 15.7% (0.5%)
U.S. and Canada Retail Market(1)
Combined car and truck sales................................ 2,903,378 2,779,207 124,171
Combined car and truck market share......................... 15.3% 16.0% (0.7%)
- ------------------------------
(1) All retail sales and market share data include fleet sales.
------------------------------
Retail sales of cars in the U.S. market for 1999 increased 1% over 1998,
however, market share decreased slightly due to increased competition and lower
U.S. sales of mid-size sedans and Neons, partially offset by higher
41
sales of full-size sedans. Retail sales in the U.S. truck market for 1999
increased 7% over 1998, however, market share declined slightly in part as a
result of capacity constraints in the growing and highly-competitive lower
mid-utility and large pick-up market segments. Increased retail sales of the
Jeep Grand Cherokee and Dodge Durango were partially offset by decreased sales
of the Minivan and Dodge Dakota.
COMMERCIAL VEHICLES
Revenues of the Commercial Vehicles division rose 15% to [EURO]26.7 billion
and unit sales grew 13% to 554,900 vehicles in 1999. These increases were due to
strong demand for trucks and buses, particularly in the NAFTA region and to a
lesser degree in the European Union. Revenues from sales in Germany were 11%
higher than in 1998 at [EURO]7.0 billion, while unit sales in this market
increased 7% in 1999 to 114,500 vehicles. Revenues derived from other member
states of the European Union were up 12%, reaching [EURO]5.7 billion, while unit
sales rose 9% to 152,600 units. In the European Union (including Germany) the
division maintained market leadership in the category of vans between 2t and 6t
GVW with a market share of 19% (1998: 18%). In the category of trucks over 6t
GVW the Commercial Vehicles division also maintained its position as the market
leader in Germany with a market share of 45%. In the European Union (excluding
Germany), the division's market share for trucks above 6t GVW remained unchanged
at 15%.
Revenues of the Commercial Vehicles division in the NAFTA region increased
50% to [EURO]10.4 billion in 1999 while unit sales jumped 54% to 193,000 units.
This growth was primarily due to continued favorable market conditions in the
United States. The vehicles of the new truck brand, Sterling, and the school bus
manufacturer, Thomas Built Buses, contributed to revenues for the entire year
for the first time in 1999. Revenues in the South American market declined 35%
to [EURO]1.3 billion, while unit sales experienced a decrease of 23% to 44,600
vehicles due to difficult economic conditions in this market.
In 1999, the Commercial Vehicles division contributed an operating profit of
[EURO]1,067 million (1998: [EURO]946 million), mainly resulting from the
continuing expansion of the division's business volume in the NAFTA region and
the European Union and more favorable exchange rates. This 13% improvement over
1998 continues the favorable earnings trend which this division has experienced
over the past three years.
SERVICES
In 1999, the Services division recorded revenues of [EURO]12.9 billion, a
13% improvement over 1998 ([EURO]11.4 billion). Financial Services increased
revenues by 29% to [EURO]10.0 billion, representing 77% of total revenues
achieved by Services. Overall, Financial Services processed approximately
1,993,000 new leasing and finance contracts in 1999 with a total value of
[EURO]50.7 billion, an increase of 44% in new contract value compared to 1998.
In 1999, Financial Services managed a portfolio of finance receivables of
[EURO]99.2 billion, a 42% increase over 1998 ([EURO]69.9 billion). Revenues of
IT Services grew from [EURO]2.2 billion to [EURO]2.9 billion. IT Services'
revenues from goods and services provided to customers outside the Group
accounted for 75% of total revenues in 1999 (1998: 69%). In 1999,
DaimlerChrysler divested its Telecom Services business by selling most of its
investment in the telecommunications company debitel. Excluding the effects of
this sale, 1999 revenues represent a 29% improvement over comparable 1998
revenues.
In 1999, Services generated [EURO]4.2 billion or 32% of its total revenues
in Germany (1998: [EURO]4.6 billion or 40%). The decline is principally caused
by the withdrawal from Telecom Services. The division's leasing and sales
financing business continued to perform well in the NAFTA region, which
contributed revenues of [EURO]6.4 billion in 1999 (49% of total revenues), and
in the European Union (excluding Germany), which contributed [EURO]1.5 billion
or 12% of total revenues.
Services achieved an operating profit of [EURO]2,039 million in 1999
compared with [EURO]985 million in the previous year. The 1999 result includes
the gains of [EURO]1,140 million from the sale of debitel shares, partially
offset by lower gains on sales of receivables and charges of [EURO]127 million
relating to prior period securitization transactions.
42
AEROSPACE
Aerospace revenues rose 5% to [EURO]9.2 billion in 1999 compared to
[EURO]8.8 billion in 1998. The increase was predominantly due to the ongoing
success of the Airbus program, which resulted in higher shipments from
DaimlerChrysler Aerospace Airbus to Airbus Industrie.
As in previous years, Commercial Aircraft/Helicopters was the largest
contributor to Aerospace revenues in 1999, with a share of 43% (1998: 40%). The
revenues of this business unit climbed from [EURO]3.5 billion in 1998 to
[EURO]3.9 billion in 1999 primarily as a result of increased deliveries of
Airbus aircraft and components. Aero Engines revenues increased from
[EURO]1,655 million in 1998 to [EURO]1,740 million in 1999, mainly because of
growing maintenance activities. Defense and Civil Systems revenues were flat at
[EURO]1.7 billion. Military Aircraft recorded revenues of [EURO]848 million in
1999 (1998: [EURO]765 million). This increase was primarily due to the
Eurofighter and Tornado programs.
The Aerospace division derived 29% ([EURO]2.7 billion) of its total revenues
in 1999 from the German market, compared to 30% in 1998.
In 1999, incoming orders at the Aerospace segment decreased to
[EURO]9.9 billion (1998: [EURO]13.9 billion). In contrast to 1998, the Military
Aircraft and Aero Engines businesses did not benefit substantially from orders
received in connection with the Eurofighter/Typhoon program. The Defense and
Civil Systems business unit suffered from continued budget constraints in
Germany in 1999. Incoming orders at Commercial Aircraft/ Helicopters were
positively affected by orders for the delivery of 80 Tiger helicopters each to
France and Germany. New orders for Airbus aircraft declined to 476 in 1999,
compared to 556 aircraft in 1998. There were 46 order cancellations in 1999
(1998: 27) and Airbus Industrie delivered 294 aircraft versus 229 in 1998. At
December 31, 1999, the Airbus Industrie firm order backlog(1) was 1,445
aircraft, 10% higher than at the end of 1998 (1,309 aircraft).
Research and development expenditures decreased 2% to [EURO]2,005 million in
1999. Of this amount, [EURO]458 million was attributable to projects funded by
the Group (1998: [EURO]367 million). In 1999, 77% of Aerospace's total research
and development expenditures was customer-funded (1998: 82%).
In 1999, the Aerospace division achieved an operating profit of
[EURO]730 million (1998: [EURO]623 million). The increase resulted primarily
from expanded business volume in most areas, further cost reductions and the
continued strength of the dollar in relation to the euro. Due to existing
currency-hedging, however, the division was not able to take full advantage of
the exchange rate improvement. The operating result in 1998 was burdened by an
expense of [EURO]229 million in connection with the repayment of DaimlerChrysler
Aerospace Airbus' obligations to the Federal Republic of Germany. This repayment
resulted in the complete discharge of all remaining obligations relating to the
acquisition of DaimlerChrysler Aerospace Airbus in 1989. In contrast, the
operating profit of 1998 included gains from the sales of businesses.
OTHER
Revenues of this segment increased to [EURO]5.9 billion in 1999 from
[EURO]3.5 billion in the previous year. The increase was primarily the result of
the full consolidation of Adtranz in this segment for the first time following
the acquisition of the remaining 50% interest previously held by ABB Asea Brown
Boveri. The business unit Rail Systems comprising Adtranz contributed revenues
of [EURO]3.6 billion in 1999 compared to [EURO]1.7 billion in 1998, when Adtranz
was consolidated on a pro-rata basis reflecting the 50% ownership interest
DaimlerChrysler previously held.
In 1999, the Other segment contributed an operating loss of
[EURO]399 million compared to a loss of [EURO]130 million in 1998. This loss was
caused by a substantial negative contribution of Rail Systems resulting from the
full consolidation of Adtranz. Operating improvements achieved at Adtranz were
partially offset by charges of
- ------------------------
(1) Purchase options, announced orders for which definitive contracts have not
been executed and orders from customers which have filed for bankruptcy are
excluded from firm order backlog.
43
[EURO]178 million relating to restructuring measures initiated to improve
Adtranz' future competitive position. The remaining operating businesses of the
segment were able to increase their contribution to Group operating profit. The
1998 results were positively affected by gains from the sale of the Group's
semiconductor business and two real estate project companies.
1998 Compared With 1997
DAIMLERCHRYSLER GROUP
Group revenues in 1998 increased 12% from [EURO]117.6 billion to
[EURO]131.8 billion. The increase was primarily due to higher revenues in the
three vehicle segments. Mercedes-Benz Passenger Cars & smart and Chrysler Group
rose 18% and 8% to [EURO]32.6 billion and [EURO]56.4 billion, respectively.
Revenues of Commercial Vehicles went up 16% to [EURO]23.2 billion.
In 1998, cost of sales reached [EURO]103.7 billion, an increase of 12%. Cost
of sales was higher in all segments and was commensurate with revenue
improvements achieved by the segments. Cost of sales as a percentage of revenues
was 79% in both 1998 and 1997.
Selling expenses were [EURO]10.1 billion in 1998 compared to
[EURO]9.7 billion in 1997, a 5% rise. The increase was somewhat less than the
percentage change in Group revenues for 1998. General administrative expenses in
1998 rose 11% over 1997 to [EURO]5.2 billion.
Research and development funded by the Group amounted to [EURO]5.0 billion
in 1998 compared to [EURO]4.4 billion in 1997. In addition, the Group undertook
research and development projects for third party customers funded by such
parties (mainly the German government and ESA) in the amount of
[EURO]1.7 billion in 1998 (1997: [EURO]2.1 billion).
In 1998, the Group had a substantially enhanced operating profit of
[EURO]8.6 billion compared to [EURO]6.2 billion in the previous year. The
percentage increase from 1997 to 1998 was 38%. The business segment
contributions to the Group operating profit are shown in the table on page 39.
The increase in the operating profit of the Group was primarily attributable to
higher revenues in all segments and the absence of certain negative effects on
operating profit in 1997, including the 29-day strike at a Chrysler plant and
higher warranty costs at Chrysler related to several voluntary customer service
actions and recalls. Overall profitability benefited substantially from volume
increases in the three vehicle segments, particularly in Europe and the NAFTA
region. All three segments in the vehicle business benefited from the recent
renewal and expansion of model ranges and cost-reduction programs. Operating
profit in 1998 also reflected a [EURO]229 million expense relating to
DaimlerChrysler Aerospace Airbus' obligations to the Federal Republic of
Germany. This was the 1998 expense portion of DaimlerChrysler Aerospace Airbus'
[EURO]895 million payment to the Federal Republic of Germany in complete
discharge of all remaining obligations relating to the acquisition of
DaimlerChrysler Aerospace Airbus in 1989. In 1997, DaimlerChrysler Aerospace
Airbus paid the Federal Republic of Germany [EURO]716 million in complete
discharge of its obligations relating to the Airbus A320 program. Of this
amount, [EURO]369 million was expensed in 1997. 1998 operating profit was also
affected by a substantial loss arising from operations and charges taken at the
Rail Systems unit included in the Other segment.
Group net income before non-recurring items (principally merger costs and
tax benefits) increased from [EURO]4.1 billion in 1997 to [EURO]5.2 billion in
1998. Net income including the effects of non-recurring items
([EURO]0.4 billion of after-tax merger costs in 1998 and [EURO]2.5 billion of
special non-recurring German tax benefits in 1997) was [EURO]4.8 billion in 1998
and [EURO]6.5 billion in 1997. As indicated, the extremely favorable
year-over-year comparison resulting from improvements in operating profit was
obscured somewhat by the effect of the merger expenses in 1998 and the
transition from a year -- 1997 -- in which there were enormous reported tax
benefits resulting from the special distribution and from the reversal of
valuation allowances on deferred tax assets, to a year -- 1998 -- in which the
Group is reporting income tax expense more reflective of German and United
States statutory income tax rates. Net income benefited from [EURO]0.8 billion
of financial income in 1998 (1997: [EURO]0.6 billion). Financial income consists
mainly of interest income, results of unconsolidated subsidiaries and other
affiliates and gains
44
and losses on securities and foreign exchange contracts. Excluding the effect of
merger costs, basic and diluted earnings per ordinary share in 1998 were
[EURO]5.58 and [EURO]5.45, respectively. Basic and diluted earnings per ordinary
share before extraordinary item as reported in 1998 were [EURO]5.16 and
[EURO]5.04.
MERCEDES-BENZ PASSENGER CARS & SMART
Revenues of the Mercedes-Benz Passenger Cars & smart division rose 18% to
[EURO]32.6 billion, resulting mainly from the very strong performance of the
M-Class, the A-Class and the C-Class in the division's largest markets. Total
unit sales rose 29% from 715,100 cars in 1997 to an all-time high of 922,800 in
1998. At [EURO]12.7 billion, revenues in Germany were 14% higher than in 1997.
Germany remains the most important market for the Mercedes-Benz Passenger
Cars & smart division with unit sales of 355,200 in 1998 representing 38% of
worldwide passenger car unit sales (1997: 39%).
In the other European Union member states, revenues of the Mercedes-Benz
Passenger Cars & smart division were 28% higher reaching [EURO]7.5 billion,
while unit sales jumped 42% to 255,000 units. These increases were primarily due
to significantly higher demand for passenger cars in all major markets. In the
United States, revenues increased sharply by [EURO]1.9 billion or 39% to
[EURO]6.7 billion, while unit sales were accelerating 40% to 172,300 units,
setting a record for the second consecutive year for the highest sales volume
ever achieved by the Group in this market. Despite difficult market conditions,
revenues in Japan were only 3% lower at [EURO]1.6 billion, with unit sales up
slightly (+2%) at 40,200. In Asia (excluding Japan) revenues fell 28% to
[EURO]1.1 billion reflecting a similar magnitude of unit sales decline to 26,300
units.
In 1998, the Mercedes-Benz Passenger Cars & smart division had an operating
profit of [EURO]2.0 billion (1997: [EURO]1.7 billion). The principal reason for
this increase was the record level of unit sales for the entire division with a
minor assist from positive currency fluctuations. These beneficial effects were
partially offset by increases in expenses largely related to the changeover to
the new S-Class and the market introduction of the smart.
CHRYSLER GROUP
The Chrysler Group division reported revenues of [EURO]56.4 billion compared
with [EURO]52.0 billion for 1997. The increase in revenues primarily reflects an
increase in unit sales. Average revenue per unit in 1998 was comparable to 1997,
with improvements in product mix and pricing offset by increased sales
incentives.
Worldwide unit sales in 1998 were 3.1 million units, an increase of 206,700
units or 7% compared with 1997. Worldwide unit sales increased as a result of
the strong performance of the Dodge Durango, the Dodge Ram pickup trucks and the
division's full-size sedans, partially offset by lower shipments of Jeep Grand
Cherokees. The increase in sales of full-size sedans was primarily due to the
introduction of the all-new Chrysler and Dodge full-size sedans in the third
quarter of 1997. Lower unit sales of Jeep Grand Cherokees resulted from a model
changeover to the all-new Jeep Grand Cherokee beginning in the second quarter of
1998 and substantially completed in the third quarter. Unit sales outside of the
NAFTA region dropped to 188,200 in 1998, a decline of 49,200 units or 21%. The
reduction in unit sales outside the NAFTA region was primarily caused by
economic difficulties in Asian and South American markets.
The division's operating profit improved by 25%, climbing to
[EURO]4.3 billion in 1998 versus [EURO]3.4 billion in 1997. This improvement
resulted from higher unit sales and lower warranty costs, partially offset by
increases in sales incentives and higher depreciation and amortization. The
reduction in warranty costs was primarily related to several voluntary customer
service actions and recalls that occurred in 1997. The higher sales incentives
were required in 1998 to respond to an even more intensely competitive U.S.
automotive environment. Operating profit for 1997 reflected the 29-day strike
which reduced profits by an estimated [EURO]0.5 billion after considering
partial recovery of production losses from the strike.
Revenues and operating profit of the Chrysler Group segment derive
principally from the U.S. and Canadian automotive marketplaces. Retail industry
sales (including fleet sales) of new cars and trucks in the U.S. and Canada were
17.4 million units in 1998, compared with 16.9 million units in 1997, an
increase of 3%.
45
The U.S. and combined U.S. and Canada retail sales and market share data for
the Chrysler Group division in 1998 and 1997 are set forth below:
Year Ended December 31,
--------------------------------
1998 1997 Increase
--------- --------- --------
U.S. Retail Market(1)
Car sales................................................... 739,217 736,530 2,687
Car market share............................................ 9.1% 8.9% 0.2%
Truck sales (including minivans)............................ 1,770,794 1,567,258 203,536
Truck market share.......................................... 22.6% 21.7% 0.9%
Combined car and truck sales................................ 2,510,011 2,303,788 206,223
Combined car and truck market share......................... 15.7% 14.9% 0.8%
U.S. and Canada Retail Market(1)
Combined car and truck sales................................ 2,779,207 2,559,950 219,257
Combined car and truck market share......................... 16.0% 15.1% 0.9%
- ------------------------------
(1) All retail sales and market share data include fleet sales.
------------------------------
The increase in the 1998 U.S. car market share was primarily the result of
higher retail sales of Chrysler and Dodge full-size sedans. The increase in the
1998 U.S. truck market share was primarily the result of increased retail sales
of Dodge Durangos and Dodge Ram pickup trucks, partially offset by lower sales
of the Jeep Grand Cherokee resulting from a model changeover to the all-new Jeep
Grand Cherokee.
COMMERCIAL VEHICLES
Revenues of the Commercial Vehicles division rose 16% to [EURO]23.2 billion
and unit sales grew 17% to 489,700 vehicles in 1998. Strong demand for vans and
trucks, particularly in Europe and the NAFTA region, was largely responsible for
this favorable development. Revenues in Germany were 12% higher at
[EURO]6.4 billion, while unit sales increased 11% in 1998 to 107,500 vehicles.
In the rest of the European Union market revenues were up 15% reaching
[EURO]5.1 billion while unit sales rose 12% to 139,600 units in 1998. In the
European Union (including Germany) the division maintained market leadership in
the category of vans between 2t and 6t GVW with a market share of 18% (1997:
18%). In the category of trucks over 6t GVW the Commercial Vehicles division
maintained its position as the market leader in Germany with a market share of
47% compared to 48% in the previous year. The division's market share for trucks
above 6t GVW in the European Union (excluding Germany) remained unchanged at
15%.
Revenues of the Commercial Vehicles division outside of the European Union
improved 18% to [EURO]11.7 billion in 1998 while unit sales rose by 24% to
242,600 units. The growth in revenues came primarily from the United States,
Canadian, Mexican and Argentinian markets. In the United States revenues were
48% higher than in 1997, and unit sales were up 49% to 107,800 units. This
significant improvement reflected continued strong demand for Freightliner's
high-end Century Class and its successful ramp-up of production and distribution
of the new Sterling brand in the United States.
In 1998, the Commercial Vehicles division contributed an operating profit of
[EURO]946 million (1997: [EURO]342 million). This was a major improvement over
1997 and a significant turnaround in operating performance following the loss
experienced in 1996. In the short term this recovery was primarily due to higher
sales of vans and trucks in Western Europe and the United States, a model mix
improvement and favorable currency exchange rates. Over the longer term it
resulted from the division's model renewal efforts and expansion programs and
its cost reduction efforts.
46
SERVICES
In 1998, Services had revenues of [EURO]11.4 billion, a 21% improvement over
1997 ([EURO]9.4 billion). This increase was primarily generated by the Financial
Services business, mainly in the United States and Germany, as well as by IT
Services. Revenues of Financial Services went up 21% to [EURO]7.7 billion,
contributing 68% of Services' total revenues in 1998 (1997: 68%). Overall,
Financial Services processed new leasing and finance contracts in 1998 with a
total value of [EURO]35.2 billion, an increase of 23% in new contract value
compared to 1997. In 1998, Financial Services managed a portfolio of finance
receivables of [EURO]69.9 billion, a 13% increase over 1997
([EURO]61.9 billion). IT Services increased revenues by 40% to
[EURO]2.2 billion. Its revenues from goods and services provided to customers
outside the DaimlerChrysler Group accounted for 69% of total revenues in 1998
(1997: 64%).
In 1998, Services' revenues generated in Germany were [EURO]4.6 billion
(1997: [EURO]3.9 billion), or 40% of total revenues (1997: 41%). The NAFTA
region contributed [EURO]4.7 billion in 1998 (41% of total revenues), while
[EURO]1.6 billion or 14% of total revenues originated in the European Union
(excluding Germany).
Services enjoyed a [EURO]985 million operating profit in 1998, a 27%
increase from 1997 ([EURO]777 million). The primary sources of this significant
increase were Financial Services and IT Services. Both business units benefited
from a major expansion in business volume, especially Financial Services in the
United States.
AEROSPACE
Aerospace revenues rose 12% to [EURO]8.8 billion in 1998 compared to
[EURO]7.8 billion in 1997. Approximately half of the increase resulted from
higher DaimlerChrysler Aerospace Airbus shipments for Airbus and another
[EURO]200 million of the increase came with the acquisition of the German
defense electronics activities of Siemens AG.
Commercial Aircraft/Helicopters was again the largest contributor to 1998
Aerospace revenues, with a share of 40% (1997: 38%). The revenues of this
business unit climbed from [EURO]3.0 billion in 1997 to [EURO]3.5 billion in
1998 primarily as a result of healthy demand for Airbus aircraft. Aero Engines
revenues increased from [EURO]1.5 billion in 1997 to [EURO]1.7 billion in 1998,
mainly because of significantly greater commercial aircraft and aircraft engine
purchasing and maintenance activities.
The German market contributed 30% ([EURO]2.6 billion) of the Aerospace
division's total revenues in 1998 compared to a 28% contribution in 1997.
In 1998, incoming orders at the Aerospace segment rose 40% to
[EURO]13.9 billion (1997: [EURO]9.9 billion). A very substantial portion of this
improvement resulted from orders received in connection with the
Eurofighter/Typhoon program. The jump was also fueled by a further rise of
incoming orders at Airbus Industrie, which reflected even further improved
market conditions for commercial aircraft over 1997 conditions which were
already quite strong. New orders for Airbus aircraft climbed to 556 in 1998,
compared to 460 aircraft in 1997. There were 27 order cancellations in 1998
(1997: 22) and Airbus Industrie delivered 229 aircraft during 1998 versus 182 in
1997. As a consequence, at December 31, 1998, the Airbus Industrie firm order
backlog(1) was 1,309 aircraft, 30% higher than at the end of 1997 (1,009
aircraft). Incoming orders in Aero Engines rose 88% to [EURO]2.6 billion
compared to [EURO]1.4 billion in 1997.
Research and development expenditures decreased 8% to [EURO]2.0 billion in
1998 compared to [EURO]2.2 billion in 1997. Of this amount, [EURO]0.4 billion
was attributable to projects funded by the Group (1997: [EURO]0.3 billion). In
1998, 82% of Aerospace's total research and development expenditures was
customer-funded (1997: 86%).
In 1998, the Aerospace division achieved an operating profit of
[EURO]623 million (1997: [EURO]284 million). All business units of the Aerospace
segment were able to contribute to this considerable improvement, aided by
expanded business volume in almost all areas, further cost reductions and the
continued strength of the dollar in relation to the mark. The operating result
in 1998 was burdened by an expense of [EURO]229 million relating to
DaimlerChrysler Aerospace Airbus obligations to the Federal Republic of Germany.
This was the 1998 expense
- ------------------------
(1) Purchase options, announced orders for which definitive contracts have not
been executed and orders from customers which have filed for bankruptcy are
excluded from firm order backlog.
47
portion of DaimlerChrysler Aerospace Airbus' [EURO]895 million payment to the
Federal Republic of Germany in complete discharge of all remaining obligations
relating to the acquisition of DaimlerChrysler Aerospace Airbus in 1989. In
1997, DaimlerChrysler Aerospace Airbus paid the Federal Republic of Germany
[EURO]716 million in complete discharge of its obligations relating to the
Airbus A320 program. Of this amount, [EURO]369 million was expensed in 1997.
OTHER
Revenues of the Other segment declined in 1998 to [EURO]3.5 billion from
[EURO]4.0 billion in the previous year. The decline was exclusively due to the
sale of the segment's semiconductor business in March 1998. This effect was
partially offset by an increase in Automotive Electronics revenues.
In 1998, the Other segment contributed an operating loss of
[EURO]130 million. This result was the product of a substantial negative
contribution at Rail Systems which was partially offset by the remaining
operating activities of the segment and the gains from the sale of the
semiconductor business of TEMIC and two real estate project companies.
LIQUIDITY AND CAPITAL RESOURCES
1999 Compared With 1998 and 1997
In 1999, 1998 and 1997, DaimlerChrysler utilized funds from operations and
borrowings to finance capital expenditures and the continuing expansion of its
financial services activities. The principal reason for the borrowings was the
growing lease and sales financing business which is typically financed with a
high proportion of debt.
The Group's cash and cash equivalents as of December 31, 1999, 1998 and 1997
amounted to [EURO]9.1 billion, [EURO]6.6 billion and [EURO]6.8 billion. Cash and
cash equivalents are primarily held in U.S. dollars (67%) and euros (31%). Cash
differs from the liquidity of the Group which also includes securities.
Liquidity was [EURO]18.2 billion at December 31, 1999 compared to
[EURO]19.1 billion at the end of 1998 and [EURO]17.3 billion at the end of 1997.
It is primarily held in U.S. dollars (52%) and euros (44%). As a percentage of
total assets, liquidity was 10.4% at December 31, 1999 compared to 14.0% at the
end of 1998. See Notes 16 through 18 to the Consolidated Financial Statements.
In the fourth quarter of 1999, DaimlerChrysler established the
"DaimlerChrysler Pension Trust" to provide for future pension benefit payments
in Germany. DaimlerChrysler transferred securities in the amount of
[EURO]4.1 billion to the pension trust, resulting in the reduction of accrued
pension liabilities. In January 2000, DaimlerChrysler contributed an additional
[EURO]1.3 billion of securities to the pension trust. See Note 22 to the
Consolidated Financial Statements.
Cash provided by operating activities rose to [EURO]18.0 billion in 1999
from [EURO]16.7 billion in 1998 and [EURO]12.3 billion in 1997, mainly
reflecting an increase in net income, partially offset by working capital
increases.
Another source of cash was provided by the Group's financing activities. Net
cash provided by DaimlerChrysler's financial liabilities, including commercial
paper borrowings, was [EURO]18.1 billion in 1999 compared to [EURO]7.9 billion
in 1998 and [EURO]6.2 billion in 1997. Group financial liabilities were
[EURO]64.5 billion at December 31, 1999 (1998: [EURO]40.4 billion), of which
[EURO]36.7 billion were due within one year (1998: [EURO]20.5 billion). The 1999
increase in financial liabilities primarily resulted from cash requirements of
the lease and sales financing business and changes in exchange rates, especially
the euro/dollar rate. DaimlerChrysler uses a variety of short- and long-term
financial instruments, principally notes/bonds (1999: [EURO]29.3 billion; 1998:
[EURO]17.8 billion), commercial paper (1999: [EURO]20.9 billion; 1998:
[EURO]11.0 billion) and borrowings from financial institutions (1999:
[EURO]11.3 billion; 1998: [EURO]9.3 billion). At year-end 1999, financial
liabilities were primarily denominated in U.S. dollars (65%), euros and euro
zone currencies (18%) and Canadian dollars (7%). In general, borrowings by
DaimlerChrysler subsidiaries are
48
in the functional currency of those subsidiaries. The aggregate borrowing rate
of DaimlerChrysler's outstanding indebtedness was 5.7% for 1999. Approximately
32% of the Group's financial liabilities were at fixed rates. Total Group debt
was 36.9% of total stockholders' equity and liabilities in 1999 compared to
29.7% in 1998. See Note 23 for the amounts, maturities and interest rates of the
financial liabilities.
Financial liabilities of the Group's financial services entities on a
stand-alone basis were [EURO]60.1 billion in 1999 and [EURO]36.8 billion in
1998, which include financial liabilities to other members of the Group. These
intercompany amounts are eliminated upon consolidation into the Group financial
statements. Financial liabilities of the financial services entities closely
corresponded to the assets being financed (equipment on operating leases and
receivables from financial services) which aggregated [EURO]62.5 billion in 1999
and [EURO]38.2 billion in 1998. Sales of receivables are still a significant
source of funding for the Group, principally in the United States. Net proceeds
from the sales of automotive retail receivables were [EURO]51.8 billion in 1999
compared to [EURO]41.0 billion in 1998 and [EURO]44.3 billion in 1997.
Net cash used for investing activities in 1999 was [EURO]32.1 billion as
compared to [EURO]23.4 billion in 1998 (1997: [EURO]14.5 billion). The Group
used substantial amounts of cash for its growing lease and sales financing
activities, net of disposals and repayments, (1999: [EURO]21.1 billion; 1998:
[EURO]11.8 billion; 1997: [EURO]6.8 billion) and the purchase of fixed assets,
principally property, plant and equipment (1999: [EURO]9.5 billion; 1998:
[EURO]8.2 billion; 1997: [EURO]8.1 billion). Acquisitions of businesses net of
disposals amounted to [EURO](47) million in 1999, [EURO]172 million in 1998 and
[EURO](729) million in 1997. See also Notes 3 and 4 to the Consolidated
Financial Statements.
At December 31, 1999 and 1998, the Group had committed and uncommitted
credit lines (short- and long-term) available of [EURO]34.6 billion and
[EURO]27.6 billion. [EURO]23.9 billion and [EURO]18.9 billion of these credit
lines were unused as of such dates. In 1999, the weighted average interest rate
payable under DaimlerChrysler's lines of credit was 4.7%. In July 1999,
DaimlerChrysler consolidated its existing back-up credit facilities into a
$17 billion revolving credit facility with a syndicate of international banks.
The new credit agreement is divided into two tranches. The first tranche is a
multi-currency revolving credit facility which allows DaimlerChrysler AG and
several subsidiaries to borrow up to $5 billion with a maturity of 7 years at
interest rates based on LIBOR. The second tranche is a revolving credit facility
which allows DaimlerChrysler North America Holding Corporation, a wholly-owned
subsidiary of DaimlerChrysler AG, to borrow up to $12 billion ($6 billion with a
maturity of 5 years and $6 billion with a maturity of 1 year) at various
interest rates. The $12 billion revolving credit facility serves as a back-up
for certain commercial paper drawings.
The Group can also rely on commercial paper programs denominated in U.S.
dollars, Canadian dollars, Portuguese escudos and Australian dollars and a new
euro multi-currency commercial paper program established in 1999. In the United
States, DaimlerChrysler North America Holding Corporation has a $22.1 billion
debt securities shelf registration filed with the U.S. Securities and Exchange
Commission, of which $19.0 billion remained unused as of February 15, 2000.
High credit ratings support further access to debt markets. The euro
multi-currency commercial paper of DaimlerChrysler AG and the commercial paper
of DaimlerChrysler North America Holding Corporation are rated "A-1" by
Standard & Poor's Ratings Group and "Prime-1" by Moody's Investors Service. All
bonds and medium term notes issued by Group companies and guaranteed by
DaimlerChrysler AG are rated "A+" by Standard & Poor's Ratings Group and "A1" by
Moody's Investors Service.
The Board of Management is authorized until April 30, 2003, subject to the
prior approval of the Supervisory Board, to issue new ordinary shares for cash
up to an aggregate nominal amount of [EURO]256 million (100 million ordinary
shares). See also Note 20 to the Consolidated Financial Statements.
DaimlerChrysler's policy is to maintain a high degree of flexibility in its
funding process by using a broad variety of financial instruments and currencies
depending on market conditions. The Group uses instruments of modern portfolio
management in allocating part of its liquidity in stocks and interest-bearing
securities. DaimlerChrysler employs a variety of derivative financial
instruments for hedging purposes. Swaps, swaptions forward rate agreements,
futures, caps and floors are primarily used to manage the risks arising from
changes in
49
interest rates. The principal derivative financial instruments employed by the
Group to cover foreign currency exposures are forward foreign exchange contracts
and currency options. In accordance with the guidelines established by the Bank
for International Settlements, Corporate Treasury is separated organizationally,
physically and in its technical systems from the administrative functions of
settlement, financial accounting and controlling. See "Item 11. Quantitative and
Qualitative Disclosures About Market Risk."
In recent years, DaimlerChrysler's sources of liquidity have primarily been
provided by operations, funds from capital markets and sales of automotive
retail receivables. The management of DaimlerChrysler believes the funding
available to it from these sources will be sufficient to satisfy its working
capital and debt service requirements for the foreseeable future. Management
also believes that the Group's liquidity and capital resources give it adequate
flexibility to accelerate or decelerate the pace of planned capital spending
programs as appropriate to address shorter term business conditions. The Group's
capital requirements are primarily dependent on management's business plans
regarding the levels and timing of capital expenditures and investments. Subject
to developments affecting the Group which cannot be predicted or controlled,
management currently intends to maintain Group capital expenditure levels
generally in the range of the past three years. DaimlerChrysler is not currently
subject to any commitment for capital expenditures which individually is
material to the Group.
RESEARCH AND DEVELOPMENT
Innovation in products and production systems and shortening lead times in
research and development are essential for the DaimlerChrysler Group to be
competitive in its principal markets and to secure technological leadership.
The Research and Technology department of DaimlerChrysler maintains an
"Integrated Innovations and Technology Management" process as a systematic and
comprehensive approach for formulating a joint technology strategy together with
the Group's business units. The mission of the Research and Technology
department is to function as a hub for new technologies and concepts in order to
support and secure the Group's leading technological position. The Research and
Technology department works closely with the business units on projects
commissioned by the specific units. Also, a number of research projects funded
on the corporate level address the need for long-term research with a Group-wide
scope.
