Daimler-Benz has a history that dates back more than one hundred years, a tradition marked by extraordinary earning power and social responsibility. We have paved the way for continuing that tradition. It has entailed a vigorous campaign with repercussions affecting our employees and shareholders alike. The road to our former earning power brings with it the loss of jobs and considerable costs for the company. But it is simultaneously the road to social responsibility, because only a healthy company will be able to act responsibly for its employees and for society over the long term. By focusing Daimler-Benz on profitable core businesses, we have chosen the road into a successful future. Letter to the Stockholders and Friends of our Company

decisions were necessary to quickly On January 17, 1996, we decided bring Daimler-Benz back to an inter­ to restructure AEG, which will lead to nationally acceptable level of a merger of AEG Aktiengesellschaft profitability. with Daimler-Benz AG before the end of The primary aim of the Board of 1996. Finally, on January 22, we ended Management is to offer you, the share­ our financial support of Fokker. This holders in Daimler-Benz AG, attractive happened after the other major stock­ prospects for return on investment. holder, the Dutch government, was We continue to hold to the principle of unwilling to make an adequate contribut­ being open with you, even with sensitive ion to the rescue operation after seven decisions, and to provide information as months of negotiations. In view of our quickly as possible, offering you a trans­ 40% share in Fokker it was no longer parent view with which to judge our acceptable, in the interest of our stock­ course of action. holders, to continue shouldering the This includes the fact that we had to entire risk alone. On March 15 of this revise our anticipated profits to losses year Fokker filed for bankruptcy. at the end of June 1995, once it had We also decided to restructure our become clear, contrary to our expec­ business involvement in the French 1995 was a dramatic year in the tations at the time, that the devaluation software company Cap Gemini Sogeti. history of Daimler-Benz - a history that of the dollar, which affects our aviation We will now have more influence in goes back more than 100 years. We, business in particular, is not just a short- working together with debis Systemhaus the Board of Management that has been term change. The tremendous realign­ to bring about an internationalization of running the company since May 1995, ments between the European currencies the information technology business. decided to make a break. We made some also negatively impacted our profits in We have thus reached decisions decisions that will bring Daimler-Benz 1995. For us, as a company with inter­ on all of the topics which we presented back to the high profitability on which national activities, this is crystal clear as urgent in September. In the 1995 our company's outstanding reputation evidence of the need for a European financial statements, these streamlining is founded. currency union, even if only a few measures appear as extraordinary Our primary objective was to cut countries currently fulfill the pre­ charges and special influences amount­ losses. The Board of Management requisites for such an arrangement. ing to DM 5.1 billion. Some of these therefore analyzed the group portfolio At our release of our half-year results measures take the form of structural using strict criteria of profitability, and in New York, in September 1995, we expenditures and also cut into the took consistent steps to tighten up announced that the Board of Manage­ profits from business activities. At the structures wherever there was an urgent ment would introduce fundamental same time, the additional reserves set need. We also cut divested business solutions as quickly as possible for aside to cover impending losses in the areas in which further investment no two large unprofitable companies: AEG aircraft business are not included in longer made good economic sense. Daimler-Benz Industrie and the aircraft this figure. The Board of Management As a result of these decisions, your division - especially the Dutch aircraft is convinced that the groundwork has company, Daimler-Benz, now has a more manufacturer Fokker. In October we now been laid to put the group back concentrated group profile organized informed you of negotiations aimed at on a successful course as quickly around 28 fields instead of 35. This settling the problems of AEG Daimler- as possible. process is still in progress. These Benz Industrie. In mid-November we actions also called into question and, announced the final decision on the to a certain extent, reversed a number DASA competition initiative. Once this is of policy decisions from earlier periods. implemented, all DASA divisions will be Important changes in external factors profitable, even with the dollar as low forced us to take these actions. The as 1.35 marks over the long term.

Letter to the Stockholders and Friends of our Company Due to the above factors, the The basis of our success is the Given this background, if we decide annual shortfall of DM 5.7 billion in the dedication of our employees to our in favor of foreign sites, for reasons of consolidated financial statements does ambitious goals. Their potential for currency or the market, this is not a not reflect the progress that the group advancement certainly does not go rejection of Germany as a business divisions were able to achieve in the unnoticed. In fact, advancement is location. Instead, we thereby secure past year through numerous new and guaranteed by the new and more jobs by supplying high-value compo­ successful products and services, efficient structures in the group nents to those production sites abroad. additional streamlining, and especially headquarters that were implemented We, the Board of Management of through increasing internationalization, in June 1995. Responsibility will be Daimler-Benz, will face up to this which will expand net productivity into transferred even more clearly than responsibility. This is evident in the future-oriented markets. Mercedes-Benz before to those employees close to results of negotiations between manage­ has set new standards in these areas. operations. Only such flat hierarchies, ment and employees in 1995 and again Despite operational improvements organized into decentralized, flexible in recent weeks, in which operating - results of operational activities were units, set free the entrepreneurial agreements, some of the many neces­ in the black again in the second half of initiative in which a corporate culture sary work alliances, were reached to the year - and the company's continu­ can develop. That also includes the confirm and secure German operations. ing high asset value, the Supervisory introduction of performance-based We will also display the necessary Board and the Board of Management compensation and new dimensions of pioneering spirit and the resolve have recommended that no dividend control, which measure the company's to follow new paths in 1996. be paid for 1995. results directly against the reference The course we have set will return A decisive measure of our manage­ figures produced according to U.S. the company back to the profit column ment, however, is the market price of standards. These reforms are being during this year. However, it is our desire our stock. Our goal is not to maximize pushed forward in all parts of the group. to satisfy both your justifiable expectat­ short-term profits, but to ensure high For many employees this is a ions and our ambitious goals. For that medium-and long-term profitability. challenge, but there are also some to reason we will continue to inform you of You will therefore also see in this whom it is a painful process, especially further forceful measures in the months report that despite forceful measures, if improving efficiency means eliminating to come. At the same time, we intend our investments were significantly their jobs. But we at Daimler-Benz are to be just as deliberate in building up higher in 1995 than in previous years. not the only ones who have had to learn businesses that meet our income and We have expanded sites or opened new that clinging to received traditions profit expectations. We are convinced ones, both at home and abroad, wher­ ultimately leads to a dead end. In the that we are on the right track with this ever we anticipate positive results. We future, our social structures, our work new orientation. have kept research spending at a high and production methods, our cost base level, in order to keep our position at must stand up much more consistently the forefront of pioneering innovations to those of successful international and continuing developments in our competitors. markets. We must therefore channel our entire creativity into inventing new structures and forms of cooperation. We must do everything in our power to make Germany an attractive and internationally competitive business site. Willingness to pursue such a dynamic course must be the standard by which we measure those who hold positions of responsibility in Germany, as well as the sense of sociopolitical responsibility of its business leaders.

Letter to the Stockholders and Friends of our Company JÜRGEN E. SCHREMPP DR. JUR. MANFRED GENTZ HELMUT WERNER born 1944 in Freiburg, born 1942 in Riga, born 1936 in Cologne, Member of the Board of Management Member of the Board of Management Member of the Board of Management since 1987, since 1983, since 1987, until 1988 responsible for the until 1990 responsible for Personnel, until 1992 responsible for the Commercial Vehicle Division, until 1995 responsible for Commercial Vehicle Division, until 1995 responsible for Daimler-Benz InterServices (debis), since 1992 responsible for Daimler-Benz Aerospace, since 1995 responsible for Finance Mercedes-Benz, since 1995 Chairman, and Human Resources, under contract until 1997. under contract until 2000. under contract until 2000. PROF. DR.-ING. HARTMUT WEULE DR. RER. POL. MANFRED BISCHOFF DR. JUR. KLAUS MANGOLD born 1940 in Bitterfeld, born 1942 in Calw, born 1943 in Pforzheim, Member of the Board of Management Member of the Board of Management Member of the Board of Management since 1990, since 1995, since 1995, responsible for Research responsible for responsible for and Technology, Daimler-Benz Aerospace, Daimler-Benz InterServices (debis), under contract until 1996. under contract until 2000. under contract until 2000.

ERNST G. STÖCKL Retired from the Board of Management born 1944 in Sulzburg, on May 24, 1995: Member of the Board of Management Edzard Reuter, Chairman since 1991, Dr. jur. Hans-Wolfgang Hirschbrunn responsible for Dr. rer. pol. Gerhard Liener AEG Daimler-Benz Industrie, under contract until 1996.

Daimler-Benz Highlights Daimler-Benz Highlights 7 Report of the Board of Management

Business Review

Consolidated revenues at Daimler-Benz reached DM 103.5 billion in 1995. Mercedes-Benz Passenger Cars: The 1% increase over the previous year was largely attributable to the Model Change in the E-Class favorable business development at Mercedes-Benz. In the interest of Because the recovery of the world permanently improving the earning power of the company, we reviewed economy was gradual at best, demand and restructured all of our activities in the second half of the year. At AEG for passenger cars failed to reach Daimler-Benz Industrie and at DASA in particular, we introduced rigorous expectations in many markets in 1995. measures to eliminate the sources of loss that in recent years have had For instance, the number of new cars a negative effect on the company's income position. The DM 5.7 billion sold in Western Europe was only slightly consolidated loss is predominantly the result of non-recurring expenses above the low level of the previous year. related to streamlining the group portfolio. In view of our latest decisions, The positive trend experienced in the these expenses had to be taken into account in the 1995 financial USA in 1994 came to an end, while the statements. Japanese market managed to recuperate somewhat from the year before. At Mercedes-Benz, the passenger Economic Growth The growth of the U.S. economy car business was focused on the model Flattens Worldwide also flattened noticeably during the year change in the E-Class 1995. Nonethe­ While the upswing of the world under review, above all as a result of less, revenues almost reached the economy continued in 1995, there less dynamic investment activity. record level of the previous year, at were definite signs of weakening in The economy in Japan was again 583,400 units (1994: 592,400). the second half of the year. burdened by the strong yen, the bank At more than DM 40.4 billion In Western Europe, a variety of crisis and uncertainties in the political (1994: DM 42.1 billion), revenues in the factors played a role in the economic arena. The tentative recovery induced Passenger Car Division were 4% lower slowdown. Aside from the conservative with public programs began to falter than in 1994, primarily as a result of monetary policy of the central banks, again toward the end of the year. currency factors. In the USA, the weak various governments practiced restrict­ The newly industrializing countries dollar meant that we recorded a definite ive fiscal politics to fulfill the criteria for in the Asian region supplied significant drop in revenues despite significantly membership in the European Currency stimuli for the world economy, while the higher unit sales. Conversely, we Union. Both investment activity and economic development in Latin America achieved marked growth in revenues private consumption lost steam in was affected by the crisis of the and unit sales in the Republic of South most Western European countries. Mexican currency. Africa, in various Southeast Asian The strong German mark and above- countries, in Scandinavia and in average collectively bargained wages Consolidated Revenues Up by 1% several other European markets. and salaries had a lasting impact on Consolidated revenues at Daimler- Thanks to the high demand for the international competitiveness of Benz reached DM 103.5 billion in 1995. our passenger cars and the successful the German industry and thus on the This represents a 1 % increase over the introduction of the new E-Class, we prospects of exporting from there. As previous year's total when adjusted increased production to 594,900 cars a direct consequence, companies were to reflect changes in the consolidated in 1995(1994: 590,100). less inclined to invest in Germany, and group. At DM 62.6 billion, revenues in private consumption did not provide the the European Union were 3% higher than Mercedes-Benz Commercial necessary impetus either in an economy in 1994, with growth especially vigorous Vehicles: Revenues at a Record High that traditionally depends on exports. outside of Germany, rising to 8%. In On the whole, the development of Germany, our business volume climbed the international commercial vehicle by 3% to DM 38.1 billion, while our U.S. markets was positive in 1995. Merce­ revenues, once converted into German des-Benz sold 320,100 commercial marks, fell by 3% to DM 18.3 billion as a vehicles worldwide (1994: 290,400), result of the unfavorable development surpassing the record level of 1991 of the dollar. by more than 27,000 vehicles. Our Excluding intragroup deliveries, activities in Germany and at our pro­ Mercedes-Benz contributed 66%, AEG duction companies outside of Europe Daimler-Benz Industrie 10%, Daimler- both contributed to this success. Benz Aerospace 14% and debis 10%

Note: to total revenues at Daimler-Benz. The Business Review is the combined audited Business Review of Daimler-Benz AG and the Daimler-Benz group.

Business Review Revenues of the Commercial Vehicle DASA: Weak Dollar Calls for The persistent growth at debis was Division rose 10% in 1995, reaching an Additional Structural Adjustments accomplished with an expanded range all-time high at DM 31.6 billion; adjusted Notwithstanding the revitalization of products and services oriented to by the first-time inclusion of the Kass- of demand achieved by the airlines, customer needs and with increased bohrer group, these revenues grew existing surplus capacities meant that activities in new markets. As in the by 5%. While our revenues in Germany the price wars and predatory competi­ previous years, business with non-group increased by 18% to DM 10.4 billion, tion continued to intensify in the aircraft customers expanded considerably. All of our business volume in Western Europe market. Financially strained public the divisions at debis made substantial outside of Germany, at DM 6.4 billion, budgets led to additional cuts, which contributions to the company's growth, was a full 25% higher. Despite the defini­ above all hit the aerospace industry. but especially the Mobile Communica­ te growth in unit sales achieved by our But the weak dollar and the related tions Services (+76%), Marketing Ser­ subsidiary Freightliner (+27%), the weak advantages enjoyed by competitors vices (+42%) and Insurance Brokerage US dollar meant that North American who produce in the dollar region had the (+25%) divisions. revenues, once converted in the Ger­ greatest impact on the development of man marks, increased by only 11% Daimler-Benz Aerospace in 1995. Systematic Review of to DM 7.0 billion. Consolidated revenues at Daimler- Group Portfolio A total of 329,700 commercial ve­ Benz Aerospace reached the previous In response to the major changes hicles were produced by the Mercedes- year's level at DM 15.0 billion. Although surrounding the company, and because Benz group in 1995 (1994: 291,900), the Aircraft and Defense and Civil of the need to strengthen the earning of which 171,300 (1994: 143,000) were Systems divisions reported a drop power of Daimler-Benz in the interest assembled at our German production in revenues, Propulsion Systems and of our shareholders and employees, we sites. Space Systems generated higher rev­ conducted a systematic assessment of enues in 1995. Incoming orders were each corporate unit in 1995 as part AEG Daimler-Benz Industrie: up 2% to DM 14.3 billion as compared of a strategic review. The measures Revenues Up Slightly to the previous year. and criteria established in the process The upward revaluation of the Because the future development primarily related to our market position, German mark and subdued demand for of the U.S. dollar is uncertain, we have the existing and future competitive capital goods in particular led to a slight introduced an initiative to ensure the situation, income and return targets, risk drop in the German market for elec­ competitiveness of each division at assessment, capital requirements and tronic products in 1995. Incoming DASA assuming a low exchange rate orders stagnated domestically, largely of DM 1.35 per dollar, thus creating the because of the poor business climate, conditions for lasting earning power. and the impetus from outside of As part of this initiative, other personnel Germany also became considerably and structure adjustments are just as less dynamic. unavoidable as the sale of various At DM 14.0 billion, incoming orders locations. at AEG Daimler-Benz Industrie were 23% higher than in the previous year. The Growth Continues at debis volume of orders in Germany was up by Although the upswing of the world 25% to DM 7.3 billion, while total orders economy was only gradual at best, the from outside of Germany were 21 % service industry experienced growth in higher at DM 6.7 billion. All three of the 1995, both in Germany and in other divisions remaining in the company - important markets. Rail Systems, TEMIC and Postal Automa­ debis was able to increase its tion - recorded double-digit growth. consolidated revenues by 9% to DM 11.8 Revenues at AEG Daimler-Benz Industrie billion, despite the fact that the changes reached DM 10.3 billion in 1995, or 2% in the consolidated group in conjunction above the figure for the previous year. with the reorganization of its domestic leasing business and currency effects had a restrictive impact on business volume in the financial services sector.

Business Review 9 the strategic role of the corporation. The Realignment of Sogeti Activities In connection with the restructuring decisions arrived at in the course of the We also reviewed our financial of corporate headquarters, we have analysis predominantly concern certain involvement in the French Sogeti group reduced the number of employees divisions at AEG Daimler-Benz Industrie (IT services and consulting) in 1995, involved in corporate management from and Daimler-Benz Aerospace. and together with the other principal more than 500 persons to less than 300 shareholders agreed to change the persons. The new structure significantly Reorganization of Activities investment structure. Once the former accelerates the decision process within at AEG Daimler-Benz Industrie holding companies merge with their the Daimler-Benz group. Following the comprehensive operating subsidiaries Cap Gemini solution we developed for our activities Sogeti S. A. and Gemini Consulting, Purchasing Activities at AEG Daimler-Benz Industrie, we focus debis will hold a 25% stake in the new, Expanded Worldwide our resources on Rail Systems (Adtranz publicly traded operating company In 1995, the Daimler-Benz group joint venture with ABB), Microelectron­ effective in 1996. spent a total of DM 66.9 billion on ics (TEMIC), Diesel Engines (MTU Fried- With this realignment, we are goods and services purchased richshafen) and Postal Automation (AEG intensifying our cooperation with our worldwide. ElectroCom) and continue to expand the French partners, and consequently Some 69% of the purchases were market position of these divisions. increasing our involvement in the inter­ made by Mercedes-Benz, 9% by AEG A future-oriented expansion strategy, national market for IT services and Daimler-Benz Industrie, 12% by Daimler- above all in Energy Systems Technology consulting. Benz Aerospace and 10% by Daimler- and Systems and Automation, would Benz InterServices. have required far more capital than war­ Employment Situation Still Tense As part of our efforts to globalize our ranted by the relative strategic import­ In order to assert and improve our corporate units, it is our goal to continue ance of these divisions to Daimler-Benz. position in international competition, to increase foreign purchasing for our We therefore decided to spin off these we were forced to make additional German production facilities as an segments to companies where they are personnel cuts in various areas of the active precaution against changes in among the core activities. group during the year under review. exchange rates. Moreover, we are Once the reorganization of the At year-end, the Daimler-Benz group making use of local supplier markets activities at AEG Daimler-Benz Industrie employed a total of 310,993 persons and global sourcing structures for our is complete, AEG Aktiengesellschaft is (1994: 330,551), of which 242,086 foreign production sites. to be merged with Daimler-Benz AG, worked in Germany (1994: 251,284). Our purchasing strategy in Eastern providing the proposed merger is ratified The cutbacks, which again were Germany is focused on stabilizing our by the shareholders on June 5, 1996. designed to be as socially compatible business relations and promoting as possible, affected AEG Daimler-Benz cooperations. In doing so, we are Financial Support of Fokker Industrie and DASA most of all. At making an important contribution to­ Discontinued Mercedes-Benz the employment ward strengthening the economy in After lengthy and essentially unsuc­ situation stabilized thanks to the Eastern Germany. cessful negotiations with the Dutch favorable development of revenues in government, we decided to discontinue 1995, and debis was able to hire more Investments Up our financial support of Fokker at DASA. than one thousand new employees. The investments in property, plant In consideration of the adverse com­ On December 31, 1995, Mercedes- and equipment necessary for securing petitive situation in the market for Benz had 197,164 employees, AEG the future of the corporation increased regional aircrafts, it no longer appears Daimler-Benz Industrie 49,432, DASA to DM 5.0 billion in 1995 (1994: DM 4.7 justifiable to continue injecting funds 50,784, debis 10,196 and Daimler-Benz billion). Newly acquired intangible assets without reciprocation. In the course of AG 3,417. amounted to DM 0.5 billion and were concentrating on core activities, DASA mainly attributed to goodwill from the sold Telefunken Sendertechnik in 1995 acquisiton of Kassbohrer. Amortization and gave up its majority stake in Dornier of intangible assets and depreciation Medizintechnik in early 1996. and disposals of property, plant and equipment amounted to DM 7.3 billion.

