<PAGE>
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-64195
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 4, 1998
23,500,000 SHARES
[LOGO]
COMMON STOCK
($1.00 PAR VALUE)
--------------
All of the shares (the "Pension Shares") of Common Stock, par value $1.00
per share (the "Chrysler Common Stock"), of Chrysler Corporation ("Chrysler")
offered hereby are being contributed to the Chrysler Corporation Master
Retirement Trust (the "Trust"), which serves as a funding medium for and holds
the assets of various pension and retirement plans maintained by Chrysler and
its subsidiaries (the "Plans"). Chrysler will not receive any proceeds from any
sales of the Pension Shares by the Trust.
Chrysler has entered into a Business Combination Agreement, dated as of May
7, 1998, as amended and restated (the "Combination Agreement"), with
Daimler-Benz Aktiengesellschaft, a stock corporation (AKTIENGESELLSCHAFT)
organized and existing under the laws of the Federal Republic of Germany
("Daimler-Benz"), and DaimlerChrysler AG, a stock corporation
(AKTIENGESELLSCHAFT) organized and existing under the laws of the Federal
Republic of Germany ("DaimlerChrysler"), pursuant to which each outstanding
share of Chrysler Common Stock (including each Pension Share) is expected to be
converted into the right to receive 0.6235 of an Ordinary Share, no par value,
of DaimlerChrysler (a "DaimlerChrysler Ordinary Share"). See "The Transactions"
beginning on page 32 of the accompanying prospectus.
The Chrysler Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "C." The DaimlerChrysler Ordinary Shares have been
approved for listing on the NYSE under the symbol "DCX" and are currently
trading on a when-issued basis.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN CHRYSLER COMMON STOCK OR DAIMLERCHRYSLER ORDINARY SHARES,
SEE "RISK FACTORS" BEGINNING ON PAGE 21 OF THE ACCOMPANYING PROSPECTUS.
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THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
--------------
The date of this Prospectus Supplement is November 6, 1998.
<PAGE>
THE OFFERING
Chrysler is contributing all 23,500,000 of the Pension Shares to the Trust.
Chrysler is contributing the Pension Shares to the Trust in order to improve the
funded status of the Plans. See "Pension Contribution" on page 62 of the
accompanying prospectus. Chrysler's purpose in issuing the Pension Shares is to
enable the transactions contemplated by the Combination Agreement to qualify for
pooling-of-interests accounting treatment. See "Purpose of Offering" beginning
on page 24 of the accompanying prospectus.
The Trust will not be charged a fee or incur any expenses with respect to
the contribution of the Pension Shares, although it will be responsible for
paying the fees of the investment managers appointed in connection with such
contribution (the "Investment Managers"). See "Pension Contribution" on page 62
of the accompanying prospectus.
The prices and manner of sales by the Trust of Pension Shares, if any, will
be in the sole discretion of the Investment Managers. The proceeds of any such
sales will be for the benefit of the Trust and used to meet its obligations with
respect to providing retirement benefits to participating employees and retirees
and their beneficiaries, and Chrysler will not receive any such proceeds. See
"Use of Proceeds" on page 24 of the accompanying prospectus.
S-1
<PAGE>
23,500,000 SHARES
[LOGO]
($1.00 PAR VALUE)
TO BE CONTRIBUTED TO THE
CHRYSLER CORPORATION MASTER RETIREMENT TRUST
AND THE CHRYSLER CANADA LTD. PENSION FUND
--------------
This Prospectus may be used in connection with the contribution or sale (the
"Pension Contribution") of shares of Common Stock, par value $1.00 per share
(the "Chrysler Common Stock"), of Chrysler Corporation ("Chrysler") to the
Chrysler Corporation Master Retirement Trust and the Chrysler Canada Ltd.
Pension Fund (collectively, the "Trust"), which serves as a funding medium for
and holds the assets of various pension and retirement plans maintained by
Chrysler and its subsidiaries (the "Plans").
The Chrysler Common Stock is traded on The New York Stock Exchange ("NYSE")
under the symbol "C."
Chrysler has entered into a Business Combination Agreement, dated as of May
7, 1998 (as amended and restated, the "Combination Agreement"), with
Daimler-Benz Aktiengesellschaft, a stock corporation (AKTIENGESELLSCHAFT)
organized and existing under the laws of the Federal Republic of Germany
("Daimler-Benz"), and DaimlerChrysler AG, a stock corporation
(AKTIENGESELLSCHAFT) organized and existing under the laws of the Federal
Republic of Germany ("DaimlerChrysler").
The Combination Agreement provides for the business combination of Chrysler
and Daimler-Benz in a series of Transactions (as hereinafter defined) which will
result in Chrysler becoming a wholly owned subsidiary of DaimlerChrysler and
Daimler-Benz merging with and into DaimlerChrysler, with DaimlerChrysler
remaining as the surviving entity. At the effective time of the Chrysler Merger
(as hereinafter defined), each share of Chrysler Common Stock offered hereby
will be converted into the right to receive 0.6235 of an Ordinary Share, no par
value, of DaimlerChrysler (a "DaimlerChrysler Ordinary Share") in connection
with the Transactions. See "The Transactions." Immediately after the
consummation of the Transactions, the former stockholders of Chrysler, including
the persons who acquire the shares of Chrysler Common Stock in any offering for
which this Prospectus is delivered, and the former stockholders of Daimler-Benz
will own all of the issued and outstanding DaimlerChrysler Ordinary Shares.
This Prospectus contemplates the reissuance of Chrysler Common Stock
presently held as treasury shares to enable the Transactions to qualify for
"pooling-of-interests" accounting treatment. See "Purpose of Offering." Although
certain of the conditions to the consummation of the Transactions have been met,
there can be no assurance that the Transactions will be consummated following
the completion of any offering for which this Prospectus is delivered. Chrysler
may also offer through underwriters (the "Offering"), prior to consummation of
the Transactions, shares of Chrysler Common Stock.
If the Transactions are not consummated, purchasers of shares of Chrysler
Common Stock covered hereby will remain holders of Chrysler Common Stock, a
security with investment characteristics that are significantly different from
those of the DaimlerChrysler Ordinary Shares expected to be received in
connection with the Chrysler Merger.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN CHRYSLER COMMON STOCK OR DAIMLERCHRYSLER ORDINARY SHARES,
SEE "RISK FACTORS" BEGINNING ON PAGE 21 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Chrysler will not receive any proceeds from the contribution of the shares
of Chrysler Common Stock covered hereby. The expenses of this registration are
estimated to be approximately $890,000 and will be paid by Chrysler.
The date of this Prospectus is November 4, 1998.
<PAGE>
As used in this Prospectus, unless the context otherwise requires:
"Chrysler" refers to Chrysler Corporation and its consolidated subsidiaries, and
"Daimler-Benz" refers to Daimler-Benz Aktiengesellschaft and its consolidated
subsidiaries, in each case prior to the consummation of any of the Transactions.
As used in this Prospectus, unless the context otherwise requires, the term
"DaimlerChrysler" refers to DaimlerChrysler and its consolidated subsidiaries
which is to be the owner of all outstanding shares of the surviving corporation
following the Chrysler Merger as a result of the Chrysler Exchange (as
hereinafter defined) and the successor corporation to Daimler-Benz as a result
of the consummation of the Daimler-Benz Exchange Offer and the Daimler-Benz
Merger (as hereinafter defined).
------------------------
AVAILABLE INFORMATION
Chrysler is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information concerning Chrysler can be inspected and copied at the
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the Commission's Regional Offices located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Information on the operation of the Commission's
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. Certain reports, proxy statements and other information
concerning Chrysler may also be obtained at the Commission's World Wide Web
site, located at http://www.sec.gov. In addition, material filed by Chrysler can
be inspected at the offices of the NYSE at 20 Broad Street, New York, New York
10005.
This Prospectus constitutes part of a registration statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by Chrysler with the Commission under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. Such information may be
obtained from the Commission's principal office in Washington, D.C. at the
address set forth above upon payment of the fees prescribed by the Commission.
Statements contained in this Prospectus, or in any document incorporated by
reference or deemed to be incorporated by reference into this Prospectus with
respect to the contents of any contract or other document referred to herein or
therein are not necessarily complete, and in each case reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Chrysler with the Commission
under the Exchange Act are incorporated herein by reference:
(a) Chrysler's Annual Report on Form 10-K for the year ended December 31,
1997 (File No. 1-9161);
i
<PAGE>
(b) Chrysler's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1998, June 30, 1998 and September 30, 1998 (File No. 1-9161);
(c) Chrysler's Current Reports on Form 8-K, dated February 6, 1998 and May
7, 1998 (File No. 1-9161);
(d) The description of the Chrysler Common Stock contained in Chrysler's
Registration Statement on Form 8-A (File No. 1-9161) filed with the
Commission on May 23, 1986; and
(e) The Joint Proxy Statement/Prospectus of Chrysler and DaimlerChrysler (as
successor corporation to Daimler-Benz) on Form F-4, filed with the
Commission on August 6, 1998, as amended by Post-Effective Amendment No.
1 thereto, filed with the Commission on September 16, 1998, and by
Post-Effective Amendment No. 2 thereto, filed with the Commission on
October 16, 1998, relating to the Transactions (File No. 333-60767).
The following document previously filed by Daimler-Benz with the Commission
under the Exchange Act is incorporated herein by reference:
Daimler-Benz' Annual Report on Form 20-F for the fiscal year ended December
31, 1997 (File
No. 1-2356).
All documents filed by Chrysler pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, all Forms 20-F filed by Daimler-Benz pursuant to the
Exchange Act and all Forms 6-K filed by Daimler-Benz pursuant to the Exchange
Act that indicate on the cover page thereof that such Forms 6-K are to be
incorporated by reference, after the date of this Prospectus, shall be deemed to
be incorporated by reference into this Prospectus and to be a part hereof from
the date of filing of such documents.
Any statements contained herein, or in a document incorporated or deemed to
be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
herein, or in any other subsequently filed document that is or is deemed to be
incorporated by reference herein, modifies or supersedes such previous
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.
------------------------
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST FROM THE
DIRECTOR, INVESTOR RELATIONS, CIMS 485-06-07, CHRYSLER CORPORATION, 1000
CHRYSLER DRIVE, AUBURN HILLS, MICHIGAN 48326-2766, TELEPHONE NUMBER (248)
512-2950.
No person has been authorized to give any information or make any
representations not contained or incorporated by reference in this Prospectus
and, if so given or made, such information or representation must not be relied
upon as having been authorized by Chrysler or any other person. This Prospectus
does not contain an offer to sell or a solicitation of any seller to buy any
securities other than those offered hereby or an offer to sell or a solicitation
of any seller to buy any securities in any jurisdiction in which, or to any
person to whom, it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor the sale of any securities hereunder shall,
under any circumstances, create an implication that there has been no change in
the affairs of Chrysler since the date hereof or that the information herein is
correct as of any time subsequent to its date.
------------------------
ENFORCEABILITY OF CIVIL LIABILITIES
Upon completion of the Chrysler Merger, purchasers of the shares of Chrysler
Common Stock covered hereby will become holders of ordinary shares of
DaimlerChrysler, a stock corporation (AKTIENGESELLSCHAFT) organized under the
laws of the Federal Republic of Germany. Following the Transactions
ii
<PAGE>
most of the members of the Supervisory Board (AUFSICHTSRAT) of DaimlerChrysler
(the "DaimlerChrysler Supervisory Board") and a number of the members of the
Management Board (VORSTAND) of DaimlerChrysler (the "DaimlerChrysler Management
Board") and certain of the officers of DaimlerChrysler and certain experts named
herein will reside outside the United States. As a result, it may not be
possible for investors to effect service of process within the United States
upon such persons or to enforce, in courts outside the United States, judgments
against such persons obtained in United States courts and predicated upon the
civil liability provisions of the federal securities laws of the United States.
Furthermore, since a substantial portion of the assets of DaimlerChrysler will
be located outside the United States, any judgment obtained in the United States
against DaimlerChrysler may not be collectible within the United States. The
Daimler-Benz legal department has advised that German courts will enforce
judgments of United States courts for liquidated amounts in civil matters
subject to certain conditions and exceptions. Such counsel has expressed no
opinion, however, as to whether the enforcement by a German court of any
judgment would be effected in any currency other than in German marks ("marks"
or "DM") and, if in marks, the date of determination of the applicable exchange
rate from United States dollars ("dollars" or "$") to marks. The Daimler-Benz
legal department has further advised that there may be doubt as to the
enforceability, in original actions in German courts, of liabilities predicated
solely upon the federal securities laws of the United States.
CURRENCY PRESENTATION AND EXCHANGE RATES
For the convenience of the reader, this Prospectus contains translations of
certain mark amounts into dollar amounts, and dollar amounts into mark amounts,
at specified exchange rates. Unless otherwise indicated, the translation of
marks into dollars and of dollars into marks herein has been made at the
indicated noon buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York (the "Noon Buying Rate") on September 30, 1998, which was DM 1.6702 per
$1.00. Such rate may differ from the actual rates used in the preparation of the
consolidated financial statements and the selected consolidated financial data
of Daimler-Benz and the pro forma financial information for DaimlerChrysler
included or incorporated by reference in this Prospectus, which are expressed in
marks. Accordingly, dollar amounts appearing herein may differ from the actual
dollar amounts that were translated into marks in the preparation of such
financial statements, data and information.
Fluctuations in the exchange rate between the dollar and the mark will
affect the dollar equivalent of the mark price of DaimlerChrysler Ordinary
Shares traded on the German stock exchanges and, as a result, are likely to
affect the market price of the DaimlerChrysler Ordinary Shares on the NYSE. Such
fluctuations will also affect the dollar amounts received by holders of
DaimlerChrysler Ordinary Shares on the conversion by The Bank of New York,
DaimlerChrysler's transfer agent and registrar in New York, New York (the "U.S.
Transfer Agent"), into dollars of cash dividends declared in marks on the
DaimlerChrysler Ordinary Shares.
The following table sets forth, for the periods and dates indicated, the
average, high, low and period-end Noon Buying Rates for marks expressed in marks
per $1.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AVERAGE(1) HIGH LOW PERIOD-END
- ------------------------------------------------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1993.................................................. DM 1.6610 DM 1.7405 DM 1.5675 DM 1.7395
1994.................................................. 1.6119 1.7627 1.4920 1.5495
1995.................................................. 1.4261 1.5612 1.3565 1.4345
1996.................................................. 1.5070 1.5655 1.4354 1.5387
1997.................................................. 1.7394 1.8810 1.5413 1.7991
1998 (through October 28, 1998)....................... 1.7872 1.8542 1.6060 1.6537
</TABLE>
- ------------------------
(1) The average of the Noon Buying Rates on the last business day of each month
during the relevant period.
iii
<PAGE>
FORWARD-LOOKING INFORMATION
This Prospectus contains or incorporates by reference certain
forward-looking statements and information relating to Chrysler, DaimlerChrysler
and Daimler-Benz that are based on the beliefs of their respective managements
as well as assumptions made by and information currently available to each of
Chrysler, DaimlerChrysler and Daimler-Benz. When used in this document, the
words "anticipate," "believe," "estimate," "expect," "plan" and "intend" and
similar expressions, as they relate to Chrysler, DaimlerChrysler or Daimler-Benz
or their respective managements, are intended to identify forward-looking
statements. Such statements reflect the current views of each such company with
respect to future events and are subject to certain risks, uncertainties and
assumptions. Many factors could cause the actual results, performance or
achievements of Chrysler, DaimlerChrysler or Daimler-Benz to be materially
different from any future results, performance or achievements that may be
expressed or implied by such forward-looking statements, including, among
others, changes in general economic and business conditions, changes in currency
exchange rates, introduction of competing products by other companies, lack of
acceptance of new products or services by Chrysler's, DaimlerChrysler's or
Daimler-Benz' targeted customers, changes in business strategy, risks that the
synergies anticipated from the Transactions may not be fully realized and
various other factors, both referenced and not referenced in this Prospectus.
See "Risk Factors." Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated, expected, planned or intended. None of Chrysler, DaimlerChrysler or
Daimler-Benz intends, or assumes any obligation, to update these forward-looking
statements.
iv
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS. THIS SUMMARY IS NOT, AND IS NOT INTENDED TO BE, COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
CONTAINED ELSEWHERE IN THIS PROSPECTUS AND THE DOCUMENTS REFERRED TO OR
INCORPORATED HEREIN BY REFERENCE.
THE COMPANY
Chrysler and its consolidated subsidiaries operate in two principal industry
segments: Automotive Operations and Financial Services. Automotive Operations
include the research, design, manufacture, assembly and sale of cars, trucks and
related parts and accessories. Substantially all of Chrysler's automotive
products are marketed through retail dealerships, most of which are privately
owned and financed. Financial Services include the operations of Chrysler
Financial Corporation ("CFC") and its consolidated subsidiaries, which are
engaged principally in providing consumer and dealer automotive financing for
Chrysler's products.
THE BUSINESS COMBINATION
On May 7, 1998, Chrysler announced that it would be combining its businesses
with those of Daimler-Benz, the largest industrial group in Germany. The
businesses of the two companies are combining through the Transactions provided
for in the Combination Agreement, which will have the effect of combining the
respective businesses, stockholder groups, managements and other constituencies
of Chrysler and Daimler-Benz in a "merger-of-equals" transaction. The entity
created by the combination will be called DaimlerChrysler. Immediately after the
consummation of the Transactions, the former stockholders of Chrysler, including
the persons who acquire the shares of Chrysler Common Stock covered hereby, and
of Daimler-Benz will own all of the issued and outstanding DaimlerChrysler
Ordinary Shares. Each share of Chrysler Common Stock covered hereby will be
converted into the right to receive 0.6235 of a DaimlerChrysler Ordinary Share
in the Chrysler Merger.
The combination of Chrysler and Daimler-Benz was initiated because top
management of Chrysler and Daimler-Benz shared the view that consolidation in
the worldwide automotive industry was likely in light of industry overcapacity
and the potential benefits of combining automotive companies arising from joint
product design, development and manufacturing, combined purchasing, other
economies of scale and brand expansion and diversification. Industry
overcapacity has led to increased competitiveness in the automotive industry,
particularly with respect to pricing, which could affect profitability. Chrysler
and Daimler-Benz entered into the Combination Agreement so that they could play
a leading role in this process of expected industry consolidation and choose a
partner with optimal strategic fit.
STRATEGIC RATIONALE FOR THE BUSINESS COMBINATION
The combination of Chrysler and Daimler-Benz will create a leading
automotive company well positioned to exploit the growth opportunities of the
global automotive market. Expected strategic benefits include:
- SIZE. DaimlerChrysler will be one of the world's largest automotive
manufacturers in terms of revenues, market capitalization, earnings and
unit sales, based on pro forma 1997 results. It will have significant
financial strength and access to financial resources to develop new
products and to expand its business in emerging markets, including those
in Asia and Latin America. DaimlerChrysler's pro forma revenues for 1997
and the first nine months of 1998 were approximately $137.5 billion and
$113.6 billion, respectively. DaimlerChrysler's pro forma net income for
1997 and the first nine months of 1998 were approximately $4.8 billion
(exclusive of approximately $2.9 billion of special, non-recurring tax
benefits) and $4.9 billion, respectively.
1
<PAGE>
- COMPREHENSIVE PORTFOLIO OF PRODUCTS AND BRANDS. DaimlerChrysler's
automotive products will cover virtually the entire range of market
segments. Daimler-Benz' strength in premium automobiles complements
Chrysler's strength in sport-utility vehicles and minivans.
DaimlerChrysler's principal automotive brands will be Chrysler, Dodge,
Jeep-Registered Trademark-, Mercedes-Benz, Plymouth and smart. In
addition, DaimlerChrysler will market commercial vehicles carrying the
Freightliner, Mercedes-Benz, Setra and Sterling brand names.
- CAPACITY UTILIZATION. Both Chrysler and Daimler-Benz currently operate at
or near full capacity. Management believes that the combined companies
will be able to allocate production to utilize capacity even more
effectively.
- DISTRIBUTION. Daimler-Benz provides an expanded distribution system for
Chrysler cars and trucks. For example, in Latin America, Daimler-Benz'
commercial vehicle distribution system can be used for Chrysler's light
trucks.
- MANUFACTURING AND DESIGN. Chrysler's strength in product development
complements Daimler-Benz' strength in quality and engineering.
- SYNERGIES. Chrysler and Daimler-Benz management expect the business
combination to lead to savings of $1.4 billion in 1999, the first year of
merged operations, with annual benefits of $3.0 billion within three to
five years. These savings are expected to be achieved through the exchange
of components and technologies, combined purchasing power, shared
distribution logistics, and shared know-how in engineering and
manufacturing.
- NON-AUTOMOTIVE BUSINESSES. Daimler-Benz' non-automotive businesses,
including aerospace, services and rail systems, diesel engines and
automotive electronics operations, should enable DaimlerChrysler to be a
world leader in the areas of traffic and transportation.
CHRYSLER
AUTOMOTIVE OPERATIONS. Chrysler manufactures, assembles and sells cars and
trucks under the brand names Chrysler, Dodge, Jeep-Registered Trademark- and
Plymouth, and related automotive parts and accessories, primarily in the United
States, Canada and Mexico. Passenger cars are offered in various size classes
and models. Chrysler produces trucks in pickup, sport-utility and van/wagon
models, which constitute the largest segments of the truck market. Chrysler also
purchases and distributes certain passenger cars manufactured in the United
States by Mitsubishi Motor Manufacturing of America, a subsidiary of Mitsubishi
Motors Corporation.
Although Chrysler currently sells most of its vehicles in North America,
Chrysler also participates in other international markets through its wholly
owned subsidiaries in Argentina, Brazil, Venezuela, Taiwan, Korea, Japan,
Thailand, Egypt, Austria, Italy, France, Belgium, the Netherlands and Germany, a
joint venture in Austria, and through minority-owned affiliates located in China
and Egypt. Chrysler sells vehicles and parts, and provides related services, to
independent distributors and dealers in various other markets throughout the
world.
FINANCIAL SERVICES. Chrysler's wholly owned subsidiary CFC is a financial
services organization that provides retail and lease financing for vehicles,
dealer inventory and other financing needs, dealer property and casualty
insurance and dealership facility development and management, primarily for
Chrysler dealers and their customers. CFC is the major source of wholesale and
retail financing for Chrysler vehicles throughout North America. CFC also offers
dealers working capital loans, real estate and equipment financing and financing
plans for fleet buyers, including daily rental car companies. The automotive
financing operations of CFC are conducted through 29 zone offices in the United
States and Canada (Chrysler Credit Canada Ltd.). CFC also provides automotive
financial products and services in Europe and Asia.
2
<PAGE>
During 1997, CFC financed or leased approximately 870,000 new and used
vehicles at retail in the United States, including approximately 611,000 new
Chrysler passenger cars and light-duty trucks, representing 27 percent of
Chrysler's U.S. retail and fleet deliveries. During 1997, CFC financed or leased
approximately 114,000 vehicles at retail in Canada, including approximately
102,000 new Chrysler cars and trucks, representing 40 percent of Chrysler's
Canadian retail and fleet deliveries. CFC also financed approximately 1,625,000
and 175,000 new Chrysler passenger cars and light-duty trucks at wholesale in
the U.S. and Canada, respectively, representing 70 percent and 66 percent of
Chrysler's U.S. and Canadian vehicle shipments, respectively, in 1997.
Chrysler's principal executive offices are located at Chrysler World
Headquarters, 1000 Chrysler Drive, Auburn Hills, Michigan 48326-2766, and its
telephone number is (248) 576-5741.
DAIMLER-BENZ
Daimler-Benz operates in four business segments--Automotive (Passenger Cars
and Commercial Vehicles), Aerospace, Services and Directly Managed Businesses.
Daimler-Benz is primarily active in Europe, North and South America and Japan
and is continuing to expand in markets such as Eastern Europe and East and
Southeast Asia, which are also assuming strategic importance as production
locations. In 1997, approximately 33% of Daimler-Benz' revenues was derived from
sales in Germany, 25% from sales in other member states of the European Union
and 21% from sales in the United States and Canada.
AUTOMOTIVE. Daimler-Benz is world renowned for its high quality luxury
Mercedes-Benz passenger cars which reflect a long tradition of exceptional
engineering, performance, service and safety. Daimler-Benz is also the world's
leading manufacturer of trucks over six metric tons ("t") gross vehicle weight
("GVW") and of buses over 8t GVW. It manufactures and assembles passenger cars
and commercial vehicles in 46 manufacturing plants and assembly facilities on
six continents reaching across all product lines and has a worldwide
distribution and service network. The Automotive segment contributed
approximately 71% of Daimler-Benz' revenues in 1997.
The passenger car division has one of the world's strongest car brand names,
and the number one position in the upper luxury segment of the passenger car
market. It has added new innovative products which give Daimler-Benz access to
new markets and customer segments. These products include the A-Class, the
M-Class, the SLK, the CLK and, as a second brand, the smart, a two-seat eight
foot long car designed for heavily congested city use. With the new S-Class,
introduced in the fall of 1998, the passenger car division expects to solidify
its leading position in the upper luxury segment.
The commercial vehicle division has updated the entire range of vans and
trucks it offers in the European market. Following the introduction of three new
van lines and the Actros truck line in the heavy weight category, the
presentation in early 1998 of the Atego truck in the light and medium weight
categories represents the most recent step in this innovation cycle. In the
United States, Freightliner expects to strengthen its leading market position
with the new Sterling product line derived from the heavy truck lines it has
acquired from Ford Motor Company.
AEROSPACE. Daimler-Benz Aerospace is one of the leading European aerospace
companies and the German partner (with a 37.9% share) in the European Airbus
consortium, Airbus Industrie G.I.E. ("Airbus"). Principal Aerospace activities
include civil aircraft and helicopters, military aircraft, space systems
infrastructure, satellites, defense and civil systems and aeroengines. Aerospace
contributed approximately 12% of Daimler-Benz' revenues in 1997.
At Daimler-Benz Aerospace, comprehensive cost-cutting and restructuring
measures markedly improved its competitive position. The pronounced increase of
incoming orders for Airbus aircraft in 1997 and early 1998 will define the
civilian aircraft business of Daimler-Benz during the next several years. The
anticipated combination of the Airbus activities into a single corporate entity
will form the basis for future efficiency and productivity gains, thereby
further strengthening the competitive position of Airbus.
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SERVICES. Daimler-Benz InterServices ("debis") engages in financial
services supporting the sale of Mercedes-Benz cars and trucks and other
Daimler-Benz products, insurance brokerage, information technology services,
telecommunications and media services, trading and real estate management
services. debis contributed approximately 11% of Daimler-Benz' revenues in 1997.
debis is using the strong growth potential of the service industry to
position itself to compete successfully in promising markets, primarily in the
areas of financial services, information technology and telecommunications and
media services. It also will continue to expand internationally and strive to
open up new markets, primarily in Asia, Latin America and Northern Europe.
DIRECTLY MANAGED BUSINESSES. This segment consists of rail systems,
automotive electronics and diesel engines. The semiconductor activities which
were part of this segment in 1997 were sold in March 1998. This segment
contributed approximately 6% of Daimler-Benz' revenues in 1997.
Within the Directly Managed Businesses, Adtranz, the rail systems joint
venture between Daimler-Benz and ABB, has positioned itself as one of the
leaders in the global rail transportation market. It will continue to
concentrate on its core competencies and use every opportunity to achieve
greater economies of scale, for example through increased use of modularization
in product development. Through these and other measures, Adtranz expects to
lower its cost base in order to achieve positive results and continue to deliver
competitive products and systems. Since the sale of the semiconductor
activities, Daimler-Benz' microelectronics activities have focused exclusively
on the fast growing automotive electronics market. MTU/Diesel Engines has
introduced a series of new and innovative products and will work on expanding
its market position, primarily in the area of diesel engines for civilian
applications.
Daimler-Benz' principal executive offices are located at Epplestrasse 225,
70567 Stuttgart, Germany, and its telephone number is 011-49-711-17-0.
DAIMLERCHRYSLER
DaimlerChrysler is a newly formed AKTIENGESELLSCHAFT organized and existing
under the laws of the Federal Republic of Germany that has not, to date,
conducted any activities other than those incident to its formation, and its
execution of and performance of its obligations under, the Combination Agreement
and related agreements. DaimlerChrysler will be the successor corporation to
Daimler-Benz following consummation of the Daimler-Benz Exchange Offer and the
Daimler-Benz Merger.
As a result of the Transactions, the business of DaimlerChrysler and its
subsidiaries will be the businesses currently conducted by Chrysler and
Daimler-Benz. Immediately after the consummation of the Transactions, based upon
the number of shares of Chrysler Common Stock and no par value Ordinary Shares
of Daimler-Benz ("Daimler-Benz Ordinary Shares") issued and outstanding on
September 30, 1998, the former stockholders of Chrysler, including the persons
who acquire the shares of Chrysler Common Stock covered hereby, will own
approximately 42% and the former stockholders of Daimler-Benz will own
approximately 58% of the outstanding DaimlerChrysler Ordinary Shares.
The following table sets forth the respective percentage contributions of
Daimler-Benz and Chrysler to the pro forma total revenues and pro forma income
before income taxes of DaimlerChrysler for the year
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ended December 31, 1997 and for the nine months ended September 30, 1998, and to
the pro forma net assets of DaimlerChrysler as at September 30, 1998.
<TABLE>
<CAPTION>
DAIMLER-BENZ CHRYSLER
----------------- -------------
<S> <C> <C>
Pro Forma Total Revenues
Year ended December 31, 1997....................................... 54% 46%
Nine months ended September 30, 1998............................... 54% 46%
Pro forma Income Before Income Taxes
Year ended December 31, 1997....................................... 35% 65%
Nine months ended September 30, 1998............................... 45% 55%
Pro forma Net Assets at September 30, 1998........................... 59% 41%
</TABLE>
There are currently no plans for the combined company to change the nature
of the business operations of Daimler-Benz and Chrysler described above.
Following consummation of the Chrysler Merger, DaimlerChrysler will have its
registered seat in Stuttgart, Germany, and will maintain two operational
headquarters--one located at the current Chrysler headquarters, 1000 Chrysler
Drive, Auburn Hills, Michigan 48326-2766, and one located at the current
Daimler-Benz headquarters, Epplestrasse 225, 70567 Stuttgart, Germany.
THE TRANSACTIONS
GENERAL
Chrysler has entered into the Combination Agreement with Daimler-Benz and
DaimlerChrysler, pursuant to which (i) DaimlerChrysler has commenced an offer
(the "Daimler-Benz Exchange Offer") to (a) the holders of Daimler-Benz Ordinary
Shares, to exchange one DaimlerChrysler Ordinary Share for each Daimler-Benz
Ordinary Share held by such holder, and (b) the holders of American Depositary
Shares of Daimler-Benz each representing one Daimler-Benz Ordinary Share (the
"Daimler-Benz ADSs"), to exchange one DaimlerChrysler Ordinary Share for each
Daimler-Benz ADS held by such holder; PROVIDED that, if at least 90% of the
outstanding Daimler-Benz Ordinary Shares, including Daimler-Benz Ordinary Shares
represented by Daimler-Benz ADSs were tendered so that the Transactions can be
accounted for as a pooling-of-interests, then each exchanging holder will
receive 1.005 DaimlerChrysler Ordinary Shares for each share exchanged (such
ratio referred to in the foregoing clauses (a) and (b), as it may be so
adjusted, being referred to herein as the "Daimler-Benz Exchange Offer Ratio")
(on October 26, 1998, Daimler-Benz announced that, as of October 23, 1998,
approximately 97% of the outstanding Daimler-Benz Ordinary Shares (including
those represented by Daimler-Benz ADSs) had been tendered and not withdrawn, and
that, with a tender in excess of the 90% Minimum Condition, the Daimler-Benz
Exchange Offer Ratio will be increased to 1.005 from 1.000. Accordingly, the
Daimler-Benz Exchange Offer has been extended until November 6, 1998.);
(ii) immediately following consummation of the Daimler-Benz Exchange Offer,
and after the completion of this offering, a newly incorporated Delaware
corporation will merge with and into Chrysler (the "Chrysler Merger"). In the
Chrysler Merger, each share of Chrysler Common Stock (other than Chrysler Common
Stock held in treasury or by a wholly owned subsidiary of Chrysler) will be
converted into the right to receive 0.6235 (the "U.S. Exchange Ratio") of a
DaimlerChrysler Ordinary Share; and
(iii) as soon as possible following the consummation of the Chrysler Merger,
Daimler-Benz will merge with and into DaimlerChrysler (the "Daimler-Benz Merger"
and, together with the Chrysler Merger, the "Mergers"). As a result of the
Daimler-Benz Merger, each outstanding Daimler-Benz Ordinary Share will be
converted into the right to receive that number of DaimlerChrysler Ordinary
Shares equal to the Daimler-Benz Exchange Offer Ratio (such exchange ratio being
referred to herein as the "Daimler-Benz Merger Exchange Ratio"). Litigation has
been initiated in Germany challenging the Daimler-Benz Merger. The Daimler-Benz
Merger cannot be consummated until such litigation is resolved or a court
determines in a summary proceeding that registration of the merger is not barred
by the pending claims.
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Daimler-Benz does not believe that this litigation should affect any of the
other Transactions. See "The Transactions--Certain Litigation."
The Mergers, including the U.S. Share Exchange (as hereinafter defined) and
the Daimler-Benz Exchange Offer, are referred to collectively as the
"Transactions."
At a special meeting of stockholders of Chrysler held on September 18, 1998,
Chrysler stockholders approved and adopted the Combination Agreement and the
transactions contemplated thereby, including the Chrysler Merger. Chrysler
stockholders are not entitled to appraisal rights under the Delaware General
Corporation Law ("DGCL") in connection with the Chrysler Merger.
As soon as possible after the time the Chrysler Merger becomes effective in
accordance with applicable law (the "Chrysler Effective Time"), DaimlerChrysler
will issue the DaimlerChrysler Ordinary Shares to be issued in the Chrysler
Merger to The Bank of New York (the "U.S. Exchange Agent") for the account of
the former stockholders of Chrysler, and the U.S. Exchange Agent will
contribute, for the account of the former stockholders of Chrysler, all of the
issued and outstanding common stock of the surviving corporation in the Chrysler
Merger to DaimlerChrysler as a transfer in kind (the "U.S. Share Exchange" and,
together with the Chrysler Merger, the "Chrysler Exchange").
GOVERNANCE OF DAIMLERCHRYSLER FOLLOWING THE CHRYSLER MERGER
Chrysler, Daimler-Benz and DaimlerChrysler have agreed that following the
Chrysler Effective Time DaimlerChrysler shall have a corporate governance
structure reflecting that the Transactions contemplate a "merger-of-equals." The
parties have agreed that:
(i) the Articles of Association (SATZUNG) of DaimlerChrysler (the
"DaimlerChrysler Articles of Association") and the Management Board
(VORSTAND) Rules of Procedure (GESCHAFTSORDNUNG) of DaimlerChrysler, in each
case following the Chrysler Effective Time, shall be in form and substance
reasonably acceptable to Chrysler and Daimler-Benz.
(ii) until the DaimlerChrysler Supervisory Board has to be composed in
accordance with Germany's Co-determination Law of 1976, the DaimlerChrysler
Supervisory Board shall be composed of twelve members representing the
stockholders, six of whom shall have been recommended, immediately prior to
the Chrysler Effective Time, by Daimler-Benz from the then-current non-
employee representative members (ANTEILSEIGNERVERTRETER) of the Daimler-Benz
Supervisory Board and six of whom shall have been recommended, immediately
prior to the Chrysler Effective Time, by Chrysler from the then-current
outside members of the Board of Directors of Chrysler (the "Chrysler
Board"). For the period thereafter, the DaimlerChrysler Supervisory Board
shall consist of twenty members; five of the members of the restructured
DaimlerChrysler Supervisory Board shall have been recommended by
Daimler-Benz from non-employee representative members
(ANTEILSEIGNERVERTRETER) of the Daimler-Benz Supervisory Board, five of the
members shall have been recommended by Chrysler from the outside members of
the Chrysler Board, and the remaining ten members shall be employee
representatives. The German metalworkers union IG Metall and the United
Automobile Workers union (the "UAW") have announced that IG Metall will
nominate a UAW member for election to one of the three seats on the
DaimlerChrysler Supervisory Board reserved for nominees of IG Metall.
(iii) for a period of not less than two years following the Chrysler
Effective Time, the current Chairman of Daimler-Benz' Supervisory Board
(AUFSICHTSRAT) shall continue as the Chairman of the DaimlerChrysler
Supervisory Board.
(iv) the DaimlerChrysler Management Board shall initially consist of 18
members. In general, 50% of such members shall be those designated by
Chrysler, and 50% of such members shall be those designated by Daimler-Benz,
and there will be two additional members with responsibility for
Daimler-Benz' non-automotive businesses. For three years following the
Effective Time, Jurgen E. Schrempp and Robert J. Eaton shall be the Co-CEOs
and Co-Chairmen of the DaimlerChrysler
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Management Board (VORSTANDSVORSITZENDE) and members of the Office of the
Chairmen of DaimlerChrysler. Mr. Eaton has indicated his intention to retire
from such position after three years.
The Combination Agreement also provides that (a) the DaimlerChrysler
Management Board will also establish an Integration Committee with a
consultative function which will consist of the Co-Chairmen of the
DaimlerChrysler Management Board (VORSTANDSVORSITZENDE), who will also serve as
Co-Chairmen of the Integration Committee, and 12 or more members (including such
Co-Chairmen), 50% of whom will initially be designated by Chrysler and 50% of
whom will initially be designated by Daimler-Benz; (b) following the Chrysler
Effective Time, DaimlerChrysler shall maintain two operational headquarters, one
located at the current headquarters of Chrysler and one located at the current
headquarters of Daimler-Benz; and (c) following the Chrysler Effective Time,
English shall be the official language for the management of DaimlerChrysler.
See "The Transactions--Governance of DaimlerChrysler."
The Combination Agreement contains no provisions that would bar governance
changes after the Transactions have been consummated.
CONDITIONS TO THE TRANSACTIONS
Although certain of the conditions to the consummation of the Transactions
have been met, there can be no assurance that the Transactions will be
consummated following the completion of the issuance of the shares of Chrysler
Common Stock covered hereby. Consummation of the Transactions is subject to
various conditions, including, among others, the consummation of the
Daimler-Benz Exchange Offer, the receipt of tax opinions from the respective tax
counsel of Daimler-Benz and Chrysler regarding certain United States federal
income and German tax consequences of the Transactions and the receipt by
Chrysler of a private letter ruling from the United States Internal Revenue
Service (the "IRS"), which was received from the IRS on September 4, 1998.
If the Transactions are not consummated, purchasers of the shares of
Chrysler Common Stock covered hereby will remain holders of Chrysler Common
Stock, a security with investment characteristics that are significantly
different from those of the DaimlerChrysler Ordinary Shares expected to be
received in connection with the Chrysler Merger. See "The
Transactions--Conditions to the Transactions."
DESCRIPTION OF DAIMLERCHRYSLER ORDINARY SHARES
The share capital of DaimlerChrysler consists of DaimlerChrysler Ordinary
Shares issued in registered form. Record holders of DaimlerChrysler Ordinary
Shares will be registered in the share register (AKTIENBUCH) administered on
behalf of DaimlerChrysler by the Transfer Agents (as hereinafter defined)
pursuant to the Transfer Agent Agreement (as hereinafter defined). The Transfer
Agents will together maintain the register of stockholders of DaimlerChrysler.
Generally, the share capital of DaimlerChrysler may be increased (other than by
contingent capital or authorized capital) in consideration of contributions in
cash or in property by a resolution passed at a general meeting of the
stockholders of DaimlerChrysler by a majority of the votes cast or at least a
majority of the issued shares represented at the meeting of the stockholders at
which the resolutions are passed. See "Description of DaimlerChrysler Ordinary
Shares."
STOCK EXCHANGE LISTING
The DaimlerChrysler Ordinary Shares have been approved for listing, subject
to official notice of issuance, on the NYSE and will trade thereon under the
symbol "DCX," and it is expected that the DaimlerChrysler Ordinary Shares will
be approved for listing on the FSE. In addition, it is expected that
DaimlerChrysler Ordinary Shares will be traded on the Chicago, Pacific,
Philadelphia, London, Paris, Montreal, Toronto, Swiss, Vienna and Tokyo stock
exchanges as well as all German stock exchanges. On October 26, 1998, the
DaimlerChrysler Ordinary Shares began to trade on a when-issued basis on the
NYSE. See "Market Prices."
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DIVIDENDS
The Daimler-Benz Management Board (VORSTAND) (the "Daimler-Benz Management
Board") and the Chrysler Board have determined, and the prospective
DaimlerChrysler Management Board has indicated its concurrence, that an
appropriate dividend policy for DaimlerChrysler under current business and
economic conditions would result in DaimlerChrysler paying approximately the
same annual dividend amount currently paid to Chrysler stockholders (after
giving effect to the change in share ownership resulting from the U.S. Exchange
Ratio). The dividend would be paid annually after the DaimlerChrysler annual
stockholders meeting, subject to stockholder approval. Although dividends will
be paid in marks (or, following the changeover by DaimlerChrysler to the Euro,
in Euros), for purposes of distribution to holders of DaimlerChrysler Ordinary
Shares in the United States, such amounts will be converted by the U.S. Transfer
Agent into dollars, at the holder's election. There can be no assurance as to
the actual level of dividends that will be paid in any year. See "Dividends."
RECENT DEVELOPMENTS
CHRYSLER'S RESULTS FOR THE THIRD QUARTER OF 1998 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Chrysler reported earnings before income taxes of $1.079 billion for the
third quarter of 1998 compared with $726 million for the third quarter of 1997.
For the first nine months of 1998, Chrysler reported earnings before income
taxes of $4.353 billion, compared with $3.241 billion for the first nine months
of 1997. Net earnings for the third quarter of 1998 were $682 million, or $1.05
per common share ($1.02 per diluted common share), compared with $441 million,
or $0.66 per common share ($0.65 per diluted common share), for the third
quarter of 1997. Net earnings for the first nine months of 1998 were $2.737
billion, or $4.23 per common share ($4.14 per diluted common share), compared
with $1.953 billion, or $2.86 per common share ($2.82 per diluted common share),
for the first nine months of 1997.
The increase in earnings for the third quarter of 1998 compared with the
third quarter of 1997 primarily reflects an increase in vehicle shipments,
partially offset by an increase in depreciation and special tools amortization.
The increase in earnings for the first nine months of 1998 compared with the
first nine months of 1997 primarily reflects an increase in vehicle shipments
and decreased warranty costs, partially offset by an increase in average sales
incentives and depreciation and special tools amortization. Vehicle shipments
for the first nine months of 1997 were negatively impacted by the 29-day strike
at an engine plant in Detroit, Michigan. The decrease in warranty costs was
primarily related to several voluntary customer service actions and recalls
which occurred in 1997. The increase in average sales incentives was
attributable to an increasingly competitive automotive market environment.
Earnings for the third quarter and first nine months of 1997 also included a $41
million charge ($25 million after taxes) for costs related to discontinuing
Chrysler's Eagle brand at the end of the 1998 model year.
Chrysler's worldwide vehicle shipments in the third quarter and first nine
months of 1998 were 673,163 units and 2,348,252 units, respectively, compared
with 605,356 units and 2,125,048 units, respectively, in the third quarter and
first nine months of 1997. The increase in worldwide shipments for the third
quarter of 1998, as compared to the third quarter of 1997, primarily reflects
increased shipments of Chrysler's Dodge Durango and full-size sedans, partially
offset by decreased shipments of Jeep(-Registered Trademark-) Grand Cherokees.
The increase in worldwide shipments for the first nine months of 1998, as
compared to the first nine months of 1997, primarily reflects increased
shipments of Chrysler's Dodge Durango and Dodge Ram pickup trucks as well as a
general increase in passenger cars, partially offset by decreased shipments of
Jeep Grand Cherokees. Decreased shipments of Jeep Grand Cherokees resulted from
the changeover to the all-new Jeep Grand Cherokee which began in the second
quarter of 1998 and was substantially completed in the third quarter of 1998.
Shipments for the first nine months of 1997 also reflect the unfavorable impact
of a 29-day strike during the second quarter of 1997. Chrysler's vehicle
shipments outside of the U.S., Canada and Mexico in the third quarter and first
nine months of 1998 were 38,228 units and 145,919 units, respectively, compared
with 54,138 units and 179,298 units, respectively, in the
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third quarter and first nine months of 1997. The decrease in shipments outside
of the U.S., Canada and Mexico is primarily caused by economic difficulties in
Asian markets.
Chrysler's revenues and results of operations are principally derived from
the U.S. and Canada automotive marketplaces. In the third quarter of 1998,
retail industry sales (including fleet) of new cars and trucks in the U.S. and
Canada, on a Seasonally Adjusted Annual Rate basis, were 16.7 million units
compared with 17.2 million units for the third quarter of 1997. In the first
nine months of 1998, retail industry sales (including fleet) of new cars and
trucks in the U.S. and Canada, on a Seasonally Adjusted Rate basis, were 17.1
million units compared with 16.9 million units for the first nine months of
1997.
DAIMLER-BENZ' RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998
Daimler-Benz revenues for the first six months of 1998 were DM 67.7 billion,
a 21.1% increase from the DM 55.9 billion of revenues achieved in the same
period of 1997. Revenues of Daimler-Benz' Passenger Car division rose 22.7% to
DM 30.6 billion compared to DM 25.0 billion in the first half of 1997, while
revenues of Daimler-Benz' Commercial Vehicle division increased 21.5% from DM
17.8 billion to DM 21.7 billion. Daimler-Benz' Aerospace segment revenues in the
first half of 1998 were DM 7.6 billion and exceeded revenues for the comparable
period in 1997 (DM 6.7 billion) by 13.2%. Revenues in Daimler-Benz' Services
segment improved by 21.7% and revenues of Directly Managed Business segment
decreased 6.0%. Excluding the 1997 revenues of the semiconductor business of
Daimler-Benz sold in the first half of 1998, revenues of the Directly Managed
Business segment increased 19.2%.
Cost of sales and selling, administrative and other expenses, in the
aggregate, decreased as a percentage of revenues from 93.8% to 92.1%.
In the first half of 1998 Daimler-Benz had an operating profit of DM 3.8
billion compared to DM 1.8 billion in the first six months of 1997. The business
segment contributions to Daimler-Benz' operating profit in the first half of
1998 were as follows: Passenger Car division, DM 2.1 billion (first half of
1997: DM 1.5 billion); Commercial Vehicle division, DM 0.9 billion (first half
of 1997: break even); Aerospace, DM 0.3 billion (first half of 1997: DM 0.1
billion); Services, DM 0.4 billion (first half of 1997: DM 0.2 billion); and the
Directly Managed Businesses, DM 0.2 billion (first half of 1997: DM 0.1
billion).
Net income of Daimler-Benz for the first six months of 1998 was DM 2.0
billion, compared to DM 1.0 billion for the same period in 1997.
Worldwide unit sales of the Daimler-Benz' Passenger Car division during the
time period from January 1 to June 30, 1998 were 427.7 thousand, an increase of
27.4% compared to the first six months of 1997 (335.8 thousand cars). Unit sales
for the Commercial Vehicle division rose 19.2% from 192.0 thousand units to
228.9 thousand units. In the first six months of 1998, the Passenger Car
division produced 433.1 thousand automobiles, 28.7% more than during the same
period of the previous year, while production of commercial vehicles increased
21.3% from 202.0 thousand to 245.0 thousand vehicles.
Incoming orders at Daimler-Benz Aerospace for the first six months of 1998
were DM 13.4 billion compared to DM 6.5 billion in the first six months of 1997.
DAIMLER-BENZ' RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Daimler-Benz' revenues for the first nine months of 1998 were DM 102.9
billion. Revenues of Daimler-Benz' Passenger Car Division were DM 46.2 billion,
while revenues of Daimler-Benz' Commercial Vehicles Division were DM 33.2
billion. Daimler-Benz' Aerospace segment revenues in the first nine months of
1998 were DM 11.8 billion.
In the first nine months of 1998, Daimler-Benz had an operating profit of DM
5.5 billion. The business segment contributions to Daimler-Benz' operating
profit in the first nine months of 1998 were as follows: Passenger Car Division,
DM 3.0 billion; Commercial Vehicle Division, DM 1.4 billion; Aerospace, DM 0.6
billion; Services, DM 0.6 billion; and Directly Managed Business, DM 0.1
billion.
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Net income of Daimler-Benz for the first nine months of 1998 was DM 3.3
billion.
Incoming orders at Daimler-Benz' Aerospace for the first nine months of 1998
were DM 21.3 billion.
INTRODUCTION OF THE SINGLE EUROPEAN CURRENCY
On January 1, 1999, eleven member states of the European Union--Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands,
Portugal and Spain--will introduce the Euro as a common legal currency among
those states for "paperless" transactions, pending the substitution of Euro
banknotes and coins for the national currencies of the participating member
states. As of that date, fixed exchange rates will be introduced, according to
which funds denominated in the currency of one participating member state will
be converted into the currency of another participating member state. It is
anticipated that by July 1, 2002, the Euro will be the official legal tender for
the participating member states and that the national currencies of those member
states will be withdrawn from circulation.
Daimler-Benz has committed to adopting the Euro as its corporate currency
throughout its operations beginning January 1, 1999. Recognizing its significant
manufacturing and transactional activity within Europe, the management of
Daimler-Benz believes that it will realize significant long-term benefits from
adoption of the Euro by capitalizing on the greater transparency and market
efficiency resulting from the institution of a single European currency. The
management of Daimler-Benz believes that its revenue and cost results with
respect to products which it manufactures, exports, markets and sells in the
eleven participating member states will be exchange rate neutral, and therefore
the introduction of the Euro is likely to enhance the overall operating results
of the Daimler-Benz group to some degree. As sales and production costs will
both be calculated in Euros, it will also be easier for Daimler-Benz to monitor
its price competitiveness relative to its competitors in the participating
member states. In addition, the introduction of the Euro should, over varying
periods of time, produce the following effects:
BUSINESS AND COMPETITIVE IMPLICATIONS. Daimler-Benz is reviewing the
various ways in which the introduction of the Euro will affect its business
and competitive position. It is expected that the introduction of the Euro
will result in greater market efficiency and will foster a more competitive
economic environment within and among the participating member states. This
is largely a function of the fact that the pricing of products and services
will be more transparent through the use of a single common currency within
the participating member states. The management of Daimler-Benz believes
there will be significant opportunities as a result of these potential
developments of which it plans to take advantage by, for example, enhancing
its marketing strategies and reducing production costs. Costs of funds may
be relatively lower due to increased competition among financial
intermediaries resulting in downward pressure on fees and other transaction
costs due to the elimination of, for example, currency exchange and hedging
activities due to the introduction of the Euro. There can be no assurance,
however, whether and to what extent the introduction of the Euro will affect
the business, financial condition and results of operations of
DaimlerChrysler, or whether it will be able to realize any strategic or
operational benefits from the introduction of the Euro.
SYSTEMS ANALYSIS. The introduction of the Euro will necessitate changes
in information technology and other systems in order to accommodate the use
of the Euro in corporate transactions and in financial reporting.
Daimler-Benz is also currently preparing all of its internal processes and
systems for the transition to the Euro and expects to spend approximately DM
200 million in completing this project. Daimler-Benz will continue to
monitor closely this modification process and to identify and address
additional information technology issues as they arise during this process.
See "Risk Factors-- Year 2000."
CURRENCY AND FOREIGN EXCHANGE EXPOSURE. The introduction of fixed
exchange rates among the participating member states and the ultimate
transition to the Euro will eliminate the need for currency exchange
transactions in the national currencies of these states, resulting in
transaction cost savings to companies, such as Daimler-Benz, based in those
states. In addition, interest rate differences between the participating
member states will also disappear, eliminating the basis for hedging
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and other derivative transactions with respect to such national currencies
and thereby creating further opportunities for transaction cost savings. The
substitution of the Euro for existing national currencies in the
participating member states will also trigger the need to modify many
financial instruments, including derivatives. These instruments will most
likely be replaced by instruments denominated in Euros or subject to
exchange rates or interest rates based on the Euro. Financial innovation
with respect to these new Euro-based financial instruments could expand the
range of financial options for companies such as Daimler-Benz, and may
enable such companies to raise funds on more advantageous terms. Additional,
positive effects are expected to stem from the elimination of speculative
runs on member state currencies as a result of the introduction of fixed
exchange rates, as well as an expanded source of liquidity for the companies
resulting from the replacement of the separate markets of the individual
member states with a new "Euro-zone" comprised of the entire area of the
participating member states. To the extent that Daimler-Benz engages in
significant hedging and other investment transactions in the national
currencies of the participating member states, it expects that its foreign
exchange rate exposure will be significantly reduced once the Euro has been
introduced. Moreover, the management of Daimler-Benz believes that
DaimlerChrysler will realize considerable annual savings due to reduced
transaction and foreign currency hedging costs. There can be no assurance,
however, when and to what degree DaimlerChrysler will ultimately realize
these benefits from the introduction of the Euro.
Daimler-Benz intends to continue exploring various strategic and operational
measures with respect to the introduction of the Euro with a view to enhancing
its overall financial position, operating results and market position. These
strategic and operational options will be shaped to some extent by both European
and national rules and regulations regarding the particular measures required to
complete the transition to the Euro as the legal currency of the participating
member states.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE CHRYSLER EXCHANGE
The obligation of Chrysler to consummate the Chrysler Exchange is
conditioned upon the receipt by Chrysler from Debevoise & Plimpton of an
opinion, based in part on a private letter ruling received from the IRS on
September 4, 1998 addressing certain issues under Section 367(a)(1) of the Code,
substantially to the effect that for United States federal income tax purposes,
the Chrysler Exchange should be treated as a non-recognition transfer of
Chrysler Common Stock by the holders thereof in exchange for DaimlerChrysler
Ordinary Shares. Assuming the Chrysler Exchange is treated as a non-recognition
transfer of Chrysler Common Stock by the holders thereof in exchange for
DaimlerChrysler Ordinary Shares, no gain or loss will be recognized for United
States federal income tax purposes by U.S. Holders (as hereinafter defined) who
exchange their Chrysler Common Stock for DaimlerChrysler Ordinary Shares
pursuant to the Chrysler Exchange.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE CHRYSLER EXCHANGE AND OF HOLDING
DAIMLERCHRYSLER ORDINARY SHARES. FOR A MORE DETAILED DISCUSSION OF THE TAX
CONSEQUENCES OF THE CHRYSLER EXCHANGE AND OF HOLDING DAIMLERCHRYSLER ORDINARY
SHARES, SEE "THE TRANSACTIONS--CERTAIN TAX CONSEQUENCES TO U.S. HOLDERS" AND
"--CERTAIN TAX CONSEQUENCES TO NON-U.S. HOLDERS."
11
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........................... Chrysler Common Stock, par value $1.00 per
share. See "Description of Chrysler Capital
Stock." If the Chrysler Merger is
consummated, each share of Chrysler Common
Stock covered hereby will be converted into
the right to receive 0.6235 of a
DaimlerChrysler Ordinary Share in the
Chrysler Merger. See "The
Transactions---General." Chrysler may also
offer through underwriters (the "Offering")
shares of Chrysler Common Stock.
Use of Proceeds.............................. Chrysler will not receive any proceeds from
any sale of the shares contributed to the
Trust. The proceeds of any such sales will be
for the benefit of the Trust and used to meet
its obligations with respect to providing
retirement benefits to participating
employees and retirees and their
beneficiaries. The net proceeds of any sale
of shares to the Trust will be used by
Chrysler for general corporate purposes,
including working capital. See "Pension
Contribution."
New York Stock Exchange Symbol............... C (DaimlerChrysler Ordinary Shares have been
approved for listing on the NYSE under the
symbol "DCX" and are currently trading on a
when-issued basis. It is expected that the
DaimlerChrysler Ordinary Shares will be
approved for listing on the Frankfurt Stock
Exchange and are expected to be traded on the
Chicago, Pacific, Philadelphia, London,
Paris, Montreal, Toronto, Swiss, Vienna and
Tokyo stock exchanges, as well as on all
other German stock exchanges.)
</TABLE>
PURPOSE OF OFFERING
Chrysler's purpose in issuing the shares covered hereby is to enable the
Transactions to qualify for pooling-of-interests accounting treatment. See
"Purpose of Offering."
RISK FACTORS
In considering an investment in Chrysler Common Stock and the
DaimlerChrysler Ordinary Shares to be received in connection with the
Transactions, prospective investors should carefully review and consider the
following: the issuance of the shares of Chrysler Common Stock covered hereby is
not conditioned on consummation of the Transactions; the value of the
DaimlerChrysler Ordinary Shares to be received by holders of Chrysler Common
Stock is subject to fluctuation; risks relating to the integration of the
companies; and risks relating to the valuation proceeding available under German
law (SPRUCHVERFAHREN). See "Risk Factors."
12
<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA OF CHRYSLER
The unaudited selected consolidated financial data set forth below as of
September 30, 1998 and for the nine-month periods ended September 30, 1998 and
1997 should be read in conjunction with, and are qualified in their entirety by
reference to, the unaudited consolidated financial statements as of September
30, 1998 and for the nine-month periods ended September 30, 1998 and 1997
included in this Prospectus. The selected consolidated financial data set forth
below as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997 should be read in conjunction with,
and are qualified in their entirety by reference to, the consolidated financial
statements as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997 included in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997(1) 1997(2) 1996(3) 1995(4) 1994(5) 1993(6)
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues........................ $ 48,758 $ 43,680 $ 61,147 $ 61,397 $ 53,195 $ 52,235 $ 43,600
Earnings before extraordinary item and
cumulative effect of changes in
accounting principles............... 2,737 1,953 2,805 3,720 2,121 3,713 2,415
Basic earnings per common share*...... 4.23 2.86 4.15 5.09 2.81 5.13 3.38
Net earnings (loss)................... 2,737 1,953 2,805 3,529 2,025 3,713 (2,551)
Basic earnings (loss) per common
share*.......................... 4.23 2.86 4.15 4.83 2.68 5.13 (3.81)
Diluted earnings (loss) per common
share*.......................... 4.14 2.82 4.09 4.74 2.56 4.55 (3.19)
Dividends declared per common
share*.............................. 1.20 1.20 1.60 1.40 1.00 0.55 0.33
Total assets.......................... 67,736 60,119 60,418 56,184 53,756 49,539 43,679
Total debt............................ 18,133 15,934 15,485 13,396 14,193 13,106 11,451
Convertible preferred stock (in
shares)............................. -- 0.02 0.02 0.04 0.14 1.72 1.72
</TABLE>
- ------------------------------
* Per share data have been adjusted to reflect the two-for-one stock split in
1996. In addition, per share data have been restated to reflect the adoption
of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share," which replaces the presentation of primary earnings per share
("EPS") and fully diluted EPS with a presentation of basic EPS and diluted
EPS, respectively.
(1) Earnings for the first nine months of 1997 include an estimated unfavorable
impact related to a 29-day strike at an engine plant in Detroit, Michigan.
The full-year estimated impact of the strike was $590 million ($364 million
after taxes) after considering partial recovery of production losses.
Earnings for the period also reflect a $41 million charge ($25 million after
taxes) for costs related to the decision to discontinue Chrysler's Eagle
brand at the end of the 1998 model year.
(2) Earnings for the year ended December 31, 1997, reflect the unfavorable
impact of a 29-day strike which reduced earnings by an estimated $590
million ($364 million after taxes) after considering partial recovery of
production losses from the strike, and a $41 million charge ($25 million
after taxes) for costs related to the decision to discontinue Chrysler's
Eagle brand at the end of the 1998 model year. The effect of these
unfavorable items was partially offset by the recognition of $97 million
($60 million after taxes) of previously deferred profits from the sale of
vehicles from Chrysler to Dollar Thrifty Automotive Group, Inc. ("DTAG,"
formerly Pentastar Transportation Group, Inc.) as a result of the December
1997 initial public offering of Chrysler's common stock interest in DTAG.
(3) Earnings for the year ended December 31, 1996, include a charge of $97
million ($61 million after taxes) for costs associated with a voluntary
early retirement program for certain salaried employees, a charge of $77
million ($51 million after taxes) related to a write-down of Pentastar
Electronics, Inc., a charge of $65 million ($100 million after taxes)
related to a write-down of Thrifty Rent-A-Car System, Inc., a charge of $50
million ($31 million after taxes) for lump-sum retiree pension costs related
to the 1996 UAW collective bargaining agreement, and a gain of $101 million
($87 million after taxes) from the sale of Electrospace Systems, Inc. and
Chrysler Technologies Airborne Systems, Inc.
13
<PAGE>
(4) Earnings for the year ended December 31, 1995, were reduced by a $263
million charge ($162 million after taxes) for costs associated with
production changes at Chrysler's Newark, Delaware assembly plant and a $115
million charge ($71 million after taxes) for a voluntary minivan owner
service action. Net earnings in 1995 also include an after-tax charge of $96
million for the cumulative effect of a change in accounting principle
related to the consensus reached on Emerging Issues Task Force ("EITF")
Issue 95-1, "Revenue Recognition on Sales with a Guaranteed Minimum Resale
Value."