DaimlerChrysler Group research projects are conducted in the following
areas: internal combustion engines and power trains; alternative propulsion
systems; systems, structures and modules for vehicles, aerospace and defense;
cabin interior design, comfort and safety; electronic control systems for
vehicles, aerospace and defense; information, communication and traffic systems;
materials, manufacturing processes and design principles; markets, customers and
future business environment; and new services.
In 1999, DaimlerChrysler presented the NECAR 4, the newest generation of its
zero-emission concept vehicle based on the Mercedes-Benz A-Class. The NECAR 4 is
a fuel cell car that generates electricity via a chemical reaction between
hydrogen and air. It provides ample room for five occupants, reaches a top speed
of 90 mph and offers a driving range of nearly 280 miles before refueling.
DaimlerChrysler expects to introduce a commercial fuel cell car in 2004.
DaimlerChrysler is a partner in the "California Fuel Cell Partnership,"
together with the California Air Resources Board, Ford Motor Company, the
Canadian company Ballard Power Systems Inc., and others. This project is a
collaborative effort to develop fuel cell technology. DaimlerChrysler, Ford and
Ballard are also parties to a joint venture company formed to develop fuel cell
technology for automotive applications. DaimlerChrysler holds an equity interest
of approximately 20% in Ballard.
Through cooperations with world-renowned research institutes and exchange
programs for scientists and employees, DaimlerChrysler actively participates in
the international exchange of new ideas and concepts. DaimlerChrysler maintains
a research and technology center in Palo Alto, California, a vehicle systems
technology center in Portland, Oregon, and a research center for information and
communication technology in Bangalore,
50
India. In 1999, DaimlerChrysler and the Shanghai Institute of Metallurgy founded
a research joint venture in Shanghai. DaimlerChrysler has established internal
research audit procedures to ensure the quality, efficiency and effectiveness of
its research programs.
In 1999, the DaimlerChrysler Group spent a total of [EURO]7.6 billion on
research and development (1998: [EURO]6.7 billion; 1997: [EURO]6.5 billion).
Research and development costs (including costs reimbursed by third parties) as
a percentage of revenues was 5.1% in 1999. Research performed for and funded by
third parties, which occurred primarily at DaimlerChrysler Aerospace, accounted
for [EURO]1.8 billion (1998: [EURO]1.7 billion; 1997: [EURO]2.1 billion).
Approximately 40,000 people are employed worldwide in the research, development
and testing sectors of DaimlerChrysler.
The following table sets forth the research and development expenditures
funded by the Group and expenditures funded by third parties, principally the
German government and ESA:
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
([EURO] in millions)
Research and development
Group funded projects.................................. 5,737 4,971 4,408
Third party projects................................... 1,838 1,722 2,093
----- ----- -----
Total.............................................. 7,575 6,693 6,501
===== ===== =====
OUTLOOK
Economic and Market Conditions
DaimlerChrysler anticipates generally favorable economic conditions in its
principal markets during the 2000-2002 period. Overall economic growth is likely
to increase in both Western Europe and the NAFTA region during this period,
although the rate of growth for the NAFTA region may slow. The Japanese economy
continues to show signs of recovery and prospects for the emerging markets in
Asia have improved significantly. In South America, the economic expansion is
expected to begin in 2000.
With stable economic conditions, DaimlerChrysler expects strong sales
volumes to continue in worldwide automobile markets through 2002. Following
1999's record setting pace, slight reductions in demand for automobiles are
anticipated in the NAFTA region and Western Europe, which should be offset in
large part by increased demand in Asia and South America. Moreover, increasing
globalization of the automobile industry, shorter product cycles, excess
capacity and growing pressures to reduce costs are likely to accelerate
consolidation within the industry.
Revenue Growth
Based on current order flow, the scheduled introduction of a variety of new
products, strict cost management at all divisions and an anticipated moderate
appreciation of the euro against the dollar, pound and yen, DaimlerChrysler
expects continued growth through 2002, with the rate of increase highest in
Asia, South America and Eastern Europe.
Automotive Divisions
The Mercedes-Benz Passenger Cars & smart division plans to round out and
update its range of products throughout the planning period. The new C-class,
scheduled for launch in May 2000, will play an important role in strengthening
the worldwide market position of the Mercedes-Benz brand. With the introduction
of the extremely fuel-efficient smart cdi diesel model and the smart City
convertible, DaimlerChrysler believes the smart brand will be well positioned
for improved performance in 2000.
51
The Chrysler Group division expects to strengthen its position in the
extremely competitive automobile market in the NAFTA region with the renewal of
almost half of its product portfolio over the next two years. Management
believes that the innovative and unconventional PT Cruiser, which will be
available in spring 2000, will define a new market segment and provide
additional opportunity for sales growth. The new generation of minivans
scheduled for launch in the fall of 2000 should further strengthen
DaimlerChrysler's position as market leader in the minivan segment.
The Commercial Vehicles division expects to achieve continued profitable
growth. Although opportunities for increased sales in Western Europe and the
NAFTA region appear limited, prospects are improving in South America and Asia.
DaimlerChrysler expects its new small van, the Vaneo, to provide additional
opportunities for increased sales and market share. The Vaneo is
DaimlerChrysler's first vehicle in the fast-growing segment of less than 2t GVW
and is scheduled to enter the market at year-end 2001.
Other Divisions
The Financial Services business unit plans to focus on expanding its leasing
and financing services for both DaimlerChrysler and non-DaimlerChrysler
products. The IT Services business unit intends to concentrate on further
strengthening its international presence. DaimlerChrysler is also reviewing
strategic alternatives for the IT Services business unit.
Based on a strong order backlog, particularly for commercial aircraft,
DaimlerChrysler also expects Aerospace division revenues for 2000 to increase
over last year's level. In order to meet delivery deadlines for Airbus aircraft,
the Aerospace division plans to increase annual production from 288 aircraft in
1999 to more than 350 in 2002. The European Aeronautic Defence and Space Company
(EADS), which is to be created upon the closing of the previously announced
business combination of DaimlerChrysler Aerospace (Dasa), Aerospatiale Matra and
CASA, will enjoy a considerably stronger competitive position in the global
market than did its individual founding companies.
Adtranz is pursuing a restructuring plan that calls for a turnaround in
operating results in 2000 and annual cost reductions of [EURO]300 million by
2002, as it focuses on the core business of rail vehicles. The Automotive
Electronics business unit anticipates benefiting further from the growing number
of electronic components in automobiles. The MTU/Diesel Engines business unit
expects to expand its business volume, especially in commercial applications.
Prospects for growth look particularly good in Asia.
Capital Expenditures; Research and Development
DaimlerChrysler plans to spend approximately [EURO]45 billion on investments
in property, plant and equipment and research and development in the period
2000-2002, primarily for the development and production preparation of almost 60
new passenger car and commercial vehicle models, which are scheduled to be
introduced over the period ending in 2005.
Strategies for the Future
Management believes that DaimlerChrysler is well-positioned to meet the
challenges of an increasingly competitive global market, which include adjusting
to the continuing consolidation of the automotive industry, addressing the
growing importance of environmental and regulatory considerations, and adapting
to the new electronic marketplace by incorporating Internet technologies in
business processes. DaimlerChrysler has developed six key strategies to respond
to these challenges:
- Attain market leadership in every vehicle segment in which DaimlerChrysler
competes.
- Provide premium services throughout the entire automotive value-added
chain.
- Secure global growth and expand global market presence.
- Form strategic partnerships in non-automotive businesses.
52
- Achieve worldwide leadership in human resources development and
management.
- Introduce "value added" as a performance measure based on operating profit
(net of cost of capital) or net operating income after tax at the Group
level.
Forward-Looking Information
The Outlook section and other sections in this Annual Report contain
forward-looking statements based on beliefs of DaimlerChrysler management. The
words "anticipate," "believe," "estimate," "expect," "intend," "may", "plan",
"project", and "should" identify forward-looking statements. Such statements
reflect the current views and assumptions of DaimlerChrysler regarding the
future and are subject to risks and uncertainties. Many factors could cause
actual results to differ materially from those expressed or implied by such
forward-looking statements, including, among others, changes in general economic
and business conditions, changes in exchange rates and interest rates,
introduction of competing products, lack of acceptance of products or services
and changes in business strategy. See also "Risk Factors" in "Item 3. Key
Information." DaimlerChrysler does not intend or assume any obligation to update
these forward-looking statements.
Item 6. Directors, Senior Management and Employees.
In accordance with the German Stock Corporation Law (AKTIENGESETZ),
DaimlerChrysler AG has a Supervisory Board (AUFSICHTSRAT) and a Board of
Management (VORSTAND). The two Boards are separate and no individual may
simultaneously be a member of both Boards. The following information is included
in respect of all members of DaimlerChrysler AG's Supervisory Board and its
Board of Management.
SUPERVISORY BOARD
Under the German Stock Corporation Law, the German Co-determination Law
(MITBESTIMMUNGSGESETZ) and the Memorandum and Articles of Association of
DaimlerChrysler AG, the Supervisory Board of DaimlerChrysler AG consists of
twenty members. The principal function of the Supervisory Board is to appoint
and supervise the Board of Management and to approve mid-term planning and
matters not in the ordinary course of business that are of fundamental
importance.
The stockholders elect ten members at the annual general meeting and the
employees elect the remaining ten members. The term of a Supervisory Board
member expires at the end of the general meeting of stockholders in which the
stockholders discharge Supervisory Board members for the fourth fiscal year
following the year in which the member was elected. There is no compulsory
retirement age for members of the Supervisory Board.
Any member elected by the stockholders in a general meeting may be removed
by a majority of the votes cast by the stockholders in a general meeting. Any
member of the Supervisory Board elected by the employees may be removed by
three-quarters of the votes cast by the relevant class of employees. Under
normal circumstances the Supervisory Board acts by simple majority vote and the
Chairman, who is always a representative of the stockholders, has the deciding
vote in case of any deadlock.
All of the current stockholder representatives on the Supervisory Board were
elected by the stockholders at the annual general meeting held on May 18, 1999.
The current employee representatives were appointed by a court pursuant to
Section 104 of the German Stock Corporation Law.
The following table shows the current members of the Supervisory Board,
their ages as of February 28, 2000, the year in which they were first elected or
appointed, their principal occupation and their supervisory board
memberships/directorships. Employee representatives are identified by an
asterisk.
53
Hilmar Kopper, Age: 64
Chairman First elected: 1998 (Daimler-Benz AG: 1990)
Principal Occupation: Chairman of the Supervisory Board of Deutsche
Bank AG
Supervisory Board Akzo-Nobel N.V., Bayer AG, Solvay S.A., Xerox
Memberships/ Corp., Unilever N.V.
Directorships:
Erich Klemm*, Age: 45
Deputy Chairman First elected: 1998 (Daimler-Benz AG: 1988)
Principal Occupation: Chairman of the Corporate Works Council,
DaimlerChrysler AG and DaimlerChrysler Group
Robert E. Allen Age: 65
First elected: 1998 (Chrysler Corporation: 1994)
Principal Occupation: Retired Chairman of the Board and Chief
Executive Officer of AT&T Corp.
Supervisory Board Bristol-Myers Squibb Co., PepsiCo
Memberships/
Directorships:
Willi Boehm* Age: 60
First elected: 1998 (Daimler-Benz AG: 1993)
Principal Occupation: Senior Manager Wage Accounting, Member of the
Works Council, Woerth Plant, DaimlerChrysler
AG
Sir John P. Browne Age: 52
First elected: 1998 (Daimler-Benz AG: 1998)
Principal Occupation: Chief Executive Officer of BP Amoco p.l.c.
Supervisory Board Intel Corporation, Goldman Sachs Inc.
Memberships/
Directorships:
Manfred Goebels* Age: 58
First elected: 1998 (Daimler-Benz AG: 1993)
Principal Occupation: Director Service and Mobility Concept,
Chairman of the Management Representative
Committee, DaimlerChrysler Group
Rudolf Kuda* Age: 59
First elected: 1998 (Daimler-Benz AG: 1978)
Principal Occupation: Retired Head of Department, Executive
Council, German Metalworkers' Union
Robert J. Lanigan Age: 71
First elected: 1998 (Chrysler Corporation: 1984)
Principal Occupation: Chairman Emeritus of Owens-Illinois, Inc.
Supervisory Board IMS Health, Owens-Illinois, Inc.
Memberships/
Directorships:
Helmut Lense* Age: 48
First elected: 1998 (Daimler-Benz AG: 1993)
Principal Occupation: Chairman of the Works Council, Untertuerkheim
Plant, DaimlerChrysler AG
54
Peter A. Magowan Age: 57
First elected: 1998 (Chrysler Corporation: 1986)
Principal Occupation: Retired Chairman of the Board of Safeway
Inc., President and Managing General Partner
of San Francisco Giants
Supervisory Board Safeway Inc., Caterpillar Inc.
Memberships/
Directorships:
Gerd Rheude* Age: 54
First elected: 1999
Principal Occupation: Chairman of the Works Council, Woerth Plant,
DaimlerChrysler AG
Herbert Schiller* Age: 45
First elected: 1998 (Daimler-Benz AG: 1996)
Principal Occupation: Chairman of the Corporate Works Council,
DaimlerChrysler Services (debis) AG
Dr. rer. pol. Age: 61
Manfred Schneider First elected: 1998 (Daimler-Benz AG: 1993)
Principal Occupation: Chairman of the Board of Management of Bayer
AG
Supervisory Board Allianz AG, Metro AG, RWE AG
Memberships/
Directorships:
Peter Schoenfelder* Age: 50
First elected: 1998 (Daimler-Benz AG: 1990)
Principal Occupation: Chairman of the Works Council, Augsburg
Plant, DaimlerChrysler Aerospace AG
G. Richard Thoman Age: 55
First elected: 1998 (Chrysler Corporation: 1998)
Principal Occupation: President and Chief Executive Officer of
Xerox Corporation
Supervisory Board Fuji Xerox Company Ltd., General Electric
Memberships/ Investments Equity, Union Bancaire Privee
Directorships:
Bernhard Walter Age: 57
First elected: 1998 (Daimler-Benz AG: 1998)
Principal Occupation: Chairman of the Board of Managing Directors
of Dresdner Bank AG
Supervisory Board Bilfinger+Berger Bauaktiengesellschaft,
Memberships/ Degussa-Huels AG, Deutsche Lufthansa AG,
Directorships: Deutsche Telekom AG, Heidelberger Zement AG,
Henkel KGaA, Metallgesellschaft AG,
Staatliche Porzellan-Manufaktur Meissen GmbH,
Thyssen Krupp AG
55
Lynton R. Wilson Age: 59
First elected: 1998 (Chrysler Corporation: 1994)
Principal Occupation: Chairman of the Board of BCE Inc.
Supervisory Board Imperial Oil Limited, Ontario Power
Memberships/ Generation Inc., Bell Canada International
Directorships: Inc., Nortel Networks Corp., DaimlerChrysler
Canada Inc., Team Canada Inc.,
J.P. Morgan & Co.
Dr.-Ing. Mark Woessner Age: 61
First elected: 1998 (Daimler-Benz AG: 1998)
Principal Occupation: Chairman of the Supervisory Board of
Bertelsmann AG
Supervisory Board Druck- und Verlagshaus Gruner+Jahr AG
Memberships/ (Chairman), Bertelsmann Arvato AG,
Directorships: Bertelsmann Buch AG
Bernhard Wurl* Age: 55
First elected: 1998 (Daimler-Benz AG: 1979)
Principal Occupation: Head of Department, Executive Council, German
Metalworkers' Union
Supervisory Board Deutsche Babcock AG
Memberships/
Directorships:
Stephen P. Yokich* Age: 64
First elected: 1998
Principal Occupation: President of International Union United
Automobile, Aerospace and Agricultural
Implement Workers of America (UAW)
Supervisory Board: Blue Cross Blue Shield of Michigan (BCBSM)
Memberships/
Directorships:
The Supervisory Board maintains the following standing committees:
- The PRESIDENTIAL COMMITTEE is responsible for deciding the terms of the
service contracts and other contractual arrangements between
DaimlerChrysler AG and the Board of Management. In particular, the
committee determines salaries and incentive compensation awards for
members of the Board of Management and establishes corporate goals for
performance-based compensation plans. Members of the Presidential
Committee are Hilmar Kopper, Erich Klemm, Dr. Manfred Schneider and
Bernhard Wurl. The Presidential Committee held three meetings in 1999.
- The FINANCIAL AUDIT COMMITTEE assists in the appointment of independent
auditors to be elected by the annual general meeting and reviews the scope
of external audit services. The Financial Audit Committee also reviews the
annual financial statements of DaimlerChrysler AG and the consolidated
annual and half-year financial statements of the DaimlerChrysler Group,
taking into account the results of the audits and reviews performed by the
independent auditors. Members of the Financial Audit Committee are Hilmar
Kopper, Erich Klemm, Willi Boehm and Bernhard Walter. The Financial Audit
Committee held two meetings in 1999.
56
BOARD OF MANAGEMENT
The Supervisory Board determines the size of the Board of Management, which
must have at least two members. Members are appointed by the Supervisory Board
for a maximum term of five years and are eligible for reappointment thereafter.
The normal retirement age for members of the Board of Management is 65 although
it is possible for a member of the Board of Management to continue in office
beyond this age with the approval of the Supervisory Board.
Under certain circumstances, such as a serious breach of duty or a vote of
no confidence by the stockholders in a general meeting, a member of the Board of
Management may be removed by the Supervisory Board prior to the expiration of
his term. A member of the Board of Management may not deal with, or vote on,
matters relating to proposals, arrangements or contracts between himself and
DaimlerChrysler AG and he is under a duty to disclose any material interest in
proposals, arrangements or contracts between DaimlerChrysler AG and third
parties.
The terms of all members of the Board of Management expire in 2003 except
for Mr. Fleig whose term expires in 2004 and Mr. Eaton, who has announced his
intention to retire on March 31, 2000. The current members of the Board of
Management, their ages as of February 28, 2000, the year in which they were
appointed, their current position/area of responsibility and prior positions
held within the last five years, are as follows:
Juergen E. Schrempp Age: 55
First appointed: 1998 (Daimler-Benz AG: 1987)
Current Position: Chairman
Prior Position(s): Chairman of the Board of Management of
Daimler-Benz AG
Robert J. Eaton Age: 60
First appointed: 1998 (Chrysler Corporation: 1992)
Current Position: Chairman
Prior Position(s): Chairman of the Board and Chief Executive
Officer of Chrysler Corporation
Dr. rer. pol. Manfred Bischoff Age: 57
First appointed: 1998 (Daimler-Benz AG: 1995)
Responsible for: Aerospace & Industrial Non-Automotive
Prior Position(s): Member of the Board of Management of
Daimler-Benz AG and President and Chief
Executive Officer of Daimler-Benz Aerospace AG
Dr. rer. pol. Eckhard Cordes Age: 49
First appointed: 1998 (Daimler-Benz AG: 1996)
Responsible for: Corporate Development & IT-Management
Prior Position(s): (including responsibility for MTU
Friedrichshafen und TEMIC)
Member of the Board of Management of
Daimler-Benz AG -- Corporate Development and
Directly Managed Businesses; Deputy Member of
the Board of Management -- Corporate
Development and Directly Managed Businesses;
Senior Vice President -- Corporate
Development
57
Guenther Fleig Age: 51
First appointed: 1999
Responsible for: Human Resources & Labor Relations Director
Prior Position(s): President of DaimlerChrysler France,
DaimlerChrysler Holding France and Head of the
Corporate Representation Office; President of
Mercedes-Benz France; Head of European Sales
Projects, Mercedes-Benz AG
Thomas C. Gale Age: 56
First appointed: 1998 (Chrysler Corporation: 1985)
Responsible for: Product Development, Design Chrysler Group &
Passenger Car Operations
Prior Position(s): Executive Vice President of Chrysler
Corporation -- Product Strategy, Design and
External Affairs and General Manager -- Jeep
Operations; Executive Vice President --
Product Development; Executive Vice
President -- Product Design and International
Operations
Dr. iur. Manfred Gentz Age: 58
First appointed: 1998 (Daimler-Benz AG: 1983)
Responsible for: Finance & Controlling
Prior Position(s): Member of the Board of Management of
Daimler-Benz AG -- Finance & Controlling,
Human Resources
James P. Holden Age: 48
First appointed: 1998 (Chrysler Corporation: 1993)
Responsible for: Chrysler Group
Prior Position(s): Executive Vice President of Chrysler
Corporation -- Sales and Marketing and
General Manager -- Minivan Operations;
Executive Vice President -- Sales and
Marketing; Vice President -- Quality, Capacity
and Process Management
Prof. Juergen Hubbert Age: 60
First appointed: 1998 (Daimler-Benz AG: 1987)
Responsible for: Mercedes-Benz Passenger Cars & smart
Prior Position(s): Member of the Board of Management of
Daimler-Benz AG -- Passenger Cars; Member of
the Board of Management of Mercedes-Benz
AG -- Passenger Cars
Dr. iur. Klaus Mangold Age: 56
First appointed: 1998 (Daimler-Benz AG: 1995)
Responsible for: Services (debis)
Prior Position(s): Member of the Board of Management of
Daimler-Benz AG and President and Chief
Executive Officer of Daimler-Benz
InterServices (debis) AG
58
Thomas W. Sidlik Age: 50
First appointed: 1998 (Chrysler Corporation: 1992)
Responsible for: Procurement & Supply Chrysler Group & Jeep
Operations
Prior Position(s): Executive Vice President of Chrysler
Corporation -- Procurement & Supply; Vice
President and Chairman of Chrysler Financial
Corporation and General Manager -- Small Car
Operations
Gary C. Valade Age: 57
First appointed: 1998 (Chrysler Corporation: 1990)
Responsible for: Global Procurement & Supply
Prior Position(s): Executive Vice President and Chief Financial
Officer of Chrysler Corporation
Prof. Klaus-Dieter Voehringer Age: 58
First appointed: 1998 (Daimler-Benz AG: 1997)
Responsible for: Research & Technology
Prior Position(s): Member of the Board of Management of
Daimler-Benz AG -- Research & Technology;
Deputy Member of the Board of Management of
Mercedes-Benz AG -- Powertrain Unit
Commercial Vehicles
Dr.-Ing. Dieter Zetsche Age: 46
First appointed: 1998 (Daimler-Benz AG: 1997)
Responsible for: Commercial Vehicles
Prior Position(s): Member of the Board of Management of
DaimlerChrysler AG -- Sales and Marketing;
Member of the Board of Management of
Daimler-Benz AG -- Sales and Marketing;
Member of the Board of Management of
Mercedes-Benz AG -- Passenger Cars Development
COMPENSATION
General
The amount of compensation paid by the DaimlerChrysler Group to all members
of the Supervisory Board and the Board of Management, as a group, for the year
ended December 31, 1999 was [EURO]53 million. In addition, former executives of
Chrysler Corporation who are members of the Board of Management received a total
of [EURO]4 million in 1999 upon the exercise of stock appreciation rights
granted at the time of the Daimler-Benz/Chrysler business combination to replace
their Chrysler stock options. See also Note 21 to the Consolidated Financial
Statements.
The aggregate amount accrued by the Group during the year ended
December 31, 1999 to provide pension, retirement and similar benefits for the
members of the Supervisory Board and the Board of Management was
[EURO]33 million.
Supervisory Board
Members of the Supervisory Board receive a fixed annual amount of
[EURO]51,129 for serving on the board plus reimbursement of expenses. The
Chairman of the Supervisory Board receives twice that amount, the deputy
Chairman receives 1.5 times that amount, and members serving on committees of
the Supervisory Board receive 1.3 times that amount. Members also receive a flat
fee of [EURO]1,023 for each meeting of the Supervisory Board. This compensation
is fixed in DaimlerChrysler's Memorandum and Articles of Association.
59
Board of Management
DaimlerChrysler AG has entered into service agreements with members of the
Board of Management. These agreements establish the following four principal
elements of compensation:
- BASE SALARY -- Base salaries are established based on a comparative
analysis of base salaries paid within a selected peer group of
international companies.
- ANNUAL BONUS -- Annual bonuses are based on corporate performance,
primarily in relation to profitability. Bonuses are expressed as a
percentage of base salary and may be adjusted, upward or downward, based
on other corporate objectives, such as shareholder return or revenue
growth, and on individual performance.
- MEDIUM-TERM-INCENTIVE -- Performance-based stock unit awards that track
the value of DaimlerChrysler ordinary shares are made at the beginning of
three year performance periods. The amount ultimately earned at the end of
a performance period is based on the degree of achievement of corporate
goals derived from competitive and internal planning benchmarks, such as
return on net assets, return on sales, revenue growth and quality, and the
market value of DaimlerChrysler ordinary shares. Board of Management
members received 149,050 performance-based stock unit awards in 1999. See
also Note 21 to the Consolidated Financial Statements.
- STOCK APPRECIATION RIGHTS -- Stock appreciation rights (SAR) plans provide
long-term-incentives based on the appreciation of DaimlerChrysler ordinary
shares. DaimlerChrysler granted Board of Management members, as a group,
1,940,000 SARs in 1999 at an exercise price of [EURO]89.70, the price of a
DaimlerChrysler ordinary share on the grant date. These SARs become
exercisable in two equal installments on February 26, 2001 and on
February 25, 2002 and expire on February 23, 2009. Upon exercise, the
holder receives a cash payment equal to the amount by which the market
value of a DaimlerChrysler ordinary share on the exercise date exceeds the
exercise price, multiplied by the number of SARs exercised. See also
Note 21 to the Consolidated Financial Statements.
In the past, the Supervisory Board has negotiated limited benefits upon
termination of a Board of Management member's service prior to the stated
expiration date of his service contract. Moreover, if a U.S. member of the Board
of Management, who was party to a pre-merger employment contract with Chrysler
Corporation, dies during the term of his service agreement, then, in addition to
benefits payable under pension and retirement plans, his estate will be entitled
to receive an annual bonus payment and a medium-term incentive payment, pro
rated through the date of death, that assumes corporate goals have been
achieved. If such member is terminated, or terminates his service with good
reason, as defined in the service agreement, then, in addition to the foregoing,
he is entitled to receive a severance payment expressed as a multiple of the sum
of his base salary and his average bonus over the last three years, together
with an additional amount to reimburse him for any excise tax assessable on any
amounts so received. The Supervisory Board may also negotiate additional or
different terms with Board of Management members at the time their service to
DaimlerChrysler terminates.
60
EMPLOYEES AND LABOR RELATIONS
At December 31, 1999, the DaimlerChrysler Group employed a workforce of
466,938 people worldwide, which represented an increase of 5.8% from year-end
1998. Of the total number of employees, 241,233 employees were based in Germany
and 123,928 in the United States. The following table sets forth the number of
employees at December 31, 1999, 1998 and 1997:
Employees at December 31,
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ ------------------------------
Total Germany U.S. Total Germany U.S. Total Germany U.S.
-------- -------- -------- -------- -------- -------- -------- -------- --------
Corporate.................. 11,526 6,968 4,558 10,010 6,374 3,636 9,462 5,925 3,537
Mercedes-Benz Passenger
Cars & smart............. 99,459 91,698 1,834 95,158 90,963 1,731 91,753 88,920 1,366
Chrysler Group............. 124,837 225 92,044 123,180 215 90,347 118,639 -- 88,301
Commercial Vehicles........ 90,082 45,389 16,990 89,711 45,201 13,216 85,071 44,355 10,187
Sales Organization for
Mercedes-Benz Passenger
Cars and Commercial
Vehicles................. 34,133 24,086 1,457 31,280 22,308 1,352 30,518 21,887 1,266
Services................... 26,240 14,183 4,797 23,734 13,519 4,620 18,303 10,849 4,060
Aerospace.................. 46,107 42,771 99 45,858 42,525 -- 43,521 39,935 572
Other(1)................... 34,554 15,913 2,149 22,571 11,925 2,146 28,382 13,395 1,974
------- ------- ------- ------- ------- ------- ------- ------- -------
DaimlerChrysler Group...... 466,938 241,233 123,928 441,502 233,030 117,048 425,649 225,266 111,263
======= ======= ======= ======= ======= ======= ======= ======= =======
- ------------------------
(1) Including holding companies.
------------------------------
On average, the Group had approximately 16,900 temporary employees in 1999.
Almost all the Group's employees in Germany who are members of labor unions
belong to the metalworkers' union (IGM). None of the Group's facilities in
Germany is operated on a "closed shop" basis. In Germany, collective bargaining
agreements for blue collar workers and for white collar employees below
management level are generally negotiated between the regional association of
the companies within a particular industry and the respective unions. The most
recent agreement for "metalworkers," which covers most of the Group's employees
in Germany (including both white collar and blue collar workers), was signed in
February 1999. The agreement, which runs from January 1999 to February 2000,
provides for lump sum payments for the months of January and February of 1999, a
3.2% salary increase effective as of March 1, 1999, and an additional one-time
payment for 1999 equaling 1% of an individual's annual salary. Negotiations
about a new collective bargaining agreement are currently in progress.
In the United States and Canada, substantially all of DaimlerChrysler
Corporation's hourly employees and 24% of its salaried employees are represented
by unions. Of these represented employees, 98% of hourly and 92% of salaried
employees are represented by the United Automobile, Aerospace, and Agricultural
Implement Workers of America (UAW) or the National Automobile, Aerospace and
Agricultural Implement Workers of Canada (CAW).
In 1999, DaimlerChrysler Corporation and the UAW entered into a new
four-year collective bargaining agreement that covers more than 70,000 hourly
and salaried workers in the United States. The agreement, which expires in
September 2003, provides for an annual base wage increase of 3% each contract
year, a one-time lump sum payment of $1,350 per worker, increases in pension
benefit rates, and improvements in certain health care, supplemental
unemployment and other benefits. The agreement limits DaimlerChrysler
Corporation's ability to close plants, reduce employment levels, or dispose of
operations that constitute a UAW bargaining unit, but provides flexibility in
establishing job assignments and work rules in order to increase productivity in
plants.
61
In addition, DaimlerChrysler Canada, Ltd. and the CAW entered into a new
three-year collective bargaining agreement in 1999 that covers approximately
14,000 workers in Canada through September 2002. It also provides for an annual
base wage increase of 3% each contract year, a one-time lump sum payment of
$1,000 per worker, as well as increases in pension and other benefits.
In March 1997, Daimler-Benz AG, the predecessor company of DaimlerChrysler
AG, concluded a concession agreement with the joint works council of its
automotive operations in Germany. Fundamentally, the agreement provided that
Daimler-Benz would refrain from making layoffs until December 31, 2000, in
return for which the joint works council agreed that any percentage wage
increases negotiated with the unions during that time period would only apply to
the wages determined by applicable union agreements and not to individually
agreed wage components. Daimler-Benz also agreed it would offer jobs to all
apprentices who completed their training program prior to December 31, 2000. The
agreement further provided that there will be more flexibility for the company
to increase or decrease the number of work hours per week. The works councils
also accepted a variety of cost-saving measures, including the reduction of
overtime pay during peak production times.
During the course of 1997 Daimler-Benz AG continued to work with the works
councils regarding how to reduce cost, improve efficiency and maintain or
improve its competitive position in the marketplace. These discussions resulted
in an agreement with the works councils to reduce the automotive workforce at
selected locations by approximately 5,700 over the period 1998 through 2000. The
agreement contemplates that the reductions will be effected in a manner which is
least disruptive to the workforce, and will be compensated by offering permanent
positions, primarily to current apprentices and to university graduates. In
addition, in the process of managing its workforce the Group will attempt to
strengthen its overall technical and specialty expertise competency. Through
December 31, 1999 approximately 4,300 of the 5,700 anticipated reductions had
been effected.
SHARE OWNERSHIP
As of December 31, 1999, the members of the Supervisory Board and the Board
of Management as a group owned 426,668 DaimlerChrysler ordinary shares. This
represented 0.04% of all outstanding shares.
Daimler-Benz AG instituted stockholder approved stock option plans for
management board members and other senior executives in 1996, 1997, and 1998.
For reasons of German law, the options granted under these plans took the form
of conversion rights attached to convertible bonds, with the principal amount
corresponding to a stated value (or par value equivalent) of the ordinary shares
subject to the option -- which was [EURO]2.56 per ordinary share in all cases
and which the optionee paid in cash at the time he or she received the
convertible bond (or option). Conversion rights under the 1996 plan are
exercisable during certain three-week window periods on or before July 12, 2006
at a conversion price of [EURO]42.62 per DaimlerChrysler ordinary share.
Conversion rights are only exercisable if the price per share exceeds a
threshold of [EURO]49.01. As of February 15, 2000, under this plan 4,020
DaimlerChrysler ordinary shares were issuable to members of the Board of
Management.
In 1999, DaimlerChrysler replaced the stock options which were granted under
the 1997 and 1998 plans with stock appreciation rights granted under
corresponding SAR plans. Under these SAR plans holders of options received SARs
in exchange for their options. These SARs have the same terms and conditions as
the stock options they replaced, except that the holder of the SAR has the right
to receive cash equal to the difference between the option exercise price and
the stock price on the date of exercise, instead of the right to receive an
ordinary share.
See also Note 21 to the Consolidated Financial Statements.
As part of its value based management approach, DaimlerChrysler supports
employee stock ownership. DaimlerChrysler offers the employees of Group
companies incorporated in Germany the opportunity to purchase DaimlerChrysler
ordinary shares at a discount on an annual basis. In 1999, each eligible
employee had the right to acquire up to 30 shares with a maximum aggregate
discount of [EURO]153.39 plus one bonus share. A total of 1,176,367 shares were
acquired by 66,377 employees under this program in 1999.
62
Item 7. Major Shareholders and Related Party Transactions.
MAJOR SHAREHOLDERS
The capital stock of DaimlerChrysler AG consists of ordinary shares, no par
value (STUECKAKTIEN), which are issued in registered form. Under the Memorandum
and Articles of Association, each ordinary share represents one vote. Major
shareholders do not have different voting rights.
Under the German Securities Trading Act (WERTPAPIERHANDELSGESETZ), holders
of voting securities of a listed German company must notify the company of the
level of their holding whenever it reaches, exceeds or falls below specified
thresholds. These thresholds are 5%, 10%, 25%, 50% and 75% of a company's
outstanding voting rights.