Business Review As in previous years, our Mercedes- enhanced involvement of suppliers are expenses that because of decisions Benz unit made the most investments in have clearly boosted the efficiency of made in the interest of recovering property, plant and equipment, at DM research and development at Mercedes- earning power have to be considered 3.5 billion (1994: DM 2.9 billion). In the Benz. Important progress made in this in the financial statements for the year Passenger Car Division, the investment area includes shorter development ending December 31, 1995. The deci­ budget was predominantly allocated to times for the latest models and an sion to discontinue financial support for preparations for production of the new unprecedented amount of new products Fokker entailed extraordinary expendit­ E-Class, the A-Class, the little SLK Road­ to be introduced in the passenger car ures in the order DM 2.3 billion. The ster and the new engine plant in Stutt­ and commercial vehicle sectors in the restructuring of AEG Daimler-Benz gart-Bad Cannstatt. In 1995, the most coming years. Industrie, in turn, was associated with important project outside of Germany At AEG Daimler-Benz Industrie, additional extraordinary expenditures was the new plant in Tuscaloosa, expenditures for research and develop­ in the amount of DM 1.6 billion. Alabama, where the M-Class (All Activity ment reached DM 793 million in the The operating result of DM -1.1 Vehicle) will be produced. In the Com­ period under review (1994: DM 736 billion (1994: DM +2.7 billion), which mercial Vehicle Division, key areas million). Research activities in the rail was positive in the second half of 1995, included the preparations for the two systems and microelectronics sectors was largely determined by the unfavor- new van families called Sprinter and concerned a new generation of rolling Vito, the new 900 engine series for stock with tilt technology, new control light trucks, preparations for the model concepts for fully automated people change in the heavy-duty class and the mover systems, systems and compon­ introduction of the Century Class at ents for motor vehicle electronics and Freightliner in the USA. sensors for microsystems. In Diesel At AEG Daimler-Benz Industrie, Engines and Postal Automation, the investments in property, plant and emphasis was on developing, innovative, equipment totaled DM 1.1 billion-of low-emission engine concepts, impro­ which DM 0.5 billion was contributed ved electrolysis techniques and modules to the inclusion of MTU-F and the full capable of recognizing handwritten incorporation of TEMIC -, at DASA DM addresses. 0.6 billion, at debis DM 0.2 billion and As in 1994, Daimler-Benz Aerospace at Daimler-Benz AG DM 0.1 billion. spent DM 4.1 billion on research and We spent a total of DM 6.3 billion development, of which DM 3.4 billion on newly acquired leased equipment were allocated to projects conducted on (1994: DM 5.6 billion). The volume of behalf of third parties. Projects focused funds borrowed for our leasing and sales on in the Aircraft Division included the financing activities amounted to DM Airbus programs, the Dornier 328 and 15.9 billion (1994: DM 14.5 billion). the Eurofighter (EF 2000). The most important projects in Space Systems DM 8.9 Billion Invested were the Cluster and Polar Platform in Research and Development satellites and the Ariane launcher Our investments in research and program. In the Defense and Civil development reached DM 8.9 billion Systems Division, the Trigat LR program in 1995 (1994: DM 8.7 billion). Of this dominated R&D activities, while in Pro­ amount, DM 3.6 billion were spent on pulsion Systems it was the EJ200 jet order-related developments that almost engine for the Eurofighter and the civil exclusively pertained to activities at jet engine program operated jointly Daimler-Benz Aerospace. with Pratt & Whitney. Mercedes-Benz used a total of DM 3.7 billion (1994: 3.3 billion) on research Consolidated Net Income Defined and development, with an emphasis on by Extraordinary Expenditures developing our many new products for The Daimler-Benz group reported a series production. A new, interdisciplin­ DM 5.7 billion loss in 1995, which was ary approach to projects and the above all the result of non-recurring expenditures related to streamlining the portfolio, and especially the divestiture of sources of loss. The areas involved

Business Review able currency development and the The financial result reported in Financial Result of Daimler-Benz AG related structural measures. At DASA, the consolidated statements of income Daimler-Benz AG recorded a loss DM 0.8 billion were allocated to improved from DM 1.0 billion to DM 1.2 in the amount of DM -6.6 billion for the provisions for the risks in the orderbook billion. One reason for this development year ending December 31, 1995 (1994: due to the weak U.S. dollar. A total of was the fact that after establishing profit of DM 0.6 billion). This loss, while DM 0.6 billion was allocated to the partnerships with banks, a significant significant, was above all caused by structural measures introduced as part portion of the domestic leasing business non-recurring expenditures totaling of the competition initiative, and addi­ is conducted at equity, which has an DM 5.1 billion, a figure that includes the tional structural measures called for effect on the financial result. At DM 0.3 immediate write-off of our involvement another DM 0.3 billion. Positive billion, significantly lower provisions for in Fokker. Other factors were the influences included the overall favorable losses on financial assets and securities absorption of higher losses from AEG development of business at Mercedes- as compared to the previous year (1994: AG, Daimler-Benz Luft- und Raumfahrt Benz and ongoing cost-reduction DM 0.6 billion) were another positive Holding AG and debis AG that were programs in all areas of the group. factor. partly the result of structural expendit­ At DM 2.3 billion, the contribution ures and loss provisions recorded on of Mercedes-Benz to the consolidated Consolidated Balance Sheet investments. Mercedes-Benz AG, on the operating result was slightly higher than Shaped by Restructuring other hand, contributed profits totaling in the previous year (1994: DM 2.2 The DM 2.0 billion decrease in DM 1.9 billion, which is DM 0.6 billion billion). Encouraging sales and cost the consolidated balance sheet total more than in the previous year. After savings were offset by the negative to DM 91.5 billion was primarily related offsetting the profit carried forward from effects of the upward valuation of the to the deconsolidation of Fokker. The 1994, the remaining loss is absorbed German mark. expansion of our leasing and sales with a withdrawal from retained AEG Daimler-Benz Industrie con­ financing activity also had a negative earnings. In consideration of this high tributed a DM -0.5 billion loss (1994: effect. loss, we are not planning to propose a DM -0.1 billion) to the group's operating The development of the individual distribution of dividends at the Annual result; the previous year's figure had balance sheet items is distorted by the General Meeting. included a DM 0.4 billion book profit fact that the fixed and current assets from the sale of the domestic applian­ or debts and reserves of the divisions Outlook ces activity and the power meter and divested at AEG Daimler-Benz Industrie The upturn in the world economy lighting system units. (Automation Technology, Energy is likely to continue in 1996, although The contribution of Daimler-Benz Systems Technology, Opto- and Vacuum growth has already slowed down Aerospace, at DM -2.7 billion (1994: DM Electronics) were reclassified as "Other noticeably in the first few months -0.5 billion), was significantly worse than assets" or "Other liabilities." Moreover, of the year. in the previous year. This development the balance sheet no longer contains In Western Europe, and especially was partly a consequence of the difficult the assets and debts of the rail systems in Germany, the overall economic competitive situation in the market for companies that were merged with ABB improvement has begun to contract. The commercial aircraft and its influence Daimler-Benz Transportation (Adtranz). Japanese economy is still desperately on DASA's profitability, but it was also This joint venture, formed with ABB at trying to overcome the structural crisis, related to the structural measures and the end of 1995, had been included in and the strict monetary policy in the provisions for anticipated losses referred the previous year's financial statements USA has had a dampening effect on to earlier totaling DM 1.7 billion. at equity. As of 1996, it is to be economic activity. Daimler-Benz InterServices (debis) consolidated pro-rata. The development in the newly was able to contribute DM 0.2 billion Without the financial services sector, industrializing countries, though, to the group operating result in 1995 which is predominantly financed with remains positive. Various countries (1994: DM 0.4 billion). The primary borrowed funds, stockholders' equity in Central and Eastern Europe also have source of income at debis was again as a percentage of total assets dropped good prospects for growth this year, as the Financial Services Division, debis from 28% to 20%, while stockholders' do the Latin American countries that are Systemhaus, Marketing Services and equity as a percentage of fixed assets gradually recovering from the crisis of Mobile Communication Services dropped from 79% to 65%. The the Mexican currency. achieved noticeable improvements proportion of long-term and medium- over the previous year. term capital within the consolidated balance sheet total reached 56% (1994: 60%).

12 Business Review In this economic setting, the auto­ any. In user-oriented applications ment of the company. Moreover, we motive industry can look forward to a ranging from microchips to micro­ have introduced rigorous measures slight increase at best in worldwide electronics systems, TEMIC is seeking - especially at DASA - designed to demand for motor vehicles. to establish a leading position in Europe, enable us to generate profits notwith­ Mercedes-Benz is counting on USA and the Far East. standing low dollar exchange rates. growth in new markets. In the coming In the diesel engine sector, MTU In the year under review, we formed years, we will be harnessing untapped Friedrichshafen has concentrated its extensive provisions for the proposed potential by entering new regions and activities on drive systems for com­ structural measures. with attractive new models. mercial applications. Moreover, through Based on the overall favorable Since the introduction of the the cooperation with Detroit Diesel development in the first quarter, we next generation E-Class in mid-1995, Corporation (DDC), MTU is expanding expect a positive result for 1996. Mercedes-Benz has had an exception­ its product range and enhancing its ally fresh and contemporary passenger presence in the worldwide market. car program. In 1996, it will be In postal automation, we have enhanced yet again with the T models reinforced our leading position in letter in the C-Class and E-Class, the compact sorting systems worldwide by continuing SLK Roadster and the V-Class minivan. to internationalize our market presence. In the commercial vehicle sector, A cooperation with Hitachi in Japan has too, the Sprinter and Vito vans marked helped us target the Asian markets. the beginning of a comprehensive Following the discontinuation of product strategy in 1995. Among other Fokker and other changes in the things, it entails the total makeover of consolidated group, Daimler-Benz the existing product line, as well as the Aerospace expects to increase its introduction of new vehicles tailored to business volume in 1996. the specific needs of individual markets. The Aircraft, Defense and Civil Thanks to its many new models and Systems and Propulsion Systems 95 the progress made in boosting pro­ divisions are counting on higher rev­ ductivity and tapping new markets, enues, while Space Systems will hardly Mercedes-Benz is looking forward to be able to top the unusually high increased unit sales in 1996, in both the business volume experienced in 1995. passenger car and commercial vehicle In December 1995, DASA concluded sectors. a basic agreement with Aerospatiale In the next few years, we will focus on establishing the joint ventures ESI on expanding the market position and (European Satellite Industries) and EMS systems capability of the AEG Daimler- (European Missile Systems). This Benz Industrie divisions that are still represents an important step toward part of the Daimler-Benz group. restructuring the aerospace and defense ABB Daimler-Benz Transportation, industries in Europe. a rail systems joint venture founded with Daimler-Benz InterServices expects ABB, is the largest company in the the favorable trend of 1995 to continue. industry worldwide. Its internationally Its commitment to open up new markets leading position gives us an opportunity and expand its product range with inno­ to take advantage of the growth in the vative, future-oriented services will help world market for rail systems. debis attain this goal. In this connection, TEMIC will continue to assume the we are also carefully reviewing potential role of a competency center for activities in the growing markets for microelectronics within the Daimler- telematics and value-added services Benz group and in this function will in new media sectors. assert itself as an independent comp­ With the strategic realignment of the group's portfolio concentrating on the activities in which Daimler-Benz has potential for a leading position in terms of the market and returns, we have laid the groundwork for the healthy develop­

Business Review Operating Activities of the Group

Corporate Unit Mercedes-Benz As a result of the international The year 1995 was successful for Mercedes-Benz. Despite the negative market situation, world production of effects of the upward revaluation of the German mark and the weak state commercial vehicles rose 4% to 14.8 of certain markets, sales at DM 72 billion were 2% higher than in 1994. The million units. A total of 37.2 million markets responded positively to our new E-Class. While passenger car passenger cars were produced, topping sales almost reached the previous year's level, notwithstanding the model the previous year's figure by 3%. change in the E-Class, the Commercial Vehicle Division was able to increase its sales by 10% and reach an all-time high. With the new management Mercedes-Benz Revenues Up Again organization introduced in 1995, we have created the structural Despite the negative effects of prerequisites for advancing our product, productivity, and globalization currency trends, consolidated revenues strategies with even greater determination. at Mercedes-Benz were up 2% in 1995, reaching DM 72.0 billion. Adjusted by the first time consolidation of the International Automotive purchasing incentives such as bonuses Kassbohrer group, revenue was nearly Business Flat for junking used vehicles were discon­ unchanged. Growth was primarily While the upturn in the international tinued in some European countries or contributed by the Commercial Vehicle automotive business continued on the no longer appear effective. Division, where revenues were 10% whole, the development of individual In Germany, there was a slight higher than in the previous year, markets was in part quite erratic. revival in demand for passenger cars amounting to DM 31.6 billion. Due to Based on the persistently high and especially for trucks over 6 tons. currency factors, but also as a demand for replacements and upgrades, But compared with the record levels of consequence of the reticence of our growth in commercial vehicle demand 1991 and 1992 in response to the customers in anticipation of the was vigorous in Western Europe. Sales reunification of Germany, the market E-Class, revenues in the Passenger Car of passenger cars, though, were only volume in passenger cars and Division, at more than DM 40.4 billion slightly above the relatively low level of commercial vehicles was still low. (1994: DM 42.1 billion), failed to reach the previous year, which among other Continued high unemployment and the the high level of the previous year things was related to the fact that high burden of taxes and levies had a despite vigorous growth toward the dampening effect on private end of the year. consumption, and consequently on In Western Europe outside of Germa­ passenger car demand. Demand for ny, our sales were 10% higher than in commercial vehicles was negatively 1994, totaling DM 15.3 billion. While our affected by the noticeable flattening of business volume in Germany was up by investment activity in the course of the 5%, the weak dollar meant that we year, and therefore only reached the recorded only a moderate increase in 1994 level. the USA despite significantly higher unit In North America, sales of heavy sales. We achieved pronounced growth commercial vehicles rose yet again, but in Brazil, the Republic of South Africa light commercial vehicles and passenger and southeastern Europe. cars experienced a marked decline. In Japan, however, the market situation clearly improved from the low level in the previous year, both in the passenger car and commercial vehicle sectors. The favorable development of the automotive markets in various newly The new E-Class limousine attracted industrializing countries in Asia and in tremendous attention in the international Brazil continued, while the unstable media. With the unmistakable twin- economies in Mexico and Argentina headlight design, it stands out against the almost caused a collapse of the other cars that populates our roads and commercial vehicle market there. highways even during daylight hours. Both international competitors and our customers give our E-Class high ratings. The one-hundred-thousandth E-Class limousine was sold in February 1996, just nine months after its market introduction.

Mercedes-Benz

The foreign share in consolidated In response to the continuing high revenues remained nearly unchanged at demand for our passenger cars in 1995, 61% (1994: 62%). and in order to adequately supply our expanded sales network, we raised Mercedes-Benz Passenger Cars: production to 594,900 cars in the year Model Change in the E-Class under review (1994: 590,100). At Mercedes-Benz, the passenger car business was focused on the new Mercedes-Benz Commercial E-Class, which was launched in Europe Vehicles: Sales at a Record High in June and toward the end of the year Business in the commercial vehicle in other markets. Because the new sector was especially encouraging in E-Class attracted the attention of our 1995. Our worldwide sales rose by 10% customers early on thanks to positive to 320,100 commercial vehicles, reports in the media, passenger car by far the highest unit volume in the sales at Mercedes-Benz did not reach company's history. The impetus for the record level of the previous year, at growth largely originated in North 583,400 units (1994: 592,400). America, Western Europe outside of After the dynamic increase in 1994, Germany and Brazil. In Germany, sales our new registration in Germany fell 5% of Mercedes-Benz commercial vehicles to 236,800 passenger cars; compared were up 7% to 84,200 units, developing to the high 8.2% share in the previous a good deal more favorably than the year our market share was down to 7.5% market on the whole. in 1995. As a result of bottlenecks in supply Outside of Germany, we sold at the beginning of the year, but also 345,800 passenger cars in 1995. This is because of persistently fierce compe­ 1 % above the previous year and another tition over prices and terms and the all-time high for Mercedes-Benz. currency-related price advantages In Western Europe outside of Germany, enjoyed by important competitors, we our unit sales rose to 154,600 vehicles were not in a position to fully participate (1994: 153,300). With in the volume growth for trucks over 76,800 Mercedes-Benz 6 tons in the Western European market. passenger cars sold in However, with a 25% market share the USA, we surpassed (1994: 27%), we were still able to assert the 1994 level by 5%, our position as market leader by a wide strengthening our margin. Due to vigorous growth in the position in the upper second half of the year, our new market segment. Busi­ registrations of trucks over 6 tons were ness was encouraging 11% higher than in 1994. In the van in Japan as well, where sector, too, we experienced temporary our new registrations bottlenecks in supply, because after the grew by 4% to 34,900 model change to the new Sprinter, vehicles-stronger than production capacities were unable to the entire market. We satisfy demand. And yet, our new recorded vigorous growth in Scandinavia registrations in the market segment for and several other European markets, in vans in the 2 to 6 ton category in We­ various countries in southeast Asia stern Europe grew by 10% to 93,400 and in the Republic of South Africa. vehicles. Our markets share also rose slightly, from 12.8% to 13.0%.