(5) Earnings for the year ended December 31, 1994, include favorable adjustments
to the provision for income taxes aggregating $132 million. These
adjustments related to: (1) the recognition of tax credits related to
expenditures in prior years for qualifying research and development
activities, in accordance with an Internal Revenue Service settlement which
was based on U.S. Department of Treasury income tax regulations issued in
1994, and (2) the reversal of valuation allowances related to tax benefits
associated with net operating loss carryforwards.
(6) Results for the year ended December 31, 1993, include a pretax gain of $205
million ($128 million after taxes) on the sale of Chrysler's remaining 50.3
million shares of Mitsubishi Motors Corporation stock, a pretax gain of $60
million ($39 million after taxes) on the sale of Chrysler's plastics
operations, a $4.7 billion after-tax charge for the adoption of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and a $283 million after-tax charge for the adoption of SFAS No.
112, "Employers' Accounting for Postemployment Benefits."
------------------------------
14
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF DAIMLER-BENZ
The selected unaudited consolidated financial data set forth below as of
September 30, 1998 and for the nine-month period ended September 30, 1998 and as
of June 30, 1998 and for the six-month periods ended June 30, 1998 and 1997
should be read in conjunction with, and are qualified in their entirety by
reference to, the unaudited consolidated condensed Balance Sheets and Statements
of Income and Cash Flows as of September 30, 1998 and for the nine-month period
ended September 30, 1998 and the unaudited consolidated financial statements as
of June 30, 1998 and for the six-month periods ended June 30, 1998 and 1997
included in this Prospectus. The selected consolidated financial data set forth
below as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997 should be read in conjunction with,
and are qualified in their entirety by reference to, the consolidated financial
statements as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997 (the "Daimler-Benz Consolidated
Financial Statements") included in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SIX MONTHS ENDED JUNE 30,
---------------------- ----------------------------------
1998(1) 1998 1998(1) 1998 1997
--------- ----------- --------- ----------- ----------
(IN MILLIONS, EXCEPT FOR DAIMLER-BENZ
ORDINARY SHARE AND ADS AMOUNTS)
<S> <C> <C> <C> <C> <C>
U.S. GAAP
INCOME STATEMENT DATA:
Revenues.................................... $ 61,608 DM 102,897 $ 40,542 DM 67,714 DM 55,892
Income before financial income and income
taxes..................................... 2,995 5,003 2,016 3,368 1,322
Net income.................................. 1,965 3,282 1,204 2,010 992
Basic earnings per Ordinary
Share/ADS(2)(3)........................... 3.63 6.06 2.28 3.81 1.89
Diluted earnings per Ordinary
Share/ADS(3)(4)........................... 3.57 5.97 2.20 3.68 1.88
BALANCE SHEET DATA (END OF PERIOD):
Inventories, net of advance payments........ 9,914 16,559 9,544 15,940
Total assets................................ 86,897 145,135 85,016 141,994
Total borrowings............................ 26,697 44,589 24,885 41,563
Stockholders' equity........................ 20,395 34,064 20,217 33,767
</TABLE>
- ------------------------------
(1) Amounts in this column are unaudited and have been translated solely for the
convenience of the reader at an exchange rate of DM 1.6702 = $1.00, the Noon
Buying Rate on September 30, 1998.
(2) Basic earnings per Daimler-Benz Ordinary Share/ADS are calculated by
dividing net income by the weighted average of Daimler-Benz Ordinary
Shares/ADSs outstanding, without regard to options and conversion rights.
Net income represents total income generated by Daimler-Benz after minority
interest.
(3) Basic and diluted earnings per Daimler-Benz Ordinary Share/ADS information
have been adjusted to reflect the approximately 20% discount to market value
at which the Daimler-Benz Ordinary Shares and Daimler-Benz ADSs were sold in
the Rights Offering (as hereinafter defined).
(4) Earnings per Daimler-Benz Ordinary Share/ADS on a diluted basis reflect the
potential dilution that would occur if all dilutive options to acquire and
rights to convert securities convertible into Daimler-Benz Ordinary Shares
were exercised.
15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1997(1) 1997 1996 1995 1994 1993
--------- ------------ ------------ ------------ ------------ -----------
(IN MILLIONS, EXCEPT FOR DAIMLER-BENZ ORDINARY SHARE AND ADS AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
U.S. GAAP
INCOME STATEMENT DATA:(2)
Revenues...................... $ 74,273 DM 124,050 DM 106,339 DM 102,985 DM DM
Income (loss) before interest
and taxes................... 2,174 3,631 1,465 (8,162)
Net income (loss)............. 4,815 8,042(3) 2,762 (5,729) 1,052(4) (1,839)
Basic earnings (loss) per
Ordinary Share/ ADS(5)(6)... 9.16 15.30(7) 5.27 (10.96) 2.11(4) (3.88)
Diluted earnings (loss) per
Ordinary Share/ ADS(6)(8)... 8.99 15.01(7) 5.25 (10.96) 2.11(4) (3.88)
Regular annual dividends per
Ordinary Share/ ADS(6)...... 0.94 1.57 1.08 -- 1.08 0.78
Special Distribution.......... 11.75 19.63(9) -- -- -- --
BALANCE SHEET DATA (END OF
PERIOD):(10)
Inventories, net of advance
payments.................... 8,616 14,390 13,602 14,329
Total assets.................. 82,085 137,099 112,461 102,098 102,635 99,029
Short-term borrowings......... 13,223 22,086 16,011 13,614
Long-term borrowings.......... 10,308 17,216 12,839 8,671
Stockholders' equity.......... 21,007 35,085 26,393 22,860 29,435 26,281
GERMAN GAAP
INCOME STATEMENT DATA:
Revenues...................... 103,549 104,075 98,534
Results from ordinary business
activities.................. (835) 2,077 (1,473)
Extraordinary results(11)..... (3,884) -- 2,603
Net income (loss)............. (5,734) 895 615
Earnings (loss) per Ordinary
Share/ ADS(5)(6)............ (10.85) 2.12 1.27
BALANCE SHEET DATA (END OF
PERIOD):
Inventories, net advance of
payments.................... 15,764 14,976 16,945
Total assets.................. 91,540 93,536 90,926
Short-term borrowings......... 16,410 12,524 11,093
Long-term borrowings.......... 8,578 10,667 12,174
Stockholders' equity.......... 13,842 20,251 18,145
</TABLE>
- ------------------------------
(1) Amounts in this column are unaudited and have been translated solely for the
convenience of the reader at an exchange rate of DM 1.6702 = $1.00, the Noon
Buying Rate on September 30, 1998.
(2) Net income (loss) includes other income of DM 1,620, DM 1,402, and DM 1,742,
for the years ended December 31, 1997, 1996 and 1995, respectively. Other
income includes gains on sales of property, plant and equipment (DM 186, DM
254, and DM 148 in 1997, 1996, and 1995, respectively), gains on sales of
companies (DM 228 and DM 233, in 1997 and 1996, respectively) rental income
(DM 132, DM 68, and DM 72 in 1997, 1996, and 1995, respectively), foreign
currency exchange gains (DM 69, DM 5, and
16
<PAGE>
DM 69 in 1997, 1996 and 1995, respectively), and reductions in certain
accruals (DM 302, DM 222, and DM 295 in 1997, 1996, and 1995, respectively).
(3) The amount shown for 1997 includes DM 4,870 ($2,916) of special
non-recurring tax benefits. These tax benefits resulted from the Special
Distribution and the reversal of the remaining valuation allowances
previously established on deferred tax assets on Daimler-Benz books at
year-end which resulted primarily from net operating loss carryforwards of
Daimler-Benz' German group companies that file a combined tax return
(ORGANSCHAFT). The Special Distribution tax benefit was DM 2,908 and the
valuation allowance reversal tax benefit was DM 1,962.
(4) Net income in 1994 includes DM 178 of income for the cumulative effect of
accounting changes. Basic and diluted earnings per Daimler-Benz Ordinary
Share/ADS in 1994 increased by DM 0.36 as a result of such changes.
(5) Basic earnings (loss) per Daimler-Benz Ordinary Share/ADS are calculated by
dividing net income by the weighted average of Daimler-Benz Ordinary
Shares/ADSs outstanding, without regard to options and conversion rights.
Net income represents total income generated by Daimler-Benz after minority
interest. See Note 25 to the Daimler-Benz Consolidated Financial Statements.
(6) Effective as of July 1, 1996, the nominal value of the Daimler-Benz Ordinary
Shares was reduced to DM 5 per share from the previous level of DM 50 per
share. This reduction had the effect of a 10 for 1 stock split, which in
turn reduced the price at which one Daimler-Benz Ordinary Share trades to
1/10 of the price at which it previously traded. As a result, earnings
(loss) and dividends per Daimler-Benz Ordinary Share/ADS are calculated on
the basis of a nominal value of DM 5 per Daimler-Benz Ordinary Share.
Earnings (loss) and dividends per Daimler-Benz Ordinary Share/ADS for 1995
and prior years have been recalculated to reflect this change in nominal
value. In connection with the 10 for 1 stock split, Daimler-Benz also
changed the ratio of Daimler-Benz Ordinary Shares to Daimler-Benz ADSs from
its previous 1 to 10 ratio to a 1 to 1 ratio. Accordingly, per Daimler-Benz
ADS amounts are calculated on the basis of one Daimler-Benz ADS for one
Daimler-Benz Ordinary Share. In addition, earnings (loss) per Daimler-Benz
Ordinary Share/ADS and regular annual dividends per Daimler-Benz Ordinary
Share/ADS and Special Distribution information have been adjusted to reflect
the approximately 20% discount to market value at which the Daimler-Benz
Ordinary Shares and Daimler-Benz ADSs were sold in the Rights Offering.
(7) The 1997 amounts of basic and diluted earnings per Daimler-Benz Ordinary
Share/ADS include special non-recurring tax benefits. Excluding these
benefits, the basic and diluted earnings per Daimler-Benz Ordinary Share/ADS
in 1997 were DM 6.04 and DM 5.96, respectively.
(8) Earnings per Daimler-Benz Ordinary Share/ADS on a diluted basis reflects the
potential dilution that would occur if all options to acquire and rights to
convert securities convertible into Daimler-Benz Ordinary Shares were
exercised. See Note 25 to the Daimler-Benz Consolidated Financial
Statements.
(9) On June 15, 1998, Daimler-Benz paid a special distribution (the "Special
Distribution") of DM 20 (DM 19.63 after adjustment to reflect the
approximately 20% discount to market value at which the Daimler-Benz
Ordinary Shares and Daimler-Benz ADSs were sold in a rights offering (the
"Rights Offering")) per Daimler-Benz Ordinary Share/ADS (approximately DM
10.3 billion in the aggregate). The source of funds for the Special
Distribution was Daimler-Benz' retained earnings, including DM 2.9 billion
attributable to a German tax refund resulting from a 20% differential in the
tax rates to which Daimler-Benz is entitled by reason of the Special
Distribution (I.E., the difference between the 50% German tax rate
(TARIFBELASTUNG) paid in prior years on retained corporate earnings and the
current 30% tax rate (AUSSCHUTTUNGSBELASTUNG) on distributed earnings).
(10) At December 31, 1997 and 1996, current assets (due within one year) were DM
66,902 and DM 53,332, respectively, and current liabilities (due within one
year) were DM 53,387 and DM 43,029, respectively.
(11) Extraordinary results under German GAAP represent: in 1995, expenses
incurred in connection with the decision to discontinue financial support
for NV Koninklijke Nederlandse Vliegtuigenfabriek Fokker, write-downs and
provisions for certain businesses of AEG Daimler-Benz Industrie held for
sale and closure of AEG Daimler-Benz Industrie's headquarters; and, in 1993,
accounting changes related to provisions, reserves and valuation
adjustments. Under U.S. GAAP the extraordinary results in 1995 would be
included in results from ordinary business activities, and the 1993
extraordinary results would not have arisen.
------------------------------
17
<PAGE>
SELECTED DAIMLERCHRYSLER UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The selected unaudited pro forma financial information set forth below was
derived from and should be read in conjunction with the Unaudited Pro Forma
Combined Consolidated Financial Information, including the notes thereto,
appearing elsewhere in this Prospectus. The following selected unaudited pro
forma financial information is being provided under the pooling-of-interests
method of accounting.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,(1) SIX MONTHS ENDED JUNE 30,(1) YEAR ENDED DECEMBER 31,(1)
-------------------- -------------------------------- ------------------------------------
1998(2) 1998 1998(2) 1998 1997 1997(2) 1997 1996
-------- ---------- -------- ---------- ---------- --------- ----------- ----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................... $113,559 DM 189,666 $ 76,873 DM 128,393 DM 107,217 $ 137,494 DM 229,642 DM 198,199
Net income (loss).......... 4,902 8,186 3,426 5,721 3,542 7,727(4) 12,906(4) 8,359
Basic earnings (loss) per
Ordinary Share/ADS(3).... 5.04 8.42 3.58 5.98 3.63 7.99(4) 13.35(4) 8.44
Diluted earnings (loss) per
Ordinary Share/ADS(3).... 4.99 8.34 3.50 5.85 3.61 7.91(4) 13.21(4) 8.41
BALANCE SHEET DATA:
Total assets............... 155,859 260,316
Total borrowings........... 46,790 78,149
Stockholders' equity....... 34,666 57,898
<CAPTION>
1995
----------
<S> <C>
INCOME STATEMENT DATA:
Revenues................... DM 178,380
Net income (loss).......... (2,689)
Basic earnings (loss) per
Ordinary Share/ADS(3).... (2.64)
Diluted earnings (loss) per
Ordinary Share/ADS(3).... (2.64)
BALANCE SHEET DATA:
Total assets...............
Total borrowings...........
Stockholders' equity.......
</TABLE>
- ------------------------------
(1) The Selected Pro Forma Combined Financial Data should be read in conjunction
with the Unaudited Pro Forma Combined Consolidated Financial Information,
including the notes thereto, which notes are an integral part of these
Selected Pro Forma Combined Financial Data.
(2) Amounts in this column have been translated solely for the convenience of
the reader at an exchange rate of DM 1.6702 = $1.00, the Noon Buying Rate on
September 30, 1998.
(3) Basic and diluted earnings (loss) per Daimler-Benz Ordinary Share/ADS
information have been adjusted to reflect the approximately 20% discount to
market value at which the Daimler-Benz Ordinary Shares and Daimler-Benz ADSs
were sold in the Rights Offering.
(4) Includes DM 4.870 billion ($2.916 billion) of special non-recurring tax
benefits. These tax benefits resulted from the Special Distribution and the
reversal of the remaining valuation allowances previously established on
deferred tax assets on Daimler-Benz' books at year-end which resulted
primarily from net operating loss carryforwards of Daimler-Benz' German
group of companies that file a consolidated tax return (ORGANSCHAFT). The
Special Distribution benefit was DM 2.908 billion and the valuation
allowance reversal was DM 1.962 billion. Excluding such non-recurring tax
benefits, 1997 pro forma combined net income and basic and diluted earnings
per Ordinary Share/ADS would have been as follows:
<TABLE>
<S> <C> <C>
Net income................................................................................ DM 8,036 $ 4,811
Basic earnings per Ordinary Share/ADS..................................................... DM 8.31 $ 4.98
Diluted earnings per Ordinary Share/ADS................................................... DM 8.24 $ 4.93
</TABLE>
18
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth for Chrysler and Daimler-Benz certain
historical and pro forma equivalent per share data as of September 30, 1998,
June 30, 1998 and December 31, 1997 and for the nine-month period ended
September 30, 1998, for the six-month periods ended June 30, 1998 and 1997, and
for each of the years in the three-year period ended December 31, 1997. The pro
forma equivalent per share data are presented for pooling-of-interests method of
accounting for the Transactions. The information presented herein should be read
in conjunction with the selected historical financial data and the unaudited
selected combined pro forma financial information appearing elsewhere in this
Prospectus. See "Selected Historical and Pro Forma Financial Combined Data" and
"Unaudited Pro Forma Combined Consolidated Financial Information."
<TABLE>
<CAPTION>
AS OF OR FOR THE NINE
MONTHS ENDED SEPTEMBER AS OF OR FOR THE SIX MONTHS AS OF OR FOR THE YEAR ENDED
30, ENDED JUNE 30, DECEMBER 31,
----------------------- ---------------------------------- ----------------------------------
1998(1) 1998 1998(1) 1998 1997 1997(1) 1997 1996
----------- ---------- ----------- ---------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CHRYSLER HISTORICAL ($)
Earnings per share(2)
Basic.............. $ 4.23 $ 3.18 $ 2.20 $ 4.15 $ 4.83
Diluted............ 4.14 3.12 2.17 4.09 4.74
Cash dividends per
share.............. 1.20 .80 .80 1.60 1.40
Book value per
share.............. 20.39 19.77 17.52
CHRYSLER HISTORICAL
(DM)(3)
Earnings per Share(2)
Basic.............. DM 7.58 DM 5.74 DM 3.71 DM 7.20 DM 7.27
Diluted............ 7.42 5.64 3.65 7.09 7.13
Cash dividends per
Share.............. 2.15 1.45 1.35 2.77 2.11
Book value per
Share.............. 34.17 35.76 31.40
DAIMLER-BENZ
HISTORICAL(4)
Earnings (loss) per
Ordinary Share/ADS:
Basic.............. $ 3.63 DM 6.06 $ 2.28 DM 3.81 DM 1.89 $ 9.16 DM 15.30(5) DM 5.27
Diluted............ 3.57 5.97 2.20 3.68 1.88 8.99 15.01(5) 5.25
Cash dividends per
Ordinary Share/
ADS(2)............. 0.94 1.57 1.08
Special
Distribution....... 11.75 19.63(6)
Book value per
Ordinary Share..... 35.54 59.37 35.51 59.31 39.88 66.61
DAIMLERCHRYSLER PRO
FORMA(4)
Earnings (loss) per
Ordinary Share:(2)
Basic.............. $ 5.04 DM 8.42 $ 3.58 DM 5.98 DM 3.63 $ 7.99 DM 13.35(5) DM 8.44
Diluted............ 4.99 8.34 3.50 5.85 3.61 7.91 13.21(5) 8.41
Cash dividends per
Ordinary
Share(8)...........
Book value per
Ordinary Share..... 34.59 57.78
<CAPTION>
1995
-----------
<S> <C>
CHRYSLER HISTORICAL ($)
Earnings per share(2)
Basic.............. $ 2.68
Diluted............ 2.56
Cash dividends per
share.............. 1.00
Book value per
share..............
CHRYSLER HISTORICAL
(DM)(3)
Earnings per Share(2)
Basic.............. DM 3.84
Diluted............ 3.67
Cash dividends per
Share.............. 1.43
Book value per
Share..............
DAIMLER-BENZ
HISTORICAL(4)
Earnings (loss) per
Ordinary Share/ADS:
Basic.............. DM (10.96)
Diluted............ (10.96)
Cash dividends per
Ordinary Share/
ADS(2).............
Special
Distribution.......
Book value per
Ordinary Share.....
DAIMLERCHRYSLER PRO
FORMA(4)
Earnings (loss) per
Ordinary Share:(2)
Basic.............. DM (2.64)
Diluted............ (2.64)
Cash dividends per
Ordinary
Share(8)...........
Book value per
Ordinary Share.....
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DAIMLERCHRYSLER PRO
FORMA
EQUIVALENT FOR
CHRYSLER
STOCKHOLDERS(4), (6)
Earnings per share of
Chrysler Common
Stock(7):
Basic.............. $ 3.14 DM 5.25 $ 2.23 DM 3.73 DM 2.26 $ 4.98 DM 8.32(5) DM 5.26
Diluted............ 3.11 5.20 2.18 3.65 2.25 4.93 8.24(5) 5.24
Cash dividends per
share of Chrysler
Common Stock(8)....
Book value per share
of Chrysler
Common Stock....... 21.57 36.03
<CAPTION>
DAIMLERCHRYSLER PRO
FORMA
EQUIVALENT FOR
CHRYSLER
STOCKHOLDERS(4), (6)
Earnings per share of
Chrysler Common
Stock(7):
Basic.............. DM (1.65)
Diluted............ (1.65)
Cash dividends per
share of Chrysler
Common Stock(8)....
Book value per share
of Chrysler
Common Stock.......
</TABLE>
- ------------------------
(1) Amounts in this column have been presented solely for the convenience of the
reader at an exchange rate of DM 1.6702 = $1.00, the Noon Buying Rate on
September 30, 1998.
(2) Represents earnings before extraordinary item and cumulative effect of
changes in accounting principles.
(3) The Chrysler historical earnings and cash dividends per share information
for the nine months ended September 30, 1998, six months ended June 30, 1998
and 1997, and years ended December 31, 1997, 1996, and 1995 have been
translated into marks at the weighted-average rates of exchange for the nine
months ended September 30, 1998, six months ended June 30, 1998 and 1997,
and years ended December 31, 1997, 1996, and 1995 of $1.00 = DM 1.7920, DM
1.8064, DM 1.6862, DM 1.7340, DM 1.5048, and DM 1.4331, respectively. The
book value per share amount at September 30, 1998, June 30, 1998 and
December 31, 1997 has been translated into marks at the September 30, 1998,
June 30, 1998 and December 31, 1997 exchange rates of $1.00 = DM 1.6759, DM
1.8087 and DM 1.7921, respectively.
(4) Daimler-Benz Historical, DaimlerChrysler Pro Forma and DaimlerChrysler Pro
Forma Equivalent for Chrysler Stockholders per share data have been adjusted
to reflect the approximately 20% discount to market value at which
Daimler-Benz Ordinary Shares and Daimler-Benz ADSs were sold in the Rights
Offering.
(5) The 1997 amounts of basic and diluted Daimler-Benz Historical earnings per
Ordinary Share/ADS include special non-recurring tax benefits of DM 9.26
($5.54) and DM 9.05 ($5.41) per Ordinary Share/ADS, respectively. See Note 3
to "Selected Historical and Pro Forma Combined Financial Data--Selected
Historical Financial Data of Daimler-Benz." Excluding these tax benefits,
the Daimler-Benz Historical basic and diluted earnings per Ordinary
Share/ADS in 1997 would have been DM 6.04 ($3.62) and DM 5.96 ($3.57) per
Ordinary Share/ADS, respectively, the DaimlerChrysler Pro Forma basic and
diluted earnings per Ordinary Share in 1997 would have been DM 8.31 ($4.98)
and DM 8.24 ($4.93) per Ordinary Share, respectively, and the
DaimlerChrysler Pro Forma for Chrysler stockholders basic and diluted
earnings per Ordinary Share in 1997 would have been DM 5.18 ($3.10) and DM
5.14 ($3.08) per Ordinary Share.
(6) See footnote 9 to "Selected Historical and Pro Forma Combined Financial
Data--Selected Historical Financial Data of Daimler-Benz."
(7) For purposes of calculating DaimlerChrysler pro forma equivalent for
Chrysler stockholders, it has been assumed that each share of Chrysler
Common Stock is exchanged for 0.6235 of a DaimlerChrysler Ordinary Share,
each Daimler-Benz Ordinary Share is exchanged for 1.005 DaimlerChrysler
Ordinary Shares, and each Daimler-Benz ADS is exchanged for 1.005
DaimlerChrysler Ordinary Shares.
(8) See "Dividends" for information with respect to the expected dividend policy
of DaimlerChrysler.
------------------------------
20
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS
AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS IN EVALUATING AN
INVESTMENT IN CHRYSLER COMMON STOCK AND THE DAIMLERCHRYSLER ORDINARY SHARES TO
BE RECEIVED IN CONNECTION WITH THE TRANSACTIONS.
CONDITIONS TO THE TRANSACTIONS
Although certain of the conditions to the consummation of the Transactions
have been met, there can be no assurance that the Transactions will be
consummated following the completion of the issuance of the shares of Chrysler
Common Stock covered hereby. Consummation of the Transactions is subject to
various conditions, some of which have not yet been satisfied. The following
conditions have been satisfied: the expiration or termination of any applicable
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976;
the granting of approval of the transactions contemplated by the Combination
Agreement by the Commission of the European Union; the receipt by Chrysler of a
private letter ruling from the IRS; and the receipt of the Chrysler and
Daimler-Benz stockholder approval. The following conditions have not yet been
satisfied: the consummation of the Daimler-Benz Exchange Offer; and the receipt
of tax opinions from the respective tax counsel of Daimler-Benz and Chrysler
regarding certain United States federal income and German tax consequences of
the Transactions.
If the Chrysler Merger is not consummated, purchasers of the shares of
Chrysler Common Stock covered hereby will remain holders of Chrysler Common
Stock, a security with investment characteristics that are significantly
different from those of the DaimlerChrysler Ordinary Shares expected to be
received in connection with the Chrysler Merger. See "The
Transactions--Conditions to the Transactions."
FIXED EXCHANGE RATIO
Because the U.S. Exchange Ratio is a fixed exchange ratio, determined
pursuant to the formula contained in the Combination Agreement, the number of
DaimlerChrysler Ordinary Shares that will be received by Chrysler stockholders
in the Chrysler Merger will not increase if there is a decline in the market
price of Daimler-Benz Ordinary Shares between the signing of the Combination
Agreement and the closing of the Chrysler Merger. On the other hand, the number
of DaimlerChrysler Ordinary Shares that will be received by Chrysler
stockholders in the Chrysler Merger will not be reduced if there is an increase
in the market price of Daimler-Benz Ordinary Shares between the signing of the
Combination Agreement and the closing of the Chrysler Merger.
GOVERNMENT APPROVALS
The consummation of the Transactions is conditioned upon, among other
things, (i) the termination or expiration of any applicable waiting periods
under the HSR Act (which were terminated as of July 30, 1998) and (ii) the
approval or deemed approval of the Commission of the European Union (which
approval was granted on July 22, 1998). In addition, the antitrust and
competition laws of certain other non-U.S. jurisdictions require (or in some
instances, provide for on a voluntary basis) notification of certain
transactions and the observance of pre-consummation waiting periods. There can
be no assurance that all required government approvals will be obtained without
conditions that may require operating restrictions or divestitures of business
operations.
UNCERTAINTIES OF INTEGRATING BUSINESS OPERATIONS AND ACHIEVING SYNERGIES
Although the managements of Chrysler and of Daimler-Benz expect the
Transactions will produce substantial synergies, the integration of two large
companies, incorporated in different countries, with geographically dispersed
operations, and with different business cultures and compensation structures,
presents significant management challenges. There can be no assurance that this
integration, and the
21
<PAGE>
synergies expected to result from that integration, will be achieved as rapidly
or to the extent currently anticipated.
INDUSTRY AND MARKET FACTORS AFFECTING DAIMLERCHRYSLER
DaimlerChrysler will be affected by a variety of social, political and
economic factors, developments and conditions in the United States, Germany and
the European Union, and by economic and competitive conditions affecting the
industries and markets in which it operates. Examples of these factors,
developments and conditions include, among other things:
- The worldwide automotive industry is highly competitive in several
specific respects, including vehicle quality, pricing, development and
introduction time, reliability, safety, fuel economy, customer service and
financing terms. The influence of these factors may differ in various
geographical markets and often with respect to individual product
segments. Moreover, during cyclical economic downturns, overcapacity in
the industry is a particular risk. While DaimlerChrysler believes that it
will have the financial and human resources and products necessary to
compete successfully, there can be no assurance that it will be successful
in all geographic markets or in all product segments.
- The marketability of DaimlerChrysler's automotive products and the
profitability of its automotive businesses will to some degree depend on
the ability of DaimlerChrysler to comply on an ongoing basis with
government regulations applicable to its products. Regulations and
standards relating to emission controls, fuel economy, safety and recalls
are applicable to new motor vehicles, engines and equipment manufactured
for sale in the United States, Canada, Europe and elsewhere. Because a
large portion of DaimlerChrysler's automotive products will be sold in the
United States, DaimlerChrysler will be particularly affected by
regulations and standards in the United States. At the present time, these
regulations and standards include the National Traffic and Motor Vehicle
Safety Act of 1966, the Clean Air Act, Titles I and V of the Motor Vehicle
Information and Cost Savings Act and the Noise Control Act of 1972.
- Incoming orders in the civil aircraft industry are highly cyclical as a
result of the industry's dependency on the development of global air
traffic and the profitability and fleet renewal cycles of airlines
worldwide. The future success of Airbus Industrie, in which Daimler-Benz
Aerospace is the German participant, will depend on its ability to
continue to compete successfully in terms of price and product quality and
innovation with Boeing as the largest manufacturer of civil aircraft after
its merger with McDonnell Douglas.
- As a consequence of the global nature of the combined businesses of
Chrysler and Daimler-Benz, DaimlerChrysler will be exposed to market risks
from changes in interest rates and foreign currency exchange rates which
may adversely affect its results of operations and financial condition.
DaimlerChrysler's currency risk exposure will primarily affect
DaimlerChrysler's automotive businesses to the extent sales are
denominated in currencies other than those in which manufacturing costs
are incurred. Similarly, revenues generated by DaimlerChrysler's Aerospace
business through the sale of aircraft, aircraft engines and certain other
aerospace related products will continue to be mainly denominated in
dollars due to the requirements of the marketplace, but the products are
manufactured exclusively in Germany. DaimlerChrysler will seek to minimize
the risks from interest rate and foreign currency exchange rate
fluctuations through its regular operating and financing activities and,
when deemed appropriate, through the use of derivative financial
instruments. DaimlerChrysler does not expect to use financial instruments
for trading or other speculative purposes. DaimlerChrysler expects that
its foreign exchange rate exposure will be somewhat lower as a result of
the introduction of a single European currency in 1999.
- DaimlerChrysler, a German stock corporation with a large portion of its
operations and manufacturing activities located in Germany, will be
affected by all social, political and economic conditions
22
<PAGE>
in Germany. Labor costs, corporate taxes and employee benefit expenses in
Germany are high and weekly working hours are shorter compared to many
other European Union member states, the United States and Japan.
- By virtue of its significant operations outside Germany and the United
States, DaimlerChrysler will be subject to the risks normally associated
with cross-border business transactions and activities, principally those
relating to delayed payments from customers in certain countries or
difficulties in the collection of receivables generally. In addition,
DaimlerChrysler will be exposed to the risk of changes in social,
political and economic conditions in the countries where it engages in
business, particularly in portions of Asia and Latin America and in
Eastern Europe. Political and economic instability could adversely affect
DaimlerChrysler's business activities and operations in these regions.
Unexpected changes in regulatory requirements, tariffs and other trade
barriers and price or exchange controls could limit operations and make
the repatriation of profits difficult. In addition, the uncertainty of the
legal environment could limit DaimlerChrysler's ability to enforce
effectively its rights in certain markets.
See the discussion under the heading "Automotive Operations--Government
Regulation" and the discussion in Part II of "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Chrysler's
Annual Report on Form 10-K, both of which are incorporated herein by reference.
GERMAN VALUATION PROCEEDING (SPRUCHVERFAHREN)
Under the German Transformation Act (UMWANDLUNGSGESETZ), any Remaining
Stockholder (which does not include any Daimler-Benz stockholder who tenders his
shares in the Daimler-Benz Exchange Offer), who holds Daimler-Benz Ordinary
Shares, including those formerly represented by Daimler-Benz ADSs, may, within
two months following effective publication of the registration of the
Daimler-Benz Merger, bring a court valuation proceeding (SPRUCHVERFAHREN)
seeking a determination that the Daimler-Benz Merger Exchange Ratio is
inadequate, even if such stockholder acquired Daimler-Benz Ordinary Shares or
Daimler-Benz ADSs after the date of the special meeting of Daimler-Benz
stockholders that approved the Transactions or if such stockholder voted in
favor of the Daimler-Benz Merger. Should such an award be made, all Remaining
Stockholders, not just holders who voted against the Daimler-Benz Merger or who
brought such a proceeding, would be entitled to a supplementary cash payment,
without having to surrender the DaimlerChrysler securities received by them in
the Daimler-Benz Merger. Regardless of the outcome of the proceeding,
DaimlerChrysler would bear the cost of the proceeding unless the court
determined that it would be inequitable for DaimlerChrysler to do so.
Daimler-Benz stockholders who tender their Daimler-Benz securities in the
Daimler-Benz Exchange Offer will not be able to participate in a German
valuation proceeding (SPRUCHVERFAHREN.)
EXCLUSION OF DAIMLERCHRYSLER FROM THE S&P 500 INDEX
On October 1, 1998, the index committee of the S&P 500 stock index announced
that, because DaimlerChrysler is incorporated outside the U.S., DaimlerChrysler
Ordinary Shares will not be included in the S&P 500 stock index. As a result,
mutual funds that track the S&P 500, which currently hold a substantial number
of shares of Chrysler Common Stock, will be required to sell such shares (or the
DaimlerChrysler Ordinary Shares they receive in the Chrysler Merger). Such sales
could adversely affect the market price for Chrysler Common Stock and
DaimlerChrysler Ordinary Shares.
YEAR 2000
Each of Daimler-Benz and Chrysler has conducted an evaluation of the actions
necessary in order to ensure that its business critical computer systems (and,
therefore, those of DaimlerChrysler) will be able to function without disruption
with respect to the application of dating systems in the Year 2000. As a result
23
<PAGE>
of these evaluations, each of Daimler-Benz and Chrysler is engaged in the
process of upgrading, replacing and testing certain of its information and other
computer systems so as to be able to operate without disruption due to Year 2000
issues. Chrysler's remedial actions are scheduled to be completed during the
third quarter of 1999 and, based upon information currently available, Chrysler
does not anticipate that the costs of its remedial actions will be material to
DaimlerChrysler's results of operations or financial condition. Daimler-Benz'
remedial actions are scheduled to be completed during the third quarter of 1999
and, based upon information currently available, Daimler-Benz does not
anticipate that the costs of its remedial actions will be material to
DaimlerChrysler's results of operations or financial condition. However, there
can be no assurance that the remedial actions being implemented by Daimler-Benz
and Chrysler will be able to be completed by the time necessary to avoid dating
systems problems or that the cost of doing so will not be material. If each of
Daimler-Benz and Chrysler is unable to complete its remedial actions in the
planned time frame, in each case, contingency plans will be developed to address
those business critical systems which may not be Year 2000 compliant. In
addition, disruptions with respect to the computer systems of suppliers or
dealers, which systems are outside the control of Daimler-Benz and Chrysler,
could impair the ability of Daimler-Benz and Chrysler (and, therefore,
DaimlerChrysler) to obtain necessary materials or products or to sell to or
service their dealers. Disruptions of DaimlerChrysler's computer systems, or the
computer systems of DaimlerChrysler's suppliers or dealers, as well as the cost
of avoiding such disruption, could have a material adverse effect upon
DaimlerChrysler's financial condition and results of operations. Each of
Daimler-Benz and Chrysler has a process in place to assess the Year 2000
readiness of its business critical suppliers and of its dealers. Each of
Daimler-Benz and Chrysler believes that the most reasonably likely worst case
scenario is that a small number of suppliers will be unable to supply components
for a short time after January 1, 2000. As part of the assessment process,
Daimler-Benz and Chrysler will develop contingency plans for those business
critical suppliers who are either unable or unwilling to develop remediation
plans to become Year 2000 compliant. Although these plans are yet to be
developed, both Daimler-Benz and Chrysler expect that these plans will include a
combination of actions including stockpiling of components and selective
resourcing of materials to Year 2000 compliant suppliers. Each of Daimler-Benz
and Chrysler expects that suppliers in this category will represent an
insignificant part of DaimlerChrysler's total supply base. In each case, it is
expected that these plans will be in place by the third quarter of 1999.
USE OF PROCEEDS
Chrysler will not receive any proceeds from any sale of the shares
contributed to the Trust. The proceeds of any such sales will be for the benefit
of the Trust and used to meet its obligations with respect to providing
retirement benefits to participating employees and retirees and their
beneficiaries. See "Pension Contribution."
PURPOSE OF OFFERING
Chrysler's purpose in issuing the shares covered hereby and being issued in
the Offering is to enable the Transactions to qualify for pooling-of-interests
accounting treatment. Under United States generally accepted accounting
principles ("U.S. GAAP"), it is a condition for qualification for
pooling-of-interests accounting treatment that no more than 10% of the shares of
stock to be exchanged in a business combination may be so-called "tainted
shares." To the extent that any shares of Chrysler Common Stock have been
reacquired and held by Chrysler as treasury stock ("Chrysler Treasury Stock")
within the two years prior to initiation of the Transactions, such shares must
have been acquired for certain specific purposes unrelated to a business
combination in order for them not to be considered to be tainted shares. To the
extent that shares of Chrysler Treasury Stock have been reacquired for other
than such specified purposes, such shares of Chrysler Treasury Stock must be
reissued prior to the consummation of the Chrysler Merger to "cure" the taint
associated with the shares. During the two-year period prior to the initiation
of the Transactions, Chrysler reacquired approximately 110 million shares of
Chrysler Common Stock presently held as Chrysler Treasury Stock, of which
approximately 90 million shares were not reacquired for the specific purposes
allowed under U.S. GAAP. Assuming the number of shares of
24
<PAGE>
Chrysler Common Stock issued and outstanding at the Chrysler Effective Time does
not change from the approximately 647 million shares issued and outstanding on
September 30, 1998, Chrysler must reissue not less than approximately 23 million
shares of the Chrysler Common Stock prior to the consummation of the Chrysler
Merger in order for the Transactions to qualify for pooling-of-interests
accounting treatment. This would leave approximately 67 million tainted shares,
or 10% of the approximately 670 million shares outstanding after the issuance of
the shares covered hereby.
Although certain of the conditions to the consummation of the Transactions
have been met, there can be no assurance that the Transactions will be
consummated following the completion of the issuance of the shares of Chrysler
Common Stock covered hereby. Consummation of the Transactions is subject to
various conditions, including, among others, the consummation of the
Daimler-Benz Exchange Offer and the receipt of tax opinions from the respective
tax counsel of Daimler-Benz and Chrysler regarding certain United States federal
income and German tax consequences of the Transactions.
If the Transactions are not consummated, purchasers of the shares of
Chrysler Common Stock covered hereby will remain holders of Chrysler Common
Stock, a security with investment characteristics that are significantly
different from those of the DaimlerChrysler Ordinary Shares expected to be
received in connection with the Chrysler Merger. See "The
Transactions--Conditions to the Transactions."
MARKET PRICES
The principal trading market for Chrysler Common Stock is the NYSE, and
Chrysler's shares trade under the symbol "C." The Chrysler Common Stock is also
traded on the Philadelphia, Chicago and Pacific stock exchanges, and the stock
exchanges of Frankfurt, Berlin, Munich, Montreal, Toronto and London, and
options on Chrysler Common Stock are traded on the Chicago Board of Options
Exchange. The principal trading market for the Daimler-Benz Ordinary Shares is
the FSE. The Daimler-Benz Ordinary Shares are also traded on the other German
stock exchanges in Berlin, Bremen, Dusseldorf, Hamburg, Hannover, Munchen and
Stuttgart, on the stock exchanges of London, Paris, Tokyo and Vienna and on the
Swiss Stock Exchange. Options on Daimler-Benz Ordinary Shares are traded on the
German options exchange (DEUTSCHE TERMINBORSE) and on the Chicago Board of
Options Exchange. All Daimler-Benz Ordinary Shares have been issued in bearer
form. The Daimler-Benz ADSs are listed on the NYSE and trade under the symbol
"DAI." The DaimlerChrysler Ordinary Shares are expected to be approved for
listing on the FSE. In addition, the DaimlerChrysler Ordinary Shares have been
approved for listing, subject to official notice of issuance, on the NYSE and
will trade on that exchange under the symbol "DCX." It is expected that
DaimlerChrysler Ordinary Shares will also be traded on the Chicago, Pacific,
Philadelphia, London, Paris, Montreal, Toronto, Swiss, Vienna and Tokyo stock
exchanges as well as on all the German stock exchanges. On October 26, 1998, the
DaimlerChrysler Ordinary Shares began to trade on a when-issued basis on the
NYSE.
25
<PAGE>
TRADING ON THE NEW YORK STOCK EXCHANGE
The following table sets forth, for the calendar periods indicated, the high
and low sales prices per share of Chrysler Common Stock (giving effect to a
two-for-one stock split effected on July 15, 1996) and the high and low sales
prices per Daimler-Benz ADS as reported on the NYSE Composite Tape for the
periods indicated.
<TABLE>
<CAPTION>
CHRYSLER DAIMLER-BENZ
COMMON STOCK ADSS(1)
------------------ ------------------
<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
------- ------- ------- -------
1996
First Quarter................................................................... $31 13/16 $25 5/8 $55 $49 3/4
Second Quarter.................................................................. 35 29 9/16 54 5/8 52 1/8
Third Quarter................................................................... 32 1/16 26 1/4 55 1/8 50 7/8
Fourth Quarter.................................................................. 36 3/8 28 1/4 67 1/2 53 3/8
1997
First Quarter................................................................... $36 1/4 $29 $78 7/8 $66
Second Quarter.................................................................. 33 7/16 28 1/8 81 5/8 71 7/8
Third Quarter................................................................... 38 9/16 32 3/8 85 1/2 71 1/16
Fourth Quarter.................................................................. 38 1/4 32 83 1/8 61 7/8
1998
First Quarter................................................................... $44 3/16 $31 1/4 $95 7/8 $66 1/4
Second Quarter(2)............................................................... 57 9/16 38 3/8 117 3/8 91 1/4
Third Quarter................................................................... 61 44 1/2 105 81 1/4
Fourth Quarter (through October 28, 1998)....................................... 51 3/16 48 5/8 87 5/16 83
</TABLE>
- ------------------------------
(1) Figures for 1996, 1997 and the first and second quarters of 1998 have been
adjusted to reflect the approximately 20% discount to market value at which
the Daimler-Benz Ordinary Shares and Daimler-Benz ADSs were sold in the
Rights Offering.
(2) Holders of Daimler-Benz Ordinary Shares on May 27, 1998, the date of the
Annual General Meeting, became entitled to receive the Special Distribution
of DM 20 (DM 19.63 after adjustment to reflect the approximately 20%
discount to market value at which the Daimler-Benz Ordinary Shares and
Daimler-Benz ADSs were sold in the Rights Offering) per Daimler-Benz
Ordinary Share/ADS (approximately DM 10.3 billion in the aggregate), and
subsequent sales of shares were "ex" such right. On June 12, 1998, and on
June 15, 1998, the Daimler-Benz Ordinary Shares and the Daimler-Benz ADSs,
respectively, began to trade "ex" the rights which were distributed to
holders of Daimler-Benz Ordinary Shares and Daimler-Benz ADSs in connection
with the Rights Offering.
On October 26, 1998, the DaimlerChrysler Ordinary Shares began to trade on a
when-issued basis on the NYSE. The high and low sales prices per DaimlerChrysler
Ordinary Share (on a when-issued basis) as reported on the NYSE Composite Tape
between October 26, 1998 and October 28, 1998 were $82.50 and $75.06,
respectively. The closing price for a DaimlerChrysler Ordinary Share (on a
when-issued basis) as reported on the NYSE Composite Tape on October 28, 1998
was $75.62.
The following table sets forth the closing price per share of Chrysler
Common Stock and per Daimler-Benz ADS as reported on the NYSE Composite Tape and
the equivalent price per share of Chrysler Common Stock (determined in
accordance with the U.S. Exchange Ratio Formula computed as if the Chrysler
Effective Time had occurred on such date) as of (i) May 5, 1998 (the last full
trading day before public disclosure of the proposed Transactions); (ii) certain
interim dates of significance in relation to
26
<PAGE>
dividends; and (iii) October 28, 1998 (the latest practicable trading day prior
to the effective date of the Registration Statement of which this Prospectus
forms a part):
<TABLE>
<CAPTION>
EQUIVALENT
PRICE
CHRYSLER DAIMLER-BENZ OF CHRYSLER
COMMON STOCK ADSS(1) COMMON STOCK(2)
-------------- ------------ ---------------
<S> <C> <C> <C>
May 5, 1998....................................................... $ 41.4375 $ 102.0625 $ 55.8486
May 27, 1998...................................................... 54.7500 95.9375 58.6850
June 12, 1998..................................................... 53.7500 96.8750 59.2584
June 15, 1998..................................................... 51.7500 92.0625 57.4010
October 28, 1998.................................................. 46.6875 76.3750 47.6198
</TABLE>
- ------------------------------
(1) Holders of Daimler-Benz Ordinary Shares on May 27, 1998, the date of the
Annual General Meeting, became entitled to receive the Special Distribution
of DM 20 per share as of that date, and subsequent sales of shares were "ex"
such right. In addition, on June 12, 1998, and on June 15, 1998, the
Daimler-Benz Ordinary Shares and the Daimler-Benz ADSs, respectively, began
to trade "ex" the rights which were distributed to holders of Daimler-Benz
Ordinary Shares and Daimler-Benz ADSs in connection with the Rights
Offering.
(2) The U.S. Exchange Ratio Formula included in the Combination Agreement
established a fixed share-for-share exchange ratio as of the May 7 date of
the Combination Agreement, with additional agreed upon arithmetic
adjustments to the exchange ratio that would take into account the
anticipated effects of Chrysler's first quarter dividend and Daimler-Benz'
regular annual dividend, Daimler-Benz' Special Distribution and
Daimler-Benz' Rights Offering. The ratio under the formula before making any
of the prescribed adjustments was 0.5472, and on such date no event had
occurred for which the U.S. Exchange Ratio Formula provides any adjustment.
Accordingly, the prices shown in this column at May 5, 1998 utilizes an
exchange ratio of 0.5472. On May 27, 1998, holders of Daimler-Benz Ordinary
Shares became entitled to receive the regular annual dividend of DM 1.60 and
the Special Distribution, which resulted in an adjustment to the exchange
ratio pursuant to the U.S. Exchange Ratio Formula. Accordingly, the prices
shown in this column at May 27, 1998 and at June 12, 1998 utilize an
exchange ratio of 0.6117. On June 15, 1998, all events for which adjustments
are prescribed had occurred and their effect had been computed under the
U.S. Exchange Ratio Formula. Such adjusted exchange ratio was 0.6235, which
has been used to compute the price in this column on and after such date.
------------------------------
PROSPECTIVE INVESTORS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE
CHRYSLER COMMON STOCK, THE DAIMLER-BENZ ADSS AND THE DAIMLERCHRYSLER ORDINARY
SHARES (ON A WHEN-ISSUED BASIS).
ON OCTOBER 26, 1998, THE DAIMLERCHRYSLER ORDINARY SHARES BEGAN TO BE
PUBLICLY TRADED ON A WHEN-ISSUED BASIS ON THE NYSE. FOLLOWING THE CONSUMMATION
OF THE DAIMLER-BENZ EXCHANGE OFFER AND THE CHRYSLER MERGER, (I) IT IS INTENDED
THAT THE DAIMLERCHRYSLER ORDINARY SHARES WILL BE LISTED AND TRADED ON THE SAME
EXCHANGES AS THE DAIMLER-BENZ ORDINARY SHARES AND THE DAIMLER-BENZ ADSS AND (II)
IT IS EXPECTED THAT THE DAIMLER-BENZ ORDINARY SHARES AND THE DAIMLER-BENZ ADSS
WILL CEASE TO BE SO LISTED, AND THERE WILL BE NO ACTIVE TRADING MARKET THEREFOR.
FLUCTUATIONS IN THE EXCHANGE RATE BETWEEN THE DOLLAR AND THE MARK WILL
AFFECT THE DOLLAR EQUIVALENT OF THE MARK PRICE OF DAIMLERCHRYSLER ORDINARY
SHARES TRADED ON THE GERMAN STOCK EXCHANGES AND, AS A RESULT, ARE LIKELY TO
AFFECT THE MARKET PRICE OF THE DAIMLERCHRYSLER ORDINARY SHARES ON THE NYSE. SUCH
FLUCTUATIONS WILL ALSO AFFECT THE DOLLAR AMOUNTS RECEIVED BY HOLDERS OF
DAIMLERCHRYSLER ORDINARY SHARES ON THE CONVERSION BY THE U.S. TRANSFER AGENT
INTO DOLLARS OF CASH DIVIDENDS PAID IN MARKS ON THE DAIMLERCHRYSLER ORDINARY
SHARES.
On October 1, 1998, the index committee of the S&P 500 stock index announced
that, because DaimlerChrysler is incorporated outside the U.S., DaimlerChrysler
Ordinary Shares will not be included in the S&P 500 stock index. As a result,
mutual funds that track the S&P 500, which currently hold a substantial number
of shares of Chrysler Common Stock, will be required to sell such shares (or the
DaimlerChrysler Ordinary Shares they receive in the Chrysler Merger). Such sales
could adversely affect the market price for Chrysler Common Stock and
DaimlerChrysler Ordinary Shares.
27
<PAGE>
TRADING ON THE FRANKFURT STOCK EXCHANGE
The FSE is the most significant of the eight German stock exchanges and
accounted for approximately 80% of the turnover in exchange-traded shares in
Germany in 1997. As of December 31, 1997, equity securities traded on the FSE
included the shares of 1,461 companies, 1,011 of which were non-German.
Trading on the floor of the FSE commences each business day at 8:30 a.m. and
continues until 5:00 p.m. Central European Time ("CET"). Markets in listed
securities are generally of the auction type, but listed securities also change
hands in inter-bank dealer markets both on and off the stock exchange. Price
formation is by open outcry, as determined by state appointed specialists
(AMTLICHE KURSMAKLER) who are themselves exchange members, but who do not, as a
rule, deal with the public. Prices for active stocks, including those of larger
companies, are quoted continuously during stock exchange hours. For all other
stocks, a fixed price is determined by auction around mid-session of each
trading day. Transactions settle on the second business day following the day of
trade execution.
The FSE publishes a daily official list which includes the volume of
recorded transactions in each listed stock, together with the prices of the
highest and lowest recorded trades of the day. The list reflects price and
volume information for trades completed by members on the floor during the day
as well as for inter-dealer trades completed off the floor.
The Daimler-Benz Ordinary Shares are, and the DaimlerChrysler Ordinary
Shares are expected to be, traded on XETRA-Registered Trademark- (Exchange
Electronic Trading), an integrated electronic exchange system introduced by
Deutsche Borse AG in November 1997. XETRA-Registered Trademark- is available
daily from 8:30 a.m. to 5:00 p.m. CET to brokers and banks which are members of
a German stock exchange. Securities traded by this system, which replaces IBIS
(INTEGRIERTES BORSENHANDELS- UND INFORMATIONS-SYSTEM) with respect to all equity
securities, include the thirty stocks of the Deutsche Aktienindex, the leading
index of trading on the FSE ("DAX Index"), and the other 70 stocks included in
the DAX 100 index. XETRA-Registered Trademark- is integrated into the FSE and is
subject to its rules and regulations.
Trading activities on the German stock exchanges are monitored by the
Federal Supervisory Authority for Securities Trading (BUNDESAUFSICHTSAMT FUR DEN
WERTPAPIERHANDEL). Following an amendment in 1995 of the German banks' standard
terms and conditions for securities transactions, all orders from customers to
buy or sell listed securities must be executed on a stock exchange unless a
customer gives specific instructions to the contrary.
The table below sets forth, for the period indicated, the high and low
closing sales price for the Daimler-Benz Ordinary Shares on the FSE (giving
effect to the dilution caused by the discount to market
28
<PAGE>
at which the Daimler-Benz Ordinary Shares were sold in the Rights Offering), as
reported by the FSE, together with the highs and lows of the DAX Index.
<TABLE>
<CAPTION>
PRICE PER
DAIMLER-BENZ
ORDINARY SHARE(1) DAX INDEX(2)
-------------------- --------------------
<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<CAPTION>
(DM) (DM)
<S> <C> <C> <C> <C>
1996
First Quarter.......................................................... 81.04 71.35 2,525.42 2,248.86
Second Quarter......................................................... 83.59 77.51 2,573.69 2,457.49
Third Quarter.......................................................... 82.90 75.84 2,666.55 2,447.80
Fourth Quarter......................................................... 104.00 81.28 2,909.91 2,655.73
1997
First Quarter.......................................................... 130.88 102.62 3,460.59 2,848.77
Second Quarter......................................................... 139.32 120.43 3,805.29 3,215.24
Third Quarter.......................................................... 156.29 125.09 4,438.93 3,819.85
Fourth Quarter......................................................... 142.85 107.68 4,347.24 3,567.22
1998
First Quarter.......................................................... 171.00 116.65 5,102.35 4,087.28
Second Quarter(3)...................................................... 201.84 164.20 5,915.13 5,018.67
Third Quarter.......................................................... 184.90 139.80 6,171.43 4,433.87
Fourth Quarter (through October 28, 1998).............................. 140.30 105.80 4,682.45 3,896.08
</TABLE>
- ------------------------
(1) Effective July 1, 1996, the nominal value of the Daimler-Benz Ordinary
Shares was reduced to DM 5 per share from the previous level of DM 50 per
share. This reduction had the effect of a 10 for 1 stock split, which in
turn reduced the price at which one Daimler-Benz Ordinary Share trades to
1/10 of the price at which it previously traded. The figures for the first
and second quarters of 1996 have been restated to reflect this change. In
addition, figures for 1996, 1997 and the first and second quarters of 1998
have been adjusted to reflect the approximately 20% discount to market value
at which the Daimler-Benz Ordinary Shares and Daimler-Benz ADSs were sold in
the Rights Offering. See Note 3 below.
(2) The DAX Index is a continuously updated, capital-weighted performance index
of 30 German blue chip companies. Daimler-Benz represented approximately
6.2% of the DAX Index as of December 31, 1997. In principle, the shares
included in the DAX Index were selected on the basis of their stock exchange
turnover and their market capitalization. Adjustments to the DAX Index are
made for capital changes, subscription rights and dividends.
(3) Holders of Daimler-Benz Ordinary Shares on May 27, 1998, the date of the
Annual General Meeting, became entitled to receive the Special Distribution
of DM 20 per share as of that date, and subsequent sales of shares were "ex"
such right. In addition, on June 12, 1998, the Daimler-Benz Ordinary Shares
began to trade "ex" the rights which were distributed to holders of Daimler-
Benz Ordinary Shares in connection with the Rights Offering.
29
<PAGE>
CAPITALIZATION
CHRYSLER
The following table sets forth the consolidated capitalization of Chrysler
at September 30, 1998. This table should be read in conjunction with the
consolidated financial statements and related notes thereto.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
<S> <C>
(IN MILLIONS
OF DOLLARS)
Short-Term Debt:
Chrysler, excluding CFC, short-term debt.................................................... $ 386
Chrysler, excluding CFC, long-term debt due within one year................................. 43
CFC short-term debt......................................................................... 3,322
CFC long-term debt due within one year...................................................... 3,038
-------
TOTAL SHORT-TERM DEBT..................................................................... 6,789
-------
Long-Term Debt:
Chrysler, excluding CFC, long-term debt due after one year.................................. 2,248
CFC long-term debt due after one year....................................................... 9,096
-------
TOTAL LONG-TERM DEBT...................................................................... 11,344
-------
Shareholders' Equity:
Common stock................................................................................ 824
Additional paid-in capital.................................................................. 5,219
Retained earnings........................................................................... 12,557
Treasury stock.............................................................................. (5,398)
-------
TOTAL SHAREHOLDERS' EQUITY................................................................ 13,202
-------
TOTAL CAPITALIZATION.......................................................................... $ 31,335
-------
-------
</TABLE>
- ------------------------
DAIMLERCHRYSLER
The following table sets forth the pro forma capitalization of
DaimlerChrysler at September 30, 1998, reflecting the effects of the issuance in
the Offering of the shares covered hereby and the Transactions.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998(1)
------------------------
<S> <C> <C>
(IN MILLIONS)
Financial Liabilities(2).............................................................. $ 46,790 DM78,149
Shareholders' Equity.................................................................. 34,666 57,898
--------- -------------
TOTAL CAPITALIZATION.................................................................. $ 81,456 DM136,047
--------- -------------
--------- -------------
</TABLE>
- ------------------------
(1) Translation of DaimlerChrysler combined financial information to U.S.
dollars as of September 30, 1998 has been made solely for the convenience of
the reader, at the rate of DM 1.6702=$1.00, the Noon Buying Rate on
September 30, 1998.
(2) Of these liabilities, $15,456 (DM 25,815) and $25,222 (DM 42,126) relate to
CFC and Daimler-Benz' financial services businesses, respectively.
30
<PAGE>
DIVIDENDS
CHRYSLER
Chrysler declared cash dividends of approximately $277 million, $271
million, $266 million and $261 million in the first, second, third and fourth
quarters of 1997, respectively, and approximately $257 million, $259 million and
$259 million in the first, second and third quarters of 1998, respectively.
Chrysler's ability to pay dividends depends upon its financial results,
liquidity and financial condition and its ability to fund its product
development and facility modernization programs. Dividends on the Chrysler
Common Stock are payable at the discretion of Chrysler's Board of Directors out
of surplus, as defined by the DGCL, or, in case there is no such surplus, out of
Chrysler's net profits for the fiscal year in which the dividend is declared,
the preceding fiscal year or both. See "Description of Chrysler Capital Stock."
DAIMLERCHRYSLER
Dividends will be proposed by the DaimlerChrysler Supervisory Board and the
DaimlerChrysler Management Board, based on the year-end unconsolidated financial
statements of DaimlerChrysler, and will be approved in respect of the prior year
at the annual general meeting of DaimlerChrysler stockholders. It is anticipated
that the annual general meeting will be convened during the second quarter of
each year. Holders of record of DaimlerChrysler Ordinary Shares on the date of
the general meeting of stockholders at which a dividend is declared are entitled
to receive payment in full of the dividend declared in respect of the year for
which it is declared, less any amounts required to be withheld on account of
taxes or other governmental charges. Cash dividends payable to such holders will
be paid in marks (or, following the changeover by DaimlerChrysler to the Euro,
in Euros) and, for purposes of distribution to holders of DaimlerChrysler
Ordinary Shares in the United States, will be converted by the U.S. Transfer
Agent into dollars, at the holder's election. The dollar amount of dividends
received by holders of DaimlerChrysler Ordinary Shares may be affected by
fluctuations in exchange rates. See "Description of DaimlerChrysler Ordinary
Shares--Dividends and Other Distributions."
Subject to stockholder approval, dividends are expected to be declared and
paid annually by DaimlerChrysler, although there can be no assurance as to the
particular amounts that would be paid from year to year. The payment of future
dividends will depend upon DaimlerChrysler's earnings, financial condition
(including its cash needs), future earnings prospects and other factors.
Dividends paid by DaimlerChrysler must be recommended by the DaimlerChrysler
Management Board and the DaimlerChrysler Supervisory Board and approved by the
stockholders of DaimlerChrysler at the annual general meeting. The Daimler-Benz
Management Board and the Chrysler Board have determined, and the prospective
DaimlerChrysler Management Board has indicated its concurrence, that an
appropriate dividend policy for DaimlerChrysler under current business and
economic conditions would result in DaimlerChrysler paying approximately the
same annual dividend amount currently paid to Chrysler stockholders (after
giving effect to the change in share ownership resulting from the U.S. Exchange
Ratio).
For a discussion of certain U.S. and German tax consequences with respect to
the payment of dividends, see "The Transactions--Certain Tax Consequences to
U.S. Holders--Certain Tax Consequences of Holding DaimlerChrysler Ordinary
Shares" and "--Certain Tax Consequences to Non-U.S. Holders-- Certain German Tax
Consequences to Non-German Holders of Holding DaimlerChrysler Ordinary Shares."
31
<PAGE>
THE TRANSACTIONS
GENERAL
On September 24, 1998, DaimlerChrysler commenced the Daimler-Benz Exchange
Offer to (a) the holders of Daimler-Benz Ordinary Shares to exchange one
DaimlerChrysler Ordinary Share for each Daimler-Benz Ordinary Share held by such
holder, and (b) the holders of Daimler-Benz ADSs to exchange one DaimlerChrysler
Ordinary Share for each Daimler-Benz ADS held by such holder; PROVIDED that, if
the 90% Minimum Condition is satisfied so that the Transactions can be accounted
for as a pooling-of-interests, then each exchanging holder will receive 1.005
DaimlerChrysler Ordinary Shares for each share exchanged. On October 26, 1998,
Daimler-Benz announced that, as of October 23, 1998, approximately 97% of the
outstanding Daimler-Benz Ordinary Shares (including those represented by
Daimler-Benz ADSs) had been tendered and not withdrawn, and that, with a tender
in excess of the 90% Minimum Condition, the Daimler-Benz Exchange Offer Ratio
will be increased to 1.005 from 1.000. Accordingly, the Daimler-Benz Exchange
Offer has been extended until November 6, 1998.
Immediately following consummation of the Daimler-Benz Exchange Offer, the
Chrysler Merger will be consummated. Any issuance by Chrysler of the shares
covered hereby will be completed prior to consummation of the Chrysler Merger.
In the Chrysler Merger, each share of Chrysler Common Stock, including the
shares covered hereby (other than Chrysler Common Stock held in treasury or by a
wholly owned subsidiary of Chrysler), will be converted into the right to
receive 0.6235 of a DaimlerChrysler Ordinary Share.