The table below sets forth, as of December 31, 1999, the number of
DaimlerChrysler ordinary shares held by holders of more than 5% of
DaimlerChrysler ordinary shares and their percentage ownership:
Identity of Person or Group Shares Owned Percent
- --------------------------- ------------ --------
KARU Beteiligungsverwaltung GmbH & Co. KG,
a wholly owned subsidiary of Deutsche Bank AG............ 119,818,714 11.9%
Kuwait Investment Authority as agent for the Government of
the State of Kuwait...................................... 73,169,320 7.3%
------------------------
As a result of the business combination of Daimler-Benz and Chrysler in
1998, the percentage ownership of Deutsche Bank decreased from 22% to 12% and
that of the State of Kuwait decreased from 13% to 7%.
As of February 15, 2000, DaimlerChrysler AG had approximately 1.9 million
stockholders. Approximately 330,000 were U.S. holders, of which approximately
70,000 were record holders. Based on the share register, approximately 22% of
DaimlerChrysler ordinary shares were held by U.S. holders as of that date.
See also "Share Ownership" in "Item 6. Directors, Senior Management and
Employees."
RELATED PARTY TRANSACTIONS
In the ordinary course of business, DaimlerChrysler purchases materials,
supplies and services from numerous suppliers throughout the world, including
firms with which certain members of the Supervisory Board are affiliated.
DaimlerChrysler does not consider the amounts involved in such transactions to
be material to its business and believes that these amounts are not material to
the business of the firms involved.
Deutsche Bank AG and its subsidiaries provided various financial and other
services to the Group in 1999 for which they were paid reasonable and customary
fees. KARU Beteiligungsverwaltung GmbH & Co. KG, a wholly owned subsidiary of
Deutsche Bank AG, owns approximately 12% of the outstanding shares of
DaimlerChrysler AG. Hilmar Kopper, Chairman of the Supervisory Board of
DaimlerChrysler AG, is also Chairman of the Supervisory Board of Deutsche Bank
AG.
DaimlerChrysler's subsidiary DaimlerChrysler Aerospace Airbus GmbH is the
German partner in the European Airbus consortium and holds a 37.9% share in
Airbus Industrie G.I.E. The investment in Airbus Industrie is accounted for
using the equity method. DaimlerChrysler Aerospace Airbus provides contract
manufacturing for the Airbus models A319 and A321 and aircraft components for
all Airbus models. DaimlerChrysler Aerospace Airbus receives reasonable and
customary compensation for the goods and services provided to Airbus Industrie.
63
Item 8. Financial Information.
CONSOLIDATED FINANCIAL STATEMENTS
See "Item 18. Financial Statements" and pages F-i, F-1 through F-54 and page
S-1.
OTHER FINANCIAL INFORMATION
Export Sales
In 1999, approximately 650,000 or 59% of all passenger cars and commercial
vehicles produced by DaimlerChrysler in Germany and approximately 310,000 or 14%
of all passenger cars and trucks produced by DaimlerChrysler in the United
States were exported to other countries.
Legal Proceedings
Various legal proceedings are pending against the Group. DaimlerChrysler
believes that such proceedings, including the product matters described below
relating primarily to its North American automotive operations, constitute
ordinary routine litigation incidental to its businesses. See also "Government
Regulation and Environmental Matters -- Environmental Matters" in "Item 4.
Information on the Company" and Note 27 to the Consolidated Financial
Statements.
Various legal proceedings pending against DaimlerChrysler Corporation,
formerly known as Chrysler Corporation, allege defects in various components
(including door and liftgate latches, occupant restraint systems, seats, brake
systems, and fuel systems) in several different vehicle models or allege design
defects relating to vehicle stability (rollover propensity), pedal
misapplication (sudden acceleration), or crashworthiness. Some of these
proceedings seek repair or replacement of the vehicles or compensation for their
alleged reduction in value, while others seek recovery for personal injuries. As
of December 31, 1999, the complaints filed in personal injury proceedings
specify approximately $1.1 billion ([EURO]1.1 billion) in compensatory and
$5.6 billion ([EURO]5.6 billion) in punitive damages in the aggregate. These
amounts represent damages sought by plaintiffs and, therefore, do not
necessarily constitute an accurate measure of the ultimate cost to resolve those
complaints. Further, many of those complaints do not specify a dollar amount of
damages or specify only the jurisdictional minimum. These amounts may vary
significantly from one period to the next depending on the number of new
complaints filed or pending cases resolved in a given period.
On October 8, 1997, a jury awarded $12.5 million ([EURO]12.4 million) in
compensatory damages and $250 million ([EURO]248 million) in punitive damages
against DaimlerChrysler Corporation in JIMENEZ VS. CHRYSLER CORPORATION, a case
filed in U.S. District Court in South Carolina. The complaint alleged that the
liftgate latch striker of a 1985 Dodge Caravan was defective and opened when the
Caravan was struck by another vehicle resulting in the ejection and death of an
occupant. On December 2, 1999, the trial judge denied the company's motion
challenging the verdict, but reduced the compensatory damage award to
$9 million. DaimlerChrysler Corporation has filed an appeal in the United States
Court of Appeals for the Fourth Circuit.
On February 18, 1999, a jury awarded $54.75 million ([EURO]54.37 million) in
compensatory damages and $3.7 million ([EURO]3.7 million) in punitive damages to
the owners of approximately 75,000 1988(3/4)-1990 model year Chrysler vehicles
in CRAWLEY VS. CHRYSLER CORPORATION, a class action lawsuit tried in the Court
of Common Pleas, Philadelphia, Pennsylvania. The complaint alleged that the air
bags in those vehicles were defective because the vent hole positions could
cause hand burns when the air bags deploy. DaimlerChrysler Corporation has filed
motions challenging the verdict and the damage awards, and is pursuing such
motions vigorously.
In addition, ten purported class action lawsuits are pending in various U.S.
federal and state courts that allege that the paint applied to 1982-1997 model
year Chrysler, Plymouth, Jeep and Dodge vehicles delaminates, peels or chips as
the result of defective paint, paint primer, or application processes.
Plaintiffs seek compensatory and punitive damages, costs of repair or
replacement, attorneys' fees and costs.
64
The class action lawsuit reported in DaimlerChrysler's Form 20-F for the
fiscal year ended December 31, 1998 regarding air bags in 1993-1996 Chrysler
minivans was dismissed.
As reported in DaimlerChrysler's Form 6-K for the month of April 1999,
DaimlerChrysler received a "statement of objections" from the European
Commission on April 1, 1999, which alleged that it violated antitrust rules by
impeding cross-border sales of Mercedes-Benz passenger cars to final customers
in the European Economic Area. DaimlerChrysler denies these charges and is
defending itself vigorously in the Commission's pending investigation. If the
Commission rules that DaimlerChrysler violated antitrust rules, it is reasonably
possible that the Commission may impose a substantial fine on DaimlerChrysler.
Litigation is subject to many uncertainties, and the outcome of individual
matters is not predictable with assurance. It is reasonably possible that the
final resolution of some of these matters may require DaimlerChrysler to make
expenditures, in excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated. Although the
final resolution of any such matters could have a material effect on
DaimlerChrysler's consolidated operating results for a particular reporting
period, DaimlerChrysler believes that it should not materially affect its
consolidated financial position.
Dividend Policy
Dividends are proposed by the Supervisory Board and the Board of Management
of DaimlerChrysler AG, based on the year-end unconsolidated financial statements
of DaimlerChrysler AG, and are approved in respect of the prior year at the
annual general meeting of stockholders. The annual general meeting is usually
convened during the second quarter of each year. Holders of record of
DaimlerChrysler ordinary shares on the date of the general meeting of
stockholders at which a dividend is declared are entitled to receive the
dividend, less any amounts required to be withheld on account of taxes or other
governmental charges. Cash dividends payable to holders of ordinary shares will
be distributed by Deutsche Bank AG as paying agent. In Germany, the payment will
be made to the holder's depot bank or other institution holding the shares for
the stockholder which will credit the payment to the stockholder's account. For
purposes of distribution in the United States and Canada, the dividend will be
paid to The Bank of New York as U.S. transfer agent and, for Canadian holders,
transferred to Montreal Trust Company as Canadian transfer agent. For
shareholders in the United States, the payment will be converted from euros into
U.S. dollars unless they instruct otherwise. The U.S. dollar amounts of
dividends received by holders of ordinary shares may be affected by fluctuations
in exchange rates. See "Exchange Rate Information" in "Item 3. Key Information."
DaimlerChrysler AG expects to continue to pay dividends, although there can
be no assurance as to the particular amounts that would be paid from year to
year. The payment of future dividends will depend upon DaimlerChrysler's
earnings, financial condition (including its cash needs), future earnings
prospects and other factors. See "Item 5. Operating and Financial Review and
Prospects."
See also "Dividends" in "Item 3. Key Information."
SIGNIFICANT CHANGES
No significant change has occurred since the date of the annual financial
statements included in this Annual Report.
Item 9. The Offer and Listing.
Trading Markets
The principal trading markets for DaimlerChrysler ordinary shares are the
Frankfurt Stock Exchange and the New York Stock Exchange. The ordinary shares
are also listed on the other German stock exchanges in Berlin, Bremen,
Duesseldorf, Hamburg, Hannover, Munich and Stuttgart, on the Chicago Stock
Exchange, the Pacific Stock Exchange and the Philadelphia Stock Exchange, on the
stock exchanges in Montreal, Paris, Tokyo, Toronto, and on the Swiss stock
exchange.
65
As of December 31, 1999, DaimlerChrysler ordinary shares represented
approximately 7.5% of the Deutsche Aktienindex (DAX), the leading index of
trading on the Frankfurt Stock Exchange, 2.1% of the Dow Jones STOXX 50(SM),
which is composed of stocks from 16 European equity markets, and 2.9% of the Dow
Jones EURO STOXX 50(SM), which includes stocks from the equity markets of those
member states of the European Union that introduced the euro as their common
legal currency on January 1, 1999. See also "Introduction of the Euro" in "Item
4. Information on the Company."
The transfer agents for DaimlerChrysler ordinary shares are Deutsche Bank AG
in Germany, The Bank of New York in the United States and Montreal Trust Company
in Canada.
Trading on the Frankfurt Stock Exchange
The Frankfurt Stock Exchange, which is operated by Deutsche Boerse AG, is
the most significant of the eight German stock exchanges and accounted for
approximately 80% of the turnover in exchange-traded shares in Germany in 1999.
As of December 31, 1999, equity securities traded on the Frankfurt Stock
Exchange included the shares of 3,265 companies, of which 2,554 were non-German.
Trading on the floor of the Frankfurt Stock Exchange commences each business
day at 9:00 a.m. and continues until 5:30 p.m. Central European Time. Markets in
listed securities are generally of the auction type, but listed securities also
change hands in inter-bank dealer markets both on and off the stock exchange.
Price formation is by open outcry, as determined by state appointed specialists
(AMTLICHE KURSMAKLER) who are themselves exchange members, but who do not, as a
rule, deal with the public. Prices for active stocks, including those of larger
companies, are quoted continuously during stock exchange hours. For all other
stocks, a fixed price is determined by auction around mid-session of each
trading day. Transactions settle on the second business day following the day of
their trade.
DaimlerChrysler ordinary shares are also traded on Xetra (Exchange
Electronic Trading), an integrated electronic exchange system operated by
Deutsche Boerse AG. Xetra is available daily from 9:00 a.m. to 5:30 p.m. Central
European Time to brokers and banks which have been admitted to Xetra by the
Frankfurt Stock Exchange. Securities traded by this system include liquid
stocks, warrants and bonds traded on the floor of the Frankfurt Stock Exchange.
Xetra is integrated into the Frankfurt Stock Exchange and is subject to its
rules and regulations. In 1999, Xetra accounted for approximately 88% of the
DaimlerChrysler ordinary shares trading volume at the Frankfurt Stock Exchange.
Trading activities on the German stock exchanges are monitored by the
Federal Supervisory Authority for Securities Trading (BUNDESAUFSICHTSAMT FUER
DEN WERTPAPIERHANDEL). All orders from customers to buy or sell listed
securities must be executed on a stock exchange unless a customer gives specific
instructions to the contrary.
The tables below set forth, for the periods indicated, the Xetra high and
low closing sales prices for the DaimlerChrysler ordinary shares from
November 17, 1998, the first day on which DaimlerChrysler ordinary shares
officially traded on the Frankfurt Stock Exchange. Since January 4, 1999, the
first official trading day of 1999, the prices of shares traded on the German
stock exchanges, including the ordinary shares of DaimlerChrysler AG, have been
quoted in euros. In order to achieve comparability with the 1998 sales prices
quoted in marks, the 1998 sales prices have been converted into euros at the
Official Fixed Conversion Rate. The tables also show, for the periods indicated,
the Xetra highs and lows of the DAX. The DAX is a continuously updated, capital-
weighted performance index of 30 German blue chip companies. In principle, the
shares included in the DAX are selected on the basis of their stock exchange
turnover and their market capitalization. Adjustments of the DAX are
66
made for capital changes, subscription rights and dividends. See "Exchange Rate
Information" in "Item 3. Key Information" with respect to rates of exchange
between the dollar and the mark (translated into euros at the Official Fixed
Conversion Rate) and the dollar and the euro applicable during the periods set
forth below.
Price Per
DaimlerChrysler
Ordinary Share DAX
------------------- -------------------
High Low High Low
-------- -------- -------- --------
([EURO])
Annual highs and lows
1998 (from November 17, 1998)..................... 85.05 71.22 5,159.21 4,543.02
1999.............................................. 95.45 64.68 6,958.14 4,668.52
Quarterly highs and lows
1998
Fourth Quarter (from November 17, 1998)....... 85.05 71.22 5,159.21 4,543.02
1999
First Quarter................................. 92.65 78.25 5,442.90 4,668.52
Second Quarter................................ 95.45 81.75 5,468.67 4,901.81
Third Quarter................................. 89.10 64.68 5,652.02 4,978.45
Fourth Quarter................................ 77.00 65.15 6,958.14 5,124.55
Monthly highs and lows
1999
July.......................................... 89.10 71.20 5,652.02 5,052.32
August........................................ 73.83 69.40 5,420.36 4,978.45
September..................................... 73.15 64.68 5,483.95 5,119.10
October....................................... 73.81 65.15 5,525.40 5,124.55
November...................................... 73.50 67.60 5,961.45 5,524.92
December...................................... 77.00 65.55 6,958.14 5,933.84
2000
January....................................... 75.50 66.40 7,258.90 6,474.92
February (through February 18, 2000).......... 67.85 65.00 7,709.27 7,050.46
------------------------
On February 18, 2000 the closing sales price per DaimlerChrysler ordinary
share on Xetra was [EURO]65.00, which was equivalent to $64.03 per ordinary
share, translated at the noon buying rate for euros on that date.
Based on turnover statistics supplied by the Frankfurt Stock Exchange, the
average daily volume of DaimlerChrysler ordinary shares traded on the exchange
(including Xetra) in 1999 was 3.2 million. As of December 31, 1999, the market
capitalization of DaimlerChrysler on the Frankfurt Stock Exchange was
[EURO]78.1 billion.
Trading on the New York Stock Exchange
Official trading of DaimlerChrysler ordinary shares on the New York Stock
Exchange commenced on November 17, 1998. From October 26, 1998 through
November 16, 1998, the ordinary shares traded on the exchange on a when-issued
basis. DaimlerChrysler ordinary shares trade under the symbol "DCX."
67
The following table sets forth, for the periods indicated, the high and low
sales prices per DaimlerChrysler ordinary share as reported on the New York
Stock Exchange Composite Tape.
Price Per
DaimlerChrysler
Ordinary Share
-----------------------
High Low
------ ------
($)
Annual highs and lows
1998 (from November 17, 1998)............................ 99.06 82.38
1999..................................................... 108.63 65.31
Quarterly highs and lows
1998
Fourth Quarter (from November 17, 1998).............. 99.06 82.38
1999
First Quarter........................................ 108.63 83.31
Second Quarter....................................... 102.00 85.38
Third Quarter........................................ 91.81 65.31
Fourth Quarter....................................... 78.50 66.13
Monthly highs and lows
1999
July................................................. 91.81 71.56
August............................................... 77.88 73.56
September............................................ 77.47 65.31
October.............................................. 78.50 69.25
November............................................. 77.94 67.31
December............................................. 78.25 66.13
2000
January.............................................. 78.69 65.06
February (through February 18, 2000)................. 67.19 62.63
------------------------
On February 18, 2000, the closing sales price per DaimlerChrysler ordinary
share on the New York Stock Exchange as reported on the NYSE Composite Tape was
$62.88.
Item 10. Additional Information.
OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
The minority stockholders who own 42.4% of Dornier GmbH, a subsidiary of
DaimlerChrysler Aerospace, have the right, exercisable at any time, to exchange
their shareholdings in Dornier for holdings of equal value in DaimlerChrysler
Luft- und Raumfahrt Holding Aktiengesellschaft or DaimlerChrysler AG. If this
right were exercised in full, the number of DaimlerChrysler ordinary shares
which would be issued would not be material to DaimlerChrysler or the
stockholders of DaimlerChrysler AG.
In 1996, DaimlerChrysler Luxembourg Capital S.A., formerly known as
Daimler-Benz Capital (Luxembourg) AG, a DaimlerChrysler subsidiary, issued
4 1/8% bearer notes with appertaining warrants due July 5, 2003 with a nominal
amount of DM 1,000 ([EURO]511) per note. Each note has warrants attached that
originally entitled the noteholder to receive 10.254 Daimler-Benz ordinary
shares, consisting partially of shares already issued and
68
partially of newly issued shares. In accordance with Section 23 of the German
Transformation Act (UMWANDLUNGSGESETZ) these warrants are now DaimlerChrysler AG
warrants which entitle the noteholder to receive 10.30527 DaimlerChrysler
ordinary shares. As of February 15, 2000, there were outstanding warrants for
approximately 1.2 million new DaimlerChrysler ordinary shares.
In 1997, Daimler-Benz AG issued 5 3/4% subordinated mandatory convertible
notes due June 14, 2002 convertible into newly issued Daimler-Benz ordinary
shares on or before June 4, 2002. In accordance with Section 23 of the German
Transformation Act these notes, including notes represented by American
Depositary Notes and DM Book Entry Securities, are now notes of DaimlerChrysler
AG, convertible into DaimlerChrysler ordinary shares. If they are not converted
by June 4, 2002, the notes will be mandatorily converted into DaimlerChrysler
ordinary shares at a conversion rate to be determined on the basis of the
average official quotation for the shares on the Frankfurt Stock Exchange during
a specified window period. As of February 15, 2000, the maximum number of
ordinary shares that would be issued upon exercise of all outstanding conversion
rights was approximately 9.5 million.
In addition, DaimlerChrysler management board members and other senior
executives hold options granted under the stock option plan instituted by
Daimler-Benz AG in 1996. See "Share Ownership" in "Item 6. Directors, Senior
Management and Employees."
MEMORANDUM AND ARTICLES OF ASSOCIATION.
Organization and Register
DaimlerChrysler AG is a stock corporation organized in the Federal Republic
of Germany under the Stock Corporation Law (AKTIENGESETZ). It is registered in
the Commercial Register (HANDELSREGISTER) maintained by the local court in
Stuttgart, Germany, under the entry number "HRB 19360."
Corporate Governance
In contrast to corporations organized in the United States, German stock
corporations are governed by three separate bodies: the annual general meeting
of shareholders, the supervisory board and the board of management. Their roles
are defined by German law and by the corporation's memorandum and articles of
association (SATZUNG), and may be described generally as follows:
- THE ANNUAL GENERAL MEETING OF SHAREHOLDERS -- ratifies the actions of the
corporation's supervisory board and board of management. It approves the
amount of the annual dividend, the appointment of an independent auditor,
and certain significant corporate transactions. In corporations with more
than 2,000 employees, shareholders and employees elect or appoint an equal
number of representatives to the supervisory board. The annual general
meeting must be held within the first eight months of each fiscal year.
- THE SUPERVISORY BOARD -- appoints and removes the members of the
management board and oversees the management of the corporation. Although
prior approval of the supervisory board may be required in connection with
certain significant matters, the law prohibits the supervisory board from
making management decisions.
- THE BOARD OF MANAGEMENT -- manages the corporation's business and
represents it in dealings with third parties. The board of management
submits regular reports to the supervisory board about the corporation's
operations and business strategies, and prepares special reports upon
request. A person may not serve on the board of management and the
supervisory board of a corporation at the same time.
Several additional corporate governance provisions applicable to
DaimlerChrysler AG are summarized below.
69
Objects and Purposes
Section 2 of DaimlerChrysler AG's Memorandum and Articles of Association
states that its object is to pursue, directly or indirectly, business in the
fields of development, production and sale of products and rendering of
services, in particular in the following lines of business: vehicles for use on
land; vehicles for use on water, in the air and in space and other products in
the fields of transport, aerospace, space, and marine technology; engines and
other technological propulsion systems; plants, machinery and equipment for
power generation, distribution and utilization; electrical and electronic
equipment, plants and systems; communication and information technology,
business consulting; financial services of all kinds, insurance brokerage, and
activities in the fields of media and expositions; and management and
development of real property. The Articles authorize DaimlerChrysler AG to take
all actions that serve the attainment of its objects, except that it is not
permitted to carry out directly banking and real property transactions that are
subject to license requirements.
Directors
Under German law, DaimlerChrysler's Supervisory Board members and Board of
Management members owe a duty of loyalty and care to DaimlerChrysler. They must
exercise the standard of care of a prudent and diligent businessman and bear the
burden of proving they did so if their actions are contested. Both boards must
consider the interests of DaimlerChrysler AG's shareholders and its workers and,
to some extent, the common interest. Those who violate their duties may be held
jointly and severally liable for any resulting damages, unless their actions
were validly approved by resolution at a shareholders' meeting. Further, a
Supervisory Board member may not receive a loan from DaimlerChrysler AG unless
approved by the Supervisory Board, and may not vote on a matter that concerns
ratification of his own acts or in which he has a material interest. See also
"Item 6. Directors, Senior Management and Employees" for further information
about the Supervisory Board and the Board of Management.
Ordinary Shares
The share capital of DaimlerChrysler AG consists of ordinary shares of no
par value issued in registered form. Record holders of ordinary shares are
registered in DaimlerChrysler's share register (AKTIENBUCH). The share register
is administered on behalf of DaimlerChrysler AG by The Bank of New York, as
transfer agent and registrar in the United States, and by Deutsche Bank AG, as
transfer agent and registrar in Germany and various other countries.
Some of the significant provisions under German law and DaimlerChrysler's
Articles of Association relating to ordinary shares may be summarized as
follows:
- CAPITAL INCREASES. The share capital may be increased in consideration of
contributions in cash or in property, or by establishing authorized
capital or conditional capital. Authorized capital provides the Board of
Management with the flexibility to issue new shares for a period of up to
five years, generally to preserve liquidity. Conditional capital allows
the Board of Management to issue new shares for specified purposes,
including employee stock option plans, mergers, and the issuance of shares
upon conversion of option bonds and convertible bonds. Capital increases
require an amendment of the Articles of Association approved by 75% of the
issued shares present at the shareholders' meeting at which the increase
is proposed. The Board of Management must also obtain the approval of the
Supervisory Board before issuing new shares. DaimlerChrysler AG's Articles
of Association do not contain conditions regarding changes in the share
capital that are more stringent than the law requires.
- REDEMPTION. The share capital may also be reduced by an amendment of the
Articles of Association approved by 75% of the issued shares present at
the shareholders' meeting.
70
- PREEMPTIVE RIGHTS. DaimlerChrysler AG's Articles of Association provide
that the preemptive right of shareholders to subscribe (BEZUGSRECHT) for
any issue of additional shares, debt instruments convertible into shares
or participating debt instruments in proportion to their share holdings in
the existing capital may be excluded under certain circumstances.
- LIQUIDATION. If DaimlerChrysler AG were to be liquidated, any liquidation
proceeds remaining after all of its liabilities were paid would be
distributed to its shareholders in proportion to their share holdings.
- NO LIMITATION ON FOREIGN OWNERSHIP. There are no limitations under German
law or in DaimlerChrysler AG's Articles of Association on the right of
persons who are not citizens or residents of Germany to hold or vote
ordinary shares.
Dividends
Dividends in respect of ordinary shares are declared once a year at the
annual general meeting of shareholders. The Supervisory Board and the Board of
Management ratify the financial statements for each fiscal year and recommend
the disposition of all unappropriated profits for approval by shareholders at
the meeting, including the amount of net profits to be distributed as a
dividend. Shareholders registered in the share register on the date of the
meeting are entitled to receive the dividend. Dividends are paid to shareholders
in proportion to their percentage ownership of the outstanding capital stock.
The Articles of Association authorize the Board of Management, with the
approval of the Supervisory Board, to make an interim payment to shareholders
with respect to the unappropriated profit of the prior financial year, if a
preliminary closing of the financial statements for that year shows a profit.
The interim payment may not exceed 50% of the amount of the foreseeable
unappropriated profit, after deducting any amounts required to be added to the
disclosed reserves. Furthermore, the interim payment may not exceed 50% of the
previous fiscal year's unappropriated profit.
The Articles of Association permit the Board of Management, with the
approval of the Supervisory Board, to issue new shares from capital previously
approved by the shareholders at any time during the year, and to provide that
such new shares are entitled to the entire per ordinary share annual dividend
for the year in which they are issued.
Voting Rights
Each ordinary share represents one vote. Cumulative voting is not permitted
under German law. DaimlerChrysler AG's Articles of Association provide that
resolutions are passed at shareholder meetings by a simple majority of votes
cast, unless a higher vote is required by law. German law requires that the
following matters, among others, be approved by the affirmative vote of 75% of
the issued shares present at the shareholders' meeting at which the matter is
proposed:
- changing the objects and purposes provision in the articles of
association,
- capital increases and capital decreases,
- excluding preemptive rights of shareholders to subscribe for new shares,
- dissolution,
- a merger into, or a consolidation with, another stock corporation,
- a transfer of all or virtually all of the assets, and
- a change of corporate form.
71
Shareholder Meetings
The Board of Management, the Supervisory Board, or shareholders owning in
the aggregate at least 5% of the issued shares may call a meeting of
shareholders. There is no minimum quorum requirement for shareholder meetings.
Among other things, the annual general meeting is asked to ratify the actions of
the Board of Management and the Supervisory Board during the prior year, approve
the disposition of unappropriated profit, and the appointment of an independent
auditor. Shareholder representatives to the Supervisory Board are elected at the
annual general meeting for terms of approximately five years.
In order to be entitled to participate and vote at the meeting, a
shareholder must be registered in the share register on the meeting date, and
must also have notified DaimlerChrysler AG no later than on the third day before
the meeting date that he or she wishes to attend the meeting. Instead of voting
in person at the meeting, shareholders in North America may vote their shares by
proxy by signing and returning the proxy card mailed to them in advance of the
meeting. A notice of the meeting, an agenda describing the items to be voted on
at the meeting, and a short form annual report accompany the proxy card. As a
foreign private issuer, DaimlerChrysler is not required to file a proxy
statement under U.S. securities law. The proxy voting process for
DaimlerChrysler's shareholders in North America is substantially similar to the
process utilized by publicly held companies incorporated in the United States.
Amendments to the Articles of Association may be proposed either by the
Supervisory Board and the Board of Management, or by a shareholder or group of
shareholders holding a minimum of either 5% of the issued shares or at least
200,000 shares (assuming a stated value of DM 5 ([EURO]2.56) per share).
Change in Control
There are no provisions in the Articles that would have an effect of
delaying, deferring or preventing a change in control of DaimlerChrysler and
that would only operate with respect to a merger, acquisition or corporate
restructuring involving it or any of its subsidiaries. German law does not
specifically regulate business combinations with interested stockholders.
However, general principles of German law may restrict business combinations
under certain circumstances.
Disclosure of Share Holdings
DaimlerChrysler's Articles of Association do not require shareholders to
disclose their share holdings. The Securities Trading Act
(WERTPAPIERHANDELSGESETZ), however, requires holders of voting securities of a
corporation whose shares are listed on a stock exchange to notify the
corporation of the number of shares they hold if that number reaches, exceeds or
falls below specified thresholds. These thresholds are 5%, 10%, 25%, 50% and 75%
of the corporation's outstanding voting rights.
Currency Conversion -- Dividends
Under the transfer agent agreement in place with the U.S. transfer agent,
shareholders registered in the share register with addresses in the United
States may elect to receive dividends in either euros or U.S. dollars. Unless
instructed otherwise, the U.S. transfer agent will convert all cash dividends
and other cash distributions it receives in respect of ordinary shares into
dollars before payment to the shareholder. The amount distributed will be
reduced by any amounts required to be withheld by DaimlerChrysler AG or the U.S.
transfer agent on account of taxes or other governmental charges. If the U.S.
transfer agent determines, following consultation with DaimlerChrysler AG, that
in its judgment any foreign currency received by it cannot be so converted and
distributed, the U.S. transfer agent may distribute the foreign currency (or an
appropriate document evidencing the right to receive such currency) received by
it or in its discretion hold such foreign currency for the account of the
shareholder entitled to receive the same.
72
Other
Claims against members of the Supervisory Board or Board of Management may
be asserted on behalf of DaimlerChrysler AG if the shareholders' meeting so
resolves by simple majority or upon request of shareholders holding in the
aggregate at least 10% of the issued shares. The shareholders' meeting or a
court of competent jurisdiction, upon request by shareholders holding in the
aggregate at least 10% (under special circumstances 5%) of the issued shares or
at least 400,000 shares (under special circumstances 200,000 shares, in each
case, assuming a stated value of DM 5 ([EURO]2.56) per share) must then appoint
a special representative to pursue such a claim.
MATERIAL CONTRACTS
On October 14, 1999, DaimlerChrysler agreed to combine the business of
DaimlerChrysler Aerospace AG with the French aerospace company Aerospatiale
Matra S.A. in a new company called European Aeronautic Defence and Space Company
(EADS). Aerospatiale Matra S.A. is owned by the French government, Lagardere
SCA, a French limited partnership, and the public. On December 2, 1999, Sociedad
Estatal de Participaciones Industriales (SEPI), a Spanish state holding company,
also agreed to combine its aerospace business, Construcciones Aeronauticas S.A.
(CASA), with EADS.
EADS, incorporated under the laws of the Netherlands, will be the largest
aerospace company in Europe, based on 1998 estimated pro forma sales of
approximately [EURO]21 billion and a workforce of approximately 96,000
employees. It will own 80% of Airbus Industrie. DaimlerChrysler will retain its
aircraft engine subsidiary, MTU Muenchen, and [EURO]3.1 billion of cash.
The parties will form a limited liability company, also under the laws of
the Netherlands, which will hold legal title to most of the shares of EADS. The
voting right to these shares will be held by this company on behalf of a Dutch
law contractual partnership. DaimlerChrysler will own 45.75% of the partnership,
the French partners will own 45.75%, and Sociedad Estatal de Participaciones
Industriales will own 8.50%. Upon completion of a planned public stock offering
in 2000, the partnership will own 65.57% of EADS, and 34.43% will be publicly
held.
The terms of the agreements include a put option that allows DaimlerChrysler
to sell its partnership interest in EADS to all or some of the French partners.
The put option may be exercised immediately for specified reasons such as
partnership deadlock on certain matters and, after three years, during certain
periods conditioned upon certain distribution of the shareholding of EADS. The
price is based on the average closing mid-market price in euros of EADS shares
on the Frankfurt and Paris stock exchanges during the 30 trading days prior to
exercise of the put option.
These agreements, and the transactions contemplated thereby, are subject to
various conditions, including regulatory approval in Europe and the United
States.
EXCHANGE CONTROLS
The euro and the mark are fully convertible currencies. There are, except in
limited embargo circumstances, no legal restrictions in Germany on international
capital movements and foreign exchange transactions. For statistical purposes
only, every individual or corporation residing in Germany (a "Resident") must
report to the German Central Bank (DEUTSCHE BUNDESBANK) any payment received
from or made to an individual or a corporation resident outside of Germany (a
"Non-resident") if the payment exceeds DM 5,000 ([EURO]2,556) (or the equivalent
in a foreign currency). In addition, Residents must report any claims against or
any liabilities payable to Non-residents if such claims or liabilities, in the
aggregate, exceed DM 3 million (approximately [EURO]1.5 million) (or the
equivalent in a foreign currency) at the end of any one month.
TAXATION
The following is a discussion of the material United States federal income
and German tax consequences to Qualified Holders holding DaimlerChrysler
ordinary shares. This discussion is based upon existing United States federal
income and German tax law, including legislation, regulations, administrative
rulings and court decisions, as in effect on the date of this Annual Report, all
of which are subject to change, possibly with retroactive effect.
73
For purposes of this discussion, in general, a "Qualified Holder" means a
beneficial owner of DaimlerChrysler ordinary shares that (1) is a resident of
the United States for purposes of the United States-Germany income tax treaty
(the "Income Tax Treaty"), which generally includes an individual United States
resident, a corporation created or organized under the laws of the United
States, any state thereof or the District of Columbia and a partnership, estate
or trust, to the extent its income is subject to taxation in the United States
as the income of a United States resident, either in its hands or in the hands
of its partners or beneficiaries, (2) does not hold DaimlerChrysler ordinary
shares as part of the business property of a permanent establishment located in
Germany or as part of a fixed base of an individual located in Germany and used
for the performance of independent personal services and (3) if not an
individual, is not subject to the limitation on benefits restrictions in the
Income Tax Treaty. This discussion assumes that the Qualified Holder holds
DaimlerChrysler ordinary shares as a capital asset. This discussion does not
address all aspects of United States federal income and German taxation that may
be relevant to all Qualified Holders in light of their particular circumstances,
including for example Qualified Holders whose stock was acquired pursuant to the
exercise of an employee stock option or otherwise as compensation or Qualified
Holders who are subject to special treatment under United States federal income
tax laws (for example, financial institutions, insurance companies, tax-exempt
organizations and broker-dealers). This discussion also does not address any
aspects of state, local or non-United States (other than certain German) tax
law.
EACH QUALIFIED HOLDER IS STRONGLY URGED TO CONSULT HIS OR HER TAX ADVISOR AS
TO THE UNITED STATES FEDERAL INCOME AND GERMAN TAX CONSEQUENCES OF HOLDING
DAIMLERCHRYSLER ORDINARY SHARES, INCLUDING THE PARTICULAR FACTS AND
CIRCUMSTANCES THAT MAY BE UNIQUE TO SUCH QUALIFIED HOLDER, AND AS TO ANY OTHER
TAX CONSEQUENCES OF HOLDING DAIMLERCHRYSLER ORDINARY SHARES.