Mercedes-Benz Once again, our subsidiary Freight- be introduced in 1996 are the four- the category of Unimogs and trucks over liner contributed significantly to the po­ cylinder in-line engines for the light 6 tons in the European region. The sitive developments overseas. Freightli- truck category and, toward the end of advantages of this organizational ner managed to increase its sales in the the year, the new heavy-duty trucks. approach are obvious: greater respon­ United States by 19% to 60,900 vehicles, sibility reinforces the motivation of the expanding its leading market position in Bus Business in Europe employees involved; it expedites the the U.S. market for Class 8 trucks Restructured decision-making process and promotes (gross weight over 15 tons) from 25% to After receiving the approval of the a higher degree of market awareness, over 26%. Our Brazilian subsidiary also EU Commission for Mercedes-Benz AG customer sensitivity and flexibility. noticeably increased its unit sales, while to take over Karl Kassbohrer Fahrzeug- business in Mexico and Argentina was werke GmbH, we consolidated our bus Executive Department shaped by the difficult economic activities within EvoBus GmbH in Sales Created situation in these countries. Stuttgart on February 23, 1995. This We founded Sales in 1995 to A total of 329,700 commercial move represented an opportunity for effectively support the product strategy vehicles (1994: 291,900) were produced Mercedes-Benz to restructure its bus introduced by Mercedes-Benz. The new by Mercedes-Benz around the world. business in Europe and enhance its executive department is not only Production volume at our German competitiveness. The four production responsible for the worldwide market locations totaled 171,300 vehicles sites of the company are located position of the sales organization, but (1994: 143,000). in Mannheim and Ulm, Germany, also for introducing programs to further Hosdere-Davutpasa, Turkey, and increase sales efficiency, flexibility and Product Strategy for Passenger Ligny-en-Barrois, France. customer proximity. Cars and Commercial Vehicles This coalition of European With extensive training programs, In addition to globalizing our manufacturing sites offers us new state-of-the-art communications activities and boosting our productivity, opportunities for increased productivity. technologies and considerable expanding the range of products we We will take advantage of these poten­ investments, we laid the groundwork in offer is one of the key elements of the tials for the benefit of the Mercedes- 1995 for more individualized and more Mercedes-Benz corporate strategy. Benz and Setra makes. The first steps efficient customer service around the After launching the C-Class in 1993, taken in this direction include joint world. By expanding our sales and the product strategy in the Passenger purchasing and the standardization of service organization in new, growing Car Division continued with the non-proprietary components. markets, we have also reinforced the introduction of the limousines in the Production at EvoBus amounted global presence of the company. The new E-Class. The T models of the to 6,200 vehicles in 1995. Together with investment volume allocated to Sales C-Class and E-Class, the V-Class mini- production and assembly overseas, amounted to DM 172 million in 1995 van, and the fascinating SLK Roadster a total of 27,800 busses and bus chassis (1994: 135 million). will follow in 1996. The M-Class, were produced by Mercedes-Benz a sport/utility vehicle that will be worldwide in 1995 (1994: 25,800). DM 3.5 Billion Invested in Property, produced in the USA as of 1997, the Once again, we have asserted our Plant and Equipment A-Class, a small coupe and the Smart position as the world's leading In the interest of enhancing the will make our range of models even manufacturer of busses in the innovative base of our vehicle business more attractive in the coming years. category over 8 tons. and thus securing our international Following the introduction of the competitiveness, we made some Sprinter van (2.5 to 4.6 tons) at the New Management Structure significant investments in 1995. beginning of the year, the 1995 product Supports Strategic Realignment In the Passenger Car Division capital strategy in the Commercial Vehicle Divi­ With the management structure that expenditures totaled DM 1.8 billion sion entered phase two. By October, we has been in place since July 1, 1995, we (1994: DM 1.5 billion). Key areas for launched the compact Vito van for the have created the organizational con­ investments were the final preparations 2.0 to 2.7 ton market sector in Spain, ditions for a more flexible and more the country where it is produced. The focused realignment of the company as new Century Class, designed to expand part of our product, productivity and the product range of our subsidiary globalization strategies. Freightliner in trucks over 15 tons, was An integral part of the structural marketed in the USA for the first time in development was the formation of inde­ fall 1995. Among the new products to pendent, process-related sectors responsible for specific regions and products. The Trucks Europe sector, for instance, handles all functions related to

Mercedes-Benz 17 for production of the new E-Class, the supplier industry, we have noticeably new engine plant in Bad Cannstatt near increased the efficiency of our research Stuttgart and the preparations for and development more than ever in the production of the new generation of past few years. We have shortened the transmissions. Moreover, preparations development time for our most recent proceeded apace at the Bremen and models and plan to introduce many new Rastatt plants for production of the products by 1998. Of the DM 3.7 billion SLK Roadster and the new A-Class. (1994: DM 3.3 billion) spent on research In 1995, our most important project and development in the year under outside of Germany was the new plant review, DM 2.5 billion were allocated to With its versatile model range, in Tuscaloosa, Alabama. passenger cars and DM 1.2 billion to the Sprinter is an ideal and Our investments in the Commercial commercial vehicles. especially economical solution Vehicle Division were primarily focused for any application in the on preparing for the production of new Strategic Activities with Our category under 4.6 tons. vehicle generations. In Europe, the two Suppliers new van types Sprinter and Vito were in As part of the TANDEM concept, the foreground, as was the new 900 we have further intensified our coope­ engine series for our light-duty trucks ration with suppliers. Open commu­ and preliminary work on the model nication on issues such as markets, change in the heavy-duty class. The products, strategies, joint corporate introduction of the new Century Class responsibilities, product optimization by our subsidiary Freightliner was the and value-added processes was the most extensive investment project basis for a number of projects designed outside of Germany. A total of DM to enhance the competitiveness of 1.5 billion (1994: DM both sides. 1.3 billion) were in­ In an effort to minimize the currency vested in the risk in the medium and long term and at Commercial Vehicle the same time contribute to the Division worldwide. competitive pricing of our products, our goal in purchasing is to increase foreign DM 3.7 Billion sourcing for production in Germany. Invested in Our purchasing volume rose 8% in Research and 1995 to DM 47.5 billion, which is the Development result of higher production volume and The success of our reduced vertical integration. The research and develop­ proportion of purchases made outside ment efforts is the of Germany increased once again. basis of our product With a variety of uses strategy in the passen­ established on European ger car and commercial vehicle sectors. highways: The heavy The global diversification of our develop­ truck category of ment work not only guarantees cost Mercedes-Benz. advantages, but also a maximum of market and customer proximity. With new forms of interdisciplinary projects and the increased participation of the Both surprising and convincing: The Vito is generous on the inside, compact on the outside. Its design is fresh, dynamic, spunky and practical. With its technically perfected ergo­ nomics and plenty of space for passen­ gers and loading, the Vito not only offers plenty of driving comfort, it also meets the highest safety standards. It is a decidedly different vehicle.

18 Mercedes-Benz

Outlook commercial vehicles in the medium From a cost and product Although the growth trend recently term. In Latin America, automotive perspective, we have created the experienced in the world economy has demand will not regain speed until the conditions for continuing the positive become noticeably flatter, the slight economic situation in Mexico and trend in sales and income in 1996. We upturn in the international automotive Argentina is successfully stabilized. do, however, face a few uncertainties industry will likely continue in 1996. Mercedes-Benz is counting on with respect to the overall development In Western Europe, visible growth in new markets. We plan to of the economy in important markets indications suggest that demand will secure new customers in the coming and the persistently high currency risks. increase in the passenger car and years with regional activities and with commercial vehicle sectors, although additional attractive models. Since the growth will be extremely limited in the model change in the E-Class in mid- market for trucks over 6 tons. In Japan, 1995, and with the enhanced features in too, an improvement of the market the other series, the Mercedes-Benz situation is expected. The U.S. market Passenger Car Division now has the for commercial vehicles, however, will most up-to-date product range ever. It hardly reach the level of 1995, and in will become even more attractive in the the U.S. passenger car sector there will next few years as we introduce other be at best a slight increase. The Asian new vehicles. Our objective is to region still offers good prospects. In the position ourselves as a top-of-the-line Eastern European countries where automotive manufacturer in growing economic reforms are gradually markets and market segments. beginning to take root, we see promising With the Sprinter and the Vito, we sales potentials for passenger cars and also launched a comprehensive product strategy in the commercial vehicle sector. Moreover, the strategy encompasses a total makeover of the existing product line, as well as the introduction of new vehicles tailored to the specific needs of individual markets. The passenger car and commercial vehicle product strategy is accompanied by the extensive realignment of our internal structures and processes. This is the only way to ensure that we will improve our cost position over the long term in the face of increasingly fierce competition and respond flexibly to changes in the markets. Both in the interest of efficiency and to minimize currency risks we are focusing our all of our efforts on structuring the entire value-added production chain with an even greater global emphasis.

Mercedes-Benz Corporate Unit AEG Daimler-Benz Industrie Texas, took full effect. Incoming orders, The comprehensive restructuring of the business activities of AEG which included in particular large orders Daimler-Benz Industrie within the Daimler-Benz group had a significant from the Deutsche Post AG and the U.S. effect on the year-end financial statements of December 31, 1995, and led, Postal Service, therefore surpassed the mainly due to an extraordinary loss, to a total annual loss of DM 2,256 previous year's figure by 33 %. million. In day-to-day operations, orders rose by 23 %, while sales - with varying trends in the individual divisions - were slightly above the level of Sales Hold Last's Year Level the previous year. The result of ordinary business activities was worse Sales for AEG Daimler-Benz Industrie than in 1994. in 1995, amounting to DM 10.3 billion, were 2 % higher than 1994 if calculated on a comparable basis. The increase Negative Influence on the The Rail Systems Division in parti­ came entirely from foreign business, Electrical Industry cular contributed to this gratifying while domestic business, which made up The sluggish economy was especially development, with a 63 % increase in almost half of the total volume, showed evident in the German electrical in­ orders. Significant factors in this deve­ a decline. dustry. Production rose by a modest lopment were large orders from Sales for the Rail Systems Division rate of 2 %, while employment continued Deutsche Bahn AG for S-Bahn and failed to reach the previous year's level to decline. The upward revaluation of medium-distance train equipment - in due to a decreased invoicing, and the German mark and the flat demand particular for the Berlin S-Bahn -, for posted a 14 % decline. for capital goods also led to a slight de­ locomotives, the ICE 2 and self-pro­ cline in demand in the electrical indu­ pelled cars. Moreover, important orders stry. The volume of domestic orders for the municipal rail project for Kuala stagnated, primarily due to the worsen­ Lumpur in Malaysia, and the BART order ing business climate, and impetus from for San Francisco regional transport abroad also slowed down. Because of were taken. strong international competition, pres­ Both Microelectronics subdivisions sure on prices continued unrelieved in recorded significantly higher orders. 1995. The result was losses in earnings TEMIC achieved growth of 10 % over last in the German electrical industry. year's figure, mostly in semiconductors In electrical capital goods, both and automotive electronics. Order sales and orders declined. volume in Opto- and Vacuum Electronics The trend in electronic components, rose by 17%. far above average, was sustained, as The Diesel Engines Division, with DM demand grew again in 1995 by a sub­ 1.5 billion in orders, achieved moderate stantial 12%. growth of 3 %. MTU was especially In particular, energy technology successful in high-speed commercial suffered under the cut-backs in invest­ ferries. ments by the energy supply companies Orders were 15% higher in the and important industrial customers. Energy Systems Technology Division in The first signs of flattening in in­ 1995 than in the previous year. This vestment goods were evident in increase was carried by Energy Distribu­ controller technology. Orders and sales tion, with 22 % growth, whereas Com­ grew by a disappointing 1 %. ponents showed a decline of 2 %. The Automation Division achieved an Incoming Orders Up 23 % increase in order volume of 15 % over In 1995 AEG Daimler-Benz Industrie the previous year, calculated on a com­ orders rose to DM 14.0 billion, up 23 % parable basis. Without propulsion- over the comparable volume of the oriented automation and programmable previous year. While domestic order logic control systems, whose activities volume grew by 25 % to DM 7.3 billion, were transferred into joint ventures, foreign orders were up by 21 % to DM Industrial Automation recorded an in­ 6.7 billion. crease of 7 %. In Postal Automation, the acquisition of the American company ElectroCom Automation, Arlington,

AEG Daimler-Benz Industrie The Microelectronics Division The 15 % increase in sales in the Overall, restructuring resulted in an achieved a higher sales volume in 1995 Automation Division was influenced extraordinary loss which covers in than in the previous year. The positive significantly by the first-time full-year particular the provision for risks development in gas generators and consolidation of ElectroCom Automation associated with the planned disposals, semiconductors led to a growth of 11 % in Postal Automation, which allowed a and the extreme changes in the foreign for TEMIC, whereas there were no signi­ rise of 57 %. The area of Industrial Auto­ sales organization and the central ficant changes from the previous year in mation, without the de-consolidated offices. Opto- and Vacuum Electronics. fields of programmable logic control The Diesel Engines Division was able systems and propulsion-oriented Differentiated Trends in to show a slight rise in sales of 4 % in automation, grew 5 %. Operational Results the year under review. Overall, the focus The Rail Systems Division, which was of business was in Europe outside of Restructuring of AEG not yet operating as part of the joint Germany and in Asia. The consolidated group financial venture in 1995, posted a substantial Business volume in Energy Systems statements for December 31, 1995, loss due to risks associated with orders, Technology fell 3 % in 1995. This decline show substantial changes in comparison temporary under-utilization of is due almost entirely to industrial to the previous year. Increases resulted capacities, and delays in implementation components and motors. from the full incorporation of the TEMIC of structural measures. group, which had been announced in In the Microelectronics Division, the 1994, and the economic integration of contribution to earnings from TEMIC the MTU group. Deletions are due declined from the previous year. The especially to the fact that the former Rail losses in Opto- and Vacuum Electronics Systems Division was merged into the remained at the previous year's level. joint venture with ABB at the end of the The Diesel Engines Division again year. The shares in this joint enterprise achieved positive results because of were valued at equity on December 31, consistently applied measures to im­ 1995. A pro rata consolidation is prove efficiency and the additional planned starting in 1996. The values for growth in foreign business, despite the the consolidated companies are still negative effect of exchange rates on included in the income statement at earnings. their full annual values. In the Energy Systems Technology Additional disposals resulted from Division, Energy Distribution suffered a the joint ventures with Cegelec in drop in earnings in transformers. Losses propulsion-oriented automation and in Components were reduced over Schneider S.A. in programmable logic 1994. control systems, which affected both the balance sheet and the income statement. The Domestic Appliances Division, which was sold in 1994, still appears in the 1994 income statement until September 30. Provision was made in the financial statements for the planned disposal - effective as of January 1, 1996 -of the Energy Systems Technology Division and of the Automation Division with the ex­ The manufacturing of IC-integrated ception of Postal Automation, and the circuits is not possible without the sale of the Opto- and Vacuum Elec­ involvement of qualified personnel tronics sector, by reclassifying the and modern technology. One of the balance-sheet values of these units as last tests before implementation is Other Assets and Other Liabilities. This the Wafer-Test, which pin-points explains the tremendous increase in errors in electric circuits. these items compared to the previous year.

AEG Daimler-Benz Industrie

The earnings trend was also uneven TEMIC TELEFUNKEN microelectronic. In the Energy Systems Technology in the Automation Division. In Industrial Without these first-time consolidations Division, the important developments Automation results remained negative. added tangible assets totaled were new switching devices for medium Postal Automation, on the other hand, DM 577 million (1994: 489 million). voltages, intelligent power breakers for achieved significantly higher profits Investment activity in Germany was high voltage applications, and a decen­ compared to the previous year. concentrated on the expansion of the tralized control system for network manufacturing facilities at the Laage automation. Almost DM 3 Billion in Investments site, whereas foreign investments were Research and development activities Investments by the companies of focused on expanding the new product in the Automation Division concentrated AEG Daimler-Benz Industrie during the line in the plant in Nantes, France, which on process and production control tech­ year under review, including the capital belongs to the Microelectronics Divisi­ nology, and in modules for recognition assets taken over from newly acquired on. Additional investments were made in of handwritten addresses by sorting and companies, totaled DM 2.891 billion (in projects that had already been started in distribution systems in Postal 1994: 983 million). This value includes previous years, such as the moder­ Automation. additions to property, plant and equip­ nization of the Hennigsdorf plant in the ment in the amount of DM 1.112 billion Rail Systems Division. Merger into Daimler-Benz AG (1994: 564 million). The additions to financial assets As part of the move to streamline A large proportion of the newly include in particular the payment of Daimler-Benz's numerous fields of added tangible assets came from the DM 1.3 billion to ABB for the purchase activity, it was decided that the group first-time inclusion of MTU Motoren- und of 50 % of the shares in the joint venture will focus in the future on improving the Turbinen-Union in the balance sheet, as in the Rail Systems Division. market position and system capabilities well as from the full consolidation of on the Rail Systems, Microelectronics, Research and Development Diesel Engines and Postal Automation Expenditures for research and divisions. The capital expenditure that development totaled DM 793 million would have been required to ensure the during the reporting period (1994: 736 future of the Energy Systems and Auto­ million). This represents 8 % (1994: 7 %) mation divisions would not have been of group sales volume. justified in terms of their strategic In the Rail Systems Division, special importance. It was therefore decided developments by AEG include a new that all operating areas of AEG Aktienge- generation of rail vehicles with tilting sellschaft not destined to become part technology, modules for local passenger of the Daimler-Benz group will be spun transport, and new control concepts for off as closed corporations (GmbHs) and fully automatic personnel transfer sold to other companies in the industry. systems. The planned new structure, which In the Microelectronics Division, provides ultimately for the merger of research and development was con­ AEG Aktiengesellschaft with Daimler- centrated on further integration of semi­ Benz AG, will be put to a vote at the conductors, sensors for microsystems annual stockholders' meeting on June 5, technology, communication and infrared 1996. modules, and propulsion and airbag components of automotive electronics. In the Diesel Engines Division, inno­ vative low-emission motor designs and ongoing development of electrolysis processes and MCFC (carbonate) fuel cells brought significant progress in environmentally friendly energy pro­ duction and conversion.