It is intended that the Daimler-Benz Merger will occur as soon as
practicable following consummation of the Chrysler Merger. However, litigation
has been initiated in Germany challenging the Daimler-Benz Merger. The
Daimler-Benz Merger cannot be consummated until such litigation is resolved or a
court determines in a summary proceeding that registration of the merger is not
barred by the pending claims. Daimler-Benz does not believe that this litigation
should affect any of the other Transactions. See "--Certain Litigation." Upon
completion of the Daimler-Benz Merger, each outstanding Daimler-Benz Ordinary
Share will be converted into the right to receive that number of DaimlerChrysler
Ordinary Shares equal to the Daimler-Benz Exchange Offer Ratio.
The Transactions will have the effect of combining the respective
businesses, stockholder groups, managements and other constituencies of Chrysler
and Daimler-Benz in a "merger-of-equals" transaction. As a result of the
Transactions, Daimler-Benz will be merged with and into DaimlerChrysler, with
DaimlerChrysler remaining as the surviving entity, and Chrysler will become a
wholly owned subsidiary of DaimlerChrysler. Immediately after the consummation
of the Transactions, the former stockholders of Chrysler, including the persons
who acquire the shares of Chrysler Common Stock covered hereby, and Daimler-Benz
will own all the issued and outstanding DaimlerChrysler Ordinary Shares. See
"Selected Historical and Pro Forma Combined Financial Data--Selected Pro Forma
Combined Financial Data" and "Unaudited Pro Forma Combined Consolidated
Financial Information."
32
<PAGE>
The diagrams set forth below are intended to provide a graphic illustration
of the corporate mechanics and the immediate corporate structuring results of
(1) the Daimler-Benz Exchange Offer and the Chrysler Merger and (2) the
Daimler-Benz Merger.
[LOGO]
33
<PAGE>
[LOGO]
34
<PAGE>
CONDITIONS TO THE TRANSACTIONS
It is currently expected that the Daimler-Benz Exchange Offer and the
Chrysler Merger will be completed by year-end 1998, but delays could result if
all conditions to the Transactions are not satisfied.
Consummation of the Transactions is subject to various conditions,
including, among others, the following:
- the tender into the Daimler-Benz Exchange Offer no later than at the time
of its expiration of at least 90% of the outstanding Daimler-Benz Ordinary
Shares and Daimler-Benz ADSs in the aggregate; PROVIDED, HOWEVER, that if
the number of Daimler-Benz Ordinary Shares and Daimler-Benz ADSs tendered
do not satisfy the 90% Minimum Condition but equals at least 75% of the
issued and outstanding Daimler-Benz Ordinary Shares on a primary basis,
including Daimler-Benz Ordinary Shares represented by Daimler-Benz ADSs,
at the time of registration with the commercial register (HANDELSREGISTER)
of the capital increases relating to the DaimlerChrysler Ordinary Shares
being issued in exchange therefore (the "75% Minimum"), the minimum
condition for the Daimler-Benz Exchange Offer shall be the 75% Minimum
(and this offering will not be made). Consistent with the private letter
ruling received from the IRS on September 4, 1998, and in accordance with
the provisions of the Combination Agreement, Chrysler and Daimler-Benz
have agreed to the 75% Minimum which represents a reduction from the
requirement set forth in the Combination Agreement that shares
representing at least 80% of the capital stock of Daimler-Benz on a fully
diluted basis (the "80% Minimum") be tendered in order to satisfy the 80%
Minimum and permit the 90% Minimum Condition to be redefined as the 80%
Minimum. On October 26, 1998, Daimler-Benz announced that, as of October
23, 1998, approximately 97% of the outstanding Daimler-Benz Ordinary
Shares (including those represented by Daimler-Benz ADSs) had been
tendered and not withdrawn, and that, with a tender in excess of the 90%
Minimum Condition, the Daimler-Benz Exchange Offer Ratio will be increased
to 1.005 from 1.000. Accordingly, the Daimler-Benz Exchange Offer has been
extended until November 6, 1998.
- if the Transactions are to be accounted for as a "pooling of interests,"
the issuance by Chrysler of the shares of Chrysler Common Stock covered
hereby (or such greater or lesser number as will allow the Mergers to be
accounted for as a "pooling of interests")
- the receipt of tax opinions from the respective tax counsel of
Daimler-Benz and Chrysler regarding certain United States and German
income tax consequences of the Transactions and the receipt by Chrysler of
a private letter ruling from the IRS (which private letter ruling was
received from the IRS on September 4, 1998)
- satisfaction of all the conditions to the consummation of the Daimler-Benz
Exchange Offer, except that Chrysler's obligation to complete the Chrysler
Merger is subject to completion of the Daimler-Benz Exchange Offer
Except for the 75% Minimum and the required regulatory approvals, the
conditions to the Transactions may be waived by the party entitled to assert the
condition. Waiver of the 75% Minimum would require the written consent of both
Daimler-Benz and Chrysler. Neither Daimler-Benz nor Chrysler intends to waive
the condition for receipt of the tax opinions; Chrysler will not waive this
condition without first circulating revised proxy materials to, and resoliciting
the vote of, its stockholders with respect to the Transactions.
The Combination Agreement may be terminated at any time prior to the
effective time of the Chrysler Merger by the mutual consent of Chrysler and
Daimler-Benz and by either of them individually under certain specified
circumstances, including, among others, (i) the failure to consummate both the
Chrysler Merger and the Daimler-Benz Exchange Offer by January 31, 1999; or (ii)
the imposition or enactment of any judgment, order, statute, law, rule or
regulation or other legal restraint or prohibition which effectively prevents
the consummation of the Transactions, or which otherwise is reasonably likely to
35
<PAGE>
have a material adverse effect on Chrysler or Daimler-Benz. There can be no
assurance whether or under what terms the Transactions will be consummated, or
as to the extent to which, if the Transactions are consummated, DaimlerChrysler
(as the successor to Daimler-Benz) will realize any of the anticipated benefits
of the Transactions.
GOVERNANCE OF DAIMLERCHRYSLER
The Combination Agreement contemplates that following the Chrysler Effective
Time, DaimlerChrysler will have a corporate governance structure reflecting that
the Transactions contemplate a "merger-of-equals." Daimler-Benz, Chrysler and
DaimlerChrysler have agreed that:
(i) the DaimlerChrysler Articles of Association and the Management Board
(VORSTAND) Rules of Procedure (GESCHAFTSORDNUNG) of DaimlerChrysler, in each
case, following the Chrysler Effective Time, shall be in form and substance
reasonably acceptable to Chrysler and Daimler-Benz.
(ii) until the DaimlerChrysler Supervisory Board has to be composed in
accordance with Germany's Co-determination Law of 1976, the DaimlerChrysler
Supervisory Board shall be composed of twelve members representing the
stockholders, six of whom shall have been recommended, immediately prior to
the Chrysler Effective Time, by Daimler-Benz from the then-current non-
employee representative members (ANTEILSEIGNERVERTRETER) of the Daimler-Benz
Supervisory Board and six of whom shall have been recommended, immediately
prior to the Chrysler Effective Time, by Chrysler from the then-current
outside members of the Chrysler Board. For the period thereafter, the
DaimlerChrysler Supervisory Board shall consist of twenty members; five of
the members of the restructured DaimlerChrysler Supervisory Board shall have
been recommended by Daimler-Benz from non-employee representative members
(ANTEILSEIGNERVERTRETER) of the Daimler-Benz Supervisory Board, five of the
members shall have been recommended by Chrysler from the outside members of
the Chrysler Board, and the remaining ten members shall be employee
representatives. The German metalworkers union IG Metall and the United
Automobile Workers union (the "UAW") have announced that IG Metall will
nominate a UAW member for election to one of the three seats on the
DaimlerChrysler Supervisory Board reserved for nominees of IG Metall.
(iii) for a period of not less than two years following the Chrysler
Effective Time, the current Chairman of Daimler-Benz' Supervisory Board
(AUFSICHTSRAT) shall continue as the Chairman of the DaimlerChrysler
Supervisory Board.
(iv) the DaimlerChrysler Management Board shall initially consist of 18
members. In general, 50% of such members shall be those designated by
Chrysler, and 50% of such members shall be those designated by Daimler-Benz,
and there will be two additional members with responsibility for
Daimler-Benz' non-automotive businesses. For three years following the
Chrysler Effective Time, Jurgen E. Schrempp and Robert J. Eaton shall be the
Co-CEOs and Co-Chairmen (VORSTANDSVORSITZENDE) of the DaimlerChrysler
Management Board and members of the Office of the Chairmen of
DaimlerChrysler. Mr. Eaton has indicated his intention to retire from such
position after three years. Set forth in the chart below are the names and
areas of responsibilities of those persons expected to be members of the
DaimlerChrysler Management Board following the Chrysler Effective Time.
The Combination Agreement also provides that (a) the DaimlerChrysler
Management Board shall establish an Integration Committee with a consultative
function which shall consist of the Co-Chairmen of the DaimlerChrysler
Management Board, who shall also serve as Co-Chairmen of the Integration
Committee, and 12 or more members (including such Co-Chairmen), 50% of whom
shall be designated by Chrysler and 50% of whom shall be designated by
Daimler-Benz; (b) following the Chrysler Effective Time, DaimlerChrysler shall
maintain two operational headquarters, one located at the current headquarters
of Daimler-Benz, and one located at the current headquarters of Chrysler; and
(c) following the Chrysler Effective Time, English shall be the official
language for the management of DaimlerChrysler.
36
<PAGE>
There will also be a Chairmen's Integration Council which will consist of the
persons identified on the chart set forth below.
The DaimlerChrysler Management Board (VORSTAND) is responsible for managing
DaimlerChrysler and representing DaimlerChrysler in its dealings with third
parties. The DaimlerChrysler Supervisory Board appoints and removes the members
of the DaimlerChrysler Management Board and oversees the management of
DaimlerChrysler, but is prohibited by the German Stock Corporation Law
(AKTIENGESETZ) from making management decisions. The German Stock Corporation
Law (AKTIENGESETZ) prohibits simultaneous membership on the board of management
and the supervisory board of a company. The Integration Committee will be a
stockholders advisory body including the Co-Chairmen and consisting principally
of the stockholder representatives on the DaimlerChrysler Supervisory Board. The
Integration Committee will provide advice to the Management Board (VORSTAND) of
DaimlerChrysler in connection with the combined businesses and operations of
DaimlerChrysler following consummation of the Transactions. The Chairmen's
Integration Council (Office of the Chairmen) will be responsible for, among
other things, managing the integration of Chrysler and Daimler-Benz.
The Combination Agreement contains no provisions that would bar governance
changes after the Transactions have been consummated.
37
<PAGE>
[GRAPHIC]
38
<PAGE>
CERTAIN TAX CONSEQUENCES TO U.S. HOLDERS
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE CHRYSLER EXCHANGE
The following is a discussion of the material United States federal income
tax consequences to U.S. Holders of Chrysler Common Stock who exchange such
shares for DaimlerChrysler Ordinary Shares pursuant to the Chrysler Exchange.
This discussion is based upon existing United States federal income tax law,
including legislation, regulations, administrative rulings and court decisions,
as in effect on the date of this Prospectus, all of which are subject to change,
possibly with retroactive effect. For purposes of this discussion, a "U.S.
Holder" is a beneficial owner of Chrysler Common Stock that is (i) an individual
citizen or resident of the United States, (ii) a corporation created or
organized in or under the laws of the United States, any state thereof or the
District of Columbia or (iii) a partnership, trust or estate treated, for United
States federal income tax purposes, as a domestic partnership, trust or estate.
This discussion assumes that U.S. Holders hold Chrysler Common Stock as a
capital asset as of the Chrysler Effective Time. This discussion does not
discuss all aspects of United States federal income taxation that may be
relevant to all U.S. Holders in light of their particular circumstances, such as
U.S. Holders whose stock was acquired pursuant to the exercise of an employee
stock option or otherwise as compensation or U.S. Holders who are subject to
special treatment under the United States federal income tax laws (for example,
financial institutions, insurance companies, tax-exempt organizations and
broker-dealers). This discussion also does not address any aspects of state,
local or non-United States tax law.
EACH PROSPECTIVE INVESTOR IS STRONGLY ADVISED TO CONSULT HIS OR HER OWN TAX
ADVISORS AS TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE CHRYSLER
EXCHANGE, INCLUDING THE PARTICULAR FACTS AND CIRCUMSTANCES THAT MAY BE UNIQUE TO
SUCH INVESTOR, AND AS TO ANY ESTATE, GIFT, STATE, LOCAL OR NON-UNITED STATES TAX
CONSEQUENCES OF THE CHRYSLER EXCHANGE.
The Chrysler Exchange is intended to qualify as a reorganization within the
meaning of Section 368(a) of the Code and/or, when integrated with the
Daimler-Benz Exchange Offer and taking into account the Daimler-Benz Merger, to
be treated as a transaction described in Section 351(a) of the Code. The
obligation of Chrysler to consummate the Chrysler Exchange is conditioned upon
the receipt by Chrysler from Debevoise & Plimpton of an opinion, based on a
private letter ruling from the IRS addressing certain issues under Section
367(a)(1) of the Code (the "Private Letter Ruling") (which private letter ruling
was received from the IRS on September 4, 1998), representation letters and
assumptions, substantially to the effect that for United States federal income
tax purposes, the Chrysler Exchange, taking into account the Daimler-Benz
Exchange Offer and the Daimler-Benz Merger, should be treated as a
non-recognition transfer of Chrysler Common Stock by the holders thereof in
exchange for DaimlerChrysler Ordinary Shares (the "Chrysler Tax Opinion").
Assuming that the Chrysler Exchange does qualify for such non-recognition
treatment, in the opinion of Debevoise & Plimpton, subject to the assumptions
and qualifications set forth under the heading "Certain Tax Consequences to U.S.
Holders--United States Federal Income Tax Consequences of the Chrysler
Exchange," the following discussion, to the extent it describes matters of law
and legal conclusions, sets forth the material United States federal income tax
consequences of the Chrysler Exchange to the U.S. Holders of Chrysler Common
Stock under the law in effect as of the date of this Prospectus.
A U.S. Holder who receives DaimlerChrysler Ordinary Shares in exchange for
Chrysler Common Stock will not recognize gain or loss upon such exchange (except
as described below with respect to cash that is received with respect to a
fractional DaimlerChrysler Ordinary Share). Accordingly, (i) the aggregate tax
basis of the DaimlerChrysler Ordinary Shares received by the U.S. Holder will be
the same as the aggregate tax basis of the Chrysler Common Stock surrendered in
exchange therefor pursuant to the Chrysler Exchange (adjusted with respect to
fractional shares) and (ii) the holding period of the DaimlerChrysler Ordinary
Shares will include the holding period of the Chrysler Common Stock surrendered
in exchange therefor pursuant to the Chrysler Exchange. A U.S. Holder who is a
"5% shareholder"
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of DaimlerChrysler in accordance with applicable Treasury Regulations under
Section 367(a) of the Code will qualify for the treatment described in this
paragraph only if such U.S. Holder files a "gain recognition agreement" with the
IRS.
A U.S. Holder who receives cash with respect to a fractional DaimlerChrysler
Ordinary Share in the Chrysler Exchange will be treated as having received such
fractional share pursuant to the Chrysler Exchange and then as having sold such
fractional share for cash. The amount of any capital gain or loss attributable
to such sale will be equal to the difference between the cash received with
respect to the fractional share and the ratable portion of the tax basis of the
Chrysler Common Stock surrendered that is allocated to such fractional share.
Chrysler is permitted under the Combination Agreement to waive (but does not
intend to waive) the receipt of the Chrysler Tax Opinion as a condition to its
obligation to consummate the Chrysler Exchange. Chrysler will not waive this
condition without first recirculating revised proxy materials and resoliciting
the vote of its stockholders. Furthermore, the Chrysler Tax Opinion is not
binding on the IRS or a court and does not preclude the IRS or a court from
adopting a contrary position. Chrysler will not seek a ruling from the IRS as to
the tax treatment of the Chrysler Exchange as a non-recognition transfer, except
with respect to certain issues under Section 367(a)(1) of the Code. If the
Chrysler Exchange is not treated as a non-recognition transfer, a U.S. Holder
would recognize capital gain or loss equal to the difference between the
aggregate fair market value of the DaimlerChrysler Ordinary Shares received and
the aggregate tax basis of the Chrysler Common Stock surrendered in exchange
therefor.
CERTAIN TAX CONSEQUENCES OF HOLDING DAIMLERCHRYSLER ORDINARY SHARES
The following is a discussion of the material United States federal income
and German tax consequences to Qualified Holders holding DaimlerChrysler
Ordinary Shares. This discussion is based upon existing United States federal
income and German tax law, including legislation, regulations, administrative
rulings and court decisions, as in effect on the date of this Prospectus, all of
which are subject to change, possibly with retroactive effect. For purposes of
this discussion, in general, a "Qualified Holder" means a U.S. Holder that (i)
is a resident of the United States for purposes of the United States-Germany
income tax treaty (the "Income Tax Treaty"), which generally includes an
individual United States resident, a corporation created or organized under the
laws of the United States, any state thereof or the District of Columbia and a
partnership, estate or trust, to the extent its income is subject to taxation in
the United States as the income of a United States resident, either in its hands
or in the hands of its partners or beneficiaries, (ii) does not hold
DaimlerChrysler Ordinary Shares as part of the business property of a permanent
establishment located in Germany or as part of a fixed base of an individual
located in Germany and used for the performance of independent personal services
and (iii) if not an individual, is not subject to the limitation on benefits
restrictions in the Income Tax Treaty. This discussion assumes the Qualified
Holder holds DaimlerChrysler Ordinary Shares as a capital asset. This discussion
does not discuss all aspects of United States federal income and German taxation
that may be relevant to all Qualified Holders in light of their particular
circumstances, such as Qualified Holders whose stock was acquired pursuant to
the exercise of an employee stock option or otherwise as compensation or
Qualified Holders who are subject to special treatment under the United States
federal income tax laws (for example, financial institutions, insurance
companies, tax-exempt organizations and broker-dealers). This discussion also
does not address any aspects of state, local or non-United States (other than
certain German) tax law.
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EACH PROSPECTIVE INVESTOR IS STRONGLY ADVISED TO CONSULT HIS OR HER OWN TAX
ADVISORS AS TO THE UNITED STATES FEDERAL INCOME AND GERMAN TAX CONSEQUENCES OF
HOLDING DAIMLERCHRYSLER ORDINARY SHARES, INCLUDING THE PARTICULAR FACTS AND
CIRCUMSTANCES THAT MAY BE UNIQUE TO SUCH INVESTOR, AND AS TO ANY OTHER TAX
CONSEQUENCES OF HOLDING DAIMLERCHRYSLER ORDINARY SHARES.
TAXATION OF DIVIDENDS
Under German law, German corporations are required to withhold tax on
dividends in an amount equal to 25% of the gross amount paid to resident and
nonresident stockholders. A partial refund of this 25% withholding tax can be
obtained by Qualified Holders under the Income Tax Treaty (subject to certain
limitations). Qualified Holders generally are subject to United States federal
income tax on dividends paid by German corporations. Subject to applicable
limitations of United States federal income tax law, Qualified Holders may be
able to claim a foreign tax credit for certain German income taxes paid. The
amount of the refund of German withholding tax and the determination of the
foreign tax credit allowable against United States federal income tax generally
depend on whether or not the Qualified Holder is a United States corporation
owning at least 10% of the voting stock of DaimlerChrysler (a "10% Holder").
In the case of any Qualified Holder other than a 10% Holder, the German
withholding tax is partially refunded under the Income Tax Treaty, effectively
reducing the withholding tax to 15% of the gross amount of the dividend. In
addition, so long as the German imputation system provides German resident
individual stockholders with a tax credit in respect of dividends paid by German
corporations, the Income Tax Treaty provides that Qualified Holders (other than
10% Holders) are entitled to an additional refund equal to 5% of the gross
amount of the dividend. For United States federal income tax purposes, the
benefit resulting from this additional 5% treaty refund is treated as a refund
received by the Qualified Holder with respect to German corporate taxes equal to
5.88% of the gross amount of the dividend, subject to a German withholding tax
of 0.88% (15% of 5.88%). Qualified Holders (other than, in certain
circumstances, 10% Holders) will not be entitled to the dividends received
deduction with respect to dividends paid by DaimlerChrysler.
Thus, for each $100 of gross dividend paid by DaimlerChrysler to a Qualified
Holder (other than a 10% Holder), the dividend after partial refund of the 25%
withholding tax under the Income Tax Treaty will be subject to a German
withholding tax of $15. If the Qualified Holder also applies for the additional
5% treaty refund, German withholding tax is effectively reduced to $10; the cash
received per $100 of gross dividend is $90. For United States federal income tax
purposes, the Qualified Holder generally is treated as receiving a total
dividend of $105.88 (to the extent paid out of current or accumulated earnings
and profits of DaimlerChrysler as determined for United States federal income
tax purposes), consisting of the $100 gross dividend and the deemed refund of
German corporate tax of $5.88. The notional $105.88 dividend is deemed to have
been subject to German withholding tax of $15.88. Thus, for each $100 of gross
dividend, the Qualified Holder will include $105.88 in gross income and may be
entitled to a foreign tax credit of $15.88, subject to applicable limitations of
United States federal income tax law.
In the case of a 10% Holder, the 25% German withholding tax is reduced under
the Income Tax Treaty to 5% of the gross amount of the dividend. Such 10%
Holders may, therefore, apply for a refund of German withholding tax in the
amount of 20% of the gross amount of the dividend. Subject to applicable
limitations of United States federal income tax laws, a 10% Holder may be
entitled to a foreign tax credit for the 5% German withholding tax on dividends
and for the portion of the total income taxes (trade income tax and corporation
income tax including any surtax) paid by DaimlerChrysler attributable to the
distributed profits.
Dividends paid in marks (or Euros) to a Qualified Holder of DaimlerChrysler
Ordinary Shares will be included in income in a dollar amount calculated by
reference to the exchange rate in effect on the date the dividends (including
any deemed refund of German corporate tax) are received or treated as received
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by such holder. If dividends paid in marks (or Euros) are converted into dollars
on the date received or treated as received, Qualified Holders generally should
not be required to recognize foreign currency gain or loss in respect of each
dividend.
A surtax on the German withholding tax is currently levied on dividend
distributions paid by a German resident company. Effective January 1, 1998, the
rate of this surtax has been reduced from 7.5% to 5.5%. Based on the new rate,
the surtax amounts to 1.375% (5.5%X25%) of the gross dividend amount. Under the
Income Tax Treaty, Qualified Holders are entitled to a full refund of this
surtax.
Under Section 904(g) of the Code, dividends paid by a foreign corporation
that is treated as more than 50% owned by United States persons may be treated
as United States source income (rather than foreign source income) for foreign
tax credit purposes, to the extent the foreign corporation earns United States
source income. Such treatment may adversely affect Qualified Holders' ability to
use foreign tax credits. It is possible that, after the Transactions,
DaimlerChrysler may be treated as more than 50% owned by United States persons
for purposes of Section 904(g) of the Code.
REFUND PROCEDURES
To claim the refund reflecting the reduction of the German withholding tax
from 25% to 15% (to 5% for 10% Holders), the additional 5% treaty refund and the
refund of the 5.5% German surtax, when applicable, a Qualified Holder must
submit (either directly or, as described below, through the U.S. Transfer Agent)
a claim for refund to the German tax authorities, with the original bank voucher
(or certified copy thereof) issued by the paying entity documenting the tax
withheld within four years from the end of the calendar year in which the
dividend is received. Claims for refund are made on a special German claim for
refund form, which must be filed with the German tax authorities: Bundesamt fur
Finanzen, 53221 Bonn-Beuel, Germany. The German claim for refund forms may be
obtained from the German tax authorities at the same address where the
applications are filed, from the Embassy of the Federal Republic of Germany,
4645 Reservoir Road, N.W., Washington, D.C. 20007-1998 or from the Office of
International Operations, Internal Revenue Service, 1325 K Street, N.W.,
Washington, D.C. 20225, Attention: Taxpayer Service Division, Room 900.
Qualified Holders must also submit to the German tax authorities
certification (IRS Form 6166) of their last filed United States federal income
tax return. Such certification is obtained from the office of the Director of
the Internal Revenue Service Center by filing a request for certification with
the Internal Revenue Service Center in Philadelphia, Pennsylvania, Foreign
Certificate Request, P.O. Box 16347, Philadelphia, PA 19114-0447. Requests for
certification are to be made in writing and must include the Qualified Holder's
name, social security number or employer identification number, tax return form
number and tax period for which certification is requested. The IRS will send
the certification directly to the German tax authorities. This certification is
valid for three years and need only be resubmitted in a fourth year in the event
of a subsequent application for refund.
In accordance with arrangements under the U.S. Transfer Agent Agreement (as
defined herein), the DaimlerChrysler Ordinary Shares held by certain Qualified
Holders will be registered with the U.S. Transfer Agent, which will receive and
distribute dividends to Qualified Holders of DaimlerChrysler Ordinary Shares and
perform administrative functions necessary to claim the refund reflecting the
reduction in German withholding tax from 25% to 15% (to 5% for 10% Holders), the
additional 5% treaty refund and the refund of the 5.5% German surtax, when
applicable, for such holders. These arrangements may be amended or revoked at
any time in the future.
The U.S. Transfer Agent will prepare the German claim for refund forms on
behalf of certain of the Qualified Holders of DaimlerChrysler Ordinary Shares
and file them with the German tax authorities. In order for the U.S. Transfer
Agent to file the claim for refund forms, the U.S. Transfer Agent will prepare
and mail to the Qualified Holders of such DaimlerChrysler Ordinary Shares, and
such holders will be requested to sign and return to the U.S. Transfer Agent,
(i) a statement authorizing the U.S. Transfer
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Agent to perform these procedures and agreeing that the German tax authorities
may inform the IRS of any refunds of German taxes and (ii) a written
authorization to remit the refund of withholding to an account other than that
of the Qualified Holder. Qualified Holders must also submit to the U.S. Transfer
Agent certification (IRS Form 6166) of their last filed United States federal
income tax return. The U.S. Transfer Agent will attach the signed statement, the
IRS Form 6166 and the documentation issued by the paying agency documenting the
dividend paid and the tax withheld to the claim for refund form and file them
with the German tax authorities.
To the extent Qualified Holders own DaimlerChrysler Ordinary Shares
registered with brokers participating in the Depository Trust Company, it is
expected that such brokers will assist the U.S. Transfer Agent in performing the
procedures described above and, in particular, prepare and forward the German
claim for refund forms together with the required documentation to the U.S.
Transfer Agent. The U.S. Transfer Agent will then file the German claim for
refund forms and any attachments thereto with the German tax authorities.
The German tax authorities will issue refunds denominated in marks (or
Euros). In the case of DaimlerChrysler Ordinary Shares held by certain Qualified
Holders, the refunds will be issued in the name of the U.S. Transfer Agent,
which will convert the refunds to dollars and issue corresponding refund checks
to the Qualified Holders of such DaimlerChrysler Ordinary Shares and brokers.
Such brokers, in turn, will remit corresponding refund amounts to the Qualified
Holders holding DaimlerChrysler Ordinary Shares registered with such brokers.
Qualified Holders of DaimlerChrysler Ordinary Shares who receive a refund
attributable to reduced withholding taxes under the Income Tax Treaty may be
required to recognize foreign currency gain or loss, which will be treated as
ordinary income or loss, to the extent that the dollar value of the refund
received or treated as received by the Qualified Holder differs from the U.S.
dollar equivalent of the refund on the date the dividend on which such
withholding taxes were imposed was received or treated as received by the
Qualified Holder.
TAXATION OF CAPITAL GAINS
Under the Income Tax Treaty, a Qualified Holder will not be liable for
German tax on capital gains realized or accrued on the sale or other disposition
of DaimlerChrysler Ordinary Shares.
Upon a sale or other disposition of DaimlerChrysler Ordinary Shares, a
Qualified Holder will recognize capital gain or loss for United States federal
income tax purposes equal to the difference between the amount realized and the
Qualified Holder's aggregate tax basis in the DaimlerChrysler Ordinary Shares.
In the case of an individual Qualified Holder of DaimlerChrysler ADSs or
DaimlerChrysler Ordinary Shares, any such capital gain will be subject to a
maximum United States federal income tax rate of 20%, if the individual
Qualified Holder's holding period in such DaimlerChrysler Ordinary Shares is
more than 12 months.
GIFT AND INHERITANCE TAXES
The United States-Germany estate tax treaty provides that an individual
whose domicile is determined to be in the United States for purposes of such
treaty will not be subject to German inheritance and gift tax (the equivalent of
the United States federal estate and gift tax) on the individual's death or
making of a gift unless the DaimlerChrysler Ordinary Shares (i) are part of the
business property of a permanent establishment located in Germany or (ii) are
part of the assets of a fixed base of an individual located in Germany and used
for the performance of independent personal services. An individual's domicile
in the United States, however, does not prevent imposition of German inheritance
and gift tax with respect to an heir, donee or other beneficiary who is
domiciled in Germany at the time the individual died or the gift was made.
The United States-Germany estate tax treaty also provides a credit against
United States federal estate and gift tax liability for the amount of
inheritance and gift tax paid in Germany, subject to certain
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limitations, in a case where the DaimlerChrysler Ordinary Shares are subject to
German inheritance or gift tax and United States federal estate or gift tax.
GERMAN CAPITAL TAX (VERMOGENSTEUER)
The Income Tax Treaty provides that a Qualified Holder will not be subject
to German capital tax (VERMOGENSTEUER) with respect to the DaimlerChrysler
Ordinary Shares. As a result of a judicial decision, the German capital tax
(VERMOGENSTEUER) presently is not imposed.
OTHER GERMAN TAXES
There are no German transfer, stamp or other similar taxes that would apply
to Qualified Holders upon receipt (including pursuant to the Chrysler Exchange),
purchase, holding or sale of DaimlerChrysler Ordinary Shares.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING
Distributions of dividends on DaimlerChrysler Ordinary Shares paid within
the United States or through certain United States-related financial
intermediaries are subject to information reporting and may be subject to backup
withholding at a 31% rate unless the Qualified Holder (i) is a corporation or
other exempt recipient or (ii) provides a taxpayer identification number and
certifies that no loss of exemption from backup withholding has occurred.
CERTAIN TAX CONSEQUENCES TO NON-U.S. HOLDERS
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES OF HOLDING CHRYSLER COMMON
STOCK
The following is a discussion of certain United States federal income and
estate tax consequences to Non-U.S. Holders of holding Chrysler Common Stock.
This discussion is based on existing United States federal income and estate tax
law, including legislation, regulations, administrative rulings and court
decisions, as in effect on the date of this Prospectus, all of which are subject
to change, possibly with retroactive effect. For purposes of this discussion, a
"Non-U.S. Holder" is a beneficial owner of Chrysler Common Stock, other than (i)
an individual citizen or resident of the United States, (ii) a corporation
created or organized in or under the laws of the United States, any state
thereof or the District of Columbia, or (iii) a partnership, trust or estate
treated, for United States federal income tax purposes, as a domestic
partnership, trust or estate. This discussion does not discuss all aspects of
United States federal income and estate taxation that may be relevant to a
Non-U.S. Holder in light of its particular circumstances. This discussion also
does not address any aspects of state, local or non-United States tax law.
EACH PROSPECTIVE INVESTOR IS STRONGLY ADVISED TO CONSULT HIS OR HER OWN TAX
ADVISORS AS TO THE UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES OF
HOLDING CHRYSLER COMMON STOCK, INCLUDING THE PARTICULAR FACTS AND CIRCUMSTANCES
THAT MAY BE UNIQUE TO SUCH INVESTOR, AND AS TO ANY OTHER TAX CONSEQUENCES OF
HOLDING CHRYSLER COMMON STOCK.
DIVIDENDS
Generally, dividends paid on Chrysler Common Stock to a Non-U.S. Holder will
be subject to United States federal income tax. Except for dividends that are
effectively connected with a Non-U.S. Holder's conduct of a trade or business
within the United States, this tax is imposed and collected by withholding at
the rate of 30% of the amount of the dividend, unless reduced by an applicable
tax treaty. Currently, dividends paid to an address in a country other than the
United States generally are presumed to be paid to a resident of such country
for purposes of determining the applicability of a treaty.
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Under recently finalized Treasury Regulations relating to withholding of tax
on non-United States persons, which apply to dividends paid after December 31,
1999 (the "Final Withholding Regulations"), a Non-U.S. Holder (or, in the case
of a Non-U.S. Holder that is a fiscally transparent entity, the owner or owners
of such entity) who wishes to claim the benefit of an applicable tax treaty
generally is required to satisfy certain certification and documentation
requirements.
Except as may be otherwise provided in an applicable tax treaty, dividends
paid on Chrysler Common Stock to a Non-U.S. Holder that are effectively
connected with such Non-U.S. Holder's conduct of a trade or business within the
United States are subject to United States federal income tax on a net income
basis, rather than the 30% withholding tax mentioned above. Any effectively
connected dividends received by a non-United States corporation may also, under
certain circumstances, be subject to an additional "branch profits" tax at a 30%
rate, or such lower rate as may be provided in an applicable tax treaty. A
Non-U.S. Holder who wishes to claim an exemption from withholding for
effectively connected dividends is generally required to satisfy certain
certification and documentation requirements.
SALE OR OTHER DISPOSITION OF CHRYSLER COMMON STOCK
Generally, a Non-U.S. Holder will not be subject to United States federal
income tax (including withholding thereof) on any gain recognized on a sale or
other disposition of Chrysler Common Stock, including pursuant to the
Transactions, unless (i) the gain is effectively connected with such Non-U.S.
Holder's conduct of a trade or business within the United States (in which case
the "branch profits" tax described above may also apply if such Non-U.S. Holder
is a non-United States corporation); (ii) in the case of a Non-U.S. Holder who
is a nonresident alien individual and holds Chrysler Common Stock as a capital
asset, such Non-U.S. Holder is present in the United States for 183 or more days
in the taxable year of the sale or other disposition and certain other
conditions are met; (iii) Chrysler is or has been a "United States real property
holding corporation" for United States federal income tax purposes at any time
during the shorter of the five-year period preceding the disposition or such
Non-U.S. Holder's holding period (which Chrysler does not believe it has been or
is currently) and certain other conditions are met or (iv) such Non-U.S. Holder
is subject to tax pursuant to United States federal income tax provisions
applicable to certain United States expatriates.
ESTATE TAX
If an individual Non-U.S. Holder owns, or is treated as owning, Chrysler
Common Stock at the time of his or her death, such stock would be subject to
United States federal estate tax imposed on the estates of nonresident aliens,
unless relief is available under an applicable tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
United States backup withholding tax generally will not apply to dividends
paid on Chrysler Common Stock that are subject to the 30% or reduced treaty rate
of withholding previously discussed. Furthermore, under current law, dividends
paid on Chrysler Common Stock to a Non-U.S. Holder at an address outside the
United States are generally exempt from backup withholding tax (but not from 30%
withholding tax, as discussed above).
Chrysler must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, such Non-U.S.
Holder, regardless of whether withholding tax was reduced by an applicable
income tax treaty. Copies of these information returns may also be made
available under the provisions of a specific income tax treaty or agreement to
the tax authorities in the country in which the Non-U.S. Holder resides.
Under the Final Withholding Regulations, for dividends paid after December
31, 1999, a non-United States person must generally provide proper documentation
indicating non-United States status to a withholding agent in order to avoid
backup withholding tax. However, dividends paid to certain exempt
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recipients (not including individuals) will not be subject to backup withholding
even if such documentation is not provided if the withholding agent is allowed
to rely on certain presumptions concerning the recipient's non-United States
status (including payment to an address outside the United States).
Payments of proceeds from the sale of Chrysler Common Stock by a Non-U.S.
Holder made to or through a non-United States office of a broker generally will
not be subject to information reporting or backup withholding. However, payments
made to or through (i) a non-United States office of a United States broker or
(ii) a non-United States office of a non-United States broker that has certain
specified connections with the United States, are generally subject to
information reporting (but not backup withholding) unless the holder certifies
its non-United States status under penalties of perjury or otherwise establishes
its entitlement to an exemption. Payments of proceeds from the sale of Chrysler
Common Stock by a Non-U.S. Holder made to or through a United States office of a
broker are generally subject to both information reporting and backup
withholding at a rate of 31% unless the holder certifies its non-United States
status under penalties of perjury or otherwise establishes its entitlement to an
exemption.
Any amounts withheld under the backup withholding rules are not an
additional tax and a Non-U.S. Holder may obtain a refund of any excess amounts
withheld by filing an appropriate claim for refund with the IRS.
CERTAIN GERMAN TAX CONSEQUENCES TO NON-GERMAN HOLDERS OF HOLDING
DAIMLERCHRYSLER ORDINARY SHARES
The following is a discussion of certain German tax consequences to
Non-German Holders of holding DaimlerChrysler Ordinary Shares. This discussion
is based upon German tax law, including legislation, regulations, administrative
rulings and court decisions, and typical tax and other treaties between Germany
and other countries, as in effect on the date of this Prospectus, all of which
are subject to change, possibly with retroactive effect. For purposes of this
discussion, a "Non-German Holder" is a beneficial owner of DaimlerChrysler
Ordinary Shares that is not a German resident for German income tax purposes and
does not hold DaimlerChrysler Ordinary Shares as part of a permanent
establishment or a fixed base in Germany. This discussion does not discuss all
aspects of German taxation that may be relevant to all Non-German Holders in
light of their particular circumstances. This discussion also does not address
any aspects of non-German tax law.
EACH PROSPECTIVE INVESTOR IS STRONGLY ADVISED TO CONSULT HIS OR HER OWN TAX
ADVISORS AS TO THE GERMAN TAX CONSEQUENCES OF HOLDING DAIMLERCHRYSLER ORDINARY
SHARES, INCLUDING THE PARTICULAR FACTS AND CIRCUMSTANCES THAT MAY BE UNIQUE TO
SUCH INVESTOR, AND AS TO ANY OTHER TAX CONSEQUENCES OF HOLDING DAIMLERCHRYSLER
ORDINARY SHARES.
DIVIDENDS
Under German law, DaimlerChrysler is required to withhold tax on dividends
in an amount equal to 25% of the gross amount paid to resident and non-resident
stockholders. A surtax on the German withholding tax is currently levied on
dividend distributions paid by a German resident company. Effective January 1,
1998, the rate of this surtax has been reduced from 7.5% to 5.5%. Based on the
new rate, the surtax amounts to 1.375% (5.5% x 25%) of the gross dividend
amount.
The rate of German withholding tax on dividends paid by DaimlerChrysler to a
Non-German Holder, together with the surtax thereon, may be reduced under the
provisions of an applicable tax treaty. A shareholder entitled to the reduced
rate of withholding tax and surtax under an applicable tax treaty must, however,
make a claim to the German tax authorities for repayment of the amount by which
the actual rate of such taxes exceeds the maximum rate of withholding tax
permitted by such tax treaty.
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CAPITAL GAINS
Under German law, any gain derived by a Non-German Holder from the sale or
other disposition of DaimlerChrysler Ordinary Shares is not subject to tax in
Germany, provided such Non-German Holder has not held, directly or indirectly,
more than 25% of the DaimlerChrysler Ordinary Shares at any time during the
5-year period immediately preceding the sale or other disposition. Under most
German tax treaties, Non-German Holders would not be subject to German income or
trade tax on such capital gains.
GIFT AND INHERITANCE TAX
Under German law, German gift or inheritance tax generally will be imposed
on transfers of DaimlerChrysler Ordinary Shares by gift or upon the death of a
Non-German Holder only if (i) the donor or transferor, or the heir, donee or the
other beneficiary, was domiciled in Germany at the time of the transfer or, with
respect to German citizens who are domiciled in Germany, if such donor,
transferor or beneficiary has not been continuously outside of Germany for a
period of more than 5 years, or (ii) the DaimlerChrysler Ordinary Shares subject
to such transfer consist or form part of a portfolio held directly or indirectly
by the donor or transferor himself or together with a related person consisting
of 10% or more of the outstanding DaimlerChrysler Ordinary Shares. The few
German estate tax treaties currently in force usually provide that German gift
or inheritance tax may only be imposed if condition (i) above is met.
GERMAN CAPITAL TAX (VERMOGENSTEUER)
As a result of a judicial decision, the German capital tax (VERMOGENSTEUER)
presently is not imposed. Under prior German law, a Non-German Holder would have
been subject to German capital taxation with respect to DaimlerChrysler Ordinary
Shares only if such Holder held, directly or indirectly, 10% or more of the
DaimlerChrysler Ordinary Shares. Under many German tax treaties, Non-German
Holders would not be subject to German capital tax (VERMOGENSTEUER) with respect
to the DaimlerChrysler Ordinary Shares.
OTHER TAXES
There are no German transfer, stamp or other similar taxes that would apply
to Non-German Holders upon receipt (including pursuant to the Transactions),
purchase, holding, or sale of the DaimlerChrysler Ordinary Shares.
ANTICIPATED ACCOUNTING TREATMENT
The Transactions are expected to qualify as a pooling-of-interests under APB
No. 16 for accounting and financial reporting purposes.
AFFILIATES' RESTRICTIONS ON SALE OF DAIMLERCHRYSLER ORDINARY SHARES
The DaimlerChrysler Ordinary Shares to be issued in the Chrysler Merger have
been registered under the Securities Act, thereby allowing those shares to be
traded without restriction by all former holders of Chrysler Common Stock who
are not deemed to be "affiliates" of Chrysler at the time of the Chrysler
Special Meeting (as "affiliates" is defined for purposes of Rule 145 under the
Securities Act or for purposes of qualifying the Transactions for
"pooling-of-interests" accounting treatment).
In addition, the Combination Agreement requires each of Daimler-Benz and
Chrysler to use its reasonable best efforts to cause its affiliates to enter
into agreements that restrict the ability of such affiliates to sell Chrysler
Common Stock, Daimler-Benz Ordinary Shares, Daimler-Benz ADSs and
DaimlerChrysler Ordinary Shares received upon consummation of the Transactions,
as the case may be.
47
<PAGE>
CERTAIN LITIGATION
On May 7 and 8, 1998, two purported class actions, respectively entitled
MARYLAND LINOTYPE COMPOSITION CO., ET AL. V. ROBERT ANTHONY LUTZ, ET AL., C.A.
16363 NC and JULES BERNSTEIN V. ROBERT ANTHONY LUTZ, ET AL., C.A. 16369 NC, were
filed in the Court of Chancery of the State of Delaware, New Castle County,
naming Chrysler and its directors as defendants. Plaintiffs, purporting to
represent the stockholders of Chrysler, allege that Chrysler and its directors
breached their fiduciary duties to stockholders by failing to obtain the best
price for the shares of Chrysler Common Stock in the Chrysler Merger. The
complaints seek to enjoin preliminarily the Chrysler Merger or, in the
alternative, damages in the amount of the difference between the value received
for the shares of Chrysler Common Stock and the alleged "best price obtainable."
Chrysler intends to defend against such allegations vigorously, if and when it
is served with these actions.
On October 14, 1998, an action was filed with the regional court in
Stuttgart Germany, by a purported stockholder of Daimler-Benz, Isabel Siebicke,
naming DaimlerChrysler and Daimler-Benz as defendants. Plaintiff is seeking the
following relief: (1) that the court find that the resolution adopted at the
meeting of Daimler-Benz stockholders on September 18, 1998 which approved the
business combination of Daimler-Benz and Chrysler is null and void or
ineffective, (2) that the court find that the resolutions adopted at a meeting
of DaimlerChrysler stockholders to increase the capital stock through a
contribution-in-kind of shares of Chrysler and Daimler-Benz are null and void or
ineffective, and (3) that the court find that the resolution adopted at the
meeting of Daimler-Benz stockholders on September 18, 1998 which approved the
merger of Daimler-Benz and DaimlerChrysler is null and void or ineffective. Each
of DaimlerChrysler and Daimler-Benz intends to defend against such allegations
vigorously.
On October 17, 1998, an action was filed with the regional court in
Stuttgart Germany, by a purported stockholder of Daimler-Benz, Dr. Ekkehard
Wenger, naming Daimler-Benz as defendant. Plaintiff is seeking that the court
find that the resolution adopted at the meeting of Daimler-Benz stockholders on
September 18, 1998 which approved the German Merger Agreement providing for the
merger of Daimler-Benz and DaimlerChrysler be declared null and void.
Daimler-Benz intends to defend against such allegations vigorously.
Daimler-Benz does not believe that this litigation should affect either the
Daimler-Benz Exchange Offer or the Chrysler Merger or the timing of completion
of either of them.
48
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
The pro forma information below does not purport to represent what the
combined results of operations actually would have been if the Transactions had
occurred as of the dates indicated or what those results will be for any future
periods. The information below is presented in accordance with U.S. GAAP and is
qualified in its entirety by, and should be read in conjunction with, (i) the
Daimler-Benz consolidated financial statements as of December 31, 1997 and 1996
and for each of the years in the three-year period ended December 31, 1997,
including the notes thereto, (ii) the Daimler-Benz unaudited consolidated
condensed Balance Sheets and Statements of Income and Cash Flows as of September
30, 1998 and for the nine-month period ended September 30, 1998 included herein,
and the unaudited consolidated financial statements as of June 30, 1998 and for
each of the six-month periods ended June 30, 1998 and 1997, including the notes
thereto, included in this Prospectus, (iii) the Chrysler consolidated financial
statements as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997, including the notes thereto, (iv) the
Chrysler unaudited consolidated financial statements as of September 30, 1998
and for the nine-month periods ended September 30, 1998 and 1997, including the
notes thereto, (v) the Chrysler unaudited consolidated financial statements as
of June 30, 1998 and for the six-month periods ended June 30, 1998 and 1997,
including the notes thereto.
In the Transactions, DaimlerChrysler will exchange DaimlerChrysler Ordinary
Shares for all of the Daimler-Benz Ordinary Shares (including Daimler-Benz
Ordinary Shares represented by Daimler-Benz ADSs) and shares of Chrysler Common
Stock, including outstanding Chrysler Stock Options, Chrysler Performance Shares
and other Chrysler equity awards. DaimlerChrysler has been formed for the sole
purpose of effecting the Transactions and accordingly has no material assets or
liabilities or revenues or expenses. Accordingly, no separate presentation of
DaimlerChrysler has been made in the accompanying unaudited pro forma combined
consolidated financial information. The unaudited pro forma combined
consolidated financial information below assumes, as is provided in the
Combination Agreement, a 100% exchange of the outstanding Daimler-Benz Ordinary
Shares and shares of Chrysler Common Stock, including outstanding Chrysler Stock
Options, Chrysler Performance Shares and other Chrysler equity awards, net of
related withholding taxes, for DaimlerChrysler Ordinary Shares. The Combination
Agreement also provides that the outstanding options, warrants and convertible
notes of Daimler-Benz will be converted into options, warrants and convertible
notes of DaimlerChrysler with substantially the same terms and conditions.
The Combination Agreement provides that each outstanding Daimler-Benz
Ordinary Share and Daimler-Benz ADS will be exchanged in the Daimler-Benz
Exchange Offer and the Daimler-Benz Merger for one DaimlerChrysler Ordinary
Share; PROVIDED that, if the 90% Minimum Condition is satisfied so that the
Transactions can be accounted for as a pooling-of-interests, then each
exchanging holder will receive 1.005 DaimlerChrysler Ordinary Shares for each
share exchanged. The Combination Agreement includes a formula (the U.S. Exchange
Ratio Formula) to determine the U.S. Exchange Ratio for the exchange of shares
of Chrysler Common Stock into DaimlerChrysler Ordinary Shares in the Chrysler
Merger. A U.S. Exchange Ratio of 0.6235 of a DaimlerChrysler Ordinary Share for
each share of Chrysler Common Stock has been established. The precise number of
outstanding Daimler-Benz Ordinary Shares and shares of Chrysler Common Stock to
be exchanged in the Transactions cannot be determined until the Chrysler
Effective Time. For all purposes in the unaudited pro forma combined
consolidated financial information, the actual number of outstanding
Daimler-Benz Ordinary Shares and shares of Chrysler Common Stock issued and
outstanding at September 30, 1998 has been used to calculate the issuance of
DaimlerChrysler Ordinary Shares pursuant to the Transactions.
The following unaudited pro forma combined consolidated balance sheet at
September 30, 1998, and the unaudited pro forma combined consolidated statements
of income for the the nine months ended September 30, 1998 and six months ended
June 30, 1998 and 1997, and for the years ended December 31, 1997, 1996 and
1995, give effect to the proposed exchange of Daimler-Benz Ordinary Shares,
Daimler-Benz ADSs and shares of Chrysler Common Stock for DaimlerChrysler
Ordinary Shares under the
49
<PAGE>
pooling-of-interests method of accounting. The unaudited pro forma combined
consolidated balance sheet at September 30, 1998 was prepared as if the
Transactions and other related transactions were consummated as of such date.
The unaudited pro forma combined consolidated statements of income for the nine
months ended September 30, 1998 and the six months ended June 30, 1998 and 1997
and years ended December 31, 1997, 1996 and 1995 were prepared as if the
Transactions and other related transactions were consummated as of January 1,
1995. The unaudited pro forma combined consolidated financial information is
based on the historical consolidated financial statements of Daimler-Benz and
Chrysler giving effect to the Transactions under the assumptions and adjustments
described in the accompanying Notes to Unaudited Pro Forma Combined Consolidated
Financial Information. Additionally, the unaudited pro forma combined
consolidated financial information gives effect to the issuance by Chrysler of
shares of Chrysler Common Stock covered hereby and the deemed exercise and
conversion of all of the outstanding Chrysler Stock Options, Chrysler
Performance Shares and other Chrysler equity awards, net of related withholding
taxes, into DaimlerChrysler Ordinary Shares determined in accordance with a
formula set out in the Combination Agreement.
50
<PAGE>
DAIMLERCHRYSLER
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(in millions)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------- PRO FORMA PRO FORMA PRO FORMA
DAIMLER-BENZ CHRYSLER(1) ADJUSTMENTS COMBINED COMBINED(7)
------------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Intangible assets......................... DM 1,882 DM 2,532 DM DM 4,414 $ 2,643
Property, plant and equipment, net........ 21,786 33,880 55,666 33,329
Investments and long-term financial
assets.................................. 3,850 1,624 5,474 3,277
Equipment on operating leases, net........ 16,095 11,096 27,191 16,280
------------- ------------- ----------- ------------- ------------
FIXED ASSETS.............................. 43,613 49,132 92,745 55,529
------------- ------------- ----------- ------------- ------------
Inventories............................... 16,559 5,934 22,493 13,467
RECEIVABLES
Receivables from financial services....... 29,959 27,304 57,263 34,285
Trade and other receivables and other
assets.................................. 20,996 4,313 25,309 15,153
Securities................................ 19,108 6,142 25,250 15,118
Cash and cash equivalents................. 5,448 11,669 189 (4a
(410) 4b)
(60) 4b)
455 (4c
(270) 5a)
(70) 5b)
(170) 5c) 16,781 10,048
------------- ------------- ----------- ------------- ------------
CURRENT ASSETS............................ 92,070 55,362 (336) 147,096 88,071
------------- ------------- ----------- ------------- ------------
DEFERRED TAXES AND PREPAID EXPENSES....... 9,452 9,023 2,000(2) 20,475 12,259
------------- ------------- ----------- ------------- ------------
TOTAL ASSETS.............................. 145,135 113,517 1,664 260,316 155,859
------------- ------------- ----------- ------------- ------------
------------- ------------- ----------- ------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Capital stock............................. 2,869 1,381 (256)(3)
(2,869) 4a)
(1,125) 4b) -- --
Additional paid-in capital................ 12,950 8,747 770(2)
(7,561)(3)
2,869 (4a
1,125 (4b
(410) 4b)
115 (4b 18,605 11,140
Retained earnings......................... 18,628 21,044 455 (4c
(270) 5a)
(70) 5b)
(300) 5c) 39,487 23,642
Accumulated other comprehensive income.... (194) -- (194) (116)
Treasury stock............................ (189) (9,047) 1,230(2)
7,817(3)
189 (4a -- --
------------- ------------- ----------- ------------- ------------
STOCKHOLDERS' EQUITY...................... 34,064 22,125 1,709 57,898 34,666
------------- ------------- ----------- ------------- ------------
MINORITY INTEREST......................... 1,085 50 1,135 679
------------- ------------- ----------- ------------- ------------
ACCRUED LIABILITIES....................... 38,548 33,344 (175) 4b)
130 (5c 71,847 43,017
------------- ------------- ------------- ------------
Financial liabilities..................... 44,589 33,560 78,149 46,790
Trade and other liabilities............... 23,386 15,839 39,225 23,485
------------- ------------- ----------- ------------- ------------
LIABILITIES............................... 67,975 49,399 117,374 70,275
------------- ------------- ----------- ------------- ------------
DEFERRED TAXES AND INCOME................. 3,463 8,599 12,062 7,222
------------- ------------- ----------- ------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................. 145,135 113,517 1,664 260,316 155,859
------------- ------------- ----------- ------------- ------------
------------- ------------- ----------- ------------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL INFORMATION.
51
<PAGE>
DAIMLERCHRYSLER
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------- PRO FORMA PRO FORMA
DAIMLER-BENZ CHRYSLER(1) COMBINED COMBINED(7)
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues................................................. DM 102,897 DM 86,769 DM 189,666 $ 113,559
Cost of sales............................................ (82,393) (67,809) (150,202) (89,931)
-------------- ------------- -------------- -------------
GROSS MARGIN............................................. 20,504 18,960 39,464 23,628
Selling, administrative and other expenses............... (12,482) (9,206) (21,688) (12,985)
Research and development................................. (4,305) (2,516) (6,821) (4,084)
Other income............................................. 1,286 333 1,619 970
-------------- ------------- -------------- -------------
INCOME BEFORE FINANCIAL INCOME AND INCOME TAXES.......... 5,003 7,571 12,574 7,529
Financial income, net.................................... 1,356 229 1,585 949
-------------- ------------- -------------- -------------
INCOME BEFORE INCOME TAXES............................... 6,359 7,800 14,159 8,478
Income taxes............................................. (2,988) (2,896) (5,884) (3,523)
Minority interest........................................ (89) -- (89) (53)
-------------- ------------- -------------- -------------
NET INCOME............................................... 3,282 4,904 8,186 4,902
-------------- ------------- -------------- -------------
-------------- ------------- -------------- -------------
PRO FORMA COMBINED EARNINGS PER SHARE (6)
Pro forma combined basic earnings per ordinary share... 8.42(a) 5.04
Pro forma combined diluted earnings per ordinary
share................................................ 8.34(a) 4.99
</TABLE>
- ------------------------
(a) The assumed weighted average number of ordinary shares outstanding for basic
and diluted earnings per share were 972.1 million and 985.0 million,
respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL INFORMATION.
52
<PAGE>
DAIMLERCHRYSLER
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------- PRO FORMA PRO FORMA
DAIMLER-BENZ CHRYSLER(1) COMBINED COMBINED(7)
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues................................................... DM 67,714 DM 60,679 DM 128,393 $ 76,873
Cost of sales.............................................. (53,809) (47,281) (101,090) (60,526)
------------- ------------- -------------- -------------
GROSS MARGIN............................................... 13,905 13,398 27,303 16,347
Selling, administrative and other expenses................. (8,534) (6,197) (14,731) (8,820)
Research and development................................... (3,123) (1,691) (4,814) (2,882)
Other income............................................... 1,120 202 1,322 792
------------- ------------- -------------- -------------
INCOME BEFORE FINANCIAL INCOME AND INCOME TAXES............ 3,368 5,712 9,080 5,437
Financial income, net...................................... 542 201 743 445
------------- ------------- -------------- -------------
INCOME BEFORE INCOME TAXES................................. 3,910 5,913 9,823 5,882
Income taxes............................................... (1,838) (2,202) (4,040) (2,419)
Minority interest.......................................... (62) -- (62) (37)
------------- ------------- -------------- -------------
NET INCOME................................................. 2,010 3,711 5,721 3,426
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
PRO FORMA COMBINED EARNINGS PER SHARE (6)
Pro forma combined basic earnings per ordinary share..... 5.98(a) 3.58
Pro forma combined diluted earnings per ordinary share... 5.85(a) 3.50
</TABLE>
- ------------------------
(a) The assumed weighted average number of ordinary shares outstanding for basic
and diluted earnings per share were 956.3 million and 981.4 million,
respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL INFORMATION.
53
<PAGE>
DAIMLERCHRYSLER
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------ PRO FORMA
DAIMLER-BENZ CHRYSLER(1) COMBINED
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues.......................................................... DM 55,892 DM 51,325 DM 107,217
Cost of sales..................................................... (44,919) (39,693) (84,612)
-------------- -------------- --------------
GROSS MARGIN...................................................... 10,973 11,632 22,605
Selling, administrative and other expenses........................ (7,517) (6,203) (13,720)
Research and development.......................................... (2,867) (1,503) (4,370)
Other income...................................................... 733 130 863
-------------- -------------- --------------
INCOME BEFORE FINANCIAL INCOME AND INCOME TAXES................... 1,322 4,056 5,378
Financial income (expense), net................................... (111) 185 74
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES........................................ 1,211 4,241 5,452
Income taxes...................................................... (263) (1,691) (1,954)
Minority interest................................................. 44 -- 44
-------------- -------------- --------------
NET INCOME........................................................ 992 2,550 3,542
-------------- -------------- --------------
-------------- -------------- --------------
PRO FORMA COMBINED EARNINGS PER SHARE(6)
Pro forma combined basic earnings per ordinary share............ 3.63(a)
Pro forma combined diluted earnings per ordinary share.......... 3.61(a)
</TABLE>
- ------------------------
(a) The assumed weighted average number of ordinary shares outstanding for basic
and diluted earnings per share were 974.8 million and 983.7 million,
respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL INFORMATION.
54
<PAGE>
DAIMLERCHRYSLER
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------ PRO FORMA PRO FORMA
DAIMLER-BENZ CHRYSLER(1) COMBINED COMBINED(7)
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues.................................... DM 124,050 DM 105,592 DM 229,642 $ 137,494
Cost of sales............................... (98,943) (82,497) (181,440) (108,634)
-------------- -------------- -------------- ------------
GROSS MARGIN................................ 25,107 23,095 48,202 28,860
Selling, administrative and other
expenses.................................. (17,433) (12,956) (30,389) (18,195)
Research and development.................... (5,663) (2,958) (8,621) (5,162)
Other income................................ 1,620 321 1,941 1,162
-------------- -------------- -------------- ------------
INCOME BEFORE FINANCIAL INCOME AND INCOME
TAXES..................................... 3,631 7,502 11,133 6,665
Financial income, net....................... 618 400 1,018 610
-------------- -------------- -------------- ------------
INCOME BEFORE INCOME TAXES.................. 4,249 7,902 12,151 7,275
Tax benefit relating to a special
distribution.............................. 2,908 2,908(a) 1,741
Income taxes................................ 1,074 (3,038) (1,964 (b) (1,176)
-------------- -------------- -------------- ------------
TOTAL INCOME TAXES.......................... 3,982 (3,038) 944 565
Minority interest........................... (189) (189) (113)
-------------- -------------- -------------- ------------
NET INCOME.................................. 8,042 4,864 12,906(C) 7,727
-------------- -------------- -------------- ------------
-------------- -------------- -------------- ------------
PRO FORMA COMBINED EARNINGS PER SHARE(6)
Pro forma combined basic earnings per
ordinary share.......................... 13.35 )(d 7.99
Pro forma combined diluted earnings per
ordinary share.......................... 13.21 )(d 7.91
</TABLE>
- ------------------------
(a) Reflects the nonrecurring tax benefit relating to the Special Distribution.
(b) Includes nonrecurring tax benefits of DM 1,962 relating to the decrease in
valuation allowance as of December 31, 1997, applied to the German
operations that file a combined tax return.
(c) Excluding the nonrecurring income tax benefits, net income and pro forma
combined net income would have been DM 3,172 ($1,899) and DM 8,036 ($4,811)
and pro forma combined basic and diluted earnings per share would have been
DM 8.31 ($4.98) and DM 8.24 ($4.93), respectively.
(d) The assumed weighted average number of ordinary shares outstanding for basic
and diluted earnings per share were 967.0 million and 979.8 million,
respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL INFORMATION.
55
<PAGE>
DAIMLERCHRYSLER
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------- PRO FORMA
DAIMLER-BENZ CHRYSLER(1) COMBINED
-------------- ------------- --------------
<S> <C> <C> <C>
Revenues.......................................................... DM 106,339 DM 91,860 DM 198,199
Cost of sales..................................................... (84,742) (69,708) (154,450)
-------------- ------------- --------------
GROSS MARGIN...................................................... 21,597 22,152 43,749
Selling, administrative and other expenses........................ (15,955) (11,130) (27,085)
Research and development.......................................... (5,579) (2,402) (7,981)
Other income...................................................... 1,402 284 1,686
-------------- ------------- --------------
INCOME BEFORE FINANCIAL INCOME AND INCOME TAXES................... 1,465 8,904 10,369
Financial income, net............................................. 496 262 758
-------------- ------------- --------------
INCOME BEFORE INCOME TAXES........................................ 1,961 9,166 11,127
Income taxes...................................................... 712 (3,569) (2,857)
Minority interest................................................. 89 -- 89
-------------- ------------- --------------
INCOME BEFORE EXTRAORDINARY ITEM.................................. 2,762 5,597 8,359
-------------- ------------- --------------
-------------- ------------- --------------
PRO FORMA COMBINED EARNINGS PER SHARE BEFORE EXTRAORDINARY ITEM(6)
Pro forma combined basic earnings per ordinary share.......... 8.44(a)
Pro forma combined diluted earnings per ordinary share........ 8.41(a)
</TABLE>
- ------------------------
(a) The assumed weighted average number of ordinary shares outstanding for basic
and diluted earnings per share were 990.1 and 994.2, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL INFORMATION.