Taxation of Dividends
Under German law, German corporations are required to withhold tax on
dividends in an amount equal to 25% of the gross amount paid to resident and
non-resident stockholders. A partial refund of this 25% withholding tax can be
obtained by Qualified Holders under the Income Tax Treaty (subject to certain
limitations). Qualified Holders are generally subject to United States federal
income tax on dividends paid by German corporations. Subject to applicable
limitations of United States federal income tax law, Qualified Holders may be
able to claim a foreign tax credit for certain German income taxes paid. The
amount of the refund of German withholding tax and the determination of the
foreign tax credit allowable against United States federal income tax generally
depend on whether or not the Qualified Holder is a United States corporation
owning at least 10% of the voting stock of DaimlerChrysler AG (a "10% Holder").
In the case of any Qualified Holder other than a 10% Holder, the German
withholding tax is partially refunded under the Income Tax Treaty, effectively
reducing the withholding tax to 15% of the gross amount of the dividend. In
addition, so long as the German imputation system provides German resident
individual stockholders with a tax credit in respect of dividends paid by German
corporations, the Income Tax Treaty provides that Qualified Holders (other than
10% Holders) are entitled to an additional refund equal to 5% of the gross
amount of the dividend. For United States federal income tax purposes, the
benefit resulting from this additional 5% treaty refund is treated as a refund
received by the Qualified Holder with respect to German corporate taxes equal to
5.88% of the gross amount of the dividend, subject to a German withholding tax
of 0.88% (15% of 5.88%). Qualified Holders will not be entitled to the dividends
received deduction with respect to dividends paid by DaimlerChrysler AG.
Thus, for each $100 of gross dividend paid by DaimlerChrysler AG to a
Qualified Holder (other than a 10% Holder), the dividend after partial refund of
the 25% withholding tax under the Income Tax Treaty will be subject to a German
withholding tax of $15. If the Qualified Holder also applies for the additional
5% treaty refund, German withholding tax is effectively reduced to $10; the cash
received per $100 of gross dividend is $90. For United States federal income tax
purposes, the Qualified Holder is generally treated as receiving a total
dividend of $105.88 (to the extent paid out of current or accumulated earnings
and profits of DaimlerChrysler AG as determined for United States federal income
tax purposes), consisting of the $100 gross dividend and the deemed refund of
German corporate tax of $5.88. The notional $105.88 dividend is deemed to have
been subject to
74
German withholding tax of $15.88. Thus, for each $100 of gross dividend, the
Qualified Holder will include $105.88 in gross income and may be entitled to a
foreign tax credit of $15.88, subject to applicable limitations of United States
federal income tax law.
In the case of a 10% Holder, the 25% German withholding tax is reduced under
the Income Tax Treaty to 5% of the gross amount of the dividend. Such 10%
Holders may, therefore, apply for a refund of German withholding tax in the
amount of 20% of the gross amount of the dividend. Subject to applicable
limitations of United States federal income tax laws, a 10% Holder may be
entitled to a foreign tax credit for the 5% German withholding tax on dividends
and for the portion of the total income taxes (trade income tax and corporation
income tax, including any surtax) paid by DaimlerChrysler AG attributable to
distributed profits.
Dividends paid in euros to a Qualified Holder of DaimlerChrysler ordinary
shares will be included in income in a dollar amount calculated by reference to
the exchange rate in effect on the date the dividends (including any deemed
refund of German corporate tax) are received or treated as received by such
holder. If dividends paid in euros are converted into dollars on the date
received or treated as received, Qualified Holders generally should not be
required to recognize foreign currency gain or loss in respect of each dividend.
A German government-appointed commission recently proposed the repeal,
effective January 1, 2001, of the German imputation system that provides German
resident individual shareholders with a tax credit in respect of dividends paid
by German corporations. If the proposed repeal of the German imputation system
were enacted, Qualified Holders would thereafter not be entitled to the
additional 5% treaty refund. DaimlerChrysler AG cannot predict whether this
proposal will be enacted into law in Germany.
A surtax on the German withholding tax is currently levied on dividend
distributions paid by a German resident company. Effective January 1, 1998, the
rate of this surtax was reduced from 7.5% to 5.5%. Based on the new rate, the
surtax amounts to 1.375% (5.5% X 25%) of the gross dividend amount. Under the
Income Tax Treaty, Qualified Holders are entitled to a full refund of this
surtax.
Under Section 904(g) of the United States Internal Revenue Code of 1986, as
amended (the "Code"), dividends paid by a foreign corporation that is treated as
more than 50% owned by United States persons may be treated as United States
source income (rather than foreign source income) for foreign tax credit
purposes, to the extent the foreign corporation earns United States source
income. Such treatment may adversely affect Qualified Holders' ability to use
foreign tax credits. It is possible that DaimlerChrysler AG may be treated as
more than 50% owned by United States persons for purposes of Section 904(g) of
the Code.
Refund Procedures
To claim the refund reflecting the reduction of the German withholding tax
from 25% to 15%, the additional 5% treaty refund and the refund of the 5.5%
German surtax, when applicable, a Qualified Holder must submit (either directly
or, as described below, through the U.S. transfer agent for DaimlerChrysler
ordinary shares or the Depository Trust Company) a claim for refund to the
German tax authorities, with the original bank voucher (or certified copy
thereof) issued by the paying entity documenting the tax withheld within four
years from the end of the calendar year in which the dividend is received.
Claims for refunds are made on a special German claim for refund form, which
must be filed with the German tax authorities: Bundesamt fuer Finanzen, 53221
Bonn-Beuel, Germany. The German claim for refund forms may be obtained from the
German tax authorities at the same address where the applications are filed,
from the Embassy of the Federal Republic of Germany, 4645 Reservoir Road, N.W.,
Washington, D.C. 20007-1998 or from the Office of International Operations,
Internal Revenue Service, 1325 K Street, N.W., Washington, D.C. 20225,
Attention: Taxpayer Service Division, Room 900.
Qualified Holders must also submit to the German tax authorities
certification (IRS Form 6166) of their last filed United States federal income
tax return. Such certification is obtained from the office of the Director of
the Internal Revenue Service Center by filing a request for certification with
the Internal Revenue Service Center in Philadelphia, Pennsylvania, Foreign
Certificate Request, P.O. Box 16347, Philadelphia, PA 19114-0447. Requests for
certification are to be made in writing and must include the Qualified Holder's
name, social security number or
75
employer identification number, tax return form number and tax period for which
certification is requested. The Internal Revenue Service will send the
certification directly to the German tax authorities. This certification is
valid for three years and need only be resubmitted in a fourth year in the event
of a subsequent application for refund.
The U.S. transfer agent will receive and distribute dividends to Qualified
Holders who hold DaimlerChrysler ordinary shares of record and will perform
administrative functions necessary to claim the refund reflecting the reduction
in German withholding tax from 25% to 15% (to 5% for 10% Holders), the
additional 5% treaty refund and the refund of the 5.5% German surtax, when
applicable, for such holders. These arrangements may be amended or revoked at
any time in the future.
Under the current procedure, the U.S. transfer agent will prepare the German
claim for refund forms on behalf of such Qualified Holders and file them with
the German tax authorities. In order for the U.S. transfer agent to file the
claim for refund forms, the U.S. transfer agent will prepare and mail to these
Qualified Holders, and the holders will be requested to sign and return to the
U.S. transfer agent, (1) a statement authorizing the U.S. transfer agent to
perform these procedures and agreeing that the German tax authorities may inform
the IRS of any refunds of German taxes and (2) a written authorization to remit
the refund of withholding to an account other than that of the Qualified Holder.
Qualified Holders must also submit to the U.S. transfer agent certification (IRS
Form 6166) of their last filed United States federal income tax return. The U.S.
transfer agent will attach the signed statement, the IRS Form 6166 and the
documentation issued by the paying agency documenting the dividend paid and the
tax withheld to the claim for refund form and file them with the German tax
authorities.
A simplified refund procedure for Qualified Holders whose DaimlerChrysler
ordinary shares are registered with brokers participating in the Depository
Trust Company is in effect between the Depository Trust Company and the German
tax authorities. Under this simplified refund procedure, the Depository Trust
Company provides the German tax authorities with electronic certification of the
U.S. taxpayer status of such Qualified Holders based on information it receives
from its broker participants, and claims a refund on behalf of those Qualified
Holders. Accordingly, these Qualified Holders do not need to file refund claim
forms through the U.S. transfer agent.
If approved by the German tax authorities, a similar simplified refund
procedure may also be implemented by the U.S. transfer agent in the future for
Qualified Holders who hold DaimlerChrysler ordinary shares of record. Under such
a simplified refund procedure, following each dividend payment, the U.S.
transfer agent would file a claim for refund automatically on behalf of all such
Qualified Holders who have instructed the U.S. transfer agent in writing to file
on their behalf.
The German tax authorities will issue refunds denominated in marks. The
refunds will be issued in the name of the U.S. transfer agent or the Depository
Trust Company, as the case may be, which will convert the refunds to dollars and
make corresponding refund payments to Qualified Holders and to brokers. The
brokers, in turn, will remit corresponding refund amounts to the Qualified
Holders holding DaimlerChrysler ordinary shares registered with such brokers.
Qualified Holders of DaimlerChrysler ordinary shares who receive a refund
attributable to reduced withholding taxes under the Income Tax Treaty may be
required to recognize foreign currency gain or loss, which will be treated as
ordinary income or loss, to the extent that the dollar value of the refund
received or treated as received by the Qualified Holder differs from the U.S.
dollar equivalent of the refund on the date the dividend on which such
withholding taxes were imposed was received or treated as received by the
Qualified Holder.
Taxation of Capital Gains
Under the Income Tax Treaty, a Qualified Holder will not be liable for
German tax on capital gains realized or accrued on the sale or other disposition
of DaimlerChrysler ordinary shares.
Upon a sale or other disposition of DaimlerChrysler ordinary shares, a
Qualified Holder will recognize capital gain or loss for United States federal
income tax purposes equal to the difference between the amount realized and the
Qualified Holder's adjusted tax basis in the DaimlerChrysler ordinary shares. In
the case of an individual
76
Qualified Holder of DaimlerChrysler ordinary shares, any such capital gain will
be subject to a maximum United States federal income tax rate of 20%, if the
individual Qualified Holder's holding period in the DaimlerChrysler ordinary
shares is more than 12 months.
German Gift and Inheritance Taxes
The United States-Germany estate tax treaty provides that an individual
whose domicile is determined to be in the United States for purposes of such
treaty will not be subject to German inheritance and gift tax (the equivalent of
the United States federal estate and gift tax) on the individual's death or
making of a gift unless the DaimlerChrysler ordinary shares (1) are part of the
business property of a permanent establishment located in Germany or (2) are
part of the assets of a fixed base of an individual located in Germany and used
for the performance of independent personal services. An individual's domicile
in the United States, however, does not prevent imposition of German inheritance
and gift tax with respect to an heir, donee or other beneficiary who is
domiciled in Germany at the time the individual died or the gift was made.
The United States-Germany estate tax treaty also provides a credit against
United States federal estate and gift tax liability for the amount of
inheritance and gift tax paid in Germany, subject to certain limitations, in a
case where the DaimlerChrysler ordinary shares are subject to German inheritance
or gift tax and United States federal estate or gift tax.
German Capital Tax (VERMOEGENSTEUER)
The Income Tax Treaty provides that a Qualified Holder will not be subject
to German capital tax (VERMOEGENSTEUER) with respect to the DaimlerChrysler
ordinary shares. As a result of a judicial decision, the German capital tax
(VERMOEGENSTEUER) presently is not imposed.
Other German Taxes
There are no German transfer, stamp or other similar taxes that would apply
to Qualified Holders upon receipt, purchase, holding or sale of DaimlerChrysler
ordinary shares.
United States Information Reporting and Backup Withholding
Dividends on DaimlerChrysler ordinary shares, and payments of the proceeds
of a sale of DaimlerChrysler ordinary shares, paid within the United States or
through certain U.S.-related financial intermediaries are subject to information
reporting and may be subject to backup withholding at a 31% rate unless the
Qualified Holder (1) is a corporation or other exempt recipient or (2) provides
a taxpayer identification number and certifies that no loss of exemption from
backup withholding has occurred.
DOCUMENTS ON DISPLAY
DaimlerChrysler is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. In accordance with these
requirements, DaimlerChrysler files reports and other information with the
Securities and Exchange Commission. These materials, including this Annual
Report and the exhibits thereto, may be inspected and copied at the Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, New York, New York 10048.
Copies of the materials may be obtained from the Public Reference Room of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The public may obtain information on the operation of the Commission's
Public Reference Room by calling the Commission in the United States at
1-800-SEC-0330. The Commission also maintains a web site at http://www.sec.gov
that contains reports, proxy statements and other information regarding
registrants that file electronically with the Commission. DaimlerChrysler's
annual reports and some of the other information
77
submitted by DaimlerChrysler to the Commission may be accessed through this web
site. In addition, material filed by DaimlerChrysler can be inspected at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005.
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
The DaimlerChrysler Group is exposed to market risks from changes in foreign
currency exchange rates, interest rates and equity prices which may adversely
affect its operating results and financial condition. The Group seeks to
minimize these risks through its regular operating and financing activities and,
when deemed appropriate, through the use of derivative financial instruments.
The Group does not use financial instruments for trading or other speculative
purposes.
EXCHANGE RATE RISK
Transaction Risk and Currency Risk Management
As a consequence of the global nature of DaimlerChrysler's businesses, its
operations and its reported financial results and cash flows are exposed to the
risks associated with fluctuations in the exchange rates between the euro, the
dollar and other major world currencies. The Group's businesses are exposed to
transaction risk whenever revenues are denominated in a currency other than the
currency in which the costs relating to those revenues are incurred. This risk
exposure primarily affects the Mercedes-Benz Passenger Cars & smart division and
the Aerospace segment. In the Mercedes-Benz Passenger Cars & smart division,
revenues are denominated in the currencies of the countries in which cars are
sold but manufacturing costs are denominated primarily in euros. Similarly,
Aerospace revenues resulting from the sale of aircraft and other aerospace
related products are principally denominated in dollars due to the requirements
of the marketplace but the products are manufactured almost exclusively in
Germany. An additional risk element associated with the operations of the
Aerospace division is that the sale contracts for its products, especially
aircraft, are generally made well in advance of the production and delivery of
the products. The Commercial Vehicles division is also subject to transaction
risk, although -- because of its global production network -- to a lesser
degree. Since the Chrysler Group segment generates the vast majority of its
revenues and costs in dollars, the transaction risk of this segment is
relatively low.
Cash inflows and outflows of a division are netted if they are denominated
in the same currency. Therefore, only the unmatched amounts are subject to
transaction risk. The currency exposure of DaimlerChrysler is reduced through
the natural hedging potential arising from offsets in the euro exposure of the
Chrysler Group division with the dollar exposure of the Mercedes-Benz Passenger
Cars & smart and Aerospace divisions. In order to provide an additional natural
hedge against the remaining transaction risk exposure, DaimlerChrysler attempts
to increase cash outflows in the same currencies in which it has a net excess
inflow, where possible and appropriate. This is mainly achieved through
increased procurement in foreign currencies and by increasing production in
those countries which are primary markets for the Group's products.
In order to mitigate further the impact of currency exchange rate
fluctuations, DaimlerChrysler continually assesses its exposure to currency
risks and hedges a portion of those risks through the use of derivative
financial instruments. Responsibility for managing DaimlerChrysler's currency
exposures and use of currency derivatives is centralized within the Group's
Currency Committee. The Currency Committee, which consists of two separate
sub-groups, one for the Group's vehicle businesses and one for Aerospace, is
comprised of members of senior management from each of the respective businesses
as well as from the Finance Department of DaimlerChrysler. Decisions concerning
foreign currency hedging taken by the Currency Committee are implemented by the
Corporate Treasury. DaimlerChrysler's Board of Management is regularly informed
of the decisions of the Currency Committee as well as the actions of Corporate
Treasury. Corporate Treasury is responsible for assessing, consolidating and
managing foreign currency exposures through transactions with international
financial institutions. In addition to the currency exposure inherent in the
Group's operational business, exchange rate fluctuations can also affect the
conversion into euros of profits of subsidiaries located outside the euro zone.
This risk is also managed by Corporate Treasury.
78
The principal derivative financial instruments used by the Group to cover
foreign currency exposures are forward foreign exchange contracts and currency
options. The maturity dates of forward contracts are established according to
the anticipated cash flows of the Group. The policy of the Group is to use a
mixture of these instruments depending upon the Group's view of market
conditions which is based on fundamental and technical analyses. At
December 31, 1999, the Group had entered into forward foreign exchange contracts
and currency options with a nominal value of [EURO]29.0 billion compared to
[EURO]28.2 billion in 1998. The currencies in which the Group's derivative
financial instruments are denominated are in parallel with the currencies in
which it is subject to transaction risk. See Note 29 to the Consolidated
Financial Statements.
The Group is designating certain derivative financial instruments as hedges
of foreign currency denominated assets, liabilities and firm commitments. To the
extent a derivative financial instrument is designated as hedging a committed
foreign currency transaction, unrealized gains and losses are deferred and
recognized concurrently with the effect of the underlying business transaction.
To the extent applicable accounting requirements do not permit hedge accounting,
the Group marks the derivative financial instruments to market which results in
unrealized gains and losses on financial instruments being recognized at each
reporting date. DaimlerChrysler plans to adopt SFAS 133 effective January 1,
2000. The new Standard will permit the Group to apply hedge accounting for
certain foreign currency derivative contracts on qualifying forecasted
transactions. Under the Group's current accounting policies such contracts are
marked to market with unrealized gains and losses impacting current earnings.
Accordingly, application of the new Standard in accounting for such foreign
currency derivative contracts may result in lower current period earnings
volatility relating to the Group's foreign currency risk management in periods
of significant changes in exchange rates. See "New Accounting Pronouncement" in
"Item 5. Operating and Financial Review and Prospects."
During 1999 the Group's aggregate direct transaction risk was approximately
[EURO]13.0 billion which consisted primarily of dollars ([EURO]7.7 billion),
British Pounds ([EURO]2.7 billion) and Japanese Yen ([EURO]1.5 billion).
Following the introduction of the euro on January 1, 1999, the Group is no
longer exposed to transaction risk in currencies of the euro zone. The 1998
transaction risk arising from these currencies was [EURO]4.4 billion. Excluding
the effect of these currencies on DaimlerChrysler's currency exposure in 1998,
the Group's net transaction risk increased by 13% compared to 1998 as a result
of significantly higher revenues in 1999. During 1999, the dollar, the British
Pound and the Japanese Yen appreciated considerably against the euro.
DaimlerChrysler was able to benefit from this exchange rate development.
However, the smoothing effect of hedging activities undertaken in prior years
diluted these benefits to some extent.
The effective exchange rates for the major world currencies achieved for the
Group through hedging transactions in contrast to the pure unhedged market
average rates for these currencies in 1999 and 1998, respectively, were as
follows:
1999 1998(1)
Currency ------------------------------------------------- -------------------------------------------------
- -------- % Market % % Market %
Effective(2) Change(3) Average(4) Change(3) Effective(2) Change(3) Average(4) Change(3)
------------ --------- ---------- --------- ------------ --------- ---------- ---------
(currency units per [EURO])
U.S. Dollar........... 1.14 (1.7) 1.07 (3.6) 1.16 (2.5) 1.11 (1.8)
British Pound......... 0.68 (5.6) 0.66 (1.5) 0.72 (10.0) 0.67 (2.9)
Japanese Yen.......... 134 16.5 121 (16.6) 115 (5.7) 145 6.6
- ------------------------
(1) The 1998 exchange rates were originally quoted in marks and have been
converted from marks into euros at the Official Fixed Conversion Rate.
(2) The effective rates shown represent the average of all hedging transactions
for each specific currency which matured during the year shown including all
hedging effects such as swap prices and the net premium revenue and expense
resulting from option transactions.
(3) The percentage change shown is in comparison to the figure shown in the
comparable column in the prior year, except that percentage changes for 1998
are as compared to the 1997 figures which are not shown.
(4) Due to the introduction of the euro, the 1999 market average exchange rates
for the foreign currencies shown are based on the reference rates published
by the European Central Bank. Market average exchange rates for 1998 are
calculated based on the official rates fixed at the Frankfurt Currency
Exchange (FRANKFURTER DEVISENBOERSE).
79
Exchange Rate Sensitivity
Because the Group enters into foreign exchange transactions for a
significant portion of its contracted and forecasted foreign exchange exposures,
a significant increase or decrease in the exchange rate of the euro relative to
other major world currencies should not, in the short term, materially affect
the Group's cash flows. Over time, however, to the extent that such exchange
rate movements cannot be reflected in the pricing of the Group's products in
local currency they could materially affect the Group's cash flows. In general,
appreciation of the euro in relation to another currency has an adverse effect
on the Group's reported revenues and results, and depreciation of the euro has a
positive effect. The tables below provide information about the effect on the
Group's pre-tax cash flow of a 10% appreciation of the euro against foreign
currencies. The figures shown in the tables were calculated as of December 31,
1999.
U.S. Canadian British Japanese
2000 Dollar Dollar Pound Yen Other(1) Total
- ---- -------- -------- -------- -------- -------- --------
([EURO] equivalent in billions)
ESTIMATES OF:
Gross Amount of Foreign Currency Exposure.......... 14.2 6.9 3.2 2.1 2.1 28.5
Gross Amount of Foreign Currency Netting........... (6.8) (7.4) (0.3) (0.6) (0.3) (15.4)
Net Transaction Exposure in Foreign Currency....... 7.4 (0.5) 2.9 1.5 1.8 13.1
Loss from a 10% Appreciation of the Euro After
Hedging Activities(2, 3)
Status as of December 31, 1998................. 0.24 -- 0.13 0.06 0.16 0.59
Status as of December 31, 1999................. 0.12 -- 0.05 0.02 0.07 0.26
U.S. Canadian British Japanese
2001 Dollar Dollar Pound Yen Other(1) Total
- ---- -------- -------- -------- -------- -------- --------
([EURO] equivalent in billions)
ESTIMATES OF:
Gross Amount of Foreign Currency Exposure.......... 14.8 7.1 3.7 2.0 3.1 30.7
Gross Amount of Foreign Currency Netting........... (7.7) (7.1) (0.3) (0.2) (1.2) (16.5)
Net Transaction Exposure in Foreign Currency....... 7.1 -- 3.4 1.8 1.9 14.2
Loss from a 10% Appreciation of the Euro After
Hedging Activities(2, 3)
Status as of December 31, 1999................. 0.30 -- 0.19 0.04 0.14 0.67
- ------------------------------
(1) Following the introduction of the euro on January 1, 1999, the Group's
exposure to transaction risk in respect of currencies of participating
European Union member states has been eliminated. As a consequence, this
category no longer includes net exposure of the Group in those currencies.
In 1998 the Group's net exposure in those currencies was approximately
[EURO]4.4 billion.
(2) Sensitivity is calculated based on net transaction exposure after
consideration of the Group's derivative financial instruments entered into
to offset such foreign currency exposure.
(3) Anticipated losses from a more than 10% appreciation of the euro against
those currencies would increase proportionately.
------------------------------
The relatively lower sensitivity shown for 2000 is explained by the Group's
policy to hedge relatively larger portions of short-term anticipated revenues.
As a general rule, the longer expected revenues extend into the future, the
larger is the unhedged portion of such revenues.
Effects of Currency Translation
Many subsidiaries of DaimlerChrysler are located outside the euro zone.
Since the Group's financial reporting currency is the euro, the income
statements of these subsidiaries are translated into euros for inclusion of the
results of these subsidiaries in the DaimlerChrysler consolidated financial
statements. Period-to-period changes in the average exchange rate for a
particular country's currency can significantly affect the translation into
euros of
80
both revenues and operating income denominated in that currency. Unlike the
effect of exchange rate fluctuations on transaction exposure, the effect of
exchange rate translation exposure does not affect the Group's local currency
cash flows. See Notes 16, 17 and 23 to the Consolidated Financial Statements.
DaimlerChrysler has significant assets, liabilities and operations outside
the euro zone which are denominated in local currencies, most importantly
DaimlerChrysler Corporation and DaimlerChrysler's financial services companies.
Although the long-term currency risk inherent in these investments is subject to
continuing assessment and evaluation, foreign exchange transactions addressing
this type of risk are generally undertaken only in circumstances in which the
Group is considering withdrawal from a specific venture and the repatriation of
the funds generated by such withdrawal. However, effects from currency
fluctuations on the translation of net asset amounts into euros will be
reflected in the Group's equity position.
INTEREST RATE RISK AND EQUITY PRICE RISK
DaimlerChrysler holds a variety of interest rate sensitive assets and
liabilities to manage the liquidity and cash needs of its day-to-day operations.
A substantial volume of interest rate sensitive assets and liabilities are
related to the growing lease and sales financing business. Derivative financial
instruments including swaps, swaptions, forward rate agreements, futures, caps
and floors are used to manage the risks arising from changes in interest rates.
As part of its asset allocation policy, the Group also holds a portfolio of
equity securities.
The Group monitors and manages the risks associated with its financial
instruments through risk management and controlling functions which have a
reporting line independent from Corporate Treasury.
In order to quantify the interest rate risk and the equity price risk of the
Group on a continuous basis, DaimlerChrysler employs value-at-risk analyses as
recommended by the Bank for International Settlements. Value-at-risk figures
indicate maximum potential losses that are not exceeded under normal market
conditions. The value-at-risk calculations employed by DaimlerChrysler are based
on the variance-covariance-approach and assume a 99% confidence level and a
holding period of five days. Estimates of volatilities and correlations are
primarily drawn from the RiskMetrics-TM- datasets regularly published by J.P.
Morgan and supplemented by additional interest rate and equity price
information.
In 1999, the fair value risk to DaimlerChrysler's portfolio of interest rate
sensitive financial instruments was on average [EURO]71 million with a high of
[EURO]94 million and a low of [EURO]42 million. Interest rate risk at year-end
1999 was [EURO]81 million compared to [EURO]42 million at year-end 1998. This
increase was primarily due to the expansion of the Group's lease and sales
financing business, partially offset by the effect of transferring interest rate
sensitive securities to the newly founded DaimlerChrysler Pension Trust.
DaimlerChrysler changed the presentation of interest rate risk from last year's
tabular format to value-at-risk in order to match external disclosure with
internal reporting and risk management methods.
The fair value risk to the portfolio of equity securities was on average
[EURO]148 million with a high of [EURO]201 million and a low of
[EURO]105 million. Comparing year-end 1999 with year-end 1998, equity price risk
decreased from [EURO]171 million to [EURO]105 million. This decrease resulted
mainly from the transfer of equity securities to the DaimlerChrysler Pension
Trust.
Due to risk-reducing correlation effects between the portfolio of interest
rate sensitive financial instruments and the portfolio of equity securities, the
aggregate value-at-risk is less than the sum of the individual values-at-risk.
In 1999, the aggregate value-at-risk for both portfolios was [EURO]127 million
at year-end (1998: [EURO]166 million) and [EURO]168 million on average.
Item 12. Description of Securities Other than Equity Securities.
Not applicable.
81
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds.
None.
Item 15. [Reserved].
Item 16. [Reserved].
PART III
Item 17. Financial Statements.
Not applicable.
Item 18. Financial Statements.
See pages F-i, F-1 through F-54 and page S-1, incorporated herein by
reference.
Item 19. Exhibits.
Documents filed as exhibits to this Annual Report:
1.1 Memorandum and Articles of Association (SATZUNG) of DaimlerChrysler AG as
amended to date (English translation included).
2.1 The total amount of long-term debt securities of DaimlerChrysler AG
authorized under any instrument does not exceed 10% of the total assets of
the Group on a consolidated basis. DaimlerChrysler AG hereby agrees to
furnish to the Commission, upon its request, a copy of any instrument
defining the rights of holders of long-term debt of DaimlerChrysler AG or of
its subsidiaries for which consolidated or unconsolidated financial
statements are required to be filed.
4.1 Business Combination Agreement, dated October 14, 1999, relating to the
combination of the businesses of DaimlerChrysler Aerospace AG and
Aerospatiale Matra S.A. to form European Aeronautic Defence and Space
Company (EADS), and Business Combination Agreement, dated December 2, 1999,
relating to the integration of the business of Construcciones Aeronauticas
S.A. (CASA) into EADS.
8.1 Significant subsidiaries as of the end of the year covered by this report:
See "Significant Subsidiaries" in "Item 4. Information on the Company."
10.1 Independent Auditors' Report on Schedule and Consent of KPMG Deutsche
Treuhand-Gesellschaft AG.
10.2 Independent Auditors' Consent of Deloitte & Touche LLP.
10.3 Independent Auditors' Report of Deloitte & Touche LLP on the consolidated
financial statements of DaimlerChrysler Corporation.
82
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Annual Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: February 28, 2000
DAIMLERCHRYSLER AG
By: /s/ ROBERT J. EATON
------------------------------------------
Robert J. Eaton
Chairman of the Board of Management
By: /s/ JUERGEN E. SCHREMPP
------------------------------------------
Juergen E. Schrempp
Chairman of the Board of Management
By: /s/ DR. MANFRED GENTZ
------------------------------------------
Dr. Manfred Gentz
Member of the Board of Management
Finance & Controlling
83
DAIMLERCHRYSLER AG
Index to Consolidated Financial Statements
Page
--------
Independent Auditors' Report................................ F-1
Consolidated Financial Statements:
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997....................... F-2
Consolidated Balance Sheets at December 31, 1999 and
1998................................................... F-4
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1999, 1998 and
1997................................................... F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997................. F-6
Consolidated Fixed Assets Schedule for the year ended
December 31, 1999...................................... F-8
Notes to the Consolidated Financial Statements.......... F-10
Financial Statement Schedule:
Allowance for Doubtful Accounts......................... S-1
F-i
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of
DaimlerChrysler AG and subsidiaries ("DaimlerChrysler") as of December 31, 1999
and 1998, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of DaimlerChrysler's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
did not audit the financial statements of DaimlerChrysler Corporation or certain
of its consolidated subsidiaries ("DaimlerChrysler Corporation"), which
statements reflect total assets constituting 29 percent and 43 percent at
December 31, 1999 and 1998, and total revenues constituting 43 percent,
45 percent and 46 percent for the years ended December 31, 1999, 1998 and 1997,
of the related consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for DaimlerChrysler Corporation, is based solely
on the report of the other auditors.
We conducted our audits in accordance with German and United States
generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.
In 1998 and 1997, DaimlerChrysler accounted for a material joint venture in
accordance with the proportionate method of consolidation as is permitted under
the Seventh Directive of the European Community and the Standards of the
International Accounting Standards Committee. In our opinion, United States
generally accepted accounting principles required that such joint venture be
accounted for using the equity method of accounting. The United States
Securities and Exchange Commission stated that it would not object to
DaimlerChrysler's use of the proportionate method of consolidation as
supplemented by the disclosures in Note 3.
In our opinion, based on our audits and the report of the other auditors,
except for the use of the proportionate method of accounting in 1998 and 1997,
as discussed in the preceding paragraph, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of DaimlerChrysler as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with United States generally
accepted accounting principles.
KPMG DEUTSCHE TREUHAND-GESELLSCHAFT AG
Stuttgart
February 14, 2000
F-1
DAIMLERCHRYSLER AG
Consolidated Statements of Income
(in millions, except per share amounts)
Consolidated
------------------------------------------------------------------
Year ended December 31,
------------------------------------------------------------------
1999
Note (Note 1) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
Revenues 30 $ 151,035 [EURO]149,985 [EURO]131,782 [EURO]117,572
- --------------------------------------------------------------------------------------------------------
Cost of sales 5 (119,046) (118,219) (103,666) (92,879)
- --------------------------------------------------------------------------------------------------------
Gross margin 31,989 31,766 28,116 24,693
- --------------------------------------------------------------------------------------------------------
Selling, administrative and
other expenses 5 (17,655) (17,532) (16,229) (15,621)
- --------------------------------------------------------------------------------------------------------
Research and development (5,777) (5,737) (4,971) (4,408)
- --------------------------------------------------------------------------------------------------------
Other income 6 832 827 1,099 848
- --------------------------------------------------------------------------------------------------------
Merger costs 1 -- -- (685) --
- --------------------------------------------------------------------------------------------------------
Income before financial
income,
income taxes and
extraordinary items 9,389 9,324 7,330 5,512
- --------------------------------------------------------------------------------------------------------
Financial income, net 7 335 333 763 633
- --------------------------------------------------------------------------------------------------------
Income before income taxes and
extraordinary items 9,724 9,657 8,093 6,145
- --------------------------------------------------------------------------------------------------------
Effects of changes in 1999
German tax law (818) (812) -- --
- --------------------------------------------------------------------------------------------------------
Tax benefit relating to a
special distribution -- -- -- 1,487(1)
- --------------------------------------------------------------------------------------------------------
Income taxes (3,747) (3,721) (3,014) (970)(2)
- --------------------------------------------------------------------------------------------------------
Total income taxes 8 (4,565) (4,533) (3,014) 517
- --------------------------------------------------------------------------------------------------------
Minority interests (18) (18) (130) (115)
- --------------------------------------------------------------------------------------------------------
Income before extraordinary
items 5,141 5,106 4,949 6,547
- --------------------------------------------------------------------------------------------------------
Extraordinary items: 9
- --------------------------------------------------------------------------------------------------------
Gains on disposals of a
business, net of taxes 664 659 -- --
- --------------------------------------------------------------------------------------------------------
Losses on early
extinguishment of debt, net
of taxes (20) (19) (129) --
- --------------------------------------------------------------------------------------------------------
Net income 5,785 5,746 4,820 6,547(3)
- --------------------------------------------------------------------------------------------------------
Earnings per share 31
- --------------------------------------------------------------------------------------------------------
Basic earnings per share
- --------------------------------------------------------------------------------------------------------
Income before
extraordinary items 5.13 5.09 5.16 6.90(3)
- --------------------------------------------------------------------------------------------------------
Extraordinary items 0.64 0.64 (0.13) --
- --------------------------------------------------------------------------------------------------------
Net income 5.77 5.73 5.03 6.90(3)
- --------------------------------------------------------------------------------------------------------
Diluted earnings per share
- --------------------------------------------------------------------------------------------------------
Income before
extraordinary items 5.10 5.06 5.04 6.78(3)
- --------------------------------------------------------------------------------------------------------
Extraordinary items 0.63 0.63 (0.13) --
- --------------------------------------------------------------------------------------------------------
Net income 5.73 5.69 4.91 6.78(3)
- --------------------------------------------------------------------------------------------------------
(1) Reflects the tax benefit relating to a special distribution (see Note 20).