AEG Daimler-Benz Industrie Corporate Unit Daimler-Benz Aerospace We will further improve the high In 1995, the business trend for Daimler-Benz Aerospace was characterized standard of our technology and by substantial changes in currency parities, especially in regard to the innovation management by concen­ US dollar, and the competitive initiatives introduced to confront those trating and strengthening our forces. changes. DASA's sales and incoming orders persisted at the comparable Furthermore, we will vigorously continue level of the previous year. Net income was considerably burdened, our market and product strategy with primarily by the precedent developments at Fokker, but also by extensive, the expansion of our market presence future-oriented measures in connection with the dollar's drastic loss in and the introduction of new products to value. In the meantime, increasing orders for aircraft point to a recovery the market. of the aircraft market. The inter-governmental agreements concerning a Franco-German satellite reconnaissance system and ESA's participation in Financial Support for Fokker Ended the International Space Station provided the European space and defense In addition to the fall of the dollar, industry with new prospects for the future. further drastic changes in the economic environment brought about lasting adverse effects for Fokker. The weak Trend Reversal in On a governmental level, two demand on the aircraft market and the Important Markets important landmark decisions for the dramatic drop in prices were of primary The improved earnings position, future of the European aviation and importance. Besides these develop­ the increasing need to upgrade fleets as space industry were taken. In October ments, there were the risks and burdens well as the continued expected growth 1995, the members of the ESA Council resulting from the changed market in traffic volume, have influenced the of Ministers decided to participate in the conditions for the sale of aircraft, with airlines to intensify their purchasing International Space Station and at the the original cash market developing into activities. In addition, due to the fact of beginning of December the heads of a lease market with the associated resi­ the still existing over-capacity in the state of Germany and France agreed to dual value risks. industry, the aircraft manufacturers are the development of a joint satellite engaged in fierce competition, primarily reconnaissance system. over prices. Increasingly intense price wars and This situation, which is favorable to the predatory competition are being waged airlines, has substantially contributed to worldwide in the commercial aerospace the marked increase of orders for jet markets, particularly in launchers and aircraft to 660 units (1994: 321). communications satellites. However, The European aircraft manufacturers with our international partners we have were unable to participate in this trend. been able to consolidate and further Due to the enormous price pressure on expand our market position. the market and the deterioration of their price competitiveness resulting from the Decline of the Dollar Necessitates low dollar exchange rate, they were Additional Adjustments forced to give back the market share Based on the increasing likelihood they had won in 1994. of a continuously low exchange rate for Besides increased orders, the the US currency, we have introduced decline in cancellations points to a initiatives to make each division recovery of the aircraft market. Their operating in the global market inde­ number went from 322 in 1993 to 138 in pendently competitive - even at an 1994 and to 98 in 1995. exchange rate of DM 1.35 for the dollar. Public sector spending policy in To secure this objective, the existing Germany continued to be restrained by structures and workflows within the the difficult financial situation. The company must be streamlined to further defense budget has, however, bottomed increase economic efficiency. Our role out. An increase of available funds was as technological leader must be secured particularly noticed in the investment and expanded, and the labor and budgets relevant to the defense management processes must be technology industry. redesigned to significantly increase the involvement of our employees. At the same time, far-reaching personnel and structural adjustments will be inevitable.

Daimler-Benz Aerospace As a result of these burdens, impending long-term financial burden end of the year and in early 1996 Fokker's equity capital had been entirely that was in no proportion to the transferred our majority interest in depleted by the third quarter of 1995. strategic value of Fokker to the group. Dornier Medizintechnik to a partner that In view of the additional expenditure Accordingly, Fokker was no longer has now also taken over the industrial of funds that would have been required included in the consolidation in the mangement of this activity. to put Fokker on an economically sound 1995 financial statements. footing, as well as the extremely difficult Business Volume at the long-term market condition, it was no Structures of the European Level of 1994 longer acceptable for Daimler-Benz and Aerospace and Defense Industry At DM 15.0 billion, consolidated DASA to bear the burdens for Further Strengthened sales of Daimler-Benz Aerospace Fokker alone. The mergers in the American reached the level of the previous year. We therefore requested the Dutch aerospace industry have again made it Declines in the Aircraft Division and the government to make an adequate clear that a European aerospace Defense and Civil Systems Division were financial contribution in the form of an industry will be internationally offset by higher revenues in Propulsion equity capital subsidy of NLG 1.3 billion competitive and thus capable of Systems and in Space Systems. Due to for the restructuring of Fokker and surviving only if the industries presently lower sales in defense technology, the consequently the preservation of the fragmented along national lines are military share of group sales dropped aircraft industry in the Netherlands. restructured into competitive units on a from 32% to 31 %. However, it was not possible to arrive at European scale. In Germany, the business volume of an agreement concerning this matter. In this context, our most important DASA declined by 17% to DM 3.8 billion We were therefore forced to discontinue projects are the joint ventures planned (1994: DM 4.6 billion). In contrast, our financial support of Fokker with with Aerospatiale under the working foreign sales rose by 8% to DM 11.2 immediate effect as of January 22, titles EMS (European Missile Systems) billion (1994: DM 10.4 billion). The 1996. This decision averted an and ESI (European Satellite Industries). settling of accounts for large projects in They are intended to combine the the Space Systems Division as well as activities of both partners in the area of high revenues from the takeover of guided missiles and satellite systems. leased aircraft by debis AirFinance made The signing of a basic agreement important contributions to this growth. concerning the formation of these two When calculated in comparable terms, joint venture companies by represen­ incoming orders increased by 2% to DM tatives of Aerospatiale and DASA in the 14.3 billion (1994: DM 13.9 billion). middle of December 1995 was a critical At DM 8.5 billion, sales in the milestone. A condition was the Aircraft Division were just under the agreement arrived at by the German and 1994 level of DM 8.7 billion. The fall of French governments at the beginning of the dollar exchange rate played a December concerning the development substantial role in this development. At of a joint strategic satellite DM 8.2 billion (1994: DM 8.7 billion), reconnaissance system. At the same time, we were able to improve our international market position in 1995 by forming several new joint ventures.

Concentration on Core Activities As part of DASA's realignment and concentration on its core activities, we With more than one hundred aircraft, transferred MTU Motoren- und Turbinen- Deutsche Lufthansa took delivery of the Union Friedrichshafen GmbH and Temic largest Airbus fleet so far. Not only does the Telefunken microelectronic GmbH to aircraft itself offer convenience and safety, AEG Daimler-Benz Industrie. Moreover, but we also supply a wide range of products we sold Telefunken Sendertechnik at the with these characteristics - from satellite- based navigation allowing automatic landing in scheduled service in the near future through airport equipment and up to automatic baggage claim via tele- sensomatics.

26 Daimler-Benz Aerospace

incoming orders were 5% below the level At DM 2.8 billion (1994: DM 3.1 EJ200 propulsion system for the for 1994. In addition to the lower billion), sales in the Defense and Civil Eurofighter as well as the civilian incoming orders in the Airbus program Systems Division did not reach the propulsion systems program carried on caused by exchange rates, demand for level of the previous year which was jointly with Pratt & Whitney. regional aircraft was distinctly lower. characterized by large settlements of In the Space Systems Division, sales accounts in one large program. At DM Outlook jumped by 36% to DM 1.8 billion (1994: 2.2 billion, incoming orders reached the The departure of Fokker from the DM 1.4 billion). The settling of accounts 1994 level. consolidated group in early 1996 will for the Cluster satellites and income for The Propulsion Systems Division, reduce the business volume of DASA in development services in the Ariane-5 which after the 1995 spin-off of MTU the current financial year. However, program contributed decisively to this Friedrichshafen includes activities in the when adjustments are made for this growth. Large orders in the satellite area of aircraft propulsion systems, was structural change, we expect an overall communications sector and in the able to increase its sales by 4% to DM expansion of business. Ariane-5 program caused incoming 1.7 billion (1994: DM 1.6 billion) as a Increased settlements of accounts in orders to soar by 36% to DM 2.1 billion result of the increased settlements of the Aircraft Division, particularly in the (1994: DM 1.5 billion). accounts in military propulsion systems. Tornado and Eurofighter programs, will There was also an upturn of order contribute to an increase of sales. In volume for civilian Space Systems, the conclusion of the propulsion systems. large Polar Platform project is imminent Altogether, incoming however, we do not expect to entirely orders rose by 18% reach the extraordinarily high level of to DM 1.6 billion sales generated in 1995. In the Defense (1994: DM 1.4 billion). and Civil Systems Division, we expect an upturn of business in nearly all areas. Research and In Propulsion Systems, jet engine com­ Development ponents for Tornados are being delivered Expenditures in increasingly large numbers, but the Increased civilian jet engine business will also As in the previous contribute to growth. year, we allocated DM The initiatives adopted in November 4.1 billion (calculated to assure our competitiveness will be at comparable levels) to implemented according to plan along research and develop­ with the measures initiated earlier. This ment. At DM 3.4 billion, will include further workforce reductions expenditures for pro­ and the withdrawal from business jects carried out for activities, as well as the closing of plant third parties were at sites that are not part of our core the 1994 level, repre­ competencies. senting 23% of sales. The elimination of the high non­ We spent DM 0.7 recurring burdens of 1995 will clearly billion on projects improve earnings for the current financed out of our own financial year. Added to this is the fact funds. This represents a that the measures initiated to improve 5% share of sales. competitiveness are already showing In the Aircraft initial positive results in 1996 and will Division, the focus was on the Airbus lead to an improvement in operating program as well as on the Dornier 328 income in individual divisions. and the Eurofighter (EF 2000). The emphasis in the Space Systems Division was on the Cluster and the Polar Platform satellites as well as the Ariane launcher program. In Defense and Civil Systems, we concentrated on the Trigat LR program and in the Propulsion Sy­ stems Division, the focus was on the

28 K Daimler-Benz Aerospace Corporate Unit Daimler-Benz InterServices The Information Systems Manage­ debis was able to profit from the positive trend in industry-related ment Division attained high growth in services in 1995 and step up its business volume by 9% to DM 11.8 billion. the area of distributed systems and Contributing factors to this favorable development included the expansion desktop services. Information of our range of services and our increased activities outside of Germany. Systems Management achieved DM 1.2 The dynamic growth in the Mobile Communications Division continued, and billion in sales in 1995. we were able to secure a large number of new customers in this sector. In 1995 we increased our partici­ But the other divisions also kept up with the growth enjoyed by this pation in the consulting firm Diebold corporate unit. Deutschland GmbH from 84% to 100% and instituted a new management structure. This measure led to marked Growth of Service Sector outside bank partners in a vehicle improvement in sales and profit in the above Average ownership company, the latter's sales second half of the year. Our consulting In Germany the growth in the ser­ are no longer consolidated with the activities, of which Diebold forms the vices sector was again above average. debis group. core, accounted for roughly DM 90 The positive trend continued particularly The breakdown of the 1995 sales million in sales. in industry-related services, where the by region is as follows: Germany 53%, debis Systemhaus is one of the few Information Technology Division profited EU member countries 9%, North • suppliers that offer planning, develop­ on a broad scale. The growth was spur­ America 32%, other markets 6%. ment, installation and operation of IT red by the restructuring of business Especially gratifying was the trend in the services from a single source. Therefore processes in many industries and by the EU countries other than Germany, where we intend to step up our activity in the growing demand for complete data- debis sales increased by over 40% in complex IT services segment in the processing solutions. comparison to 1994; however, sales in future. In the leasing industry, new invest­ the UK and Italy were negatively affect­ In addition, we will take advantage of ments rose in Germany in 1995, unlike ed by currency exchange rates. our close ties to the French Cap Gemini 1994. Here the increase in vehicle In the USA, we were able to surpass group to expand our international financing through manufacturers was the 1994 sales figure despite the weak orientation. above average again. Despite a reduced dollar. demand for capital goods in the USA, The expansion of our range of the commercial vehicle market, impor­ services and our stepped-up activity tant to our leasing business, improved abroad were the basis for our growth. again. As in previous years, the business with Opportunities for growth in the customers outside the Daimler-Benz advertising sectors were limited in 1995 group rose sharply; in all divisions, because many companies cut back their outside customers now account for advertising and marketing budgets. more than half the sales. Mobile communications, on the other hand, was one of the definite Systemhaus: growth industries, both nationally and Market Position Improves internationally, although competitive in All Divisions pressure has intensified considerably. In debis Systemhaus, the positive trend of the previous year continued in debis Continues on Growth Course all divisions. Sales rose by 11 % to nearly In 1995, debis group sales increased DM 2 billion. Thus we have further by 9% to roughly DM 11.8 billion, and the reduced our dependence on Daimler- increase in foreign business was above Benz group contracts. The number of average again. On the other hand, struc­ our employees increased in 1995 to tural changes in connection with the 6,658 (1994: 6,129). reorganization of our domestic leasing In the Software Projects and Pro­ business in 1995 had a diminishing ducts Division, we made DM 700 million effect on sales. Due to participations of in sales. Especially in the Telecommuni­ cations, State and Communities, Traffic, Financial Services, and Management Information Systems Subdivisions, our growth was clearly above that of the market.

Daimler-Benz InterServices (debis) Financial Services: promising sector. For instance, it was group Gasprom, successfully carried out Business Volume Continues to Rise able to place the first fund for railcars investment programs to expand and The debis leasing and financing for local public passenger transport in modernize industrial enterprises in companies had another successful year Germany. The total volume of funds Russia again in 1995. in 1995. New business worldwide reach­ managed by debis Aviation Leasing and The commodity trading company MG ed DM 14.0 billion, up DM 0.2 billion debis Funds Management is DM 1.4 NE Produkthandel GmbH, a joint venture from 1994. The accountable contract billion (1994:0.9 billion). with Metallgesellschaft Handel und Be- volume amounted to 571,000 units teiligungen AG, had a positive year (1994: 530,000), for a total value of DM Insurance Brokerage: against the background of stable alumin­ 26.5 billion (1994: 25.1 billion). This Range of Services and Service um prices. figure includes all contracts for which Network Expanded debis bears executive responsibility. The In the increasingly competitive Marketing Services: percentage of Mercedes-Benz passen­ insurance industry environment, the Sales Show Clear Increase ger cars and commercial vehicles debis Assekuranz group managed to The Market Services Division's mo­ financed by debis leasing and financing further increase its premium and dular range of services met with a very companies in their market territories brokerage volume in 1995. The rise in positive response in the market in 1995. remained at the 1994 level of premium volume was mainly attributable The winning of several major advertising about 25%. to the sharp growth in business with accounts enabled debis Marketing Ser­ In the USA, despite the adverse commercial customers, an increase of vices to achieve approximately DM 0.8 currency exchange effects of the weak DM 155 million to a total of DM 873 billion in sales, an increase of 42% over US dollar, we again surpassed the sales million. At the same time, commissions the 1994 level. figures of 1994. However, our business rose by 25% to DM 95 million. The international advertising network in Mexico was impaired considerably by We expanded our range of services Orion International Media Solutions, a the economic crisis, and we took steps in 1995 primarily in the reinsurance joint venture with the leading Spanish to stabilize the leasing business there. sector. The reinsurance company debis advertising agency Media Planning, was The internationalization of the Finan­ Re Insurance and the reinsurance founded in response to the increasing cial Services Division made further pro­ brokerage debis Re Brokers, both internationalization of our customers. gress in 1995. Here special emphasis founded in 1994, became established in The Fairs & Exhibitions Division was was placed on strengthening the deve­ the market and together with our con­ able to achieve a slight increase in re­ lopment of markets in Southeast Asia. sulting company debis Risk Consult, venues as compared to the previous We now have a worldwide presence, provided for greater risk transparency year, in spite of strong pressure from the with 48 companies operating in 19 and risk limitation for customers and competition. The division handled pro­ countries; that is 17 more companies insurers. jects at some 240 fairs and exhibitions than in 1994. worldwide. The Marketing Consulting The debis Aviation Leasing Division Trading: Division continued to expand its remained on a positive course and New Market Potentials Developed business volume with outside custo­ successfully placed five new aircraft Using modern countertrading mers, particularly in the technical con­ leasing funds in 1995. We also extended methods, debis Trading was able to sumer goods segment. our range of services beyond develop additional market potentials in aeronautics in 1995 to include large 1995 in countries with low foreign movable goods and real estate, and to currency reserves. The exports that this end we established debis Funds debis made possible amounted to Management, which develops and roughly DM 0.5 billion. Companies realizes funding solutions for this outside the group accounted for 60% of this figure. In addition to developing business debitel was the first to introduce relations with countries in Asia and the airtime billing by the second, for fair Middle East, we stepped up trading with and cost-efficient telephony. On the partners in Eastern Europe. For in­ other hand, we're not sparing at all stance, several basic agreements were when it comes to offering individual concluded with several former Soviet tariffs. Inb simple terms: we tailor our republics. The DITGAS trading company, services to the needs and usage a joint venture with the Russian energy habits of our customers. It's one way of becoming the number 1 indepen­ dent service provider.

Daimler-Benz InterServices (debis)

Due to the increase in advertising The two foreign mobile communica­ direct investment in the new company and marketing expenditures, the Com­ tions companies debitel France and directly active in the market, as of 1996. munications Services Division was able debitel Nederland also gained a consi­ debis will hold less than a 25% interest to continue its successful course. In derable number of new customers and in this new listed company. A capital 1995 the concept for the new debis participated in the market growth. The increase in the amount of FRF 2.1 image campaign was realized. number of customers for the two com­ billion, which will occur in this panies combined rose from 45,000 to connection, and in which debis will Mobile Communications Services: 111,000. participate by changing a portion of its Vigorous Growth Continues The range of services for mobile convertible bonds, will provide a base The Mobile Communications Ser­ communications customers was further for expanding existing business and per­ vices Division managed to hold onto its expanded. In particular, the precise mit investments in new projects. The leading position as a network-indepen­ billing of calls including seconds, intro­ cooperation with debis Systemhaus will dent telephone company in the German duced by debitel, set the standard for be intensified further. mobile communications market in 1995. the entire industry. In France, the Our two German companies debitel and Netherlands, and the UK, since recent­ Outlook Bosch Telecom Service profited from the ly, debitel customers can take advantage We expect the world economy to sustained, dynamic growth, character­ of services abroad. In Germany debitel continue its upward trend in 1996, ized by 1.3 million new mobile telephone gained an important sales partner to although from today's vantage point it users; at the end of 1995, 489,000 start off the year 1996 in the specialized would appear that the growth rates customers were being served (1994: retail distributor SNS Selectric. could continue to level off. We are 320,000). The market share was 16% nevertheless confident of our ability to (1994: 19%). Real Estate Management: continue the positive trend of the past Business Activity Expands and few years. Progress at Potsdamer Platz on In addition to further expanding Schedule sales, we expect to be able to improve debis Gesellschaft fur Potsdamer our net income situation considerably. Platz Projekt und Immobilienmanage- In the Information Technology Divisi­ ment mbH (dIM) continued to expand its on, our range of far-reaching problem business activity in 1995. As before, the solutions is expected to contribute to realization of the Potsdamer Platz build­ the positive earnings trend. The Financi­ ing project and the marketing of the al Services Division, in addition to office space and residential units are securing its competitive position in the among the main tasks of dIM. In addi­ existing markets, will concentrate on the tion to real estate within the group, development of new growth markets in however, outside real estate is also the course of its internationalization and being developed for marketability. For vigorously strive to expand its range of instance, dIM has assumed responsibi­ services. The other debis divisions will lity for the commercial management of also increasingly utilize and develop the project "Am Spittelmarkt" in central their international resources and im­ Berlin, in the scope of a joint venture. prove their position in promising mar­ The project is scheduled for completion kets, sometimes in cooperation with in 1997. local partners. Further we are testing new Sogeti Activity Reorganized developing markets such as multimedia In 1995 debis reexamined its invest­ and telematics. Business opportunities ment commitment in Sogeti and, to­ exist in the multimedia sector, especially gether with the other principal stock­ in digital television services and online holders, arranged for changes in the services. investment structure. After the merger of the former holding companies Sogeti S.A. and SKIP with their operative sub­ sidiaries Cap Gemini Sogeti S.A. (CGS) and Gemini Consulting, debis has a

Daimler-Benz InterServices (debis) Central Corporate Functions

Research and Technology Four Cars in One: At Daimler-Benz we strengthened our international activities in 1995 to The Vario Research Car better target research to individual market needs. Also, in light of more Our customers' changing needs intense competition, we made use of comprehensive measures designed to make it increasingly important to make increase productivity. Significant projects in the automotive sector personal mobility not only more attrac­ included the Vario Research Car, driver assistance systems and a new tive, but more varied. Daimler-Benz ergonomic test rig for vehicle development. Our extensive research research has set new standards in this activities also extended to the development of innovative rail and area with the Vario Research Car. transportation systems, information technology and multimedia. The car is built in such a way that it can be transformed from a cabriolet to a limousine, pick-up or station wagon in a Internationalization of Research development and manufacturing few easy steps. The Vario Research Car Fast and efficient response to future solutions. Beyond utilizing cost-effective combines four different car types in one, customer needs worldwide means research options, we are focusing on offering motorists new alternatives for conducting research where our markets accessing new markets and cooperating individual, adaptable use. Public are. We have therefore intensified with our subsidiaries in Asia. response to the new concept at a cooperation with leading universities all number of presentations has been over the world and we are beginning to Research and Development extremely positive. implement more projects for our foreign Department Restructured The idea also includes a flexible companies. The joint Research Labora­ We have initiated a number of marketing concept that provides drivers tory on Packaging (founded with the measures to make our research with the possibility of renting the various Shanghai Institute of Metallurgy) and the activities internationally competitive, car types at special service stations Research & Technology Center in Cali­ and we plan to increase productivity in according to given seasons and fornia, both established in 1994, are Research and Development by 30 personal needs. now in operation. The newly opened percent within only three years. The research vehicle serves as a Freightliner Vehicle System Technology Research will be reorganized as a group laboratory on wheels for the develop­ Center in Portland represents an business unit according to a financing ment and testing of future-oriented important addition to our American system aimed at even greater vehicle systems, from innovative research facilities, intended to ensure competitiveness and concentrating on steering systems, lightweight con­ the effective transfer of research results the corporate responsibility of each struction and adaptable chassis to to Freightliner and our other subsidiaries division for securing its future. innovative operating and monitoring in the Western Hemisphere. systems. A Daimler-Benz research institute is Daimler-Benz Research Prize scheduled to open in India in 1996. This The 1995 Daimler-Benz Research additional Asian facility will give the Prize was awarded to Walter Bogner, Daimler-Benz group direct access to the Dr. Karl-Ernst Haak, Dr. Bernd Krutzsch, region's growing expertise in multi­ Gunter Wenninger and Dr. Friedrich media, pattern recognition, software Wirbeleit for their outstanding research on a new process that reduces nitrogen oxide formation in internal combustion engines. Nitrogen oxide is retained in an adsorber attached to the exhaust, fed into the intake and reduced in the engine. The new process looks especially promising for diesel engines, where nitrogen oxide emissions cannot be reduced by standard three-way catalytic converters.