56
<PAGE>
DAIMLERCHRYSLER
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------- PRO FORMA
DAIMLER-BENZ CHRYSLER(1) COMBINED
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues...................................................... DM 102,985 DM 75,395 DM 178,380
Cost of sales................................................. (86,686) (60,011) (146,697)
--------------- --------------- ---------------
GROSS MARGIN.................................................. 16,299 15,384 31,683
Selling, administrative and other expenses.................... (20,834) (8,871) (29,705)
Research and development...................................... (5,369) (2,012) (7,381)
Other income.................................................. 1,742 54 1,796
--------------- --------------- ---------------
INCOME (LOSS) BEFORE FINANCIAL INCOME
AND INCOME TAXES............................................ (8,162) 4,555 (3,607)
Financial income, net......................................... 929 388 1,317
--------------- --------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES............................. (7,233) 4,943 (2,290)
Income taxes.................................................. 1,620 (1,903) (283)
MINORITY INTEREST............................................. (116) -- (116)
--------------- --------------- ---------------
INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING PRINCIPLES.......... (5,729) 3,040 (2,689)
--------------- --------------- ---------------
--------------- --------------- ---------------
PRO FORMA COMBINED EARNINGS PER SHARE BEFORE CHANGE IN
ACCOUNTING PRINCIPLES(6)....................................
Pro forma combined basic earnings (loss) per ordinary share... (2.64)(a)
Pro forma combined diluted earnings (loss) per ordinary
share....................................................... (2.64)(a)
</TABLE>
- ------------------------
(a) The assumed weighted average number of ordinary shares outstanding for basic
and diluted earnings per share was 1,019.0 million.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL INFORMATION.
57
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED
FINANCIAL INFORMATION
(1) The Chrysler historical balance sheet information and related pro forma
adjustments to the unaudited pro forma combined consolidated balance sheet
as of September 30, 1998, have been translated into marks at the September
30, 1998 rate of exchange of $1.00 = DM 1.6759. The Chrysler historical
statements of income information for the nine months ended September 30,
1998 and the six months ended June 30, 1998 and 1997 and years ended
December 31, 1997, 1996 and 1995, and related pro forma adjustments to the
unaudited pro forma combined consolidated statements of income, have been
translated into marks at the weighted-average rates of exchange for the nine
months ended September 30, 1998 and the six months ended June 30, 1998 and
1997 and the years ended December 31, 1997, 1996 and 1995 of $1.00 = DM
1.7920, DM 1.8064, DM 1.6862, DM 1.7340, DM 1.5048 and DM 1.4331,
respectively. Certain of the Chrysler balance sheet and statement of income
amounts have been reclassified to conform with the financial statement
presentation of Daimler-Benz.
(2) The adjustments reflect the contribution by Chrysler of 24.0 million shares
of Chrysler Common Stock held in treasury to the Trust. The adjustments are
calculated using an assumed price for Chrysler Common Stock of $50.86 per
share (DM 83.36 per share).
(3) The adjustments reflect the cancellation of 152.6 million shares of Chrysler
Common Stock held in treasury, after giving effect to the issuance of the
shares of Chrysler Common Stock covered hereby.
(4) The adjustments reflect the issuance of DaimlerChrysler Ordinary Shares by
DaimlerChrysler in exchange for the outstanding Daimler-Benz Ordinary Shares
and Chrysler Common Stock and the conversion of Chrysler Stock Options,
Chrysler Performance Shares and other Chrysler equity awards as set forth
below:
<TABLE>
<CAPTION>
DAIMLER-BENZ CHRYSLER
------------- -----------
<S> <C> <C> <C>
(IN MILLIONS)
Daimler-Benz Ordinary Shares (nominal value DM5 per share) as of September 30,
1998.......................................................................... 573.8
Chrysler Common Stock outstanding at September 30, 1998......................... 647.4
Shares of Chrysler Common Stock issued in connection with shares held in
treasury (see Note 2 above)................................................... 24.0
-----------
671.4
------------- -----------
Exchange Ratios................................................................. 1.005 0.6235
------------- -----------
576.7 418.6
------------- -----------
Conversion of Chrysler Stock Options, Chrysler Performance Shares and other
Chrysler equity awards into DaimlerChrysler Ordinary Shares (net of related
withholding taxes)............................................................ 6.7
------------- -----------
Assumed DaimlerChrysler Ordinary Shares to be issued............................ 576.7 425.3
------------- -----------
Assumed DaimlerChrysler Ordinary Shares outstanding after completion of the
Transactions.................................................................. 1,002
---------
---------
</TABLE>
(4)(a) The adjustments reflect the issuance of DaimlerChrysler Ordinary Shares
with no nominal value in exchange for Daimler-Benz DM 5 nominal value
Ordinary Shares and the issuance by Daimler-Benz of its treasury stock.
(4)(b) The adjustments reflect the cancellation and exchange of Chrysler Common
Stock, Chrysler Stock Options, Chrysler Performance Shares and other
Chrysler equity awards for DaimlerChrysler Ordinary Shares and payment of
related withholding taxes.
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(4)(c) The adjustments reflect the tax benefit to be received by Chrysler
resulting from the deemed exercise of Chrysler Stock Options.
(5)(a) The adjustments reflect estimated costs of the Transactions, which
include, without limitation, fees and expenses of investment bankers,
legal counsel, accountants and consultants incurred and to be incurred by
Daimler-Benz, Chrysler and DaimlerChrysler in connection with or related
to the authorization, preparation, negotiation and execution of the
Combination Agreement and the preparation, printing, filing and mailing
of proxy statements/prospectuses for Daimler-Benz and Chrysler,
soliciting stockholder approvals and all other matters related to the
closing of the Transactions, net of costs accrued as of September 30,
1998.
(5)(b) The adjustments reflect estimated German transfer taxes to be incurred in
connection with the Daimler-Benz Merger, net of related tax benefits.
(5)(c) The adjustments reflect additional compensation costs, net of tax,
resulting from the deemed conversion of Incentive/Performance Awards and
related costs as a result of the change of control.
The foregoing expenses and German transfer taxes to be incurred to effect
the Transactions have not been reflected in the Unaudited Pro Forma
Combined Statements of Income as they are considered to be nonrecurring.
(6) Pro forma combined basic earnings (loss) per DaimlerChrysler Ordinary Share
for each period presented has been calculated by dividing pro forma
combined net income by the weighted average number of DaimlerChrysler
Ordinary Shares outstanding during each period presented, assuming that the
Transactions occurred on January 1, 1995 and using the Exchange Ratios as
discussed in Note 4 above. Pro forma combined diluted earnings (loss) per
DaimlerChrysler Ordinary Share has been computed assuming the issuance by
DaimlerChrysler of DaimlerChrysler Ordinary Shares for all stock options
and other securities of Daimler-Benz which may be converted into
Daimler-Benz Ordinary Shares. In addition, pro forma combined basic and
diluted earnings (loss) per DaimlerChrysler Ordinary Share for each period
presented has been adjusted to reflect the 20% discount to the market value
at which the Daimler-Benz Ordinary Shares were sold in the Rights Offering.
Assuming that the sale of 52.4 million Daimler-Benz Ordinary Shares in the
Rights Offering had occurred as of January 1, 1998, the pro forma combined
basic and diluted earnings per DaimlerChrysler ordinary Share for the nine
months ended September 30, 1998 would have been DM 8.19 and DM 8.12,
respectively.
Assuming that the sale of 52.4 million Daimler-Benz Ordinary Shares in the
Rights Offering had occurred as of January 1, 1997, the pro forma combined
basic and diluted earnings per DaimlerChrysler Ordinary Share for 1997
would have been DM 12.78 and DM 12.66, respectively, and, excluding
nonrecurring tax benefits in 1997 of DM 4.9 billion relating to the Special
Distribution and the decrease in valuation allowance, pro forma combined
basic and diluted earnings per DaimlerChrysler Ordinary Share for 1997
would have been DM 7.96 and DM 7.90, respectively.
(7) Represents translation of DaimlerChrysler combined financial information as
of and for the nine months ended September 30, 1998, for the six months
ended June 30, 1998 and for the year ended December 31, 1997 solely for the
convenience of the reader, at the rate of DM 1.6702 = $1.00, the Noon
Buying Rate on September 30, 1998.
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BUSINESS DESCRIPTION
CHRYSLER
Chrysler and its consolidated subsidiaries operate in two principal industry
segments: Automotive Operations and Financial Services. Automotive Operations
include the research, design, manufacture, assembly and sale of cars, trucks and
related parts and accessories. Substantially all of Chrysler's automotive
products are marketed through retail dealerships, most of which are privately
owned and financed. Financial Services include the operations of CFC and its
consolidated subsidiaries, which are engaged principally in providing consumer
and dealer automotive financing for Chrysler's products.
AUTOMOTIVE OPERATIONS. Chrysler manufactures, assembles and sells cars
and trucks under the brand names Chrysler, Dodge, Jeep-Registered Trademark-
and Plymouth, and related automotive parts and accessories, primarily in the
United States, Canada and Mexico. Passenger cars are offered in various size
classes and models. Chrysler produces trucks in pickup, sport-utility and
van/wagon models, which constitute the largest segments of the truck market.
Chrysler also purchases and distributes certain passenger cars manufactured
in the United States by Mitsubishi Motor Manufacturing of America, a
subsidiary of Mitsubishi Motors Corporation.
Although Chrysler currently sells most of its vehicles in North America,
Chrysler also participates in other international markets through its wholly
owned subsidiaries in Argentina, Brazil, Venezuela, Taiwan, Korea, Japan,
Thailand, Egypt, Austria, Italy, France, Belgium, the Netherlands and
Germany, a joint venture in Austria, and through minority-owned affiliates
located in China and Egypt. Chrysler sells vehicles and parts, and provides
related services, to independent distributors and dealers in various other
markets throughout the world.
FINANCIAL SERVICES. Chrysler's wholly owned subsidiary CFC is a
financial services organization that provides retail and lease financing for
vehicles, dealer inventory and other financing needs, dealer property and
casualty insurance and dealership facility development and management,
primarily for Chrysler dealers and their customers. CFC is the major source
of wholesale and retail financing for Chrysler vehicles throughout North
America. CFC also offers dealers working capital loans, real estate and
equipment financing and financing plans for fleet buyers, including daily
rental car companies. The automotive financing operations of CFC are
conducted through 29 zone offices in the United States and Canada (Chrysler
Credit Canada Ltd.). CFC also provides automotive financial products and
services in Europe and Asia.
During 1997, CFC financed or leased approximately 870,000 new and used
vehicles at retail in the United States, including approximately 611,000 new
Chrysler passenger cars and light-duty trucks, representing 27 percent of
Chrysler's U.S. retail and fleet deliveries. During 1997, CFC financed or
leased approximately 114,000 vehicles at retail in Canada, including
approximately 102,000 new Chrysler cars and trucks, representing 40 percent
of Chrysler's Canadian retail and fleet deliveries. CFC also financed
approximately 1,625,000 and 175,000 new Chrysler passenger cars and
light-duty trucks at wholesale in the U.S. and Canada, respectively,
representing 70 percent and 66 percent of Chrysler's U.S. and Canadian
vehicle shipments, respectively, in 1997.
Chrysler's principal executive offices are located at Chrysler World
Headquarters, 1000 Chrysler Drive, Auburn Hills, Michigan 48326-2766, and its
telephone number is (248) 576-5741.
DAIMLER-BENZ
Daimler-Benz operates in four business segments--Automotive (Passenger Cars
and Commercial Vehicles), Aerospace, Services and Directly Managed Businesses.
Daimler-Benz is primarily active in Europe, North and South America and Japan
and is continuing to expand in markets such as Eastern Europe and East and
Southeast Asia, which are also assuming strategic importance as production
locations. In 1997, approximately 33% of Daimler-Benz' revenues was derived from
sales in Germany, 25%
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from sales in other member states of the European Union and 21% from sales in
the United States and Canada.
AUTOMOTIVE. Daimler-Benz is world renowned for its high quality luxury
Mercedes-Benz passenger cars which reflect a long tradition of exceptional
engineering, performance, service and safety. Daimler-Benz is also the
world's leading manufacturer of trucks over 6t GVW and of buses over 8t GVW.
It manufactures and assembles passenger cars and commercial vehicles in 46
manufacturing plants and assembly facilities on six continents reaching
across all product lines and has a worldwide distribution and service
network. The Automotive segment contributed approximately 71% of
Daimler-Benz' revenues in 1997.
The passenger car division has one of the world's strongest car brand
names, and the number one position in the upper luxury segment of the
passenger car market. It has added new innovative products which give
Daimler-Benz access to new markets and customer segments. These products
include the A-Class, the M-Class, the SLK, the CLK and, as a second brand,
the smart, a two-seat eight foot long car designed for heavily congested
city use. With the new S-Class, which will be introduced in the fall of
1998, the passenger car division expects to solidify its leading position in
the upper luxury segment.
The commercial vehicle division has updated the entire range of vans and
trucks it offers in the European market. Following the introduction of three
new van lines and the Actros truck line in the heavy weight category, the
presentation in early 1998 of the Atego truck in the light and medium weight
categories represents the most recent step in this innovation cycle. In the
United States, Freightliner expects to strengthen its leading market
position with the new Sterling product line derived from the heavy truck
lines it has acquired from Ford Motor Company.
AEROSPACE. Daimler-Benz Aerospace is one of the leading European
aerospace companies and the German partner (with a 37.9% share) in Airbus.
Principal Aerospace activities include civil aircraft and helicopters,
military aircraft, space systems infrastructure, satellites, defense and
civil systems and aeroengines. Aerospace contributed approximately 12% of
Daimler-Benz' revenues in 1997.
At Daimler-Benz Aerospace, comprehensive cost-cutting and restructuring
measures markedly improved its competitive position. The pronounced increase
of incoming orders for Airbus aircraft in 1997 and early 1998 will define
the civilian aircraft business of Daimler-Benz during the next several
years. The anticipated combination of the Airbus activities into a single
corporate entity will form the basis for future efficiency and productivity
gains, thereby further strengthening the competitive position of Airbus.
SERVICES. debis engages in financial services supporting the sale of
Mercedes-Benz cars and trucks and other Daimler-Benz products, insurance
brokerage, information technology services, telecommunications and media
services, trading and real estate management services. debis contributed
approximately 11% of Daimler-Benz' revenues in 1997.
debis is using the strong growth potential of the service industry to
position itself to compete successfully in promising markets, primarily in
the areas of financial services, information technology and
telecommunications and media services. It also will continue to expand
internationally and strive to open up new markets, primarily in Asia, Latin
America and Northern Europe.
DIRECTLY MANAGED BUSINESSES. This segment consists of rail systems,
automotive electronics and diesel engines. The semiconductor activities
which were part of this segment in 1997 were sold in March 1998. This
segment contributed approximately 6% of Daimler-Benz' revenues in 1997.
Within the Directly Managed Businesses, Adtranz, the rail systems joint
venture between Daimler-Benz and ABB, has positioned itself as one of the
leaders in the global rail transportation
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market. It will continue to concentrate on its core competencies and use every
opportunity to achieve greater economies of scale, for example through increased
use of modularization in product development. Through these and other measures,
Adtranz expects to lower its cost base in order to achieve positive results and
continue to deliver competitive products and systems. Since the sale of the
semiconductor activities, Daimler-Benz' microelectronics activities have focused
exclusively on the fast growing automotive electronics market. MTU/Diesel
Engines has introduced a series of new and innovative products and will work on
expanding its market position, primarily in the area of diesel engines for
civilian applications.
Daimler-Benz' principal executive offices are located at Epplestrasse 225,
70567 Stuttgart, Germany, and its telephone number is 011-49-711-17-0.
PENSION CONTRIBUTION
The shares covered hereby are being contributed or sold to the Trust to
improve the funded status of the Plans. In connection with the contemplated
contribution, Chrysler has appointed several investment managers (the
"Investment Managers"), within the meaning of Section 3(38) of the Employee
Retirement Income and Security Act of 1974, as amended, each of whom will assume
absolute discretion over whether the Trust continues to hold (or disposes of)
some or all of that portion of the shares covered hereby placed under its
management. The Trust will not be charged a fee or incur any expenses with
respect to the contribution or sale of the shares covered hereby, although it
will be responsible for paying the fees of the Investment Managers. On October
15, 1998, the Trust owned approximately 1.9 million shares of Chrysler Common
Stock, which shares are under separate management and are unrelated to the
shares covered hereby.
DESCRIPTION OF CHRYSLER CAPITAL STOCK
GENERAL
Chrysler's authorized capital stock consists of 20 million shares of
Preferred Stock, par value $1.00 per share ("Chrysler Preferred Stock") which is
issuable in series, and one billion shares of Common Stock, par value $1.00 per
share. At September 30, 1998, Chrysler had no shares of Preferred Stock and
approximately 647 million shares of Common Stock outstanding. In addition,
Chrysler held approximately 177 million shares of Common Stock in treasury and
an aggregate of approximately 58.7 million additional shares of Common Stock
were reserved for issuance under Chrysler's equity based compensation plans.
The shares of Chrysler Common Stock will be converted into the right to
receive DaimlerChrysler Ordinary Shares in connection with the Chrysler Merger.
See "Description of DaimlerChrysler Ordinary Shares."
Chrysler Common Stock does not have cumulative voting rights for the
election of directors, which means that the holders of more than 50 percent of
the shares voting for the election of directors can elect 100 percent of the
directors if they choose to do so, and, in such event, the holders of the
remaining shares voting for the election of directors will not be able to elect
any person or persons to the Chrysler Board.
Chrysler Common Stock has no pre-emptive rights.
Dividends may be paid on Chrysler Common Stock, when, as and if declared by
the Chrysler Board, out of surplus, as defined by the DGCL, or in case there is
no such surplus, out of Chrysler's net profits for the fiscal year in which the
dividend is declared, the preceding fiscal year or both. Dividends may not be
paid on the Common Stock at a time when there are arrearages on Chrysler
Preferred Stock.
Holders of Chrysler Common Stock are entitled to receive, upon any
liquidation of Chrysler, all remaining assets available for distribution to
shareholders after satisfaction of Chrysler's liabilities and the preferential
rights of any Chrysler Preferred Stock which may then be issued and outstanding.
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The Outstanding shares of Chrysler Common Stock are fully paid and
nonassessable, and the holders thereof are not or will not be subject to any
personal liability as shareholders.
Chrysler's Certificate of Incorporation expressly authorizes the Chrysler
Board to fix, by resolution providing for the issue of shares of Chrysler
Preferred Stock, the number of shares to be issued and the the designations,
relative powers, preferences and rights, and the qualifications, limitations or
restrictions of such shares. In exercising such authority, the rights of holders
of Chrysler Common Stock may be modified by the Chrysler Board.
PREFERRED SHARE PURCHASE RIGHTS
In February 1998, Chrysler's Board of Directors declared and distributed a
dividend of one Preferred Share Purchase Right (a "Right") for each outstanding
share of Chrysler Common Stock. Each Right entitles the registered holder to
purchase one two-hundredth of a share of Junior Participating Cumulative
Preferred Stock, par value $1.00 per share, of Chrysler, at a price of $145,
subject to certain adjustments. Initially, the Rights are attached to Chrysler
Common Stock and are not represented by separate certificates or exercisable
until the earlier to occur of (a) ten days after a public announcement that, or
Chrysler receives notice that, a person or group of persons acquires or obtains
the right to acquire fifteen percent or more of the outstanding Chrysler Common
Stock, and (b) ten business days (or, if determined by the Board of Directors
with the concurrence of a majority of the continuing directors, a specified or
unspecified later date) after a person or group announces or commences a tender
or exchange offer which would result, if successful, in the bidder owning
fifteen percent or more of the outstanding Chrysler Common Stock. If the
acquiring person acquires more than ten percent of the Chrysler Common Stock
(except pursuant to a tender or exchange offer made for all of the Chrysler
Common Stock, and determined by a majority of Chrysler's independent directors
to be fair and in the best interests of Chrysler and its stockholders) each
Right (other than those held by the acquiror) will entitle its holder to
purchase for $145 a number of shares of Chrysler Common Stock having a market
value of $290 (or to purchase for an adjusted purchase price such number of
shares as have a market value of twice such adjusted price). Similarly, if after
the Rights become exercisable, Chrysler is acquired in a merger or other
business combination and is not the surviving corporation, Chrysler is the
surviving corporation in a merger or other business combination and the Chrysler
Common Stock is exchanged, or 50 percent or more of Chrysler's assets, cash flow
or earning power is sold, each Right (other than those held by the surviving or
acquiring company, other than Chrysler) will entitle its holder to purchase for
$145 shares of the surviving or acquiring company (other than Chrysler) having a
market value of $290 (or to purchase for an adjusted purchase price such number
of shares as have a market value of twice such adjusted price). Chrysler's
directors may, subject to certain limitations, amend the Rights and may redeem
all but not less than all of the Rights at $0.01 per Right or extend the time
during which the Rights may be redeemed until ten business days following the
date the Rights first become exercisable. Additionally, at any time after a
person or group acquires 10 percent or more, but less than 50 percent, of the
Chrysler Common Stock, Chrysler's directors may exchange the Rights (other than
those held by the acquiror), in whole or in part, at an exchange ratio of one
share of Chrysler Common Stock per Right. The Rights will expire on February 22,
2008. The existence of Chrysler's Rights plan might discourage unsolicited
merger proposals and unfriendly tender offers and may therefore deprive
stockholders of an opportunity to sell their shares at a premium over prevailing
market prices.
Chrysler has amended its preferred stock purchase rights plan to provide
that the Rights will not become exercisable as a result of the signing of the
Combination Agreement or the consummation of the Transactions.
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DESCRIPTION OF DAIMLERCHRYSLER ORDINARY SHARES
The share capital of DaimlerChrysler consists of DaimlerChrysler Ordinary
Shares issued in registered form. Record holders of DaimlerChrysler Ordinary
Shares will be registered in the share register (AKTIENBUCH) administered on
behalf of DaimlerChrysler by the U.S. Transfer Agent and Deutsche Bank,
DaimlerChrysler's transfer agent and registrar in Germany (the "German Transfer
Agent" and together with the U.S. Transfer Agent, the "Transfer Agents"),
pursuant to a Transfer Agency Agreement (the "Transfer Agent Agreement"). The
Transfer Agents will together maintain the register of stockholders of
DaimlerChrysler. At July 31, 1998, there were 20,000 issued and outstanding
DaimlerChrysler Ordinary Shares of no par value.
Generally, the share capital of DaimlerChrysler may be increased (other than
by contingent capital or authorized capital) in consideration of contributions
in cash or in property by a resolution passed at a general meeting of the
stockholders of DaimlerChrysler by a majority of the votes cast and at least a
majority of the issued shares represented at the meeting of the stockholders at
which the resolutions are passed. In advance of each such meeting, the U.S.
Transfer Agent will forward material prepared by DaimlerChrysler relating to
such meeting to holders of DaimlerChrysler Ordinary Shares with addresses in the
United States ("U.S. Registered Persons"). Section 21(2) of the Articles of
Association (SATZUNG) of DaimlerChrysler (the "DaimlerChrysler Articles of
Association") permits the DaimlerChrysler Management Board, with the approval of
the DaimlerChrysler Supervisory Board, to issue new shares at any time during
the year bearing the right to the entire per DaimlerChrysler Ordinary Share
annual dividend for the year in which they are issued.
VOTING RIGHTS
Each DaimlerChrysler Ordinary Share entitles the holder thereof to one vote
at general meetings of the stockholders of DaimlerChrysler. Resolutions are
passed at a general meeting of the stockholders of DaimlerChrysler by a majority
of the votes cast, unless a higher vote is required by law. The German Stock
Corporation Law (AKTIENGESETZ) and the DaimlerChrysler Articles of Association
require that, among other things, the following significant resolutions be
passed by a majority of the votes cast and at least 75% of the issued shares
represented in connection with the vote taken on such resolution -- certain
capital increases (contingent capital and authorized capital), capital
decreases, the exclusion of the preemptive rights (BEZUGSRECHT) of the
stockholders to subscribe for newly issued shares, a dissolution of
DaimlerChrysler, a merger of DaimlerChrysler into or a consolidation of
DaimlerChrysler with another stock corporation or another transformation, a
transfer of all or virtually all of DaimlerChrysler's assets and a change of
DaimlerChrysler's corporate form.
A general meeting of the stockholders of DaimlerChrysler may be called by
the DaimlerChrysler Management Board, the DaimlerChrysler Supervisory Board or
by stockholders holding in the aggregate at least 5% of the issued shares. The
right to attend and vote at a stockholders' meeting is accorded only to those
stockholders who are holders of record of DaimlerChrysler Ordinary Shares on the
date of the meeting and who have notified DaimlerChrysler that they wish to
attend the meeting no later than on the third day immediately preceding the
meeting date. Notice of stockholder meetings must be published in the Federal
Gazette (BUNDESANZEIGER) at least one month prior to the last day on which
stockholders may notify DaimlerChrysler that they wish to attend the meeting,
which is required to be not later than the third day prior to the date of the
stockholders meeting.
Although notice of each stockholder meeting (whether the annual general
meeting or a special meeting) is required to be given as described above,
neither the German Stock Corporation Law (AKTIENGESETZ) nor the DaimlerChrysler
Articles of Association have any minimum quorum requirement applicable to such
meetings.
Amendments to the DaimlerChrysler Articles of Association may be proposed
either by the DaimlerChrysler Supervisory Board and the DaimlerChrysler
Management Board or by a stockholder or group of
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stockholders holding a minimum of either 5% of the issued shares or at least
200,000 shares (assuming stated value of DM 5 per share). A resolution amending
the DaimlerChrysler Articles of Association must be passed by a majority of the
votes cast and at least a majority of the nominal capital represented at the
meeting of stockholders at which the resolution is considered unless the German
Stock Corporation Law (AKTIENGESETZ) requires that the resolution be passed by
at least three-quarters of the nominal capital represented at the meeting.
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends are declared at the annual general meeting of stockholders, which
must be held within eight months from the end of a fiscal year, and are paid
once a year. For each fiscal year, the DaimlerChrysler Supervisory Board and the
DaimlerChrysler Management Board ratify the financial statements and recommend
the disposition of all unappropriated profits, including the amount of net
profits of DaimlerChrysler which will be distributed by way of dividend among
the holders of DaimlerChrysler Ordinary Shares to the extent that stockholders,
by action at the annual general meeting, do not specify any other use.
Pursuant to the DaimlerChrysler Articles of Association the DaimlerChrysler
Management Board also has the authority, with the approval of the
DaimlerChrysler Supervisory Board, to make a preliminary dividend payment to the
stockholders of DaimlerChrysler on the basis of the anticipated unappropriated
profit of DaimlerChrysler if the preliminary financial statements of
DaimlerChrysler show a profit for the fiscal year for which payment of a
dividend is being proposed. The preliminary payment may not exceed 50% of the
anticipated unappropriated profit, after deducting any amounts which pursuant to
the DaimlerChrysler Articles of Association must be added to disclosed reserves,
and may not exceed 50% of the unappropriated profits of the fiscal year
preceding the one for which such preliminary dividend is paid.
U.S. Registered Persons will be entitled to elect whether to receive
payments of dividends in marks (or, as the case may be, Euros) or dollars. For
those U.S. Registered Persons who elect to receive payments of dividends in
dollars, the U.S. Transfer Agent will be required, on behalf of such U.S.
Registered Persons, to convert all cash dividends and other cash distributions
which it receives with respect to the DaimlerChrysler Ordinary Shares held by
such U.S. Registered Persons into dollars, prior to payment to such U.S.
Registered Persons. The amount distributed will be reduced by any amounts
required to be withheld by DaimlerChrysler or the U.S. Transfer Agent on account
of taxes or other governmental charges. If the U.S. Transfer Agent determines,
following consultation with DaimlerChrysler, that in its judgment any foreign
currency received by it cannot be so converted and transferred, the U.S.
Transfer Agent may distribute the foreign currency (or an appropriate document
evidencing the right to receive such currency) received by it or in its
discretion hold such foreign currency for the account of the U.S. Registered
Person entitled to receive the same.
If a distribution by DaimlerChrysler consists of a dividend in, or
distribution without consideration of, DaimlerChrysler Ordinary Shares, the
Transfer Agents shall distribute to the holders of outstanding DaimlerChrysler
Ordinary Shares, in proportion to their holdings, the DaimlerChrysler Ordinary
Shares received by the Transfer Agents from DaimlerChrysler for distribution to
holders of DaimlerChrysler Ordinary Shares. In lieu of delivering fractional
DaimlerChrysler Ordinary Shares, the Transfer Agents shall sell the number of
DaimlerChrysler Ordinary Shares represented by the aggregate of such fractions
and distribute the net proceeds.
Whenever the Transfer Agents receive any distribution other than cash,
DaimlerChrysler Ordinary Shares or rights, the Transfer Agents will cause such
securities or property to be distributed to holders of DaimlerChrysler Ordinary
Shares in proportion to their holdings. If the Transfer Agents determine that
any such distribution cannot be made proportionately among the holders of
DaimlerChrysler Ordinary Shares entitled thereto or if for any other reason
(including any withholding on account of taxes or other governmental charges or
securities law requirements) the Transfer Agents determine that such
distribution
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is not feasible or may not be legally made, the Transfer Agents may, following
consultation with DaimlerChrysler, adopt such method as they deem equitable and
practicable for the purpose of effecting such distribution, including the public
or private sale of all or a portion of such securities or property and the
distribution by the Transfer Agents of the net proceeds from any such sale as in
the case of a distribution of cash.
In the event that the Transfer Agents determine that any distribution in
cash or property (including DaimlerChrysler Ordinary Shares or rights to
subscribe therefor) is subject to any tax or governmental charges which the
Transfer Agents are obligated to withhold, the Transfer Agents may use such cash
or dispose, including by public or private sale, of all or a portion of such
property in such amounts and in such manner as the Transfer Agents deem
necessary and practicable to pay such taxes or governmental charges, and the
Transfer Agents shall distribute the net proceeds of any such sale or the
balance of any such cash or property after deduction of such taxes or
governmental charges to the DaimlerChrysler Ordinary Share holders entitled
thereto in proportion to their holdings. See "The Transactions--Certain Tax
Consequences to U.S. Holders--Certain Tax Consequences of Holding
DaimlerChrysler Ordinary Shares" and "--Certain Tax Consequences to Non-U.S.
Holders--Certain German Tax Consequences to Non-German Holders of Holding
DaimlerChrysler Ordinary Shares."
RECORD DATES
In accordance with the German Stock Corporation Law (AKTIENGESETZ), the
record date to determine the holders of DaimlerChrysler Ordinary Shares entitled
to the payment of dividends or other distributions (whether in cash, stock or
property) will be the date of the general meeting of stockholders at which such
dividends or other distributions are declared. The record date to determine the
holders of DaimlerChrysler Ordinary Shares entitled to vote at a general meeting
will be the date of such general meeting. However, holders of DaimlerChrysler
Ordinary Shares who are registered in the share register (AKTIENBUCH) on the
date of the meeting will be entitled to attend and vote at the meeting only if
such holders have given DaimlerChrysler notice of their desire to attend such
meeting no later than the third day immediately preceding the date of such
meeting.
LIQUIDATION RIGHTS
In accordance with the German Stock Corporation Law (AKTIENGESETZ), upon a
liquidation of DaimlerChrysler, any liquidation proceeds remaining after paying
off all of DaimlerChrysler's liabilities would be distributed among the holders
of DaimlerChrysler Ordinary Shares in proportion to their holdings.
PREEMPTIVE RIGHTS
Under the German Stock Corporation Law (AKTIENGESETZ), an existing
stockholder in a stock corporation has a preferential right to subscribe
(BEZUGSRECHT) for any issue by such corporation of shares, debt instruments
convertible into shares and participating debt instruments in proportion to the
shares held by such stockholder in the existing capital of such corporation. The
German Stock Corporation Law (AKTIENGESETZ) provides that this preferential
right can be excluded only by a stockholder resolution passed at the same time
as the resolution authorizing the capital increase. A majority of at least three
quarters of the issued shares represented at the meeting is required for such
exclusion. The exclusion of preemptive rights is permitted if it is objectively
justified, in particular if a capital increase against contributions in cash
does not exceed 10% of the Company's capital stock and the issue price is not
materially below the market price.
NOTICES AND REPORTS
Upon the giving of notice by DaimlerChrysler, by publication or otherwise,
of any meeting of holders of DaimlerChrysler Ordinary Shares or any adjourned
meeting of such holders, or of the taking of any
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action in respect of any cash or other distributions or the offering of any
rights, DaimlerChrysler will transmit to the U.S. Transfer Agent a copy of the
notice thereof in the form given or to be given to holders of DaimlerChrysler
Ordinary Shares. The U.S. Transfer Agent will, depending on the nature of the
communication, arrange for the prompt mailing of copies of such notices and
other reports and communications which are received by the U.S. Transfer Agent
to all U.S. Registered Persons to the extent not previously mailed.
The Transfer Agents will make available for inspection by the holders of
DaimlerChrysler Ordinary Shares at their principal offices any notices, reports
and communications, including any proxy soliciting materials, received from
DaimlerChrysler which are both (a) received by the Transfer Agents or their
nominees and (b) made generally available to the holders of DaimlerChrysler
Ordinary Shares by DaimlerChrysler. The U.S. Transfer Agent will also send to
U.S. Registered Persons copies of such notices, reports and communications when
furnished by DaimlerChrysler.
INSPECTION OF SHARE REGISTER
The share register (AKTIENBUCH) of DaimlerChrysler will be maintained, on
behalf and under the responsibility of the DaimlerChrysler Management Board, by
the German Transfer Agent and the U.S. Transfer Agent, for registration of any
holder of DaimlerChrysler Ordinary Shares, upon his request, as a shareholder of
DaimlerChrysler. The share register will be open for inspection by the
stockholders of DaimlerChrysler during normal business hours at the principal
offices of DaimlerChrysler in Stuttgart, Germany, and in Auburn Hills, Michigan.
CHARGES OF TRANSFER AGENTS
The Transfer Agents will be paid customary fees for their services under the
Transfer Agent Agreement. Holders of DaimlerChrysler Ordinary Shares will not be
required to pay any fees or charges incident to the transfer and registration of
their shares on the share register of DaimlerChrysler, nor will such holders be
required to pay any fees or charges incident to the conversion of dividends from
marks to dollars.
GENERAL
Neither the Transfer Agents nor DaimlerChrysler will be liable to the
holders of DaimlerChrysler Ordinary Shares if prevented or delayed by law or by
reason of any provision of the DaimlerChrysler Articles of Association or by any
circumstances beyond their control from performing their obligations.
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COMPARISON OF CERTAIN RIGHTS OF
STOCKHOLDERS OF CHRYSLER AND DAIMLERCHRYSLER
GENERAL
The rights of stockholders of Chrysler and DaimlerChrysler are governed by
and subject to the provisions of Delaware law, including the DGCL, and German
law including the German Stock Corporation Law (AKTIENGESETZ), respectively. If
the Chrysler Merger is consummated, the stockholders of Chrysler will become
stockholders of DaimlerChrysler, and their rights will be governed by German law
and the provisions of the DaimlerChrysler Articles of Association (SATZUNG),
rather than the DGCL and the provisions of the Chrysler Certificate and the
Chrysler By-Laws. The following is a brief summary of certain material
differences between the rights of Chrysler stockholders and the rights of
DaimlerChrysler stockholders, and is qualified in its entirety by reference to
the relevant provisions of the DGCL, the Chrysler Certificate, the Chrysler
By-Laws, German law and the DaimlerChrysler Articles of Association (SATZUNG).
Copies of the Chrysler Certificate and Chrysler By-Laws have been filed as
exhibits to the Registration Statement. For further information as to where
these and other exhibits to the Registration Statement may be obtained, see
"Available Information" and "Incorporation of Certain Documents by Reference."
DUTIES OF DIRECTORS
CHRYSLER
Delaware law provides that the board of directors has the ultimate
responsibility for managing the business and affairs of a corporation. In
discharging this function, directors of Delaware corporations owe fiduciary
duties of care and loyalty to the corporations for which they serve as
directors. Directors of Delaware corporations also owe fiduciary duties of care
and loyalty to stockholders.
Delaware courts have held that the directors of a Delaware corporation are
required to exercise an informed business judgment in the performance of their
duties. An informed business judgment means that the directors have informed
themselves of all material information reasonably available to them.
Delaware courts have imposed a heightened standard of conduct upon directors
of a Delaware corporation who take any action designed to defeat a threatened
change in control of the corporation. The heightened standard has two elements.
First, it must be demonstrated that there is a threat to corporate policy or
effectiveness, and, second, the action must be found to be reasonable in
relation to the perceived threat posed. In addition, under Delaware law, when
the board of directors of a Delaware corporation approves the sale or break-up
of the corporation, the board of directors may, in certain circumstances, have a
duty to obtain the highest value reasonably available to the stockholders.
A director of a Delaware corporation, in the performance of such director's
duties, is fully protected in relying, in good faith, upon the records of the
corporation and upon such information, opinions, reports or statements presented
to the corporation by any of the corporation's officers or employees, or
committees of the board of directors, or by any other person as to matters the
director reasonably believes are within such other person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the corporation.
The DGCL does not contain any statutory provision permitting the board of
directors, committees of the board and individual directors, when discharging
the duties of their respective positions, to consider the interests of any
constituencies other than the corporation or its stockholders. It is unclear
under the current state of development of the Delaware law the extent to which
the board of directors, committees of the board and individual directors of a
Delaware corporation may, in considering what is in the corporation's best
interests or the effects of any action on the corporation, take into account the
interests of any constituency other than the stockholders of the corporation. In
addition, the duty of the board of directors, committees of the board and
individual directors of a Delaware corporation may be enforced
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directly by the corporation or may be enforced by a stockholder, as such, by an
action in the right of the corporation, or may, in certain circumstances, be
enforced directly by a stockholder or by any other person or group.
Under Delaware law, it is presumed that the directors of a Delaware
corporation acted on an informed basis, in good faith and in the honest belief
that the action taken was in the best interest of the corporation. This
presumption may be overcome, however, if it is shown by a preponderance of the
evidence that the directors' decision involved a breach of fiduciary duty such
as fraud, overreaching, lack of good faith, failure of the board to inform
itself properly or actions by the board to entrench itself in office.
DAIMLERCHRYSLER
As required by the German Stock Corporation Law (AKTIENGESETZ),
DaimlerChrysler has a two-tier board system consisting of the DaimlerChrysler
Management Board (VORSTAND) and the DaimlerChrysler Supervisory Board
(AUFSICHTSRAT). The DaimlerChrysler Management Board is responsible for managing
DaimlerChrysler and representing DaimlerChrysler in its dealings with third
parties, while the DaimlerChrysler Supervisory Board appoints and removes the
members of the DaimlerChrysler Management Board and oversees the management of
DaimlerChrysler. The German Stock Corporation Law (AKTIENGESETZ) prohibits the
DaimlerChrysler Supervisory Board from making management decisions. The
DaimlerChrysler Supervisory Board may determine that certain actions and
business measures require its prior approval.
The DaimlerChrysler Management Board must submit regular reports on the
operations of DaimlerChrysler to the DaimlerChrysler Supervisory Board, and the
DaimlerChrysler Supervisory Board is also entitled to request special reports at
any time. The German Stock Corporation Law (AKTIENGESETZ) prohibits simultaneous
membership on the board of management and the supervisory board of a company.
The members of the DaimlerChrysler Management Board and the members of the
DaimlerChrysler Supervisory Board owe a duty of loyalty and care to
DaimlerChrysler.
In carrying out their duties, members of the DaimlerChrysler Management
Board and the DaimlerChrysler Supervisory Board must exercise the standard of
care of a prudent and diligent businessman and have the burden of proving that
they did so if it is ever contested. The interests of DaimlerChrysler are deemed
to include the interests of the stockholders, the interests of the work force
and, to some extent, the common interest, and both the DaimlerChrysler
Management Board and the DaimlerChrysler Supervisory Board must take all these
interests into account when taking actions or decisions. The DaimlerChrysler
Management Board is required to respect the rights of all stockholders to equal
treatment and equal information. The DaimlerChrysler Management Board also has a
duty to maintain the confidentiality of corporate information. Members of the
DaimlerChrysler Management Board who violate their duties may be held jointly
and severally liable by the corporation for any resulting damages, unless their
actions were validly approved by resolution at a stockholders' meeting. The
members of the DaimlerChrysler Supervisory Board have similar liabilities in
respect of the corporation if they violate their duties. Claims of the
corporation against the members of the DaimlerChrysler Management Board and of
the DaimlerChrysler Supervisory Board will be asserted if the stockholders'
meeting so resolves by simple majority or upon request of stockholders holding
in the aggregate at least 10% of the issued shares. The stockholders' meeting or
a court of competent jurisdiction, upon request by stockholders holding in the
aggregate at least 10% (under special circumstances 5%) of the issued shares or
at least 400,000 shares (under special circumstances 200,000 shares, in each
case, assuming stated value of DM 5 per share) shall appoint a special
representative to assert such a claim. For limitations on the liability of
directors, see "--Limitation on Directors' Liability--DaimlerChrysler" and
"--Stockholder Suits--DaimlerChrysler."
No statutory law or case law exists with respect to the standard of conduct
applicable to the members of the management board and of the supervisory board
of a German AKTIENGESELLSCHAFT in the context of a threatened change in control.
The voluntary German Takeover Code provides that the management board
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of the target company may not take any measures that run counter to the interest
of the stockholders in taking advantage of the tender offer. This recommendation
is based on the principle that the target company's management board has a duty
VIS-A-VIS the stockholders to remain neutral.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
CHRYSLER
The Chrysler By-Laws provide that the Chrysler Board shall consist of one or
more members. Such number may be increased by the board of directors. The
Chrysler Certificate provides that the By-Laws may be adopted by a vote of
stockholders to allow for the Chrysler Board to be divided into three classes
and for directors to be elected to serve staggered three-year terms. No such
By-Law has been adopted by the Chrysler stockholders.
DAIMLERCHRYSLER
Following the Chrysler Effective Time, the DaimlerChrysler Supervisory Board
will consist of 20 members, 10 of whom will be elected by the holders of
DaimlerChrysler Ordinary Shares, and, in accordance with the Co-determination
Law of 1976, 10 of whom will be elected by the employees of DaimlerChrysler. The
Chairman of the Supervisory Board is selected from the members elected by the
stockholders and will have a casting (tie-breaking) vote. The Combination
Agreement provides that for a period of not less than two years following the
Chrysler Effective Time, Mr. Hilmar Kopper, the current Chairman of the
Daimler-Benz Supervisory Board (AUFSICHTSRAT) will continue to be the Chairman
of the DaimlerChrysler Supervisory Board.
The Combination Agreement provides that the DaimlerChrysler Management Board
will consist of 18 members, 50% of which will be designated by Chrysler and 50%
of which will be designated by Daimler-Benz. In addition, there will be two
additional members with responsibility for the non-automotive businesses of
Daimler-Benz. The Combination Agreement also requires that, for a three-year
period following the Chrysler Effective Time, Jurgen E. Schrempp and Robert J.
Eaton will be the Co-CEOs and Co-Chairmen (VORSTANDSVORSITZENDE) of the
DaimlerChrysler Management Board.
The maximum term of office for members of the DaimlerChrysler Management
Board is limited to five years according to the German Stock Corporation Law
(AKTIENGESETZ). According to the DaimlerChrysler Articles of Association, the
term of office for members of the DaimlerChrysler Supervisory Board is limited
to four fiscal years, PROVIDED, HOWEVER, that the general meeting of
stockholders may determine that a shorter term of office applies to those
members of the DaimlerChrysler Supervisory Board elected by the holders of
DaimlerChrysler Ordinary Shares. The German Stock Corporation Law (AKTIENGESETZ)
disregards the fiscal year in which the term of office begins and extends the
term until the stockholders' meeting in the year following the fourth fiscal
year. Accordingly, members of the DaimlerChrysler Supervisory Board will have a
term of nearly five years. Members of both the DaimlerChrysler Management Board
and the DaimlerChrysler Supervisory Board may be re-elected for additional
terms, and there is no limit on the number of such additional terms.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
CHRYSLER
The stockholders of Chrysler may remove any director and fill the vacancy
created by such removal at any special meeting called for that purpose. In the
case of vacancies not created by such removals, or where a vacancy created by a
stockholder removal is not filled by the stockholders at the special meeting
called for such removal, the Chrysler By-Laws provide that the vacancy may be
filled by the vote of a majority of the directors remaining in office, although
less than a quorum. Any vacancy in the Chrysler Board resulting
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from an increase in the number of directors may be filled by a vote of directors
constituting a majority of the directors in office at the time such increase
becomes effective.
DAIMLERCHRYSLER
The members of the DaimlerChrysler Management Board may be removed prior to
the expiration of their terms by the DaimlerChrysler Supervisory Board only for
reasons amounting to good cause, such as gross breach of duty, inability to duly
fulfill their responsibilities or revocation of confidence by the stockholders'
meeting. In the case of vacancies, the DaimlerChrysler Supervisory Board may
fill the vacancy by appointing a new member of the DaimlerChrysler Management
Board. Members of the DaimlerChrysler Supervisory Board elected by the
stockholders at the general meeting may be removed upon the affirmative vote of
a majority of at least 75% of all votes cast at a stockholders' meeting. Any
member of the DaimlerChrysler Supervisory Board can be removed for good cause,
including gross breach of duty, by a court decision upon request of the
DaimlerChrysler Supervisory Board. In such case, the DaimlerChrysler Supervisory
Board's determination to take such action requires a simple majority vote with
the member affected having no voting power. In the case of vacancies, the
competent court upon a motion by the management board, by a member of the
supervisory board, by a stockholder, by a certain number of employees or by
certain employee representatives, may fill the vacancy for the interim period
until the next election by the stockholders or the employees, as the case may
be.
STOCKHOLDER NOMINATIONS
CHRYSLER
The Chrysler By-Laws establish procedures that must be followed for
stockholders to nominate individuals for election to the Chrysler Board.
Nominations by stockholders of individuals for election to the Chrysler Board
must be made by delivering written notice of such nomination to the Secretary of
Chrysler not less than 60 days nor more than 90 days prior to the annual meeting
at which directors will be elected, unless less than 70 days notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, in which case notice by a stockholder to be timely must be so
received not later than the close of business on the 10th day following the date
on which notice of the date of the meeting was mailed or such public disclosure
was made. The nomination notice must set forth certain information about the
stockholder making the nomination, including name and address and class and
number of shares of capital stock of Chrysler beneficially owned by such
stockholder. The nomination notice must set forth certain information about the
persons to be nominated, including information concerning the nominees'
principal occupations or employment and the class and number of shares of
Chrysler that are beneficially owned by each such person. If the presiding
officer at the stockholders' meeting determines that a nomination was not made
in accordance with these procedures, the presiding officer may so declare at the
meeting and the nomination will not be acted upon.
DAIMLERCHRYSLER
If a stockholder wants to nominate individuals for election to the
DaimlerChrysler Supervisory Board other than those recommended by the existing
DaimlerChrysler Supervisory Board, such stockholder can communicate this motion
to DaimlerChrysler within one week after the publication of the call of the
stockholders' meeting in the German Federal Gazette (BUNDESANZEIGER). The
nomination must contain the name, the profession, the domicile and memberships
in other supervisory boards or other comparable domestic or foreign supervising
constituencies of the individual to be nominated. If such communication is given
to DaimlerChrysler, the DaimlerChrysler Management Board must, within 12 days
after the publication of the calling of the stockholders' meeting in the Federal
Gazette (BUNDESANZEIGER), notify the banks and the stockholders' associations
which at the last stockholders' meeting exercised voting rights for stockholders
or who have requested such notification, of the applications and proposals for
elections by
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stockholders, including the names of such stockholders and a possible response
by the DaimlerChrysler Management Board. The same notification has to be
submitted by the DaimlerChrysler Management Board to stockholders who have
deposited their shares with DaimlerChrysler or who have, after the publication
of the call of the stockholders' meeting in the Federal Gazette
(BUNDESANZEIGER), requested such notification or who are registered in the share
register of DaimlerChrysler and whose votes have not been exercised by a bank at
the last stockholders' meeting. In addition, any stockholder entitled to attend
and vote at the stockholders' meeting can nominate individuals for the
DaimlerChrysler Supervisory Board at the stockholders' meeting.
ACTION BY WRITTEN CONSENT
CHRYSLER
The DGCL provides that unless otherwise specified in the certificate of
incorporation stockholders may take action by written consent in lieu of a
meeting; PROVIDED that consents in writing are signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize such action at a meeting and the other requirements of
Section 228 of the DGCL are complied with. The Chrysler Certificate does not
restrict stockholder action by written consent.
DAIMLERCHRYSLER
The German Stock Corporation Law (AKTIENGESETZ) does not permit stockholders
to act by written consent outside of the general stockholders' meeting.
STOCKHOLDER MEETINGS
CHRYSLER
Under the DGCL, if the annual meeting for the election of directors is not
held on a designated date, the directors are required to cause such meeting to
be held as soon thereafter as may be convenient. If they fail to do so for a
period of 30 days after the designated date, or if no date has been designated
for a period of 13 months after the organization of the corporation or after its
last annual meeting, the Court of Chancery may summarily order a meeting to be
held upon application of any stockholder or director.
A special meeting of stockholders of Chrysler may be called only by the
Chrysler Board, the Chairman of the Board or a Vice Chairman of the Board.
A quorum for a meeting of the stockholders of Chrysler generally consists of
the holders of shares constituting a majority of the voting power of the
outstanding shares of Chrysler entitled to vote. A majority of the votes cast is
generally required for an action by the stockholders of Chrysler.
DAIMLERCHRYSLER
The DaimlerChrysler Articles of Association provide that the annual general
meeting to ratify the actions of the DaimlerChrysler Management Board and the
DaimlerChrysler Supervisory Board, and to approve the disposition of
unappropriated profit, the appointment of the auditor and, if applicable, the
audited financial statements, must take place within the first 8 months of each
fiscal year.
A special meeting of stockholders of DaimlerChrysler may be called by the
DaimlerChrysler Management Board or the DaimlerChrysler Supervisory Board. A
special meeting of stockholders must be called by the DaimlerChrysler Management
Board upon request of stockholders holding in the aggregate shares representing
at least 5% of the issued shares. The written request stating the purpose and
reasons for the special meeting must be forwarded to the DaimlerChrysler
Management Board.
There are no quorum requirements for stockholder meetings of
DaimlerChrysler. Additionally, resolutions are passed at a general meeting of
the stockholders of DaimlerChrysler by a majority of the
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votes cast, unless a higher vote or a majority of the shares represented at the
meeting is required by law or the DaimlerChrysler Articles of Association.
STOCKHOLDER PROPOSALS
CHRYSLER
The Chrysler By-Laws establish procedures that must be followed for a
stockholder to submit a proposal at an annual meeting of stockholders (other
than a proposal submitted under the Commission's stockholder proposal rules). No
proposal for a vote may be submitted to the stockholders by a stockholder unless
such submitting stockholder has timely filed with the Secretary of Chrysler a
written statement setting forth specified information, including a brief
description of the proposal and the reasons for bringing such business before
the annual meeting, the name and address of the person making the proposal, the
class and number of shares of capital stock of Chrysler beneficially owned by
such person, and any material interest of the stockholder in such business. If
the presiding officer at any stockholders' meeting determines that any such
proposal was not made in accordance with these procedures or is otherwise not in
accordance with the law, he or she will so declare at the meeting and such
defective proposal will not be acted upon.
DAIMLERCHRYSLER
According to the German Stock Corporation Law (AKTIENGESETZ), stockholders
holding in the aggregate shares representing at least 5% of the issued shares or
holding in the aggregate 200,000 shares (assuming stated value of DM 5 per
share) are entitled to require that a matter is put on the agenda for resolution
and that the board of management submit a proposal at the respective
stockholders' meeting and to publish this proposal in the German Federal Gazette
(BUNDESANZEIGER). The request must be made in writing stating the purpose and
the reasons therefor. Proposals duly published may be submitted to the general
stockholders' meeting for decision. In addition, if the agenda for the meeting
is duly published, then stockholders may nominate individuals for election at
the general stockholder meeting, even if they have not availed themselves of the
procedures to make such nominations in advance of the general stockholders'
meeting and to have the board of management notify stockholders of such
nominations in advance of the general stockholders' meeting. Each stockholder
may also submit at the stockholders' meeting counterproposals to the proposals
submitted by the management board and the supervisory board. See "--Stockholder
Nominations--DaimlerChrysler."
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
CHRYSLER
Under the DGCL, fundamental corporate transactions (such as mergers, sales
of all or substantially all of the corporation's assets and dissolutions)
require the approval of the holders of a majority of the shares entitled to
vote. The DGCL permits a corporation to increase the minimum percentage vote
required. The Chrysler Certificate does not contain any supermajority vote
requirements to approve any fundamental transaction.
DAIMLERCHRYSLER
According to German law, the following resolutions may be passed only by a
majority of at least 75% of the issued shares represented at the passing of the
resolution and a simple majority of the votes cast at the stockholders meeting:
certain capital increases (contingent capital; authorized capital), capital
decreases, a dissolution of DaimlerChrysler, a merger of DaimlerChrysler or any
other form of transformation (UMWANDLUNG) of DaimlerChrysler, including, without
limitation, spin-offs (SPALTUNGEN), a transfer of all or virtually all of
DaimlerChrysler's assets, a change of DaimlerChrysler's corporate form, and the
exclusion of preemptive rights (BEZUGSRECHT).
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AMENDMENT OF CORPORATE CHARTER AND BY-LAWS
CHRYSLER
Under the DGCL, amendment of the certificate of incorporation requires the
approval of the holders of a majority of each class of shares entitled to vote.
Except as prohibited by the DGCL, the Chrysler Certificate provides that the
Chrysler Board may adopt, amend or repeal the Chrysler By-Laws without the
assent or vote of the stockholders. Under the DGCL, a corporation's by-laws may
also be amended by the stockholders.
DAIMLERCHRYSLER
Amendments of the DaimlerChrysler Articles of Association may be proposed
either jointly by the DaimlerChrysler Supervisory Board and the DaimlerChrysler
Management Board or by a stockholder or group of stockholders holding a minimum
of 5% of the issued shares or 200,000 shares (assuming stated value of DM 5 per
share). A resolution amending the DaimlerChrysler Articles of Association must
be passed by a majority of the votes cast and a majority of the shares issued
represented at the meeting of stockholders at which the resolution is considered
unless the German Stock Corporation Law (AKTIENGESETZ) requires that the
resolution be passed by at least three-quarters of the shares issued represented
at the meeting.
APPRAISAL RIGHTS
CHRYSLER
The rights of stockholders to demand payment in cash by a corporation of the
fair value of their shares under certain circumstances are called appraisal
rights under the DGCL. The DGCL does not afford appraisal rights to holders of
shares which are either listed on a national securities exchange, quoted on The
Nasdaq National Market or held of record by more than 2,000 stockholders when
the plan of merger or consolidation converts such shares solely into stock of
the surviving corporation or stock of another corporation (or cash in lieu of
fractional shares) which is either listed on a national securities exchange,
quoted on The Nasdaq National Market or held of record by more than 2,000
stockholders. In addition, Delaware law denies appraisal rights to the
stockholders of the surviving corporation in a merger if such merger did not
require for its approval the vote of the stockholders of such surviving
corporation.
In determining fair value, any valuation methods may be used which are
generally acceptable in the financial community.
DAIMLERCHRYSLER
A valuation proceeding (SPRUCHVERFAHREN) is available to DaimlerChrysler's
stockholders under the German Stock Corporation Law (AKTIENGESETZ) and the
German Transformation Act (UMWANDLUNGSGESETZ) to determine the adequacy of the
consideration to be paid in certain corporate transactions. These transactions
include (a) a merger; (b) a control and profit transfer agreement between a
controlling stockholder and its dependent company; and (c) the forced withdrawal
of minority stockholders from a corporation upon the corporation's integration
with its parent corporation holding shares representing at least 95% of the
nominal capital of the corporation to be integrated; PROVIDED, in each case the
stockholder complies with the procedural requirements specified in the
respective statutory provisions.
PREEMPTIVE RIGHTS
CHRYSLER
Under the DGCL, stockholders have no preemptive rights to subscribe to
additional issues of stock or to any security convertible into such stock
unless, and except to the extent that, such rights are expressly
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provided for in the certificate of incorporation. The Chrysler Certificate does
not provide for preemptive rights.
DAIMLERCHRYSLER
Under the German Stock Corporation Law (AKTIENGESETZ), in general, an
existing stockholder in a stock corporation has a preemptive right (BEZUGSRECHT)
to subscribe for any issue by such corporation of shares, debt instruments
convertible into shares and participating debt instruments in proportion to the
shares held by such stockholder in the existing capital of such corporation. The
German Stock Corporation Law (AKTIENGESETZ) provides that this preemptive right
can be excluded only by a stockholder resolution. A majority of at least
three-quarters of the issued shares represented at the meeting is required for
the exclusion. See "Description of DaimlerChrysler Ordinary Shares--Preemptive
Rights."
STOCK REPURCHASES
CHRYSLER
Under DGCL, a corporation may purchase or redeem its own shares unless the
capital of the corporation is impaired or when such purchase or redemption would
cause an impairment of the capital of the corporation. A Delaware corporation
may, however, purchase or redeem out of capital any of its preferred shares if
such shares will be retired upon acquisition, thereby reducing the capital of
the corporation.
DAIMLERCHRYSLER
Under the German Stock Corporation Law (AKTIENGESETZ), a stock corporation
(AKTIENGESELLSCHAFT) like DaimlerChrysler may acquire its own shares, (i) only
upon authorization by a stockholders' meeting, PROVIDED, that it acquires no
more than 10% of its issued shares, or (ii) for certain defined purposes
(E.G.,for transfer to employees).
ANTI-TAKEOVER STATUTES
CHRYSLER
Section 203 of the DGCL contains certain "anti-takeover" provisions that
apply to a Delaware corporation, unless the corporation elects not to be
governed by such provision in its certificate of incorporation or by-laws.
Neither the Chrysler Charter nor the Chrysler By-Laws contain such an election.
Thus, Chrysler is governed by Section 203 of the DGCL, which precludes a
corporation from engaging in any "business combination" (i.e., mergers,
consolidations, sales of substantially all assets, etc.) with any person (other
than the corporation and any direct or indirect majority-owned subsidiary of the
corporation) that owns 15% or more of the outstanding voting stock of the
corporation (except for any such person whose ownership of shares in excess of
the 15% limitation is the result of action taken solely by the corporation) for
a period of three years following the time that such stockholder obtained
ownership of more than 15% of the outstanding voting stock of the corporation.
The three-year waiting period does not apply, however, if (i) prior to the time
such person obtained ownership of more than 15% of the outstanding voting stock
of the corporation, the board of directors of the corporation approved either
the business combination or the transaction which resulted in such stockholder
owning in excess of 15% of such stock, (ii) upon consummation of the transaction
which resulted in the stockholder owning in excess of 15% of the outstanding
voting stock of the corporation, such stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time that the transaction
commenced, or (iii) at or subsequent to such time as the stockholder obtained
more than 15% of the outstanding voting stock of the corporation, the business
combination is approved by the board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock that is not owned by
the acquiring stockholder.
75
<PAGE>
DAIMLERCHRYSLER
German law does not specifically regulate business combinations with
interested stockholders. However, certain general principles of German law may
restrict business combinations under certain circumstances.
LIMITATION ON DIRECTORS' LIABILITY
CHRYSLER
The DGCL permits a corporation to limit a director's personal liability,
with certain specified exemptions. Such a limitation must be set forth in the
corporation's certificate of incorporation.
The Chrysler Certificate currently eliminates a director's personal
liability for monetary damages to the fullest extent permitted by Delaware law.
As a result, a Chrysler director presently has no monetary liability except for
liability for (i) breach of the duty of loyalty, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of the
law, (iii) declaration of an improper dividend or an improper redemption of
stock or (iv) any transaction from which the director derived an improper
personal benefit.
DAIMLERCHRYSLER
Under compulsory provisions of the German Stock Corporation Law
(AKTIENGESETZ), a stock corporation is not allowed to limit or eliminate the
personal liability of the members of either the board of management or the
supervisory board for damages due to breach of duty in their official capacity.
For a discussion of the standard of conduct of the DaimlerChrysler Management
Board and the DaimlerChrysler Supervisory Board, see "--Duties of
Directors--DaimlerChrysler." DaimlerChrysler may, however, waive its claims for
damages due to a breach of duty or reach a settlement with regard to such claims
if more than three years have passed after such claims have arisen, but only
with the approval of the general stockholders' meeting, PROVIDED that such
waiver may not be granted and such settlement may not be reached if stockholders
holding in the aggregate at least 10% of the issued shares file an objection to
the protocol.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
CHRYSLER
The Chrysler Certificate and the Chrysler By-Laws require indemnification of
its directors and officers to the fullest extent permitted under Delaware law.