(2) Includes non-recurring tax benefits of [EURO]1,003 relating to the decrease
in the deferred tax asset valuation allowance as of December 31, 1997,
applied to the domestic operations that file a combined tax return.
(3) Excluding non-recurring tax benefits, 1997 net income would have been
[EURO]4,057 and basic and diluted earnings per share would have been
[EURO]4.28 and [EURO]4.21, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 AND 1997 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS
USING THE OFFICIAL FIXED CONVERSION RATE.
F-2
DAIMLERCHRYSLER AG
Consolidated Statements of Income (Continued)
(in millions, except per share amounts)
Industrial Business Financial Services
- ----------------------------------------------- -----------------------------------------
Year ended December 31, Year ended December 31,
- ----------------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
- ----------------------------------------------- ----------------------------------------- ------------------------------
[EURO]139,929 [EURO]124,010 [EURO]111,166 [EURO]10,056 [EURO]7,772 [EURO]6,406 Revenues
- ----------------------------------------------- ----------------------------------------- ------------------------------
(109,805) (97,492) (87,812) (8,414) (6,174) (5,067) Cost of sales
- ----------------------------------------------- ----------------------------------------- ------------------------------
30,124 26,518 23,354 1,642 1,598 1,339 Gross margin
- ----------------------------------------------- ----------------------------------------- ------------------------------
Selling, administrative and
(16,532) (15,351) (14,913) (1,000) (878) (708) other expenses
- ----------------------------------------------- ----------------------------------------- ------------------------------
(5,737) (4,971) (4,408) -- -- -- Research and development
- ----------------------------------------------- ----------------------------------------- ------------------------------
691 993 769 136 106 79 Other income
- ----------------------------------------------- ----------------------------------------- ------------------------------
-- (685) -- -- -- -- Merger costs
- ----------------------------------------------- ----------------------------------------- ------------------------------
Income before financial
income,
income taxes and
8,546 6,504 4,802 778 826 710 extraordinary items
- ----------------------------------------------- ----------------------------------------- ------------------------------
327 740 618 6 23 15 Financial income, net
- ----------------------------------------------- ----------------------------------------- ------------------------------
Income before income taxes and
8,873 7,244 5,420 784 849 725 extraordinary items
- ----------------------------------------------- ----------------------------------------- ------------------------------
Effects of changes in 1999
German tax law
- ----------------------------------------------- ----------------------------------------- ------------------------------
Tax benefit relating to a
special distribution
- ----------------------------------------------- ----------------------------------------- ------------------------------
Income taxes
- ----------------------------------------------- ----------------------------------------- ------------------------------
(4,340) (2,732) 784 (193) (282) (267) Total income taxes
- ----------------------------------------------- ----------------------------------------- ------------------------------
(16) (128) (114) (2) (2) (1) Minority interests
- ----------------------------------------------- ----------------------------------------- ------------------------------
Income before extraordinary
4,517 4,384 6,090 589 565 457 items
- ----------------------------------------------- ----------------------------------------- ------------------------------
Extraordinary items:
- ----------------------------------------------- ----------------------------------------- ------------------------------
Gains on disposals of a
659 -- -- -- -- -- business, net of taxes
- ----------------------------------------------- ----------------------------------------- ------------------------------
Losses on early
extinguishment of debt,
(19) (129) -- -- -- -- net of taxes
- ----------------------------------------------- ----------------------------------------- ------------------------------
5,157 4,255 6,090 589 565 457 Net income
- ----------------------------------------------- ----------------------------------------- ------------------------------
Earnings per share
- ----------------------------------------------- ----------------------------------------- ------------------------------
Basic earnings per share
- ----------------------------------------------- ----------------------------------------- ------------------------------
Income before
-- -- -- -- -- -- extraordinary items
- ----------------------------------------------- ----------------------------------------- ------------------------------
-- -- -- -- -- -- Extraordinary items
- ----------------------------------------------- ----------------------------------------- ------------------------------
-- -- -- -- -- -- Net income
- ----------------------------------------------- ----------------------------------------- ------------------------------
Diluted earnings per share
- ----------------------------------------------- ----------------------------------------- ------------------------------
Income before
-- -- -- -- -- -- extraordinary items
- ----------------------------------------------- ----------------------------------------- ------------------------------
-- -- -- -- -- -- Extraordinary items
- ----------------------------------------------- ----------------------------------------- ------------------------------
-- -- -- -- -- -- Net income
- ----------------------------------------------- ----------------------------------------- ------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 AND 1997 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS
USING THE OFFICIAL FIXED CONVERSION RATE.
F-3
DAIMLERCHRYSLER AG
Consolidated Balance Sheets
(in millions)
Consolidated Industrial Business Financial Services
---------------------------------- ------------------------- -------------------------
At December 31, At December 31, At December 31,
---------------------------------- ------------------------- -------------------------
1999
Note (Note 1) 1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------- ------------------------- -------------------------
Assets
- ----------------------------------------------------------------------- ------------------------- -------------------------
Intangible assets 10 $ 2,843 [EURO]2,823 [EURO]2,561 [EURO]2,632 [EURO]2,457 [EURO]191 [EURO]104
- ----------------------------------------------------------------------- ------------------------- -------------------------
Property, plant and
equipment, net 10 36,689 36,434 29,532 36,338 29,479 96 53
- ----------------------------------------------------------------------- ------------------------- -------------------------
Investments and long-term
financial assets 16 3,969 3,942 2,851 3,079 2,149 863 702
- ----------------------------------------------------------------------- ------------------------- -------------------------
Equipment on operating
leases, net 11 27,440 27,249 14,662 3,433 2,886 23,816 11,776
- ----------------------------------------------------------------------- ------------------------- -------------------------
Fixed assets 70,941 70,448 49,606 45,482 36,971 24,966 12,635
- ----------------------------------------------------------------------- ------------------------- -------------------------
Inventories 12 15,090 14,985 11,796 14,036 11,142 949 654
- ----------------------------------------------------------------------- ------------------------- -------------------------
Trade receivables 13 8,902 8,840 7,605 8,522 6,958 318 647
- ----------------------------------------------------------------------- ------------------------- -------------------------
Receivables from
financial services 14 39,006 38,735 26,468 38 8 38,697 26,460
- ----------------------------------------------------------------------- ------------------------- -------------------------
Other receivables 15 12,658 12,571 10,775 5,408 4,847 7,163 5,928
- ----------------------------------------------------------------------- ------------------------- -------------------------
Securities 16 9,032 8,969 12,160 8,250 11,563 719 597
- ----------------------------------------------------------------------- ------------------------- -------------------------
Cash and cash equivalents 17 9,163 9,099 6,589 8,197 5,968 902 621
- ----------------------------------------------------------------------- ------------------------- -------------------------
Non-fixed assets 93,851 93,199 75,393 44,451 40,486 48,748 34,907
- ----------------------------------------------------------------------- ------------------------- -------------------------
Deferred taxes 8 3,832 3,806 5,016 3,710 4,999 96 17
- ----------------------------------------------------------------------- ------------------------- -------------------------
Prepaid expenses 19 7,265 7,214 6,134 7,076 6,008 138 126
- ----------------------------------------------------------------------- ------------------------- -------------------------
Total assets (thereof
short-term 1999:
[EURO]70,111; 1998:
[EURO]57,953) 175,889 174,667 136,149 100,719 88,464 73,948 47,685
- ----------------------------------------------------------------------- ------------------------- -------------------------
Liabilities and
stockholders' equity
- ----------------------------------------------------------------------- ------------------------- -------------------------
Capital stock $ 2,583 [EURO]2,565 [EURO]2,561
- ----------------------------------------------------------------------- ------------------------- -------------------------
Additional paid-in
capital 7,380 7,329 7,274
- ----------------------------------------------------------------------- ------------------------- -------------------------
Retained earnings 24,093 23,925 20,533
- ----------------------------------------------------------------------- ------------------------- -------------------------
Accumulated other
comprehensive income 2,257 2,241 (1)
- ----------------------------------------------------------------------- ------------------------- -------------------------
Treasury stock -- -- --
- ----------------------------------------------------------------------- ------------------------- -------------------------
Stockholders' equity 20 36,313 36,060 30,367 [EURO]30,318 [EURO]25,905 [EURO]5,742 [EURO]4,462
- ----------------------------------------------------------------------- ------------------------- -------------------------
Minority interests 654 650 691 637 674 13 17
- ----------------------------------------------------------------------- ------------------------- -------------------------
Accrued liabilities 22 37,958 37,695 34,629 37,155 34,224 540 405
- ----------------------------------------------------------------------- ------------------------- -------------------------
Financial liabilities 23 64,940 64,488 40,430 4,400 3,631 60,088 36,799
- ----------------------------------------------------------------------- ------------------------- -------------------------
Trade liabilities 24 15,896 15,786 12,848 15,484 12,608 302 240
- ----------------------------------------------------------------------- ------------------------- -------------------------
Other liabilities 25 10,358 10,286 9,249 7,655 6,919 2,631 2,330
- ----------------------------------------------------------------------- ------------------------- -------------------------
Liabilities 91,194 90,560 62,527 27,539 23,158 63,021 39,369
- ----------------------------------------------------------------------- ------------------------- -------------------------
Deferred taxes 8 5,228 5,192 4,165 1,227 1,504 3,965 2,661
- ----------------------------------------------------------------------- ------------------------- -------------------------
Deferred income 26 4,542 4,510 3,770 3,843 2,999 667 771
- ----------------------------------------------------------------------- ------------------------- -------------------------
Total liabilities
(thereof short-term
1999: [EURO]83,171;
1998: [EURO]58,181) 139,576 138,607 105,782 70,401 62,559 68,206 43,223
- ----------------------------------------------------------------------- ------------------------- -------------------------
Total liabilities and
stockholders' equity 175,889 174,667 136,149 100,719 88,464 73,948 47,685
- ----------------------------------------------------------------------- ------------------------- -------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS USING THE
OFFICIAL FIXED CONVERSION RATE.
F-4
DAIMLERCHRYSLER AG
Consolidated Statements of Changes in Stockholders' Equity
(in millions of [EURO])
Accumulated other
comprehensive income
------------------------------------
Additional Cumulative Available- Minimum
Capital paid-in Retained translation for-sale pension Treasury Preferred
stock capital earnings adjustment securities liability stock stock Total
- -----------------------------------------------------------------------------------------------------------------------
Balance at January 1,
1997 2,444 4,210 16,581 (972) 112 (20) -- . 22,355
- -----------------------------------------------------------------------------------------------------------------------
Net income -- -- 6,547 -- -- -- -- -- 6,547
Other comprehensive income -- -- -- 1,865 157 1 -- -- 2,023
- -----------------------------------------------------------------------------------------------------------------------
Total comprehensive income 8,570
- -----------------------------------------------------------------------------------------------------------------------
Issuance of capital stock 4 85 -- -- -- -- -- -- 89
Purchase and retirement of
capital stock (59) (1,430) -- -- -- -- (462) -- (1,951)
Dividends -- -- (1,276) -- -- -- -- -- (1,276)
Other 2 93 40 -- -- -- 38 . 173
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1997 2,391 2,958 21,892 893 269 (19) (424) . 27,960
- -----------------------------------------------------------------------------------------------------------------------
Net income -- -- 4,820 -- -- -- -- -- 4,820
Other comprehensive income
(loss) -- -- -- (1,402) 259 (1) -- -- (1,144)
- -----------------------------------------------------------------------------------------------------------------------
Total comprehensive income 3,676
- -----------------------------------------------------------------------------------------------------------------------
Issuance of capital stock 163 3,913 -- -- -- -- -- -- 4,076
Purchase and retirement of
capital stock -- -- -- -- -- -- (169) -- (169)
Re-issuance of treasury
stock -- 538 -- -- -- -- 482 -- 1,020
Dividends -- -- (1,086) -- -- -- -- -- (1,086)
Special distribution -- -- (5,284) -- -- -- -- -- (5,284)
Other 7 (135) 191 -- -- -- 111 . 174
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1998 2,561 7,274 20,533 (509) 528 (20) -- -- 30,367
- -----------------------------------------------------------------------------------------------------------------------
Net income -- -- 5,746 -- -- -- -- -- 5,746
Other comprehensive income
(loss) -- -- -- 2,431 (181) (8) -- -- 2,242
- -----------------------------------------------------------------------------------------------------------------------
Total comprehensive income 7,988
- -----------------------------------------------------------------------------------------------------------------------
Issuance of capital stock 4 63 -- -- -- -- -- -- 67
Purchase of capital stock -- -- -- -- -- -- (86) -- (86)
Re-issuance of treasury
stock -- -- -- -- -- -- 86 -- 86
Dividends -- -- (2,356) -- -- -- -- -- (2,356)
Other -- (8) 2 -- -- -- -- -- (6)
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1999 2,565 7,329 23,925 1,922 347 (28) -- -- 36,060
- -----------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 AND 1997 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS
USING THE OFFICIAL FIXED CONVERSION RATE.
F-5
DAIMLERCHRYSLER AG
Consolidated Statements of Cash Flows
(in millions)
Consolidated
-----------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------
1999
(Note 1) 1999 1998 1997
- ------------------------------------------------------------------------------------------
Net income $ 5,785 [EURO]5,746 [EURO]4,820 [EURO]6,547
- ------------------------------------------------------------------------------------------
Income (loss) applicable to
minority interests 18 18 130 115
- ------------------------------------------------------------------------------------------
Adjustments to reconcile net
income to net cash provided
by operating activities:
- ------------------------------------------------------------------------------------------
Tax benefit relating to a
special distribution -- -- -- (1,487)
- ------------------------------------------------------------------------------------------
Gains on disposals of
businesses (see also Note 9) (1,189) (1,181) (296) (569)
- ------------------------------------------------------------------------------------------
Depreciation and
amortization of equipment on
operating leases 3,338 3,315 1,972 1,456
- ------------------------------------------------------------------------------------------
Depreciation and
amortization of fixed assets 6,077 6,035 5,359 4,847
- ------------------------------------------------------------------------------------------
Change in deferred taxes 2,419 2,402 1,959 (705)
- ------------------------------------------------------------------------------------------
Losses on early
extinguishment of debt
(extraordinary item) 19 19 129 --
- ------------------------------------------------------------------------------------------
Change in financial
instruments 249 247 (191) 146
- ------------------------------------------------------------------------------------------
(Gain) loss on disposal of
fixed assets/securities (1,223) (1,215) (368) (204)
- ------------------------------------------------------------------------------------------
Change in trading securities 499 495 251 (387)
- ------------------------------------------------------------------------------------------
Change in accrued
liabilities 4,029 4,001 1,419 840
- ------------------------------------------------------------------------------------------
Change in other operating
assets and liabilities:
- ------------------------------------------------------------------------------------------
-- inventories, net (2,453) (2,436) (976) (744)
- ------------------------------------------------------------------------------------------
-- trade receivables (738) (733) (688) (555)
- ------------------------------------------------------------------------------------------
-- trade liabilities 1,340 1,331 1,827 1,709
- ------------------------------------------------------------------------------------------
-- other assets and
liabilities (21) (21) 1,334 1,328
- ------------------------------------------------------------------------------------------
Cash provided by operating
activities 18,149 18,023 16,681 12,337
- ------------------------------------------------------------------------------------------
Purchases of fixed assets:
- ------------------------------------------------------------------------------------------
- -- Increase in equipment on
operating leases (19,471) (19,336) (10,245) (7,225)
- ------------------------------------------------------------------------------------------
- -- Purchases of property,
plant and equipment (9,536) (9,470) (8,155) (8,051)
- ------------------------------------------------------------------------------------------
- -- Purchases of other fixed
assets (650) (645) (305) (264)
- ------------------------------------------------------------------------------------------
Proceeds from disposals of
equipment on operating
leases 6,621 6,575 4,903 3,943
- ------------------------------------------------------------------------------------------
Proceeds from disposals of
fixed assets 511 507 515 576
- ------------------------------------------------------------------------------------------
Payments for acquisitions of
businesses (1,298) (1,289) (857) (607)
- ------------------------------------------------------------------------------------------
Proceeds from disposals of
businesses 1,345 1,336 685 1,336
- ------------------------------------------------------------------------------------------
Additions to receivables from
financial services (102,855) (102,140) (81,196) (70,154)
- ------------------------------------------------------------------------------------------
Repayments of receivables from
financial services:
- ------------------------------------------------------------------------------------------
-- Finance receivables
collected 42,221 41,928 33,784 22,257
- ------------------------------------------------------------------------------------------
-- Proceeds from sales of
finance receivables 52,206 51,843 40,950 44,336
- ------------------------------------------------------------------------------------------
Acquisitions of securities
(other than trading) (4,426) (4,395) (4,617) (5,190)
- ------------------------------------------------------------------------------------------
Proceeds from sales of
securities (other than
trading) 3,745 3,719 2,734 3,828
- ------------------------------------------------------------------------------------------
Change in other cash (748) (743) (1,641) 685
- ------------------------------------------------------------------------------------------
Cash used for investing
activities (32,335) (32,110) (23,445) (14,530)
- ------------------------------------------------------------------------------------------
Change in commercial paper
borrowings and short-term
financial liabilities 9,398 9,333 2,503 1,781
- ------------------------------------------------------------------------------------------
Additions to long-term
financial liabilities 13,434 13,340 9,491 9,057
- ------------------------------------------------------------------------------------------
Repayment of financial
liabilities (4,643) (4,611) (4,126) (4,612)
- ------------------------------------------------------------------------------------------
Dividends paid (Financial
Services: including profit
transferred from
subsidiaries) (2,395) (2,378) (6,454) (1,267)
- ------------------------------------------------------------------------------------------
Proceeds from issuance of
capital stock 165 164 4,076 231
- ------------------------------------------------------------------------------------------
Purchase of treasury stock (87) (86) (169) (1,888)
- ------------------------------------------------------------------------------------------
Proceeds from special
distribution tax refund -- -- 1,487 --
- ------------------------------------------------------------------------------------------
Cash provided by (used for)
financing activities 15,872 15,762 6,808 3,302
- ------------------------------------------------------------------------------------------
Effect of foreign exchange
rate changes on cash and
cash equivalents maturing
within 3 months 811 805 (397) 646
- ------------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents
maturing within 3 months 2,497 2,480 (353) 1,755
- ------------------------------------------------------------------------------------------
Cash and cash equivalents
(maturing within 3 months)
- ------------------------------------------------------------------------------------------
At beginning of period 6,325 6,281 6,634 4,879
- ------------------------------------------------------------------------------------------
At end of period 8,822 8,761 6,281 6,634
- ------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 AND 1997 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS
USING THE OFFICIAL FIXED CONVERSION RATE.
F-6
DAIMLERCHRYSLER AG
Consolidated Statements of Cash Flows (Continued)
(in millions)
Industrial Business Financial Services
- -------------------------------------------- ----------------------------------------------
Year ended December 31, Year ended December 31,
- -------------------------------------------- ----------------------------------------------
1999 1998 1997 1999 1998 1997
- -------------------------------------------- ---------------------------------------------- ------------------------------
[EURO]5,157 [EURO]4,255 [EURO]6,090 [EURO]589 [EURO]565 [EURO]457 Net income
- -------------------------------------------- ---------------------------------------------- ------------------------------
Income (loss) applicable to
16 128 114 2 2 1 minority interests
- -------------------------------------------- ---------------------------------------------- ------------------------------
Adjustments to reconcile net
income to net cash provided
by operating activities:
- -------------------------------------------- ---------------------------------------------- ------------------------------
Tax benefit relating to a
-- -- (1,487) -- -- -- special distribution
- -------------------------------------------- ---------------------------------------------- ------------------------------
Gains on disposals of
(1,181) (296) (569) -- -- -- businesses (see also Note 9)
- -------------------------------------------- ---------------------------------------------- ------------------------------
Depreciation and
amortization of equipment on
268 195 37 3,047 1,777 1,419 operating leases
- -------------------------------------------- ---------------------------------------------- ------------------------------
Depreciation and
5,966 5,321 4,820 69 38 27 amortization of fixed assets
- -------------------------------------------- ---------------------------------------------- ------------------------------
1,496 1,560 (997) 906 399 292 Change in deferred taxes
- -------------------------------------------- ---------------------------------------------- ------------------------------
Losses on early
extinguishment of debt
19 129 -- -- -- -- (extraordinary item)
- -------------------------------------------- ---------------------------------------------- ------------------------------
Change in financial
247 (191) 146 -- -- -- instruments
- -------------------------------------------- ---------------------------------------------- ------------------------------
(Gain) loss on disposal of
(1,213) (317) (217) (2) (51) 13 fixed assets/securities
- -------------------------------------------- ---------------------------------------------- ------------------------------
495 251 (387) -- -- -- Change in trading securities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Change in accrued
3,913 1,375 837 88 44 3 liabilities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Change in other operating
assets and liabilities:
- -------------------------------------------- ---------------------------------------------- ------------------------------
(2,387) (1,040) (604) (49) 64 (140) -- inventories, net
- -------------------------------------------- ---------------------------------------------- ------------------------------
(541) (812) (578) (192) 124 23 -- trade receivables
- -------------------------------------------- ---------------------------------------------- ------------------------------
1,222 1,668 1,709 109 159 -- -- trade liabilities
- -------------------------------------------- ---------------------------------------------- ------------------------------
-- other assets and
(415) 224 146 394 1,110 1,182 liabilities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Cash provided by operating
13,062 12,450 9,060 4,961 4,231 3,277 activities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Purchases of fixed assets:
- -------------------------------------------- ---------------------------------------------- ------------------------------
-- Increase in equipment on
(3,192) (3,057) (2,364) (16,144) (7,188) (4,861) operating leases
- -------------------------------------------- ---------------------------------------------- ------------------------------
-- Purchases of property,
(9,407) (8,118) (8,027) (63) (37) (24) plant and equipment
- -------------------------------------------- ---------------------------------------------- ------------------------------
-- Purchases of other fixed
(524) (245) (226) (121) (60) (38) assets
- -------------------------------------------- ---------------------------------------------- ------------------------------
Proceeds from disposals of
equipment on operating
3,303 2,691 2,091 3,272 2,212 1,852 leases
- -------------------------------------------- ---------------------------------------------- ------------------------------
Proceeds from disposals of
411 500 555 96 15 21 fixed assets
- -------------------------------------------- ---------------------------------------------- ------------------------------
Payments for acquisitions of
(1,145) (814) (543) (144) (43) (64) businesses
- -------------------------------------------- ---------------------------------------------- ------------------------------
Proceeds from disposals of
1,336 682 1,336 -- 3 -- businesses
- -------------------------------------------- ---------------------------------------------- ------------------------------
Additions to receivables from
(28) 63 1,067 (102,112) (81,259) (71,221) financial services
- -------------------------------------------- ---------------------------------------------- ------------------------------
Repayments of receivables from
financial services:
- -------------------------------------------- ---------------------------------------------- ------------------------------
-- Finance receivables
-- -- (857) 41,928 33,784 23,114 collected
- -------------------------------------------- ---------------------------------------------- ------------------------------
-- Proceeds from sales of
-- -- -- 51,843 40,950 44,336 finance receivables
- -------------------------------------------- ---------------------------------------------- ------------------------------
Acquisitions of securities
(3,958) (2,015) (3,489) (437) (2,602) (1,701) (other than trading)
- -------------------------------------------- ---------------------------------------------- ------------------------------
Proceeds from sales of
securities (other than
3,333 247 2,065 386 2,487 1,763 trading)
- -------------------------------------------- ---------------------------------------------- ------------------------------
(462) (1,455) 1,365 (281) (186) (680) Change in other cash
- -------------------------------------------- ---------------------------------------------- ------------------------------
Cash used for investing
(10,333) (11,521) (7,027) (21,777) (11,924) (7,503) activities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Change in commercial paper
borrowings and short-term
(260) (1,136) 102 9,593 3,639 1,679 financial liabilities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Additions to long-term
918 322 2,020 12,422 9,169 7,037 financial liabilities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Repayment of financial
439 944 (768) (5,050) (5,070) (3,844) liabilities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Dividends paid (Financial
Services; including profit
transferred from
(2,373) (5,865) (776) (5) (589) (491) subsidiaries)
- -------------------------------------------- ---------------------------------------------- ------------------------------
Proceeds from issuance of
82 3,561 55 82 515 176 capital stock
- -------------------------------------------- ---------------------------------------------- ------------------------------
(86) (169) (1,888) -- -- -- Purchase of treasury stock
- -------------------------------------------- ---------------------------------------------- ------------------------------
Proceeds from special
-- 1,487 -- -- -- -- distribution tax refund
- -------------------------------------------- ---------------------------------------------- ------------------------------
Cash provided by (used for)
(1,280) (856) (1,255) 17,042 7,664 4,557 financing activities
- -------------------------------------------- ---------------------------------------------- ------------------------------
Effect of foreign exchange
rate changes on cash and
cash equivalents maturing
750 (371) 610 55 (26) 36 within 3 months
- -------------------------------------------- ---------------------------------------------- ------------------------------
Net increase (decrease) in
cash and cash equivalents
2,199 (298) 1,388 281 (55) 367 maturing within 3 months
- -------------------------------------------- ---------------------------------------------- ------------------------------
Cash and cash equivalents
(maturing within 3 months)
- -------------------------------------------- ---------------------------------------------- ------------------------------
5,660 5,958 4,570 621 676 309 At beginning of period
- -------------------------------------------- ---------------------------------------------- ------------------------------
7,859 5,660 5,958 902 621 676 At end of period
- -------------------------------------------- ---------------------------------------------- ------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 AND 1997 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS
USING THE OFFICIAL FIXED CONVERSION RATE.
F-7
DAIMLERCHRYSLER AG
Consolidated Fixed Assets Schedule
(in millions of [EURO])
Acquisition or Manufacturing Costs
-----------------------------------------------------------------------------------------------
Acquisitions/ Balance at
Balance at disposals December
January 1, Currency of Reclassi- 31,
1999 change businesses Additions fications Disposals 1999
- --------------------------------------------------------------------------------------------------------------------------
Other intangible assets 737 55 21 236 22 88 983
Goodwill 3,564 359 108 103 -- 73 4,061
- --------------------------------------------------------------------------------------------------------------------------
Intangible assets 4,301 414 129 339 22 161 5,044
- --------------------------------------------------------------------------------------------------------------------------
Land, leasehold
improvements and
buildings including
buildings on land owned
by others 18,018 983 196 997 270 232 20,232
Technical equipment and
machinery 26,245 2,085 201 2,796 336 990 30,673
Other equipment, factory
and office equipment 17,135 1,436 117 2,699 414 1,385 20,416
Advance payments relating
to plant and equipment
and construction in
progress 4,539 632 20 2,997 (1,042) 46 7,100
- --------------------------------------------------------------------------------------------------------------------------
Property, plant and
equipment 65,937 5,136 534 9,489 (22) 2,653 78,421
- --------------------------------------------------------------------------------------------------------------------------
Investments in affiliated
companies 718 40 (29) 370 (2) 35 1,062
Loans to affiliated
companies 29 4 8 60 -- 59 42
Investments in associated
companies 358 22 19 158 89 100 546
Investments in related
companies 1,178 101 15 182 (87) 66 1,323
Loans to associated and
related companies 71 9 (1) 142 -- 1 220
Long-term securities 676 -- . 109 -- -- 785
Other loans 195 8 9 207 -- 46 373
- --------------------------------------------------------------------------------------------------------------------------
Investments and long-term
financial assets 3,225 184 21 1,228 -- 307 4,351
- --------------------------------------------------------------------------------------------------------------------------
Equipment on operating
leases (2) 18,129 3,139 112 19,336 -- 8,038 32,678
- --------------------------------------------------------------------------------------------------------------------------
(1) Currency translation changes with period end rates.
(2) Excluding initial direct costs.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS USING THE
OFFICIAL FIXED CONVERSION RATE.
F-8
DAIMLERCHRYSLER AG
Consolidated Fixed Assets Schedule (Continued)
(in millions of [EURO])
Depreciation/Amortization Book Value(1)
- ---------------------------------------------------------------------------- ---------------------
Acquisitions/ Balance at Balance at Balance at
Balance at disposals December December December
January 1, Currency of Reclassi- 31, 31, 31,
1999 change businesses Additions fications Disposals 1999 1999 1998
- ---------------------------------------------------------------------------- --------------------- -------------------------
386 17 8 137 2 31 519 464 351 Other intangible assets
1,354 131 22 215 . 20 1,702 2,359 2,210 Goodwill
- ---------------------------------------------------------------------------- --------------------- -------------------------
1,740 148 30 352 2 51 2,221 2,823 2,561 Intangible assets
- ---------------------------------------------------------------------------- --------------------- -------------------------
Land, leasehold
improvements and
buildings including
buildings on land owned
8,422 197 47 631 (6) 132 9,159 11,073 9,596 by others
Technical equipment and
16,759 922 115 2,538 2 761 19,575 11,098 9,486 machinery
Other equipment, factory
11,224 804 72 2,482 2 1,332 13,252 7,164 5,911 and office equipment
Advance payments relating
to plant and equipment
-- . -- 4 . 3 1 7,099 4,539 and construction
- ---------------------------------------------------------------------------- --------------------- -------------------------
Property, plant and
36,405 1,923 234 5,655 (2) 2,228 41,987 36,434 29,532 equipment
- ---------------------------------------------------------------------------- --------------------- -------------------------
Investments in affiliated
92 . 15 15 (3) 2 117 945 626 companies
Loans to affiliated
4 -- -- -- -- -- 4 38 25 companies
Investments in associated
8 . 11 7 -- 10 16 530 350 companies
Investments in related
214 . 15 4 3 20 216 1,107 964 companies
Loans to associated and
38 -- -- -- -- -- 38 182 33 related companies
1 -- -- -- -- . 1 784 675 Long-term securities
17 . -- 2 -- 2 17 356 178 Other loans
- ---------------------------------------------------------------------------- --------------------- -------------------------
Investments and long-term
374 . 41 28 -- 34 409 3,942 2,851 financial assets
- ---------------------------------------------------------------------------- --------------------- -------------------------
Equipment on operating
3,563 555 13 3,315 -- 1,872 5,574 27,104 14,566 leases (2)
- ---------------------------------------------------------------------------- --------------------- -------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
ALL 1998 BALANCES HAVE BEEN RESTATED FROM DEUTSCHE MARKS INTO EUROS USING THE
OFFICIAL FIXED CONVERSION RATE.
F-9
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements
(in millions of [EURO], except per share amounts)
BASIS OF PRESENTATION
1. The Company and the Merger
DaimlerChrysler AG ("DaimlerChrysler" or the "Group") was formed through the
merger of Daimler-Benz Aktiengesellschaft ("Daimler-Benz") and Chrysler
Corporation ("Chrysler") in November 1998 ("Merger"). The consolidated financial
statements of DaimlerChrysler have been prepared in accordance with United
States Generally Accepted Accounting Principles ("U.S. GAAP"), except that the
Group accounts for certain joint ventures in accordance with the proportionate
method of consolidation (see Note 3). Prior to December 31, 1998,
DaimlerChrysler prepared and reported its consolidated financial statements in
Deutsche Marks ("DM"). With the introduction of the euro ("[EURO]") on
January 1, 1999, DaimlerChrysler has presented the accompanying consolidated
financial statements in euro. Accordingly, the Deutsche Mark consolidated
financial statements for prior periods have been restated into euro using the
Official Fixed Conversion Rate of [EURO]1 = DM1.95583. DaimlerChrysler's 1998
and 1997 restated euro financial statements depict the same trends as would have
been presented if it had continued to present its consolidated financial
statements in Deutsche Marks. The Group's consolidated financial statements
will, however, not be comparable to the euro financial statements of other
companies that previously reported their financial information in a currency
other than Deutsche Marks. All amounts herein are shown in millions of euros and
for the year 1999 are also presented in U.S. dollars ("$"), the latter being
unaudited and presented solely for the convenience of the reader at the rate of
[EURO]1 = $1.0070, the Noon Buying Rate of the Federal Reserve Bank of New York
on December 31, 1999.
Pursuant to the amended and restated business combination agreement dated
May 7, 1998, 1.005 Ordinary Shares, no par value ("DaimlerChrysler Ordinary
Share"), of DaimlerChrysler were issued for each outstanding Ordinary Share of
Daimler-Benz and .6235 DaimlerChrysler Ordinary Shares were issued for each
outstanding share of Chrysler common stock, stock options and performance
shares. DaimlerChrysler issued 1,001.7 million Ordinary Shares in connection
with these transactions.
The Merger was accounted for as a pooling of interests and accordingly, the
historical results of Daimler-Benz and Chrysler for 1998 and 1997 have been
restated as if the companies had been combined for all periods presented. In
connection with the Merger, [EURO]685 of merger costs ([EURO]401 after tax) were
incurred and charged to expense in 1998. These costs consisted primarily of fees
for investment bankers, attorneys, accountants, financial printing, accelerated
management compensation and other related charges.
Certain prior year balances have been reclassified to conform with the
Group's current year presentation.
Commercial practices with respect to the products manufactured by
DaimlerChrysler necessitate that sales financing, including leasing
alternatives, be made available to the Group's customers. Accordingly, the
Group's consolidated financial statements are significantly influenced by
activities of the financial services businesses. To enhance the readers'
understanding of the Group's consolidated financial statements, the accompanying
financial statements present, in addition to the consolidated financial
statements, information with respect to the financial position, results of
operations and cash flows of the Group's industrial and financial services
business activities. Such information, however, is not required by U.S. GAAP and
is not intended to, and does not represent the separate U.S. GAAP financial
position, results of operations or cash flows of the Group's industrial or
financial services business activities. Transactions between the Group's
industrial and financial businesses principally represent intercompany sales of
products, intercompany borrowings and related interest, and other support under
special vehicle financing programs. The effects of transactions between the
industrial and financial services businesses have been eliminated within the
industrial business columns.