Research and Technology New Ergonomic Test Rig Developed The optical lane tracking system Innovative Train Chassis Ergonomic and customer-oriented installed in our Oscar test vehicle The train chassis of the future are interiors also play an important part in contributes substantially to improved being developed in a research project designing new cars. Daimler-Benz's new riding comfort. The system, which is as carried out in close cooperation with ergonomic test rig, unique around the easy to use as cruise control, has Deutsche Bahn AG. Daimler-Benz world for its complexity and its link to proven its capabilities in more than intends to use this project to meet the CAD systems, has adjustable and 5,000 km of testing. increasingly demanding worldwide interchangeable seats, a steering wheel, The Otto test truck was equipped requirements, especially for high-speed pedals, operating parts and instruments. with an "electronic shaft" that measures trains, and to lay the foundation for long- From subcompact to limousine, sports and controls the distance and lateral term success in the global rail car car to off-road vehicle, the new test rig positioning with respect to the car in market. At the same time, progress can be used for virtually every type of front. Using this device, a truck can made in the field will be applied to vehicle. Various automobile interiors can follow another vehicle exactly and safely InterCity and rapid regional transit. now be evaluated by test persons and at a distance of less than ten meters. As part of the project, we will optimized by development teams in the With the knowledge gained in these design, build and test an advanced early prototype stage, saving both time tests, we are making an important generation of engines, locomotives and and money. contribution to the new joint European rolling stock. It is our goal to develop Promote Chauffeur project. Together innovative components such as new Greater Safety and Convenience with Freightliner, we have also dealt direct drive systems, high performance with Driver Assistance Systems with commercial vehicle aspects of the brakes, coordination control units for The Prometheus research project - Automated Highway System, a project shared drive systems and active servo Program for European Traffic with aimed at creating fully automated components to improve riding comfort. Highest Efficiency and Unprecedented highway traffic. Finally, we also plan to devise new Safety - was completed in 1994. It has system concepts. demonstrated the potential of com­ Micromechanical Sensors bining video-based recording of sur­ for Motor Vehicle Applications New Concepts in rounding conditions and subsequent The motor vehicles of the future will Transport Technology image processing by powerful parallel increasingly use microsystems Too often, transportation and computers for use in motor vehicles. In- technology. We are already hard at work distribution orders cannot be filled with house research projects have since in our research labs on expanding the adequate speed and flexibility. This taken the development of these driver scientific bases for improving existing problem can be solved by using assistance systems several steps and developing new sensor systems. individual autonomous transport further. One of our primary research vehicles that are supplied contact-free objectives is to develop a microchip that with information and energy. integrates the acceleration and speed We have developed such a contact- sensors for driving dynamics control and free information and energy transfer airbag systems. In addition, new sensor system at Daimler-Benz Research. The systems are planned for use in motor number of transport vehicles used can vehicles and the aviation and aerospace be varied widely and their speed can be industries. To translate the results of our controlled individually to create an inter­ research directly into new sensors, connected conveyor system for complex thereby cutting the time required for development and product placement, we will convert an existing microsensor process line in Ottobrunn to a production line in 1996. Under the Awarded the 1995 Research Prize: project coordination of TEMIC at the In our engine test rigs researchers same location, micromechanical developed a new process for the acceleration sensors for airbag selective reduction of nitrogen applications are to be produced starting oxide in internal combustion engine in 1997. exhaust. This process looks especially promising for diesel engine applications.

34 Research and Technology

integrated facilities. The new system, between data in the group data bases efficiently manage future tasks. Our Ber­ which is extremely cost-effective and and provide the marketing department lin team is in charge of methodology, environmentally friendly, will be used to with suggestions for target-group- applying technology and lifestyle transport goods for the first time in oriented products and services. research from the social sciences. 1996 in the cargo center of a major About twelve future-oriented lab European airport. Multimedia and Virtual Reality sessions were conducted in 1995. As part of multimedia sales support Innovative Projects to Improve for Mercedes-Benz we improved our Strategies for Production Information Technology customer interaction system for the Technology New and efficient information 1995 International Auto Show for use on High-quality, cost-efficient processing methods and tools play a key the World Wide Web (WWW). Using text, production that respects the role in our future business success, both photos and videos, customers can environment and resources is one of as aids for our engineers in their choose the model, color and options of industry's primary tasks in securing complex tasks and as components for their ideal car on a PC screen. The competitiveness. improving the way our products system recognizes combinations that At Daimler-Benz, the production function. are not available and suggests alternati­ technology steering committee is The Research and Technology Divisi­ ves. responsible for this goal. Its tasks on has therefore initiated a number of In addition, our researchers have consist of ensuring the efficient use of projects to improve information developed concepts and EDP facilities resources in production technology, processing in conjunction with the to intensify customer contact. In the developing key technologies and Daimler-Benz corporate units. Among future, more customers will be able to integrating them into complex systems other things, these projects involve submit their ideas, desires and while avoiding unnecessary duplication. using computers to integrate individual suggestions directly to Mercedes-Benz With respect to increasing product steps from design, development via online media. globalization and the associated local and construction to manufacturing and In the virtual reality arena, Daimler- competition, we have assumed documentation as well as devising new Benz has developed a process in which leadership of a working group with programming methods aimed at photos can be used to simulate the members from thirteen German simplifying program development. virtual geometric shape and surface companies. The working group's Moreover, we are attempting to identify appearance of real objects. In one common task is to develop a domestic previously unrecognized connections application, we use this technology in a inter-company research strategy for project to optimize the design of control production technology. Basic elements panels with the help of virtual models, include intensified cooperation and thus eliminating the need for real coordination in the industry and a models. greater integration of state research To study how customers react to the facilities. The selected research areas interior size, colors, or shape of our extend to various industries have a high vehicles, we have created a system innovation potential and produce results depicting car interiors. Our goal is to that can be implemented in relatively provide design information in the early short periods of time. development stage.

Future-Oriented Labs The Society and Technology research group has set up so-called future labs to develop strategic recommendations or product eva­ luations for interdisciplinary issues. For example, project groups deal with future customer requirements for our products and the optimization of processes to

36 Research and Technology Environmental Protection These considerations prompted us In 1995, the Daimler-Benz Group made important progress in the area of to conclude the Design for Environment environmental protection. Here too, the introduction of the new E-Class (DFE) feasibility study in 1995. represented a special milestone. We were also able to demonstrate our We undertook the study to compare commitment to the environment with various environmental projects and the information currently available to car with the data compiled from the newly-developed group environmental designers with the extent of information information system. In 1995 our investments in the environment increased ideally required. to DM 211 million, while general expenditures amounted to DM 870 million. Using this as a starting point, In addition, over DM 1 billion was spent on research and development a number of projects were defined to projects serving environmental protection. be implemented in the intergroup pilot project DFE. Specific development projects combine expert knowledge on Environmental Quality Goals processes. Moreover, alternative environmentally safe materials, Increasingly, political and environ­ processes and materials can be environmentally correct production mentalist groups are demanding quanti­ compared as to their ecological impact processes, disassembly techniques and tative product information with respect to promote more environmentally recycling processes with related to environmental compatibility. We compatible products and processes, information such as the current cost of regard the environmental balance sheet and to take preventive environmental raw materials, disposal costs and legal method, that is a comprehensive protection measures. requirements. product evaluation, as the basis for In order to ensure the maximum such information. efficiency of environmental accounting, Electronic Scrap Recycling The information typically required Daimler-Benz Research developed the Printed board assemblies create for packaging and products, for CUMPAN environmental accounting special problems for the environmentally example, entails accounting for energy program. Using its modular software sound disposal of electronic scrap. In and material flows during a product's design, we can divide complex this instance, the reusable materials and entire life cycle. It may also entail processes into sub-processes, which in contaminants are hard to separate. parameters for the biological or climatic turn can be reintegrated into various impact of individual materials and large-scale processes. Elaborate reports groups of materials. Beyond the are then automatically generated from difficulties associated with establishing the input and output data. scientifically-based impact categories, We already use environmental there is also the problem of how to balance sheets specifically designed for evaluate them in relation to one another. various optimizations and analyses of In this respect, long-term environmental weak points, for example, in examining quality goals must be defined politically alternative materials or new vehicle and socially as reference points for concepts (city bus, van). At this time, comparative environmental balance however, we are unable to generate a sheets. final environmental report due to the In this regard, Daimler-Benz considerable amount of research still participated in the creation of relevant required into the pollutant impact political discussion groups. Such groups balance sheet. In addition, at the are becoming increasingly important political level, specific environmental because the environmental taxes under quality goals have yet to be set or consideration must be based on envi­ prioritized. ronmental quality goals. External marketing of CUMPAN software developed in the course of our Environmental Accounting research is now being conducted by the With the help of an environmental corporate unit debis. balance sheet, we plan, for the first time, to identify the ecological weak Design for Environment points in product life cycles and As product characteristics are almost entirely established during development, it is crucial to integrate environmental concerns into existing production and development processes.

Environmental Protection When incinerated they create pollutant We are applying continuing research emissions such as dioxin and furfuran; in to develop recyclable plastics created household waste dumps they are mixed wholly from renewable raw materials with less contaminating waste. and strengthened with natural fibers. The research division of Daimler- This so-called EcoComposite is to be Benz has therefore developed a concept used in passenger cars, commercial to ensure the environmentally sound vehicles and rail transportation. treatment of printed board scrap. A pilot station built in 1995 has tested a Environmental Protection in the process substantially superior to other Product: The New Mercedes-Benz methods. It is capable of achieving E-Class higher purity of recyclable material and With the E-Class introduced in 1995, recovered metal concentrates through Mercedes-Benz set new standards in its improved material treatment, reduced commitment to the environment. For emissions during the treatment process, instance, despite larger interiors, the avoidance of dioxin and furfuran build­ average fuel consumption of this class up and a simpler process technology. dropped 6%, and was up to 10% less for In the year under review, Daimler- some engines. Thanks to modifications Benz researchers were awarded the to the exhaust manifold and the catalytic Environment Prize of the City of Ulm. converter, exhaust emissions have been This award underscores the significance decreased up to 48% over previous of recent developments in separating models. plastic compound waste. Significant research developments in raw materials were successfully intro­ Use of Natural Fibers duced in past years in the new E-Class. Beyond ecological advantages such By using recyclates and renewable raw

as easy recyclability, neutral C02 materials in high-grade applications, for balance when incinerated, and the example in trunk linings or in the noise conservation of limited raw material shields in diesel engines, we actively resources, the use of renewable raw contribute to closing materials cycles materials offers technological and and conserving resources. economic advantages in many technical applications. In addition, the increased use of natural materials supports agriculture, providing new opportunities for sources of income in areas other than foodstuffs. At Daimler-Benz we conduct inten­ sive research into reinforcing plastics with natural fibers to replace the fiberglass currently being used. In cooperation with German and foreign research institutions we are studying processes to produce high-strength, inexpensive and qualitatively valuable natural fibers such as flax, ramie and The new E-Class introduced in 1995 curaua. At the Daimler-Benz Research sets new environmental standards. Institute in Ulm we have had initial In addition to reduced exhaust success with the EXPRESS process and emissions and low fuel consumption, SRIM technology, which are used to various parts of the vehicle are produce a material reinforced with produced from recyclates or natural fibers. A number of applications renewable raw materials in order have been found for these materials, to conserve resources. including car interiors.

Environmental Protection

Personnel Due to the positive sales picture at At the end of 1995, the Daimler-Benz group employed 310,993 persons Mercedes-Benz, layoffs stopped during (1994: 330,551) worldwide, of which 242,086 (1994: 251,254) worked in the year under review, in spite of Germany. While DASA and AEG Daimler-Benz Industrie had to undergo measures aimed at increasing further downsizing, the staff of Mercedes-Benz remained virtually productivity. New staff was hired in unchanged; debis added personnel. Priority tasks during the year under some areas, under both fixed-term and review included adjusting our personnel policy to changing economic long-term work agreements. At the end conditions, recruiting junior staff and orienting human resources to the of 1995, 197,164 persons (1994: group's ongoing globalization. 197,568) were employed at Mercedes- Benz. Changes were largely related to the acquisition of Karl Kassbohrer Staff Development Supports Our international junior staff group GmbH, the spin-off of the former Bad Globalization plays a key role in this process, which Homburg plant and its reorganization as To secure new markets for our offers university and technical institute EuroVal GmbH, the sale of the Sofunge products and to successfully set up graduates the possibility of qualifying foundry in Brazil and the transmission production in a location, we require for careers in the group through production facility in Argentina. highly qualified executives familiar with internationally oriented training with At the end of the reporting year, local conditions. We have therefore project participation in Germany and 49,432 persons were employed by AEG increasingly regionalized our internatio­ abroad. Daimler-Benz Industrie. A number of nal staff development. In 1995, the In the future, filling the first and se­ structural measures were taken to Asian growth markets were prominent in cond levels of management will be enhance competitiveness. this effort. We devoted special attention limited to individuals capable of Continuing weak demand in aviation to recruiting international junior staff. multicultural management. Moreover, resulted in further staff cutbacks. we intend to use substantially more Whenever possible, adjustments of foreign executives, especially in our capacities to changing market German headquarters. conditions were made by not filling Also, as in previous years, the inter­ previously occupied positions, early national alignment of our executive retirement measures, severance training programs helped us prepare agreements and shortened working our staff in Germany for the challenges hours. In the instances where these of dealing with foreign markets. steps did not suffice, operational layoffs were announced. As part of the Employment Situation Still Tight competition initiative passed by the In order to maintain our inter­ Board of Management of DASA and national competitive position, we were Daimler-Benz AG, extensive measures compelled to continue personnel were announced to restore and secure cutbacks in various group divisions the competitiveness and earning power during the year under review. of DASA even with a continued low At the end of 1995, 310,993 persons dollar exchange rate. To achieve this, (1994: 330,551) were employed in the further layoffs and the sale of individual Daimler-Benz group, of which 242,086 businesses are unavoidable. DASA (1994: 251,254) were in Germany. companies employed 50,784 persons at Social hardships resulting from the end of the year under review. personnel cutbacks, which particularly impacted AEG Daimler-Benz Industrie and DASA, were kept to a minimum. Only a few layoffs were required for operational reasons, and these were unavoidable.

Personnel

Daimler-Benz InterServices and Haus Lämmerbuckel will be run as A portion of the salary is based on quali­ increased personnel in virtually every site services. Daimler-Benz Research tative and quantitative goal agreements. division. Growth was particularly strong will be operated as a largely indepen­ The system was instituted for top in Mobile Communications Services and dent unit. management in 1993. Financial Services. The number of As part of this restructuring we have employees grew 11% to 10,196. made a substantial reduction of the Capital Formation We introduced a new organizational group management staff from over 500 Employees of Daimler-Benz AG and structure at Daimler-Benz AG in August to about 300 employees. This new Mercedes-Benz AG as well as some of 1995. Since then, group headquarters is structure has accelerated the decision­ the debis member companies were able exclusively involved with group manage­ making process within the Daimler-Benz to participate in the 1995 capital ment. This function includes managing group and increased the group formation drive. A total of 69,300 group the group portfolio, finances, group companies' capacity to act on the employees 44% of the persons eligible accounting and controlling, inter-group market. to participate each purchased an personnel management and represen­ employee share of Daimler-Benz AG ting the group to the rest of the world. Junior Staff Development at a preferential rate of DM 374. The service functions previously as a Factor for Success Some 200,000 persons now own managed The need to cut the number of jobs employee shares. by group headquarters have been at all levels and in all areas in group combined in group service centers that companies went hand in hand with the Collective Bargaining provide the corporate units with their training of qualified junior staff. We view Agreements in 1995 services for a fee. In the future, this as a strategic task, particularly with As per the collective bargaining administration, the restaurant, security regard to future competitive challenges. agreements concluded in 1995 after Training was also very important in lengthy negotiations in Western Germa­ 1995. At the end of the year, there were ny, collectively bargained labor costs 11,100 young people in vocational increased 4% during the year under training at our German locations. review, and will increase by an additional Internationally, the Daimler-Benz group 3% in 1996. Introduction of the 35-hour had 13,800 trainees, apprentices and week on October 1, 1995 entailed an graduate students. additional nominal expense of 2.9%. In total, the collectively bargained wages Personnel and Social Welfare and salaries for both years added some Expenses / Company Pensions DM 1.3 billion in additional costs for the Personnel expenditures amounted to entire group. DM 30,1 billion as in the previous year. In Eastern Germany previous The increase is primarily due to German agreements provided that the collective collective wage agreements concluded bargained wages and salaries were during the year under review. raised to 94% of the level of Western The core of our employee benefit Germany on July 1, 1995. package is still the company pension plan. Financed by the company, the Thanks to Our Employees individual pension plans in the Daimler- We extend our thanks to our Benz group contribute to the economic employees, and especially to the security of the employees and their members of the labor councils and families in retirement, as well as in the management committees at all levels of event of disability or death. the group, for their tremendous commitment and efforts. Compensation System Expanded We expanded the group com­ pensation system by including second level management in the group-wide system of variable compensation.