The DGCL permits a corporation to indemnify any person involved in a third
party action by reason of his agreeing to serve, serving or formerly serving as
an officer or director of the corporation, against expenses, judgments, fines
and settlement amounts paid in such third party action (and against expenses
incurred in any derivative action), if such person acted in good faith and
reasonably believed that his actions were in, or not opposed to, the best
interests of the corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe that his conduct was unlawful. Furthermore, the
DGCL provides that a corporation may advance expenses incurred by officers and
directors in defending any action upon receipt of an undertaking by the person
to repay the amount advanced if it is ultimately determined that such person is
not entitled to indemnification.
In general, no indemnification for expenses in derivative actions is
permitted under the DGCL where the person has been adjudged liable to the
corporation, unless a court finds him entitled to such indemnification. If,
however, the person has been successful in defending a third party or derivative
action, indemnification for expenses incurred is mandatory under the DGCL.
76
<PAGE>
Under the DGCL, the statutory provisions for indemnification are
nonexclusive with respect to any other rights, such as contractual rights, to
which a person seeking indemnification may be entitled. Delaware law does not
expressly permit such contractual or other rights to provide for indemnification
against judgments and settlements paid in a derivative action. Delaware case law
has not made clear whether and to what extent Delaware courts will enforce such
a broad right of indemnification, which is included in the Chrysler Certificate.
DAIMLERCHRYSLER
Under German law, DaimlerChrysler may indemnify its officers (LTD.
ANGESTELLTE), and, under certain circumstances, German labor law requires a
stock corporation to do so. However, DaimlerChrysler may not, as a general
matter, indemnify members of the DaimlerChrysler Management Board or the
DaimlerChrysler Supervisory Board. A German stock corporation
(AKTIENGESELLSCHAFT) may, however, purchase directors and officers insurance.
Such insurance may be subject to any mandatory restrictions imposed by German
law. In addition, German law may permit a corporation to indemnify a member of
the board of management or the supervisory board for attorneys' fees incurred if
such member is the successful party in a suit in a country, such as the U.S.,
where winning parties are required to bear their own costs, if German law would
have required the losing party to pay such member's attorneys' fees had the suit
been brought in Germany.
Members of the DaimlerChrysler Supervisory Board and the DaimlerChrysler
Management Board and officers of DaimlerChrysler will be covered by customary
liability insurance, including insurance against liabilities under the
Securities Act.
CUMULATIVE VOTING
CHRYSLER
Under the DGCL, each stockholder is entitled to one vote per share of stock,
unless the certificate of incorporation provides otherwise. In addition, under
the DGCL, cumulative voting in the election of directors is only permitted if
expressly authorized in a corporation's charter. The Chrysler Certificate does
not expressly authorize cumulative voting.
DAIMLERCHRYSLER
The German Stock Corporation Law (AKTIENGESETZ) does not allow cumulative
voting.
CONFLICT-OF-INTEREST TRANSACTIONS
CHRYSLER
The DGCL generally permits transactions involving a Delaware corporation and
an interested director of that corporation if (a) the material facts as to his
relationship or interest are disclosed and a majority of disinterested directors
consents, (b) the material facts are disclosed as to his relationship or
interest and holders of a majority of shares entitled to vote thereon consent,
or (c) the transaction is fair to the corporation at the time it is authorized
by the board of directors, a committee of the board of directors or the
stockholders.
DAIMLERCHRYSLER
In any transaction or contract between DaimlerChrysler and any member of the
DaimlerChrysler Management Board, DaimlerChrysler is represented by the
DaimlerChrysler Supervisory Board. See "-- Duties of
Directors--DaimlerChrysler."
77
<PAGE>
DIVIDENDS
CHRYSLER
The DGCL permits dividends to be paid out of (i) surplus (the excess of net
assets of the corporation over capital), or (ii) if the corporation does not
have adequate surplus, net profits for the current or immediately preceding
fiscal year, unless the net assets are less than the capital of any outstanding
preferred stock. In determining the amount of surplus of a Delaware corporation,
the assets of the corporation, including stock of subsidiaries owned by the
corporation, must be valued at their fair market value as determined by the
board of directors, without regard to their historical book value.
DAIMLERCHRYSLER
According to the German Stock Corporation Law (AKTIENGESETZ), dividends may
be paid out of the corporation's distributable profits as determined by
resolution of the stockholders general meeting for the preceding fiscal year.
LOANS TO DIRECTORS
CHRYSLER
Under the DGCL, loans can generally be made to officers and directors upon
approval by the board of directors.
DAIMLERCHRYSLER
The German Stock Corporation Law (AKTIENGESETZ) requires that any loan made
by DaimlerChrysler exceeding a month's salary to any director or general manager
or to their spouses or minor children must be authorized by a resolution of the
DaimlerChrysler Supervisory Board. Loans made by DaimlerChrysler to a member of
the DaimlerChrysler Supervisory Board require an affirmative vote of the
DaimlerChrysler Supervisory Board. For purposes of this resolution, the member
of the DaimlerChrysler Supervisory Board who would be the borrower is not
entitled to vote.
STOCKHOLDER SUITS
CHRYSLER
Under the DGCL, a stockholder may bring a derivative action on behalf of the
corporation to enforce the rights of the corporation. An individual also may
commence a class action suit on behalf of himself and other similarly situated
stockholders where the requirements for maintaining a class action under
Delaware law have been met. A person may institute and maintain such a suit only
if such person was a stockholder at the time of the transaction which is the
subject of the suit or his or her stock thereafter dissolved upon him or her by
operation of law. Additionally, under Delaware case law, the plaintiff generally
must be a stockholder not only at the time of the transaction which is the
subject of the suit, but also through the duration of the derivative suit.
Delaware law also requires that the derivative plaintiff make a demand on the
directors of the corporation to assert the corporate claim before the suit may
be prosecuted by the derivative plaintiff, unless such demand would be futile.
DAIMLERCHRYSLER
The German Stock Corporation Law (AKTIENGESETZ) does not provide for class
actions, and does not generally permit stockholder derivative suits, even in the
case of breach of duty by the members of the board of management or the
supervisory board. The stockholders' meeting, acting by a simple majority of the
votes cast, or a minority of the stockholders holding in the aggregate at least
10% of the issued shares, are entitled to request DaimlerChrysler to claim
damages, but are not entitled to assert any rights on
78
<PAGE>
behalf of DaimlerChrysler. Upon request, the corporation will prosecute such
claim. If such request is not complied with, the court will appoint a special
representative upon a motion of stockholders with either shares representing at
least 10% (under special circumstances 5%) of the issued shares or 400,000
shares (under special circumstances 200,000 shares, in each case, assuming
stated value of DM 5 per share). The general stockholders' meeting may appoint
any disinterested party as a special representative for these proceedings. To
avoid abuse, stockholders exercising the minority right described above must
establish that they have held their shares for at least three months prior to
the general stockholders' meeting in which they make the request. The
stockholder group must reimburse DaimlerChrysler for all costs of litigation if
such proceedings are unsuccessful or only partially successful, but only in the
latter case to the extent that such costs exceed any amounts awarded to
DaimlerChrysler in such a proceeding. Each stockholder who was present at the
stockholders' meeting and has objected to the resolution in the minutes may
within one month after adoption of the respective resolution of stockholders'
meeting take action against the company to contest the resolution
(ANFECHTUNGSKLAGE).
RIGHTS OF INSPECTION
CHRYSLER
Under the DGCL, every stockholder, upon proper written demand stating the
purpose thereof, may inspect the corporate books and records during normal
business hours as long as such inspection is for a proper purpose. Under the
statute, a proper purpose is any purpose reasonably related to the interests of
the inspecting person as a stockholder.
DAIMLERCHRYSLER
The German Stock Corporation Law (AKTIENGESETZ) does not permit stockholders
to inspect corporate books and records. Section 67(5) of the German Stock
Corporation Law (AKTIENGESETZ), however, does permit stockholders to inspect the
share register upon request, and Section 131 provides each stockholder with a
right to information at the stockholders' meeting, to the extent that such
information is necessary to permit a proper evaluation of the relevant item on
the agenda.
The right to information is a right only to oral information at a
stockholders meeting. Information may be given in writing to stockholders, but
they are neither entitled to receive written information nor to inspect any
documents of the corporation. As a practical matter, stockholders may receive
certain written information about DaimlerChrysler through its public filings
with the commercial register (HANDELSREGISTER) and the Federal Gazette
(BUNDESANZEIGER) and other places for publication of the company.
79
<PAGE>
LEGAL MATTERS
The validity of the Chrysler Common Stock covered hereby will be passed upon
for Chrysler by William J. O'Brien, Esq., Vice President, General Counsel and
Secretary of Chrysler. Certain legal matters will be passed upon for Chrysler by
Debevoise & Plimpton, special counsel to Chrysler. The validity of the
DaimlerChrysler Ordinary Shares to be received in connection with the
Transactions will be passed upon by the Daimler-Benz legal department.
Mr. O'Brien owns and holds options to purchase shares of Chrysler Common
Stock.
EXPERTS
The consolidated financial statements of Chrysler as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report which is included in this
Prospectus, and have been so included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information of Chrysler for
the periods ended March 31, 1998 and June 30, 1998 which is incorporated by
reference in this Prospectus and for the period ended September 30, 1998 which
is included in this Prospectus, Deloitte & Touche LLP have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their report included in Chrysler's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998 and
incorporated by reference in this Prospectus and for the period ended September
30, 1998 and included in this Prospectus, they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their report on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP are not subject to the liability provisions of Section 11 of the Securities
Act for their report on the unaudited interim financial information because such
report is not a "report" or a "part" of a registration statement prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the
Securities Act.
The consolidated financial statements of Daimler-Benz as of December 31,
1997 and 1996 and for each of the years in the three-year period ended December
31, 1997, included in this Prospectus, have been audited by KPMG
Deutsche-Treuhand Gesellschaft AG, independent auditors, as set forth in their
report included in this Prospectus, and are included herein upon the authority
of such firm as experts in accounting and auditing. The report of KPMG Deutsche
Treuhand-Gesellschaft AG on the Daimler-Benz consolidated financial statements,
as of and for each of the years in the three year period ended December 31,
1997, contains a qualification as a result of a departure from U.S. GAAP for
Daimler-Benz' accounting for certain joint ventures in accordance with the
proportionate method of consolidation. Under U.S. GAAP, joint ventures would be
accounted for using the equity method of accounting.
80
<PAGE>
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGES
---------
<S> <C>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report......................................................................... F-2
Audited Annual Financial Statements:
Consolidated Statement of Earnings for each of the years in the three-year period ended December 31,
1997................................................................................................ F-3
Consolidated Balance Sheet as of December 31, 1997 and 1996.......................................... F-4
Consolidated Statement of Cash Flows for each of the years in the three-year period ended December
31, 1997............................................................................................ F-5
Notes to Consolidated Financial Statements........................................................... F-6
Independent Accountants' Report...................................................................... F-36
Unaudited Quarterly Financial Statements:
Consolidated Statements of Earnings for each of the three- and nine-month periods ended September 30,
1998 and 1997....................................................................................... F-37
Consolidated Balance Sheet as of September 30, 1998 and 1997 and December 31, 1997................... F-38
Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 1998
and 1997............................................................................................ F-39
Notes to the Consolidated Financial Statements....................................................... F-40
DAIMLER-BENZ AKTIENGESELLSCHAFT AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report......................................................................... F-43
Consolidated Statements of Income for the years ended
December 31 , 1997, 1996 and 1995.................................................................. F-44
Consolidated Balance Sheets at December 31, 1997 and 1996............................................ F-45
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995................................................................... F-46
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1997, 1996, and 1995.................................................................. F-47
Consolidated Fixed Assets Schedule................................................................... F-48
Notes to the Consolidated Financial Statements....................................................... F-50
Condensed Consolidated Statements of Income for the six months ended June 30, 1998
and 1997........................................................................................... F-87
Condensed Consolidated Balance Sheets at June 30, 1998 and December 31, 1997......................... F-88
Condensed Consolidated Statements of Cash Flows for the six-months ended June 30, 1998 and 1997...... F-89
Notes to Unaudited Interim Condensed Consolidated Financial Statements............................... F-90
Condensed Consolidated Statement of Income for the nine months ended
September 30, 1998................................................................................. F-97
Condensed Consolidated Balance Sheets at September 30, 1998 and December 31, 1997.................... F-98
Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 1998.......... F-99
Note to Unaudited Interim Condensed Consolidated Balance Sheets and Statements of Income and Cash
Flows............................................................................................... F-100
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Chrysler Corporation
Auburn Hills, Michigan
We have audited the accompanying consolidated balance sheet of Chrysler
Corporation and consolidated subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of earnings and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Chrysler Corporation and
consolidated subsidiaries at December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in the notes to the financial statements, in 1995 the Company
changed its method of accounting for the sales of vehicles for which it has
guaranteed a minimum resale value.
Deloitte & Touche LLP
Detroit, Michigan
January 22, 1998
F-2
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Sales of manufactured products................................................... $ 56,986 $ 57,587 $ 49,601
Finance and insurance revenues................................................... 1,636 1,746 1,589
Other revenues................................................................... 2,525 2,064 2,005
--------- --------- ---------
TOTAL REVENUES............................................................... 61,147 61,397 53,195
--------- --------- ---------
Costs, other than items below (Notes 13 and 14).................................. 46,743 45,842 41,304
Depreciation and special tools amortization (Notes 1 and 5)...................... 2,696 2,312 2,220
Selling and administrative expenses.............................................. 4,957 4,730 4,064
Employee retirement benefits (Note 12)........................................... 1,188 1,414 1,163
Interest expense................................................................. 1,006 1,007 995
--------- --------- ---------
TOTAL EXPENSES............................................................... 56,590 55,305 49,746
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE............................................. 4,557 6,092 3,449
Provision for income taxes (Note 8).............................................. 1,752 2,372 1,328
--------- --------- ---------
EARNINGS BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE....................................................... 2,805 3,720 2,121
Extraordinary item--Loss on early extinguishment of debt, net of taxes (Note
7)............................................................................. -- (191) --
Cumulative effect of a change in accounting principle, net of taxes (Note 1)..... -- -- (96)
--------- --------- ---------
NET EARNINGS................................................................. $ 2,805 $ 3,529 $ 2,025
Preferred stock dividends (Note 11).............................................. 1 3 21
--------- --------- ---------
NET EARNINGS ON COMMON STOCK................................................. $ 2,804 $ 3,526 $ 2,004
--------- --------- ---------
--------- --------- ---------
(IN DOLLARS OR MILLIONS OF
BASIC EARNINGS PER COMMON SHARE (NOTES 1, 7, 11, 17): SHARES)
Earnings before extraordinary item and cumulative effect of a change in
accounting principle......................................................... $ 4.15 $ 5.09 $ 2.81
Extraordinary item............................................................. -- (0.26) --
Cumulative effect of a change in accounting principle.......................... -- -- (0.13)
--------- --------- ---------
Net earnings per common share.................................................. $ 4.15 $ 4.83 $ 2.68
--------- --------- ---------
--------- --------- ---------
Average common shares outstanding.............................................. 675.5 730.3 748.4
DILUTED EARNINGS PER COMMON SHARE (NOTES 1, 7, 11, 17):
Earnings before extraordinary item and cumulative effect of a change in
accounting principle......................................................... $ 4.09 $ 5.00 $ 2.68
Extraordinary item............................................................. -- (0.26) --
Cumulative effect of a change in accounting principle.......................... -- -- (0.12)
--------- --------- ---------
Net earnings per common share.................................................. $ 4.09 $ 4.74 $ 2.56
--------- --------- ---------
--------- --------- ---------
Average common and dilutive equivalent shares outstanding...................... 685.3 743.8 791.7
DIVIDENDS DECLARED PER COMMON SHARE.............................................. $ 1.60 $ 1.40 $ 1.00
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(IN MILLIONS OF
DOLLARS)
<S> <C> <C>
ASSETS:
Cash and cash equivalents (Note 1)........................................................ $ 4,898 $ 5,158
Marketable securities (Note 2)............................................................ 2,950 2,594
--------- ---------
Total cash, cash equivalents and marketable securities.................................. 7,848 7,752
Accounts receivable--trade and other (less allowance for doubtful accounts:
1997 and 1996--$52 million and $44 million, respectively)............................... 1,646 2,126
Inventories (Notes 1 and 3)............................................................... 4,738 5,195
Prepaid employee benefits, taxes and other expenses (Note 12)............................. 2,193 1,929
Finance receivables and retained interests in sold receivables (Note 4)................... 13,518 12,339
Property and equipment (Note 5)........................................................... 17,968 14,905
Special tools (Note 1).................................................................... 4,572 3,924
Intangible assets (Note 1)................................................................ 1,573 1,995
Other noncurrent assets (Note 12)......................................................... 6,362 6,019
--------- ---------
TOTAL ASSETS.......................................................................... $ 60,418 $ 56,184
--------- ---------
--------- ---------
LIABILITIES:
Accounts payable.......................................................................... $ 9,512 $ 8,981
Accrued liabilities and expenses (Note 6)................................................. 9,717 8,864
Short-term debt (Note 7).................................................................. 3,841 3,214
Payments due within one year on long-term debt (Note 7)................................... 2,638 2,998
Long-term debt (Note 7)................................................................... 9,006 7,184
Accrued noncurrent employee benefits (Note 12)............................................ 9,841 9,431
Other noncurrent liabilities.............................................................. 4,501 3,941
--------- ---------
TOTAL LIABILITIES..................................................................... 49,056 44,613
--------- ---------
SHAREHOLDERS' EQUITY (Note 11): (shares in millions)
Preferred stock--$1 per share par value; authorized 20.0 shares; Series A Convertible
Preferred Stock; issued and outstanding: 1997 and 1996--0.02 and 0.04 shares,
respectively (aggregate liquidation preference $8 million and $21 million,
respectively)........................................................................... * *
Common stock--$1 per share par value; authorized 1,000.0 shares; issued:
1997 and 1996--823.1 and 821.6 shares, respectively..................................... 823 822
Additional paid-in capital................................................................ 5,231 5,129
Retained earnings......................................................................... 10,605 8,829
Treasury stock--at cost: 1997 and 1996--174.7 and 119.1 shares, respectively.............. (5,297) (3,209)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY............................................................ 11,362 11,571
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................................ $ 60,418 $ 56,184
--------- ---------
--------- ---------
</TABLE>
- ------------------------
* Less than $1 million
See notes to consolidated financial statements.
F-4
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings...................................................................... $ 2,805 $ 3,529 $ 2,025
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and special tools amortization................................... 2,696 2,312 2,220
Provision for credit losses................................................... 444 373 372
Deferred income taxes......................................................... 279 1,120 186
Extraordinary item--Loss on early extinguishment of debt (Note 7)............. -- 191 --
Cumulative effect of a change in accounting principle (Note 1)................ -- -- 96
Change in receivables......................................................... (364) (224) 848
Change in inventories......................................................... (706) (691) (435)
Change in prepaid expenses and other assets................................... (1,249) (1,394) (681)
Change in accounts payable and accrued and other liabilities.................. 2,119 2,143 2,092
Other......................................................................... 404 (58) 231
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................... 6,428 7,301 6,954
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities............................................ (2,778) (4,346) (5,160)
Sales and maturities of marketable securities................................. 3,350 5,294 6,122
Finance receivables acquired.................................................. (28,335) (19,906) (24,437)
Finance receivables collected................................................. 9,089 3,062 3,795
Proceeds from sales of finance receivables.................................... 18,967 16,809 17,602
Proceeds from sales of nonautomotive assets................................... -- 701 94
Expenditures for property and equipment....................................... (3,419) (3,271) (2,597)
Expenditures for special tools................................................ (1,703) (1,364) (1,049)
Purchases of vehicle operating leases......................................... (2,028) (794) (460)
Other......................................................................... 652 248 179
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES....................................... (6,205) (3,567) (5,911)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt..................................................... 627 410 (1,971)
Proceeds under long-term borrowings and revolving lines of credit............. 5,868 1,390 4,731
Payments on long-term borrowings and revolving lines of credit................ (3,897) (2,167) (1,687)
Payment for early extinguishment of debt...................................... -- (853) --
Repurchases of common stock (Note 11)......................................... (2,130) (2,041) (1,047)
Dividends paid................................................................ (1,096) (963) (710)
Other......................................................................... 145 105 39
--------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES....................................... (483) (4,119) (645)
--------- --------- ---------
Change in cash and cash equivalents............................................... (260) (385) 398
Cash and cash equivalents at beginning of year.................................... 5,158 5,543 5,145
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......................................... $ 4,898 $ 5,158 $ 5,543
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements of Chrysler Corporation and its
consolidated subsidiaries ("Chrysler") include the accounts of all significant
majority-owned subsidiaries and entities. Affiliates that are 20 percent to 50
percent owned and subsidiaries where control is expected to be temporary,
primarily investments in certain dealerships, are generally accounted for on an
equity basis. Intercompany accounts and transactions have been eliminated in
consolidation. Certain amounts for 1996 and 1995 have been reclassified to
conform with current period classifications.
ESTIMATES
The preparation of Chrysler's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Vehicle and parts sales are generally recognized when such products are
shipped to dealers, except for sales under which Chrysler conditionally
guarantees the minimum resale value of the vehicles. Provisions for sales
incentives, returns and allowances are recognized at the time the related sale
is recognized and are treated as revenue reductions.
In 1995, the Emerging Issues Task Force ("EITF") of the Financial Accounting
Standards Board ("FASB") reached a consensus on EITF Issue 95-1, "Revenue
Recognition on Sales with a Guaranteed Minimum Resale Value." The consensus on
EITF Issue 95-1 (the "consensus") affects Chrysler's accounting treatment for
vehicle sales (principally to non-affiliated rental car companies) for which
Chrysler conditionally guarantees the minimum resale value of the vehicles. In
accordance with the consensus, these vehicle sales are accounted for as
operating leases with the related revenues and costs deferred at the time of
shipment. A portion of the deferred revenues and costs is recognized over the
corresponding guarantee period, with the remainder recognized at the end of the
guarantee period. The average guarantee period for these vehicles is
approximately nine months. Chrysler changed its accounting treatment in
accordance with the consensus effective January 1, 1995, which resulted in the
recognition of an after-tax charge of $96 million (net of income tax benefit of
$59 million), or $0.13 per common share, for the cumulative effect of this
change in accounting principle.
Finance revenue from finance receivables of Chrysler Financial Corporation
("CFC"), a wholly owned subsidiary, is recognized using the interest method.
Finance revenue from operating leases of vehicles is recognized on a
straight-line basis. Certain loan and lease origination costs are deferred and
amortized to finance revenue over the contractual terms. Recognition of finance
revenue is generally suspended when a loan or lease becomes contractually
delinquent for periods ranging from 60 to 90 days. Finance revenue recognition
is resumed when the loan or lease becomes contractually current, at which time
all past due finance revenue is recognized.
CFC sells significant amounts of automotive retail and wholesale receivables
in transactions subject to limited credit risk. CFC generally sells its
receivables to a trust and remains as servicer, for which it is paid a servicing
fee. Servicing fees are earned on a level yield basis over the remaining terms
of the related sold
F-6
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
receivables. In a subordinated capacity, CFC retains residual cash flows, a
limited interest in the principal balances of the sold receivables and certain
cash deposits provided as credit enhancements for investors. Gains or losses
from the sales of finance receivables are recognized in the period in which such
sales occur. In determining the gain or loss for each qualifying sale of finance
receivables, the investment in the sold receivable pool is allocated between the
portion sold and the portion retained, based on their relative fair values.
Effective January 1, 1997, Chrysler adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," which requires retail and wholesale
receivable sales occurring after December 31, 1996, to be accounted for as sales
when legal and effective control over transferred receivables is surrendered.
The adoption of this new accounting standard did not have a material impact on
Chrysler's consolidated financial statements.
DEPRECIATION AND SPECIAL TOOLS AMORTIZATION
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is generally provided on a straight-line basis. Special tooling
costs are amortized over the years that a model using that tooling is expected
to be produced and within each year based on the units produced. Amortization is
deducted directly from the asset account and totaled $3.7 billion and $3.4
billion at December 31, 1997 and 1996, respectively. During any given model
year, special tools will contain tooling with varying useful lives.
PRODUCT-RELATED COSTS
Expenditures for research and development, advertising, sales promotion and
other product-related costs are expensed as incurred. Provisions for product
warranty are recognized at the time the related sale is recognized. Research and
development costs were $1.7 billion, $1.6 billion and $1.4 billion in 1997, 1996
and 1995, respectively. Advertising expense was $1.5 billion, $1.5 billion and
$1.2 billion in 1997, 1996 and 1995, respectively.
EARNINGS PER COMMON SHARE
Effective for Chrysler's consolidated financial statements for the year
ended December 31, 1997, Chrysler adopted SFAS No. 128, "Earnings per Share,"
which replaces the presentation of primary earnings per share ("EPS") and fully
diluted EPS with a presentation of basic EPS and diluted EPS, respectively.
Basic EPS excludes dilution and is computed by dividing earnings available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Similar to fully diluted EPS, diluted EPS assumes conversion of
the convertible preferred stock, the elimination of the related preferred stock
dividend requirement, and the issuance of common stock for all other potentially
dilutive equivalent shares outstanding. All prior-period EPS data have been
restated. The adoption of this new accounting standard did not have a material
effect on Chrysler's reported EPS amounts.
CASH AND CASH EQUIVALENTS
Highly liquid investments with a maturity of three months or less at the
date of purchase are classified as cash equivalents.
F-7
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR CREDIT LOSSES
An allowance for credit losses is generally established during the period in
which retail receivables or vehicles leased are acquired. The allowance for
credit losses is maintained at a level deemed appropriate, based primarily on
loss experience. Other factors affecting collectibility are also evaluated, and
appropriate adjustments are recorded. Retail automotive receivables and vehicles
leased are charged to the allowance for credit losses net of the estimated value
of repossessed collateral at the time of repossession. Nonautomotive finance
receivables are reduced to the estimated fair value of the collateral when such
loans are deemed to be impaired.
INVENTORIES
Inventories are valued at the lower of cost or market. The cost of
approximately 43 percent and 39 percent of inventories at December 31, 1997 and
1996, respectively, was determined on a Last-In, First-Out ("LIFO") basis. The
balance of inventory cost was determined primarily on a specific identification
basis.
INTANGIBLE ASSETS
The purchase price of companies in excess of the fair value of net
identifiable assets acquired ("goodwill") is amortized on a straight-line basis
over periods of up to 40 years, with a weighted-average period of 38 years. The
amount reported is net of accumulated amortization totaling $642 million and
$778 million at December 31, 1997 and 1996, respectively. Chrysler periodically
evaluates the carrying value of goodwill for impairment. Such evaluations are
based principally on the projected, undiscounted cash flows of the operations to
which the goodwill relates. Intangible assets also include intangible pension
assets of $147 million and $161 million at December 31, 1997 and 1996,
respectively.
LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Effective January 1, 1996, Chrysler adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This Statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used, and long-lived assets and certain identifiable
intangibles to be disposed of. The Statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In addition, the Statement
requires that certain long-lived assets and identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less cost
to sell. The initial adoption of this new accounting standard did not have a
material effect on Chrysler's consolidated operating results or financial
position. See also Note 13.
FOREIGN CURRENCY TRANSLATION
The financial statements of foreign subsidiaries are translated to U.S.
dollars using the period-end exchange rate for assets and liabilities and a
weighted-average exchange rate for each period for revenues and expenses. The
U.S. dollar is the functional currency for most of Chrysler's foreign
subsidiaries. Translation gains and losses are included in earnings for those
foreign subsidiaries whose functional currency is the U.S. dollar. Where the
local currency is the functional currency, translation adjustments are
F-8
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recorded as a separate component of shareholders' equity. Also, transaction
gains and losses arising from fluctuations in currency exchange rates on
transactions denominated in currencies other than the functional currency,
except those transactions which hedge purchase or sale commitments, are recorded
in earnings as incurred.
DERIVATIVE FINANCIAL INSTRUMENTS
Chrysler manages risk arising from fluctuations in interest rates and
currency exchange rates by using derivative financial instruments. Chrysler
manages exposure to counterparty credit risk by entering into derivative
financial instruments with highly rated institutions that can be expected to
fully perform under the terms of such agreements. Chrysler does not use
derivative financial instruments for trading purposes.
When Chrysler (excluding CFC) sells vehicles outside the United States or
purchases components from suppliers outside the United States, transactions are
frequently denominated in currencies other than U.S. dollars. Periodically,
Chrysler initiates hedging activities by entering into currency exchange
agreements, consisting principally of currency forward contracts, to minimize
revenue and cost variations which could result from fluctuations in currency
exchange rates. These instruments, consistent with the underlying purchase or
sale commitments, typically mature within three years of origination. The
currency exchange agreements are treated as off-balance-sheet financial
instruments, with the related gains and losses recognized in earnings upon the
settlement of the underlying transactions. In the event of an early termination
of a currency exchange agreement designated as a hedge, the gain or loss
continues to be deferred and is included in the settlement of the underlying
transaction. Forward contracts are used to manage exposure to fluctuations in
funding costs for the anticipated issuance of debt. Gains or losses on forward
contracts that qualify for hedge accounting treatment are deferred and recorded
as an adjustment to interest expense over the term of the new debt. In the event
of an early termination of a forward contract designated as a hedge, the gain or
loss is deferred and recorded as an adjustment to interest expense over the
remaining term of the underlying debt.
CFC uses derivative financial instruments to reduce the sensitivity of
earnings to various market risks and manage funding costs. CFC's primary market
risks include: fluctuations in interest rates, variability in spread
relationships (i.e., Prime to LIBOR spreads), mismatches of repricing intervals
between finance receivables and related funding obligations, and variability in
currency exchange rates. The derivative financial instruments consist primarily
of interest rate swap agreements. Interest differentials resulting from interest
rate swap agreements used to change the interest rate characteristics of CFC's
debt are recorded on an accrual basis as an adjustment to interest expense.
Interest rate swaps related to debt are either matched with specific term debt
obligations or with groups of commercial paper on a layered basis. In the event
of an early termination of an interest rate swap agreement designated as a
hedge, the gain or loss is deferred, recorded in Other noncurrent assets, and
recognized as an adjustment to interest expense over the remaining term of the
underlying debt. In addition, CFC enters into currency exchange agreements,
consisting primarily of currency swaps, to manage its exposure to fluctuations
in currency exchange rates related to specific borrowings denominated in
currencies other than the local currency of the borrowing entity. As a result,
such borrowings are translated in the consolidated balance sheet at the rates of
exchange established under the related currency exchange agreement.
Cash flows related to currency swaps are reflected in financing activities
and cash flows related to all other derivative financial instruments are
reflected in operating activities in the consolidated statement of cash flows.
F-9
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. MARKETABLE AND OTHER SECURITIES
Available-for-sale securities are carried at their fair values. Changes in
the fair values of available-for-sale securities are recognized as a component
of shareholders' equity until such securities are sold. Held-to-maturity
securities are carried at cost adjusted for amortized premium or discount.
Chrysler does not hold securities for trading purposes.
Investments in marketable securities were as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES
-------------------- ------------ ------------
DECEMBER 31
----------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
--------- --------- ----- ----- ----- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
U.S. and Canadian government and agency securities.... $ 1,056 $ 1,454 $ 6 $ 6 $ (4) $ (11)
Corporate debt securities............................. 1,787 965 11 8 (2) (5)
Other marketable securities........................... 77 162 7 2 (1) --
--------- --------- --- --- --- ---
Total available-for-sale securities................. 2,920 2,581 24 16 (7) (16)
--------- --------- --- --- --- ---
HELD-TO-MATURITY SECURITIES:
Corporate debt securities............................. 1 -- -- -- -- --
Other marketable securities........................... 12 13 -- -- -- --
--------- --------- --- --- --- ---
Total held-to-maturity securities................... 13 13 -- -- -- --
--------- --------- --- --- --- ---
Total........................................... $ 2,933 $ 2,594 $ 24 $ 16 $ (7) $ (16)
--------- --------- --- --- --- ---
--------- --------- --- --- --- ---
<CAPTION>
FAIR
VALUE
--------------------
1997 1996
--------- ---------
<S> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
U.S. and Canadian government and agency securities.... $ 1,058 $ 1,449
Corporate debt securities............................. 1,796 968
Other marketable securities........................... 83 164
--------- ---------
Total available-for-sale securities................. 2,937 2,581
--------- ---------
HELD-TO-MATURITY SECURITIES:
Corporate debt securities............................. 1 --
Other marketable securities........................... 12 13
--------- ---------
Total held-to-maturity securities................... 13 13
--------- ---------
Total........................................... $ 2,950 $ 2,594
--------- ---------
--------- ---------
</TABLE>
At December 31, 1997, contractual maturities of marketable debt securities
were as follows (in millions of dollars): within one year--$254; after one year
through five years--$1,692; after five years through ten years--$388; and after
ten years--$535.
Proceeds from sales of available-for-sale securities were $648 million, $860
million and $757 million in 1997, 1996 and 1995, respectively. The gross gains
and losses realized related to these sales were immaterial. Chrysler uses the
specific identification method as a basis for determining cost and calculating
realized gains or losses.
Other securities classified as cash equivalents were $4.3 billion at
December 31, 1997 and 1996, and consisted primarily of repurchase agreements,
commercial paper, and certificates of deposit.
F-10
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. INVENTORIES AND COST OF SALES
Inventories, summarized by major classification, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
(IN MILLIONS OF
DOLLARS)
<S> <C> <C>
Finished products, including service parts..................................................... $ 1,883 $ 1,569
Raw materials, finished production parts and supplies.......................................... 1,445 1,540
Vehicles held for short-term lease............................................................. 1,410 2,086
--------- ---------
Total...................................................................................... $ 4,738 $ 5,195
--------- ---------
--------- ---------
</TABLE>
Inventories valued on the LIFO basis would have been $415 million and $439
million higher than reported had they been valued on the FIFO basis at December
31, 1997 and 1996, respectively.
Vehicles held for short-term lease include the carrying value of vehicles
(principally sold to non-affiliated rental car companies) for which Chrysler
conditionally guarantees the minimum resale value of the vehicles. The carrying
value of these vehicles was $1,003 million and $900 million at December 31, 1997
and 1996, respectively.
Total manufacturing cost of sales aggregated $47.1 billion, $46.5 billion
and $41.7 billion for 1997, 1996 and 1995, respectively.
NOTE 4. FINANCE RECEIVABLES AND RETAINED INTERESTS IN SOLD RECEIVABLES
Finance receivables and retained interests in sold receivables were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
(IN MILLIONS OF
DOLLARS)
<S> <C> <C>
Automotive financing........................................................................ $ 6,369 $ 6,517
Nonautomotive financing..................................................................... 2,715 2,204
Retained senior interests in wholesale receivables held in trusts........................... 1,511 677
--------- ---------
Total finance receivables............................................................... 10,595 9,398
Retained interests in sold receivables...................................................... 3,488 3,488
Allowance for credit losses................................................................. (565) (547)
--------- ---------
Total................................................................................... $ 13,518 $ 12,339
--------- ---------
--------- ---------
</TABLE>
Retained interests in sold receivables are generally restricted and subject
to credit risk.
Contractual maturities of total finance receivables as of December 31, 1997,
were as follows (in millions of dollars): 1998--$5,001; 1999--$954;
2000--$1,151; 2001--$516; 2002--$455; and 2003 and thereafter--$2,518. Actual
cash flows will vary from contractual maturities due to future sales of finance
receivables, prepayments and charge-offs.
F-11
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. FINANCE RECEIVABLES AND RETAINED INTERESTS IN SOLD RECEIVABLES
(CONTINUED)
Changes in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Balance at beginning of year......................................................... $ 547 $ 617 $ 522
Provision for credit losses.......................................................... 444 373 372
Net credit losses.................................................................... (415) (398) (252)
Other adjustments.................................................................... (11) (45) (25)
--------- --------- ---------
Balance at end of year............................................................... $ 565 $ 547 $ 617
--------- --------- ---------
--------- --------- ---------
</TABLE>
Nonearning finance receivables, including receivables sold subject to credit
risk, totaled $248 million and $278 million at December 31, 1997 and 1996,
respectively, which represented 0.7 percent and 0.8 percent of such receivables
outstanding, respectively.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment, summarized by major classification, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
WEIGHTED-AVERAGE
SERVICE LIVES
---------------------
(YEARS) (IN MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Land................................................................... -- $ 358 $ 405
Buildings.............................................................. 31 5,973 5,467
Machinery and equipment................................................ 14 14,538 12,364
Furniture and fixtures................................................. 9 624 630
Vehicles under purchased operating leases.............................. 3 3,053 1,311
Construction in progress............................................... -- 2,536 2,875
--------- ---------
27,082 23,052
Accumulated depreciation............................................... (9,114) (8,147)
--------- ---------
Total.............................................................. $ 17,968 $ 14,905
--------- ---------
--------- ---------
</TABLE>
Depreciation of property and equipment was $1,657 million, $1,317 million
and $1,100 million in 1997, 1996 and 1995, respectively.
F-12
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. ACCRUED LIABILITIES AND EXPENSES
Accrued liabilities and expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
(IN MILLIONS OF
DOLLARS)
<S> <C> <C>
Customer and dealer allowances and claims...................................................... $ 2,865 $ 2,660
Employee compensation and benefits............................................................. 2,158 2,477
Deferred revenue related to vehicles sold with guaranteed minimum resale values................ 1,375 1,190
Other.......................................................................................... 3,319 2,537
--------- ---------
Total...................................................................................... $ 9,717 $ 8,864
--------- ---------
--------- ---------
</TABLE>
NOTE 7. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------
WEIGHTED- AVERAGE
MATURITY INTEREST RATE (1)
------------- --------------------
1997 1997 1996 1997 1996
------------- --------- --------- --------- ---------
(IN MILLIONS OF
DOLLARS)
<S> <C> <C> <C> <C> <C>
Chrysler, excluding CFC:
Short-term debt.......................................... 8.0% 6.8% $ 490 $ 419
Long-term debt payable within one year................... 19 23
--------- ---------
Total debt payable within one year................... 509 442
--------- ---------
Debentures............................................... 2027--2097 7.4% 11.0% 1,588 265
Notes and other debt..................................... 1999--2020 10.9% 9.2% 670 1,444
--------- ---------
Total long-term debt................................. 2,258 1,709
--------- ---------
Total.............................................. 2,767 2,151
--------- ---------
CFC:
Short-term debt (primarily commercial paper)............. 5.6% 5.1% 3,351 2,795
Long-term debt payable within one year................... 2,619 2,975
--------- ---------
Total debt payable within one year................... 5,970 5,770
--------- ---------
Senior notes and debentures.............................. 1999--2018 6.7% 6.9% 6,716 5,462
Mortgage notes, capital leases and other................. 32 13
--------- ---------
Total long-term debt................................. 6,748 5,475
--------- ---------
Total.............................................. 12,718 11,245
--------- ---------
Total Chrysler:
Total long-term debt................................... $ 9,006 $ 7,184
--------- ---------
--------- ---------
Total debt............................................. $ 15,485 $ 13,396
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) The weighted-average interest rates include the effects of interest rate
swap agreements.
F-13
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. DEBT (CONTINUED)
At December 31, 1997, aggregate annual maturities of consolidated debt were
as follows (in millions of dollars): 1998--$6,479; 1999--$3,423; 2000--$2,363;
2001--$431; and 2002--$470.
In December 1996, Chrysler extinguished $550 million, or 50 percent, of the
outstanding principal amount of its Auburn Hills Trust Guaranteed Exchangeable
Certificates Due 2020 (the "Certificates") at a cost of $859 million. The
extinguishment of the Certificates resulted in an extraordinary after-tax loss
of $191 million (net of income tax benefit of $118 million), or $0.26 per common
share. At December 31, 1997, $550 million of the Certificates remained
outstanding. The remaining Certificates outstanding are not redeemable prior to
maturity and carry a current interest rate of 12 percent.
Prior to 1997, CFC entered into currency exchange agreements to manage its
exposure to fluctuations in currency exchange rates related to specific
borrowings denominated in currencies other than the local currency of the
borrowing entity. As a result, such borrowings were translated in the
consolidated balance sheet at the rates of exchange established under the
related currency exchange agreement. The reported amount of such borrowings was
$105 million at December 31, 1996. If CFC had not entered into currency exchange
agreements, the amount would have been $52 million higher at December 31, 1996.
To mitigate risks associated with changing interest rates on certain of its
debt, CFC has entered into interest rate swap agreements. CFC manages exposure
to counterparty credit risk by entering into such agreements only with highly
rated institutions that are expected to fully perform under the terms of such
agreements. The notional amounts are used to measure the volume of these
agreements and do not represent exposure to credit loss. The impact of interest
rate swap agreements on interest expense was immaterial in 1997, 1996 and 1995.
The following table summarizes CFC's interest rate derivatives related to
its debt and securitizations:
<TABLE>
<CAPTION>
NOTIONAL AMOUNTS
OUTSTANDING
AND WEIGHTED-AVERAGE
RATES
--------------------
DECEMBER 31
VARIABLE MATURING --------------------
UNDERLYING FINANCIAL INSTRUMENTS RATE INDICES THROUGH 1997 1996
- -------------------------------------------------------------- ---------------- ----------- --------- ---------
(IN MILLIONS OF
DOLLARS)
<S> <C> <C> <C> <C>
PAY FIXED INTEREST RATE SWAPS
Short-term notes............................................ 1998 $ 250 $ 250
Weighted-average pay rate................................. 9.1% 9.1%
Weighted-average receive rate............................. Money Market 5.7% 5.6%
Senior notes and debentures................................. 2000 $ 1,055 $ 369
Weighted-average pay rate................................. 5.9% 5.4%
Weighted-average receive rate............................. LIBOR 5.9% 4.4%
RECEIVE FIXED INTEREST RATE SWAPS
Senior notes and debentures................................. 2012 $ 508 $ 1,436
Weighted-average pay rate................................. LIBOR 6.0% 8.1%
Weighted-average receive rate............................. 7.0% 9.0%
VARIABLE INTEREST RATE SWAPS
Senior notes and debentures/ securitizations................ 2000 $ 1,616 $ 1,611
Weighted-average pay rate................................. LIBOR 5.8% 5.5%
Weighted-average receive rate............................. Federal Funds 5.8% 5.6%
</TABLE>
F-14
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. DEBT (CONTINUED)
CFC's U.S. and Canadian revolving credit facilities, which total $8 billion,
consist of a $2 billion facility expiring in April 1998 and a $6 billion
facility expiring in April 2002. Neither of the revolving credit facilities was
drawn upon at December 31, 1997.
At December 31, 1997, Chrysler (excluding CFC) had a $2.6 billion revolving
credit agreement which expires in April 2002. The revolving credit agreement was
not drawn upon at December 31, 1997.
NOTE 8. INCOME TAXES
Earnings before income taxes, extraordinary item and the cumulative effect
of a change in accounting principle were attributable to the following sources:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
United States........................................................................ $ 3,853 $ 5,631 $ 3,179
Foreign.............................................................................. 704 461 270
--------- --------- ---------
Total............................................................................ $ 4,557 $ 6,092 $ 3,449
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-15
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. INCOME TAXES (CONTINUED)
The provision for income taxes included in the consolidated statement of
earnings was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Provision for income taxes before extraordinary item and the cumulative effect of a
change in accounting principle..................................................... $ 1,752 $ 2,372 $ 1,328
Income tax benefit of the extraordinary item......................................... -- (118) --
Income tax benefit of the cumulative effect of a change in accounting principle...... -- -- (59)
--------- --------- ---------
Total.......................................................................... $ 1,752 $ 2,254 $ 1,269
--------- --------- ---------
--------- --------- ---------
Currently payable:
United States...................................................................... $ 1,134 $ 963 $ 879
Foreign............................................................................ 167 52 63
State and local.................................................................... 172 119 200
--------- --------- ---------
1,473 1,134 1,142
--------- --------- ---------
Deferred:
United States...................................................................... 187 883 116
Foreign............................................................................ 48 76 48
State and local.................................................................... 44 161 (37)
--------- --------- ---------
279 1,120 127
--------- --------- ---------
Total.......................................................................... $ 1,752 $ 2,254 $ 1,269
--------- --------- ---------
--------- --------- ---------
</TABLE>
Chrysler does not provide for U.S. income taxes or foreign withholding taxes
on $2.6 billion in cumulative undistributed earnings of foreign subsidiaries
because these earnings are intended to be permanently reinvested in those
operations. It is not practicable to estimate the amount of unrecognized
deferred tax liability for these undistributed foreign earnings.
A reconciliation of income taxes determined using the statutory U.S. rate of
35 percent to actual income taxes provided was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Tax at U.S. statutory rate........................................................... $ 1,595 $ 2,132 $ 1,207
State and local taxes, net of federal tax benefit.................................... 150 197 116
Adjustments to reflect assessment of realizability of deferred tax assets............ -- -- (29)
Other................................................................................ 7 43 34
--------- --------- ---------
Provision for income taxes before extraordinary item and the cumulative effect of a
change in accounting principle................................................... $ 1,752 $ 2,372 $ 1,328
--------- --------- ---------
--------- --------- ---------
Effective income tax rate........................................................ 38.4% 38.9% 38.5%
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-16
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. INCOME TAXES (CONTINUED)
The tax-effected temporary differences and carryforwards which comprised
deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
DEFERRED DEFERRED
DEFERRED TAX DEFERRED TAX
TAX ASSETS LIABILITIES TAX ASSETS LIABILITIES
----------- ------------- ----------- -------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Nonpension postretirement benefits......................... $ 3,386 $ -- $ 3,251 $ --
Pensions................................................... 10 1,810 14 1,911
Accrued expenses........................................... 3,283 -- 2,692 2
Lease transactions......................................... -- 1,980 -- 1,828
Depreciation............................................... -- 2,323 -- 2,056
Prepaid employee benefits.................................. -- 762 -- 394
Tax credit carryforwards................................... 181 -- 211 --
Alternative minimum tax credit carryforwards............... 101 -- 107 --
State and local taxes...................................... 105 141 105 129
Net operating loss ("NOL") carryforwards................... 16 -- 42 --
Other...................................................... 120 996 160 845
----------- ------ ----------- ------
7,202 8,012 6,582 7,165
Valuation allowance........................................ (8) -- (8) --
----------- ------ ----------- ------
Total.................................................. $ 7,194 $ 8,012 $ 6,574 $ 7,165
----------- ------ ----------- ------
----------- ------ ----------- ------
</TABLE>
Chrysler's tax credit carryforwards expire at various dates through the year
2011 and alternative minimum tax credit carryforwards have no expiration dates.
NOL carryforwards totaled $52 million at December 31, 1997, of which $25 million
may be used through the year 2002, and $27 million of which have no expiration
date. The valuation allowance was principally related to subsidiaries' NOL
carryforwards. Changes in the valuation allowance were as follows:
F-17
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------------------------
1997 1996 1995
----- ----- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Balance at beginning of year.............................................................. $ 8 $ 3 $ 77
Utilization of NOL carryforwards.......................................................... -- -- (45)
Adjustments to reflect assessment of realizability of deferred tax assets................. -- -- (29)
Other..................................................................................... -- 5 --
-- --
---
Balance at end of year.................................................................... $ 8 $ 8 $ 3
-- --
-- --
---
---
</TABLE>
NOTE 9. COMMITMENTS AND CONTINGENCIES
LITIGATION
Various claims and legal proceedings have been asserted or instituted
against Chrysler, including some purporting to be class actions, and some which
demand large monetary damages or other relief which could result in significant
expenditures. Litigation is subject to many uncertainties, and the outcome of
individual matters is not predictable with assurance. It is reasonably possible
that the final resolution of some of these matters may require Chrysler to make
expenditures, in excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated. The term
"reasonably possible" is used herein to mean that the chance of a future
transaction or event occurring is more than remote but less than likely.
Although the final resolution of any such matters could have a material effect
on Chrysler's consolidated operating results for the particular reporting period
in which an adjustment of the estimated reserve is recorded, Chrysler believes
that any resulting adjustment should not materially affect its consolidated
financial position.
ENVIRONMENTAL MATTERS
Chrysler is subject to potential liability under government regulations and
various claims and legal actions which are pending or may be asserted against
Chrysler concerning environmental matters. Estimates of future costs of such
environmental matters are inevitably imprecise due to numerous uncertainties,
including the enactment of new laws and regulations, the development and
application of new technologies, the identification of new sites for which
Chrysler may have remediation responsibility and the apportionment and
collectibility of remediation costs among responsible parties. Chrysler
establishes reserves for these environmental matters when a loss is probable and
reasonably estimable. Chrysler's reserves for these environmental matters
totaled $231 million and $238 million as of December 31, 1997 and 1996,
respectively. It is reasonably possible that the final resolution of some of
these matters may require Chrysler to make expenditures, in excess of
established reserves, over an extended period of time and in a range of amounts
that cannot be reasonably estimated. Although the final resolution of any such
matters could have a material effect on Chrysler's consolidated operating
results for the particular reporting period in which an adjustment of the
estimated reserve is recorded, Chrysler believes that any resulting adjustment
should not materially affect its consolidated financial position.
F-18
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
VOLUNTARY SERVICE ACTIONS AND RECALL ACTIONS
Chrysler periodically initiates voluntary service actions and recall actions
to address various customer satisfaction, safety and emissions issues related to
vehicles it sells. Chrysler establishes reserves for product warranty, including
the estimated cost of these service and recall actions, when the related sale is
recognized. The estimated future costs of these actions is based primarily on
prior experience. Estimates of the future costs of these actions are inevitably
imprecise due to numerous uncertainties, including the enactment of new laws and
regulations, the number of vehicles affected by a service or recall action, and
the nature of the corrective action which may result in adjustments to the
established reserves. It is reasonably possible that the ultimate cost of these
service and recall actions may require Chrysler to make expenditures, in excess
of established reserves, over an extended period of time and in a range of
amounts that cannot be reasonably estimated. Although the ultimate cost of these
service and recall actions could have a material effect on Chrysler's
consolidated operating results for the particular reporting period in which an
adjustment of the estimated reserve is recorded, Chrysler believes that any such
adjustment should not materially affect its consolidated financial position.
OTHER MATTERS
The majority of Chrysler's lease payments are for operating leases. At
December 31, 1997, Chrysler had the following minimum rental commitments under
operating leases with noncancelable lease terms in excess of one year (in
millions of dollars): 1998--$225; 1999--$165; 2000--$125; 2001--$65; 2002--$51;
and 2003 and thereafter--$184. Future minimum lease commitments have not been
reduced by minimum sublease rentals of $180 million due in the future under
noncancelable subleases.
Rental expense under operating leases was $469 million, $470 million and
$436 million in 1997, 1996 and 1995, respectively. Sublease rentals of $54
million, $58 million and $58 million were received in 1997, 1996 and 1995,
respectively.
At December 31, 1997, Chrysler had commitments for capital expenditures,
including commitments for assets currently under construction, totaling
approximately $1.3 billion.
At December 31, 1997, Chrysler had guaranteed obligations of others in the
amount of $113 million, none of which were secured by collateral.
NOTE 10. STOCK-BASED AND PROFIT-BASED COMPENSATION
STOCK-BASED COMPENSATION
Effective January 1, 1996, Chrysler adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." This Statement defines a FAIR VALUE BASED METHOD of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for those plans using the INTRINSIC VALUE BASED
METHOD of accounting prescribed by Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees." Under the fair value based
method, compensation cost is measured at the grant date based on the value of
the award and is recognized over the service period, which is usually the
vesting period. Under the intrinsic value based method, compensation cost is the
excess, if any, of the quoted market price of the stock at the grant date or
other measurement date over the amount an employee must pay to acquire the
stock.
F-19
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCK-BASED AND PROFIT-BASED COMPENSATION (CONTINUED)
Chrysler accounts for stock option grants and awards under its two
stock-based compensation plans in accordance with APB Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been recognized for fixed
stock option grants since the options have exercise prices of not less than the
market value of Chrysler common stock at the date of grant. However,
compensation cost was recognized for performance-based stock unit awards
("Performance Shares") since the awards have no exercise price. Compensation
cost recognized for Performance Share awards was $20 million, $30 million and
$19 million for 1997, 1996 and 1995, respectively.
If compensation cost for stock option grants and Performance Share awards
had been determined based on fair value at the grant dates for 1997, 1996 and
1995 in accordance with SFAS No. 123, the pro forma effects on Chrysler's
consolidated net earnings and earnings per share would not have been material.
As required by SFAS No. 123, the pro forma amounts were determined based on
stock option grants and Performance Share awards beginning in 1995. Since
Chrysler's fixed stock option grants do not vest, except upon retirement from
Chrysler, compensation cost is recognized over the expected life of the option
(i.e., five years). In addition, Performance Share awards are recognized over
performance cycles of two to three years. Therefore, the pro forma amounts for
compensation cost may not be indicative of the effects on net earnings and
earnings per share for future years.
FIXED STOCK OPTION COMPENSATION PLANS
In accordance with Chrysler's stock-based compensation plans, Chrysler may
grant stock options, stock appreciation rights and other stock-related
incentives to officers, executives and nonemployee directors of Chrysler.
Outstanding options, consisting of ten-year nonqualified stock options,
become exercisable on up to 40 percent, 70 percent and 100 percent of the shares
after one year, two years and three years, respectively, from the date of grant.
The outstanding options do not vest, except upon retirement from Chrysler, and
are contingent upon continued employment during the applicable ten-year period.
Shares available for granting options at the end of 1997, 1996 and 1995 were
30.9 million, 11.6 million and 22.4 million, respectively.
Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Dividend yield........................................................................ 4.7% 4.8% 4.8%
Expected volatility................................................................... 26% 31% 36%
Risk-free interest rate............................................................... 6.2% 6.7% 5.8%
Expected lives (in years)............................................................. 5 5 5
</TABLE>
F-20
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCK-BASED AND PROFIT-BASED COMPENSATION (CONTINUED)
A summary of the status of fixed stock option grants under Chrysler's
stock-based compensation plans as of December 31, 1997, 1996 and 1995, and
changes during the years ending on those dates is presented below (shares in
millions):
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- -----------
SHARES WEIGHTED-AVG. SHARES WEIGHTED-AVG. SHARES
UNDER EXERCISE UNDER EXERCISE UNDER
OPTION PRICE OPTION PRICE OPTION
----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of year.................. 28.5 $ 23.68 29.4 $ 19.40 26.2
Granted........................................... 10.1 33.72 9.2 28.66 7.3
Exercised......................................... (7.8) 20.92 (7.2) 16.11 (3.7)
Forfeited......................................... (0.1) 26.70 (2.9) 14.79 (0.4)
----- ----- -----
Outstanding at end of year........................ 30.7 27.71 28.5 23.68 29.4
----- ----- -----
----- ----- -----
Options exercisable at year end................... 13.4 $ 23.43 13.3 $ 20.12 17.0
Weighted-average fair value of options granted
during the year................................. $ 6.79 $ 6.87 $ 6.49
<CAPTION>
WEIGHTED-AVG.
EXERCISE
PRICE
-------------
<S> <C>
Outstanding at beginning of year.................. $ 15.61
Granted........................................... 24.42
Exercised......................................... 10.58
Forfeited......................................... 14.56
Outstanding at end of year........................ 19.40
Options exercisable at year end................... $ 17.20
Weighted-average fair value of options granted
during the year.................................
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997 (shares in millions):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ --------------------------
SHARES WEIGHTED-AVG. SHARES WEIGHTED-AVG.
UNDER WEIGHTED-AVG. EXERCISE UNDER EXERCISE
RANGE OF EXERCISE PRICES OPTION REMAINING LIFE PRICE OPTION PRICE
- ------------------------------------------------- ----------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 5.87 to $20.00................................. 1.8 3.1 years $ 10.16 1.8 $ 10.16
20.01 to 25.00................................. 10.2 6.3 23.99 8.1 23.88
25.01 to 30.00................................. 8.1 7.9 28.48 2.9 28.45
30.01 to 35.00................................. 10.2 8.8 33.56 0.5 32.38
35.01 to 37.25................................. 0.4 4.7 35.70 0.1 35.35
--- ---
$ 5.87 to $37.25................................. 30.7 7.3 27.71 13.4 23.43
--- ---
--- ---
</TABLE>
PERFORMANCE-BASED STOCK COMPENSATION PLAN
Chrysler's stock-based compensation plans also provide for the awarding of
Performance Shares, which reward attainment of performance objectives.
Performance Shares are awarded at the commencement of a performance cycle (two
to three years) to each eligible executive (officers and a limited number of
senior executives). At the end of each cycle, participants may earn no
Performance Shares or a number of Performance Shares, ranging from a set minimum
to a maximum of 150 percent of the award for that cycle, as determined by a
committee of the Board of Directors based on Chrysler's performance in relation
to the performance goals established at the beginning of the performance cycle.
Under SFAS No. 123, the fair value of each Performance Share award is
estimated at the date of grant based on the market value of a share of Chrysler
common stock on the date of grant.
F-21
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. STOCK-BASED AND PROFIT-BASED COMPENSATION (CONTINUED)
Unearned Performance Share awards outstanding as of December 31, 1997, 1996
and 1995 were 0.9 million, 0.8 million and 1.1 million, respectively. As of
December 31, 1997, the 0.9 million Performance Share awards outstanding have a
weighted-average remaining life of 1.6 years.
PROFIT-BASED COMPENSATION
Chrysler has programs under which additional incentive compensation and
profit sharing is paid to certain hourly and salaried employees based primarily
on Chrysler's profitability.
NOTE 11. SHAREHOLDERS' EQUITY
Information with respect to shareholders' equity was as follows (shares in
millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
PREFERRED STOCK:
Balance at beginning of year................................................... $ * $ * $ 2
Conversions into common stock................................................ * * (2)
--------- --------- ---------
Balance at end of year......................................................... $ * $ * $ *
--------- --------- ---------
--------- --------- ---------
COMMON STOCK:
Balance at beginning of year................................................... $ 822 $ 408 $ 364
Effect of two-for-one stock split............................................ -- 410 --
Conversions of preferred stock............................................... 1 4 44
--------- --------- ---------
Balance at end of year......................................................... $ 823 $ 822 $ 408
--------- --------- ---------
--------- --------- ---------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year................................................... $ 5,129 $ 5,506 $ 5,536
Effect of two-for-one stock split............................................ -- (410) --
Conversions of preferred stock............................................... (1) (4) (42)
Shares issued under employee benefit plans................................... 103 37 12
--------- --------- ---------
Balance at end of year......................................................... $ 5,231 $ 5,129 $ 5,506
--------- --------- ---------
--------- --------- ---------
RETAINED EARNINGS:
Balance at beginning of year................................................... $ 8,829 $ 6,280 $ 5,006
Net earnings................................................................. 2,805 3,529 2,025
Dividends declared........................................................... (1,076) (1,016) (777)
Adjustment of additional minimum pension liability........................... 3 24 (42)
Net unrealized gains (losses) on investments in certain debt and equity
securities................................................................. 11 (23) 44
Other adjustments............................................................ 33 35 24
--------- --------- ---------
Balance at end of year......................................................... $ 10,605 $ 8,829 $ 6,280
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-22
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
TREASURY STOCK:
Balance at beginning of year................................................... $ (3,209) $ (1,235) $ (214)
Shares of common stock repurchased (1997--63; 1996--66 and 1995--23 (on a
pre-split basis)).......................................................... (2,130) (2,041) (1,047)
Shares issued under employee benefit plans (1997--8; 1996--7 and 1995--2 (on
a pre-split basis))........................................................ 42 67 26
--------- --------- ---------
Balance at end of year......................................................... $ (5,297) $ (3,209) $ (1,235)
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
* Less than $1 million
In May 1996, Chrysler declared a two-for-one stock split in the form of a
100 percent stock dividend. All per-share data and the average common and
dilutive equivalent shares outstanding have been adjusted to reflect this stock
split for all periods presented. The number of common shares issued, outstanding
and held in treasury for 1996 has been adjusted to reflect this stock split. In
addition, the par value of the new shares issued as a result of the two-for-one
stock split has been transferred from additional paid-in capital to common
stock. Additional paid-in capital, common stock balances and common shares
issued, outstanding and held in treasury for 1995 have not been restated for the
two-for-one stock split.
During 1997, Chrysler repurchased 63 million shares of its common stock at a
cost of $2.1 billion. Chrysler plans to repurchase an additional $1.8 billion of
its common stock in 1998 as part of a $2 billion repurchase plan which began in
November 1997. The planned 1998 common stock repurchases are subject to market
and general economic conditions. Since beginning its common stock repurchase
program in 1995, Chrysler has repurchased 175 million shares of its common stock
at a cost of $5.2 billion.