F-10
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
2. Summary of Significant Accounting Policies
CONSOLIDATION -- All material companies in which DaimlerChrysler has legal
or effective control are consolidated. Significant investments in which
DaimlerChrysler has a 20% to 50% ownership ("associated companies") are
generally accounted for using the equity method. For certain investments in
joint ventures, DaimlerChrysler uses the proportionate method of consolidation
(see Note 3). All other investments are accounted for at cost.
For business combinations accounted for under the purchase accounting
method, all assets acquired and liabilities assumed are recorded at fair value.
An excess of the purchase price over the fair value of net assets acquired is
capitalized as goodwill and amortized over the estimated period of benefit on a
straight-line basis.
The effects of intercompany transactions have been eliminated.
FOREIGN CURRENCIES -- The assets and liabilities of foreign subsidiaries
where the functional currency is other than the euro are generally translated
using period-end exchange rates while the statements of income are translated
using average exchange rates during the period. Differences arising from the
translation of assets and liabilities in comparison with the translation of the
previous periods are included as a separate component of stockholders' equity.
The assets and liabilities of foreign subsidiaries operating in highly
inflationary economies are remeasured into euro on the basis of period-end rates
for monetary assets and liabilities and at historical rates for non-monetary
items, with resulting translation gains and losses being recognized in income.
Further, in such economies, depreciation and gains and losses from the disposal
of non-monetary assets are determined using historical rates.
The exchange rates of the significant currencies of non-euro participating
countries used in preparation of the consolidated financial statements were as
follows (prior periods have been restated from Deutsche Marks into euros using
the Official Fixed Conversion Rate of [EURO]1 = DM1.95583):
Exchange rate at Annual average
December 31, exchange rate
------------------- ------------------------------
1999 1998 1999 1998 1997
[EURO]1 [EURO]1 [EURO]1 [EURO]1 [EURO]1
= = = = =
------ ------ ------ ------ ------
Currency:
Brazil................................... BRL 1.80 1.42 1.93 1.29 1.22
Great Britain............................ GBP 0.62 0.70 0.66 0.67 0.69
Japan.................................... JPY 102.73 134.84 121.25 144.96 136.20
USA...................................... USD 1.00 1.17 1.07 1.11 1.13
REVENUE RECOGNITION -- Revenue is recognized when title passes or services
are rendered net of discounts, sales incentives, customer bonuses and rebates
granted. Sales under which the Group conditionally guarantees the minimum resale
value of the product are accounted for as operating leases with the related
revenues and costs deferred at the time of title passage. Operating lease income
is recorded when earned on a straight-line basis. Revenue on long-term contracts
is generally recognized under the percentage-of-completion method based upon
contractual milestones or performance. Revenue from finance receivables is
recorded on the interest method.
The Group sells significant amounts of finance receivables in transactions
subject to limited credit risk. The Group generally sells its receivables to a
trust and remains as servicer, for which it is paid a servicing fee. Servicing
fees are earned on a level-yield basis over the remaining term of the related
sold receivables. In a subordinated capacity, the Group retains residual cash
flows, a limited interest in principal balances of the sold receivables and
certain cash deposits provided as credit enhancements for investors. Gains and
losses from the
F-11
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
sales of finance receivables are recognized in the period in which such sales
occur. In determining the gain or loss for each qualifying sale of finance
receivables, the investment in the sold receivable pool is allocated between the
portion sold and the portion retained based upon their relative fair values.
PRODUCT-RELATED EXPENSES -- Expenditures for advertising and sales promotion
and for other sales-related expenses are charged to expense as incurred.
Provisions for estimated costs related to product warranty are made at the time
the related sale is recorded. Research and development costs are expensed as
incurred.
EARNINGS PER SHARE -- Basic earnings per share is calculated by dividing net
income by the weighted average number of shares outstanding. Diluted earnings
per share reflects the potential dilution that would occur if all securities and
other contracts to issue Ordinary Shares were exercised or converted (see
Note 31). Net income represents the earnings of the Group after minority
interests. Basic and diluted earnings per Ordinary Share for the years ended
December 31, 1998 and 1997 have been restated to reflect the conversion of
Daimler-Benz and Chrysler shares into DaimlerChrysler Ordinary Shares (see
Note 1) and the dilutive effect resulting from the discount to market value at
which the Daimler-Benz Ordinary Shares were sold in the rights offering (see
Note 20).
INTANGIBLE ASSETS -- Purchased intangible assets, other than goodwill, are
valued at acquisition cost and are generally amortized over their respective
useful lives (3 to 40 years) on a straight-line basis. Goodwill derived from
acquisitions is capitalized and amortized over 3 to 40 years. The Group
periodically assesses the recoverability of its goodwill based upon projected
future cash flows.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is valued at
acquisition or manufacturing costs less accumulated depreciation. Depreciation
expense is recognized either using the declining balance method until the
straight-line method yields larger expenses or the straight-line method. Special
tooling costs are capitalized and amortized over their estimated useful lives,
primarily using the units of production method. The costs of internally produced
equipment and facilities include all direct costs and allocable manufacturing
overhead. Costs of the construction of certain long-term assets include
capitalized interest which is amortized over the estimated useful life of the
related asset. The following useful lives are assumed: buildings -- 17 to
50 years; site improvements -- 8 to 20 years; technical equipment and machinery
- -- 3 to 30 years; and other equipment, factory and office equipment -- 2 to
15 years.
LEASING -- The Group is a lessee of property, plant and equipment and lessor
of equipment, principally passenger cars and commercial vehicles. All leases
that meet certain specified criteria intended to represent situations where the
substantive risks and rewards of ownership have been transferred to the lessee
are accounted for as capital leases. All other leases are accounted for as
operating leases. Equipment on operating leases, where the Group is lessor, is
valued at acquisition cost and depreciated over its estimated useful life,
generally 3 to 14 years, using the straight-line method.
LONG-LIVED ASSETS -- The Group reviews long-lived assets to be held and used
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
NON-FIXED ASSETS -- Non-fixed assets represent the Group's inventories,
receivables, securities and cash, including amounts to be realized in excess of
one year. In the accompanying footnotes, the portion of assets and liabilities
to be realized and settled in excess of one year has been disclosed.
MARKETABLE SECURITIES AND INVESTMENTS -- Securities are accounted for at
fair values, if readily determinable. Unrealized gains and losses on trading
securities, representing securities bought principally for the purposes of
selling them in the near term, are included in income. Unrealized gains and
losses on available-for-sale securities are included in accumulated other
comprehensive income, net of applicable deferred income taxes. All other
securities are recorded at cost. Unrealized losses on all marketable securities
and investments that are other than temporary are recognized in income.
F-12
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
INVENTORIES -- Inventories are valued at the lower of acquisition or
manufacturing cost or market, cost being generally determined on the basis of an
average or first-in, first-out method ("FIFO"). Certain of the Group's U.S.
inventories are valued using the last-in, first-out method ("LIFO").
Manufacturing costs comprise direct material and labor and applicable
manufacturing overheads, including depreciation charges.
FINANCIAL INSTRUMENTS -- DaimlerChrysler uses derivative financial
instruments for hedging purposes. Financial instruments, including derivatives
(especially currency futures, options and swaps, security options and interest
rate swaps), which are not designated as hedges of specific assets, liabilities,
or firm commitments are marked to market and any resulting unrealized gains or
losses are recognized in income. If there is a direct connection between a
derivative financial instrument and an underlying transaction and a derivative
is so designated, a valuation unit is formed. Once allocated, gains and losses
from these valuation units, which are used to manage interest rate and currency
risks of identifiable assets, liabilities, or firm commitments, do not affect
income until the underlying transaction is realized (see Note 29 d).
ACCRUED LIABILITIES -- The valuation of pension liabilities and
postretirement benefit liabilities is based upon the projected unit credit
method in accordance with Statement of Financial Accounting Standards ("SFAS")
87, "Employers' Accounting for Pensions," and SFAS 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." An accrued liability for taxes
and other contingencies is recorded when an obligation to a third party has been
incurred, the payment is probable and the amount can be reasonably estimated.
The effects of accrued liabilities relating to personnel and social costs are
valued at their net present value where appropriate.
USE OF ESTIMATES -- Preparation of the financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NEW ACCOUNTING PRONOUNCEMENTS -- On January 1, 1999, DaimlerChrysler adopted
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," issued by the American Institute of Certified Public Accountants.
SOP 98-5 provides, among other things, guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. Adoption of this accounting
pronouncement did not have a material effect on DaimlerChrysler's consolidated
financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." This Standard
requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains and losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. With the issuance
of SFAS 137, "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB
Statement No. 133," this Standard is effective for fiscal years beginning after
June 15, 2000. DaimlerChrysler plans to adopt SFAS 133 effective January 1,
2000. The new Standard will permit the Group to apply hedge accounting for
certain foreign currency derivative contracts on qualifying forecasted
transactions. Under the Group's current accounting policies such contracts are
marked to market with unrealized gains and losses impacting current earnings.
Accordingly, application of the new Standard in accounting for such foreign
currency derivative contracts may result in lower current period earnings
volatility relating to the Group's foreign currency risk management in periods
of significant changes in exchange rates.
F-13
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
3. Scope of Consolidation
SCOPE OF CONSOLIDATION -- DaimlerChrysler comprises 549 foreign and domestic
subsidiaries (1998: 481) and 16 joint ventures (1998: 82); the latter are
generally accounted for on a pro rata basis. A total of 55
(1998: 27) subsidiaries are accounted for in the consolidated financial
statements using the equity method of accounting. During 1999, 76 subsidiaries
and 2 joint ventures were included in the consolidated financial statements for
the first time. A total of 69 subsidiaries and 7 joint ventures were no longer
included in the consolidated group. Significant effects of changes in the
consolidated group on the consolidated balance sheets and the consolidated
statements of income are explained further in the notes to the consolidated
financial statements. A total of 343 subsidiaries ("affiliated companies") are
not consolidated as their combined influence on the financial position, results
of operations, and cash flows of the Group is not material (1998: 313). The
effect of such non-consolidated subsidiaries for all years presented on
consolidated assets, revenues and net income of DaimlerChrysler was
approximately 1%. In addition, 7 (1998: 7) companies administering pension funds
whose assets are subject to restrictions have not been included in the
consolidated financial statements. The consolidated financial statements include
109 associated companies (1998: 110) accounted for at cost and recorded under
investments in related companies as these companies are not material to the
respective presentation of the financial position, results of operations or cash
flows of the Group.
INVESTMENT IN ADTRANZ -- In the first quarter of 1999, DaimlerChrysler
acquired the remaining outstanding shares of Adtranz, a rail systems joint
venture, from Asea Brown Boveri for $472 ([EURO]441). The acquisition has been
accounted for under the purchase method of accounting. The purchase price has
been allocated to assets acquired and liabilities assumed based on their
estimated fair values. This allocation resulted in goodwill of [EURO]100, which
will be amortized on a straight-line basis over 17 years. Prior to the
acquisition, the Group accounted for its investment in Adtranz, including its 65
subsidiaries in 1998, using the proportionate method of consolidation.
Accordingly, the consolidated financial statements of DaimlerChrysler as of
December 31, 1998 and for the years ended December 31, 1998 and 1997 included
DaimlerChrysler's 50% interest in the assets and liabilities, revenues and
expenses and cash flows of Adtranz.
Under U.S. GAAP, DaimlerChrysler's investment in Adtranz was required to be
accounted for using the equity method of accounting. The differences in
accounting treatment between the proportionate and equity methods would not have
affected reported stockholders' equity or net income of DaimlerChrysler. Under
the equity method of accounting, DaimlerChrysler's net investment in Adtranz
would have been included within investments in the balance sheet and its share
of the net loss of Adtranz together with the amortization of the excess of the
cost of its investment over its share of the investment's net assets would have
been reported as part of financial income, net in the Group's statement of
income. Additionally, Adtranz would have impacted the Group's reported cash
flows only to the extent of the investing cash outflow in 1998 of [EURO]159
resulting from a capital contribution by DaimlerChrysler. For purposes of its
United States financial reporting obligation, DaimlerChrysler has requested and
received permission from the United States Securities and Exchange Commission to
prepare its consolidated financial statements with this departure from U.S.
GAAP.
Summarized consolidated financial information of Adtranz follows as of
December 31, 1998 and for the years ended December 31, 1998 and 1997. The
amounts represent those used in the DaimlerChrysler consolidation, including
goodwill resulting from the formation of Adtranz. Other companies included in
the consolidated financial statements according to the proportionate method are
not material.
F-14
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Balance sheet information
At December 31, 1998
--------------------
Fixed assets(1)........................................ 728
Non-fixed assets....................................... 842
-----
Total assets........................................... 1,570
=====
Stockholders' equity................................... 385
Minority interests..................................... 7
Accrued liabilities.................................... 542
Liabilities............................................ 636
-----
Total liabilities and stockholders' equity............. 1,570
=====
- ------------------------
(1) Includes net goodwill resulting from the formation of Adtranz of [EURO]348.
Statement of income information
Year ended
December 31,
-------------------
1998 1997
-------- --------
Revenues.................................................... 1,658 1,631
Operating loss(1)........................................... (322) (222)
Net loss.................................................... (316) (154)
- ------------------------
(1) The operating losses for 1998 and 1997 include impairment charges on
goodwill of [EURO]64 and [EURO]61, respectively.
Cash flow information
Year ended
December 31,
-----------------------
1998 1997
-------- --------
Cash flows from:
Operating activities...................................... (130) 72
Investing activities...................................... (84) (12)
Financing activities...................................... 161 (50)
Effect of foreign exchange on cash.......................... (2) .
---- ---
Change in cash (maturing within 3 months)................... (55) 10
Cash (maturing within 3 months) at beginning of period...... 155 145
---- ---
Cash (maturing within 3 months) at end of period............ 100 155
==== ===
In 1998, cash maturing within 3 months includes [EURO]30 (1997: [EURO]51)
held by DaimlerChrysler AG in connection with internal cash concentration
procedures.
F-15
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
4. Dispositions
Due to an initial public offering in March 1999 as well as to the selling of
a substantial portion of its remaining interests in September 1999, debis AG, a
wholly-owned subsidiary of DaimlerChrysler, reduced its remaining interest in
debitel AG to 10 percent (see Note 9).
In March 1998, the Group's semiconductor business was sold to an American
company, Vishay Intertechnology, Inc. Also, during 1998 the Group sold further
interests, including the sale of 30% of its interests in
LFK-Lenkflugkoerpersysteme GmbH and 100% of its interests in CMS, Inc. and two
real-estate-project-companies. The total pretax gain from these dispositions was
approximately [EURO]300.
In January 1997, DaimlerChrysler sold its interests in AEG Electrocom GmbH
and AEG ElectroCom International, Inc. (sorting and recognition systems) to
Siemens AG resulting in a pretax gain of [EURO]110.
In July 1997, debis AG terminated its strategic relationship with Cap Gemini
Sogeti S.A. through the sale of its 24.4% interest resulting in a pretax gain of
[EURO]420.
During December 1997, DaimlerChrysler completed an initial public offering
("IPO") of its common stock in Dollar Thrifty Automotive Group, Inc. ("DTAG"),
formerly Pentastar Transportation Group, Inc., for net proceeds of [EURO]343.
The IPO of the common stock interest resulted in a pretax and after-tax gain of
[EURO]65. The gain was deferred and will be recognized over the remaining term
of the vehicle supply agreements with DTAG, which end in 2001. The tax effect on
this transaction reflects the difference between the book and tax basis of the
Group's stock interest in DTAG for which deferred taxes were not provided, in
accordance with SFAS 109, "Accounting for Income Taxes." In addition, the 1997
earnings include the recognition of [EURO]86 ([EURO]53 after taxes) of
previously deferred profits from the sale of vehicles from DaimlerChrysler to
DTAG.
NOTES TO THE CONSOLIDATED STATEMENTS OF INCOME
5. Functional Costs and Other Expenses
Selling, administrative and other expenses are comprised of the following:
Year ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
Selling expenses................................... 11,744 10,100 9,663
Administration expenses............................ 5,145 5,217 4,709
Goodwill amortization and writedowns............... 215 227 210
Other expenses..................................... 428 685 1,039
------ ------ ------
17,532 16,229 15,621
====== ====== ======
Expenses amounting to [EURO]229 and [EURO]369 related to the repayment of
development cost subsidies were recorded under other expenses in 1998 and 1997,
respectively (see Note 28).
F-16
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Personnel expenses included in the statement of income are comprised of:
Year ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
Wages and salaries................................. 21,044 19,982 18,656
Social levies...................................... 3,179 2,990 2,817
Net periodic pension cost (see Note 22a)........... 931 1,126 1,077
Net periodic postretirement benefit cost (see
Note 22a)........................................ 783 866 755
Other expenses for pensions and retirements........ 221 69 65
------ ------ ------
26,158 25,033 23,370
====== ====== ======
Number of employees (annual average):
Year ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
Hourly employees................................ 279,124 268,764 261,426
Salaried employees.............................. 170,539 152,415 147,882
Trainees/apprentices............................ 13,898 12,760 12,353
------- ------- -------
463,561 433,939 421,661
======= ======= =======
In 1999, 14,851 people (1998: 36,024 people; 1997: 34,448 people) were
employed in joint venture companies.
In 1999, the total remuneration paid by Group companies to the members of
the Board of Management of DaimlerChrysler AG amounted to [EURO]55.4, and the
remuneration paid to the members of the Supervisory Board of DaimlerChrysler AG
totaled [EURO]1.2. Disbursements to former members of the Board of Management of
DaimlerChrysler AG and their survivors amounted to [EURO]23.4. An amount of
[EURO]100.5 has been accrued in the financial statements of DaimlerChrysler AG
for pension obligations to former members of the Board of Management and their
survivors. As of December 31, 1999, no advances or loans existed to members of
the Board of Management of DaimlerChrysler AG.
6. Other Income
Other income includes gains on sales of property, plant and equipment
([EURO]132, [EURO]99 and [EURO]95 in 1999, 1998 and 1997, respectively), rental
income, other than relating to financial services leasing activities ([EURO]153,
[EURO]138 and [EURO]87 in 1999, 1998 and 1997, respectively) and reductions in
certain accruals ([EURO]130, [EURO]199 and [EURO]154 in 1999, 1998 and 1997,
respectively). In 1998 and 1997, gains on sales of companies of [EURO]389 and
[EURO]117, respectively, were recognized in other income.
F-17
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
7. Financial Income, net
Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
Income (loss) from investments ............................. 19 (111) 66
of which from affiliated companies [EURO]41 (1998:
[EURO](20); 1997: [EURO]17)
Gains, net from disposals of investments and shares in
affiliated and associated companies....................... 41 37 459
Write-down of investments and shares in affiliated
companies................................................. (19) (55) (76)
Income from companies included at equity.................... 23 59 36
------ ----- -----
Income (loss) from investments, net......................... 64 (70) 485
------ ----- -----
Other interest and similar income .......................... 1,382 1,327 1,320
of which from affiliated companies [EURO]17 (1998:
[EURO]13; 1997: [EURO]10)
Interest and similar expenses............................... (729) (702) (640)
------ ----- -----
Interest income, net........................................ 653 625 680
------ ----- -----
Income from securities and long-term receivables............ 913 231 376
Write-down of securities and long-term receivables.......... (17) (10) (10)
Realized and unrealized gains (losses) on derivative
financial instruments..................................... (1,078) 145 (794)
Other, net.................................................. (202) (158) (104)
------ ----- -----
Other financial income (loss), net.......................... (384) 208 (532)
------ ----- -----
333 763 633
====== ===== =====
The Group capitalized interest expenses related to qualifying construction
projects of [EURO]163 (1998: [EURO]186; 1997: [EURO]207).
8. Income Taxes
Income before income taxes and extraordinary items amounted to [EURO]9,657
(1998: [EURO]8,093; 1997: [EURO]6,145), of which [EURO]2,688 was generated by
the Group's operations in Germany (1998: [EURO]2,229; 1997: [EURO]1,450).
Income tax expense (benefit) consists of the following:
Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
Current taxes
Germany......................................... 1,074 (267) (1,472)
Foreign......................................... 1,538 1,322 1,660
Deferred taxes
Germany......................................... 836 967 (910)
Foreign......................................... 1,085 992 205
----- ------ ------
4,533 3,014 (517)
===== ====== ======
In 1999, the tax laws in Germany were changed including a reduction in the
retained corporate income tax rate from 45% to 40% and the broadening of the tax
base. The effects of the changes in German tax laws were recognized as a charge
of [EURO]812 (basic: [EURO]0.81 per share; diluted: [EURO]0.80 per share) in the
consolidated statement of
F-18
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
income in 1999. The effects of the reduction in the tax rate on the deferred tax
assets and liabilities of the Group's German companies as of December 31, 1998
amounted to [EURO]290. The broadening of the tax base resulted in tax expense of
[EURO]522.
German corporate tax law applies a split-rate imputation with regard to the
taxation of the income of a corporation and its shareholders. In accordance with
the tax law in effect for fiscal 1999, retained corporate income is initially
subject to a federal corporate tax of 40% (1998 and 1997: 45%) plus a solidarity
surcharge of 5.5% (1998: 5.5%; 1997: 7.5%) on federal corporate taxes payable.
Including the impact of the surcharge, the federal corporate tax rate amounts to
42.2% (1998: 47.475%; 1997: 48.375%). Upon distribution of certain retained
earnings generated in Germany to stockholders, the corporate income tax rate on
the earnings is adjusted to 30%, plus a solidarity surcharge of 5.5% (1998:
5.5%; 1997: 7.5%) on the distribution corporate tax, for a total of 31.65%
(1998: 31.65%; 1997: 32.25%), by means of a refund for taxes previously paid.
Upon distribution of retained earnings in the form of a dividend, stockholders
who are taxpayers in Germany are entitled to a tax credit in the amount of
federal income taxes previously paid by the corporation.
For German companies, the deferred taxes for 1999 are calculated using
effective corporate income tax rates of 42.2% (1998 and 1997: 47.475%) plus the
after federal tax benefit rate for trade tax of 9.3% (1998 and 1997: 8.525%).
The effect of the tax rate reductions in 1999 and 1997 on deferred tax balances
are reflected separately in the reconciliations presented below.
A reconciliation of income taxes determined using the German corporate tax
rate of 42.2% (1998: 47.475%; 1997: 48.375%) plus the after federal tax benefit
rate for trade taxes of 9.3% (1998: 8.525%; 1997: 8.625%) for a combined
statutory rate of 51.5% in 1999 (1998: 56%; 1997: 57%) is as follows:
Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
Expected expense for income taxes................. 4,973 4,532 3,503
Effect of changes in 1999 German tax laws......... 812 -- --
Change of solidarity surcharge in 1997............ -- -- 68
Credit for dividend distributions................. (500) (515) (1,624)
Foreign tax rate differential..................... (966) (1,012) (813)
Release of valuation allowances on German deferred
tax assets as of December 31, 1997.............. -- -- (1,003)
Changes in valuation allowances on German deferred
tax assets...................................... 23 112 (465)
Write-downs of investments, different for tax
purposes........................................ (28) (18) (240)
Amortization of non-deductible goodwill........... 33 78 55
Other............................................. 186 (163) 2
------ ------ ------
Actual expense (benefit) for income taxes......... 4,533 3,014 (517)
====== ====== ======
The 1999 and 1998 income tax credits from dividend distributions amounted to
[EURO]500 and [EURO]515, respectively, and reflected mainly the tax benefits
from the dividend distributions of [EURO]2.35 per Ordinary Share to be paid in
respect of 1999 and 1998.
The 1997 income tax credit from dividend distributions amounted to
[EURO]1,624 and reflected primarily a tax benefit of [EURO]1,487 from the
special distribution. This benefit resulted from the refund of taxes previously
paid on undistributed profits at a rate of 50% in excess of the effective tax
rate of 30% on distributed profits.
F-19
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
In 1997, the decrease in the consolidated domestic valuation allowances was
due in part to [EURO]465 utilization of tax loss carryforwards. Additionally,
[EURO]1,003 was due to the reversal of the remaining valuation allowances as of
December 31, 1997 for the German companies included in the filing of a combined
tax return ("Organschaft") on the basis that the current and the expected
results of operations supported a conclusion that it was more likely than not
that the deferred tax assets would be realized.
During 1997, the Group sold its investment in Cap Gemini Sogeti S.A. and
realized a gain of [EURO]420 in its consolidated financial statements which was
not taxable since write-downs were previously not recognized for tax purposes.
Deferred income tax assets and liabilities are summarized as follows:
December 31,
-------------------
1999 1998
-------- --------
Property, plant and equipment............................. 1,217 2,063
Equipment on operating leases............................. 920 1,068
Investments and long-term financial assets................ 1,983 97
Inventories............................................... 1,424 1,328
Receivables............................................... 993 527
Net operating loss and tax credit carryforwards........... 1,011 1,056
Retirement plans.......................................... 3,662 3,880
Other accrued liabilities................................. 4,248 4,166
Liabilities............................................... 1,482 846
Deferred income........................................... 1,246 1,144
Other..................................................... 490 452
------- -------
18,676 16,627
Valuation allowances...................................... (363) (411)
------- -------
Deferred tax assets....................................... 18,313 16,216
------- -------
Property, plant and equipment............................. (3,346) (2,743)
Equipment on operating leases............................. (5,600) (4,252)
Inventories............................................... (499) (483)
Receivables............................................... (3,278) (3,645)
Prepaid expenses.......................................... (508) (450)
Retirement plans.......................................... (4,127) (2,069)
Other accrued liabilities................................. (671) (367)
Taxes on undistributed earnings of foreign subsidiaries... (520) (297)
Other..................................................... (1,150) (1,059)
------- -------
Deferred tax liabilities.................................. (19,699) (15,365)
------- -------
Deferred tax assets (liabilities), net.................... (1,386) 851
======= =======
At December 31, 1999, the Group had corporate tax net operating losses
("NOLs") and credit carryforwards amounting to [EURO]2,232 (1998: [EURO]1,724)
and German trade tax NOLs amounting to [EURO]1,352 (1998: [EURO]2,156). In 1999,
the corporate tax NOLs and credit carryforwards relate to losses of foreign and
domestic non-Organschaft companies and are partly limited in their use to the
Group. The valuation allowances on deferred tax assets of
F-20
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
foreign and domestic operations decreased by [EURO]48. In future periods,
depending upon the financial results, management's estimate of the amount of the
deferred tax assets considered realizable may change, and hence the valuation
allowances may increase or decrease.
Net deferred income tax assets and liabilities in the consolidated balance
sheets are as follows:
December 31, 1999 December 31, 1998
---------------------- ----------------------
thereof thereof
Total non-current Total non-current
-------- ----------- -------- -----------
Deferred tax assets.......................... 3,806 2,937 5,016 3,979
Deferred tax liabilities..................... (5,192) (4,689) (4,165) (2,884)
------ ------ ------ ------
Deferred tax assets (liabilities), net....... (1,386) (1,752) 851 1,095
====== ====== ====== ======
DaimlerChrysler provided foreign withholding taxes of [EURO]343 (1998:
[EURO]297) on [EURO]6,868 (1998: [EURO]5,948) in cumulative undistributed
earnings of foreign subsidiaries because these earnings are not intended to be
permanently reinvested in those operations. In addition, beginning in 1999, the
German tax law requires that deductible expenses are reduced by 5% of foreign
dividends received. The additional German tax of [EURO]177 on the future payout
of these foreign dividends was recognized in 1999 and included in "Effects of
changes in 1999 German tax laws." The Group did not provide income taxes or
foreign withholding taxes on [EURO]13,224 (1998: [EURO]6,016) in cumulative
earnings of foreign subsidiaries because these earnings are intended to be
indefinitely reinvested in those operations. It is not practicable to estimate
the amount of unrecognized deferred tax liabilities for these undistributed
foreign earnings.
Including the items charged or credited directly to related components of
stockholders' equity, the expense (benefit) for income taxes consists of the
following:
Year ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
Expense (benefit) for income taxes before
extraordinary items............................... 4,533 3,014 (517)
Income tax expense (benefit) of extraordinary
items............................................. 470 (78) --
Stockholders' equity for employee stock option
expense in excess of amounts recognized for
financial purposes................................ (31) (212) (39)
Stockholders' equity for items of other
comprehensive income.............................. (155) 296 176
------ ----- -----
4,817 3,020 (380)
====== ===== =====
9. Extraordinary Items
In March 1999, debis AG, a wholly-owned subsidiary of DaimlerChrysler, sold
a portion of its interests in debitel AG in an initial public offering of its
ordinary shares for proceeds of [EURO]274. In September 1999, debis AG sold an
additional portion of its remaining interests in debitel AG to Swisscom for
proceeds of [EURO]924. The sales resulted in an extraordinary after-tax gain of
[EURO]659 (net of income tax expense of [EURO]481) and reduced debis' remaining
interest in debitel to 10 percent. U.S. GAAP requires that when a significant
disposition of assets or businesses occurs within two years subsequent to
accounting for a business combination using the pooling-of-interests method of
accounting that the gain or loss be reported as an extraordinary item. Due to
the significance of the September 1999 transaction, the gains from both the
March and September dispositions have been reported in the accompanying
consolidated statements of income as extraordinary items, net of taxes.
In 1999 the Group extinguished [EURO]51 of long-term debt resulting in an
extraordinary after tax loss of [EURO]19 (net of income tax benefit of
[EURO]11).
F-21
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
In December 1998, DaimlerChrysler extinguished [EURO]257 of the outstanding
principal amount of its Auburn Hills Trust Guaranteed Exchangeable Certificates
due 2020 (the "Certificates") at a cost of [EURO]454. The extinguishment of the
Certificates resulted in an extraordinary after tax loss of [EURO]129 (net of
income tax benefit of [EURO]78).
NOTES TO THE CONSOLIDATED BALANCE SHEETS
10. Intangible Assets and Property, Plant and Equipment, net
Information with respect to changes in the Group's intangible assets and
property, plant and equipment is presented in the Consolidated Fixed Assets
Schedule included herein. Intangible assets represent principally goodwill and
intangible pension assets.
Property, plant and equipment includes buildings, technical equipment and
other equipment capitalized under capital lease agreements of [EURO]368 (1998:
[EURO]394). Depreciation expense on assets under capital lease arrangements was
[EURO]32 (1998: [EURO]38; 1997: [EURO]29).
11. Equipment on Operating Leases, net
Information with respect to changes in the Group's equipment on operating
leases is presented in the Consolidated Fixed Assets Schedule included herein.
Of the total equipment on operating leases, [EURO]26,409 represent automobiles
and commercial vehicles (1998: [EURO]14,078).
Noncancellable future lease payments due from customers for equipment on
operating leases at December 31, 1999 are as follows:
2000........................................................ 4,939
2001........................................................ 3,956
2002........................................................ 2,102
2003........................................................ 459
2004........................................................ 178
thereafter.................................................. 187
------
11,821
======
12. Inventories
At December 31,
-----------------------
1999 1998
-------- --------
Raw materials and manufacturing supplies................. 2,602 2,278
Work-in-process ......................................... 6,285 4,568
thereof relating to long-term contracts and programs in
process [EURO]2,000 (1998: [EURO]919)
Finished goods, parts and products held for resale....... 9,887 7,631
Advance payments to suppliers............................ 518 312
------ ------
19,292 14,789
------ ------
Less: Advance payments received ......................... (4,307) (2,993)
thereof relating to long-term contracts and programs in
process [EURO]1,166 (1998: [EURO]578)
------ ------
14,985 11,796
====== ======
Certain of the Group's U.S. inventories are valued using the LIFO method. If
the FIFO method had been used instead of the LIFO method, inventories would have
been higher by [EURO]691 (1998: [EURO]549).
F-22
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
13. Trade Receivables
At December 31,
--------------------
1999 1998
--------- ---------
Receivables from sales of goods and services............................... 8,859 8,020
Long-term contracts and programs, unbilled, net of advance payments
received................................................................. 779 442
--------- ---------
9,638 8,462
Allowance for doubtful accounts............................................ (798) (857)
--------- ---------
8,840 7,605
========= =========
As of December 31, 1999, [EURO]469 of the trade receivables mature after
more than one year (1998: [EURO]399).
14. Receivables from Financial Services
At December 31,
--------------------
1999 1998
--------- ---------
Receivables from:
Sales financing.......................................................... 32,696 20,635
Finance leases........................................................... 11,440 9,542
--------- ---------
44,136 30,177
Initial direct costs..................................................... 143 96
Unearned income.......................................................... (5,977) (4,245)
Unguaranteed residual value of leased assets............................. 1,032 804
--------- ---------
39,334 26,832
Allowance for doubtful accounts.......................................... (599) (364)
--------- ---------
38,735 26,468
========= =========
As of December 31, 1999, [EURO]21,194 of the financing receivables mature
after more than one year (1998: [EURO]14,733).
Sales financing and finance lease receivables consist of retail installment
sales contracts secured by automobiles and commercial vehicles. Contractual
maturities applicable to receivables from sales financing and finance leases in
each of the years following December 31, 1999 are as follows:
2000.............................................................. 20,184
2001.............................................................. 8,043
2002.............................................................. 5,935
2003.............................................................. 3,568
2004.............................................................. 2,166
thereafter........................................................ 4,240
---------
44,136
=========
Actual cash flows will vary from contractual maturities due to future sales
of finance receivables, prepayments and charge-offs.
F-23
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
In the normal course of business, the Group sells to third parties certain
of its receivables from financial services. In 1999, the Group sold financial
receivables for proceeds of [EURO]51,843 (1998: [EURO]40,950; 1997:
[EURO]44,336).
15. Other Receivables
At December 31,
--------------------
1999 1998
--------- ---------
Receivables from affiliated companies.................................... 850 480
Receivables from related companies(1).................................... 1,250 804
Other receivables and other assets....................................... 11,598 10,740
--------- ---------
13,698 12,024
Allowance for doubtful accounts.......................................... (1,127) (1,249)
--------- ---------
12,571 10,775
========= =========
- --------------------------
(1) Related companies include entities which have a significant ownership in
DaimlerChrysler or entities in which the Group holds a significant
investment.
Other receivables and other assets include retained interests in sold
receivables and subordinated asset backed certificates of [EURO]4,006 (1998:
[EURO]3,046).
As of December 31, 1999, [EURO]3,390 of the other receivables mature after
more than one year (1998: [EURO]4,199).
16. Securities, Investments and Long-Term Financial Assets
Information with respect to the Group's investments and long-term financial
assets is presented in the Consolidated Fixed Assets Schedule included herein.