Personnel The negative consolidated net income in the amount of DM 5.7 billion The financial results in 1995 showed is characterized by high non-recurring expenses in connection with the a vigorous increase by DM 1.0 billion to streamlining of the group portfolio, and above all the separation of loss- DM 1.2 billion. Of critical importance ridden units. This also applies to the net income determined on the basis of here was the fact that provisions for U.S. accounting principles (U.S. GAAP) showing a net loss of DM 5.7 billion. losses on financial assets and short- Operating profit, which deteriorated from DM +2.7 billion in 1994 to term securities, at DM 0.3 billion, were DM -1.1 billion in 1995, was also beset with exceptional negative factors. distinctly lower than in 1994 (DM 0.6 At the same time, it is important to consider that operating profit was billion). In addition, after taking on positive again in the second half of the year. banking partners, a substantial share of the domestic leasing business is carried at equity and is thus reflected Statement of Income Characterized that must be carried in these financial in the financial results. Moreover, higher by High Non-Recurring Expenses statements in the interest of the healthy interest and investment income was The consolidated financial state­ development of the company add up to recorded in 1995. ments prepared in accordance with a total of DM 5.1 billion. The results from ordinary business the German Commercial Code were At DM 103.5 billion, group revenues activities clearly deteriorated from significantly burdened by non-recurring were down slightly in 1995 compared DM 2.1 billion to DM-0.8 billion. expenses in 1995. This was a conse­ to the amount for the previous year of The reconciliation of operating profit quence of the systematic analysis and DM 104.1 billion. However, if the 1994 to the results from ordinary business examination of all the divisions con­ amount is adjusted to reflect the activities is shown on page 48. ducted by Daimler-Benz in the second changes in the consolidation group, However, neither this parameter nor six months. It became clear that certain the 1995 amount is 1% higher. The the operating profit/loss and to an even units at AEG Daimler-Benz Industrie and appreciation of the German mark lesser degree the change in net income of DASA would not only fail to meet the relative to other currencies prevented accurately reflect the trend of the group return targets in the foreseeable a strong growth in revenues. operating results in the course of 1995. future, but would continue to burden net After subtracting the cost of sales, Special factors influenced both 1994 net income. In view of the targeted increase which rose disproportionately due to income and - to an even greater extent of the company's earning power, it was the preparations for numerous product - that of 1995. Above all the net loss therefore inevitable that the business launches at Mercedes-Benz as well as in the amount of DM 5.7 billion (1994: portfolio should be streamlined and currency-related reductions in revenues DM +0.9 billion) is characterized by that loss-making divisions should be (increase from 87% to 89% of revenues), non-recurring expenses in connection eliminated. At the same time, far- gross profit dropped by 16% relative to with the withdrawal from loss-making reaching actions would have to be 1994 to DM 11.5 billion. divisions, which is shown as an extra­ taken. Cleaning up the portfolio alone Selling expenses fell by DM 0.3 ordinary loss (DM -3.9 billion). But resulted in an extraordinary expense billion to DM 10.8 billion; as a percent­ special factors are also reflected in the amounting to DM 1.6 billion in the case age of revenues, they dropped from operating result for both years, which of AEG DBI and DM 2.3 billion at DASA. 11% to 10%. The absolute level of admini­ declined from DM +2.7 billion to These were burdens that because of our strative expenses increased by DM 0.2 DM -1.1 billion. Thus the 1994 amount latest decisions had to be included in billion to DM 3.5 billion; in relation to contained non-recurring earnings of the balance sheet for the 1995 financial revenues, they were unchanged at 3%. DM 1.4 billion, which increased income, statements. An additional DM 1.2 billion Of the basic types of expenses while at the same time it contained was incurred for restructuring costs contained in selling and general admini­ restructuring costs amounting to DM 1.1 (1994: DM 1.1 billion). The steps taken strative expenses, personnel expenses billion. Restructuring costs totaling at DASA in this connection should make were nearly unchanged at DM 30.1 DM 1.2 billion had to be accepted again it possible for DASA to be competitive, billion. The lower expenses resulting in 1995. In addition, German accounting even at an exchange rate of DM 1.35 from continued workforce reductions per dollar. The non-recurring expenses were offset by higher expenses resulting from collective bargaining agreements. In contrast, primarily as a result of the continued increase of production at Mercedes-Benz, costs of materials rose by DM 5.3 to DM 61.6 billion. regulations necessitated dollar exchange business. The main contributor to the Consolidated Balance Sheet rate-dependent valuation expenses of debis operating profit was again the Influenced by Restructuring DM 0.8 billion (provisions for risks in the Financial Services Division. Significant The decline of the group's total orderbook) for the loss-free valuation improvements were seen in the System- assets by DM 2.0 billion to DM 91.5 of unfilled orders, particularly in the haus and Mobile Communications billion is primarily the result of the Aircraft Division of DASA. Services divisions. deconsolidation of Fokker. A neutralizing After making an adjustment Although the U.S. net income is effect was provided by the expansion of for these expenses, which cannot in the same order of magnitude as the the leasing and sales financing business. be directly allocated to operations, the net loss according to the German However, the trend of the individual resulting deterioration relative to 1994 Commercial Code, there are significant balance sheet items is distorted by the is primarily attributable to the direct differences in the composition of the fact that the non-current and current influence of the upward valuation of the respective values (see reconciliation assets and the liabilities and provisions German mark relative to other important chart on page 49). In the reconciliation, of the divisions of AEG Daimler-Benz currencies. extraordinary depreciation on property, Industrie destined for sale (Energy plant and equipment and amortization Systems Technology, Automation ex­ of goodwill had a negative effect on cluding Postal Automation, Opto- and income. This was offset by income Vacuum Electronics) were reallocated from deferred taxes, primarily based on to "Other assets" and "Other liabilities." increased tax losses carried forward in In addition, the balance sheet no longer the group. In addition, under U.S. GAAP, contains the assets and liabilities of the unrealized profits from the valuation of companies of the Rail Systems Division securities and financial instruments at that were included in the joint venture market prices must also be considered. formed with ABB, ABB Daimler-Benz Transportation (Adtranz). This joint Decisive factors for the higher Balance Sheet Strongly Influenced venture, formed at the beginning of contribution of Mercedes-Benz included by Financial Services Business 1996, is included in the present con­ the generally favorable sales trend and The balance sheet of the Daimler- solidated financial statements at equity. cost-cutting measures, although both Benz group continues to be strongly Pro-rata consolidation is planned were offset by the upward valuation of influenced by the continued brisk starting in 1996. the German mark. The profit contri­ expansion of our leasing and sales As a result of the deconsolidations bution of AEG DBI continued to be financing business. and reclassifications, current assets negative, while the more favorable con­ Our leasing and sales financing have fallen by 12% to DM 31.8 billion. tribution in 1994 was influenced by book contracts represent a total volume Without the influence of the financial profits totaling DM 0.4 billion from the of future payments amounting to services business, current assets were sale of the AEG Domestic Appliances DM 21,687 million distributed over reduced by DM 3.7 billion to DM 21.2 Division as well as the power meters the coming years as follows: billion. The balance sheet figures are and lighting systems units. At DM -2.7 lower for both property, plant and billion, the contribution of Mercedes- equipment (from DM 17.7 billion to Benz Aerospace was clearly worse than DM 15.9 billion) as well as financial in 1994. On the one hand, this can be assets, which fell from DM 7.4 billion attributed to the drop of the dollar as to DM 4.6 billion. These amounts were well as the difficult competitive situation affected by the reallocation of invest­ on the market for commercial aircraft ment securities to current assets, the and its effects on DASA's profitability, restructuring of the domestic leasing but it is also a result of restructuring business as well as the offsetting of the expenses and provisions for anticipated Sogeti goodwill. losses totaling DM 1.7 billion. Daimler- Benz InterServices (debis) again made a positive contribution. The decline in relation to 1994 is primarily attributable to the changes in the domestic leasing The book value of leased equipment increased by DM 0.3 billion to DM 10.5 billion. Receivables from the sales financing business increased again, by 15% to DM 11.7 billion. The decrease in net inventories by DM 2.4 billion to DM 19.4 billion is primarily due to the deconsolidation of Fokker as well as the disposal of the inventories of the AEG rail systems companies brought into Adtranz. Higher inventories of finished products at Mercedes-Benz had an offsetting effect. Due to the even greater decline in advance payments received - by DM 3.1 billion to DM 3.7 billion - net inventories are up from DM 15.0 to DM 15.8 billion. The restructurings and deconsolidations were felt here also. Liquid assets also declined to DM 11.1 billion (1994: DM 14.0 billion); their share of total assets fell from 15.0% to 12.1%. On the liabilities side, stockholders' equity decreased by DM 6.4 billion to DM 13.8 billion. The high net loss, (without the influence of the financial On page 46 we have provided the offsetting of goodwill and currency services business) covered by stock­ the segment report based on German effects had a negative impact. This was holders' equity decreased from 79.1% accounting in the same form contained offset, on the other hand, by the to 65.5%. in Form 20-F, which we file with the SEC deconsolidation of Fokker. With the As in the previous years, liabilities each year. departure of Fokker, we have retained from leasing and sales financing con­ the offsetting of goodwill not affecting tinued to rise, reaching DM 15.9 billion net income, which was recorded at the (1994: DM 14.5 billion). Provisions rose initial consolidation of Fokker in 1993 from DM 35.6 billion to DM 36.4 billion. at DM 0.8 billion. If the offsetting had Pension accruals stayed at the 1994 affected net income, the group loss ' level of DM 13.1 billion; the reclassifi­ would have been correspondingly cations at AEG Daimler-Benz Industrie higher. On the whole, stockholders' offset the increase due to normal equity as a percentage of total assets additions. Other provisions increased fell from 21.1% to 15.1%. Without the by DM 0.8 billion to DM 23.3 billion financial services business, which due due to the restructuring provisions and to business considerations was pre­ provisions for anticipated losses set up dominantly externally financed, stock­ in earlier years. holders' equity as a percentage of total Both the non-current assets assets is 20.4% (1994: 27.6%). The (without the influence of the financial percentage of non-current assets services business) and the net invento­ ries (reduced by advance payments) continue to be covered by stockholders' equity and long and medium-term provisions.

Decline in Cash Flow and for investments in related Exchange Commission (SEC). Much from Operating Activities companies (DM 0.8 billion) contrasted of the information contained in this Cash flow from operating activities with a reduction of DM 1.8 billion in report is taken from our annual report; declined in 1995 by DM 6.8 billion, outlays for short-term financial invest­ however, additional data and financial to DM 4.5 billion. The primary cause ments. The main element in the cash information are provided that were was the difference in working capital, flow from financial activities in 1995 was determined on the basis of U.S. corrected for changes in the consoli­ outside financing totaling DM 2.4 billion accounting principles. Since there dated group, effects of exchange rates, (1994: DM 0.7 billion); the 1994 figure are substantial differences, especially and the extraordinary results; this factor had been affected by the inflow of in net income and stockholders' equity, alone affected the comparative figures funds from the Daimler-Benz AG capital the reconciliations (see page 49) are for the two years by DM -7.0 million. increase (DM 3.0 billion). The decline in required to convert certain financial While it had been possible in the the various cash flow figures leads to a data from the German consolidated previous year to reduce the capital tied reduction of DM 4.8 billion in cash and financial statements to the values up in inventories and receivables, the a decline of DM 2.9 billion in liquidity. calculated using the U.S. GAAP. tie-up of capital rose substantially in An explanation of the most important 1995, above all as a result of the build­ Additional Information items is provided on page 80. up of inventory at Mercedes-Benz and in Accordance with the higher accounts receivable. The cash U.S. Generally Accepted flow from investment activities rose Accounting Principles (U.S. GAAP) to DM 11.0 billion (1994: 10.6 billion). With the listing of Daimler-Benz Higher net expenditures for leasing stock on the New York Stock Exchange, and sales financing activities (1995: we are obligated to file an annual report DM 6.0 billion, 1994: DM4.9 billion) on Form 20-F with the Securities and

Consolidated Statements of Income Consolidated Non-Current Assets

Notes to the Consolidated Financial Statements Summary of Significant Accounting Policies

The consolidated financial machinery and 2 to 10 years for factory, facturing overhead including depreciat­ statements have been prepared in office and other equipment. If equip­ ion. Loss provisions are recorded for accordance with German generally ment is used in multiple shift operations, inventories that have long periods of accepted accounting principles (German the useful life is reduced accordingly. storage or changes in design. GAAP). All amounts shown herein are Buildings are depreciated using the Short-term securities are valued in millions of German marks (DM). The greater of the straight-line method or at lower of cost or market as of the items combined in the balance sheet the declining balance method. Moveable balance sheet date. as well as in the statement of income property in Germany having a useful life Non-interest or low-interest bearing are listed separately and explained of four years or more is primarily receivables and other assets with more in the notes. depreciated using the declining balance than one year remaining to maturity are method. We employ the straight-line discounted as of the balance sheet date Accounting and Valuation depreciation method as soon as even and valued after taking into account all Where the circumstances are the distribution of the residual book value known risks. An allowance for doubtful same within the consolidated group, over the remaining useful life yields accounts is deducted from the assets and liabilities are valued uni­ larger depreciation allowances. For receivables. formly in the consolidated financial foreign companies, moveable property Provisions for pensions and similar statements. is depreciated for the most part using obligations, including post-retirement Intangible assets are valued at the straight-line method. medical benefits for retirees of U.S. acquisition cost and are amortized Depreciation on plant, property and subsidiaries, are actuarially determined on a straight-line basis. Goodwill equipment additions in Germany during on the basis of an assumed interest rate resulting from a capital consolidation the first and second half of the year is of 6% using the entry age actuarial cost is amortized over a period of 20 years, calculated using full or half-year rates, method. provided it is not charged to respectively, on the basis of the tax Provisions for taxes and other consolidated reserves. simplification rule. Items having an provisions have been recorded using Property, plant and equipment is immaterial value are expensed when the principles of reasonable accounting valued at acquisition or manufacturing purchased. valuation. The obligations in employee cost, less accelerated depreciation. Investments in affiliated companies benefits and social costs are generally Additional depreciation is recorded and other financial assets are valued at recorded using the entry age actual cost where a lower reported amount is the lower of cost or market; long-term method. Derivative financial instruments required. In addition, where applicable, non-interest or low-interest bearing such as currency hedges (forward accelerated depreciation methods are loans are recorded at present value. exchange transactions and currency used in Germany pursuant to certain Significant investments in associated options) and interest hedges (primarily sections of the German tax guidelines, companies are valued at equity interest rate and currency swaps and such as § 4 of the Development Area according to the book value method. futures) are valued individually. If there Act and § 6b of the Income Tax Act. Leased equipment is valued at is a direct relationship between a deriva­ The manufacturing costs of acquisition or manufacturing cost. It tive financial instrument and a basic company-built equipment and facilities is depreciated to residual value primarily transaction, a valuation unit is formed. cover direct costs, as well as allocable using the declining balance method. Provisions exist for interest rate and overhead costs of materials and We employ the straight-line depreciation currency risks as well as for general manufacturing, including depreciation. method as soon as even distribution credit risk. Property, plant and equipment is of the residual book value over the Liabilities are recorded at their depreciated over the following useful remaining useful life yields larger repayment amount. lives: 10 to 50 years for buildings, 8 to depreciation allowances. 20 years for site improvements, 3 to 20 Raw materials, supplies and goods years for technical equipment and purchased for resale are valued at the lower of cost or market; finished goods are valued at manufacturing costs. Manufacturing costs include direct material, labor and applicable manu­ Consolidated Group The seven companies brought Wherever possible, the accrued In addition to Daimler-Benz, the into the joint ventures with Schneider differences arising from capital consoli- consolidated group consists of 319 Electric SA and CEGELEC SA and addi- dation are shown under the respective (1994: 357) domestic and foreign tional corporate units of AEG AG were consolidated balance sheet item and are subsidiaries as well as 18 (1994: 16) deconsolidated on January 1, 1995. amortized to income over the expected joint ventures. The joint ventures are The AEG corporate units (companies useful life. Goodwill is amortized in accounted for using the pro-rata and divisions of AEG AG or of multi- accordance with the method discussed consolidation method. division companies) of the divisions in "Accounting and Valuation" above. During 1995, 68 subsidiaries and Energy Systems Technology and the In the interest of comparability 5 joint ventures were added to the Automation excluding Postal Automati- with the previous years' figures, the consolidation. on, as well as the Opto- and Vacuum DM 841 million in goodwill that was The figures for the eight companies Electronics Division that was formerly allocated to group reserves when of the Rail Systems Division brought into a part of the Microelectronics Division, the Fokker shares were acquired in Adtranz (a joint venture with ABB Asea are destined for sale. They will for the 1993 has been retained - even after Brown Boveri) on December 31, 1995, most part be severed from the the separation of Fokker from the are newly recorded in the consolidated consolidated group effective January 1, consolidated group. The goodwill statement of income only. They are no 1996. For that reason, the assets of of AEG DBI allocated in 1989 in the longer recorded in the consolidated these corporate units have been amount of DM 202 million was treated balance sheet. The opening balance reallocated to "Other assets" and the in a similar manner in the deconsoli- of the joint venture, which is comprised provisions and liabilities have been dation of the affected corporate units. of 55 companies, was initially included reallocated to "Other liabilities." Consolidated earnings were not at equity in the consolidated financial The principal effects of the change affected in either case. statements. After the end of the first in the consolidation group on the A deferred difference arising from year of business of Adtranz, we will consolidated balance sheet and on the the capital consolidation is shown consolidate its balance sheet and consolidated statement of income are separately under "Other provisions" statement of income pro-rata. explained under the individual balance as "Difference from capital consoli- One hundred and six subsidiaries sheet items. dation with accrual character." and three joint ventures left the Three hundred sixty-seven (1994: Appropriated retained earnings of consolidated group. 291) subsidiaries were not included as acquired subsidiaries are included in Due to the financial difficulties their effect on the assets, finances and the company's retained earnings. The affecting Fokker in 1995 and the earnings position was not material. In unappropriated profit reported in the decision of Daimler-Benz Aerospace AG addition, 11 companies administering consolidated financial statements to discontinue its financial support of external pension funds, whose assets represents the unappropriated profits Fokker, court composition proceedings are subject to restrictions, have not of Daimler-Benz. Accordingly, the have been filed for Fokker under Dutch been included in the consolidated proceeds from consolidation measures law (surseance), and management has financial statements. The entire affecting operating income and the been transferred to an independent consolidated group of Daimler-Benz AG unappropriated profits of the receiver. With Fokker no longer under is contained in the list of investment subsidiaries have been offset against group management, Fokker-Holding B.V. holdings filed in the Stuttgart Com- the retained earnings of the company. and N.V. Vliegtuigenfabriek Fokker, mercial Register as entry No. Investments in 142 associated together with their subsidiaries, were HRB 15 350. companies are recorded in the severed from the consolidated group consolidated financial statements. effective December 31, 1995. The Consolidation Principles income statement of the group is still Capital consolidation is fully included in the consolidated accomplished using the book value financial statements. method by netting the acquisition cost and the pro-rata share of stock­ holders' equity of the subsidiary at the time of its acquisition or when it is first included in the consolidation. Joint ventures are also accounted for using this method. For the year ended December 31, Currency Translation 1995, 12 associated companies have Foreign currency assets are been included in the consolidated translated at the lower of the entry date financial statements at equity exchange rate or year-end exchange using the book value method. rate; foreign currency liabilities are The remaining associated companies translated at the higher of the selling are shown as investments in related rate on the entry date or at the companies at acquisition cost net of year-end selling rate. applicable depreciation, since they are The exchange rate on the balance of minor significance for the assets, sheet date is generally used to translate finances and earnings position of balance sheet items of foreign the group. companies from the respective local Payables and receivables between currency to German marks. Excluded consolidated companies are offset; from this treatment are the non-current differences resulting from the consoli­ assets and inventories of companies in dation of debts are treated according highly inflationary countries, where to their effect on results. historical rates are used. Intermediate results deriving The stockholders' equity in German from transactions within the group marks is the remainder after offsetting are eliminated if they are not already translated assets as well as borrowed insignificant. funds and unappropriated profits. The In the consolidated income state­ difference resulting from the currency ment, revenues from internal sales, translation of the balance sheet items as well as other internal revenues, are is charged or credited to stockholders' charged against the corresponding equity; for countries operating in highly expenses. inflationary countries, translation gains The consolidated balance sheet or losses are applied to income. includes deferred taxes from elimination Expense and income items and the procedures affecting net income. net income are translated at the annual average exchange rate. Where such items concern non-current assets and inventories of companies in highly inflationary countries, the historical exchange rates are used and the net income is adjusted accordingly. The difference resulting after translation of the change in reserves, and the balance sheet profit or loss using the year-end exchange rate, is charged or credited to the stockholder's equity.