As of December 31, 1997, 15,336 shares of Series A Convertible Preferred
Stock ("Preferred Stock") were outstanding and convertible into 0.9 million
shares of Chrysler common stock. The annual dividend on the Preferred Stock is
$46.25 per share. The Preferred Stock is convertible at a rate (subject to
adjustment in certain events) of 55.56 shares of common stock for each share of
Preferred Stock. The Preferred Stock is redeemable at Chrysler's option, in
whole or in part, at $518.50 per share of Preferred Stock for the period ending
December 31, 1998, and thereafter declining ratably annually to $500.00 per
share after December 31, 2001, plus accrued and unpaid dividends.
In February 1988, the Board of Directors declared and distributed a dividend
of one Preferred Share Purchase Right (a "Right") for each then outstanding
share of Chrysler's common stock and authorized the distribution of one Right
with respect to each subsequently issued share of common stock. Each Right, as
most recently amended and as adjusted to reflect the May 1996 two-for-one stock
split, entitles a shareholder to purchase one two-hundredth of a share of Junior
Participating Cumulative Preferred Stock of Chrysler at a price of $60. The
Rights are attached to the common stock and are not represented by separate
certificates or exercisable until the earliest to occur of (i) 10 days following
the time (the "Stock Acquisition Time") of a public announcement or
communication to Chrysler that a person or group of persons has acquired or
obtained the right to acquire 15 percent or more of Chrysler's outstanding
common stock, other than as a result of a "Qualifying Offer"--an all-cash,
fully-financed tender offer for
F-23
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. SHAREHOLDERS' EQUITY (CONTINUED)
all shares of Chrysler's common stock that is held open for at least 60 business
days and is accompanied by an investment banker's fairness opinion--and (ii) 10
business days after a person or group of persons announces or commences a tender
offer that would result, if successful, in the bidder owning 15 percent or more
of Chrysler's outstanding common stock, other than as a result of a Qualifying
Offer. If the acquiring person or group acquires 15 percent or more of the
common stock (except pursuant to a tender offer made for all of Chrysler's
common stock, and determined by Chrysler's independent directors to be fair and
in the best interests of Chrysler and its shareholders), then each Right (other
than those held by the acquiror) will entitle its holder to buy, for $60, a
number of shares of Chrysler's common stock having a market value of $120.
Similarly, if after the Stock Acquisition Time, Chrysler is acquired in a merger
or other business combination and is not the surviving corporation, or 50
percent or more of its assets, cash flow or earning power is sold, each Right
(other than those held by the surviving or acquiring company) will entitle its
holder to purchase, for $60, shares of the surviving or acquiring company having
a market value of $120. Chrysler's directors may redeem the Rights at $0.025 per
Right, and may amend the Rights or extend the time during which the Rights may
be redeemed, only prior to the Stock Acquisition Time. Additionally, at any time
after a person or group acquires 15 percent or more, but less than 50 percent,
of Chrysler's common stock, Chrysler's directors may exchange the Rights (other
than those held by the acquiror), in whole or in part, at an exchange ratio of
one share of common stock (or a fractional share of preferred stock with
equivalent voting rights) per Right. The Rights will expire on February 22,
1998.
Of the 1.0 billion shares of authorized common stock at December 31, 1997,
64 million shares were reserved for issuance under Chrysler's various employee
benefit plans and the conversion of the Preferred Stock.
NOTE 12. EMPLOYEE RETIREMENT AND OTHER BENEFITS
PENSION PLANS
Chrysler's pension plans provide noncontributory and contributory benefits.
The noncontributory pension plans cover substantially all of the hourly and
salaried employees of Chrysler and certain of its consolidated subsidiaries.
Benefits are based on a fixed rate for each year of service. Additionally,
contributory benefits are provided to substantially all salaried employees of
Chrysler and certain of its consolidated subsidiaries under the Salaried
Employees' Retirement Plan. This plan provides benefits based on the employee's
cumulative contributions, years of service during which employee contributions
were made, and the employee's average salary during the consecutive five years
in which salary was highest in the 15 years preceding retirement.
Contributions to the pension trust fund for U.S. plans are in compliance
with the Employee Retirement Income Security Act of 1974, as amended. All
pension trust fund assets and income accruing thereon are used solely to pay
pension benefits and administer the plans. Chrysler contributed $74 million,
$941 million and $838 million to the pension funds during 1997, 1996 and 1995,
respectively.
At December 31, 1997, plan assets were invested in a diversified portfolio
that consisted primarily of debt and equity securities, including 2.1 million
shares of Chrysler common stock with a market value of $73 million. During 1997,
dividends of $6 million were received on Chrysler common stock.
F-24
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. EMPLOYEE RETIREMENT AND OTHER BENEFITS (CONTINUED)
The components of pension expense were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- ------------------------------- --------------------
NON- NON- NON-
U.S. U.S. U.S. U.S. U.S. U.S.
PLANS PLANS TOTAL PLANS PLANS TOTAL PLANS PLANS
--------- --------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during
the year............................ $ 278 $ 33 $ 311 $ 305 $ 29 $ 334 $ 233 $ 20
Interest on projected benefit
obligation.......................... 991 102 1,093 915 99 1,014 903 90
Return on plan assets:
Actual return....................... (2,677) (271) (2,948) (1,953) (249) (2,202) (2,572) (168)
Deferred gain....................... 1,288 155 1,443 687 139 826 1,465 67
--------- --------- --------- --------- --------- --------- --------- ---------
Expected return..................... (1,389) (116) (1,505) (1,266) (110) (1,376) (1,107) (101)
Net amortization and other............ 387 67 454 523 62 585 328 39
--------- --------- --------- --------- --------- --------- --------- ---------
Total........................... $ 267 $ 86 $ 353 $ 477 $ 80 $ 557 $ 357 $ 48
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
TOTAL
---------
<S> <C>
Service cost--benefits earned during
the year............................ $ 253
Interest on projected benefit
obligation.......................... 993
Return on plan assets:
Actual return....................... (2,740)
Deferred gain....................... 1,532
---------
Expected return..................... (1,208)
Net amortization and other............ 367
---------
Total........................... $ 405
---------
---------
</TABLE>
Pension expense is determined using assumptions at the beginning of the
year. The projected benefit obligation ("PBO") is determined using the
assumptions at the end of the year. Assumptions used to determine pension
expense and the PBO were:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------------------------
U.S. PLANS NON-U.S. PLANS
------------------------------------------ -------------------------------
1997 1996 1995 1994 1997 1996 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Discount rate....................................... 6.75% 7.25% 7.00% 8.63% 6.50% 7.50% 8.25%
Rate of increase in future compensation levels...... 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
Long-term rate of return on plan assets............. 10.00% 10.00% 10.00% 10.00% 9.00% 9.00% 9.00%
<CAPTION>
1994
---------
<S> <C>
Discount rate....................................... 9.75%
Rate of increase in future compensation levels...... 6.00%
Long-term rate of return on plan assets............. 9.00%
</TABLE>
The decrease in the discount rate for U.S. Plans from 7.25 percent as of
December 31, 1996, to 6.75 percent as of December 31, 1997, resulted in a $708
million increase in the PBO at December 31, 1997, and is expected to result in a
$38 million increase in 1998 pension expense.
F-25
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. EMPLOYEE RETIREMENT AND OTHER BENEFITS (CONTINUED)
The following table presents a reconciliation of the funded status of the
plans with amounts recognized in the consolidated balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------------------------
U.S. PLANS NON-U.S. PLANS
--------------------------------- -------------------------------------
ASSETS ACCUM. ASSETS ACCUM.
EXCEED BENEFITS EXCEED BENEFITS
ACCUM. EXCEED U.S. ACCUM. EXCEED NON-U.S.
BENEFITS ASSETS TOTAL BENEFITS ASSETS TOTAL
--------- ----------- --------- ----------- ----------- -----------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefits:
Vested........................................... $ 11,967 $ 395 $ 12,362 $ 1,506 $ 1 $ 1,507
Nonvested........................................ 2,352 81 2,433 31 1 32
--
--------- ----- --------- ----------- -----------
Accumulated benefit obligation..................... 14,319 476 14,795 1,537 2 1,539
Effect of projected future salary increases........ 387 6 393 22 4 26
--
--------- ----- --------- ----------- -----------
PBO................................................ 14,706 482 15,188 1,559 6 1,565
Plan assets at fair value.......................... 16,850 328 17,178 1,665 2 1,667
--
--------- ----- --------- ----------- -----------
PBO less than/(in excess of) plan assets........... 2,144 (154) 1,990 106 (4) 102
Unrecognized net loss/(gain)....................... (80) 38 (42) 430 1 431
Unrecognized prior service cost.................... 1,695 147 1,842 137 -- 137
Unamortized net obligation at date of adoption..... 570 1 571 5 -- 5
Adjustment required to recognize minimum
liability........................................ -- (183) (183) -- -- --
--
--------- ----- --------- ----------- -----------
Net prepaid pension asset/(liability) recognized in
the consolidated balance sheet................... $ 4,329 $ (151) $ 4,178 $ 678 $ (3) $ 675
--
--
--------- ----- --------- ----------- -----------
--------- ----- --------- ----------- -----------
<CAPTION>
TOTAL
---------
<S> <C>
Actuarial present value of benefits:
Vested........................................... $ 13,869
Nonvested........................................ 2,465
---------
Accumulated benefit obligation..................... 16,334
Effect of projected future salary increases........ 419
---------
PBO................................................ 16,753
Plan assets at fair value.......................... 18,845
---------
PBO less than/(in excess of) plan assets........... 2,092
Unrecognized net loss/(gain)....................... 389
Unrecognized prior service cost.................... 1,979
Unamortized net obligation at date of adoption..... 576
Adjustment required to recognize minimum
liability........................................ (183)
---------
Net prepaid pension asset/(liability) recognized in
the consolidated balance sheet................... $ 4,853
---------
---------
</TABLE>
F-26
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. EMPLOYEE RETIREMENT AND OTHER BENEFITS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------------
U.S. PLANS NON-U.S. PLANS
--------------------------------- -------------------------------------
ASSETS ACCUM. ASSETS ACCUM.
EXCEED BENEFITS EXCEED BENEFITS
ACCUM. EXCEED U.S. ACCUM. EXCEED NON-U.S.
BENEFITS ASSETS TOTAL BENEFITS ASSETS TOTAL
--------- ----------- --------- ----------- ----------- -----------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefits:
Vested........................................... $ 11,055 $ 336 $ 11,391 $ 1,363 $ -- $ 1,363
Nonvested........................................ 2,270 91 2,361 28 -- 28
--------- ----- --------- ----------- ----- -----------
Accumulated benefit obligation..................... 13,325 427 13,752 1,391 -- 1,391
Effect of projected future salary increases........ 319 6 325 19 -- 19
--------- ----- --------- ----------- ----- -----------
PBO................................................ 13,644 433 14,077 1,410 -- 1,410
Plan assets at fair value.......................... 15,107 279 15,386 1,481 -- 1,481
--------- ----- --------- ----------- ----- -----------
PBO less than/(in excess of) plan assets........... 1,463 (154) 1,309 71 -- 71
Unrecognized net loss.............................. 489 41 530 492 -- 492
Unrecognized prior service cost.................... 1,847 160 2,007 166 -- 166
Unamortized net obligation at date of adoption..... 713 1 714 6 -- 6
Adjustment required to recognize minimum
liability........................................ -- (200) (200) -- -- --
--------- ----- --------- ----------- ----- -----------
Net prepaid pension asset/(liability) recognized in
the consolidated balance sheet................... $ 4,512 $ (152) $ 4,360 $ 735 $ -- $ 735
--------- ----- --------- ----------- ----- -----------
--------- ----- --------- ----------- ----- -----------
<CAPTION>
TOTAL
---------
<S> <C>
Actuarial present value of benefits:
Vested........................................... $ 12,754
Nonvested........................................ 2,389
---------
Accumulated benefit obligation..................... 15,143
Effect of projected future salary increases........ 344
---------
PBO................................................ 15,487
Plan assets at fair value.......................... 16,867
---------
PBO less than/(in excess of) plan assets........... 1,380
Unrecognized net loss.............................. 1,022
Unrecognized prior service cost.................... 2,173
Unamortized net obligation at date of adoption..... 720
Adjustment required to recognize minimum
liability........................................ (200)
---------
Net prepaid pension asset/(liability) recognized in
the consolidated balance sheet................... $ 5,095
---------
---------
</TABLE>
F-27
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. EMPLOYEE RETIREMENT AND OTHER BENEFITS (CONTINUED)
Included in Other noncurrent assets on the consolidated balance sheet as of
December 31, 1997 and 1996, was noncurrent prepaid pension expense of $4.8
billion and $4.9 billion, respectively.
NONPENSION POSTRETIREMENT BENEFITS
Chrysler provides health and life insurance benefits to substantially all of
its hourly and salaried employees and those of certain of its consolidated
subsidiaries. Upon retirement from Chrysler, employees may become eligible for
continuation of these benefits. However, benefits and eligibility rules may be
modified periodically.
The components of nonpension postretirement benefit expense were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Benefits attributed to employees' service.............................................. $ 175 $ 191 $ 136
Interest on accumulated nonpension postretirement benefit obligation................... 654 671 670
Net amortization....................................................................... 6 (5) (48)
--------- --------- ---------
Total.............................................................................. $ 835 $ 857 $ 758
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table reconciles the components of the accumulated nonpension
postretirement benefit obligation with amounts recognized in the consolidated
balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
(IN MILLIONS OF
DOLLARS)
<S> <C> <C>
Accumulated nonpension postretirement benefit obligation ("ANPBO") attributable to:
Retirees................................................................................... $ 5,102 $ 4,976
Active employees fully eligible for benefits............................................... 2,101 1,935
Other active employees..................................................................... 3,131 3,010
--------- ---------
Total ANPBO.............................................................................. 10,334 9,921
Unrecognized prior service cost............................................................ (43) (36)
Unrecognized net loss...................................................................... (819) (760)
--------- ---------
Net Postretirement Benefit Obligation.................................................. $ 9,472 $ 9,125
--------- ---------
--------- ---------
</TABLE>
F-28
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. EMPLOYEE RETIREMENT AND OTHER BENEFITS (CONTINUED)
Nonpension postretirement benefit expense is determined using assumptions at
the beginning of the year. The ANPBO is determined using the assumptions at the
end of the year. Assumptions used to determine nonpension postretirement benefit
expense and the ANPBO for U.S. Plans were:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Discount rate........................................................................ 6.75% 7.25% 7.00%
Health care inflation rate in following (or "base") year............................. 6.50% 7.00% 7.52%
Ultimate health care inflation rate (2002) (1)....................................... 5.00% 5.00% 5.35%
Average health care inflation rate (base year through 2002).......................... 5.67% 5.36% 5.82%
</TABLE>
- ------------------------
(1) Rate decreases annually through the year 2002
The decrease in the discount rate for U.S. Plans from 7.25 percent as of
December 31, 1996, to 6.75 percent as of December 31, 1997, resulted in a $568
million increase in the ANPBO in 1997, and is expected to result in a $18
million increase in nonpension postretirement benefit expense in 1998.
A one percentage point increase in the assumed health care inflation rate in
each year would have increased the ANPBO at December 31, 1997, by $1.2 billion
and would have increased the aggregate of the service and interest cost
components of nonpension postretirement benefit expense in 1997 by $115 million.
VOLUNTARY EARLY RETIREMENT PROGRAMS
During 1997, 1996 and 1995, the cost of voluntary early retirement programs,
which are periodically offered to certain salaried and hourly employees, was $13
million, $97 million and $22 million, respectively, and is included in employee
retirement benefit expense.
PREPAID EMPLOYEE BENEFITS
In December 1997, Chrysler prepaid certain 1998 nonpension employee benefits
by contributing $1.1 billion to a Voluntary Employees' Beneficiary Association
("VEBA") trust and other employee benefit plans. In December 1996, Chrysler
prepaid certain 1997 nonpension employee benefits by contributing $1.1 billion
to a VEBA trust and other employee benefit plans.
NOTE 13. DISPOSITION OF ASSETS
During December 1997, Chrysler completed an initial public offering ("IPO")
of its common stock interest in Dollar Thrifty Automotive Group, Inc. ("DTAG",
formerly Pentastar Transportation Group, Inc.) for net proceeds of $387 million.
The IPO of the common stock interest resulted in a pretax and after-tax gain of
$73 million. The gain was deferred and will be recognized over the remaining
term of the vehicle supply agreements with DTAG, which end in 2001. The tax
effect on this transaction reflects the difference between the book and tax
basis of Chrysler's stock interest in DTAG for which deferred taxes were not
provided, in accordance with SFAS No. 109, "Accounting for Income Taxes." In
addition, fourth-quarter 1997 earnings include the recognition of $97 million
($60 million after taxes) of previously deferred profits from the sale of
vehicles from Chrysler to DTAG.
F-29
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. DISPOSITION OF ASSETS (CONTINUED)
In 1996, Chrysler committed to a plan of disposal for Thrifty, a subsidiary
of DTAG, and recognized a $65 million pretax loss ($100 million after taxes) to
write down Thrifty's carrying value to estimated fair value less cost to sell.
The pretax loss is included in Costs, other than items below in the consolidated
statement of earnings for 1996. The after-tax loss includes the effect of not
being able to claim a tax deduction for the capital loss on Chrysler's
investment in Thrifty.
In 1996, Chrysler sold Electrospace Systems, Inc. ("ESI") and Chrysler
Technologies Airborne Systems, Inc. ("CTAS") for net proceeds of $476 million.
ESI and CTAS were engaged principally in the manufacture of defense electronics
and aircraft modification, respectively, and represented substantially all of
the operations of Chrysler Technologies Corporation ("CTC"), a wholly owned
subsidiary of Chrysler. The sale resulted in a pretax gain of $101 million ($87
million after taxes). In the fourth quarter of 1996, Chrysler signed an
agreement to sell Pentastar Electronics, Inc. ("PEI") for net proceeds of $17
million, which resulted in the recognition of a pretax loss of $77 million ($51
million after taxes) to write down PEI's carrying value to estimated fair value
less cost to sell. PEI represented the remaining operations of CTC. The sale of
PEI was completed on January 10, 1997. The pretax gain on the sale of ESI and
CTAS and the pretax loss on the write-down of PEI are included in Costs, other
than items below in the consolidated statement of earnings for 1996.
Also in 1996, CFC sold certain nonautomotive assets for net proceeds of $225
million, which approximated the net book value of the assets.
NOTE 14. SPECIAL PLANT PROVISION
In 1995, Chrysler recorded a $263 million provision ($162 million after
taxes) for costs associated with production changes at its Newark assembly
plant. Production of the all-new sport-utility vehicle, the Dodge Durango, began
at the Newark assembly plant in the fall of 1997. The provision reflects the
recognition of supplemental unemployment benefits, job security benefits and
other related employee costs, and the write-down of certain equipment and
tooling. The provision is included in Costs, other than items below in the
consolidated statement of earnings for 1995.
NOTE 15. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures to the consolidated statement of cash flows were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Interest paid (net of amounts capitalized):
Chrysler, excluding CFC.............................................................. $ 164 $ 227 $ 105
CFC.................................................................................. 791 788 847
Interest capitalized................................................................... 194 156 204
Income taxes paid, net of refunds received............................................. 1,230 1,206 944
</TABLE>
CFC acquired $1.0 billion and $250 million of asset-backed securities in
non-cash transactions relating to the securitization of retail receivables
during 1996 and 1995, respectively.
F-30
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments have been determined by
Chrysler using available market information and the valuation methodologies
described below. However, judgment is often required in interpreting market data
to develop the estimates of fair value. Accordingly, the estimates presented
herein may not be indicative of the amounts that Chrysler could realize in a
current market exchange. The use of different assumptions or valuation
methodologies may have a material effect on the estimated fair value amounts.
Amounts related to Chrysler's financial instruments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
BALANCE SHEET FINANCIAL INSTRUMENTS
Marketable securities............................................... $ 2,950 $ 2,950 $ 2,594 $ 2,594
Finance receivables and retained interests (1)...................... 10,948 10,941 10,353 10,315
Debt................................................................ 15,485 16,020 13,448 13,929
Currency exchange agreements (2).................................... -- -- 52 57
</TABLE>
- ------------------------
(1) The carrying value of finance receivables and retained interests excludes
$2,570 million and $1,986 million of direct finance and leveraged leases
classified as finance receivables in the consolidated balance sheet at
December 31, 1997 and 1996, respectively.
(2) Currency exchange agreements are recorded on the consolidated balance sheet
as a net reduction to the carrying value of debt.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
CONTRACT OR UNREALIZED CONTRACT OR UNREALIZED
NOTIONAL GAINS/ NOTIONAL GAINS/
AMOUNT (LOSSES) AMOUNT (LOSSES)
----------- ------------- ----------- -------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
OTHER FINANCIAL INSTRUMENTS
Interest rate swaps
With unrealized gains...................................... $ 840 $ 9 $ 1,246 $ 14
With unrealized losses..................................... 2,589 (13) 2,420 (22)
Forward contracts............................................ -- -- 520 (3)
Currency forward contracts
With unrealized gains...................................... 1,824 121 2,028 90
With unrealized losses..................................... 720 (10) 680 (47)
</TABLE>
The carrying values of cash and cash equivalents, accounts receivable and
accounts payable approximated fair values due to the short-term maturities of
these instruments.
The methods and assumptions used to estimate the fair values of balance
sheet and other financial instruments are summarized as follows:
MARKETABLE SECURITIES
The fair values of marketable securities were estimated using quoted market
prices.
F-31
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. FINANCIAL INSTRUMENTS (CONTINUED)
FINANCE RECEIVABLES AND RETAINED INTERESTS IN SOLD RECEIVABLES
The carrying value of variable-rate finance receivables was assumed to
approximate fair value since they are priced at current market rates. The fair
value of fixed-rate finance receivables was estimated by discounting expected
cash flows using rates at which loans of similar maturities would be made as of
the date of the consolidated balance sheet. The fair values of residual cash
flows and other subordinated amounts due CFC arising from receivable sale
transactions were estimated by discounting expected cash flows at current market
rates.
DEBT
The fair value of public debt was estimated using quoted market prices. The
fair value of other long-term debt was estimated by discounting future cash
flows using rates currently available for debt with similar terms and remaining
maturities.
CURRENCY EXCHANGE AGREEMENTS
The fair values of currency exchange agreements were estimated by
discounting the expected cash flows using market exchange rates and relative
market interest rates over the remaining terms of the agreements. Currency
exchange agreements are more fully described in Notes 1 and 7.
INTEREST RATE SWAPS
The fair values of interest rate swaps were estimated by discounting
expected cash flows using quoted market interest rates. Interest rate swaps are
more fully described in Notes 1 and 7.
FORWARD CONTRACTS
The fair values of forward contracts were estimated by discounting expected
cash flows using quoted market interest rates. Forward contracts are more fully
described in Note 1.
CURRENCY FORWARD CONTRACTS
The fair values of currency forward contracts were estimated based on quoted
market prices for contracts of similar terms. Currency forward contracts are
more fully described in Note 1.
The fair value estimates presented herein were based on information
available as of the date of the consolidated balance sheet. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been revalued since the date of the
consolidated balance sheet and, therefore, current estimates of fair value may
differ from the amounts presented herein.
F-32
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17. EARNINGS PER COMMON SHARE AND CAPITAL STRUCTURE INFORMATION
Earnings per common share ("EPS") data were computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN MILLIONS OF DOLLARS AND
SHARES,
EXCEPT PER-COMMON-SHARE
AMOUNTS)
<S> <C> <C> <C>
Earnings before extraordinary item and cumulative effect of a change in
accounting principle...................................................... $ 2,805 $ 3,720 $ 2,121
Less: Preferred stock dividends............................................. (1) (3) (21)
--------- --------- ---------
Earnings before extraordinary item and cumulative effect of a change in
accounting principle, net of preferred stock dividends.................... $ 2,804 $ 3,717 $ 2,100
--------- --------- ---------
--------- --------- ---------
BASIC EPS:
Weighted-average common shares outstanding.................................. 675.5 730.3 748.4
--------- --------- ---------
--------- --------- ---------
Earnings before extraordinary item and cumulative effect of a change in
accounting principle, net of preferred stock dividends.................... $ 4.15 $ 5.09 $ 2.81
--------- --------- ---------
--------- --------- ---------
DILUTED EPS:
Weighted-average common shares outstanding.................................. 675.5 730.3 748.4
Shares issued on exercise of dilutive options............................... 28.4 26.5 21.1
Shares purchased with proceeds of options................................... (21.6) (19.1) (14.0)
Shares applicable to convertible preferred stock............................ 1.3 4.4 34.7
Shares contingently issuable................................................ 1.7 1.7 1.5
--------- --------- ---------
Shares applicable to diluted earnings....................................... 685.3 743.8 791.7
--------- --------- ---------
--------- --------- ---------
Earnings before extraordinary item and cumulative effect of a change in
accounting principle...................................................... $ 4.09 $ 5.00 $ 2.68
--------- --------- ---------
--------- --------- ---------
</TABLE>
Unexercised employee stock options to purchase 0.3 million, 0.1 million and
0.2 million shares of Chrysler common stock as of December 31, 1997, 1996 and
1995, respectively, were not included in the computations of diluted EPS because
the options' exercise prices were greater than the average market price of
Chrysler common stock during the respective periods.
NOTE 18. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA
INDUSTRY SEGMENT DATA
Chrysler operates in two principal industry segments: Automotive Operations
and Financial Services. The Automotive Operations of Chrysler includes the
research, design, manufacture, assembly and sale of cars, trucks and related
parts and accessories. Based on assets, revenues and earnings, Automotive
Operations represent the majority of Chrysler's business activities. The
Financial Services segment is comprised primarily of CFC, which is engaged
principally in retail and lease financing for vehicles, dealer inventory and
other financing needs, dealer property and casualty insurance, and dealership
facility development and management. Prior to December 23, 1997, Chrysler
participated in short-term vehicle rental activities through DTAG (the "Car
Rental Operations"). See Note 13. Disposition of Assets. The Car Rental
Operations represent less than 10 percent of revenues, operating profits and
identifiable assets, and have been included in the Automotive segment.
Chrysler's operations are conducted primarily in North America, including the
United States, Canada and Mexico.
F-33
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA (CONTINUED)
Information concerning operations by industry segment was as follows:
<TABLE>
<CAPTION>
AUTOMOTIVE FINANCIAL
OPERATIONS SERVICES CONSOLIDATED
----------- ----------- ------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
DECEMBER 31, 1997
Revenues:
Unaffiliated customers.................................................... $ 58,656 $ 2,491 $ 61,147
Intersegment.............................................................. 6 226 --
----------- ----------- ------------
Total revenues.............................................................. 58,662 2,717 61,147
Operating earnings.......................................................... 4,238 661 4,723
Interest expense............................................................ 342 -- 166
Earnings before income taxes, extraordinary item and cumulative effect of a
change in accounting principle............................................ 3,896 661 4,557
Depreciation and special tools amortization................................. 2,506 190 2,696
Capital expenditures........................................................ 5,659 1,491 7,150
Identifiable assets......................................................... 44,483 19,599 60,418
Liabilities................................................................. 36,485 16,235 49,056
DECEMBER 31, 1996
Revenues:
Unaffiliated customers.................................................... $ 59,006 $ 2,391 $ 61,397
Intersegment.............................................................. 15 160 --
----------- ----------- ------------
Total revenues.............................................................. 59,021 2,551 61,397
Operating earnings.......................................................... 5,767 613 6,269
Interest expense............................................................ 288 -- 177
Earnings before income taxes, extraordinary item and cumulative effect of a
change in accounting principle............................................ 5,479 613 6,092
Depreciation and special tools amortization................................. 2,194 118 2,312
Capital expenditures........................................................ 5,035 394 5,429
Identifiable assets......................................................... 41,251 17,721 56,184
Liabilities................................................................. 33,028 14,373 44,613
DECEMBER 31, 1995
Revenues:
Unaffiliated customers.................................................... $ 50,966 $ 2,229 $ 53,195
Intersegment.............................................................. 13 210 --
----------- ----------- ------------
Total revenues.............................................................. 50,979 2,439 53,195
Operating earnings.......................................................... 3,202 522 3,550
Interest expense............................................................ 275 -- 101
Earnings before income taxes, extraordinary item and cumulative effect of a
change in accounting principle............................................ 2,927 522 3,449
Depreciation and special tools amortization................................. 2,139 81 2,220
Capital expenditures........................................................ 3,774 332 4,106
Identifiable assets......................................................... 38,358 17,835 53,756
Liabilities................................................................. 30,701 14,533 42,797
</TABLE>
F-34
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA (CONTINUED)
Interest expense of the Financial Services segment has been netted against
operating earnings, which is consistent with industry practice. Certain line
items do not add to the consolidated amounts due to the elimination of
intersegment transactions.
GEOGRAPHIC AREA DATA
Information concerning operations by principal geographic area was as
follows:
<TABLE>
<CAPTION>
UNITED ADJMTS.
STATES CANADA OTHER & ELIMS. CONSOLIDATED
--------- --------- --------- ---------- ------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Revenues:
Unaffiliated customers............................... $ 52,006 $ 4,950 $ 4,191 $ -- $ 61,147
Transfers between geographic areas................... 10,210 7,150 4,923 (22,283) --
--------- --------- --------- ---------- ------------
Total revenues......................................... 62,216 12,100 9,114 (22,283) 61,147
Earnings before income taxes, extraordinary item and
cumulative effect of a change in accounting
principle............................................ 3,853 264 440 -- 4,557
Identifiable assets.................................... 50,401 6,754 3,263 -- 60,418
Net assets............................................. 8,080 1,613 1,669 -- 11,362
DECEMBER 31, 1996
Revenues:
Unaffiliated customers............................... $ 53,171 $ 4,446 $ 3,780 $ -- $ 61,397
Transfers between geographic areas................... 10,540 7,999 5,121 (23,660) --
--------- --------- --------- ---------- ------------
Total revenues......................................... 63,711 12,445 8,901 (23,660) 61,397
Earnings before income taxes, extraordinary item and
cumulative effect of a change in accounting
principle............................................ 5,631 224 237 -- 6,092
Identifiable assets.................................... 47,843 5,497 2,844 -- 56,184
Net assets............................................. 8,847 1,435 1,289 -- 11,571
DECEMBER 31, 1995
Revenues:
Unaffiliated customers............................... $ 47,289 $ 3,834 $ 2,072 $ -- $ 53,195
Transfers between geographic areas................... 6,888 5,913 2,919 (15,720) --
--------- --------- --------- ---------- ------------
Total revenues......................................... 54,177 9,747 4,991 (15,720) 53,195
Earnings before income taxes, extraordinary item and
cumulative effect of a change in accounting
principle............................................ 3,179 78 192 -- 3,449
Identifiable assets.................................... 46,794 4,531 2,431 -- 53,756
Net assets............................................. 8,411 1,310 1,238 -- 10,959
</TABLE>
Transfers between geographic areas are based on prices negotiated between
the buying and selling locations.
F-35
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Shareholders and Board of Directors
Chrysler Corporation
Auburn Hills, Michigan
We have reviewed the accompanying condensed consolidated balance sheet of
Chrysler Corporation and consolidated subsidiaries as of September 30, 1998 and
1997 and the related condensed consolidated statements of earnings for the
three-month and nine-month periods and of cash flows for the nine-month periods
ended September 30, 1998 and 1997. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previous audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Chrysler Corporation and
consolidated subsidiaries as of December 31, 1997, and the related consolidated
statements of earnings and cash flows for the year then ended (not presented
herein); and in our report dated January 22, 1998, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1997 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
Deloitte & Touche LLP
Detroit, Michigan
October 9, 1998
F-36
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- --------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- --------- ---------
Sales of manufactured products........................................ $ 13,910 $ 12,101 $ 45,805 $ 40,650
Finance and insurance revenues........................................ 572 394 1,517 1,204
Other revenues........................................................ 475 681 1,436 1,826
--------- --------- --------- ---------
TOTAL REVENUES.................................................... 14,957 13,176 48,758 43,680
--------- --------- --------- ---------
Costs, other than items below......................................... 11,283 10,145 36,642 33,205
Depreciation and special tools amortization........................... 817 590 2,539 1,974
Selling and administrative expenses................................... 1,106 1,139 3,330 3,560
Employee retirement benefits.......................................... 326 325 952 961
Interest expense...................................................... 346 251 942 739
--------- --------- --------- ---------
TOTAL EXPENSES.................................................... 13,878 12,450 44,405 40,439
--------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES...................................... 1,079 726 4,353 3,241
Provision for income taxes............................................ 397 285 1,616 1,288
--------- --------- --------- ---------
NET EARNINGS...................................................... $ 682 $ 441 $ 2,737 $ 1,953
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
(IN DOLLARS OR MILLIONS OF SHARES)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE....................................... $ 1.05 $ 0.66 $ 4.23 $ 2.86
--------- --------- --------- ---------
--------- --------- --------- ---------
Average common shares outstanding..................................... 647.3 671.0 646.5 682.5
DILUTED EARNINGS PER COMMON SHARE..................................... $ 1.02 $ 0.65 $ 4.14 $ 2.82
--------- --------- --------- ---------
--------- --------- --------- ---------
Average common and dilutive equivalent shares outstanding............. 665.5 681.0 661.5 692.7
DIVIDENDS DECLARED PER COMMON SHARE................................... $ 0.40 $ 0.40 $ 1.20 $ 1.20
</TABLE>
See notes to consolidated financial statements.
F-37
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
1998 1997
----------- ----------------------
<S> <C> <C> <C>
SEPT. 30 DEC. 31 SEPT. 30
----------- --------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents.................................................... $ 6,963 $ 4,898 $ 5,347
Marketable securities........................................................ 3,665 2,950 2,252
----------- --------- -----------
Total cash, cash equivalents and marketable securities................... 10,628 7,848 7,599
Accounts receivable--trade and other......................................... 1,548 1,646 1,837
Inventories.................................................................. 5,979 4,738 6,419
Prepaid employee benefits, taxes and other expenses.......................... 1,010 2,193 1,670
Finance receivables and retained interests in sold receivables............... 16,292 13,518 13,161
Property and equipment....................................................... 19,820 17,968 16,924
Special tools................................................................ 4,540 4,572 4,358
Intangible assets............................................................ 1,511 1,573 1,950
Other noncurrent assets...................................................... 6,408 6,362 6,201
----------- --------- -----------
TOTAL ASSETS............................................................. $ 67,736 $ 60,418 $ 60,119
----------- --------- -----------
----------- --------- -----------
LIABILITIES:
Accounts payable............................................................. $ 10,697 $ 9,512 $ 9,614
Accrued liabilities and expenses............................................. 11,114 9,717 9,456
Short-term debt.............................................................. 3,708 3,841 3,145
Payments due within one year on long-term debt............................... 3,081 2,638 2,692
Long-term debt............................................................... 11,344 9,006 10,097
Accrued noncurrent employee benefits......................................... 10,126 9,841 9,865
Other noncurrent liabilities................................................. 4,464 4,501 3,983
----------- --------- -----------
TOTAL LIABILITIES........................................................ 54,534 49,056 48,852
----------- --------- -----------
SHAREHOLDERS' EQUITY: (shares in millions)
Preferred stock--$1 per share par value; authorized 20.0 shares; Series A
Convertible Preferred Stock; issued and outstanding: 1997--0.02 and 0.02
shares, respectively (aggregate liquidation preference 1997--$8 million and
$8 million, respectively).................................................. -- * *
Common stock--$1 per share par value; authorized 1,000.0 shares; issued:
1998--824.0 shares; 1997--823.1 and 823.1 shares, respectively............. 824 823 823
Additional paid-in capital................................................... 5,219 5,231 5,232
Retained earnings............................................................ 12,557 10,605 9,996
Treasury stock--at cost: 1998--176.6 shares; 1997--174.7 and 160.6 shares,
respectively............................................................... (5,398) (5,297) (4,784)
----------- --------- -----------
TOTAL SHAREHOLDERS' EQUITY................................................... 13,202 11,362 11,267
----------- --------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................... $ 67,736 $ 60,418 $ 60,119
----------- --------- -----------
----------- --------- -----------
</TABLE>
- ------------------------
* Less than $50 thousand
See notes to consolidated financial statements.
F-38
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................................... $ 6,720 $ 5,884
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities......................................................... (2,719) (1,983)
Sales and maturities of marketable securities.............................................. 2,869 2,343
Finance receivables acquired............................................................... (22,731) (21,165)
Finance receivables collected.............................................................. 7,515 6,659
Proceeds from sales of finance receivables................................................. 13,351 14,082
Expenditures for property and equipment.................................................... (2,092) (2,359)
Expenditures for special tools............................................................. (941) (1,208)
Purchases of vehicle operating leases...................................................... (2,255) (1,427)
Proceeds from sales of vehicles under purchased operating leases........................... 273 129
Change in cash and investments held by securitization trusts............................... 151 (1,164)
Other...................................................................................... 215 156
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES.................................................... (6,364) (5,937)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt.................................................................. (133) (69)
Proceeds from long-term borrowings......................................................... 4,983 5,550
Payments on long-term borrowings........................................................... (2,252) (2,938)
Repurchases of common stock................................................................ (197) (1,593)
Dividends paid............................................................................. (777) (830)
Other...................................................................................... 85 122
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES................................................ 1,709 242
--------- ---------
Change in cash and cash equivalents.......................................................... 2,065 189
Cash and cash equivalents at beginning of period............................................. 4,898 5,158
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................................... $ 6,963 $ 5,347
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
F-39
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION
The unaudited consolidated financial statements of Chrysler Corporation and
its consolidated subsidiaries ("Chrysler") include the accounts of all
significant majority-owned subsidiaries that are controlled by Chrysler.
Affiliates that are 20 percent to 50 percent owned and subsidiaries where
control is expected to be temporary or does not reside with Chrysler are
generally accounted for on an equity basis. Intercompany accounts and
transactions have been eliminated in consolidation. The consolidated financial
statements of Chrysler for the three and nine months ended September 30, 1998
and 1997 reflect all adjustments, consisting of only normal and recurring items,
which are, in the opinion of management, necessary to present a fair statement
of the results for the interim periods. The operating results for the three and
nine months ended September 30, 1998 are not necessarily indicative of the
results of operations for the entire year. Reference should be made to the
consolidated financial statements included in the Annual Report on Form 10-K for
the year ended December 31, 1997. Certain amounts for 1997 have been
reclassified to conform with current period classifications.
NOTE 2. INVENTORIES
Inventories, summarized by major classification, were as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------------------
SEPT. 30 DEC. 31 SEPT. 30
----------- --------- -----------
<S> <C> <C> <C>
(IN MILLIONS OF DOLLARS)
Finished products, including service parts........................................... $ 1,904 $ 1,883 $ 1,865
Raw materials, finished production parts and supplies................................ 1,598 1,445 1,495
Vehicles held for short-term lease................................................... 2,477 1,410 3,059
----------- --------- -----------
TOTAL............................................................................ $ 5,979 $ 4,738 $ 6,419
----------- --------- -----------
----------- --------- -----------
</TABLE>
NOTE 3. CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, Chrysler adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
Statement also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. For example, other
comprehensive earnings may include foreign currency translation adjustments,
minimum pension liability adjustments, and unrealized gains and losses on
marketable securities classified as available-for-sale. Annual financial
statements for prior periods will be reclassified, as required. Chrysler's total
comprehensive earnings were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30 SEPT. 30
-------------------- --------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Net earnings................................................................ $ 682 $ 441 $ 2,737 $ 1,953
Other comprehensive earnings (loss)......................................... (11) 9 (28) 1
--------- --------- --------- ---------
Total comprehensive earnings............................................ $ 671 $ 450 $ 2,709 $ 1,954
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Effective January 1, 1998, Chrysler adopted Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This SOP provides guidance on accounting for the costs of
computer software developed or obtained for internal use. This SOP requires
F-40
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. CHANGES IN ACCOUNTING PRINCIPLES (CONTINUED)
that entities capitalize certain internal-use software costs once certain
criteria are met. Historically, Chrysler generally expensed the costs of
developing or obtaining internal-use software as incurred. Adoption of the
standard did not have a material effect on Chrysler's consolidated financial
statements.
NOTE 4. PROPOSED BUSINESS COMBINATION
Chrysler, Daimler-Benz Aktiengesellschaft ("Daimler-Benz") and
DaimlerChrysler AG ("DaimlerChrysler") have entered into a Business Combination
Agreement dated as of May 7, 1998 (as amended and restated) providing for (i)
the merger of a newly created Delaware corporation with and into Chrysler ("the
Chrysler Merger"); (ii) an offer by DaimlerChrysler to exchange one
DaimlerChrysler ordinary share for each Daimler-Benz ordinary share (or 1.005
DaimlerChrysler shares for each Daimler-Benz ordinary share if greater than 90
percent of shares are exchanged); and (iii) the merger of Daimler-Benz with and
into DaimlerChrysler. In the Chrysler merger, each share of outstanding Chrysler
common stock will be converted into the right to receive 0.6235 of a
DaimlerChrysler share. As a result of these transactions, DaimlerChrysler will
be owned by the former shareholders of Chrysler and Daimler-Benz, and Chrysler
will be a wholly owned subsidiary of DaimlerChrysler.
On May 7, 1998, Chrysler entered into a Stockholder Agreement with Kirk
Kerkorian and Tracinda Corporation (together, "Tracinda"), the owner of
approximately 11 percent of the common stock of Chrysler, pursuant to which
Tracinda agreed to vote its shares in favor of the transactions contemplated by
the Business Combination Agreement.
Also on May 7, 1998, Chrysler amended its Rights Agreement, dated as of
February 5, 1998, with First Chicago Trust Company of New York. The amendment
renders the Rights Agreement inapplicable to the transactions contemplated by
the Business Combination Agreement.
The transaction is expected to close in November 1998, subject to the
satisfaction or waiver of various conditions as more fully described in the
Business Combination Agreement. These conditions include completion of the
exchange of at least 75 percent of the outstanding shares of Daimler-Benz for
DaimlerChrysler shares and the receipt of opinions from the respective tax
counsel of Chrysler and Daimler-Benz regarding certain United States federal
income and German tax consequences of the transactions. Additionally, the
transaction is conditioned upon the receipt by Chrysler of a private letter
ruling from the United States Internal Revenue Service (the "IRS"), which was
received from the IRS on September 4, 1998.
Chrysler's and Daimler-Benz' shareholders approved the proposed business
combination at separate Special Shareholders' Meetings held on September 18,
1998. The initial period for the exchange of Daimler-Benz shares for
DaimlerChrysler shares extends from September 24, 1998 through October 23, 1998.
In September 1998, Chrysler filed a preliminary Form S-3 with the Securities and
Exchange Commission to register the offering of up to 30 million shares of
Chrysler common stock. This offering of Chrysler common stock is conditioned on
the exchange of at least 90 percent of the outstanding shares of Daimler-Benz
for DaimlerChrysler shares.
NOTE 5. PREFERRED STOCK REDEMPTION
On July 24, 1998, Chrysler redeemed all of the outstanding Depositary Shares
representing its Series A Convertible Preferred Stock.
F-41
<PAGE>
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. EARNINGS PER COMMON SHARE
Earnings per common share ("EPS") data were computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30 SEPT. 30
-------------------- --------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF DOLLARS AND SHARES,
EXCEPT PER-COMMON-SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net earnings................................................................. $ 682 $ 441 $ 2,737 $ 1,953
--------- --------- --------- ---------
--------- --------- --------- ---------
BASIC EPS:
Weighted-average common shares outstanding................................... 647.3 671.0 646.5 682.5
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic EPS.................................................................... $ 1.05 $ 0.66 $ 4.23 $ 2.86
--------- --------- --------- ---------
--------- --------- --------- ---------
DILUTED EPS:
Weighted-average common shares outstanding................................... 647.3 671.0 646.5 682.5
Shares issued on exercise of dilutive options................................ 36.1 31.1 33.5 27.8
Shares purchased with proceeds of options.................................... (20.5) (23.8) (21.4) (20.8)
Shares applicable to convertible preferred stock............................. 0.1 0.9 0.5 1.5
Shares contingently issuable................................................. 2.5 1.8 2.4 1.7
--------- --------- --------- ---------
Shares applicable to diluted earnings........................................ 665.5 681.0 661.5 692.7
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted EPS.................................................................. $ 1.02 $ 0.65 $ 4.14 $ 2.82
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-42
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Daimler-Benz Aktiengesellschaft
We have audited the accompanying consolidated balance sheets of Daimler-Benz
Aktiengesellschaft and subsidiaries ("Daimler-Benz") as of December 31, 1997 and
1996, and the related consolidated statements of income, cash flows, and changes
in stockholders' equity for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of Daimler-Benz' management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Germany and the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Daimler-Benz has accounted for certain joint ventures in accordance with the
proportionate method of consolidation as is permitted under the Seventh
Directive of the European Community and the Standards of the International
Accounting Standards Committee. In our opinion, United States generally accepted
accounting principles require that such joint ventures be accounted for using
the equity method of accounting. The United States Securities and Exchange
Commission has stated that it would not object to Daimler-Benz' use of the
proportionate method of consolidation as supplemented by the disclosures in Note
2.
In our opinion, except for the effects of the use of the proportionate
method of accounting, as discussed in the preceding paragraph, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of Daimler-Benz as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with United States
generally accepted accounting principles.
KPMG DEUTSCHE TREUHAND-GESELLSCHAFT AG
Frankfurt am Main
March 17, 1998, except note 28
which is as of June 25, 1998
F-43
<PAGE>
DAIMLER-BENZ AG
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONSOLIDATED
YEAR ENDED DECEMBER 31, FINANCIAL SERVICES
----------------------------------------------- YEAR ENDED DECEMBER 31,
1997 -------------------------------
NOTE (NOTE 1) 1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Revenues 24 $ 74,273 DM124,050 DM106,339 DM102,985 DM9,499 DM8,379 DM7,661
- ------------------------------------------------------------------------------------------------------------------------
Cost of sales 4 (59,240) (98,943) (84,742) (86,686) (8,650) (7,752) (7,239)
- ------------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 15,033 25,107 21,597 16,299 849 627 422
- ------------------------------------------------------------------------------------------------------------------------
Selling, administrative and
other expenses 4 (10,438) (17,433) (15,955) (20,834) (608) (476) (366)
- ------------------------------------------------------------------------------------------------------------------------
Research and development (3,391) (5,663) (5,579) (5,369) 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
Other income 970 1,620 1,402 1,742 161 113 89
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE FINANCIAL
INCOME AND INCOME TAXES 2,174 3,631 1,465 (8,162) 402(1) 264(1) 145(1)
- ------------------------------------------------------------------------------------------------------------------------
Financial income, net 5 370 618 496 929 7 . 8
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME
TAXES 2,544 4,249 1,961 (7,233) 409 264 153
- ------------------------------------------------------------------------------------------------------------------------
Tax benefit relating to a
special distribution 1,741 2,908(2)
Income taxes 643 1,074(3)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME TAXES 6 2,384 3,982 712 1,620 (210) (127) (82)
- ------------------------------------------------------------------------------------------------------------------------
Minority interest (113) (189) 89 (116) (1) (4) 2
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 4,815 8,042(4) 2,762 (5,729) 198 133 73
- ------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
- ------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per
share 25 9.16 15.30(4) 5.27 (10.96) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per
share 25 8.99 15.01(4) 5.25 (10.96) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Equal to the operating profit of the Group's Financial Services.
(2) Reflects the tax benefit relating to a special distribution of DM 19.63 per
share.
(3) Includes non-recurring tax benefits of DM 1,962 relating to the decrease in
valuation allowance as of December 31, 1997, applied to the domestic
operations that file a combined tax return.
(4) Excluding the non-recurring benefits, 1997 net income would have been DM
3,172 and basic and diluted earnings per share would have been DM 6.04 and
DM 5.96, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-44
<PAGE>
DAIMLER-BENZ AG
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL SERVICES
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, AT DECEMBER 31,
---------------------------------- ----------------------
<CAPTION>
1997
NOTE (NOTE 1) 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Intangible assets 7 $ 1,147 DM 1,915 DM 1,951 DM 100 DM 80
- ----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 7 12,367 20,656 18,225 76 57
- ----------------------------------------------------------------------------------------------------------------------------------
Investments and long-term financial assets 13 2,067 3,453 3,536 205 60
- ----------------------------------------------------------------------------------------------------------------------------------
Equipment on operating leases, net 8 8,940 14,931 11,941 15,055 12,748
- ----------------------------------------------------------------------------------------------------------------------------------
FIXED ASSETS 24,521 40,955 35,653 15,436 12,945
- ----------------------------------------------------------------------------------------------------------------------------------
Inventories 9 8,616 14,390 13,602 988 645
- ----------------------------------------------------------------------------------------------------------------------------------
Trade receivables 10 7,188 12,006 10,864 373 382
- ----------------------------------------------------------------------------------------------------------------------------------
Receivables from financial services 11 15,521 25,924 19,052 25,953 19,073
- ----------------------------------------------------------------------------------------------------------------------------------
Other receivables 12 7,335 12,251(1) 8,959 897 826
- ----------------------------------------------------------------------------------------------------------------------------------
Securities 13 8,794 14,687 9,783 91 92
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 14 3,492 5,833 4,557 684 269
- ----------------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS 50,946 85,091 66,817 28,986 21,287
- ----------------------------------------------------------------------------------------------------------------------------------
DEFERRED TAXES 6 6,264 10,462 9,603 27 162
- ----------------------------------------------------------------------------------------------------------------------------------
PREPAID EXPENSES 354 591 388 81 65
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 82,085 137,099 112,461 44,530 34,459
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
Capital stock $ 1,547 DM 2,584 DM 2,577 DM DM
- ----------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 3,142 5,247 5,080
- ----------------------------------------------------------------------------------------------------------------------------------
Retained earnings 15,871 26,508(1) 19,033
- ----------------------------------------------------------------------------------------------------------------------------------
Other equity 447 746 (297)
- ----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 16 21,007 35,085 26,393 2,642 2,094
- ----------------------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST 701 1,170 936 55 52
- ----------------------------------------------------------------------------------------------------------------------------------
ACCRUED LIABILITIES 17 21,924 36,618 34,886 576 523
- ----------------------------------------------------------------------------------------------------------------------------------
Financial liabilities 18 23,531 39,302 28,850 38,383 29,171
- ----------------------------------------------------------------------------------------------------------------------------------
Trade liabilities 19 6,633 11,079 9,027 176 132
- ----------------------------------------------------------------------------------------------------------------------------------
Other liabilities 20 6,057 10,116 8,792 901 800
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES 36,221 60,497 46,669 39,460 30,103
- ----------------------------------------------------------------------------------------------------------------------------------
DEFERRED TAXES 6 1,199 2,003 2,253 1,345 1,244
- ----------------------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME 1,033 1,726 1,324 452 443
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 82,085 137,099 112,461 44,530 34,459
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes a tax receivable/tax benefit of approximately DM 2.9 billion
relating to the special distribution of DM 19.63 per share.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-45
<PAGE>
DAIMLER-BENZ AG
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL SERVICES
------------------------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER
------------------------------------------ 31,
1997 --------------------
(NOTE 1) 1997 1996 1995 1997 1996
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) $ 4,815 DM 8,042 DM 2,762 DM (5,729) DM 198 DM 133
- ---------------------------------------------------------------------------------------------------------------
Income (Loss) applicable to minority interest 113 189 (89) 116 1 4
- ---------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
- ---------------------------------------------------------------------------------------------------------------
Tax benefit relating to a special
distribution (1,741) (2,908) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Gain on disposal of businesses (666) (1,113) (217) -- -- --
- ---------------------------------------------------------------------------------------------------------------
Depreciation and amortization of equipment
on operating leases 1,391 2,323 2,018 2,444 2,467 2,198
- ---------------------------------------------------------------------------------------------------------------
Depreciation and amortization of fixed
assets 3,112 5,198 4,908 8,661 52 45
- ---------------------------------------------------------------------------------------------------------------
Change in deferred taxes (1,070) (1,787) (1,572) (2,566) 167 (24)
- ---------------------------------------------------------------------------------------------------------------
Change in financial instruments 272 455 392 (77) -- 3
- ---------------------------------------------------------------------------------------------------------------
(Gain) loss on disposal of fixed
assets/securities (410) (685) (315) 28 25 .
- ---------------------------------------------------------------------------------------------------------------
Change in trading securities (453) (756) (335) 44 -- --
- ---------------------------------------------------------------------------------------------------------------
Change in accrued liabilities 1,036 1,730 876 3,417 26 39
- ---------------------------------------------------------------------------------------------------------------
Change in current assets and liabilities:
- ---------------------------------------------------------------------------------------------------------------
- inventories, net (231) (385) (13) (1,505) (274) (96)
- ---------------------------------------------------------------------------------------------------------------
- trade receivables (535) (894) 35 (262) 47 7
- ---------------------------------------------------------------------------------------------------------------
- trade payables 1,013 1,691 967 728 45 (59)
- ---------------------------------------------------------------------------------------------------------------
- other assets and liabilities 85 142 786 156 (73) (279)
- ---------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 6,731 11,242 10,203 5,455 2,681 1,971
- ---------------------------------------------------------------------------------------------------------------
Purchase of fixed assets:
- ---------------------------------------------------------------------------------------------------------------
- -Increase in equipment on operating leases (4,555) (7,608) (6,101) (5,205) (6,977) (6,171)
- ---------------------------------------------------------------------------------------------------------------
- -Purchase of property, plant and equipment (4,156) (6,942) (6,212) (4,850) (47) (24)
- ---------------------------------------------------------------------------------------------------------------
- -Purchase of other fixed assets (309) (516) (421) (544) (74) (26)
- ---------------------------------------------------------------------------------------------------------------
Proceeds from disposal of equipment on
operating leases 2,299 3,840 2,537 2,369 3,401 3,339
- ---------------------------------------------------------------------------------------------------------------
Proceeds from disposal of fixed assets 596 996 976 1,086 41 11
- ---------------------------------------------------------------------------------------------------------------
Payment for acquisition of businesses (711) (1,187) (462) (2,162) (125) (162)
- ---------------------------------------------------------------------------------------------------------------
Proceeds from disposal of businesses 1,564 2,613 1,107 15 -- 215
- ---------------------------------------------------------------------------------------------------------------
Acquisitions of securities (other than
trading) (3,186) (5,322) (1,319) (928) . (9)
- ---------------------------------------------------------------------------------------------------------------
Proceeds from sales of securities (other than
trading) 1,004 1,677 1,126 337 2 .
- ---------------------------------------------------------------------------------------------------------------
Additions to receivables from financial
services (9,437) (15,761) (10,697) (7,880) (15,755) (10,718)
- ---------------------------------------------------------------------------------------------------------------
Repayments of receivables from financial
services 6,151 10,273 7,572 5,778 10,273 7,572
- ---------------------------------------------------------------------------------------------------------------
Change in other cash 803 1,342 (260) 1,242 24 9
- ---------------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (9,937) (16,595) (12,154) (10,742) (9,237) (5,964)
- ---------------------------------------------------------------------------------------------------------------
Change in commercial paper borrowings and
short-term financial liabilities 1,437 2,399 4,915 2,932 2,208 2,221
- ---------------------------------------------------------------------------------------------------------------
Additions to long-term financial liabilities 4,534 7,572 2,678 1,521 6,668 4,322
- ---------------------------------------------------------------------------------------------------------------
Repayment of financial liabilities (1,354) (2,262) (5,675) (1,687) (2,013) (2,838)
- ---------------------------------------------------------------------------------------------------------------
Dividends paid (Financial Services: including
profit transferred
from subsidiaries) (347) (579) (10) (580) (240) (362)
- ---------------------------------------------------------------------------------------------------------------
Proceeds from capital increases 120 201 294 97 344 486
- ---------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 4,390 7,331 2,202 2,283 6,967 3,829
- ---------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on
cash and cash equivalents up to 3 months 176 293 101 (143) 7 4
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents up to 3 months 1,360 2,271 352 (3,147) 418 (160)
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS (UP TO 3 MONTHS):
- ---------------------------------------------------------------------------------------------------------------
AT BEGINNING OF PERIOD 1,928 3,220 2,868 6,015 262 422
- ---------------------------------------------------------------------------------------------------------------
AT END OF PERIOD 3,288 5,491 3,220 2,868 680 262
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-46
<PAGE>
DAIMLER-BENZ AG
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN MILLIONS OF DM, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OTHER EQUITY
--------------------------
ADDITIONAL CUMULATIVE AVAILABLE-
CAPITAL PAID-IN RETAINED TRANSLATION FOR-SALE
STOCK CAPITAL EARNINGS ADJUSTMENT SECURITIES
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1995 2,565 4,904 22,564 (590) (8)
Dividends paid (DM 1.08 per share) -- -- (564) -- --
Net loss -- -- (5,729) -- --
Issuance of capital stock 3 44 -- -- --
Currency translation -- -- -- (449) --
Unrealized gain on available-for-sale securities -- -- -- -- 120
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 2,568 4,948 16,271 (1,039) 112
- ----------------------------------------------------------------------------------------------------------------------------
Net income -- -- 2,762 -- --
Issuance of capital stock 9 132 -- -- --
Currency translation -- -- -- 523 --
Unrealized gain on available-for-sale securities -- -- -- -- 107
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 2,577 5,080 19,033 (516) 219
- ----------------------------------------------------------------------------------------------------------------------------
Dividends paid (DM 1.08 per share) -- -- (567) -- --
Net income -- -- 8,042 -- --
Issuance of capital stock 7 167 -- -- --
Currency translation -- -- -- 752 --
Unrealized gain on available-for-sale securities -- -- -- -- 291
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 2,584 5,247 26,508 236 510
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL
<S> <C>
- ---------------------------------------------------------
BALANCE AT JANUARY 1, 1995 29,435
Dividends paid (DM 1.08 per share) (564)
Net loss (5,729)
Issuance of capital stock 47
Currency translation (449)
Unrealized gain on available-for-sale securities 120
- ---------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 22,860
- ---------------------------------------------------------
Net income 2,762
Issuance of capital stock 141
Currency translation 523
Unrealized gain on available-for-sale securities 107
- ---------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 26,393
- ---------------------------------------------------------
Dividends paid (DM 1.08 per share) (567)
Net income 8,042
Issuance of capital stock 174
Currency translation 752
Unrealized gain on available-for-sale securities 291
- ---------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 35,085
- ---------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-47
<PAGE>
DAIMLER-BENZ AG
CONSOLIDATED FIXED ASSETS SCHEDULE
(IN MILLIONS OF DM)
<TABLE>
<CAPTION>
ACQUISITION OR MANUFACTURING COSTS
--------------------------------------------------------------------------------
BALANCE AT ACQUISITIONS/
JANUARY 1, CURRENCY DISPOSALS OF RECLASSI-
1997 CHANGE BUSINESSES ADDITIONS FICATIONS DISPOSALS
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Other intangible assets 899 25 7 247 11 153
Goodwill 2,328 25 (281) 397 ' 58
- --------------------------------------------------------------------------------------------------------------------------------
INTANGIBLE ASSETS 3,227 50 (274) 644 11 211
- --------------------------------------------------------------------------------------------------------------------------------
Land, leasehold improvements and buildings
including buildings on land owned by others 20,960 187 44 972 804 516
Technical equipment and machinery 25,535 99 159 2,331 1,097 1,660
Other equipment, factory and office equipment 15,625 137 (15) 1,888 300 1,495
Advance payments relating to plant and
equipment and construction in progress 3,111 108 (4) 2,081 (2,220) 152
- --------------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT 65,231 531 184 7,272 (19) 3,823
- --------------------------------------------------------------------------------------------------------------------------------
Investments in affiliated companies 898 4 (16) 311 (7) 381
Loans to associated and affiliated companies 23 . 0 138 1 160
Investments in associated companies 1,319 2 22 48 0 1,134
Investments in related companies 1,037 26 2 466 7 154
Loans to associated and related companies 180 0 ' 1 ' 81
Long-term securities 752 3 ' 384 0 116
Other loans 730 1 ' 125 ' 124
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS AND LONG-TERM FINANCIAL ASSETS 4,939 36 8 1,473 1 2,150
- --------------------------------------------------------------------------------------------------------------------------------
73,397 617 (82) 9,389 (7) 6,184
- --------------------------------------------------------------------------------------------------------------------------------
LEASED EQUIPMENT(2) 15,201 1,560 5 7,608 7 5,426
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
BALANCE AT
DECEMBER 31,
1997
<S> <C>
- ----------------------------------------------
Other intangible assets 1,036
Goodwill 2,411
- ----------------------------------------------
INTANGIBLE ASSETS 3,447
- ----------------------------------------------
Land, leasehold improvements and buildings
including buildings on land owned by others 22,451
Technical equipment and machinery 27,561
Other equipment, factory and office equipment 16,440
Advance payments relating to plant and
equipment and construction in progress 2,924
- ----------------------------------------------
PROPERTY, PLANT AND EQUIPMENT 69,376
- ----------------------------------------------
Investments in affiliated companies 809
Loans to associated and affiliated companies 2
Investments in associated companies 257
Investments in related companies 1,384
Loans to associated and related companies 100
Long-term securities 1,023
Other loans 732
- ----------------------------------------------
INVESTMENTS AND LONG-TERM FINANCIAL ASSETS 4,307
- ----------------------------------------------
77,130
- ----------------------------------------------
LEASED EQUIPMENT(2) 18,955
- ----------------------------------------------
</TABLE>
(1) Currency translation changes with period end rates.