Securities included in non-fixed assets are comprised of the following:
At December 31,
--------------------
1999 1998
--------- ---------
Debt securities........................................................... 4,347 4,565
Equity securities......................................................... 938 971
Equity-based funds........................................................ 1,191 1,970
Debt-based funds.......................................................... 2,493 4,654
--------- ---------
8,969 12,160
========= =========
F-24
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Carrying amounts and fair values of debt and equity securities included in
securities and investments for which fair values are readily determinable are
classified as follows:
At December 31, 1999 At December 31, 1998
------------------------------------------ --------------------------------------------
Unrealized Unrealized
Fair -------------------- Fair ----------------------
Cost value Gain Loss Cost value Gain Loss
--------- --------- --------- --------- --------- --------- --------- -----------
Available-for-sale................. 8,114 8,486 522 150 10,501 11,183 706 24
Trading............................ 487 483 -- 4 934 977 44 1
--------- --------- --------- --------- --------- --------- --------- ---------
Securities......................... 8,601 8,969 522 154 11,435 12,160 750 25
--------- --------- --------- --------- --------- --------- --------- ---------
Investments and long-term financial
assets available-for-sale........ 296 784 488 -- 278 675 397 --
--------- --------- --------- --------- --------- --------- --------- ---------
8,897 9,753 1,010 154 11,713 12,835 1,147 25
========= ========= ========= ========= ========= ========= ========= =========
The aggregate costs, fair values and gross unrealized holding gains and
losses per security class are as follows:
At December 31, 1999 At December 31, 1998
-------------------------------------------- ----------------------------------------------
Unrealized Unrealized
-------------------- ----------------------
Cost Fair value Gain Loss Cost Fair value Gain Loss
--------- ----------- --------- --------- --------- ----------- --------- -----------
Equity securities.................. 977 1,662 698 13 1,116 1,623 512 5
Debt securities issued by the
German government and its
agencies......................... 159 167 8 -- 93 93 -- --
Municipal securities............... 20 20 -- -- 418 418 -- --
Debt securities issued by foreign
governments...................... 1,682 1,654 13 41 892 893 4 3
Corporate debt securities.......... 1,234 1,210 -- 24 1,459 1,478 31 12
Equity-based funds................. 935 1,191 276 20 1,761 1,970 209 --
Debt-based funds................... 2,526 2,495 15 46 4,309 4,654 345 --
Asset-backed securities............ 622 616 -- 6 597 595 1 3
Other marketable debt securities... 255 255 -- -- 134 134 1 1
--------- --------- --------- --------- --------- --------- --------- ---------
Available-for-sale................. 8,410 9,270 1,010 150 10,779 11,858 1,103 24
--------- --------- --------- --------- --------- --------- --------- ---------
Trading............................ 487 483 -- 4 934 977 44 1
--------- --------- --------- --------- --------- --------- --------- ---------
8,897 9,753 1,010 154 11,713 12,835 1,147 25
========= ========= ========= ========= ========= ========= ========= =========
F-25
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
The estimated fair values of investments in debt securities, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalty.
At December 31,
--------------------
Available-for-sale 1999 1998
- ------------------------------------------------------------ --------- ---------
Due within one year......................................... 1,473 975
Due after one year through five years....................... 1,806 2,122
Due after five years through ten years...................... 477 129
Due after ten years......................................... 166 385
--------- ---------
3,922 3,611
========= =========
Proceeds from disposals of available-for-sale securities were [EURO]6,540
(1998: [EURO]2,734; 1997: [EURO]1,432), including [EURO]4,059 related to the
contribution to the DaimlerChrysler Pension Trust (see Note 22a). Gross realized
gains from sales of available-for-sale securities were [EURO]627 (1998:
[EURO]98; 1997: [EURO]92), while gross realized losses were [EURO]4 (1998:
[EURO]8; 1997: [EURO]1). DaimlerChrysler uses the specific identification method
as a basis for determining cost and calculating realized gains and losses.
Other securities classified as cash equivalents were approximately
[EURO]5,400 and [EURO]4,600 at December 31, 1999 and 1998, respectively, and
consisted primarily of purchase agreements, commercial paper and certificates of
deposit.
17. Cash and Cash Equivalents
Cash and cash equivalents include [EURO]338 (1998: [EURO]308) of deposits
with original maturities of more than three months.
18. Additional Cash Flow Information
Liquid assets recorded under various balance sheet captions are as follows:
At December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
Cash and cash equivalents originally maturing within 3 months....................... 8,761 6,281 6,634
Cash and cash equivalents originally maturing after 3 months........................ 338 308 175
Securities.......................................................................... 8,969 12,160 10,180
Other............................................................................... 133 324 336
--------- --------- ---------
18,201 19,073 17,325
========= ========= =========
The following represents supplemental information with respect to cash
flows:
Year ended December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
Interest paid........................................................................... 3,315 2,553 1,953
Income taxes paid....................................................................... 1,883 993 1,699
F-26
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
19. Prepaid Expenses
Prepaid expenses are comprised of the following:
At December 31,
------------------------
1999 1998
----------- -----------
Prepaid pension cost............................................................................ 6,236 5,309
Other prepaid expenses.......................................................................... 978 825
--------- ---------
7,214 6,134
========= =========
As of December 31, 1999, [EURO]6,118 of the total prepaid expenses mature
after more than one year (1998: [EURO]5,280).
20. Stockholders' Equity
NUMBER OF SHARES ISSUED AND OUTSTANDING
DaimlerChrysler had issued and outstanding 1,003,261,403 and 1,001,733,220
registered, Ordinary Shares of no par value at December 31, 1999 and 1998,
respectively. Each share represents approximately [EURO]2.56 of capital stock.
SPECIAL DISTRIBUTION
On May 27, 1998 the Daimler-Benz shareholders approved, and on June 15, 1998
Daimler-Benz paid, a special distribution of [EURO]10.23 ([EURO]10.04 after
adjustment to reflect the approximately 20% discount to market value at which
the Daimler-Benz Ordinary Shares and ADS were sold in the rights offering) per
Ordinary Share/ADS.
RIGHTS OFFERING
In June 1998, Daimler-Benz issued to holders of Daimler-Benz Ordinary
Shares, ADS and convertible debt securities, rights to acquire up to an
aggregate of 52.4 million newly issued Daimler-Benz Ordinary Shares and on
June 25, 1998, Daimler-Benz issued and sold 52.4 million Daimler-Benz Ordinary
Shares for net proceeds of [EURO]3,827. The rights issued by Daimler-Benz
entitled the holders to purchase Daimler-Benz Ordinary Shares at approximately a
20% discount to the market price of Daimler-Benz Ordinary Shares. Basic and
diluted earnings per Ordinary Share have been restated to reflect the dilutive
effect resulting from the discount to market value at which the Daimler-Benz
Ordinary Shares were sold in the rights offering.
TREASURY STOCK
During the second half of 1999, DaimlerChrysler purchased approximately
1.2 million of its Ordinary Shares and reissued the shares to employees in
connection with an employee share purchase plan.
In November 1998, Chrysler contributed 23.5 million shares of its common
stock to the Chrysler Corporation Retirement Master Trust, which serves as a
funding medium for and holds the assets of various pension and retirement plans
of Chrysler.
PREFERRED STOCK
On July 24, 1998, Chrysler redeemed all of the outstanding Chrysler
Depositary Shares representing its Series A Convertible Preferred Stock.
F-27
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
AUTHORIZED AND CONDITIONAL CAPITAL
Through April 30, 2003, the Board of Management is authorized, upon approval
of the Supervisory Board, to increase capital stock by a total of up to
[EURO]256 and to issue shares of up to [EURO]26 to employees.
With respect to the 4.125% convertible notes and the 5.75% subordinated
mandatory convertible notes described below, capital stock may be conditionally
increased by up to [EURO]43.7 for conversions. In addition, DaimlerChrysler is
authorized to issue shares equaling up to [EURO]102 of capital stock in
connection with convertible bonds or bonds with warrants issued or guaranteed by
April 30, 2003.
CONVERTIBLE NOTES
In June 1997, DaimlerChrysler issued 5.75% subordinated mandatory
convertible notes due June 14, 2002 with a nominal amount of [EURO]66.83 per
note. These convertible notes represent a nominal amount of [EURO]508 including
7,600,000 notes which may be converted into 0.86631 newly issuable shares before
June 4, 2002. Notes not converted by this date will be mandatorily converted at
a conversion rate between 0.86631 and 1.25625 Ordinary Shares per note to be
determined on the basis of the average market price for the shares during the
last 20 trading days before June 8, 2002. During 1999, 665 (1998: 3,713; 1997:
156) DaimlerChrysler Ordinary Shares were issued upon exercise.
During 1996, DaimlerChrysler Luxembourg Capital S.A., a wholly-owned
subsidiary of DaimlerChrysler, issued 4.125% bearer notes with appertaining
warrants due July 5, 2003, in the amount of [EURO]383 with a nominal value of
[EURO]511 each, including a total of 7,690,500 options which, on the basis of
the option agreement (as amended), entitles the bearer of the option to
subscribe for shares of DaimlerChrysler AG. The option price per share is
[EURO]42.67 in consideration of exchange of the notes or [EURO]44.49 in cash.
During 1999, options for the subscription of 1,517,468 (1998: 5,027,002; 1997:
1,785) newly issued DaimlerChrysler Ordinary Shares have been exercised.
COMPREHENSIVE INCOME
The changes in the components of other comprehensive income (loss) are as
follows:
Year ended December 31,
-------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
Pretax Tax effect Net Pretax Tax effect Net Pretax Tax effect Net
-------- ----------- ------ ------- ----------- ------- -------- ----------- ------
Unrealized gains (losses)
on securities:
Unrealized holding
gains (losses)....... 292 (163) 129 659 (354) 305 439 (230) 209
Reclassification
adjustments for
(gains) losses
included in net
income............... (623) 313 (310) (103) 57 (46) (106) 54 (52)
------- ---------- ----- ------ ---------- ------ ------- ---------- -----
Net unrealized gains
(losses)........... (331) 150 (181) 556 (297) 259 333 (176) 157
Foreign currency
translation
adjustments............ 2,431 -- 2,431 (1,402) -- (1,402) 1,865 -- 1,865
Minimum pension liability
adjustments............ (13) 5 (8) (2) 1 (1) 1 (.) 1
------- ---------- ----- ------ ---------- ------ ------- ---------- -----
Other comprehensive
income (loss).......... 2,087 155 2,242 (848) (296) (1,144) 2,199 (176) 2,023
======= ========== ===== ====== ========== ====== ======= ========== =====
F-28
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
MISCELLANEOUS
Minority stockholders of Dornier GmbH have the right to exchange their
interests in Dornier for holdings of equal value in DaimlerChrysler Luft- und
Raumfahrt Holding AG or Ordinary Shares of DaimlerChrysler AG and such options
are exercisable at any time.
Under the German corporation law (Aktiengesetz), the amount of dividends
available for distribution to shareholders is based upon the earnings of
DaimlerChrysler AG (parent company only) as reported in its statutory financial
statements determined in accordance with the German commercial code
(Handelsgesetzbuch). For the year ended December 31, 1999, DaimlerChrysler
management has proposed a distribution of [EURO]2,358 ([EURO]2.35 per share) of
the 1999 earnings of DaimlerChrysler AG as a dividend to the stockholders.
21. Stock-Based Compensation
The Group currently has various stock appreciation rights ("SARs") plans
resulting from newly adopted plans and the conversion of former Daimler-Benz
Stock Option and former Chrysler plans. In addition, the Group has a stock
option plan which was originally established by Daimler-Benz in 1996 and has
been converted to options for DaimlerChrysler Ordinary Shares. The Group also
has a performance-based stock award plan. Prior to the Merger, Chrysler had both
fixed stock option and performance-based stock compensation plans. These
Chrysler plans were terminated as a result of the Merger and all outstanding
options and awards became vested and were converted into equivalent
DaimlerChrysler Ordinary Shares. The Group accounts for all stock-based
compensation plans in accordance with APB Opinion No. 25 and related
interpretations.
STOCK APPRECIATION-BASED PLANS
In the first half of 1999, DaimlerChrysler established a new stock
appreciation rights plan (the "SAR Plan 1999") which provides eligible employees
of the Group with the right to receive cash equal to the appreciation of
DaimlerChrysler Ordinary Shares subsequent to the date of grant. The stock
appreciation rights granted under the SAR Plan 1999 vest in equal installments
on the second and third anniversaries from the date of grant. All unexercised
SARs expire ten years from the grant date. The exercise price of a SAR is equal
to the fair market value of DaimlerChrysler's Ordinary Shares on the date of
grant. On February 24, 1999, the Group issued 11.4 million SARs at an exercise
price of [EURO]89.70.
As discussed below, DaimlerChrysler converted all options granted under its
existing stock option plans from 1997 and 1998 into SARs in the second quarter
of 1999.
In conjunction with the consummation of the Merger in 1998, the Group
implemented a SAR plan (22.3 million SARs at an exercise price of $75.56 each).
The initial grant of SARs replaced Chrysler fixed stock options that were
converted to DaimlerChrysler Ordinary Shares as of the consummation of the
Merger. SARs which replaced stock options that were exercisable at the time of
the consummation of the Merger were immediately exercisable at the date of
grant. SARs related to stock options that were not exercisable at the date of
consummation of the Merger became exercisable in two installments; 50 percent on
the six-month and one-year anniversaries of the consummation date.
F-29
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
A summary of the activity related to the Group's SAR plans as of and for the
years ended December 31, 1999 and 1998 is presented below (SARs in millions):
1999 1998
----------------------------- -----------------------------
Number of Weighted-avg. Number of Weighted-avg.
SARs exercise price SARs exercise price
------------- -------------- ------------- --------------
Outstanding at beginning of year......................... 22.2 [EURO] 64.58 -- [EURO] --
Granted.................................................. 11.4 89.70 22.3 64.58
Exchange of Stock Options for SARs....................... 15.2 79.79 -- --
Exercised................................................ (2.2) 64.91 (0.1) 64.58
Forfeited................................................ (0.8) 76.07 -- --
--------- ---------- --------- ----------
Outstanding at end of year............................... 45.8 75.68 22.2 64.58
========= ========== ========= ==========
SARs exercisable at year-end............................. 26.8 [EURO] 64.92 11.3 [EURO] 64.58
========= ========== ========= ==========
The Group grants performance-based stock awards to certain eligible
employees with performance periods of up to three years and track the value of
DaimlerChrysler Ordinary Shares. The amount ultimately earned in cash
compensation at the end of a performance period is based on the degree of
achievement of corporate goals. In 1999, the Group issued 0.7 million
performance-based stock awards.
Compensation expense or benefit on SARs and performance-based stock awards
is recorded based on changes in the market price of DaimlerChrysler Ordinary
Shares and, in case of performance-based stock awards, the attainment of certain
performance goals. For the years ended December 31, 1999 and 1998 the Group
recognized compensation benefit of [EURO]106 and compensation expense of
[EURO]251, respectively, for SARs and performance-based stock awards.
STOCK OPTION PLANS
DaimlerChrysler established, based on shareholder approvals, the 1998, 1997
and 1996 Stock Option Plans (former Daimler-Benz plans), which provide for the
granting of options ("Stock Options") for the purchase of DaimlerChrysler
Ordinary Shares to certain members of management. The options granted under the
Plans are evidenced by non-transferable convertible bonds with a principal
amount of [EURO]511 per bond due ten years after issuance. During certain
specified periods each year, each convertible bond may be converted into 201
DaimlerChrysler Ordinary Shares, if the market price per share on the day of
conversion is at least 15% higher than the predetermined conversion price and
the options (granted in 1998 and 1997) have been held for a 24 month waiting
period. The specific terms of these plans are as follows:
Bonds
granted in Due Stated interest rate Conversion price
- ----------- ---------- --------------------- ----------------
1996 July 2006 5.9% [EURO] 42.62
1997 July 2007 5.3% [EURO] 65.90
1998 July 2008 4.4% [EURO] 92.30
In the second quarter of 1999, DaimlerChrysler converted all options granted
under the 1998 and 1997 Stock Option Plans into SARs. All terms and conditions
of the new SARs are identical to the stock options which were replaced, except
that the holder of a SAR has the right to receive cash equal to the difference
between the exercise price of the original option and the fair value of the
Group's stock at the exercise date rather than receiving DaimlerChrysler
Ordinary Shares.
F-30
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Analysis of the Stock Options issued to management is as follows (options in
millions):
1999 1998 1997
-------------------------- -------------------------- --------------------------
Average Average Average
Number conversion Number conversion Number conversion
of Stock price per of Stock price per of Stock price per
Options share Options share Options share
----------- ------------- ----------- ------------- ----------- -------------
Balance at beginning of year....... 15.5 [EURO] 79.63 7.5 [EURO] 65.60 0.2 [EURO] 42.62
Bonds sold......................... -- -- 8.2 92.30 7.4 65.90
Converted.......................... -- -- (.) 42.62 (0.1) 42.62
Repayment.......................... (0.2) 79.10 (0.2) 72.22 (.) 65.90
Exchanged for SARs................. (15.2) 79.79 -- -- -- --
---------- ------------ ---------- ------------ ---------- ------------
Outstanding at year-end............ 0.1 42.62 15.5 79.63 7.5 65.60
========== ============ ========== ============ ========== ============
Exercisable at year-end............ 0.1 [EURO] 42.62 0.1 [EURO] 42.62 0.1 [EURO] 42.62
========== ============ ========== ============ ========== ============
No compensation expense was recognized in 1999 in connection with the stock
option plans (1998: [EURO]38; 1997: none).
CHRYSLER FIXED STOCK OPTION COMPENSATION PLANS
A summary of the status of fixed stock option grants under Chrysler's
stock-based compensation plans as of December 31, 1998 and 1997, and changes
during the years ending on those dates is presented below (options in millions):
1998 1997
------------------------- -------------------------
Chrysler Weighted- Chrysler Weighted-
shares average shares conversion
under conversion under exercise
option price option price
----------- ------------- ----------- -------------
Outstanding at beginning of year... 30.7 $ 27.71 28.5 $ 23.68
Granted............................ 9.2 39.82 10.1 33.72
Exercised.......................... (3.8) 23.38 (7.8) 20.92
Forfeited.......................... (0.1) 30.60 (0.1) 26.70
Converted to DaimlerChrysler
shares........................... (36.0) 31.24 -- --
--------- ------------ --------- ------------
Outstanding at end of year......... -- -- 30.7 27.71
========= ============ ========= ============
Options exercisable at year-end.... -- -- 13.4 $ 23.43
========= ============ ========= ============
No compensation expense was recognized for Chrysler fixed stock option
grants since the options had conversion prices of not less than the market value
of Chrysler's common stock at the date of grant.
CHRYSLER PERFORMANCE-BASED STOCK COMPENSATION PLAN
Chrysler's stock-based compensation plans also provided for the awarding of
Performance Shares, which rewarded attainment of performance objectives.
Performance Shares were awarded at the commencement of a performance cycle (two
to three years) to each eligible executive (officers and a limited number of
senior executives). At the end of each cycle, participants earned no Performance
Shares or a number of Performance
F-31
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Shares, ranging from a set minimum to a maximum of 150 percent of the award for
that cycle, as determined by a committee of Chrysler's Board of Directors based
on the Chrysler's performance in relation to the performance goals established
at the beginning of the performance cycle.
Compensation expense recognized for Performance Share awards was [EURO]65
and [EURO]18 for 1998 and 1997, respectively. Unearned Chrysler Performance
Share awards outstanding at the date of the Merger and December 31, 1997 were
1.9 million and 0.9 million, respectively. As a result of the Merger, all
Performance Shares were vested and converted into DaimlerChrysler Ordinary
Shares.
MISCELLANEOUS
If compensation expense for stock-based compensation had been based upon the
fair value at the grant date, consistent with the methodology prescribed under
SFAS 123,"Accounting for Stock Based Compensation," the Group's net income and
basic and diluted earnings per share would have been reduced by approximately
[EURO]127 and [EURO]25 (basic earnings per share: [EURO]0.13 and [EURO]0.03;
diluted earnings per share: [EURO]0.13 and [EURO]0.03) in 1998 and 1997,
respectively. No additional compensation expense would have been recognized
under SFAS 123 in 1999.
The fair value of the DaimlerChrysler stock options issued in conjunction
with the 1998 and 1997 Stock Option Plans was calculated at the grant date based
on a trinomial tree option pricing model which considers the terms of the
issuance. The underlying assumptions and the resulting fair value per option are
as follows (at grant date):
1998 1997
------------- -------------
Expected dividend yield................................ 2.45% 0.83%
Expected volatility.................................... 35.2% 26.2%
Risk-free interest rate................................ 4.09% 3.65%
Expected lives (in years).............................. 2 2
Fair value per option.................................. [EURO] 19.38 [EURO] 11.76
The fair value of each Chrysler fixed stock option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants and resulting fair values in 1998
and 1997:
1998 1997
------------- -------------
Expected dividend yield................................ 4.0% 4.7%
Expected volatility.................................... 29% 26%
Risk-free interest rate................................ 5.7% 6.2%
Expected lives (in years).............................. 5 5
Fair value per option.................................. $ 9.20 $ 6.79
The fair value of each Performance Share award was estimated at the date of
grant based on the market value of a share of Chrysler common stock on the date
of grant. Performance Share awards were recognized over performance cycles of
two to three years. However, because all outstanding fixed stock option and
Performance Share grants were vested as of the date of the Merger, for purposes
of SFAS 123, all remaining compensation expense was recognized in 1998.
F-32
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
22. Accrued Liabilities
Accrued liabilities are comprised of the following:
At December 31,
----------------------------------------------
1999 1998
---------------------- ----------------------
Due after Due after
Total one year Total one year
--------- ----------- --------- -----------
Pension plans and similar obligations
(see Note 22 a)................................... 14,048 13,075 16,618 15,714
Income and other taxes.............................. 2,281 77 1,122 246
Other accrued liabilities (see Note 22 b)........... 21,366 7,813 16,889 6,464
--------- --------- --------- ---------
37,695 20,965 34,629 22,424
========= ========= ========= =========
A) PENSION PLANS AND SIMILAR OBLIGATIONS
Pension plans and similar obligations are comprised of the following
components:
At December 31,
--------------------
1999 1998
--------- ---------
Pension liabilities (pension plans)....................................... 5,588 9,148
Accrued postretirement health and life insurance benefits................. 7,756 7,020
Other benefit liabilities................................................. 704 450
--------- ---------
14,048 16,618
========= =========
In the fourth quarter of 1999, DaimlerChrysler AG established the
"DaimlerChrysler Pension Trust" to provide for future pension benefit payments
in Germany. DaimlerChrysler AG contributed [EURO]4,059 of securities to the
Pension Trust, thereby reducing accrued pension liabilities. In January 2000,
DaimlerChrysler AG contributed an additional [EURO]1,275 of securities to the
Pension Trust.
PENSION PLANS
The Group provides pension benefits to substantially all of its hourly and
salaried employees. Plan benefits are principally based upon years of service.
Certain pension plans are based on salary earned in the last year or last five
years of employment while others are fixed plans depending on ranking (both wage
level and position).
At December 31, 1999, plan assets were invested in diversified portfolios
that consisted primarily of debt and equity securities, including 9.7 million
shares of DaimlerChrysler Ordinary Shares with a market value of [EURO]750 in a
U.S. plan, which were contributed in connection with the Merger. Assets and
income accruing on all pension trust and relief funds are used solely to pay
pension benefits and administer the plans.
F-33
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
The following information with respect to the Group's pension plans is
presented by German Plans and Non-German Plans (principally comprised of plans
in the U.S.). DaimlerChrysler uses the rates of the 1998 Heubeck mortality
tables for the valuation of the German pension liabilities.
At December 31, At December 31,
1999 1998
------------------- -------------------
Non- Non-
German German German German
Plans Plans Plans Plans
-------- -------- -------- --------
Change in Projected benefit obligations:
Projected benefit obligations at beginning of year....... 12,599 16,010 11,378 15,905
------ ------ ------ ------
Foreign currency exchange rate changes................. -- 2,664 -- (1,212)
Service cost........................................... 267 430 258 429
Interest cost.......................................... 756 1,185 732 1,033
Plan amendments........................................ -- 1,983 35 47
Actuarial (gains) losses............................... (28) (2,142) 686 821
Acquisitions and other................................. 68 518 12 (22)
Benefits paid.......................................... (539) (1,070) (502) (991)
------ ------ ------ ------
Projected benefit obligations at end of year............. 13,123 19,578 12,599 16,010
====== ====== ====== ======
Change in plan assets
Fair value of plan assets at beginning of year........... 2,898 19,424 2,740 18,012
------ ------ ------ ------
Foreign currency exchange rate changes................. -- 3,309 -- (1,410)
Actual return on plan assets........................... 226 3,463 302 2,478
Employer contributions................................. 4,059 166 -- 1,305
Plan participant contributions......................... -- 27 -- 20
Acquisitions and other................................. -- 498 -- 7
Benefits paid.......................................... (149) (1,064) (144) (988)
------ ------ ------ ------
Fair value of plan assets at end of year................. 7,034 25,823 2,898 19,424
====== ====== ====== ======
F-34
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
A reconcilation of the funded status to the amounts recognized in the
consolidated balance sheets is as follows:
At December 31, At December 31,
1999 1998
------------------- -------------------
Non- Non-
German German German German
Plans Plans Plans Plans
-------- -------- -------- --------
Funded status(1)............................................ 6,089 (6,245) 9,701 (3,414)
Unrecognized actuarial net gains (losses)................. (691) 3,859 (723) 54
Unrecognized prior service cost........................... (7) (3,530) (6) (1,530)
Unrecognized net assets at date of initial application.... -- (252) -- (357)
----- ------ ----- ------
Net amount recognized....................................... 5,391 (6,168) 8,972 (5,247)
===== ====== ===== ======
Amounts recognized in the consolidated balance sheets
consist of:
Prepaid pension cost...................................... -- (6,236) -- (5,309)
Accrued pension liability................................. 5,391 197 8,972 176
Intangible assets......................................... -- (98) -- (94)
Accumulated other comprehensive income.................... -- (31) -- (20)
----- ------ ----- ------
Net amount recognized....................................... 5,391 (6,168) 8,972 (5,247)
===== ====== ===== ======
- ------------------------
(1) Difference between the projected benefit obligations and the fair value of
plan assets.
Assumed discount rates and rates of increase in remuneration used in
calculating the projected benefit obligations together with long-term rates of
return on plan assets vary according to the economic conditions of the country
in which the pension plans are situated. The weighted-average assumptions used
in calculating the actuarial values for the principal pension plans were as
follows (in %):
Non-German
German Plans Plans
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
Weighted-average assumptions as of December 31:
Discount rate............................................. 6.0 6.0 6.5 7.5 6.5 6.8
Expected return on plan assets............................ 7.7 7.7 7.7 9.8 9.8 9.8
Rate of compensation increase............................. 2.8 3.0 3.5 5.9 6.0 6.0
F-35
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
The components of net periodic pension cost were as follows:
1999 1998 1997
------------------- ------------------- -------------------
Non- Non- Non-
German German German German German German
Plans Plans Plans Plans Plans Plans
-------- -------- -------- -------- -------- --------
Service cost............................... 267 430 258 429 243 295
Interest cost.............................. 756 1,185 732 1,033 718 998
Expected return on plan assets............. (223) (1,872) (203) (1,514) (198) (1,372)
Amortization of:
Unrecognized net actuarial losses
(gains).................................. 1 41 (2) 80 (1) 54
Unrecognized prior service cost.......... -- 214 -- 187 (2) 196
Unrecognized net obligation.............. -- 129 -- 126 -- 125
Other.................................... 1 2 (3) 3 -- 21
---- ------ ---- ------ ---- ------
Net periodic pension cost.................. 802 129 782 344 760 317
==== ====== ==== ====== ==== ======
The projected benefit obligations and fair value of plan assets for pension
plans with accumulated benefit obligations in excess of plan assets were
[EURO]13,934 and [EURO]7,818, respectively, as of December 31, 1999 and
[EURO]13,391 and [EURO]3,497, respectively, as of December 31, 1998.
OTHER POSTRETIREMENT BENEFITS
Certain DaimlerChrysler operations in the U.S. and Canada provide
postretirement health and life insurance benefits to their employees. Upon
retirement from DaimlerChrysler the employees may become eligible for
continuation of these benefits. The benefits and eligibility rules may be
modified periodically.
At December 31, 1999, plan assets were invested in diversified portfolios
that consisted primarily of debt and equity securities.
F-36
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
The following information is presented with respect to the Group's
postretirement benefit plans.
At December 31,
----------------------
1999 1998
-------- --------
Change in accumulated postretirement benefit obligations:
Accumulated postretirement benefit obligations at
beginning of year....................................... 9,886 9,667
------ -----
Foreign currency exchange rate changes.................. 1,645 (763)
Service cost............................................ 209 189
Interest cost........................................... 702 646
Plan amendments......................................... 246 280
Actuarial (gains) losses................................ (1,687) 373
Acquisitions and other.................................. 51 (52)
Benefits paid........................................... (525) (454)
------ -----
Accumulated postretirement benefit obligations at
end of year............................................. 10,527 9,886
====== =====
Change in plan assets:
Fair value of plan assets at beginning of year............ 1,574 91
------ -----
Foreign currency exchange rate changes.................. 273 (24)
Actual return on plan assets............................ 241 13
Employer contributions.................................. 773 1,498
Benefits paid........................................... (45) (4)
------ -----
Fair value of plan assets at end of year.................. 2,816 1,574
====== =====
A reconciliation of the funded status to the amounts recognized in the
consolidated balance sheets is as follows:
At December 31,
----------------------
1999 1998
-------- --------
Funded status(1)............................................ 7,711 8,312
Unrecognized actuarial net gains (losses)................. 574 (1,015)
Unrecognized prior service cost........................... (529) (277)
----- ------
Net amount recognized....................................... 7,756 7,020
===== ======
- ------------------------
(1) Difference between the accumulated postretirement obligations and the fair
value of plan assets.
The amount recognized in the consolidated balance sheets consists only of
accrued postretirement health and life insurance benefits.
F-37
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Assumed discount rates and rates of increase in remuneration used in
calculating the accumulated postretirement benefit obligations together with
long-term rates of return on plan assets vary according to the economic
conditions of the country in which the plans are situated. The weighted-average
assumptions used in calculating the actuarial values for the postretirement
benefit plans were as follows (in %):
1999 1998 1997
-------- -------- --------
Weighted-average assumptions as of December 31:
Discount rate............................................. 7.8 6.5 6.8
Expected return on plan assets............................ 10.0 10.0 8.5
Health care inflation rate in following (or "base")
year.................................................... 5.8 6.0 6.5
Ultimate health care inflation rate (2002)................ 5.0 5.0 5.0
The components of net periodic postretirement benefit cost were as follows:
1999 1998 1997
-------- -------- --------
Service cost................................................ 209 189 164
Interest cost............................................... 702 646 592
Expected return on plan assets.............................. (169) (6) (5)
Amortization of:
Unrecognized net actuarial losses (gains)................. 10 14 (1)
Unrecognized prior service cost........................... 31 23 4
Unrecognized net asset.................................... -- -- (1)
Other....................................................... -- -- 2
---- ---- ---
Net periodic postretirement benefit cost.................... 783 866 755
==== ==== ===
The following schedule presents the effects of a one-percentage-point change
in assumed health care cost trend rates:
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
Effect on total of service and interest cost components..... 121 (99)
Effect on accumulated postretirement benefit obligations.... 1,117 (870)
PREPAID EMPLOYEE BENEFITS
In 1996 DaimlerChrysler established a Voluntary Employees' Beneficiary
Association ("VEBA") trust for payment of non-pension employee benefits. At
December 31, 1999 and 1998, the VEBA had a balance of [EURO]3,231 and
[EURO]1,979, respectively, of which [EURO]2,698 and [EURO]1,498, respectively,
were designated and restricted for the payment of postretirement health care
benefits. Contributions to the VEBA trust during the years ended December 31,
1999, 1998 and 1997 were [EURO]727, [EURO]292 and [EURO]975, respectively.
F-38
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
B) OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following:
At December 31,
-------------------
1999 1998
------ ------
Accrued warranty costs and price risks...................... 7,505 6,386
Accrued losses on uncompleted contracts..................... 993 762
Restructuring............................................... 595 635
Accrued personnel and social costs.......................... 3,409 2,263
Other....................................................... 8,864 6,843
------ ------
21,366 16,889
====== ======
Accruals for restructuring comprise certain employee termination benefits
and costs which are directly associated with plans to exit specified activities.
The changes in these provisions are summarized as follows:
Termination Exit Total
benefits costs liabilities
----------- -------- -----------
Balance at January 1, 1997.................................. 570 363 933
Utilizations and transfers.................................. (269) (187) (456)
Reductions.................................................. (45) (37) (82)
Additions................................................... 299 34 333
----- ----- -----
Balance at December 31, 1997................................ 555 173 728
Utilizations and transfers.................................. (242) (110) (352)
Reductions.................................................. (12) (19) (31)
Additions................................................... 259 31 290
----- ----- -----
Balance at December 31, 1998................................ 560 75 635
Utilizations and transfers.................................. (321) 21 (300)
Reductions.................................................. (15) (9) (24)
Additions................................................... 183 101 284
----- ----- -----
Balance at December 31, 1999................................ 407 188 595
===== ===== =====
In connection with the Group's restructuring, provisions were recorded for
termination benefits of [EURO]183 (1998: [EURO]259; 1997: [EURO]299), in 1999
principally within directly managed businesses and DaimlerChrysler Aerospace, in
1998 principally within the Automotive Business of the former Daimler-Benz Group
and DaimlerChrysler Aerospace and in 1997 principally within the Automotive
Business of the former Daimler-Benz Group. In connection with these
restructuring efforts, the Group effected workforce reductions of approximately
2,400 employees (1998: 7,100; 1997: 6,600) and paid termination benefits of
[EURO]239 (1998: [EURO]413; 1997: [EURO]503), of which [EURO]168 (1998:
[EURO]242; 1997: [EURO]269) were charged against previously established
liabilities. At December 31, 1999 the Group had liabilities for estimated future
terminations for approximately 7,400 employees.
Exit costs in 1999, 1998 and 1997 primarily result from the restructuring of
directly managed businesses.