This item represents receivables from customers in the amount of DM 11,682 million (1994: DM 10,151 million), of which DM 7,503 million (1994: DM 5,831 million) are due within more than one year. The total reflects valuation adjustments amounting to DM 191 million.

Out of the receivables from associated and related companies, DM 395 million (1994: DM 436 million) are attributable to deposits in banks. Other assets essentially consist of tax refund claims and interest receivables. This item also includes liquid assets in non-marketable debt instruments amounting to DM 124 million (1994: DM 197 million). An allowance of DM 4,014 million (1994: DM 1,662 million) has been taken for other receiv­ ables and other assets. The increase is related to the discontinuation of our involvement with Fokker and the restructuring of AEG DBI. Other assets include the following reallocations within the AEG companies destined for sale: DM 25 million from intangible assets; DM 697 million from property, plant and equipment; DM 261 million from financial assets; DM 1,376 million from inventories; DM 1,246 million from receivables and DM 91 from the remaining assets. The reallocations before devaluation total DM 3,696 million.

In 1995, we purchased a total of 304,046 shares of treasury stock at an average price DM 700 per share to transfer to employees of Daimler-Benz AG and the corporate units, and to fulfill the conversion offer still in effect for AEG shareholders. Of this amount, 70,000 shares are al­ located to the capital increase for issuing employee shares, and 234,046 shares to acquisitions in the market (4,771 in January; 903 in February; 5,701 in March; 14,410 in June; 2,852 in July; 64,820 in August; 23,120 in September; 14,510 in October; 44,346 in November; and 58,613 in December). In November 1995, Daimler-Benz AG and the corporate units sold a total of 69,313 shares (par value of DM 3.5 million, or 0.13% of subscribed capital) to employees at a discount price of DM 374 per share. As part of the conversion offer, AEG shareholders received 233,779 Daimler-Benz shares. The remaining 954 shares were sold; accordingly, no treasury stock was on hand on December 31, 1995. Other securities consist primarily of shares and fixed-interest debt instruments.The increase over 1994 is due to reallocations of securities previously included in non-current assets. Certain current assets could have been increased by DM 20 million to their original value; however, this was not done for tax reasons.

The balance of DM 2,104 million (1994: DM 6,915 million) includes cash in banks, cash on hand, cash in the German Bundesbank and deposits in transit. The liquid assets included in various balance sheet positions total DM 11.1 billion (1994: DM 14.0 billion). The checks written but not yet cashed, as well as an irrevocably issued payment order, have been recorded as a reduction of liquidity.

Liabilities to associated and related companies include DM 170 million (1994: DM 77 million) due to financial institutions. The majority of the remaining liabilities to associated and related companies are obligations of Daimler-Benz Aerospace Airbus GmbH to Airbus Industrie G.I.E., Toulouse, and accrued liabilities of Daimler-Benz Aerospace due to project companies. Most of the commercial paper is issued in German marks, specifically on the date of issue plus accrued interest on the balance sheet date. Miscellaneous liabilities are for the most part obligations resulting from the December payroll as well as tax liabilities. The bonds, liabilities to financial institutions, notes payable, liabilities to affiliated and related companies and miscellaneous liabilities are secured by mortgages and liens and the assign­ ment of receivables amounting to approximately DM 820 million (1994: DM 911 million). The miscellaneous liabilities contain the following reclassification within the AEG companies destined for sale: DM 420 million from provisions for pensions; DM 679 million from other provisions; DM 415 million from accounts payable trade; DM 138 million from liabilities to financial institutions; DM 4 million from notes payable; DM 22 million from liabilities to subsidiaries and affiliated companies and DM 814 million from advanced payments received. The reclassifications total DM 2,492 million. Notes to the Consolidated Statements of Income

The selling and general administrative expenses are classified as cost of sales, selling expenses and general administrative expenses in the consolidated statement of income. Interest expenses from leasing and sales financing business included in the cost of sales amount to DM 1,000 million (1994: DM 918 million). Miscellaneous taxes total DM 218 million (1994: DM 297 million).

Other operating income chiefly includes income from dissolved provisions in the amount of DM 1,566 million (1994: DM 1,610 million). This item also contains income from the sale of investment disposals and from the transfers of various obligations. DM 2,130 million (1994: DM 2,718 million) of the other operating income relates to other financial years.

Other operating expenses primarily reflect increases to provisions that cannot be allocated to selling and general administrative expenses, as well as amortization of goodwill and expenses from investment disposals. A total of DM 144 million (1994: DM 121 million) of the other operating expenses relates to other financial years. The extraordinary loss of DM -3,884 million includes non-recurring expenses in the amount of DM 4,287 million from the sale and restructuring of the Energy Systems Technology and the Automation divisions (excluding Postal Automation) of AEG DBI, as well as the provision for risks for the discontinuation of the Fokker involvement; it also includes extraordinary income from the deconsolidation in the amount of DM 403 million (including deferred taxes of DM 114 million).

The income taxes of DM 1,015 million (1994: DM 1,182 million) primarily represent income taxes of the foreign Mercedes-Benz group companies.

The net group loss of DM -5,734 million (1994: DM +895 million) was influenced by statutory depreciation of financial and current assets as well as by the omission of write-ups on non- current assets. These and future effects on net income are immaterial. Derivative financial instruments are used exclusively to hedge against interest rate and currency risks and against foreign exchange risks involved in the holding of foreign securities. They cover the basic supplier and service transactions of the corporate units as well as the original financial transactions (basic transactions). The derivative financial instruments are subject to risk checks appropriate to the scope of the transactions that follow a strict functional division according to trade, administration, documentation and control criteria. The necessary critical organization and work procedures are stipulated by internal guidelines. The effectiveness of the internal controls and the reliability of the procedures are subjected to continual examination. For decision-making purposes, the current risk positions are presented in each case based on regular, standardized financial reports. To reduce risks, limits were set with reference to contracting parties and types of transactions. Contracts exist with respected international financial institutions only. The general credit risk is minimal because of the rating of contracting parties by reputable rating agencies.

The currency instruments above all relate to future exchange transactions and currency options. They are primarily used to protect receivables and liabilities already reported as well as future transactions in the currencies of major industrial countries. The interest rate instru­ ments are predominantly interstate swaps and combined interest rate/currency swaps, forward rate agreements, futures and related options. They are essentially used to reduce the risk of changes in interest rates. The par-values represent the non-balanced total of all purchase and sales contracts of the derivative financial transactions. The book values are derived from the balance sheet items. The market values are derived from the amounts at which the affected derivative financial instruments were traded or listed on the balance sheet date without taking into consideration contrary trends in value resulting from the basic transactions. If no market values are available, they are determined according to accepted valuation methods.

In addition, the company is liable for compensatory payments guaranteed by Daimler-Benz Aerospace AG which cannot be reasonably estimated for 1996 and future years. For outside shareholders of AEG AG and Daimler-Benz Luft- und Raumfahrt Holding AG as well as the shareholders of MTU Motoren- und Turbinen-Union Friedrichshafen, claims also exist for compensatory payments which cannot be reasonably estimated for 1996 and future years. The other financial obligations deriving from rental, leasehold and leasing agreements amount to an annual average of approximately DM 1,427 million; the average contractual period is 6 years. Other financial obligations toward non-consolidated subsidiaries represent annual payments due of approximately DM 111 million over an average contractual period of 9 years. In connection with the fiduciary settlement by Daimler-Benz Aerospace Airbus GmbH of the federally guaranteed serial credits, the probable maximum amount of the tranche to be redeemed by the German Federal Government could only be approximately ascertained based on the negotiations and the audits already completed by the German Federal Government. The final amount of the claim basically existing since 1989 will not be determined until 1996 and after a final audit of all the related facts by the Federal Government. This also applies to the reorganization profit received in 1989. As part of the government-supported Airbus Development Program, Daimler-Benz Aerospace Airbus GmbH has agreed to assume performance portions itself. DM 295 million thereof relate to the time after the balance sheet date, to the extent that they are not already reflected in the annual accounts. All assets acquired by Daimler-Benz Aerospace Airbus GmbH with subsidy funds have been conveyed to the Federal Republic of Germany as security. With reference to the development work for the Airbus program, Airbus Industrie G.I.E. has given a performance guarantee to Agence Executive (the government office in charge of Airbus); this guarantee was taken over by Daimler-Benz Aerospace Airbus GmbH - to the extent of its share interest - without restriction. Daimler-Benz Aerospace Airbus GmbH considers the obligation arising thereof fully covered by the relevant agreements for the financing and execution of the development work. Beginning in 2002, the profit sharing agreement provides that the German Federal Government will share 40% in the profits of Daimler-Benz Aerospace Airbus GmbH. This requirement, in its economic effect, stipulates the sequence of the government's repayment demands. The remaining financial obligations, in particular purchase order commitments for capital investments, are within the normal range. The obligation arising from stock and capital subscriptions in accordance with § 24 of the Limited Liability Company Act (GmbHG) amounts to DM 11 million. Within the scope of sales financing, industry-standard commitments have been entered. The company is jointly and severally liable for certain non-incorporated companies, partnerships and joint ventures. In addition, there exists performance and miscellaneous guarantees in connection with normal business transactions. Within the scope of a right of tender, the company is obligated to purchase the shares of minority shareholders in a subsidiary on demand or to exchange them for treasury stock. A right of tender has been granted the co-partner in a joint venture for its share. Since the value depends on future net income, a value cannot be established at the present time. In order to finance the construction project on Potsdamer Platz in Berlin, the company has signed leases with several special companies committing to pay future leasing rates. These leasing rates, which are computed on the basis of the estimated DM 3.3 billion production costs for the entire complex and are expected to take full effect at the end of 1998, cannot be valued at the present time.

The total remuneration paid by the group companies to the members of the Board of Manage­ ment of Daimler-Benz AG amounts to DM 11,941,418. The remuneration paid to the members of the Supervisory Board of Daimler-Benz AG totals DM 445,257. Disbursements to former members of the Board of Management of Daimler-Benz AG and their survivors amount to DM 15,769,213. An amount of DM 94,369,991 has been accrued in the financial statements of Daimler-Benz AG and Mercedes-Benz AG for pension obligations to former members of the Board of Management and their survivors. As of December 31, 1995, there existed no advances and loans to members of the Board of Management of Daimler-Benz AG. Auditor's Report

We rendered an unqualified opinion on the consolidated financial statements and the business review report in accordance with § 322 HGB (German Commercial Code). The translation of our opinion reads as follows:

"The consolidated financial statements, which we have audited in accordance with professional standards, comply with the legal provisions. With due regard to the generally accepted accounting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and results of operations of the Daimler-Benz group. The business review report, which summarizes the state of affairs of Daimler-Benz Aktiengesellschaft and that of the group, is consistent with the financial statements of Daimler-Benz Aktiengesellschaft and the consolidated financial statements."

Frankfurt/Main, March 20, 1996

KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

Zielke Dr. Koschinsky Wirtschaftsprufer Wirtschaftsprufer "Certified Public Accountant" "Certified Public Accountant"

Statements of Income of Daimler-Benz AG Supervisory Board

HILMAR KOPPER ULRICH HARTMANN PROF. DR. JUR. JOHANNES SEMLER Frankfurt/Main Dusseldorf Kronberg/Taunus Member of the Board of Managing Chairman of the Board of Management Attorney at Law Directors, Deutsche Bank AG and CEO, VEBA AG (since 03/12/1996 judicially appointed) BERNHARD WURL1) Chairman Frankfurt/Main ERICH KLEMM1) Departmental Manager, KARL FEUERSTEIN1) Sindelfingen Office of the Board of Management, Mannheim Chairman of the Labor Council, Metalworkers' Union Chairman of the Corporate Labor Sindelfingen Plant, Mercedes-Benz AG Council, Daimler-Benz Group Chairman of the Joint Labor Council, MARTIN KOHLHAUSSEN Committees of the Mercedes-Benz AG Frankfurt/Main Supervisory Board: Deputy Chairman Chairman of the Board of Managing Directors, Commerzbank AG Committee pursuant to WILLI BOHM1) §27 Sec. 3 MitbestG Worth RUDOLF KUDA1) Member of the Joint Labor Council, Frankfurt/Main HILMAR KOPPER (CHAIRMAN) Worth Plant, Mercedes-Benz AG Departmental Manager, KARL FEUERSTEIN Office of the Board of Management, EDZARD REUTER DR. H.C. BIRGIT BREUEL Metalworkers' Union (from 05/24/1995 until 02/12/1996) Berlin PROF. DR. JUR. JOHANNES SEMLER General Commissioner of EXPO 2000 HELMUT LENSE1) (until 05/24/1995 and Stuttgart since 02/21/1996) PROF. HUBERT CURIEN Chairman of the Labor Council, BERNHARD WURL Paris Unterturkheim Plant, Former Minister of Research and Mercedes-Benz AG Executive Committee Technology of the Republic of France EDZARD REUTER HILMAR KOPPER (CHAIRMAN) DR. JUR. MICHAEL ENDRES Stuttgart KARL FEUERSTEIN Frankfurt/Main (from 05/24/1995 until 02/12/1996) EDZARD REUTER Member of the Board of Management, (from 05/24/1995 until 02/12/1996) Deutsche Bank AG WALTER RIESTER2) PROF. DR. JUR. JOHANNES SEMLER Frankfurt/Main (until 05/24/1995 and WOLFGANG GABELE1) Second Chairman, Metalworkers' Union since 02/21/1996) Bremen BERNHARD WURL Deputy Chairman of the Corporate JÜRGEN SARRAZIN Labor Council, Daimler-Benz Group Frankfurt/Main Audit Committee Chairman of the Corporate Labor Chairman of the Board of Managing Council and the Joint Labor Council, Directors, Dresdner Bank AG HILMAR KOPPER (CHAIRMAN) AEG AG KARL FEUERSTEIN DR. JUR. ROLAND SCHELLING WILLI BOHM MANFRED GOBELS1) Stuttgart DR. BIRGIT BREUEL Stuttgart Attorney at Law Vice President, Mercedes-Benz AG Chairman of the Senior Managers' DR. RER. POL. MANFRED SCHNEIDER Outgoing Member of the Supervisory Committee, Daimler-Benz Group Leverkusen Board: Chairman of the Joint Senior Managers' Chairman of the Board of Management, Committee, Mercedes-Benz AG Bayer AG PROF. DR. RER. NAT. GERD BINNIG Ruschlikon PETER SCHONFELDER1' Project Manager IBM Research Division Augsburg (on May 24, 1995) Member of the Labor Council, Employee representatives. Daimler-Benz Aerospace AG

Supervisory Board Report of the Supervisory Board

The topics addressed by the Super­ KPMG Deutsche Treuhand-Gesell- visory Board primarily include those schaft AG auditing company in Frank­ determined by the economic environ­ furt/Main has audited the 1995 annual ment. Dominating were the strong ap­ accounts for Daimler-Benz AG, the con­ preciation of the German Mark against solidated financial statements and the the US dollar and several important consolidated business review with the European currencies, the high level inclusion of the accounting. They also of public debt, the lackluster economic affixed the unqualified audit certificate. trend in Western Europe as well as the In the Supervisory Board's thorough strong deterioration of conditions, examination, no grounds for complaints particularly in civil aviation. The Board of were found. At its meeting on April 3, Management has reacted to this trend 1996, at which the auditors were pre­ with a thorough evaluation of the group sent, the Board therefore concurred with In 1995, the Supervisory Board portfolio, which already in the first phase the results of the audit by KPMG, and conferred with the Board of Manage­ at the end of 1995 / beginning of 1996 approved the 1995 annual accounts ment concerning the current situation resulted in extensive cuts, restruct­ for Daimler-Benz AG. of the group in four regular meetings. urings, divestments and sales. The change in the Board of Manage­ In addition to the detailed status report, At DASA, extended measures to ment already adopted in the previous the agenda focused on the following achieve competitiveness even at a low year was completed in 1995. Dr. Man­ topics: The March meeting dealt with dollar exchange rate were introduced. gold joined the Board of Management mid-term corporate planning and the Due to the negative trend at Fokker, the on April 1, 1995 as did Dr. Bischoff on refinancing of the company; the April Board of Management and the Super­ May 25, 1995. At the conclusion of the meeting focused on the 1994 annual visory Board resolved in January 1996 Annual General Meeting on May 24, report, the formation of the joint venture to terminate the stop-gap loans to 1995, Mr. Reuter, Dr. Hirschbrunn and in the rails sector with ABB (Adtranz) Fokker after negotiations failed with Dr. Liener left the Board of Management and the Potsdamer Platz project; the the Dutch government concerning prematurely. At the same time, Mr. June meeting was primarily devoted to a financial rescue plan. Schrempp assumed the chairmanship DASA; and the central themes of the The Board of Management and the of the Board of Management to succeed November meeting were civil aviation, Supervisory Board held intensive Mr. Reuter. Adtranz and the events at AEG and discussions concerning the corporate Prof. Dr. Binnig resigned from his Sogeti. options at AEG Daimler-Benz Industrie. position on the Supervisory Board The Audit Committee met twice with As a result, based on appropriate com­ effective at the conclusion of the 1995 the auditors for a comprehensive review mittee decisions, AEG is to be merged Annual General Meeting. The General of the 1994 annual accounts and the with Daimler-Benz AG. Activities such as Meeting elected Mr. Reuter to fill his first-half reports for 1995. The Executive energy systems technology and auto­ position. This body then elected him to Committee also met twice to confer mation technology will be sold; the re­ succeed Prof. Dr. Semler in the Presid­ concerning contractual matters of the maining investments are to be under the ential and Conference Committees. On members of the Board of Management. direct management of Daimler-Benz AG. February 12, 1996, Mr. Reuter resigned There was no need to convene the After an extensive analysis by the from his position on the Supervisory Committee that was formed pursuant interested parties - also against the Board. Mr. Hartmann, chairman of the to the Law on Codetermination. background of the restrictive provisions board of management of VEBA AG, will Each month, the Board of Manage­ of the US Bank Holding Act - the assume Mr. Reuter's place on the ment provided the Supervisory Board cooperative relationship of debis Supervisory Board. with detailed reports concerning the Systemhaus with the French software We wish at this time to express our position of the corporation and its company Cap Gemini Sogeti was special gratitude to the former members divisions. Special developments were reoriented - both in a business sense of the Board of Management and the additionally explained both orally and in and in terms of company law. Supervisory Board for their many years writing. The chairman of the Supervisory An additional main topic of of work, guidance and commitment. Board received regular updates from the discussion was the project at the Pots­ Board of Management in individual damer Platz in Berlin. Particularly the Stuttgart-Mohringen, April 1996 discussions. The Board of Management implementation of the plan and its The Supervisory Board and the Supervisory Board have fulfilled financing were discussed. all legal requirements as well as those The Board of Management has set forth in the articles of incorporation. decisively begun the elimination of weak points in the group portfolio. With its strategic plans, the Board has laid Kopper a strong foundation for the future Chairman development of the group.

