Daimler AG: Corporate Overview

Daimler Group Ayesha Majid & Marrium Bano Intermediate Accounting 8/27/16

INTRODUCTION We have chosen Daimler because it a thriving manufacturing MNC and has a strong financial history. The Daimler Company Limited, until 1910 The Daimler Motor Company Limited, was an independent British motor vehicle manufacturer founded in London by H.J. Lawson in 1896, which set up its manufacturing base in Coventry. Daimler is the innovator of the automobile and one of the world’s most innovative manufactures. Daimler is shaping the future mobility. Their vehicles and services make them a pioneer in the industry and they are systematically increasing their lead. Daimler has been a pioneer and a driving force behind the development of personal mobility for 130 years now. Their company’s founders, Carl Benz and Gottlieb Daimler, were strongly motivated by a passion for invention. Also today, innovation remains the most important factor behind their success. Their visionary ideas and ground-breaking developments have put customers on the path to emission-free, accident –free and connected mobility. The project will analyze the company in terms of its taxation, investments and the dividend payout for the year 2015. In order to evaluate the financial position of the company we will looking at the financial statement of Daimler Motor Company. THEIR STRATEGY IS: “As the inventor of the automobile, we believe it is our mission and our duty to shape the future of mobility in a safe and sustainable manner - with trendsetting technologies, outstanding products and made-to-measure services.” THEIR OBJECTIVES ARE: “Our overarching corporate objective is to achieve sustainable, profitable growth and thus to increase the value of the Group. We strive to attain the leading position in all of our businesses.” To achieve these objectives they have defined four Strategic areas of growth for the Group, which they will focus on in coming years. They want to: 1. strengthen their core business

2. grow globally, 3. lead in technology, and 4. drive ahead with digitalization. For example, they are making autonomous driving and pioneering drive system technologies a reality today with world firsts such as the new Mercedes-Benz E-Class, the Freightliner Inspiration Truck and the F 015 Luxury in Motion. EQUITY As of December 31, 2015, the members of the Board of Management held a total of 0.25 million shares or options on shares of Daimler AG (0.024% of the shares issued). On the same date, the members of the Supervisory Board held a total of 0.02 million shares or options on shares of Daimler AG (0.002% of the shares issued).

SHARE CAPITAL The share capital (authorized capital) is divided into no-par-value shares. All shares are fully paid up. Each share confers the right to one vote at the Annual Shareholders’ Meeting of Daimler AG .Each share represents a proportionate amount of approximately €2.87 of the share capital. Since January 1, 2014, there was no material change in the number of shares outstanding/issued. The number at December 31, 2015 is 1,070 million, unchanged from December 31, 2014. APPROVED CAPITAL The Annual Shareholders’ Meeting held on April 9, 2014 authorized the Board of Management, with the consent of the Supervisory Board, to increase the share capital of Daimler AG in the period until April 8, 2019 by a total of €1.0 billion in one lump sum or by separate partial amounts at different times by issuing new, registered no-par-value shares in exchange for cash and/or non-cash contributions DIVIDEND When the dividend pay-out of €2.45 per share is included, Daimler AG shareholders saw the value of their investment rise by 16%. The Kuwait Investment Authority (KIA) currently owns 6.8% of the company’s stock, making it Daimler AG’s largest single shareholder. The Renault-Nissan Alliance continues to hold 3.1% of Daimler’s shares. BlackRock Inc. In December 2015, BlackRock notified that its proportion of the voting rights was 6.12% on November 26. As of that date, the bank held 2.99% of the voting rights in Daimler and the plans call for the investment of €4.75 billion in Daimler AG facilities in Germany over the next few years. Daimler AG also invest $1.3 billion in the expansion of Daimler AG production operations in the United States. So the dividend per share of Daimler AG in 2015 was €3.25 per share and company is committed to a future pay-out-ratio of 40% of the net profit attributable to the shareholder of Daimler AG.

INVESTMENT EQUITY METHOD INVESTMENT In 2015, Daimler AG share of profit from equity-method investments decreased to €0.5 billion (2014: €0.9 billion). In 2014, Daimler lost its significant influence on Tesla, which was previously accounted for using the equity method; the subsequent remeasurement of Daimler AG Tesla shares resulted in a gain of €0.7 billion in 2014. Cash used for investing activities amounted to €9.7 billion (2014: €2.7 billion). The change compared with the prior-year period resulted primarily from acquisitions and disposals of shares in companies. The prior-year period included proceeds of €2.4 billion from the sale of RRPSH shares. Furthermore, the sale of shares in Tesla and the termination of the related share-price hedge led to a cash inflow of €0.6 billion. On the other hand, the reporting period was affected in particular by the capital increases carried out at Daimler AG financial investments and the acquisition of shares in the digital mapping business in December 2015. Cash used for investing activities also reflects the increased investments in intangible assets and property, plant and equipment. Furthermore, negative effects resulted from acquisitions and disposals of securities in the

context of liquidity management. Those transactions led to a net cash outflow in 2015, whereas disposals of securities were higher than acquisitions in the previous year.