F-39
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
23. Financial Liabilities
At December 31,
-------------------
1999 1998
-------- --------
Notes/Bonds................................................. 7,892 3,207
Commercial paper............................................ 20,879 11,015
Liabilities to financial institutions....................... 5,941 4,999
Liabilities to affiliated companies......................... 466 158
Loans, other financial liabilities.......................... 257 319
Liabilities from capital lease and residual value
guarantees................................................ 1,286 777
------ ------
Short-term financial liabilities (due within one year)...... 36,721 20,475
------ ------
Maturities
---------
Notes/Bonds ................................................ 2001-2097 21,440 14,576
of which due in more than five years: [EURO]5,781 (1998:
[EURO]2,605)
Liabilities to financial institutions ...................... 2001-2019 5,398 4,311
of which due in more than five years: [EURO]2,455 (1998:
[EURO]2,185)
Liabilities to affiliated companies ........................ 145 171
of which due in more than five years: [EURO]-- (1998:
[EURO]28)
Loans, other financial liabilities ......................... 192 64
of which due in more than five years: [EURO]53 (1998:
[EURO]36)
Liabilities from capital lease and residual value
guarantees ............................................... 592 833
of which due in more than five years: [EURO]258 (1998:
[EURO]228)
------ ------
Long-term financial liabilities............................. 27,767 19,955
------ ------
64,488 40,430
====== ======
Weighted average interest rates for notes/bonds, commercial paper and
liabilities to financial institutions are 6.9%, 5.6% and 4.7%, respectively, at
December 31, 1999.
Commercial paper is denominated in euros and U.S. dollars and includes
accrued interest. Bonds and liabilities to financial institutions are largely
secured by mortgage conveyance, liens and assignment of receivables of
approximately [EURO]1,599 (1998: [EURO]1,526).
Aggregate amounts of financial liabilities maturing during the next five
years and thereafter are as follows:
there-
2000 2001 2002 2003 2004 after
-------- -------- -------- -------- -------- --------
Financial liabilities........................... 36,721 6,617 6,996 2,750 2,857 8,547
At December 31, 1999, the Group had unused short-term credit lines of
[EURO]12,821 (1998: [EURO]7,984) and unused long-term credit lines of
[EURO]11,046 (1998: [EURO]10,903). In July 1999, DaimlerChrysler consolidated
its existing credit facilities into a $17 billion revolving credit facility with
a syndicate of international banks. The new credit agreement is divided into two
tranches. The first tranche is a multi-currency revolving credit facility which
allows DaimlerChrysler AG and several subsidiaries to borrow up to $5 billion
with a maturity of 7 years at interest rates based on LIBOR. The second tranche
is a revolving credit facility which allows DaimlerChrysler North America
F-40
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Holding Corporation, a wholly-owned subsidiary of DaimlerChrysler AG, to borrow
up to $12 billion ($6 billion with a maturity of 5 years and $6 billion with a
maturity of 1 year) at various interest rates. The $12 billion revolving credit
facility serves as a back-up for certain commercial paper drawings.
24. Trade Liabilities
At December 31, 1999 At December 31, 1998
------------------------------ ------------------------------
Due Due
Due after Due after
after five after five
Total one year years Total one year years
------ -- -- ------ -- --
Trade liabilities...................... 15,786 26 1 12,848 54 1
25. Other Liabilities
At December 31, 1999 At December 31, 1998
------------------------------ ------------------------------
Due Due
Due after Due after
after five after five
Total one year years Total one year years
------ --- -- ----- --- --
Liabilities to affiliated companies............ 411 56 56 349 -- --
Liabilities to related companies............... 1,193 3 -- 665 20 11
Other liabilities.............................. 8,682 229 9 8,235 587 2
------ --- -- ----- --- --
10,286 288 65 9,249 607 13
====== === == ===== === ==
Liabilities to related companies are primarily obligations to Airbus
Industrie G.I.E., Toulouse.
As of December 31, 1999, other liabilities include tax liabilities of
[EURO]871 (1998: [EURO]1,025) and social benefits due of [EURO]758 (1998:
[EURO]759).
26. Deferred Income
As of December 31, 1999, [EURO]907 of the total deferred income is to be
recognized after more than one year (1998: [EURO]986).
OTHER NOTES
27. Litigation and Claims
Various claims and legal proceedings have been asserted or instituted
against the Group, including some purporting to be class actions, and some which
demand large monetary damages or other relief which could result in significant
expenditures. Litigation is subject to many uncertainties, and the outcome of
individual matters is not predictable with assurance. It is reasonably possible
that the final resolution of some of these matters may require the Group to make
expenditures, in excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated. The term
"reasonably possible" is used herein to mean that the chance of a future
transaction or event occurring is more than remote but less than likely.
Although the final resolution of any such matters could have a material effect
on the Group's consolidated operating results for the particular reporting
period in which an adjustment of the estimated reserve is recorded, the Group
believes that any resulting adjustment should not materially affect its
consolidated financial position.
F-41
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
28. Commitments and Contingencies
Commitments and contingencies are presented at their contractual values and
include the following:
At December 31,
----------------------
1999 1998
----- -----
Guarantees.................................................. 3,564 2,449
Notes payable............................................... 33 103
Contractual guarantees...................................... 303 500
Pledges of indebtedness of others........................... 373 307
----- -----
4,273 3,359
===== =====
Contingent liabilities principally represent guarantees of indebtedness of
non-consolidated affiliated companies and third parties and commitments by Group
companies as to contractual performance by joint venture companies and certain
non-incorporated companies, partnerships and project groups.
DaimlerChrysler is subject to potential liability under government
regulations and various claims and legal actions which are pending or may be
asserted against DaimlerChrysler concerning environmental matters. Estimates of
future costs of such environmental matters are inevitably imprecise due to
numerous uncertainties, including the enactment of new laws and regulations, the
development and application of new technologies, the identification of new sites
for which DaimlerChrysler may have remediation responsibility and the
apportionment and collectibility of remediation costs among responsible parties.
DaimlerChrysler establishes reserves for these environmental matters when a
loss is probable and reasonably estimable. It is reasonably possible that the
final resolution of some of these matters may require DaimlerChrysler to make
expenditures, in excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated. Although the
final resolution of any such matters could have a material effect on
DaimlerChrysler's consolidated operating results for the particular reporting
period in which an adjustment of the estimated reserve is recorded,
DaimlerChrysler believes that any resulting adjustment should not materially
affect its consolidated financial position.
DaimlerChrysler periodically initiates voluntary service actions and recall
actions to address various customer satisfaction, safety and emissions issues
related to vehicles it sells. DaimlerChrysler establishes reserves for product
warranty, including the estimated cost of these service and recall actions, when
the related sale is recognized. The estimated future costs of these actions are
based primarily on prior experience. Estimates of the future costs of these
actions are inevitably imprecise due to numerous uncertainties, including the
enactment of new laws and regulations, the number of vehicles affected by a
service or recall action, and the nature of the corrective action which may
result in adjustments to the established reserves. It is reasonably possible
that the ultimate cost of these service and recall actions may require
DaimlerChrysler to make expenditures, in excess of established reserves, over an
extended period of time and in a range of amounts that cannot be reasonably
estimated. Although the ultimate cost of these service and recall actions could
have a material effect on DaimlerChrysler's consolidated operating results for
the particular reporting period in which an adjustment of the estimated reserve
is recorded, DaimlerChrysler believes that any such adjustment should not
materially affect its consolidated financial position.
In connection with the development of aircraft, DaimlerChrysler Aerospace
Airbus GmbH ("DA") is committed to Airbus Industrie to incur future development
costs. At December 31, 1999, the remaining commitment not recorded in the
financial statements aggregated approximately [EURO]342.
F-42
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Airbus Industrie G.I.E. ("Airbus consortium") has given a performance
guarantee to Agence Executive, the French government agency overseeing Airbus.
This performance guarantee has been assumed by DA to the extent of its 37.9%
participation in the Airbus consortium.
At December 31, 1999, in connection with DA's participation in the Airbus
consortium, DA was contingently liable related to the Airbus consortium's
irrevocable financing commitments in respect of aircraft on order, including
options, for delivery in the future. In addition, DA was also contingently
liable related to credit guarantees and participations in financing receivables
of the Airbus consortium under certain customer finance programs. When entering
into such customer financing commitments, the Airbus consortium has generally
established a secured position in the aircraft being financed. The Airbus
consortium and DA believe that the estimated fair value of the aircraft securing
such commitments would substantially offset any potential losses from the
commitments. Based on experience, the probability of material losses from such
customer financing commitments is considered remote.
DA's obligations under the foregoing financing commitments of the Airbus
consortium are joint and several with its other partners in the consortium. In
the event that Airbus, despite the underlying collateral, should be unable to
honor its obligations, each consortium partner would be jointly and severally
liable to third parties without limitation. Between the consortium partners, the
liability is limited to each partner's proportionate share in Airbus.
In 1989, the Group acquired Messerschmitt-Boelkow-Blohm GmbH ("MBB"), which
included DaimlerChrysler Aerospace Airbus GmbH (then known as Deutsche Airbus
GmbH) which was and continues to be the German participant in Airbus Industrie.
In connection with this acquisition, the Government of the Federal Republic of
Germany undertook responsibility for certain financial obligations of MBB and
DaimlerChrysler Aerospace Airbus GmbH and agreed to provide certain ongoing
limited financial assistance for development programs and other items. Such
undertakings, advances and assistance were to be repaid by DaimlerChrysler
Aerospace Airbus GmbH on a contingent basis equal to 40% of the prior year's
pretax profit, as defined in the agreement with the Government, beginning in
2001, and royalty payments based on sales of aircraft.
During 1998 and 1997, DaimlerChrysler Aerospace Airbus GmbH settled these
contingent obligations with the Federal Republic of Germany for payments of
[EURO]895 and [EURO]716, respectively. The 1998 settlement, which resulted in
the complete discharge of all remaining obligations to the German Federal
Government, related to the Airbus A300/310 and A330/340 series aircraft as well
as to financial assistance not related to development, while the 1997 settlement
related primarily to the A320 aircraft and its derivatives. Of the foregoing
settlement payments, [EURO]229 and [EURO]369 were expensed in 1998 and 1997,
respectively. The remainder of the settlement payments were capitalized and are
being amortized over those aircraft to be delivered in the future to which the
settlements related.
In connection with certain production programs the Group has committed to
certain levels of outsourced manufactured parts and components over extended
periods at market prices. The Group may be required to compensate suppliers in
the event the committed volumes are not purchased.
F-43
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Total rentals under operating leases, charged as an expense in the statement
of income, amounted to [EURO]964 (1998: [EURO]984; 1997: [EURO]910). Future
minimum lease payments under rental and lease agreements which have initial or
remaining terms in excess of one year at December 31, 1999 are as follows:
Operating leases
----------------
2000.................................................. 676
2001.................................................. 452
2002.................................................. 341
2003.................................................. 252
2004.................................................. 217
thereafter............................................ 904
29. Information About Financial Instruments
A) USE OF FINANCIAL INSTRUMENTS
In the course of day-to-day financial management, DaimlerChrysler purchases
financial instruments, such as financial investments, variable- and
fixed-interest bearing securities, equity securities, forward exchange contracts
and currency options. The Group also issues financial instruments such as
eurobonds, commercial paper and medium-term-notes. As a consequence of
purchasing and issuing these types of financial instruments, the Group may be
exposed to risks from changes in interest and currency exchange rates as well as
share prices. Additionally, the Group conducts business on a global basis in
numerous major international currencies and is, therefore, exposed to adverse
movements in foreign currency exchange rates. DaimlerChrysler uses derivative
financial instruments to reduce such risks. Without the use of these instruments
the Group's market risks would be higher.
Based on regulations issued by regulatory authorities for financial
institutions, the Group has established guidelines for risk assessment
procedures and controls for the use of financial instruments, including a clear
segregation of duties with regard to operating financial activities and
settlement, accounting and controlling.
Market risk in portfolio management is quantified according to the
"value-at-risk" method which is commonly used among banks. Using historical
variability of market values, potential changes in value resulting from changes
of market prices are calculated on the basis of statistical methods. The maximum
acceptable market risk is established by senior management in the form of risk
capital, approved for a period not exceeding one year. Adherence to risk capital
limitations is regularly monitored.
B) NOTIONAL AMOUNTS AND CREDIT RISK
The contract or notional amounts shown below do not always represent amounts
exchanged by the parties and, thus, are not necessarily a measure for the
exposure of DaimlerChrysler through its use of derivatives.
The notional amounts of off-balance sheet financial instruments are as
follows:
At December 31,
-------------------
1999 1998
-------- --------
Currency contracts......................................... 28,974 28,204
Interest rate contracts.................................... 25,911 26,162
F-44
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Currency contracts include foreign exchange forward and option contracts
which are mainly utilized to hedge existing receivables and liabilities, firm
commitments and anticipated transactions denominated in foreign currencies
(principally U.S. dollars, Japanese Yen and major non-euro currencies in
Europe). The objective of the Group's hedging transactions is to reduce the
market risk of its foreign denominated future cash flows to exchange rate
fluctuations. The Group has entered into currency contracts for periods of one
to five years.
The Group enters into interest rate and interest rate cross-currency swaps,
interest rate forward and futures contracts and interest rate options in order
to safeguard financial investments against fluctuating interest rates as well as
to reduce funding costs, to diversify sources of funding, or to alter interest
rate exposures arising from mismatches between assets and liabilities.
The Group may be exposed to credit-related losses in the event of
non-performance by counterparties to financial instruments. Counterparties to
the Group's financial instruments represent, in general, international financial
institutions. DaimlerChrysler does not have a significant exposure to any
individual counterparty, based on the rating of the counterparties performed by
established rating agencies. The Group believes the overall credit risk related
to utilized derivatives is insignificant.
C) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the price at which one party
would assume the rights and/or duties of another party. Fair values of financial
instruments have been determined with reference to available market information
at the balance sheet date and the valuation methodologies discussed below.
Considering the variability of their value-determining factors, the fair values
presented herein may not be indicative of the amounts that the Group could
realize in a current market exchange.
The carrying amounts and fair values of the Group's financial instruments
are as follows:
At December 31, 1999 At December 31, 1998
----------------------- -----------------------
Carrying Fair Carrying Fair
amount value amount value
-------- -------- -------- --------
Financial instruments (other than derivative
instruments):
Assets:
Financial assets................................. 1,360 1,360 912 912
Receivables from financial services.............. 38,735 38,835 26,468 26,460
Securities....................................... 8,969 8,969 12,160 12,160
Cash and cash equivalents........................ 9,099 9,099 6,589 6,589
Other............................................ 133 133 261 261
Liabilities:
Financial liabilities............................ 64,488 64,954 40,430 40,459
Derivative instruments:
Assets:
Currency contracts............................... 57 74 338 744
Interest rate contracts.......................... 34 348 97 309
Liabilities:
Currency contracts............................... 944 2,109 268 349
Interest rate contracts.......................... 61 590 19 303
In determining the fair values of derivative financial instruments, certain
compensating effects from underlying transactions (e.g. firm commitments and
anticipated transactions) are not taken into consideration. At
F-45
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
December 31, 1999 and 1998, the Group had deferred net unrealized gains (losses)
on forward currency exchange contracts and options of [EURO](1,148) and
[EURO]325, respectively, purchased against firm foreign currency denominated
sales commitments extending for a period of three years.
The carrying amounts of cash, other receivables and accounts payable
approximate fair values due to the short-term maturities of these instruments.
The methods and assumptions used to determine the fair values of other
financial instruments are summarized below:
FINANCIAL ASSETS AND SECURITIES -- The fair values of securities in the
portfolio were estimated using quoted market prices. The Group has certain
equity investments in related and affiliated companies not presented in the
table, as certain of these investments are not publicly traded and determination
of fair values is impracticable.
RECEIVABLES FROM FINANCIAL SERVICES -- The carrying amounts of variable rate
finance receivables were estimated to approximate fair value since they are
priced at current market rates. The fair values of fixed rate finance
receivables were estimated by discounting expected cash flows using the current
rates at which comparable loans of similar maturity would be made as of
December 31, 1999 and 1998.
The fair values of residual cash flows and other subordinated amounts
arising from receivable sale transactions were estimated by discounting expected
cash flows at current market rates.
FINANCIAL LIABILITIES -- The fair value of publicly traded debt was
estimated using quoted market prices. The fair values of other long-term notes
and bonds were estimated by discounting future cash flows using rates currently
available for debt of similar terms and remaining maturities. The carrying
amounts of commercial paper and borrowings under revolving credit facilities
were assumed to approximate fair value due to their short maturities.
INTEREST RATE CONTRACTS -- The fair values of existing instruments to hedge
interest rate risks (e.g. interest rate swap agreements) were estimated by
discounting expected cash flows using market interest rates over the remaining
term of the instrument. Interest rate options are valued on the basis of quoted
market prices or on estimates based on option pricing models.
CURRENCY CONTRACTS -- The fair values of forward foreign exchange contracts
were based on EZB reference exchange rates that consider forward premiums or
discounts. Currency options were valued on the basis of quoted market prices or
on estimates based on option pricing models.
D) ACCOUNTING FOR AND REPORTING OF FINANCIAL INSTRUMENTS
The income or expense of the Group's financial instruments (other than
derivative instruments), with the exception of receivables from financial
services and financial liabilities related to leasing and sales financing
activities, are recognized in financial income, net. Interest income on
receivables from financial services and gains and losses from sales of
receivables are recognized as revenues. Interest expense on financial
liabilities related to leasing and sales financing activities are recognized as
cost of sales. The carrying amounts of the financial instruments (other than
derivative instruments) are included in the consolidated balance sheets under
their related captions.
Financial instruments, including derivatives, purchased to offset the
Group's exposure to identifiable and committed transactions with price, interest
or currency risks are accounted for together with the underlying business
transactions ("hedge accounting"). Gains and losses on forward contracts and
options hedging firm
F-46
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
foreign currency commitments are deferred off-balance sheet and are recognized
as a component of the related transactions, when recorded (the "deferral
method"). However, a loss is not deferred if deferral would lead to the
recognition of a loss in future periods.
In the event of an early termination of a currency exchange agreement
designated as a hedge, the gain or loss continues to be deferred and is included
in the settlement of the underlying transaction.
Interest differentials paid or received under interest rate swaps purchased
to hedge interest risks on debt are recorded as adjustments to the effective
yields of the underlying debt ("accrual method").
In the event of an early termination of an interest rate related derivative
designated as a hedge, the gain or loss is deferred and recorded as an
adjustment to interest income, net over the remaining term of the underlying
financial instrument.
All other financial instruments, including derivatives, purchased to offset
the Group's net exposure to price, interest or currency risks, but which are not
designated as hedges of specific assets, liabilities or firm commitments are
marked to market and any resulting unrealized gains and losses are recognized
currently in financial income, net. The carrying amounts of derivative
instruments are included under other assets and accrued liabilities.
Derivatives purchased by the Group under macro-hedging techniques, as well
as those purchased to offset the Group's exposure to anticipated cash flows, do
not generally meet the requirements for applying hedge accounting and are,
accordingly marked to market at each reporting period with unrealized gains and
losses recognized in financial income, net. At such time that the Group meets
the requirements for hedge accounting and designates the derivative financial
instrument as a hedge of a committed transaction, subsequent unrealized gains
and losses would be deferred and recognized along with the effects of the
underlying transaction.
30. Segment Reporting
During the first quarter of 1999, DaimlerChrysler combined the activities of
the Chrysler Financial Services segment and the Services segment into a new
segment entitled Services. Prior periods have been reclassified to conform with
the 1999 presentation. Information with respect to the Group's industry segments
follows:
MERCEDES-BENZ PASSENGER CARS & SMART. This segment includes activities
related mainly to the development, manufacture and sale of passenger cars and
off-road vehicles under the brand names Mercedes-Benz and smart as well as
related parts and accessories.
CHRYSLER GROUP. This segment includes the research, design, manufacture,
assembly and sale of cars and trucks under the brand names Chrysler, Plymouth,
Jeep-Registered Trademark- and Dodge and related automotive parts and
accessories.
COMMERCIAL VEHICLES. This segment is involved in the development,
manufacture and sale of vans, trucks, buses and Unimogs as well as related parts
and accessories. The products are sold mainly under the brand names
Mercedes-Benz and Freightliner.
SERVICES. The activities in this segment extend to the marketing of
services related to information technology, financial services (principally
retail and lease financing for vehicles and dealer financing), insurance
brokerage, trading as well as telecommunications and media (in 1998 and 1997).
F-47
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
AEROSPACE. This division comprises the development, manufacture and sale of
commercial and military aircraft and helicopters, satellites and related space
transportation systems, defense-related products, including radar and radio
systems, and propulsion systems.
OTHER. Represents principally the Directly Managed Businesses including
rail systems (including 50% interest in Adtranz in 1998 and 1997), automotive
electronics (including microelectronics in 1997) and diesel engines. Other also
contains corporate research, real estate activities and holding and financing
companies.
The Group's management reporting and controlling systems are substantially
the same as those described in the summary of significant accounting policies
(U.S. GAAP). The Group measures the performance of its operating segments
through "Operating Profit." Segment Operating Profit is defined as income before
financial income and income taxes included in the consolidated statement of
income, modified to exclude certain pension and postretirement benefit costs, to
include certain financial income, net and to include or exclude certain
miscellaneous items, principally representing merger costs in 1998.
Additionally, in 1999 the pre-tax gains on the sales of shares in debitel of
[EURO]1,140 (see Note 9) have been included in the measurement of the Services
segment operating profit since such amounts were included in the Group's
measurement of the segment's performance.
Sales and revenues related to transactions between segments are generally
recorded at values that approximate third-party selling prices.
Revenues are allocated to countries based on the location of the customer;
long-term assets, according to the location of the respective units.
Capital expenditures represent the purchase of property, plant and
equipment.
F-48
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Mercedes-
Benz
Passenger
Cars Chrysler Commercial Aero- Elimi- Consoli-
& smart Group Vehicles Services space Other nations dated
--------- -------- ----------- -------- -------- -------- -------- --------
1999
Revenues.............................. 35,592 63,666 25,480 10,662 9,144 5,441 -- 149,985
Intersegment sales.................... 2,508 419 1,215 2,270 47 411 (6,870) --
------ ------ ------ ------ ------ ------ ------- -------
Total revenues........................ 38,100 64,085 26,695 12,932 9,191 5,852 (6,870) 149,985
Operating Profit (Loss)............... 2,703 5,051 1,067 2,039 730 (399) (179) 11,012
Identifiable segment assets........... 17,611 49,825 11,549 77,266 11,934 65,368 (58,886) 174,667
Capital expenditures.................. 2,228 5,224 770 324 336 589 (1) 9,470
Depreciation and amortization......... 1,580 3,346 677 3,348 290 275 (187) 9,329
1998
Revenues.............................. 30,859 56,350 22,374 10,371 8,722 3,106 -- 131,782
Intersegment sales.................... 1,728 62 788 1,039 48 420 (4,085) --
------ ------ ------ ------ ------ ------ ------- -------
Total revenues........................ 32,587 56,412 23,162 11,410 8,770 3,526 (4,085) 131,782
Operating Profit (Loss)............... 1,993 4,255 946 985 623 (130) (79) 8,593
Identifiable segment assets........... 17,098 38,121 11,936 49,625 12,970 33,653 (27,254) 136,149
Capital expenditures.................. 1,995 3,920 832 285 326 797 -- 8,155
Depreciation and amortization......... 1,310 2,837 692 2,038 289 293 (168) 7,291
1997
Revenues.............................. 25,874 52,023 19,481 8,679 7,751 3,764 -- 117,572
Intersegment sales.................... 1,680 3 531 725 65 257 (3,261) --
------ ------ ------ ------ ------ ------ ------- -------
Total revenues........................ 27,554 52,026 20,012 9,404 7,816 4,021 (3,261) 117,572
Operating Profit (Loss)............... 1,716 3,412 342 777 284 (214) (87) 6,230
Identifiable segment assets........... 15,003 38,976 11,000 41,921 11,174 23,926 (17,169) 124,831
Capital expenditures.................. 1,885 4,501 601 193 255 635 (19) 8,051
Depreciation and amortization......... 1,160 2,288 687 1,627 306 324 (170) 6,222
Capital expenditures for equipment on operating leases for 1999, 1998 and
1997 for the Services segment amounted to [EURO]16,144, [EURO]7,188 and
[EURO]4,861, respectively.
F-49
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
1999 1998 1997
-------- -------- --------
Income before financial income, income taxes and
extraordinary items....................................... 9,324 7,330 5,512
Not allocated:
certain pension and postretirement benefit costs........ 379 688 721
miscellaneous (1998: principally merger costs).......... 150 746 35
Allocated:
certain financial income, net........................... 19 (171) (38)
extraordinary item--gains on disposals of a business
(before income taxes; see Note 9)..................... 1,140 -- --
------ ----- -----
Consolidated operating profit............................... 11,012 8,593 6,230
====== ===== =====
Other
European American Other Consoli-
Revenues Germany Union(1) U.S. countries Asia countries dated
- -------- -------- -------- -------- --------- -------- --------- --------
1999.................... 28,393 21,567 78,104 11,727 4,796 5,398 149,985
1998.................... 24,918 20,072 65,300 11,519 4,311 5,662 131,782
1997.................... 21,317 17,132 56,615 10,576 5,587 6,345 117,572
- ------------------------
(1) Excluding Germany.
Germany accounts for [EURO]14,711 of long-term assets (1998: [EURO]12,953;
1997: [EURO]12,040), the U.S. for [EURO]43,036 (1998: [EURO]25,344; 1997:
[EURO]22,632) and other countries for [EURO]12,701 (1998: [EURO]11,309; 1997:
[EURO]9,797).
F-50
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
31. Earnings per Share
The computation of basic and diluted earnings per share for "Income before
extraordinary items" is as follows (in millions of euros or millions of shares,
except earnings per share):
Year ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
Income before extraordinary items.................. 5,106 4,949 6,547
Less: preferred stock dividends.................... -- -- (1)
------- ----- -----
Income before extraordinary items--basic............. 5,106 4,949 6,546
======= ===== =====
Income before extraordinary items.................. 5,106 4,949 6,547
Interest expense on convertible bonds and notes
(net of tax)...................................... 18 20 19
------- ----- -----
Income before extraordinary items--diluted........... 5,124 4,969 6,566
======= ===== =====
Weighted average number of shares
outstanding--basic................................. 1,002.9 959.3 949.3
======= ===== =====
Dilutive effect of convertible bonds and notes..... 10.7 19.8 12.8
Shares issued on exercise of dilutive options...... -- 18.3 17.7
Shares purchased with proceeds of options.......... -- (11.8) (13.5)
Shares applicable to convertible preferred stock... -- 0.2 0.8
Shares contingently issuable....................... -- 1.3 1.1
------- ----- -----
Weighted average number of shares
outstanding--diluted............................... 1,013.6 987.1 968.2
======= ===== =====
Earnings per share before extraordinary items
Basic.............................................. 5.09 5.16 6.90
======= ===== =====
Diluted............................................ 5.06 5.04 6.78
======= ===== =====
An income tax charge of [EURO]812 relating to changes in German tax laws was
included in the consolidated statement of income for the year ended
December 31, 1999 and resulted in a reduction of basic and diluted earnings per
share of [EURO]0.81 and [EURO]0.80, respectively (see Note 8). In 1998, merger
costs of [EURO]401 (net of tax) impacted basic and diluted earnings per share by
a decrease of [EURO]0.42 and [EURO]0.41. In 1997, tax benefits relating to a
special distribution and to a decrease in the deferred tax asset valuation
allowance of [EURO]2,490 resulted in an increase of basic and diluted earnings
per share by [EURO]2.62 and [EURO]2.57, respectively.
In 1997, convertible bonds issued in connection with the 1997 Stock Option
Plan were not included in the computation of diluted earnings per share because
the options' underlying target stock price was greater than the market price for
DaimlerChrysler Ordinary Shares on December 31, 1997. For the same reason,
convertible bonds issued in connection with the 1998 Stock Option Plan were not
included in the computation at December 31, 1998.
Unexercised employee stock options to purchase 0.2 million shares of
DaimlerChrysler Ordinary Shares as of December 31, 1997 were not included in the
computations of diluted earnings per share because the options' exercise prices
were greater than the average market price of DaimlerChrysler Ordinary Shares
during the period.
F-51
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
32. Summarized Financial Information
Summarized financial information for DaimlerChrysler North America Holding
Corporation (formerly Daimler-Benz North America Corporation), DaimlerChrysler
Corporation and Chrysler Financial Company, L.L.C. and their respective
consolidated subsidiaries are set forth below (in millions of U.S. $):
1999 1998
-------- --------
DaimlerChrysler North America Holding Corporation
and consolidated subsidiaries(1)
Cash, cash equivalents and marketable securities.......... 9,624 8,592
Receivables from financial services....................... 26,515 21,463
Property and equipment, net............................... 24,737 22,347
Equipment on operating leases, net........................ 22,898 13,176
Other assets.............................................. 25,146 22,722
------- -------
Total assets.............................................. 108,920 88,300
======= =======
Current liabilities....................................... 54,137 41,364
Non-current liabilities................................... 35,099 30,212
Stockholder's equity...................................... 19,684 16,724
------- -------
Stockholder's equity and liabilities...................... 108,920 88,300
======= =======
1999 1998 1997
-------- -------- --------
Revenues:
Net sales of products..................................... 89,292 78,405 69,581
Finance and other revenues................................ 7,468 6,321 6,168
Total expenses............................................ 92,278 80,845 72,639
Income before extraordinary item.......................... 4,482 3,881 3,110
Net income................................................ 4,462 3,738 3,110
- ------------------------
(1) Effective December 31, 1999, DaimlerChrysler AG contributed its shares of
DaimlerChrysler Corporation to DaimlerChrysler North America Holding
Corporation. Accordingly, 1998 and 1997 amounts have been restated to
include the accounts of DaimlerChrysler Corporation and consolidated
subsidiaries.
F-52
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
1999 1998
-------- --------
DaimlerChrysler Corporation and consolidated subsidiaries(1)
Cash, cash equivalents and marketable securities.......... 8,671 8,049
Receivables from financial services....................... 15,042 14,191
Property and equipment, net............................... 23,131 20,799
Other assets.............................................. 35,499 25,984
------- -------
Total assets.............................................. 82,343 69,023
======= =======
Current liabilities....................................... 35,985 30,989
Non-current liabilities................................... 30,735 24,879
Stockholder's equity...................................... 15,623 13,155
------- -------
Stockholder's equity and liabilities...................... 82,343 69,023
======= =======
1999 1998 1997
-------- -------- --------
Revenues:
Sales of manufactured products............................ 67,176 61,721 56,986
Finance and insurance revenues............................ 4,114 2,062 1,636
Other revenues............................................ 1,060 1,796 2,451
Total expenses............................................ 68,425 62,348 58,268
Income before extraordinary item.......................... 3,925 3,231 2,805
Net income................................................ 3,905 3,088 2,805
- ------------------------------
(1) Including Chrysler Financial Company, L.L.C. and consolidated subsidiaries.
1999 1998
-------- --------
Chrysler Financial Company, L.L.C. and consolidated
subsidiaries
Finance receivables and retained interests, net........... 18,713 17,307
Vehicles leased, net...................................... 11,850 4,133
Loans and other amounts due from affiliates............... 1,852 1,930
Other assets.............................................. 1,709 1,940
------- -------
Total assets.............................................. 34,124 25,310
======= =======
Current liabilities....................................... 14,178 9,946
Non-current liabilities................................... 16,622 12,028
Shareholder's investment.................................. 3,324 3,336
------- -------
Shareholder's investment and liabilities.................. 34,124 25,310
======= =======
1999 1998 1997
-------- -------- --------
Net margin and other revenues............................. 1,401 1,705 1,669
Total costs and expenses.................................. 922 1,012 1,032
Net earnings.............................................. 374 457 419
F-53
DAIMLERCHRYSLER AG
Notes to Consolidated Financial Statements -- (Continued)
(in millions of [EURO], except per share amounts)
Separate full consolidated financial statements of DaimlerChrysler North
America Holding Corporation, DaimlerChrysler Corporation and Chrysler Financial
Company, L.L.C. and their respective consolidated subsidiaries are not presented
as management has determined that such information is not material to holders of
the outstanding debt securities. Certain prior year amounts for DaimlerChrysler
Corporation and Chrysler Financial Company, L.L.C. have been reclassified to
conform to the current year presentation.
33. Formation of EADS
In October 1999, DaimlerChrysler, the French Lagardere Group and the French
government agreed to merge their respective aerospace and defense activities
into a new company. In December 1999, Sociedad Estatal de Participaciones
Industriales (SEPI) agreed to join the Franco-German alliance. The new
corporation, to be called European Aeronautic, Defense and Space Company (EADS),
will be established through a merger of Aerospatiale Matra S.A., DaimlerChrysler
Aerospace AG and Construcciones Aeronauticas S.A. (CASA). The transaction is
expected to be completed in the first half of 2000. Consummation of the merger
is subject to various conditions, including among others, approval of certain
governmental authorities.
F-54
DAIMLERCHRYSLER AG
Allowance for Doubtful Accounts
(in millions of [EURO])
Balance at Charged to Balance
beginning costs and Amounts at end
of 1999 expenses written off of 1999
---------- ---------- ----------- --------
Receivables from financial services................... 364 510 (275) 599
Trade receivables..................................... 857 49 (108) 798
Other receivables..................................... 1,249 125 (247) 1,127
----- --- ---- -----
2,470 684 (630) 2,524
===== === ==== =====
Balance at Charged to Balance
beginning costs and Amounts at end
of 1998 expenses written off of 1998
---------- ---------- ----------- --------
Receivables from financial services................... 401 452 (489) 364
Trade receivables..................................... 819 89 (51) 857
Other receivables..................................... 1,206 104 (61) 1,249
----- --- ---- -----
2,426 645 (601) 2,470
===== === ==== =====
Balance at Charged to Balance
beginning costs and Amounts at end
of 1997 expenses written off of 1997
---------- ---------- ----------- --------
Receivables from financial services................... 346 562 (507) 401
Trade receivables..................................... 743 121 (45) 819
Other receivables..................................... 1,348 73 (215) 1,206
----- --- ---- -----
2,437 756 (767) 2,426
===== === ==== =====
S-1
This report has
been printed on
environment-friendly
paper bleached without
the use of chlorine.