Report of the Supervisory Board Executive Management, Daimler-Benz Corporate Representative and Liaison Offices

Executive Management Daimler-Benz Corporate Daimler-Benz Representative Offices Liaison Offices DR. JUR. BOY-JURGEN ANDRESEN Personnel Policy (until 12/31 /1995) Berlin (Alfons Pawelczyk) Abu Dhabi (Gerhard Labitsch, from 07/96) Tel. (49)30-89787 303 Tel. (97) 12-436 531 HANSJÖRG BAUMGART Fax (49) 30-89787 398 Fax (97) 12-436 650 Corporate Art Department Bonn (Alfons Pawelczyk) Bangkok (Gerd-Udo Hauser) MARTIN BERGER Tel. (49) 228-917 6110 Tel. (66) 2-260 6075 Corporate Controlling Fax (49) 228-917 6190 Fax (66) 2-260 6077

HUBERTUS BUDERATH Brussels (Dr. Hanns Glatz) Buenos Aires (Axel Arendt) Corporate Audit Tel. (32) 2-23311 33 Tel. (54) 1-801 3585 DR. RER. POL. ECKHARD CORDES1) Fax (32) 2-23311 80 Fax (54) 1-808 8702 Corporate Development Jerusalem/Tel Aviv (Benjamin Navon) Hanoi (N.N.) MATTHIAS KLEINERT1) Tel. (97) 22-6666 15 Tel. (84)4-24 1236/1463 International Relations and Fax (97) 22-6666 46 Fax (84) 4-24 1462 Corporate Business Cairo (Rudi Stoecker) Hong Kong (Karl-Heinz Michel) DR.-ING. MICHAEL KRAMER Tel. (20) 2-348 6803/6267 Tel. (85) 2-2594 8876 Research 1 Fax (20) 2-348 6954 Fax (85) 2-2594 8801

DR. RER. NAT. VOLKER LEHMANN Mexico City (Ernesto Warnholtz) Kiev (Dr. Dieter Reining) Research 2 (until 09/30/1995) Tel. (52) 5-282 2053 Tel. (38) 044-271 7842/7887 Fax (52) 5-282 2954 Fax (38) 044-277 8555 PROF. WERNER POLLMANN Environmental Officer Moskow (Dr. Andreas Meyer-Landrut) London (Dr. Reiner Ellenrieder) Daimler-Benz Tel. (7) 501-926 4039 Tel. (44) 171-839 8998 Fax (7) 501-926 4038 Fax (44) 171-839 9279 PROF. DR. RER. NAT. ROLF SCHARWACHTER1) New Delhi (Bernd Adler) Madrid (Carlos Espinosa de los Monteros) New Markets Tel. (49) 711-3702929 (temporary) Tel. (34) 1-322 6161 Fax (49) 711-372929 (temporary) Fax (34) 1-322 6019 JORG SEIZER Subsidiaries and Affiliated Companies Paris (Dr. Peter Kostka) Rome (Dr. Jochen Prange) (until 06/30/1995) Tel. (33) 1-392 35600 Tel. (39) 6-41898 405 Fax (33) 1-392 35408 Fax (39) 6-4121 9097/9088 DR. JUR. CHRISTOPH WALTHER Corporate Communications Beijing (Norbert Graeber) Shanghai (N.N.) Tel. (86) 10-593 6680/6678 Tel. (86) 21-6439 5005 1 DR. OEC. PUBL. PAUL WICK ) Fax (86) 10-593 6683/6684 Fax (86) 21-6439 5011 Corporate Treasury Pretoria (Christoph Koepke) Sydney/Melbourne (Bernt Schlickum) 1) DR. JUR. SOLMS WITTIG Tel. (27) 12-203 2001 Tel. (61)39-566 9266 Law Fax (27) 12-217144 Fax (61) 39-566 9110

GERD WORIESCHECK Sao Paulo (Rolf Eckrodt, Dr. Joachim Zahn) Tashkent (Ulrich Fischer) Corporate Human Resources Tel. (55) 11-758 7171/6611 Tel. (7)3712-891374 Fax (55) 11-758 7118/7667 Fax (7) 3712-891674

Singapore (Rainer Herden) Tel. (65) 788 3816

1) With general power of procurement. Fax (65) 788 7453 Tokyo (Rainer Jahn, Wolfgang Dietrich) Tel. (81) 3-5572 7130 Fax (81) 3-5572 7127 Washington D.C. (Peter Hans Keilbach) Tel. (1) 202-408 4900 Fax(1) 202-408 4891

Executive Management, Daimler-Benz Corporate Representative and Liaison Offices Key Figures of Major Subsidiaries of Daimler-Benz AG Principal Subsidiaries and Affiliated Companies of Daimler-Benz AG

Principal Subsidiaries and Affiliated Companies of Daimler-Benz AG Note: Selected consolidated and non- consolidated companies. Capital ties of principal subsidiaries and affiliated companies shown in the table on page 73 as well as in the subsidiaries and affiliates list under section 313 of the HGB (German Commercial Code).

Ownership percentages relate to the relevant parent company. () Capital converted into DEM at year-end rates.

1) Included at equity. 2) Not consolidated. 3) As of 02/29/1996. 4) Via intermediate holdings. 5) Consolidated pro rata. 6) Voting stock 87.5 %.

Principal Subsidiaries and Affiliated Companies of Daimler-Benz AG Daimler-Benz in Figures

Daimler-Benz in Figures 1) Including allocations authorized by the Annual General Meeting and profit carried forward as unappropriated prol 2) Excluding dividend; including equity portion contained in equity reserve. 3) Excluding influences from the financial services business (from 1987 on). 4) Long and medium-term provisions as well as long and medium-term liabilities. 5) Intangible assets, property, plant and equipment, long-term financial assets; excluding leased vehicles (from 1987 on) and non-current assets taken over from newly acquired subsidiaries. 6) From 1991 on cash flow from business activities. 7) Consolidated values of Dornier and MTU included in group revenues. 8) Due to non-recurrent income and expense items not comparable with other years. 9) From 1994 on income taxes. 10) Excluding extraordinary income of DM 4,490 million. 11) For our stockholders who are taxable in Germany. 12) Allowing for increases in capital stock (retroactive adjustment).

Daimler-Benz in Figures The Daimler-Benz Share

In 1995, the development of the Daimler-Benz share was characterized A general recovery or prices set above all by the negative profit prospects and the announced streamlining in with the beginning of 1996. Based of the group portfolio. The capital markets have responded positively to our on the low interest rate, the stable U.S. decisions to increase our concentration on core competencies and divest dollar and confidence in a recovery loss-making activities. of the economy in the second half of the year, the DAX surpassed the 1995 record by 10% in February 1996, reaching 2.474 points.

The Daimler-Benz Share on the Stock Markets In 1995, the price development of Daimler-Benz stock was predominantly shaped by the negative results expected for the year under review. At year-end, the price was at DM 724, representing a 5% decrease from the closing rate for 1994. In early 1996, our stock profited from the generally upbeat market trend. Our announcement in January 1996 that we will be discontinuing our support of Fokker and implementing the final restructuring of AEG led to another surge in prices. At the end of February, Daimler-Benz stock closed at DM 812.30. At 12.2%, the increase over the closing rate for 1995 was higher than on the DAX, which increased by 9.7%. The value of transactions on the Stock Exchange Trend eight German securities exchanges The development of the major inter­ was lower than in the previous year. The national stock exchanges varied widely same applied to sales of Daimler-Benz in 1995. While New York and London shares. And yet, in terms of volume, our were up by at least a third, or 20%, stock was still among the most heavily setting record highs, the price level traded securities. With a market value remained unchanged on the Japanese of DM 159 billion, our stock was the market. Although the performance of volume leader on the German stock the 30 issues listed on the German markets; this figure represents 10% of stock index (DAX) was positive at 7%, all German shares. As one of the major it failed to meet expectations. The forces on the German stock exchange, reasons were twofold: the development we were also included in the electronic of exchange rates affected most German trading system IBIS. companies unfavorably and the collect­ Aside from being traded on the ively bargained wages were generally German stock markets, options on perceived as too high. In late March Daimler-Benz shares are traded on the the DAX fell to the year's lowest level at German futures market (DTB). Some 1.911 points. Two prime rate reductions 1.2 million contracts for Daimler-Benz to encourage the stabilization of the shares were placed in the past year, financial markets and a lower rate of making Daimler-Benz one of the three return in the bond market then led to volume leaders on the DTB. a price rally, with the index reaching the historic high 2.317 points by mid-Sep­ tember. At year-end the DAX was at 2.254 points as compared to 2.107 points at the end of 1994.

he Daimler-Benz Share In addition to the eight German Conversion to 5 DM par value stock Some two-thirds of our capital stock securities exchanges, our stock is also In order to make our stock even is widely held. Deutsche Bank holds a listed on nine stock exchanges outside more attractive, especially for private 24.4% share; the second-largest share­ of Germany: investors, we propose to the Annual holder is the government of Kuwait, General Meeting that the par value of holding just under 13%. Stella Automobil- the stock be lowered from DM 50 to Beteiligungsgesellschaft, which held DM 5. This would at the same time a 12.3% share, was merged with our lower the former high barrier to variable- corporation in March 1995. With a price trading; in the future it would be market value of DM 41.7 billion (end of possible to trade as few as 100 shares February 1996) and more than 450,000 with a par value of DM 5 at the variable- shareholders, Daimler-Benz is one of price quotations, instead of 50 shares Germany's largest public corporations. with a par value of DM 50. Development of a Daimler-Benz In New York, Daimler-Benz stock Capital Stock Stock Portfolio is traded in the form of American Our capital stock increased by What is decisive for the return on a Depositary Shares (ADS); in Singapore, DM 3.5 million to DM 2,568 million in stock portfolio is first and foremost the the shares are referred to as Singapore 1995 following the issuance of employee price of the share when the investment Depositary Shares (SDS). In both in­ shares. Another DM 14 million have is made. Based on the high fluctuation stances, the value of each is one-tenth been approved for the issuance of ad­ margin of Daimler-Benz stock, its per­ of a common German share at a par ditional employee shares by early 1999. formance for German investors varies value of DM 50. Because the remaining approved capital greatly among the three, six and twelve- As on the German stock markets, for capitalization issues in the amount year periods we traditionally postulate. volume trading of our stock decreased of DM 367 million will expire on June 30, Because of the favorable price in the international markets too in 1995, 1996, we are proposing at the Annual situation in early 1993, a German mark with trading down by 17% to 16.3 million General Meeting that it be replaced with investor achieved an average return of shares. Once again, the heaviest volume another DM 500 million in approved ca­ 16.2% in approximately three years. For was far and away in London and New pital. The simplified exclusion principle a twelve-year investment, the return was York. allowed by § 186 of the German Stock only 5.5%. These calculations are based Corporation Law for capitalization issues on the assumption that the proceeds Investor Relations is to be adopted at the same time. An from the stock rights and the cash With the letters to our shareholders, additional DM 300 million in authorized dividends (excluding tax credit) were interim reports, press releases and but unissued capital has been approved always reinvested in Daimler-Benz annual reports, we regularly update through 1999. This gives us the opport­ shares and that the investor made our shareholders on developments at unity to issue warrant or convertible no additional payments. Daimler-Benz. We satisfy the additional bonds for a total nominal amount of information requirements of institutional up to DM 2 billion. investors and financial analysts with round-table conferences and corporate presentations. As in previous years, we gave corporate presentations in several important stock markets in 1995. All of these activities are geared at reinforcing the confidence of our shareholders, potential investors, analysts and port­ folio managers within our company, and they encourage more diversified holdings of our stock among inter­ national investors. Some 6,700 shareholders, shareholder representatives and guests attended our Annual General Meeting on May 24, 1995. This turnout represented 71 % of the subscribed capital.

The Daimler-Benz Share Notes to the Reconciliation of Consolidated Net Income/Loss and Stockholders' Equity to U.S. GAAP

Appropriated Retained Earnings: Goodwill and Business Acquisitions Securities Provisions, Reserves and Under German accounting regu­ Under German accounting princip­ Valuation Differences lations, goodwill can be offset against les, securities are valued at the lower of U.S. accounting principles by far do stockholders' equity, or capitalized and cost or market. In contrast, U.S. GAAP not allow provisions and reserves to the amortized generally over the expected requires that securities be marked to same extent as the German Commercial useful life, which in Germany ranges up higher market value. The changes in the Code. Non-recognized provisions and to 20 years. Under U.S. GAAP, goodwill market value are recorded either directly reserves have to be eliminated, which must be capitalized and amortized in the statements of income or in the has an effect on net income as well over a period not exceeding 40 years. stockholders' equity. as stockholders' equity. According to The expenses of 1995 are based on U.S. GAAP, the stockholders' equity additional amortization of such goodwill Other Valuation Differences increased for that reason alone by that must be taken in accordance with Additional differences between DM 5.3 billion in 1995. The changes U.S. GAAP. German and American accounting not only affected provisions but also methods may occur with respect to property, plant and equipment, net Deconsolidation inventories, minority interests and inventories and receivables. We use the Under German accounting princip­ leasing activities. term "appropriated retained earnings" to les, a company can be deconsolidated disclose to the American investors that once the majority of the shares have Deferred Taxes such retained earnings are not available been sold. According to U.S. GAAP, In the German consolidated financial for distribution as dividends. This term however, a leasing company of which a statements, deferred tax assets result also establishes a bridge between the majority interest has been sold to non- primarily from elimination entries affect­ two different accounting cultures. group entities must remain consolidated ing net income. According to U.S. GAAP, until the economic risks and rewards future advantages from (temporary) dif­ Long-Term Contracts have been fully transferred. ferences between tax and book values Customer revenues and cost of sales and from tax losses carried forward are are recorded under German law in ac­ Pensions and Other also taken into consideration. cordance with the completed contract Postretirement Benefits method, whereas U.S. principles gene­ According to U.S. accounting prin­ rally require that the percentage of ciples, the determination of provisions completion method be used. The for pensions is based, among other majority of contracts within the group things, on anticipated increases in require partial prepayment as well as wages and salaries. The calculation is partial recognition of profits based upon not based on a discount rate of 6%, payments received. Contracts of this which is applicable under German Tax nature are also customary in the U.S.A., Law, but instead, on the interest rate of and are recognized under its accounting the countries involved. Another differ­ regulations. The resulting differences ence relates to the requirement that are therefore not material. health care costs for retirees be actuarily calculated and accrued for in the U.S.A.

Foreign Currency Translation and Financial Instruments Unrealized profits and losses related to the valuation of amounts denominated in foreign currencies and to financial instruments are treated differently in the two accounting systems. Under German law, according to the imparity principle, only unrealized losses are to be recorded, whereas under U.S. GAAP, as well unrealized profits must be recognized.

slotes to the Reconciliation of Consolidated Net Income/Loss and Stockholders' Equity to U.S. GAAP Publications for Our Shareholders: Bajance Sheet Press Conference:

Daimler-Benz Annual Report April 11, 1996 (German, English and French) 10:00 am Form 20 F Liederhalle (English) Stuttgart, Germany Mercedes-Benz Annual Report (German and English) AEG Daimler-Benz Industrie Annual Report Annual General Meeting: (German and English) Daimler-Benz Aerospace (DASA) Annual Report May 22, 1996 (German and English) 10:00 am Daimler-Benz InterServices (debis) Annual Report Hanns-Martin-Schleyer-Halle (German and English) Stuttgart, Germany Daimler-Benz Interim Reports for 1st, 2nd & 3rd Quarters (German, English and French) Disk with Financial Information Daimler-Benz will be reporting on the (English; editable MS EXCEL tables) first quarter of 1996 at the Balance Sheet Press Conference on April 11, 1996, on the first six months with The above publications can be requested from: a semi-annual report published on August 29, 1996, and on the first Daimler-Benz AG nine months in mid-November 1996. Dept. PWV 70546 Stuttgart, Germany Tel/Fax: 49-711-17-9 22 87

Additional information on Daimler-Benz is available on the Internet at http:\\www.daimler-benz.com.

Investor Relations:

Daimler-Benz AG, RKI Tel: 49-711-17-9 22 83 or 9 22 61 Fax:49-711-17-9 41 09

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