(2) Excluding initial direct costs. See Note 8.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-48
<PAGE>
DAIMLER-BENZ AG
CONSOLIDATED FIXED ASSETS SCHEDULE (CONTINUED)
(IN MILLIONS OF DM)
<TABLE>
<CAPTION>
DEPRECIATION/AMORTIZATION BOOK VALUE(1)
- --------------------------------------------------------------------------------------------------- ----------------------------
BALANCE AT ACQUISITIONS/ BALANCE AT BALANCE AT BALANCE AT
JANUARY 1, CURRENCY DISPOSALS OF RECLASSI- DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 CHANGE BUSINESSES ADDITIONS FICATIONS DISPOSALS 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------- ----------------------------
560 12 7 160 8 80 667 369 339
716 8 (125) 299 ' 33 865 1,546 1,612
<CAPTION>
- --------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1,276 20 (118) 459 8 113 1,532 1,915 1,951
<CAPTION>
- --------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12,407 61 30 780 (47) 270 12,961 9,490 8,553
21,591 48 144 2,104 38 1,578 22,347 5,214 3,944
13,000 86 (9) 1,698 (5) 1,360 13,410 3,030 2,625
8 ' 0 2 (1) 7 2 2,922 3,103
<CAPTION>
- --------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
47,006 195 165 4,584 (15) 3,215 48,720 20,656 18,225
<CAPTION>
- --------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
186 1 0 29 0 54 162 647 712
2 ' 0 4 . 6 ' 2 21
602 ' 0 15 ' 617 ' 257 717
395 1 2 104 0 5 497 887 642
74 0 ' ' ' 2 72 28 106
11 ' ' 0 0 6 5 1,018 741
133 (1) 0 3 ' 17 118 614 597
<CAPTION>
- --------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1,403 1 2 155 ' 707 854 3,453 3,536
<CAPTION>
- --------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
49,685 216 49 5,198 (7) 4,035 51,106 26,024 23,712
<CAPTION>
- --------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3,378 445 ' 2,323 7 1,976 4,177 14,778 11,823
<CAPTION>
- --------------------------------------------------------------------------------------------------- ----------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-49
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
BASIS OF PRESENTATION
1. SUMMARY OF ACCOUNTING POLICIES
GENERAL -- The consolidated financial statements of Daimler-Benz
Aktiengesellschaft and subsidiaries ("Daimler-Benz" or the "Group") have been
prepared in accordance with United States Generally Accepted Accounting
Principles ("U.S. GAAP"), except that the Group has accounted for certain joint
ventures in accordance with the proportionate method of consolidation (see Note
2). All amounts herein are shown in millions of Deutsche Marks ("DM" or "marks")
and for the year 1997 are also presented in U.S. dollars ("dollars" or "$"), the
latter being unaudited and presented solely for the convenience of the reader at
the rate of DM 1.6702, the Noon Buying Rate of the Federal Reserve Bank of New
York on September 30, 1998.
Certain prior year amounts have been reclassified to conform to the 1997
presentation. Liabilities to affiliated companies and liabilities from capital
lease and residual value guarantees have been reclassified to financial
liabilities in the consolidated balance sheets. The consolidated statements of
income have been reclassified to better conform to the Fourth and Seventh
Directives of the European Community and in anticipation of the changes in
German legal reporting requirements (KAPITALAUFNAHMEERLEICHTERUNGSGESETZ). These
changes had no impact on reported results of operations or stockholders' equity.
Commercial practices with respect to certain of the products manufactured by
Daimler-Benz necessitate that sales financing, including leasing alternatives,
be made available to the Group's customers. Accordingly, the Group's
consolidated financial statements are significantly influenced by activities of
a number of "captive" financing entities. To enhance the readers' understanding
of the Group's consolidated financial statements, the accompanying financial
statements present, in addition to the consolidated financial statements,
information with respect to the financial position, results of operations and
cash flows of the Group's financial services business activities. Such
information, however, is not required by U.S. GAAP and is not intended to, and
does not represent the separate U.S. GAAP financial position, results of
operations or cash flows of the Group's financial services business activities.
Amounts with respect to the financial services business are presented prior to
intercompany eliminations of transactions with other Group companies.
CONSOLIDATION -- All material companies in which Daimler-Benz has legal or
effective control are consolidated. Significant investments in which
Daimler-Benz has an ownership interest in the range of 20% to 50% ("associated
companies") are generally included using the equity method of accounting. For
certain investments in joint ventures, Daimler-Benz uses the proportionate
method of consolidation (see Note 2). Other investments are accounted for at
cost ("affiliated companies").
The Group accounts for its business combinations under the purchase
accounting method. As such, all assets acquired and liabilities assumed are
recorded at fair value. An excess of the purchase price over the fair value of
net assets acquired is capitalized as goodwill and amortized over the estimated
period of benefit on a straight-line basis.
The effects of intercompany transactions have been eliminated.
FOREIGN CURRENCIES -- Currency translation is based upon the Statement of
Financial Accounting Standards (SFAS) 52 "Foreign Currency Translation," whereby
the assets and liabilities of foreign subsidiaries where the functional currency
is the local currency are generally translated using period end exchange rates
while the income statements are translated using average exchange rates during
the period.
F-50
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
Differences arising from the translation of assets and liabilities in comparison
with the translation of the previous periods are included as a separate
component of stockholders' equity.
The assets and liabilities of foreign subsidiaries operating in highly
inflationary economies are remeasured into DM on the basis of period end rates
for monetary assets and liabilities and at historical rates for non-monetary
items, with resulting translation gains and losses being recognized in income.
Further, in such economies, depreciation and gains and losses from the disposal
of non-monetary assets are determined using historical rates.
The exchange rates of the more important currencies used in preparation of
the consolidated financial statements were as follows:
<TABLE>
<CAPTION>
EXCHANGE RATE(1) AT ANNUAL AVERAGE EXCHANGE RATE
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
CURRENCY: DM DM DM DM DM
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Brazil 1 BRL 1.61 1.49 1.61 1.50 1.56
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
France 1FRF 0.30 0.30 0.30 0.29 0.29
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Great Britain 1 GBP 2.98 2.63 2.84 2.35 2.26
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Italy 1000 ITL 1.02 1.02 1.02 0.98 0.88
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Japan 100 JPY 1.38 1.34 1.44 1.38 1.53
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Spain 100 ESP 1.18 1.19 1.18 1.18 1.15
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
USA 1 USD 1.79 1.55 1.73 1.50 1.43
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Official rates fixed at the Frankfurt Currency Exchange.
REVENUE RECOGNITION -- Revenue is recognized when title passes or services
are rendered net of discounts, customer bonuses and rebates granted. Revenue on
long-term contracts is generally recognized under the percentage-of-completion
method based upon contractual milestones or performance. Revenue from finance
receivables is recorded on the interest method. Operating lease income is
recorded when earned. Revenues also include proceeds from the sale of leased
equipment.
PRODUCT-RELATED EXPENSES -- Expenditures for advertising and sales promotion
and for other sales-related expenses are charged to expense as incurred.
Provisions for estimated costs related to product warranty are made at the time
the products are sold. Research and development costs are expensed as incurred.
EARNINGS PER SHARE -- Effective December 31, 1997, the Company adopted SFAS
128 "Earnings per Share". Accordingly, basic and diluted earnings (loss) per
share for each year presented have been determined in accordance with the
provisions of SFAS 128. Basic earnings (loss) per share has been calculated by
dividing net income (loss) by the weighted average number of shares outstanding.
Diluted earnings (loss) per share reflects the potential dilution that would
occur if all securities and other contracts to issue common stock were exercised
or converted (see Note 25). Net income (loss) represents the earnings (loss) of
the Group after minority interests.
INTANGIBLE ASSETS -- Purchased intangible assets are valued at acquisition
cost and are amortized over their respective useful lives (3 to 10 years).
Goodwill derived from acquisitions is capitalized and amortized over 3 to 20
years. The Group periodically assesses the recoverability of its goodwill based
upon projected future cash flows.
F-51
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is valued at
acquisition or manufacturing costs less accumulated depreciation. Depreciation
expense is recognized using the declining balance method until the straight-line
method yields larger expenses. Depreciation expense based exclusively on fiscal
(tax) regulations is not recognized. The costs of internally produced equipment
and facilities includes all direct costs and allocable manufacturing overhead.
Costs of the construction of certain long-term assets include capitalized
interest which is amortized over the estimated useful life of the related asset.
The following useful lives are assumed: buildings -- 17 to 50 years; site
improvements -- 8 to 20 years; technical equipment and machinery -- 3 to 20
years; and other equipment, factory and office equipment -- 2 to 10 years.
LEASING -- The Group is a lessee of property, plant and equipment and lessor
of equipment, principally passenger cars and commercial vehicles. All leases
that meet certain specified criteria intended to represent situations where the
substantive risks and rewards of ownership have been transferred to the lessee
are accounted for as capital leases. All other leases are accounted for as
operating leases. Equipment on operating lease, where the Group is lessor, is
valued at acquisition cost and generally depreciated over the assets' useful
lives, generally three to seven years, using the straight-line method.
CURRENT ASSETS -- Current assets represent the Group's inventories,
receivables, securities and cash, including amounts due in excess of one year.
MARKETABLE SECURITIES AND INVESTMENTS -- Securities are accounted for at
fair values, if readily determinable. Unrealized gains and losses on trading
securities, that is, securities bought principally for the purposes of selling
them in the near term, are included in income. Unrealized gains and losses on
available-for-sale securities are included in stockholders' equity, net of
applicable deferred income taxes. All other securities are recorded at cost.
Unrealized losses on all marketable securities and investments that are other
than temporary are recognized in earnings.
INVENTORIES -- Inventory is valued at the lower of acquisition or
manufacturing cost or market, cost being generally determined on the basis of an
average or first-in, first-out method (FIFO). Certain of the Group's U.S.
businesses' inventories are valued using the last-in, first-out method (LIFO).
Manufacturing costs comprise direct material and labor and applicable
manufacturing overheads, including depreciation charges.
FINANCIAL INSTRUMENTS -- Daimler-Benz uses derivative financial instruments
for hedging purposes. Financial instruments, including derivatives (especially
currency futures and currency options, security options, interest and currency
swaps), which are not designated as hedges of specific assets, liabilities, or
firm commitments are marked to market and any resulting unrealized gains or
losses are recognized in income. If there is a direct connection between a
derivative financial instrument and an underlying transaction and a derivative
is so designated, a valuation unit is formed. Once allocated, gains and losses
from these valuation units, which are used to manage interest rate and currency
risks of identifiable assets, liabilities, or firm commitments, do not affect
income until the underlying transaction is realized (see Note 23 d).
ACCRUED LIABILITIES -- The valuation of pension liabilities is based upon
the projected unit credit method in accordance with SFAS 87 "Employers'
Accounting for Pensions." An accrued liability for taxes and other contingencies
is recorded when an obligation to a third party has been incurred, the payment
is probable and the amount can be reasonably estimated. In determining other
accrued liabilities -- including warranties, contract costs and estimated future
losses on open contracts -- all applicable costs
F-52
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
are taken into consideration including price increases. The effects of accrued
liabilities relating to personnel and social costs are valued at their net
present value where appropriate.
USE OF ESTIMATES -- The preparation of financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent amounts at the date of the
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACCOUNTING PRONOUNCEMENTS NOT YET APPLIED -- In June 1997, the Financial
Accounting Standards Board issued SFAS 130 "Reporting Comprehensive Income"
which is effective for fiscal years beginning after December 15, 1997. SFAS 130
requires that changes in the amounts of certain items, including foreign
currency translation adjustments and gains and losses on certain securities be
shown in the financial statements. SFAS 130 does not require a specific format
for the financial statement in which comprehensive income is reported, but does
require that an amount representing total comprehensive income be reported in
that statement.
Also in June 1997, the Financial Accounting Standards Board issued SFAS 131
"Disclosures about Segments of an Enterprise and Related Information" which is
effective for fiscal years beginning after December 15, 1997. The Statement
provides guidance in the reporting of information about segments of an entity's
business in annual and interim financial statements and also requires
entity-wide disclosures about products and services an entity provides, the
material countries in which it holds assets and reports revenues, and its major
customers. The Company is in the process of determining the impact of SFAS 131
on its reported segments.
In February 1998, the Financial Accounting Standards Board issued SFAS 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS
132 amends the disclosure requirements of SFAS 87, SFAS 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pensions Plans
and for Termination Benefits," and SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS 132 standardizes the
disclosure requirements of SFAS 87 and SFAS 106 to the extent practicable and
recommends a parallel format for presenting information about pensions and other
postretirement benefits. The Group will adopt the provisions of SFAS 132 in its
1998 consolidated financial statements.
2. SCOPE OF CONSOLIDATION
SCOPE OF CONSOLIDATION -- Daimler-Benz comprises 300 foreign and domestic
subsidiaries (1996: 297) and 92 joint ventures (1996: 82); the latter are
generally accounted for on a pro rata basis. 12 subsidiaries are accounted for
in the consolidated financial statements using the equity method of accounting.
During 1997, 44 subsidiaries and 15 joint ventures were included in the
consolidated financial statements for the first time. A total of 41 subsidiaries
and 5 joint ventures left the consolidated group. Significant effects of changes
in the consolidated group on the consolidated balance sheets and the
consolidated statements of income are explained further in the notes to the
consolidated financial statements. A total of 285 subsidiaries (1996: 315) are
not consolidated as their combined influence on the financial position, results
of operations, and cash flows of the Group is not material. The effect of such
non-consolidated subsidiaries on the 1997 consolidated assets, revenues and net
earnings of Daimler-Benz was less than 2%. In addition, 6 (1996: 10) companies
administering pension funds whose assets are subject to restrictions have not
been included in the consolidated financial statements. The consolidated
financial statements include 122
F-53
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
associated companies. At December 31, 1997, 11 associated companies are
accounted for in the consolidated financial statements using the equity method
of accounting. The remaining associated companies are recorded under investments
in related companies in as much as these companies are not material for the
respective presentation of the financial position, results of operations and
cash flows of the Group.
INVESTMENT IN ADTRANZ -- In December 1995, the Group and Asea Brown Boveri
Ltd. ("ABB") completed formation of a joint venture of their rail systems
businesses to be known as Adtranz. As part of the formation of Adtranz, the
Group and ABB entered into an option agreement whereby, for certain periods
during 1998 through 2005, the Group has the right (call option) to purchase
ABB's 50% interest in Adtranz for U.S. $1,800 plus a premium calculated on the
basis of Adtranz' meeting or exceeding certain future earnings thresholds. In
addition, for certain periods during 1998 through 2005, ABB has the right (put
option) to require the Group to purchase ABB's 50% interest in Adtranz at prices
calculated in accordance with the same criteria except that the price for the
put option is lower than the price for the call option assuming the same future
earnings.
Since January 1, 1996 the Group accounts for its investment in Adtranz,
including its 63 (1997: 71) subsidiaries, using the proportionate method of
consolidation. Accordingly, Daimler-Benz reports its 50% interest of the assets
and liabilities, revenues and expenses and cash flows in Adtranz. The Group
believes that such method of financial statement presentation, which is
permitted by the regulations of the Seventh Directive of the European Community
and the Standards of the International Accounting Standards Committee, better
illustrates its consolidated financial position, results of operations and cash
flows to the reader of the Group's consolidated financial statements.
Under U.S. GAAP, Daimler-Benz' investment in Adtranz is required to be
accounted for using the equity method of accounting. The differences in
accounting treatment between the proportionate and equity methods would not
affect reported stockholders' equity or net income of Daimler-Benz. Under the
equity method of accounting, Daimler-Benz' net investment in Adtranz would be
included within investments in the balance sheet and its share of the net income
or loss of Adtranz together with the amortization of the excess of the cost of
its investment over its share of the investment's net assets would be reported
as a net amount in financial income, net in the Group's statement of income.
Additionally, Adtranz would have an impact on the Group's reported cash flows
only to the extent the Group received cash dividends. For purposes of its United
States financial reporting obligation, Daimler-Benz has requested and received
permission from the United States Securities and Exchange Commission ("SEC") to
prepare its consolidated financial statements with this departure from U.S.
GAAP.
F-54
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
Summarized consolidated financial information of Adtranz follows. The
amounts represent those used in the Daimler-Benz consolidation, including
goodwill resulting from the formation of Adtranz. Other companies included in
the consolidation according to the proportionate method are not material.
<TABLE>
<CAPTION>
AT
BALANCE SHEET INFORMATION DECEMBER 31,
<S> <C> <C>
1997 1996
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed assets(1) 1,581 1,766
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets 1,840 1,429
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Total assets 3,421 3,195
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Stockholders' equity 1,393 1,374
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Minority interest 12 13
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued liabilities 970 886
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities 1,046 922
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Stockholders' equity and liabilities 3,421 3,195
<CAPTION>
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes net goodwill resulting from the formation of Adtranz of DM
850 and 1,039 in 1997 and 1996,
respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
STATEMENT OF OPERATIONS INFORMATION 1997 31, 1996
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
Revenues 3,190 2,835
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating loss(1) (330) (16)
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss (302) (95)
<CAPTION>
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) The operating loss for 1997 includes an impairment charge on
goodwill (DM 120); includes interest
on advance payments received on long-term contracts (1997: DM 111; 1996:
DM 122).
F-55
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
<TABLE>
<S> <C> <C>
CASH FLOW INFORMATION
YEAR ENDED
DECEMBER 31,
1997 1996
- -----------------------------------------------------------------------------------------------------
Cash flow from:
- -- Operating activities 141 (452)
- -----------------------------------------------------------------------------------------------------
- -- Investing activities (24) 125
- -----------------------------------------------------------------------------------------------------
- -- Financing activities (98) 81
- -----------------------------------------------------------------------------------------------------
Effect of foreign exchange on cash . 7
- -----------------------------------------------------------------------------------------------------
Change in cash (up to 3 months) 19 (239)
- -----------------------------------------------------------------------------------------------------
Cash (up to 3 months) at beginning of period 285 524
- -----------------------------------------------------------------------------------------------------
Cash (up to 3 months) at end of period 304 285
- -----------------------------------------------------------------------------------------------------
</TABLE>
Cash up to 3 months includes DM 99 (1996: DM 116) held by Daimler-Benz AG in
connection with internal cash concentration procedures.
3. BUSINESS REORGANIZATION MEASURES
During 1995 and extending into 1996, the Group implemented certain measures
designed to increase the Group's competitiveness and earnings. Such measures
consisted principally of:
(a) Beginning in 1995 and continuing in 1996, the Group spun off certain
non-core businesses and other net assets of AEG Aktiengesellschaft ("AEG")
into EHG Elektro Holding GmbH, closed the AEG corporate headquarters and
merged AEG with Daimler-Benz AG. Thereafter the divestitures of the Energy
Systems Technology and Automation Divisions were completed. In June 1996,
the shareholders of AEG approved the merger of AEG with Daimler-Benz AG and
in September 1996, effective January 1, 1996, such merger was formally
registered in the commercial register. As part of the merger, the Group
purchased the outstanding minority interest of AEG. In connection with the
foregoing transactions, the Group recorded charges to 1996 operations of
approximately DM 300 (1995: DM 1,600).
(b) In January 1996, Daimler-Benz announced that, effective immediately,
it would discontinue financial support for NV Koninklijke Nederlandse
Vliegtuigenfabriek ("Fokker"), a Dutch aircraft manufacturer. Subsequent to
the announcement Fokker requested and received, in accordance with Dutch
law, protection from its creditors. In connection therewith, control of
Fokker was placed with a third-party administrator. On March 15, 1996,
Fokker formally filed for bankruptcy under the laws of The Netherlands. The
Group recorded a charge in the 1995 statement of income of DM 2,158 for
discontinuing such investment. During 1996 the Group realized gains of
approximately DM 100 from the proceeds of sales of certain inventories in
excess of the inventories' previously written-down value.
(c) Beginning in 1994 and accelerating in 1995, the DM appreciated
significantly against the U.S. dollar, the currency in which a significant
percentage of Aerospace revenues are denominated. An appreciation of the DM
relative to the U.S. dollar results in the Group receiving, when converted
to DM, less revenue (and cash proceeds) from the sales of its products. In
addition, Aerospace continued to suffer significant operating losses as a
result of continued low levels of demand in the aircraft market and
shrinking government budgets in the space and defense sectors. As a result
of the foregoing the Group instituted comprehensive cost-cutting and
restructuring measures, including personnel reductions of approximately
4,000 employees in Germany and the sale of three German production
facilities. The Group recorded a charge of DM 878 in the 1995 statement of
income to
F-56
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
cover the cost of such measures. In addition, Daimler-Benz also recorded a
charge of DM 2,558 in 1995 to write off goodwill relating to the acquisition
of certain businesses included within Aerospace and to write down certain
long-term assets.
During 1996, the aerospace industry experienced a significant increase
in demand. As a consequence, higher production requirements resulted,
especially for Daimler-Benz Aerospace Airbus GmbH, in a reduction of the
provision made in 1995 for restructuring measures by approximately DM 300.
(d) During 1996, the Group contributed its Dornier aircraft business
into a newly formed holding company 80% owned by Fairchild Industries
Corporation, an American aircraft manufacturer. In connection therewith, the
Group recorded charges in 1996 of approximately DM 435, of which a portion
included the businesses' loss from operations up to the date of
contribution. The Group is accounting for its 20% investment in the holding
company using the equity method of accounting.
In January 1997, Daimler-Benz sold its interests in AEG Electrocom GmbH and
AEG ElectroCom International, Inc. (recognition and sorting systems) to Siemens
AG resulting in a gain of DM 216.
In July 1997, debis AG, a subsidiary of Daimler-Benz AG, terminated its
strategic relationship with Cap Gemini Sogeti S.A. through the sale of its 24.4%
interest resulting in a gain of DM 822.
NOTES TO THE CONSOLIDATED STATEMENTS OF INCOME
4. FUNCTIONAL COSTS AND OTHER EXPENSES
Cost of sales includes materials expenses as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1997 1996 1995
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost of raw materials, supplies, and resale products 58,245 51,028 48,440
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost of purchased services 12,263 9,844 11,770
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
70,508 60,872 60,210
<CAPTION>
- --------------------------------------------------------------------------------------------------
</TABLE>
Selling, administrative and other expenses are comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1997 1996 1995
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Selling expenses 11,867 10,401 10,507
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Administration expenses 3,567 3,345 3,494
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expenses from reorganization of the Group -- 319 3,755
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill amortization and writedowns 299 142 1,999
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other expenses 1,700 1,748 1,079
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
17,433 15,955 20,834
<CAPTION>
- --------------------------------------------------------------------------------------------------
</TABLE>
Cost of sales and functional costs include other taxes of DM 198 (1996: DM
280; 1995: DM 241).
Expenses arising in 1996 and 1995 from the reorganization of the Group
relate exclusively to Fokker and the restructuring of the former AEG-DBI (see
Note 3). Other expenses primarily include charges not allocated to cost of
sales, selling expenses, and administration expenses. In addition, expenses
amounting
F-57
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
to DM 721 related to the repayment of development cost subsidies were recorded
under other expenses in 1997 (see Note 22).
Personnel expenses included in the statement of income are comprised of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1997 1996 1995
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wages and salaries 24,021 22,064 24,265
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Social levies 4,530 4,003 4,493
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pensions cost (see Note 17 a) 1,493 1,564 1,613
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other expenses for pensions and retirements 157 178 201
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
30,201 27,809 30,572
<CAPTION>
- ----------------------------------------------------------------------------------------------
</TABLE>
Number of employees (weighted annual average):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1997 1996 1995
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hourly employees 165,104 164,523 173,510
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaried employees 118,057 115,041 135,217
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trainess/apprentices 12,353 11,704 12,495
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
295,514 291,268 321,222
<CAPTION>
- ----------------------------------------------------------------------------------------------
</TABLE>
In 1997, 34,448 people (1996: 34,655 people; 1995: 12,365 people) were
employed in joint venture companies.
In 1997, the total remuneration paid by Group companies to the members of
the Board of Management of Daimler-Benz AG amounted to DM 20, and the
remuneration paid to the members of the Supervisory Board of Daimler-Benz AG
totaled DM 2. Additionally, the board subscribed for convertible bonds within
the 1997 Stock Option Plan at a notional amount of DM 1.2.
To determine the fair value of the option rights of convertible bonds,
option pricing models may be used. As such, the resulting fair values can
fluctuate significantly based upon the underlying assumptions. Accordingly,
generally uniform and consistent values are not available. See Note 16 in
respect for the valuation of the option rights including the underlying
assumptions and conditions of converting the option rights in accordance with
SFAS 123 "Accounting for Stock-Based Compensation."
Disbursements to former members of the Board of Management of Daimler-Benz
AG and their survivors amounted to DM 18. An amount of DM 123 has been accrued
in the financial statements of Daimler-Benz AG for pension obligations to former
members of the Board of Management and their survivors. Beginning in 1997,
Daimler-Benz AG also recognizes pension obligations in accordance with U.S. GAAP
in its German Statutory Financial Statements. As of December 31, 1997, there
existed no advances and loans to members of the Board of Management of
Daimler-Benz AG.
F-58
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
5. FINANCIAL INCOME, NET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Income from investments of which from affiliated companies DM 33 125 419 518
(1996: DM 39; 1995: DM 36)
- ---------------------------------------------------------------------------------------------------------------------
Gains (losses), net from disposals of investments and shares in affiliated and 897 (18) (4)
associated companies
- ---------------------------------------------------------------------------------------------------------------------
Write-down of investments and shares in affiliated companies (148) (107) (121)
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from companies included at equity 68 (128) (665)
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENTS, NET 942 166 (272)
- ---------------------------------------------------------------------------------------------------------------------
Other interest and similar income of which from affiliated companies DM 20 (1996: DM 2,289 1,641 1,729
24; 1995 DM 5)
- ---------------------------------------------------------------------------------------------------------------------
Interest and similar expenses (971) (872) (1,184)
- ---------------------------------------------------------------------------------------------------------------------
INTEREST INCOME, NET 1,318 769 545
- ---------------------------------------------------------------------------------------------------------------------
Income from securities and long-term receivables 31 17 65
- ---------------------------------------------------------------------------------------------------------------------
Gains from sales of securities 166 111 246
- ---------------------------------------------------------------------------------------------------------------------
Write-down of securities and long-term receivables (19) (6) (130)
- ---------------------------------------------------------------------------------------------------------------------
Realized and unrealized gains (losses) on financial instruments (1,723) (763) 286
- ---------------------------------------------------------------------------------------------------------------------
Other, net (97) 202 189
- ---------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL INCOME (LOSS), NET (1,642) (439) 656
- ---------------------------------------------------------------------------------------------------------------------
618 496 929
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Group capitalized interest expenses related to qualifying construction
projects of DM 69 (1996: DM 49; 1995: DM 29).
F-59
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
6. INCOME TAXES
Income (loss) before income taxes and minority shares amounted to DM 4,249
(1996: DM 1,961; 1995: DM (7,233)), of which DM 2,936 was generated by the
Group's operations in Germany (1996: DM 1,200; 1995: DM (6,874)).
The provisions for income taxes (credit) follow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1997 1996 1995
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Germany (2,881) 404 231
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign 686 456 715
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred taxes:
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Germany (1,780) (1,448) (2,258)
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign (7) (124) (308)
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(3,982) (712) (1,620)
<CAPTION>
- -------------------------------------------------------------------------------------------------
</TABLE>
German corporate tax law applies a split-rate imputation with regard to the
taxation of the income of a corporation and its shareholders. In accordance with
the tax law in effect for fiscal 1997, retained corporate income is initially
subject to a federal corporation tax of 45% plus a solidarity surcharge of 7.5%
on the federal corporate tax payable. Including the impact of the surcharge, the
federal corporate tax rate amounts to 48.375%. Upon distribution of retained
earnings to stockholders, the corporate income tax rate on the earnings is
adjusted to 30%, plus a solidarity surcharge of 7.5% on the distribution
corporate tax, for a total of 32.25%, by means of a refund for taxes previously
paid. Upon distribution of retained earnings in the form of a dividend,
stockholders who are taxpayers in Germany are entitled to a tax credit in the
amount of federal income taxes previously paid by the corporation.
While the current taxes are calculated on the basis of the tax rate in
effect for 1997, calculation of the deferred taxes is based on the rate in
effect as of January 1, 1998. Effective January 1, 1998, the solidarity
surcharge on the federal corporate tax payable is reduced from 7.5% to 5.5%. As
a result, for German companies, the deferred taxes are calculated on an
effective corporate income tax rate of 47.475% plus the after federal tax
benefit rate for trade tax of 8.525%. Temporary differences at December 31, 1997
of the Group's German operations have been tax effected at the reduced rate. The
effect of the tax rate reduction on year-end deferred tax balances is reflected
in the reconciliation presented below.
F-60
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
A reconciliation of income taxes determined using the German corporate tax
rate of 48.375% plus the after federal tax benefit rate for trade taxes of
8.625% for a combined statutory rate of 57% is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1997 1996 1995
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected provision (benefit) for income taxes 2,422 1,118 (4,123)
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Change in tax rate for deferred taxes, domestic 133 -- --
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Credit for dividend distributions (3,176) (167) (6)
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign tax rate differential (73) (260) (218)
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-deductible expenses 19 84 129
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax free income (36) (166) (227)
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Release of valuation allowances on Group's German deferred tax
assets as of December 31, 1997 (1,962) -- --
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Changes in valuation allowances on deferred tax assets (909) (1,043) 1,381
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Losses for which benefits were not recognizable -- -- 260
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Write-downs of investments for which benefits were not
previously recognized (469) (207) --
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Write-off of goodwill, not tax-deductible 107 57 1,143
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other (38) (128) 41
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actual benefit for income taxes (3,982) (712) (1,620)
<CAPTION>
- ------------------------------------------------------------------------------------------------
</TABLE>
The 1997 income tax credit from dividend distributions amounts to DM 3,176
and reflects primarily a tax benefit of DM 2,908 from the special distribution
of DM 20 per Ordinary Share/ADS. This benefit results from the refund for taxes
previously paid on undistributed profits at a rate of 50% in excess of the
effective tax rate of 30% on distributed profits.
In 1997, the Group's consolidated valuation allowances decreased by DM
2,855. Of this amount, a reduction of DM 2,871 applied to domestic operations
and a slight increase of DM 16 to foreign operations which is included in the
foreign tax rate differential. The decrease in the consolidated domestic
valuation allowances is due in part to DM 909 utilization of tax loss
carryforwards during 1997. Additionally, DM 1,962 is due to the reversal of the
remaining valuation allowances as of December 31, 1997 for the German companies
which are included in the filing of a combined tax return ("Organschaft") on the
basis that the current and the expected results of operations support a
conclusion that it is more likely than not that the deferred tax assets will be
realized. The valuation allowances which remain at December 31, 1997 apply
primarily to the Group's foreign operations.
During 1997 the Group sold its investment in Cap Gemini Sogeti S.A. and
realized a gain of DM 822 in its consolidated financial statements which was not
taxable since write-downs were previously not recognized for tax purposes.
During 1996 the Group's consolidated valuation allowances decreased by DM
1,052. In 1996 the Group realized income tax benefits from the utilization of
loss carryforwards of DM 673 relating to entities in the Aerospace division. The
tax benefits of such loss carryforwards had been fully reserved as of December
31, 1995 since the entities had a history of operating losses prior to 1996 and
such losses were limited as to their use. Tax benefits recognized from other
changes to the valuation allowances in 1996 included the merger of the former
AEG Aktiengesellschaft into Daimler-Benz AG during 1996, after which the German
loss carryforwards of AEG Aktiengesellschaft could be utilized by the Group's
German
F-61
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
"Organschaft". Prior to the merger such net operating losses ("NOLs") were
limited as to their use, and accordingly were fully reserved for in the amount
of DM 231. In addition, during 1996 the Group realized tax benefits related to
investments written down in previous years.
During 1995 the Group was unable to recognize the tax benefits of DM 260
resulting from losses incurred by Fokker, after the decision was made in January
1996 to discontinue financial support for that company.
The amount of the Group's deferred tax valuation allowances is based upon
management's belief that it is more likely than not that not all of the deferred
tax assets will be realized. In future periods, depending upon the Group's
financial results, management's estimate of the amount of the deferred tax
assets considered realizable may change, and hence the valuation allowances may
increase or decrease.
Deferred income tax assets and liabilities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C> <C>
1997 1996
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Intangible assets 628 917
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Property, plant and equipment 946 889
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Equipment on operating leases 1,941 1,694
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Inventories 2,132 1,473
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Receivables 882 311
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net operating loss and credit carryforwards 6,556 9,498
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Retirement plans 2,233 2,019
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Other accrued liabilities 2,374 1,178
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities 1,242 962
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income 435 311
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Other 413 459
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
19,782 19,711
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Valuation allowances (509) (3,364)
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets 19,273 16,347
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Property, plant and equipment 492 521
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Equipment on operating leases 2,608 2,016
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial assets 269 793
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Inventories 890 640
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Receivables 4,877 3,090
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Securities 389 222
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Other accrued liabilities 803 1,595
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Other 486 120
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities 10,814 8,997
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets, net 8,459 7,350
<CAPTION>
- -------------------------------------------------------------------------------------------------
</TABLE>
F-62
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
At December 31, 1997, the Group had net operating losses ("NOLs") and
corporate tax credit carryforwards amounting to DM 11,918 (1996: DM 16,551). The
majority of the NOLs relate to the German group of companies which are included
in the "Organschaft" and have an unlimited carryforward period under German tax
law. The remainder of the NOLs relate to losses of domestic and foreign non-
"Organschaft" companies and are partly limited in their use to the Group.
Net deferred income tax assets and liabilities in the consolidated balance
sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
THEREOF THEREOF
TOTAL NON-CURRENT TOTAL NON-CURRENT
- ------------------------------------------------------------------------------------------------
Deferred tax assets 10,462 8,242 9,603 7,913
- ------------------------------------------------------------------------------------------------
Deferred tax liabilities (2,003) (1,710) (2,253) (1,519)
- ------------------------------------------------------------------------------------------------
8,459 6,532 7,350 6,394
- ------------------------------------------------------------------------------------------------
</TABLE>
Deferred tax liabilities of DM 4,064 (1996: DM 2,527) have not been
recognized on unremitted earnings of non-German subsidiaries intended to be
indefinitely reinvested. Determination of the amount of unrecognized deferred
tax liabilities is not practicable.
NOTES TO CONSOLIDATED BALANCE SHEETS
7. INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT, NET
Information with respect to changes to the Group's intangible assets and
property, plant and equipment is presented in the Consolidated Fixed Assets
Schedule included herein. Intangible assets represent principally the goodwill
from the formation of Adtranz. Property, plant and equipment include buildings,
technical equipment and other equipment capitalized under capital lease
agreements of DM 735 (1996: DM 498). Depreciation expense on assets under
capital lease arrangements was DM 57 (1996: DM 86; 1995: DM 121).
8. EQUIPMENT ON OPERATING LEASES, NET
Information with respect to changes to the Group's equipment on operating
leases is presented in the Consolidated Fixed Assets Schedule included herein.
Of the total equipment on operating leases, DM 14,318 represent automobiles and
commercial vehicles (1996: DM 11,402). The amount for equipment on operating
leases includes initial direct costs of contracts of DM 153 (1996: DM 118).
Noncancellable future lease payments due from customers for equipment on
operating leases at December 31, 1997 amounted to DM 8,451 and are due as
follows:
<TABLE>
<S> <C>
1998 3,331
- --------------------------------------------------------------------------------
1999 2,516
- --------------------------------------------------------------------------------
2000 1,619
- --------------------------------------------------------------------------------
2001 517
- --------------------------------------------------------------------------------
2002 175
- --------------------------------------------------------------------------------
thereafter 293
- --------------------------------------------------------------------------------
</TABLE>
F-63
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
9. INVENTORIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
<S> <C> <C>
1997 1996
- ----------------------------------------------------------------------------------------------
Raw materials and manufacturing supplies 3,233 2,960
- ----------------------------------------------------------------------------------------------
Work in process 6,515 6,883
thereof relating to long-term contracts and
programs in process DM 1,378 (1996: DM 1,485)
- ----------------------------------------------------------------------------------------------
Finished goods, parts and products held for resale 8,978 7,989
- ----------------------------------------------------------------------------------------------
Advance payments to suppliers 659 734
- ----------------------------------------------------------------------------------------------
19,385 18,566
- ----------------------------------------------------------------------------------------------
Less: Advance payments received thereof relating to long-term contracts
and programs in process DM 1,505 (1996: DM 582) (4,995) (4,964)
- ----------------------------------------------------------------------------------------------
14,390 13,602
- ----------------------------------------------------------------------------------------------
</TABLE>
Certain of the Group's U.S. businesses' inventories are valued using the
last-in, first-out method. If the FIFO method had been used instead of the LIFO
method, inventories would have been higher by DM 325 (1996: DM 299).
10. TRADE RECEIVABLES
<TABLE>
<CAPTION>
AT DECEMBER 31,
<S> <C> <C>
1997 1996
- -----------------------------------------------------------------------------------------------
Receivables from sales of goods and services 13,042 11,971
- -----------------------------------------------------------------------------------------------
Long-term contracts and programs, unbilled, net of advance payments
received 476 305
- -----------------------------------------------------------------------------------------------
13,518 12,276
- -----------------------------------------------------------------------------------------------
Allowance for doubtful accounts (1,512) (1,412)
- -----------------------------------------------------------------------------------------------
12,006 10,864
- -----------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1997, DM 852 of the total financing receivables mature
after more than one year (1996: DM 483).
F-64
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
11. RECEIVABLES FROM FINANCIAL SERVICES
<TABLE>
<CAPTION>
AT DECEMBER 31,
<S> <C> <C>
1997 1996
- -----------------------------------------------------------------------------------------------
Receivables from:
Sales financing 20,659 14,550
Finance leases 9,808 7,542
- -----------------------------------------------------------------------------------------------
30,467 22,092
- -----------------------------------------------------------------------------------------------
Initial direct costs 167 98
- -----------------------------------------------------------------------------------------------
Unearned income (4,316) (2,908)
- -----------------------------------------------------------------------------------------------
Unguaranteed residual value of
leased assets 80 105
- -----------------------------------------------------------------------------------------------
26,398 19,387
- -----------------------------------------------------------------------------------------------
Allowance for doubtful accounts (474) (335)
- -----------------------------------------------------------------------------------------------
25,924 19,052
- -----------------------------------------------------------------------------------------------
</TABLE>
Sales financing and finance lease receivables consist of retail installment
sales contracts secured by automobiles and commercial vehicles. Contractual
maturities applicable to receivables from sales financing and finance leases
maturing in each of the years following December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 12,046
- ------------------------------------------------------------------------------
1999 7,368
- ------------------------------------------------------------------------------
2000 5,535
- ------------------------------------------------------------------------------
2001 2,989
- ------------------------------------------------------------------------------
2002 1,549
- ------------------------------------------------------------------------------
thereafter 980
- ------------------------------------------------------------------------------
30,467
- ------------------------------------------------------------------------------
</TABLE>
As of December 31, 1997, DM 15,226 of the total financing receivables mature
after more than one year (1996: DM 11,098).
12. OTHER RECEIVABLES
<TABLE>
<CAPTION>
AT DECEMBER 31,
<S> <C> <C>
1997 1996
- -----------------------------------------------------------------------------------------------
Receivables from affiliated companies 733 1,787
- -----------------------------------------------------------------------------------------------
Receivables from related companies(1) 1,385 908
- -----------------------------------------------------------------------------------------------
Other receivables and other assets 11,812 8,296
- -----------------------------------------------------------------------------------------------
13,930 10,991
- -----------------------------------------------------------------------------------------------
Allowance for doubtful accounts (1,679) (2,032)
- -----------------------------------------------------------------------------------------------
12,251 8,959
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Related companies include entities which have a significant
ownership in Daimler-Benz or entities in
which the Group holds a significant investment.
F-65
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
As well as the tax reduction relating to the distribution of DM 1.60 per
share, the tax reduction of approximately DM 2.9 billion relating to a special
distribution of DM 20 per share is included in other receivables and other
assets.
As of December 31, 1997, DM 2,111 of the total other receivables mature
after more than one year (1996: DM 1,904).
13. SECURITIES, INVESTMENTS AND LONG-TERM FINANCIAL ASSETS
Information with respect to the Group's investments and long-term financial
assets is presented in the Consolidated Fixed Assets Schedule included herein.
Securities included in current assets are comprised of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
<S> <C> <C>
1997 1996
- ------------------------------------------------------------------------------------------------
Debt securities 3,229 1,827
- ------------------------------------------------------------------------------------------------
Equity securities 2,089 773
- ------------------------------------------------------------------------------------------------
Equity based funds 2,031 1,432
- ------------------------------------------------------------------------------------------------
Debt based funds 7,338 5,751
- ------------------------------------------------------------------------------------------------
14,687 9,783
- ------------------------------------------------------------------------------------------------
</TABLE>
Carrying amounts and fair values of debt and equity securities included in
securities and investments for which fair values are readily determinable are
classified as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
------------------------------------------ ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNREALIZED UNREALIZED
FAIR -------------------- FAIR -----------
COST VALUE GAIN LOSS COST VALUE GAIN LOSS
- ---------------------------------------------------------------------------------------------------------------------------------
Available-for-sale 11,631 12,285 654 -- 7,714 8,137 429 6
- ---------------------------------------------------------------------------------------------------------------------------------
Trading 2,382 2,402 20 -- 1,618 1,646 30 2
- ---------------------------------------------------------------------------------------------------------------------------------
Securities 14,013 14,687 674 -- 9,332 9,783 459 8
- ---------------------------------------------------------------------------------------------------------------------------------
Investments and long-term financial
assets
available-for-sale 552 1,018 466 -- 667 741 80 6
- ---------------------------------------------------------------------------------------------------------------------------------
14,565 15,705 1,140 -- 9,999 10,524 539 14
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-66
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
Aggregate cost, fair values and gross unrealized holding gains or losses per
security class are the following:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
------------------------------------------ ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNREALIZED UNREALIZED
FAIR -------------------- FAIR -----------
COST VALUE GAIN LOSS COST VALUE GAIN LOSS
- ---------------------------------------------------------------------------------------------------------------------------------
Equity securities 1,240 1,956 716 -- 1,410 1,545 147 12
- ---------------------------------------------------------------------------------------------------------------------------------
Municipal securities 116 116 -- -- 93 94 1 --
- ---------------------------------------------------------------------------------------------------------------------------------
Debt securities issued by foreign
governments 804 804 -- -- 48 48 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Corporate securities 1,058 1,058 -- -- 8 8 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Equity based funds 1,631 2,031 400 -- 1,183 1,432 249 --
- ---------------------------------------------------------------------------------------------------------------------------------
Debt based funds 7,334 7,338 4 -- 5,639 5,751 112 --
- ---------------------------------------------------------------------------------------------------------------------------------
Available-for-sale 12,183 13,303 1,120 -- 8,381 8,878 509 12
- ---------------------------------------------------------------------------------------------------------------------------------
Trading 2,382 2,402 20 -- 1,618 1,646 30 2
- ---------------------------------------------------------------------------------------------------------------------------------
14,565 15,705 1,140 -- 9,999 10,524 539 14
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The estimated fair values of investments in debt securities, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalty.
<TABLE>
<CAPTION>
AT DECEMBER 31,
Available-for-sale: 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Due within one year 1,373 47
- ----------------------------------------------------------------------------------------------------
Due after one year through five years 605 103
- ----------------------------------------------------------------------------------------------------
1,978 150
- ----------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of available-for-sale securities were DM 1,677 (1996: DM
1,126; 1995: DM 337). Gross realized gains from sales of available-for-sale
securities on a specific identification basis were DM 180 (1996: DM 22; 1995: DM
6), while gross realized losses were DM 2 (1996: DM 6; 1995: DM 1).
14. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include DM 342 (1996: DM 1,337) of deposits with
original maturities of more than three months. Cash and cash equivalents include
DM 1,519 (1996: DM 174) of amounts on deposit with a related party.
F-67
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
15. ADDITIONAL CASH FLOW INFORMATION
Liquid assets recorded under various balance sheet captions are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
<S> <C> <C> <C>
1997 1996 1995
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents available within 3 months 5,491 3,220 2,868
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents which mature after 3 months 342 1,337 283
- --------------------------------------------------------------------------------------------------
Securities 14,687 9,783 9,025
- --------------------------------------------------------------------------------------------------
Other 657 505 124
- --------------------------------------------------------------------------------------------------
21,177 14,845 12,300
- --------------------------------------------------------------------------------------------------
</TABLE>
The following information with respect to cash flows are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
Interest paid 1,828 1,705 1,055
- ---------------------------------------------------------------------------------------------------
Income taxes paid 1,189 553 570
- ---------------------------------------------------------------------------------------------------
</TABLE>
16. STOCKHOLDERS' EQUITY
At December 31, 1995, the Group had issued and outstanding 51,368,736
Ordinary Shares with a nominal (par) value of DM 50 per share. On May 22, 1996
the Group, upon the approval of its shareholders, reduced the nominal value of
its Ordinary Shares from DM 50 per share to DM 5 per share effective July 1,
1996. This resulted in an increase in the number of Ordinary Shares outstanding
from 51,368,736 shares to 513,687,360 shares. Per share information for the year
1995 has been adjusted to reflect per share amounts based upon a DM 5 per share
nominal value. Due to the issuance of shares to employees and the conversion of
options into shares the number of issued and outstanding Ordinary Shares
increased to 516,748,337 as of December 31, 1997 (1996: 515,396,396).
Daimler-Benz stockholders on June 26, 1991 authorized through June 30, 1996
the issuance of Ordinary Shares of up to DM 600 nominal value of which the
remaining unutilized portion of DM 367 expired in 1996. On May 22, 1996, the
stockholders approved the issuance of Ordinary Shares up to an aggregate amount
of DM 500 nominal value through April 30, 2001. Through December 31, 1997, there
was no utilization of the latter amount.
At the annual general meeting held on May 18, 1994, Daimler-Benz was
authorized by its stockholders to issue Ordinary Shares of DM 20 nominal value
to employees of which DM 3 are unissued and expire on April 30, 1999. In 1997,
1996 and 1995, 1,250,000, 1,050,000 and 700,000 Ordinary Shares, respectively,
were issued to employees leading to increases of capital stock and additional
paid-in capital of DM 6, DM 6 and DM 3, and DM 159, DM 80 and DM 44,
respectively.
Subject to preemptive rights of existing stockholders, Daimler-Benz in the
stockholders' meetings held on May 18, 1994 and May 22, 1996, has received the
authority for future issuances of Ordinary Shares up to DM 300 in connection
with convertible bonds and bonds with warrants. This authority, which limits the
total nominal value of such convertible bonds and bonds with warrants to be
issued to DM 2,000 and which expires on April 30, 1999, was used during 1996 for
the issuance of convertible notes by Daimler-Benz Capital (Luxembourg) AG, a
subsidiary of the Company. 4.125% convertible notes in the amount of DM
F-68
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
750 were issued with a nominal value of DM 1,000 each, including a total of
7,690,500 options which, on the basis of the option agreement, entitle the
bearer of the option to subscribe for Ordinary Shares of Daimler-Benz AG. The
option price per share is DM 95.07 in consideration of exchange of the notes or
DM 98.65 in cash. Subject to excluded preemptive rights of the subordinated
mandatory convertible notes described below, those prices were reduced DM .20
each beginning on May 14, 1997. During 1997, options for the subscription of
1,785 (1996: 36) newly issued shares have been exercised. Proceeds from issuance
of the notes, net of expenses, were DM 711.
In June 1997, the Company issued 5.75% subordinated mandatory convertible
notes due June 14, 2002 with a nominal amount of DM 130.70 per note. These
convertible notes represent a nominal amount of DM 993 including 7,600,000 notes
which may be converted into 0.862 newly issuable shares before June 4, 2002.
Notes not converted by this date will be mandatorily converted at a conversion
rate between 0.862 and 1.25 Ordinary Shares per note to be determined on the
basis of the average market price for the shares during the last 20 trading days
before June 8, 2002. During 1997, 156 shares have been issued upon exercise.
During May 1996, the stockholders of Daimler-Benz AG approved the 1996 Stock
Option Plan for certain members of management. During May 1997, the stockholders
approved the 1997 Stock Option Plan which extended to additional levels of
management. In conjunction therewith in 1996 the stockholders reserved up to DM
40 of contingent authorized capital which was subsequently increased in 1997 to
DM 110. The Plans provide for the granting of options for the purchase of
Daimler-Benz Ordinary Shares. As evidenced by non-transferable convertible bonds
issued with a nominal value of DM 1,000 each due ten years after issuance with
stated interest rates of 5.3% and 5.9% for the bonds issued in 1997 and 1996,
respectively. Each convertible bond entitles the holder thereof to convert the
bond into Ordinary Shares with an aggregate nominal value of DM 1,000 (equaling
200 shares with a nominal value of DM 5 per share). Every year the conversion
privilege under each bond can be exercised only within four periods of three
weeks each, if the stock exchange price per Ordinary Share is at least 115% of
the predetermined conversion price.
For convertible bonds sold in 1996 the conversion price per share was DM
83.77 (the stock exchange price as of May 23, 1996), of which the remaining DM
78.77 must be paid in cash. DM 5 per share have been paid already with the
purchase of the convertible bond.
Effective July 23, 1997, Daimler-Benz AG issued convertible bonds of DM 37.1
(equaling 7,429,600 shares with a nominal value of DM 5 per share) subject to
the 1997 Stock Option Plan. The conversion price of these convertible bonds,
which may only be converted in certain periods between July 23, 1999 and July
23, 2007, is DM 132 per share (the stock exchange price as of May 30, 1997).
On June 30, 1997, a stockholder challenged the approval of the 1997 Stock
Option Plan at the stockholders meeting of May 28, 1997. On October 30, 1997, a
regional court in Stuttgart dismissed this case in the first instance, however
the stockholder has subsequently appealed this decision. The conversion right is
exercisable only upon successful resolution of the stockholder legal action.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations in accounting for its
employee stock compensation plans. Had compensation cost for the Company's stock
compensation plans been determined based upon the fair value at the grant date,
consistent with the methodology prescribed under SFAS 123 the Company's net
income and basic and diluted earnings per share would have been reduced by
approximately DM 26 and DM .05 per share in 1997. The fair value of the options
granted in 1997 was calculated at the grant date at
F-69
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
DM 23 per share based on a trinomial tree option pricing model which considers
the terms of the issuance. The underlying assumptions are as follows:
<TABLE>
<CAPTION>
1997
<S> <C>
- -----------------------------------------------------------------------------------------------
Expected dividend yield 0.83%
- -----------------------------------------------------------------------------------------------
Expected volatility 26.2%
- -----------------------------------------------------------------------------------------------
Risk-free interest rate 3.65%
- -----------------------------------------------------------------------------------------------
Expected life 2 years
- -----------------------------------------------------------------------------------------------
</TABLE>
Analysis of the Stock Options issued to management is as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NOMINAL AVERAGE NOMINAL AVERAGE
VALUE OF NUMBER CONVERSION VALUE OF NUMBER CONVERSION
CONVERTIBLE OF STOCK PRICE PER CONVERTIBLE OF STOCK PRICE PER
BONDS OPTIONS SHARE BONDS OPTIONS SHARE
- -------------------------------------------------------------------------------------------------------------
Balance at beginning of year 1.0 198,000 83.77 -- -- --
- -------------------------------------------------------------------------------------------------------------
Bonds sold 37.1 7,429,600 132.00 4.4 889,000 83.77
- -------------------------------------------------------------------------------------------------------------
Converted (0.5) (100,000) 83.77 (3.2) (659,000) 83.77
- -------------------------------------------------------------------------------------------------------------
Repayment (0.1) (18,000) 132.00 (0.2) (32,000) 83.77
- -------------------------------------------------------------------------------------------------------------
Outstanding at year-end 37.5 7,509,600 131.37 1.0 198,000 83.77
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Exercisable at year-end 0.5 98,000 83.77 1.0 198,000 83.77
- -------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997 no additional convertible bonds may be subscribed under
the 1997 and 1996 plans.
The minority stockholders of Dornier GmbH have the right to exchange their
interest in Dornier for holdings of equal value in Daimler-Benz Luft- und
Raumfahrt Holding AG or Ordinary Shares of Daimler-Benz AG and such options are
exercisable at any time.
Under the German corporation law (Aktiengesetz), the amount of dividends
available for distribution to shareholders is based upon the earnings of
Daimler-Benz AG (parent company only) as reported in its statutory financial
statements determined in accordance with the German commercial code
(Handelsgesetzbuch). For the year ended December 31, 1997, Daimler-Benz
management has proposed to distribute DM 827 (DM 1.57 per share) of the 1997
earnings of Daimler-Benz AG as a dividend to the stockholders. In addition, a
special distribution of DM 19.63 per share with an aggregate amount of
approximately DM 10,300 will be proposed to the Annual General Meeting of
stockholders scheduled for May 27, 1998. Subsequent to the special distribution,
the Company plans to increase Ordinary Shares and additional paid-in capital by
approximately DM 7,400. This amount approximates the special distribution less
the tax refund generated by the special distribution of approximately DM 2,900
(see Note 6).
F-70
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
17. ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
DUE AFTER DUE AFTER
TOTAL ONE YEAR TOTAL ONE YEAR
- ----------------------------------------------------------------------------------------------------
Retirement plans (see Note 17a) 17,200 16,493 16,232 15,555
- ----------------------------------------------------------------------------------------------------
Income and other taxes 1,476 590 2,327 1,163
- ----------------------------------------------------------------------------------------------------
Other accrued liabilities (see Note 17b) 17,942 8,771 16,327 8,289
- ----------------------------------------------------------------------------------------------------
36,618 25,854 34,886 25,007
- ----------------------------------------------------------------------------------------------------
</TABLE>
A) RETIREMENT PLANS
Pension plans and similar obligations are comprised of the following
components:
<TABLE>
<CAPTION>
AT DECEMBER 31,
<S> <C> <C>
1997 1996
- -----------------------------------------------------------------------------------------------
Pension liabilities 16,760 15,847
- -----------------------------------------------------------------------------------------------
Accrued postretirement medical benefits 273 220
- -----------------------------------------------------------------------------------------------
Other plans 167 165
- -----------------------------------------------------------------------------------------------
17,200 16,232
- -----------------------------------------------------------------------------------------------
</TABLE>
The Group operates various defined benefit pension plans, all based upon
years of service. Some pension plans are based on salary earned in the last year
of employment and some are fixed DM-amount plans depending on ranking (both wage
level and position).
The funded status of the Group's major retirement plans is as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
PLAN ASSETS ACCUMULATED PLAN ASSETS EX- ACCUMULATED
EXCEED ACCUMU- BENEFITS EXCEED CEED ACCUMU- BENEFITS EXCEED
LATED BENEFITS PLAN ASSETS LATED BENEFITS PLAN ASSETS
- --------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefits:
- --------------------------------------------------------------------------------------------------------------------------
Vested 422 19,982 317 18,530
- --------------------------------------------------------------------------------------------------------------------------
Nonvested 71 624 39 572
- --------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations 493 20,606 356 19,102
- --------------------------------------------------------------------------------------------------------------------------
Effect of projected future salary increases 149 2,082 137 1,921
- --------------------------------------------------------------------------------------------------------------------------
Projected benefit obligations 642 22,688 493 21,023
- --------------------------------------------------------------------------------------------------------------------------
Plan assets at fair value (979) (5,829) (758) (5,398)
- --------------------------------------------------------------------------------------------------------------------------
Projected benefit obligations in excess of
(less than) plan assets (337) 16,859 (265) 15,625
- --------------------------------------------------------------------------------------------------------------------------
Unrecognized net gains (losses) 183 (98) 144 222
- --------------------------------------------------------------------------------------------------------------------------
Prior service cost not yet recognized 8 (1) 16 --
- --------------------------------------------------------------------------------------------------------------------------
Pension liabilities (prepaid pension costs) (146) 16,760 (105) 15,847
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-71
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
Plan assets consist primarily of investments in equity and fixed interest
securities and real estate.
Assumed discount rates and rates of increase in remuneration used in
calculating the projected benefit obligations together with long-term rates of
return on plan assets vary according to the economic conditions of the country
in which the retirement plans are situated. The assumptions used in calculating
the actuarial values for the principal retirement plans were as follows:
<TABLE>
<CAPTION>
1997 IN % 1996 IN % 1995 IN %
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Discount rate 6.5-8.0 6.75-8.0 7.0-8.0
- --------------------------------------------------------------------------------------------------
Long-term rate of increased remuneration 3.0-5.0 3.5-5.0 3.0-6.0
- --------------------------------------------------------------------------------------------------
Expected long-term rate of return on assets 6.0-8.0 7.0-8.0 7.0-9.0
- --------------------------------------------------------------------------------------------------
</TABLE>
The net periodic pension costs for the major retirement plans comprised of
the following:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Service cost (present value of benefits earned during the
year) 512 546 563
- --------------------------------------------------------------------------------------------------
Interest cost on projected benefit obligations 1,461 1,451 1,441
- --------------------------------------------------------------------------------------------------
Actual return on assets (668) (443) (442)
- --------------------------------------------------------------------------------------------------
Net amortization and deferral 188 10 51
- --------------------------------------------------------------------------------------------------
Net periodic pension costs 1,493 1,564 1,613
- --------------------------------------------------------------------------------------------------
</TABLE>
Certain of the Group's U.S. operations provide postretirement medical
benefits to their employees. The net post retirement costs for the years were DM
29 (1996: DM 26; 1995: DM 25).
B) OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
<S> <C> <C>
1997 1996
- ----------------------------------------------------------------------------------------------
Accrued warranty costs and price risks 6,342 5,284
- ----------------------------------------------------------------------------------------------
Accrued losses on uncompleted contracts 1,264 1,931
- ----------------------------------------------------------------------------------------------
Restructuring 1,424 1,825
- ----------------------------------------------------------------------------------------------
Accrued personnel and social costs 1,645 1,572
- ----------------------------------------------------------------------------------------------
Other 7,267 5,715
- ----------------------------------------------------------------------------------------------
17,942 16,327
- ----------------------------------------------------------------------------------------------
</TABLE>
F-72
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
Accruals for restructuring comprise certain employee termination benefits
and costs which are directly associated with plans to exit specified activities.
The changes in these provisions are summarized as follows:
<TABLE>
<CAPTION>
TERMINATION EXIT TOTAL
BENEFITS COSTS LIABILITIES
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Balance at January 1, 1995 2,189 344 2,533
- -----------------------------------------------------------------------------------------------------
Utilizations and transfers (1,132) (226) (1,358)
- -----------------------------------------------------------------------------------------------------
Reductions (272) (12) (284)
- -----------------------------------------------------------------------------------------------------
Additions 842 336 1,178
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 1995 1,627 442 2,069
- -----------------------------------------------------------------------------------------------------
Utilizations and transfers (556) (50) (606)
- -----------------------------------------------------------------------------------------------------
Reductions (380) (34) (414)
- -----------------------------------------------------------------------------------------------------
Additions 423 353 776
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 1996 1,114 711 1,825
- -----------------------------------------------------------------------------------------------------
Utilizations and transfers (525) (367) (892)
- -----------------------------------------------------------------------------------------------------
Reductions (88) (72) (160)
- -----------------------------------------------------------------------------------------------------
Additions 585 66 651
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 1997 1,086 338 1,424
- -----------------------------------------------------------------------------------------------------
</TABLE>
In connection with the Group's restructuring the Group recorded provisions
for termination benefits of DM 585 (1996: DM 423; 1995: DM 842), in 1997
principally within Automotive, in 1996 and 1995 principally within Automotive,
AEG-DBI and Daimler-Benz Aerospace. In connection with these restructuring
efforts, the Group effected workforce reductions of approximately 6,600
employees (1996: 11,800; 1995: 14,800) and paid termination benefits of DM 983
(1996: DM 745; 1995 DM 1,489), of which DM 525 (1996: DM 556; 1995: DM 1,132)
were charged against previously established liabilities. At December 31, 1997
the Group had liabilities for estimated future terminations for approximately
8,000 employees.
Exit costs in 1997 primarily result from the restructuring of directly
managed businesses. In 1996, they relate exclusively to businesses of the former
AEG-DBI and in 1995 mainly result from plans to reduce the production capacity
of AEG-DBI and Daimler-Benz Aerospace.