1Extract from Consolidated statement of comprehensive income/loss Acquisitions and disposals of equity-method investments

Acquisitions in 2015 There Holding B. V. (THBV) was founded in 2015; Daimler, Audi and BMW each hold 33.3% of the shares of the company. Each of the shareholders provided a capital contribution of €668 million. Effective as of December 4, 2015, There Acquisition B. V., a 100% subsidiary of THBV, acquired the mapping provider HERE from Nokia Corporation for a purchase price of €2,602 million subject to any further purchase price adjustments. The acquisition was financed by capital contributions of €2,000 million and by bank loans taken out by There Acquisition B.V. of €602 million. As of January 29, 2016, There Acquisition B.V. was renamed into HERE International B.V. THBV is accounted for in the consolidated financial statements of Daimler AG as an associated company using the equity method, and is allocated to the Mercedes-Benz Cars segment. Disposals in 2014 In March 2014, the Board of Management and the Supervisory Board of Daimler AG decided to sell the 50% equity interest in Rolls-Royce Power Systems Holding GmbH (RRPSH) to the partner Rolls-Royce Holdings plc (Rolls-Royce). For that purpose, Daimler exercised a put option on its stake in RRPSH. The measurement of the put option resulted in an expense of €118 million. The agreed purchase price of €2,433 million was received in August 2014. The gain on the sale amounted to €1,006 million. In 2014, the Group sold its 4% equity interest in Tesla Motors, Inc. (Tesla) and prematurely terminated the related hedging instrument. The re-measurement of the Tesla shares after the end of Daimler’s significant influence on Tesla led to a non-cash gain of €718 million. An expense of approximately €124 million and a cash inflow of €625 million resulted from the hedging instrument and the sale of the equity interest. A gain of €594 million resulted in total.

TAX

The tax expense of €4.0 billion stated under income tax expense is €1.1 billion higher than in 2014, mainly due to the improved pre-tax income. The effective tax rate for 2015 was 31.6% (2014: 28.3%). In 2014, a gain was recognized on the sale of the RRPSH shares that was largely tax free. But also expenses arose that Daimler AG not tax deductible in connection with the ongoing antitrust investigations of European manufacturers of commercial vehicles by the EU Commission. Therefore, the increase in pretax income is mainly an increase in normally taxed earnings, which led to a correspondingly higher tax expense. In both years, the income tax expense was affected by additional tax benefits and expenses. The year 2015 includes tax benefits in connection with the tax assessment of previous years as Daimler AGll as tax expenses due to valuation allowances on deferred tax assets, while in the year 2014, gains Daimler AGre recognized on the reversal of valuation allowances on deferred tax assets. The income tax expense amounts to €0.9 billion (2014: €1.2 billion). In 2015, the figure includes high tax benefits of €0.7 billion connected with the tax assessment of previous years. Despite a higher tax expense for the year 2015 as a result of the improved operating profit, these tax benefits led to a reduction in the effective income tax expense compared with 2014. Net profit of €3.8 billion was at the prior-year level. The higher than forecast operating profit was partially offset by opposing effects in financial income. Net profit is therefore significantly higher than the amount originally expected.

Income Taxes Profit before income taxes is comprised as shown in table E.18. Profit before income taxes in Germany includes profit/loss from equitymethod investments if the equity interests in those companies are held by German companies. Table E.19 shows the components of income taxes. The current tax expense includes tax benefits at German and foreign companies of €731 million (2014: €53 million) recognized for prior periods. The deferred tax expense is comprised of the components shown in table E.20. For German companies, in 2015 and 2014, deferred taxes were calculated using a federal corporate income tax rate of 15%, a solidarity tax surcharge of 5.5% on each year’s federal corporate income taxes, and a trade tax rate of 14%. In total, the tax rate applied for the calculation of German deferred taxes in both years amounted to 29.825%. For non-German companies, the deferred taxes at period-end were calculated using the tax rates of the respective countries.

CONCLUSION The corporation has a good financial position with a capital raising from non-par ordinary shares and it further invests it through equity investment or on its own divisions. It has a diverse portfolio from automobile manufacturing to finance services for the financing of its automobiles.