F-73
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
18. FINANCIAL LIABILITIES
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE AT DECEMBER 31,
INTEREST RATE MATURITIES 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Notes 6.9 1998 1,199 486
- -----------------------------------------------------------------------------------------------------------------------
Commercial paper 5.3 1998 11,579 7,841
- -----------------------------------------------------------------------------------------------------------------------
Liabilities to financial institutions 5.5 1998 8,023 6,784
- -----------------------------------------------------------------------------------------------------------------------
Liabilities to affiliated companies 5.8 1998 56 152
- -----------------------------------------------------------------------------------------------------------------------
Loans, other financial liabilities 1998 319 186
- -----------------------------------------------------------------------------------------------------------------------
Liabilities from capital lease and residual value guarantees 1998 910 562
- -----------------------------------------------------------------------------------------------------------------------
Short-term financial liabilities 22,086 16,011
- -----------------------------------------------------------------------------------------------------------------------
Bonds 6.0 1999-2007 8,859 6,830
of which due in more than five years: DM 2,725
(1996: DM 3,236)
- -----------------------------------------------------------------------------------------------------------------------
Liabilities to financial institutions 5.6 1999-2019 6,735 5,015
of which due in more than
five years: DM 2,896 (1996: DM 2,523)
- -----------------------------------------------------------------------------------------------------------------------
Liabilities to affiliated companies 5.8 1999-2004 554 380
of which due in more than five
years: DM 170 (1996: DM 217)
- -----------------------------------------------------------------------------------------------------------------------
Loans, other financial liabilities 12 40
of which due in more than
five years: DM 2 (1996: DM 2)
- -----------------------------------------------------------------------------------------------------------------------
Liabilities from capital lease and residual value guarantees 1,056 574
of which due in more than five years: DM 601 (1996:
DM 160)
- -----------------------------------------------------------------------------------------------------------------------
Long-term financial liabilities 17,216 12,839
- -----------------------------------------------------------------------------------------------------------------------
39,302 28,850
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Liabilities to financial institutions include approximately DM 851 (1996: DM
721) owed to related parties. Commercial paper is denominated in DM and U.S.
dollars and includes accrued interest. Bonds and liabilities to financial
institutions are largely secured by mortgage conveyance, liens and assignment of
receivables of approximately DM 2,249 (1996: DM 2,381).
Aggregate amounts of financial liabilities maturing during the next five
years and thereafter are as follows:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Financial liabilities 22,086 2,354 3,134 2,781 2,553
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THERE-
<S> <C>
- ----------------------------------------------------------------------
Financial liabilities 6,394
- ----------------------------------------------------------------------
</TABLE>
At December 31, 1997, the Group had unused short-term credit lines of DM
17,982 (1996: DM 14,225), and unused long-term credit lines of DM 6,194 (1996:
DM 5,672).
F-74
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
19. TRADE LIABILITIES
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
----------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
DUE AFTER DUE AFTER DUE AFTER
TOTAL ONE YEAR FIVE YEARS TOTAL ONE YEAR
- ---------------------------------------------------------------------------------------------------------------------------------
Accounts payable 10,928 63 3 8,890 508
- ---------------------------------------------------------------------------------------------------------------------------------
Accrued liabilities from long-term contracts and programs 151 -- -- 137 21
- ---------------------------------------------------------------------------------------------------------------------------------
11,079 63 3 9,027 529
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
DUE AFTER
FIVE YEARS
- ------------------------------------------------------------
Accounts payable 67
- ------------------------------------------------------------
Accrued liabilities from long-term contracts and programs --
- ------------------------------------------------------------
67
- ------------------------------------------------------------
</TABLE>
20. OTHER LIABILITIES
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
--------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
DUE AFTER DUE AFTER DUE AFTER
TOTAL ONE YEAR FIVE YEARS TOTAL ONE YEAR
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities to affiliated companies 1,082 . . 1,255 3
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities to related companies 1,869 38 24 1,192 25
- -------------------------------------------------------------------------------------------------------------------------------
Other liabilities 7,165 557 31 6,345 123
- -------------------------------------------------------------------------------------------------------------------------------
10,116 595 55 8,792 151
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
DUE AFTER
FIVE YEARS
- ------------------------------------------------------------
Liabilities to affiliated companies 1
- ------------------------------------------------------------
Liabilities to related companies 24
- ------------------------------------------------------------
Other liabilities 4
- ------------------------------------------------------------
29
- ------------------------------------------------------------
</TABLE>
Liabilities to related companies are primarily obligations of Daimler-Benz
Aerospace Airbus GmbH to Airbus Industrie G.I.E., Toulouse.
Other liabilities mainly relate to payroll obligations of the month of
December and related tax liabilities. As of December 31, 1997 tax liabilities
include withheld employee taxes of DM 1,318 (1996: DM 972), and social benefits
due of DM 1,143 (1996: DM 906).
OTHER NOTES
21. LITIGATION AND CLAIMS
Various legal actions, governmental investigations, proceedings and claims
are pending or may be instituted or asserted in the future against the Group.
Litigation is subject to many uncertainties; the outcome of individual litigated
matters is not predictable with assurance, and it is reasonably possible that
some of the matters could be decided unfavorably to the Group. Although the
amount of liability at December 31, 1997 with respect to these matters cannot be
ascertained, the Group believes that the resulting liability, if any, should not
materially affect the consolidated financial position of the Group at December
31, 1997.
22. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies are presented at their contractual values.
F-75
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
Commitments and contingencies include the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
<S> <C> <C>
1997 1996
- ------------------------------------------------------------------------------------------------
Guarantees 3,918 3,932
- ------------------------------------------------------------------------------------------------
Notes payable 195 257
- ------------------------------------------------------------------------------------------------
Contractual guarantees 1,622 1,932
- ------------------------------------------------------------------------------------------------
Pledges of indebtedness of others 363 487
- ------------------------------------------------------------------------------------------------
6,098 6,608
- ------------------------------------------------------------------------------------------------
</TABLE>
Contingent liabilities represent principally guarantees of indebtedness of
non-consolidated affiliated companies and third parties and commitments by Group
companies as to contractual performance by joint venture companies. Daimler-Benz
Aerospace is also obligated to make certain guaranteed dividend payments to
minority shareholders.
In connection with the development of aircraft, Daimler-Benz Aerospace
Airbus GmbH is committed to Airbus Industrie to incur future development costs.
At December 31, 1997, the remaining commitment not recorded in the financial
statements aggregated DM 948. In addition, the Group has pledged the assets of
Daimler-Benz Aerospace Airbus GmbH ("DA") acquired with development funds, to
the Federal Republic of Germany.
Airbus Industries G.I.E. ("Airbus consortium") has given a performance
guarantee to Agence Executive, the French government agency overseeing Airbus;
such performance guarantee has been assumed by DA to the extent of its 37.9 %
participation in the Airbus consortium.
At December 31, 1997, in connection with DA's participation in the Airbus
consortium, the Group was contingently liable related to the consortium's
irrevocable financing commitments in respect of aircraft on order, including
options, for delivery in the future. In addition, the Group was also
contingently liable related to credit guarantees and participations in financing
receivables of Airbus consortium under customer finance programs. When entering
into such customer financing commitments Airbus consortium has generally
established a secured position in the aircraft being financed. Airbus consortium
and the Group believe that the estimated fair value of the aircraft securing
such commitments would substantially offset any potential losses from the
commitments. Based on experience, the probability of material losses from such
customer financing commitments is considered remote.
The Group's obligations under the foregoing financing commitments of Airbus
consortium are joint and several with its other partners in the consortium. In
the event that Airbus, despite the underlying collateral, should be unable to
honor its obligations, the Group is confident that each of its other consortium
partners would be responsible for their proportionate share of Airbus'
obligations.
In 1989, the Group acquired Messerschmitt-Bolkow-Blohm GmbH ("MBB") and
thereby indirectly acquired Daimler-Benz Aerospace Airbus (then known as
Deutsche Airbus) which was and continues to be the German participant in Airbus
Industrie. As part of the acquisition and in order to facilitate the complete
privatization of MBB and the German participation in Airbus Industrie, the
Government of the Federal Republic of Germany undertook responsibility for
certain financial obligations of MBB and Daimler-Benz Aerospace Airbus and
agreed to provide certain ongoing limited financial assistance for development
programs and other items. Such undertakings, advances and assistance were to be
repaid on a contingent basis by Daimler-Benz Aerospace Airbus' making annual
payments equal to 40% of its pretax profits (as defined), if any, beginning with
the fiscal year 2001 (subject to advance to the year 2000 under
F-76
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
certain conditions). Each annual payment is contingent on Daimler-Benz Aerospace
Airbus' having earned pretax profits in the prior year. Pretax profits are
subject to reduction by application of prior years' cumulative loss
carryforwards. Daimler-Benz Aerospace Airbus also agreed to make certain
payments in the nature of a royalty with respect to the various Airbus aircraft
programs. Prior to specified dates between 2001 and 2004, these royalty
payments, if earned, are accrued on a per aircraft basis and added to the amount
to be discharged through the 40% profit-sharing obligation. Thereafter, they are
to be made on a per aircraft basis on terms keyed to the delivery date for each
aircraft.
The amount of the annual 40% profit-sharing obligation, if any, will depend
upon the profitability of Daimler-Benz Aerospace Airbus in 2001 and beyond,
which will be subject to a variety of unpredictable factors. Accordingly, the
Group is unable to predict with certainty how long Daimler-Benz Aerospace Airbus
will remain subject to the contingent 40% profit-sharing obligation, but it is
likely to be a period of decades. Daimler-Benz Aerospace Airbus may not pay
dividends prior to 2001, unless at the same time it commences making the 40%
profit-sharing payments. The Group may not sell or transfer a majority of the
capital stock of Daimler-Benz Aerospace Airbus without the consent of the German
Federal Government.
During 1997, Daimler-Benz Aerospace Airbus paid the German Federal
Government DM 1,400 in complete discharge of its obligations relating to the
Airbus A320 and its derivatives. Of this amount, DM 721 was expensed in 1997 and
the remainder will be amortized over those A320 aircraft and derivatives to be
delivered in the future.
In connection with certain production programs the Group has committed to
certain levels of outsourced manufactured parts and components over extended
periods at market prices. The Group is subject to compensations in the case the
committed volumes are not purchased.
In the normal course of business, the Group sells to third parties certain
of its financial services assets. During the year ended December 31, 1997 the
Group sold assets for proceeds of DM 1,457 (1996: DM 1,774). In connection with
such sales, the Group remained liable under recourse provisions for DM 314
(1996: DM 341).
The Group is jointly and severally liable for certain non-incorporated
companies, partnerships, and project groups.
The total rentals under operating leases, charged as an expense in the
statement of income, amounted to DM 940 (1996: DM 885; 1995: DM 878). The future
minimum lease payments under rental and lease agreements which have initial or
remaining terms in excess of one year at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
<S> <C>
- ------------------------------------------------------------------------------------------------
1998 750
- ------------------------------------------------------------------------------------------------
1999 515
- ------------------------------------------------------------------------------------------------
2000 459
- ------------------------------------------------------------------------------------------------
2001 379
- ------------------------------------------------------------------------------------------------
2002 336
- ------------------------------------------------------------------------------------------------
thereafter 1,758
- ------------------------------------------------------------------------------------------------
</TABLE>
F-77
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
23. INFORMATION ABOUT FINANCIAL INSTRUMENTS
A) USE OF FINANCIAL INSTRUMENTS
In the course of day-to-day financial management, Daimler-Benz uses
financial instruments, e.g. financial investments, fixed-interest bearing
securities and stock, forward exchange transactions and currency options, and,
as a consequence, may be exposed to risks from changes in interest and currency
exchange rates as well as share prices. Daimler-Benz uses derivative financial
instruments to reduce such risks. Without the use of these instruments the
Group's market risks would be higher.
Based on regulations issued by regulatory authorities for financial
institutions, the Group has established guidelines for risk assessment
procedures and controls for the use of financial instruments. They include a
clear segregation of duties with regard to operating financial activities on one
side and settlement, accounting and controlling on the other.
Market risk in portfolio management is quantified according to the
"value-at-risk" method which is commonly used among banks. Using historical
variability of market values, potential changes in value resulting from changes
of market prices is calculated on the basis of statistical methods. The maximum
acceptable market risk has been fixed by senior management in the form of a risk
capital which has been approved for one year. The adherence to the risk capital
is regularly monitored.
B) NOTIONAL AMOUNTS AND CREDIT RISK
The contract or notional amounts shown below do not always represent amounts
exchanged by the parties and, thus, are not necessarily a measure for the
exposure of Daimler-Benz through its use of derivatives.
The notional amounts of off-balance sheet financial instruments are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
<S> <C> <C>
1997 1996
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Currency contracts 40,252 34,140
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate contracts 42,903 27,205
<CAPTION>
- ----------------------------------------------------------------------------------------------
</TABLE>
Currency contracts include foreign exchange forward and option contracts
which are mainly utilized to hedge existing assets and liabilities, firm
commitments and anticipated transactions denominated in foreign currencies
(principally U.S. dollars, Japanese Yen and major Euro-currencies). The
objective of the Group's hedging transactions is to reduce the market risk of
its foreign denominated future cash flows to exchange rate fluctuations. The
Group has entered into currency contracts for a period of one to five years.
The Group enters into interest and interest rate cross-currency swaps,
interest rate forward and futures contracts and interest rate options in order
to reduce funding costs, to diversify sources of funding, or to alter interest
rate exposures arising from mismatches between assets and liabilities.
The Group may be exposed to credit-related losses in the event of
non-performance by counterparties to financial instruments. Counterparties to
the Group's financial instruments represent, in general, international financial
institutions. Daimler-Benz does not have a significant exposure to any
individual counterparty, based on the rating of the counterparties performed by
established rating agencies. The Group believes the overall credit risk related
to utilized derivatives is insignificant.
F-78
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
C) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the price at which one party
would assume the rights and/or duties of another party. Fair values of financial
instruments have been determined with reference to available market information
at the balance sheet date and the valuation methodologies discussed below.
Considering the variability of their value-determining factors, the fair values
presented herein may not be indicative of the amounts that the Group could
realize in a current market exchange.
The carrying amounts and fair values of the Group's financial instruments
are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------
BALANCE SHEET FINANCIAL INSTRUMENTS:
- ----------------------------------------------------------------------------------------------------------
Assets:
- ----------------------------------------------------------------------------------------------------------
Financial assets 1,662 1,662 1,465 1,465
- ----------------------------------------------------------------------------------------------------------
Receivables from financial services 25,924 26,143 19,052 18,909
- ----------------------------------------------------------------------------------------------------------
Securities 14,687 14,687 9,783 9,783
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents 5,833 5,833 4,557 4,557
- ----------------------------------------------------------------------------------------------------------
Other 657 657 505 505
- ----------------------------------------------------------------------------------------------------------
Liabilities:
- ----------------------------------------------------------------------------------------------------------
Financial liabilities (39,302) (40,027) (28,850) (29,019)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
- ----------------------------------------------------------------------------------------------------------
Assets:
- ----------------------------------------------------------------------------------------------------------
Currency contracts 172 501 630 1,227
- ----------------------------------------------------------------------------------------------------------
Interest rate contracts 104 211 104 258
- ----------------------------------------------------------------------------------------------------------
Liabilities:
- ----------------------------------------------------------------------------------------------------------
Currency contracts (1,047) (1,884) (539) (639)
- ----------------------------------------------------------------------------------------------------------
Interest rate contracts (93) (461) (78) (341)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
In determining the fair values of derivative financial instruments certain
compensating effects from underlying transactions (e.g. firm commitments and
anticipated transactions) are not taken into consideration. At December 31, 1997
and 1996, the Group had deferred net unrealized gains (losses) on forward
currency exchange contracts and options of DM (508) and DM 462, respectively,
purchased against firm foreign currency denominated sales commitments extending
for varying periods between three and twenty-four months.
The carrying amounts of cash, other receivables and accounts payable
approximate fair values due to the short-term maturities of these instruments.
The methods and assumptions used to determine the fair values of other
financial instruments are summarized below:
FINANCIAL ASSETS AND SECURITIES -- Fair value of securities in the portfolio
was estimated using quoted market prices. The Group has certain equity
investments in related and affiliated companies not presented
F-79
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
in the table, as certain of these investments are not publicly traded and
determination of fair values is impracticable.
RECEIVABLES FROM FINANCIAL SERVICES -- The carrying amount of variable rate
finance receivables was estimated to approximate fair value since they are
priced at current market rates. The fair value of fixed rate finance receivables
was estimated by discounting expected cash flows using the current rates at
which comparable loans of similar maturity would be obtained made as of December
31, 1997 and 1996. The carrying amounts of receivables from finance lease equal
their fair values.
FINANCIAL LIABILITIES -- Fair value of publicly traded debt was estimated
using quoted market prices. The fair value of other long-term notes and bonds
was estimated by discounting future cash flows using rates currently available
for debt of similar terms and remaining maturities. The carrying amounts of
commercial paper and borrowings under revolving credit facilities were assumed
to approximate fair value due to their short maturities.
INTEREST RATE CONTRACTS -- The fair values of existing instruments to hedge
interest rate risks (e.g. interest rate swap agreements) were estimated by
discounting expected cash flows using market interest rates over the remaining
term of the instrument. Interest rate options are valued on the basis of quoted
market prices or on estimates based on option pricing models.
CURRENCY CONTRACTS -- The fair value of forward foreign exchange contracts
is based on average spot exchange rates that consider forward premiums or
discounts. Currency options are valued on the basis of quoted market prices or
on estimates based on option pricing models.
D) ACCOUNTING FOR AND REPORTING EARNINGS OF FINANCIAL INSTRUMENTS
The earnings of the Group's on-balance sheet financial instruments, with the
exception of receivables from financial services, are recognized in financial
income, net. Income on receivables from financial services are recognized as
revenues. The carrying amounts of the on-balance sheet financial instruments are
included in the consolidated balance sheets under their related captions. The
carrying amounts of off-balance sheet financial instruments are included under
other assets and accrued liabilities.
Financial instruments, including derivatives, purchased to offset the
Group's exposure to identifiable and committed transactions with price, interest
or currency risks are accounted for together with the underlying business
transactions ("hedge accounting"). Gains and losses on forward contracts and
options hedging firm foreign currency commitments are deferred off-balance sheet
and are recognized as a component of the related transactions, when recorded
(the "deferral method"). However, a loss is not deferred if deferral would lead
to the recognition of a loss in future periods.
Interest differentials paid or received under interest rate swaps purchased
to hedge interest risks on debt are recorded as adjustments to the effective
yields of the underlying debt ("accrual method").
All other financial instruments, including derivatives, purchased to offset
the Group's net exposure to price, interest or currency risks, but which are not
designated as hedges of specific assets, liabilities or firm commitments are
marked to market and any resulting unrealized gains and losses are recognized
currently in financial income, net.
Derivatives purchased by the Group under macro-hedging techniques, as well
as those purchased to offset the Group's exposure to anticipated cash flows, do
not generally meet the requirements for applying
F-80
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
hedge accounting and are, accordingly marked to market at each reporting period
with unrealized gains and losses recognized in financial income, net. At such
time that the Group meets the requirements for hedge accounting and designates
the derivative financial instrument as a hedge of a committed transaction,
subsequent unrealized gains and losses would be deferred and recognized along
with the effects of the underlying transaction.
24. SEGMENT REPORTING
Daimler-Benz operates in four divisions; a description of the products and
services from which each segment derives its revenues follows:
- AUTOMOTIVE -- development, manufacture and sale of passenger cars and
commercial vehicles principally under the trade mark Mercedes-Benz as well
as related parts and accessories.
- AEROSPACE -- development, manufacture and sale of commercial and military
aircraft and helicopters, of satellites and related space transportation
systems, defense-related products, including radar and radio systems and
propulsion systems.
- SERVICES -- services related to information technology, financial
services, insurance brokerage, trading, telecommunications and media and
real estate management.
- DIRECTLY MANAGED BUSINESSES (DMB) -- In 1997 and 1996 represents 50%
interest in Adtranz and microelectronics and automation processing
products (up to December 31, 1996) and diesel engines. In 1995 represented
the AEG-DBI corporate unit which included each of the foregoing business
activities plus other businesses including products for the transmission
and distribution of electricity.
Sales and revenues related to transactions between segments are generally
recorded at values that approximate third party selling prices.
F-81
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
Information with respect to the Group's industry segments follows:
<TABLE>
<CAPTION>
AUTOMOTIVE AEROSPACE SERVICES DMB(1) CORPORATE ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1997
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues 88,707 15,158 13,066 7,082 37 -- 124,050
- ------------------------------------------------------------------------------------------------------------------------------------
Intersegment sales 2,925(2) 128 2,432 473 28 (5,986) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues 91,632 15,286 15,498 7,555 65 (5,986) 124,050
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 3,501 432 457 (129) (51) 118 4,328
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets 46,955 20,556 19,410 11,871 38,307 -- 137,099
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 3,612 559 2,576 540 79 -- 7,366
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures 4,862 495 367 512 706 -- 6,942
- ------------------------------------------------------------------------------------------------------------------------------------
1996
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues 74,958 12,979 10,798 7,604 -- -- 106,339
- ------------------------------------------------------------------------------------------------------------------------------------
Intersegment sales 2,666(2) 74 2,345 411 -- (5,496) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues 77,624 13,053 13,143 8,015 -- (5,496) 106,339
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 2,707 (196)(3) 288 (585) (57) 266 2,423
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets 34,686 20,415 16,984 12,203 28,173 -- 112,461
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 3,015 522 2,342 771 80 -- 6,730
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures 4,451 584 225 502 450 -- 6,212
- ------------------------------------------------------------------------------------------------------------------------------------
1995
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues 69,585 14,261 9,426 9,713 -- -- 102,985
- ------------------------------------------------------------------------------------------------------------------------------------
Intersegment sales 2,515 832 2,288 438 -- (6,073) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues 72,100 15,093 11,714 10,151 -- (6,073) 102,985
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 2,142 (7,220)(4) 112 (2,216 (4) (30) 15 (7,197)
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets 33,800 22,504 13,400 8,917 23,477 -- 102,098
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization(5) 2,989 4,173 2,774 973 108 -- 11,017
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures 3,331 564 231 601 123 -- 4,850
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In 1997 and 1996 includes Adtranz accounted for using the proportionate
method of consolidation (see Note 2).
(2) Includes DM 2,801 and DM 2,443 for 1997 and 1996, respectively, of
automobiles leased to customers under operating leases that have been sold
to Group leasing and sales financing entities with guarantees as to the
residual value of the products at the end of such leases.
(3) Aerospace operating loss includes charges of DM 435 in 1996 related to the
aircraft business of Dornier offset by approximately DM 300 of reductions
in provisions for restructuring measures (see Note 3).
(4) In 1995 the Aerospace operating loss includes DM 5,594 of charges related
to restructuring measures, goodwill and other write-offs and the decision
to discontinue financial support for Fokker. In 1995, the DMB operating
loss includes DM 1,596 of charges related to restructuring of AEG and
write-downs to fixed assets of DM 331 (see Note 3).
(5) Includes Aerospace write-downs to fixed assets, including goodwill, of DM
2,558 and DMB DM 331.
F-82
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
A reconciliation of income (loss) before financial income and income taxes
to operating profit follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Income (loss) before financial income and income taxes 3,631 1,465 (8,162)
- -----------------------------------------------------------------------------------------------------
Interest on advance payments received on long-term contracts 270 303 205
- -----------------------------------------------------------------------------------------------------
Earnings from Airbus Industrie 109 267 331
- -----------------------------------------------------------------------------------------------------
Corporate research of Daimler-Benz AG 316 407 397
- -----------------------------------------------------------------------------------------------------
Items not allocable to segments 2 (19) 32
- -----------------------------------------------------------------------------------------------------
Operating profit (loss)(1) 4,328 2,423 (7,197)
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Operating profit in 1996 includes charges of DM 435 related to
the aircraft business of Dornier offset by approximately DM
300 of reductions in provisions for restructuring measures.
Operating loss in 1995 includes DM 7,190 of charges related to
restructuring measures, goodwill and other write-offs, the
decision to discontinue financial support for Fokker and the
restructuring of AEG (see Note 3).
F-83
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM, EXCEPT SHARE AMOUNTS)
Geographic information with respect to the Group's revenues, operating
profit (loss) and identifiable assets follows:
<TABLE>
<CAPTION>
OTHER
EUROPEAN NORTH LATIN OTHER ELIMINA-
GERMANY COUNTRIES AMERICA AMERICA ASIA COUNTRIES TIONS
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
1997
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues (by destination) 41,055 37,105 26,608 5,322 9,513 4,447 --
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues (by operation):
- ---------------------------------------------------------------------------------------------------------------------------------
To unaffiliated customers 62,301 25,090 24,183 5,192 4,252 3,032 --
- ---------------------------------------------------------------------------------------------------------------------------------
Transfers between geographic areas 31,318 2,878 1,382 241 743 182 (36,744)
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenues 93,619 27,968 25,565 5,433 4,995 3,214 (36,744)
- ---------------------------------------------------------------------------------------------------------------------------------
Export sales from Germany -- 13,173 2,824 755 4,137 560 --
- ---------------------------------------------------------------------------------------------------------------------------------
Operating profit 3,139 75 638 195 254 27 --
- ---------------------------------------------------------------------------------------------------------------------------------
Identifiable assets 81,429 17,291 28,137 6,032 2,852 1,358 --
- ---------------------------------------------------------------------------------------------------------------------------------
1996
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues (by destination) 39,165 30,360 20,472 3,922 8,309 4,111 --
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues (by operation):
- ---------------------------------------------------------------------------------------------------------------------------------
To unaffiliated customers 56,584 20,908 18,383 3,757 3,881 2,826 --
- ---------------------------------------------------------------------------------------------------------------------------------
Transfers between geographic areas 24,054 1,813 221 83 222 -- (26,393)
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenues 80,638 22,721 18,604 3,840 4,103 2,826 (26,393)
- ---------------------------------------------------------------------------------------------------------------------------------
Export sales from Germany -- 7,967 1,962 535 4,178 2,351 --
- ---------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 1,755 123 440 12 95 (2) --
- ---------------------------------------------------------------------------------------------------------------------------------
Identifiable assets 67,283 16,769 21,187 3,839 2,316 1,067 --
- ---------------------------------------------------------------------------------------------------------------------------------
1995
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues (by destination) 37,684 28,299 19,533 5,083 8,727 3,659 --
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues (by operation):
- ---------------------------------------------------------------------------------------------------------------------------------
To unaffiliated customers 56,580 18,893 17,672 4,224 2,893 2,723 --
- ---------------------------------------------------------------------------------------------------------------------------------
Transfers between geographic areas 19,787 1,273 1,052 68 135 117 (22,432)
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenues 76,367 20,166 18,724 4,292 3,028 2,840 (22,432)
- ---------------------------------------------------------------------------------------------------------------------------------
Export sales from Germany -- 9,223 1,724 395 5,070 1,209 --
- ---------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) (7,326) (776) 645 9 65 186 --
- ---------------------------------------------------------------------------------------------------------------------------------
Identifiable assets 65,523 12,677 16,675 3,631 2,723 869 --
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CONSO-
LIDATED
<S> <C>
- ------------------------------------------
1997
- ------------------------------------------
Revenues (by destination) 124,050
- ------------------------------------------
Revenues (by operation):
- ------------------------------------------
To unaffiliated customers 124,050
- ------------------------------------------
Transfers between geographic areas --
- ------------------------------------------
Total revenues 124,050
- ------------------------------------------
Export sales from Germany 21,449
- ------------------------------------------
Operating profit 4,328
- ------------------------------------------
Identifiable assets 137,099
- ------------------------------------------
1996
- ------------------------------------------
Revenues (by destination) 106,339
- ------------------------------------------
Revenues (by operation):
- ------------------------------------------
To unaffiliated customers 106,339
- ------------------------------------------
Transfers between geographic areas --
- ------------------------------------------
Total revenues 106,339
- ------------------------------------------
Export sales from Germany 16,993
- ------------------------------------------
Operating profit (loss) 2,423
- ------------------------------------------
Identifiable assets 112,461
- ------------------------------------------
1995
- ------------------------------------------
Revenues (by destination) 102,985
- ------------------------------------------
Revenues (by operation):
- ------------------------------------------
To unaffiliated customers 102,985
- ------------------------------------------
Transfers between geographic areas --
- ------------------------------------------
Total revenues 102,985
- ------------------------------------------
Export sales from Germany 17,621
- ------------------------------------------
Operating profit (loss) (7,197)
- ------------------------------------------
Identifiable assets 102,098
- ------------------------------------------
</TABLE>
F-84
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF DM OR MILLIONS OF SHARES EXCEPT EARNINGS (LOSS) PER SHARE)
25. EARNINGS PER SHARE
The earnings (loss) per share are determined as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997 1996 1995
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Basic earnings (loss) per share:
- -----------------------------------------------------------------------------------------------------
Net income (loss) 8,042 2,762 (5,729)
- -----------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 525.5 523.7 522.7
- -----------------------------------------------------------------------------------------------------
15.30 5.27 (10.96)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share:
- -----------------------------------------------------------------------------------------------------
Net income (loss) 8,042 2,762 (5,729)
- -----------------------------------------------------------------------------------------------------
Interest expense on convertible bonds and notes (net of tax) 38 7 --
- -----------------------------------------------------------------------------------------------------
8,080 2,769 (5,729)
- -----------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 525.5 523.7 522.7
- -----------------------------------------------------------------------------------------------------
Dilutive convertible bonds and notes 12.7 4.0 --
- -----------------------------------------------------------------------------------------------------
538.2 527.7 522.7
- -----------------------------------------------------------------------------------------------------
15.01 5.25 (10.96)
- -----------------------------------------------------------------------------------------------------
</TABLE>
The convertible bonds of the 1997 Stock Option Plan are not included in the
computations of diluted earnings per share because the options' underlying
target stock price was above market price of Daimler-Benz AG common stock on
December 31, 1997.
F-85
<PAGE>
DAIMLER-BENZ AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS OF U.S. $)
26. SUMMARIZED FINANCIAL INFORMATION -- DAIMLER BENZ NORTH AMERICA
Summarized financial information for Daimler-Benz North America,
wholly-owned subsidiary of Daimler-Benz AG, is set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Daimler-Benz North America
Receivables, net 7,070 5,271 4,208
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equipment on operating leases, net 5,075 4,534 4,235
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property, plant and equipment, net 1,363 1,213 977
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other assets 2,447 2,267 2,056
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets 15,955 13,285 11,476
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current liabilities 8,597 6,421 6,100
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-current liabilities 4,299 4,013 2,699
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stockholders' equity 3,059 2,851 2,677
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales of products 12,595 9,759 9,575
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance and lease income 1,687 1,492 1,468
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating costs 13,338 10,560 10,268
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income 305 177 231
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
27. SUBSEQUENT EVENTS
Following the decision to concentrate on core activities, the Group's
semiconductor business was sold to the American company Vishay Intertechnology,
Inc. in March 1998.
In January 1998 the Group sold two real-estate-project-companies to Berliner
Volksbank.
In May 1997, the Company entered into an agreement to acquire the Heavy
Truck Business of Ford Motor Company. The transaction included: tooling,
machinery and equipment used to manufacture the product; spare parts inventory
to support the product line, and other minor assets. In addition, Ford Motor
Company will provide assistance in the product launch and cost reduction efforts
for this business as well as engineering and systems services during 1998. All
material aspects of the acquisition will be consummated during 1998.
28. SUBSEQUENT EVENT - RIGHTS OFFERING
In June, 1998, Daimler-Benz issued to holders of Daimler-Benz Ordinary
Shares and ADS's and convertible debt securities, rights to acquire up to an
aggregate of 52.4 million newly issued Daimler-Benz Ordinary Shares and on June
25, 1998 Daimler-Benz issued and sold 52.4 million Ordinary Shares for net
proceeds of DM 7,485 million. The rights issued by Daimler-Benz entitled the
holders to purchase Daimler-Benz Ordinary Shares at an approximately 20%
discount to the market price of Daimler-Benz Ordinary Shares. Basic and diluted
earnings per Ordinary Share have been restated to reflect the dilutive effect
resulting from the discount to market value at which the Daimler-Benz Ordinary
Shares were sold in the rights offering.
F-86
<PAGE>
DAIMLER-BENZ AG
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------
1998
(NOTE 1) 1998 1997
---------- ------------- -------------
<S> <C> <C> <C>
Revenues................................................................ $ 40,542 DM 67,714 DM 55,892
Cost of sales........................................................... (32,217) (53,809) (44,919)
---------- ------------- -------------
GROSS MARGIN............................................................ 8,325 13,905 10,973
Selling, administrative and other expenses............................ (5,110) (8,534) (7,517)
Research and development.............................................. (1,870) (3,123) (2,867)
Other income.......................................................... 671 1,120 733
---------- ------------- -------------
INCOME BEFORE FINANCIAL INCOME AND
INCOME TAXES.......................................................... 2,016 3,368 1,322
Financial income (expense), net....................................... 325 542 (111)
---------- ------------- -------------
INCOME BEFORE INCOME TAXES.............................................. 2,341 3,910 1,211
Income taxes.......................................................... (1,100) (1,838) (263)
Minority interest..................................................... (37) (62) 44
---------- ------------- -------------
NET INCOME.............................................................. 1,204 2,010 992
---------- ------------- -------------
---------- ------------- -------------
EARNINGS PER SHARE
Basic earnings per share.............................................. 2.28 3.81 1.89
---------- ------------- -------------
---------- ------------- -------------
Diluted earnings per share............................................ 2.20 3.68 1.88
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of these Unaudited
Interim Condensed Consolidated Financial Statements
F-87
<PAGE>
DAIMLER-BENZ AG
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND IN MILLIONS)
<TABLE>
<CAPTION>
AT
AT JUNE 30, DECEMBER 31,
------------------------- --------------
<S> <C> <C> <C>
1998
(NOTE 1) 1998 1997
--------- -------------- --------------
ASSETS
Intangible assets.................................................... $ 1,135 DM 1,895 DM 1,915
Property, plant and equipment........................................ 12,889 21,528 20,656
Investments and long term financial assets........................... 2,393 3,996 3,453
Equipment on operating leases........................................ 9,856 16,461 14,931
--------- -------------- --------------
FIXED ASSETS........................................................... 26,273 43,880 40,955
--------- -------------- --------------
Inventories.......................................................... 9,544 15,940 14,390
Receivables
Receivables from financial services................................ 17,395 29,053 25,924
Trade and other receivables and other assets....................... 12,633 21,099 24,257
Securities........................................................... 10,842 18,109 14,687
Cash and cash equivalents............................................ 2,514 4,199 5,833
--------- -------------- --------------
CURRENT ASSETS......................................................... 52,928 88,400 85,091
--------- -------------- --------------
DEFERRED TAXES AND PREPAID EXPENSES.................................... 5,815 9,714 11,053
--------- -------------- --------------
TOTAL ASSETS..................................................... 85,016 141,994 137,099
--------- -------------- --------------
--------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY................................................... $ 20,217 DM 33,767 DM 35,085
--------- -------------- --------------
MINORITY INTEREST...................................................... 633 1,057 1,170
--------- -------------- --------------
Accrued liabilities for retirement plans............................. 10,584 17,677 17,200
Other accrued liabilities............................................ 12,092 20,196 19,418
--------- -------------- --------------
ACCRUED LIABILITIES.................................................... 22,676 37,873 36,618
--------- -------------- --------------
Financial liabilities................................................ 24,885 41,563 39,302
Trade and other liabilities.......................................... 14,538 24,282 21,195
--------- -------------- --------------
LIABILITIES............................................................ 39,423 65,845 60,497
--------- -------------- --------------
DEFERRED TAXES AND INCOME.............................................. 2,067 3,452 3,729
--------- -------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................... 85,016 141,994 137,099
--------- -------------- --------------
--------- -------------- --------------
</TABLE>
The Accompanying Notes are an Integral Part of these Unaudited
Interim Condensed Consolidated Financial Statements
F-88
<PAGE>
DAIMLER-BENZ AG
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------
<S> <C> <C> <C>
1998
(NOTE 1) 1998 1997
----------- -------------- -------------
Net income............................................................... $ 1,204 DM 2,010 DM 992
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of fixed assets (including amounts
related to equipment on operating leases of DM 1,169 ($670) and DM
1,178 in 1998 and 1997, respectively)................................ 2,242 3,744 3,309
Increase (decrease) in accrued liabilities............................. 786 1,312 838
Changes in other operating assets and liabilities...................... 949 1,586 118
Other.................................................................. (86) (142) (576)
----------- -------------- -------------
CASH PROVIDED BY OPERATING ACTIVITIES.................................... 5,095 8,510 4,681
----------- -------------- -------------
Purchase of fixed assets............................................... (2,476) (4,136) (2,747)
Increase in equipment on operating leases.............................. (2,687) (4,488) (3,513)
Proceeds from disposal of fixed assets (including equipment on
operating leases of DM 2,169 ($1,298) and DM 1,661 in 1998 and 1997,
respectively)........................................................ 1,432 2,391 2,212
Acquisition of businesses.............................................. (407) (680) (269)
Proceeds from disposal of businesses................................... 662 1,106 1,017
Increase in receivables from financial services, net................... (1,970) (3,291) (2,519)
Sales (Acquisitions) of securities (other than trading), net........... (1,420) (2,372) (707)
Change in other cash................................................... (952) (1,587) 404
----------- -------------- -------------
CASH USED FOR INVESTING ACTIVITIES....................................... (7,818) (13,057) (6,122)
----------- -------------- -------------
Change in commercial paper borrowings, net............................. (333) (556) 25
Change in financial liabilities (including amounts for financial
services, net of DM 2,320 ($1,389) and DM 2,392 in 1998 and 1997,
respectively)........................................................ 1,640 2,739 3,042
Dividends paid......................................................... (6,758) (11,288) (591)
Proceeds from capital increases........................................ 4,558 7,613 37
Proceeds from special distribution tax refund.......................... 1,741 2,908 --
Other.................................................................. (96) (160) --
----------- -------------- -------------
CASH PROVIDED BY FINANCING ACTIVITIES.................................... 752 1,256 2,513
----------- -------------- -------------
Effect of foreign exchange rate changes on cash and cash equivalents
(up to 3 months)..................................................... 100 167 229
Net increase (decrease) in cash and cash equivalents (up to 3
months).............................................................. (1,871) (3,124) 1,301
Cash and cash equivalents (up to 3 months) at beginning of period...... 3,288 5,491 3,220
----------- -------------- -------------
CASH AND CASH EQUIVALENTS (UP TO 3 MONTHS) AT END OF PERIOD.............. 1,417 2,367 4,521
----------- -------------- -------------
----------- -------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of these Unaudited
Interim Condensed Consolidated Financial Statements
F-89
<PAGE>
DAIMLER-BENZ AG
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AND IN MILLIONS)
1. PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements of Daimler-Benz
Aktiengesellschaft and subsidiaries ("Daimler-Benz" or the "Group") are
unaudited and have been prepared in accordance with United States generally
accepted accounting principles, except that the Group has accounted for certain
joint ventures in accordance with the proportionate method of accounting (see
Note 3). All amounts herein are shown in millions of Deutsche Marks ("DM") and
for the six months ended June 30, 1998 are also presented in U.S. dollars, the
latter solely for the convenience of the reader, at the rate of DM 1.6702 = U.S.
$1, the Noon Buying Rate of the Federal Reserve Bank of New York on September
30, 1998.
The information included in the condensed consolidated financial statements
is unaudited but reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. The condensed
consolidated financial statements should be read in conjunction with the
December 31, 1997 consolidated financial statements and notes included in the
Group's 1997 Annual Report on Form 20-F.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, REPORTING COMPREHENSIVE INCOME, effective January 1, 1998. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components in financial statements. In connection with the adoption of SFAS 130
for these interim condensed financial statements, the "other equity" component
of stockholders' equity (see Note 6) was renamed "accumulated other
comprehensive income." Total comprehensive income of the Company for the
six-month periods ended June 30, 1998 and 1997 (consisting of net income,
changes in foreign currency translation adjustments and unrealized gains and
losses on available-for-sale securities) was DM 2,391 and DM 2,053,
respectively.
2. MERGER WITH CHRYSLER CORPORATION
On May 7, 1998 the Company and Chrysler Corporation entered into a Business
Combination Agreement to merge their respective businesses. In connection with
the business combination, holders of Daimler-Benz AG Ordinary Shares will be
offered to exchange their Ordinary Shares for Ordinary Shares of a newly formed
company, DaimlerChrysler Aktiengesellschaft ("DaimlerChrysler AG") and holders
of Chrysler common stock will be offered to convert into Ordinary Shares of
DaimlerChrysler AG at the exchange ratio of 0.6235 of an Ordinary Share of
DaimlerChrysler AG for each share of common stock of Chrysler Corporation.
Consummation of the merger is subject to various conditions, including among
others, approval of the U.S. antitrust authority and the receipt of Chrysler
Corporation and Daimler-Benz AG stockholder approval. In July, 1998 the European
antitrust authority approved of the merger. The companies anticipate the merger
to be completed prior to December 31, 1998.
3. JOINT VENTURE
Daimler-Benz accounts for its investment in Adtranz using the proportionate
method of consolidation. Accordingly, the consolidated financial statements of
Daimler-Benz include as of June 30, 1998 and December 31, 1997 and for the six
months ended June 30, 1998 and 1997 Daimler-Benz' 50% proportionate interest in
the assets and liabilities and results of operations and cash flows of Adtranz.
Under U.S. GAAP, Daimler-Benz' investment in Adtranz is required to be accounted
for using the equity method of accounting. The differences in accounting
treatment between the proportionate and equity methods would not effect reported
shareholders' equity or net income of Daimler-Benz. Under the equity method of
F-90
<PAGE>
DAIMLER-BENZ AG
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN MILLIONS)
3. JOINT VENTURE (CONTINUED)
accounting, Daimler-Benz' net investment in Adtranz would be included within
investments in the balance sheet and its share of the net loss of Adtranz
together with the amortization of the excess of the cost of its investment over
its share of the investment's net assets would be reported as a net amount in
financial income, net in the Group's income statement. Additionally, under the
equity method, Adtranz' only impact on the Group's cash flow statement would
have been an investing cash outflow of approximately DM 300 in 1998 resulting
from a capital contribution by Daimler-Benz.
F-91
<PAGE>
DAIMLER-BENZ AG
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN MILLIONS)
3. JOINT VENTURE (CONTINUED)
Summarized financial information for Adtranz follows:
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
1998 1997
----------- ---------------
<S> <C> <C>
BALANCE SHEET INFORMATION
Fixed assets*)............................................... DM1,465 DM1,581
Current assets............................................... 1,874 1,840
----------- ---------------
TOTAL ASSETS................................................... 3,339 3,421
----------- ---------------
----------- ---------------
Stockholders' equity......................................... DM1,265 DM1,393
Minority interest............................................ 12 12
Accrued liabilities.......................................... 967 970
Liabilities.................................................. 1,095 1,046
----------- ---------------
STOCKHOLDERS' EQUITY AND LIABILITIES........................... 3,339 3,421
----------- ---------------
----------- ---------------
</TABLE>
- ------------------------
(*) Includes net goodwill resulting from the formation of Adtranz of DM 701 and
DM 850 at June 30, 1998 and December 31, 1997, respectively.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
------------------------
<S> <C> <C>
1998 1997
----------- -----------
STATEMENT OF OPERATIONS INFORMATION
Revenues............................................................................. DM1,499 DM1,317
Operating loss*)..................................................................... (134) (27)
Net loss............................................................................. (128) (38)
</TABLE>
- ------------------------
(*) The operating loss includes an impairment charge on goodwill (1998: DM 125)
and interest on advance payments received on long-term contracts (1998: DM
57; 1997: DM 43).
<TABLE>
<S> <C> <C>
CASH FLOW INFORMATION
Cash flows from:
Operating activities............................................... DM(160) DM(89)
Investing activities............................................... (232) 30
Financing activities............................................... 450 49
Effect of foreign exchange rate changes on cash...................... -- --
--------- ---------
Change in cash (up to three months).................................. 58 (10)
Cash (up to three months) at beginning of period..................... 304 285
--------- ---------
Cash (up to three months) at end of period........................... 362 275
--------- ---------
--------- ---------
</TABLE>
F-92
<PAGE>
DAIMLER-BENZ AG
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN MILLIONS)
4. INVENTORIES
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
1998 1997
------------- ---------------
<S> <C> <C>
Raw materials and manufacturing supplies.......................................... DM 3,577 DM 3,233
Work in process................................................................... 7,369 6,515
Finished goods, parts and products held for resale................................ 10,174 8,978
Advance payments to suppliers..................................................... 661 659
------------- ---------------
21,781 19,385
Less: Advance payments received................................................... (5,841) (4,995)
------------- ---------------
15,940 14,390
------------- ---------------
------------- ---------------
</TABLE>
5. CASH AND CASH EQUIVALENTS
As of June 30, 1998 and December 31, 1997 cash and cash equivalents include
DM 1,832 and DM 342, respectively, of deposits with original maturities of more
than three months.
6. STOCKHOLDERS' EQUITY
The changes in stockholders' equity for the six-months ended June 30, 1998
follow:
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
------------------------------
ADDITIONAL CUMULATIVE AVAILABLE-
CAPITAL PAID-IN RETAINED TRANSLATION FOR-SALE TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT SECURITIES STOCK
----------- ----------- --------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
IN MILLIONS OF DM
BALANCE AT JANUARY 1, 1998..................... 2,584 5,247 26,508 236 510 --
Comprehensive income:
Net income................................... -- -- 2,010 -- -- --
Other comprehensive income................... -- -- -- (70) 451 --
Total comprehensive income...................
Dividends paid................................. -- -- (827) -- -- --
Special distribution........................... -- -- (10,335) -- -- --
Issuance of capital stock...................... 263 7,350 -- -- -- --
Treasury stock................................. -- -- -- -- -- (160)
----- ----------- --------- --- --- ---
BALANCE AT JUNE 30, 1998....................... 2,847 12,597 17,356 166 961 (160)
----- ----------- --------- --- --- ---
----- ----------- --------- --- --- ---
<CAPTION>
TOTAL
---------
<S> <C>
BALANCE AT JANUARY 1, 1998..................... 35,085
Comprehensive income:
Net income................................... 2,010
Other comprehensive income................... 381
---------
Total comprehensive income................... 2,391
Dividends paid................................. (827)
Special distribution........................... (10,335)
Issuance of capital stock...................... 7,613
Treasury stock................................. (160)
---------
BALANCE AT JUNE 30, 1998....................... 33,767
---------
---------
</TABLE>
On May 27, 1998 the Daimler-Benz shareholders approved, and on June 15, 1998
Daimler-Benz paid, a special distribution of DM 20.00 (DM 19.63 after adjustment
to reflect the approximately 20% discount to market value at which the
Daimler-Benz Ordinary Shares and ADS were sold in the rights offering) per
Ordinary Share/ADS.
In June, 1998, Daimler-Benz issued to holders of Daimler-Benz Ordinary
Shares and ADS's and convertible debt securities, rights to acquire up to an
aggregate of 52.4 million newly issued Daimler-Benz
F-93
<PAGE>
DAIMLER-BENZ AG
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN MILLIONS)
6. STOCKHOLDERS' EQUITY (CONTINUED)
Ordinary Shares and on June 25, 1998 Daimler-Benz issued and sold 52.4 million
Ordinary Shares for net proceeds of DM 7,485 million. The rights issued by
Daimler-Benz entitled the holders to purchase Daimler-Benz Ordinary Shares at an
approximately 20% discount to the market price of Daimler-Benz Ordinary Shares.
Basic and diluted earnings per Ordinary Share have been restated to reflect the
dilutive effect resulting from the discount to market value at which the
Daimler-Benz Ordinary Shares were sold in the rights offering.
During the six months ended June 30, 1998 Daimler-Benz purchased
approximately 1.0 million of its Ordinary Shares for resale to its employees in
October, 1998.
Based on the shareholders' approvals of 1996 and 1997, Daimler-Benz
established the Stock Option Plan 1998 of the Daimler-Benz Group (the "Plan")
which provides for the granting to certain members of management of options for
the purchase of Daimler-Benz Ordinary Shares. The options granted under the Plan
will be evidenced by non-transferable 4.4% convertible bonds due in July 2008
with a principal amount of DM 1,000 per bond (the "Convertible Bonds").
Daimler-Benz has reserved up to DM 110 of contingent authorized nominal capital
for the issuance of new Ordinary Shares under the Plan. Each Convertible Bond
entitles the holder thereof to convert the bond into Ordinary Shares with an
aggregate nominal value of DM 1,000, after a 24 month waiting period, during
certain specified periods each year, if the market price per Ordinary Share on
the day of conversion is at least 15% higher than the predetermined conversion
price (the "Conversion Price").
Daimler-Benz offered, beginning June 22, 1998, to certain members of
management the right to subscribe to these Convertible Bonds. The Conversion
Price equals to DM 183.90/share, the market price of Daimler-Benz shares on May
28, 1998. The subscription period ended July 10, 1998. Effective July 24, 1998
the Group issued Convertible Bonds in the amount of DM 41.
7. OPERATING PROFIT
A reconciliation of income before financial income and taxes to operating
profit for the six-month periods ended June 30, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Income before financial income and taxes........................... DM3,368 DM1,322
Interest on advance payments received on long-term contracts....... 145 126
Earnings from Airbus Industrie..................................... -- 173
Corporate research of Daimler-Benz AG.............................. 260 220
Items not allocable to segments.................................... (10) 8
----------- -----------
Operating profit................................................... 3,763 1,849
----------- -----------
----------- -----------
</TABLE>
During the first half of 1998 the Group`s semiconductor business was sold to
the American company Vishay Intertechnology, Inc. for a gain of approximately DM
300 and the Group sold two real-estate-project-companies to Berliner Volksbank
for a gain of approximately DM 100; during the first half of 1997
F-94
<PAGE>
DAIMLER-BENZ AG
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN MILLIONS)
7. OPERATING PROFIT (CONTINUED)
the Group sold its interests in AEG Electrocom GmbH and AEG/ElectroCom
International, Inc., the Group`s recognition and sorting systems business, to
Siemens for a gain of approximately DM 200.
8. EARNINGS PER SHARE
The earnings per share are determined as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
----------- -----------
<S> <C> <C>
IN MILLIONS OF DM OR
MILLIONS OF SHARES
EXCEPT EARNINGS PER
SHARE
Basic earnings per share:
Net income.............................................................. 2,010 992
----- -----
Weighted average number of shares outstanding........................... 527.5 525.2
----- -----
3.81 1.89
----- -----
----- -----
Diluted earnings per share:
Net income.............................................................. 2,010 992
Interest expense on convertible bonds and notes (net of tax)............ 24 14
----- -----
2,034 1,006
----- -----
Weighted average number of shares outstanding............................. 527.5 525.2
Dilutive convertible bonds and notes...................................... 24.9 8.8
----- -----
552.4 534.0
----- -----
3.68 1.88
----- -----
----- -----
</TABLE>
The weighted average number of shares outstanding have been retroactively
adjusted to give effect to the rights offering (see Note 6).
F-95
<PAGE>
DAIMLER-BENZ AG
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN MILLIONS)
9. SUMMARIZED FINANCIAL INFORMATION--DAIMLER-BENZ NORTH AMERICA
Summarized financial information for Daimler-Benz North America, a
wholly-owned subsidiary of Daimler-Benz AG, prepared under U.S. GAAP, is set
forth below:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Receivables.......................................................... $ 8,416 $ 7,070
Equipment on operating leases........................................ 5,589 5,075
Property, plant and equipment........................................ 1,537 1,363
Other assets......................................................... 2,631 2,447
--------- ------------
TOTAL ASSETS......................................................... 18,173 15,955
--------- ------------
--------- ------------
Current liabilities.................................................. 9,541 8,597
Non-current liabilities.............................................. 5,319 4,299
Stockholders' equity................................................. 3,313 3,059
--------- ------------
STOCKHOLDERS' EQUITY AND LIABILITIES................................. 18,173 15,955
--------- ------------
--------- ------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Net sales of products....................................................................... $ 7,696 $ 5,547
Finance and lease income.................................................................... 956 808
Operating costs............................................................................... 7,779 5,889
Net income.................................................................................... 348 138
</TABLE>
F-96
<PAGE>
DAIMLER-BENZ AG
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED AND IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1998
(NOTE 1) 1998
---------- -------------
<S> <C> <C>
Revenues............................................................................... $ 61,608 DM 102,897
Cost of sales.......................................................................... (49,331) (82,393)
---------- -------------
GROSS MARGIN........................................................................... 12,277 20,504
Selling, administrative and other expenses........................................... (7,474) (12,482)
Research and development............................................................. (2,578) (4,305)
Other income......................................................................... 770 1,286
---------- -------------
INCOME BEFORE FINANCIAL INCOME AND
INCOME TAXES......................................................................... 2,995 5,003
Financial income (expense), net...................................................... 812 1,356
---------- -------------
INCOME BEFORE INCOME TAXES............................................................. 3,807 6,359
Income taxes......................................................................... (1,789) (2,988)
Minority interest.................................................................... (53) (89)
---------- -------------
NET INCOME............................................................................. 1,965 3,282
---------- -------------
---------- -------------
EARNINGS PER SHARE
Basic earnings per share............................................................. 3.63 6.06
---------- -------------
---------- -------------
Diluted earnings per share........................................................... 3.57 5.97
---------- -------------
---------- -------------
</TABLE>
The Accompanying Note is an Integral Part of these Unaudited
Interim Condensed Consolidated Balance Sheets and Statements of Income and Cash
Flows
F-97
<PAGE>
DAIMLER-BENZ AG
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND IN MILLIONS)
<TABLE>
<CAPTION>
AT
AT SEPTEMBER 30, DECEMBER 31,
------------------------- --------------
<S> <C> <C> <C>
1998
(NOTE 1) 1998 1997
--------- -------------- --------------
ASSETS
Intangible assets.................................................... $ 1,127 DM 1,882 DM 1,915
Property, plant and equipment........................................ 13,044 21,786 20,656
Investments and long term financial assets........................... 2,305 3,850 3,453
Equipment on operating leases........................................ 9,637 16,095 14,931
--------- -------------- --------------
FIXED ASSETS........................................................... 26,113 43,613 40,955
--------- -------------- --------------
Inventories.......................................................... 9,914 16,559 14,390
Receivables
Receivables from financial services................................ 17,937 29,959 25,924
Trade and other receivables and other assets....................... 12,571 20,996 24,257
Securities........................................................... 11,441 19,108 14,687
Cash and cash equivalents............................................ 3,262 5,448 5,833
--------- -------------- --------------
CURRENT ASSETS......................................................... 55,125 92,070 85,091
--------- -------------- --------------
DEFERRED TAXES AND PREPAID EXPENSES.................................... 5,659 9,452 11,053
--------- -------------- --------------
TOTAL ASSETS..................................................... 86,897 145,135 137,099
--------- -------------- --------------
--------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY................................................... $ 20,395 DM 34,064 DM 35,085
--------- -------------- --------------
MINORITY INTEREST...................................................... 650 1,085 1,170
--------- -------------- --------------
Accrued liabilities for retirement plans............................. 10,714 17,896 17,200
Other accrued liabilities............................................ 12,365 20,652 19,418
--------- -------------- --------------
ACCRUED LIABILITIES.................................................... 23,079 38,548 36,618
--------- -------------- --------------
Financial liabilities................................................ 26,697 44,589 39,302
Trade and other liabilities.......................................... 14,002 23,386 21,195
--------- -------------- --------------
LIABILITIES............................................................ 40,699 67,975 60,497
--------- -------------- --------------
DEFERRED TAXES AND INCOME.............................................. 2,074 3,463 3,729
--------- -------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................... 86,897 145,135 137,099
--------- -------------- --------------
--------- -------------- --------------
</TABLE>
The Accompanying Note is an Integral Part of these Unaudited Interim
Condensed Consolidated Balance Sheets and Statements of Income and Cash Flows
F-98
<PAGE>
DAIMLER-BENZ AG
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED AND IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
<S> <C> <C>
1998
(NOTE 1) 1998
---------- --------------
Net income............................................................................ $ 1,965 DM 3,282
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets....................................... 3,433 5,734
Increase in accrued liabilities..................................................... 1,190 1,987
Changes in other operating assets and liabilities................................... 346 578
Other............................................................................... (29) (48)
---------- --------------
CASH PROVIDED BY OPERATING ACTIVITIES................................................. 6,905 11,533
---------- --------------
Purchase of fixed assets............................................................ (3,590) (5,996)
Increase in equipment on operating leases........................................... (3,856) (6,441)
Proceeds from disposal of fixed assets.............................................. 2,165 3,616
Acquisition of businesses........................................................... (480) (802)
Proceeds from disposal of businesses................................................ 777 1,297
Increase in receivables from financial services, net................................ (3,470) (5,795)
Sales (Acquisitions) of securities (other than trading), net........................ (2,458) (4,105)
Change in other cash................................................................ 51 85
---------- --------------
CASH USED FOR INVESTING ACTIVITIES.................................................... (10,861) (18,141)
---------- --------------
Change in commercial paper borrowings, net.......................................... 1,179 1,969
Change in financial liabilities..................................................... 3,033 5,066
Dividends paid...................................................................... (6,760) (11,291)
Proceeds from capital increases..................................................... 4,759 7,949
Proceeds from special distribution tax refund....................................... 1,741 2,908
Other............................................................................... (113) (189)
---------- --------------
CASH PROVIDED BY FINANCING ACTIVITIES................................................. 3,839 6,412
---------- --------------
Effect of foreign exchange rate changes on cash and cash equivalents (up to 3
months)........................................................................... (58) (97)
Net increase (decrease) in cash and cash equivalents (up to 3 months)............... (175) (293)
Cash and cash equivalents (up to 3 months) at beginning of period................... 3,288 5,491
---------- --------------
CASH AND CASH EQUIVALENTS (UP TO 3 MONTHS) AT END OF PERIOD........................... 3,113 5,198
---------- --------------
---------- --------------
</TABLE>
The Accompanying Note is an Integral Part of these Unaudited Interim Condensed
Consolidated Balance Sheets and Statements of Income and Cash Flows
F-99
<PAGE>
DAIMLER-BENZ AG
NOTE TO UNAUDITED INTERIM CONDENSED CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF INCOME AND CASH FLOWS
(UNAUDITED AND IN MILLIONS)
1.PRESENTATION OF CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF
INCOME AND CASH FLOWS
The condensed consolidated Balance Sheets and Statements of Income and Cash
Flows of Daimler-Benz Aktiengesellschaft and subsidiaries (the "Group") are
unaudited and have been prepared in accordance with United States generally
accepted accounting principles, except that the Group has accounted for certain
joint ventures in accordance with the proportionate method of accounting. All
amounts herein are shown in millions of Deutsche Marks ("DM") and for the nine
months ended September 30, 1998 are also presented in U.S. dollars, the latter
solely for the convenience of the reader, at the rate of DM 1.6702 = U.S. $1,
the Noon Buying Rate of the Federal Reserve Bank of New York on September 30,
1998.
The information included in the condensed consolidated Balance Sheets and
Statements of Income and Cash Flows is unaudited but reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of the results for the interim period
presented. The condensed consolidated Balance Sheets and Statements of Income
and Cash Flows should be read in conjunction with the December 31, 1997
consolidated financial statements and notes included in the Group's 1997 Annual
Report on Form 20-F.
F-100
<PAGE>
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF CHRYSLER, DAIMLER-BENZ OR DAIMLERCHRYSLER SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information......................... i
Incorporation of Certain Documents by
Reference................................... i
Enforceability of Civil Liabilities........... iii
Currency Presentation and Exchange Rates...... iii
Forward-Looking Information................... iv
Summary....................................... 1
Selected Historical and Pro Forma Combined
Financial Data.............................. 13
Unaudited Comparative Per Share Data.......... 19
Risk Factors.................................. 21
Use of Proceeds............................... 24
Purpose of Offering........................... 24
Market Prices................................. 25
Capitalization................................ 30
Dividends..................................... 31
The Transactions.............................. 32
Unaudited Pro Forma Combined Consolidated
Financial Information....................... 49
Business Description.......................... 60
Pension Contribution.......................... 62
Description of Chrysler Capital Stock......... 62
Description of DaimlerChrysler Ordinary
Shares...................................... 64
Comparison of Certain Rights of Stockholders
of Chrysler and DaimlerChrysler............. 68
Legal Matters................................. 80
Experts....................................... 80
Index to Financial Information................ F-1
</TABLE>
[LOGO]
Common Stock
($1.00 par value)
PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CHRYSLER,
DAIMLER-BENZ OR DAIMLERCHRYSLER SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
SUCH INFORMATION.
--------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
The Offering.................................... S-1
PROSPECTUS
Available Information........................... i
Incorporation of Certain Documents by
Reference..................................... i
Enforceability of Civil Liabilities............. iii
Currency Presentation and Exchange Rates........ iii
Forward-Looking Information..................... iv
Summary......................................... 1
Selected Historical and Pro Forma Combined
Financial Data................................ 13
Unaudited Comparative Per Share Data............ 19
Risk Factors.................................... 21
Use of Proceeds................................. 24
Purpose of Offering............................. 24
Market Prices................................... 25
Capitalization.................................. 30
Dividends....................................... 31
The Transactions................................ 32
Unaudited Pro Forma Combined Consolidated
Financial Information......................... 49
Business Description............................ 60
Pension Contribution............................ 62
Description of Chrysler Capital Stock........... 62
Description of DaimlerChrysler Ordinary
Shares........................................ 64
Comparison of Certain Rights of Stockholders of
Chrysler and DaimlerChrysler.................. 68
Legal Matters................................... 80
Experts......................................... 80
Index to Financial Information.................. F-1
</TABLE>
23,500,000 Shares
[LOGO]
Common Stock
($1.00 par value)
PROSPECTUS SUPPLEMENT
- --------------------------------------------------------------------------------
