<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
--------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
-------------------- ----------------------
Commission file number 1-9161
----------------
CHRYSLER CORPORATION
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
STATE OF DELAWARE 38-2673623
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Chrysler Drive, Auburn Hills, Michigan 48326-2766
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(Address of principal executive offices) (Zip Code)
</TABLE>
(248) 576-5741
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
---- ----
The registrant had 645,490,901 shares of common stock outstanding as of March
31, 1998.
<PAGE> 2
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
Part I. FINANCIAL INFORMATION --------
<S> <C> <C>
Item 1. Financial Statements 1-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 5. Other Information 13-15
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 17
Exhibit Index 18
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (unaudited)
For the Three Months Ended March 31, 1998 and 1997
(In millions of dollars)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Sales of manufactured products $ 15,908 $ 15,156
Finance and insurance revenues 444 410
Other revenues 448 550
------------ ------------
TOTAL REVENUES 16,800 16,116
------------ ------------
Costs, other than items below 12,556 11,968
Depreciation and special tools amortization 848 678
Selling and administrative expenses 1,131 1,207
Employee retirement benefits 315 325
Interest expense 278 234
------------ ------------
TOTAL EXPENSES 15,128 14,412
------------ ------------
EARNINGS BEFORE INCOME TAXES 1,672 1,704
Provision for income taxes 620 675
------------ ------------
NET EARNINGS $ 1,052 $ 1,029
============ ============
(In dollars or millions of shares)
BASIC EARNINGS PER COMMON SHARE $ 1.63 $ 1.47
============ ============
Average common shares outstanding 646.1 697.7
DILUTED EARNINGS PER COMMON SHARE $ 1.60 $ 1.45
============ ============
Average common and dilutive equivalent shares outstanding 656.3 708.4
DIVIDENDS DECLARED PER COMMON SHARE $ 0.40 $ 0.40
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
Item 1. FINANCIAL STATEMENTS - Continued
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In millions of dollars)
<TABLE>
<CAPTION>
1998 1997
------------- ------------------------------
March 31 Dec. 31 March 31
------------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 5,777 $ 4,898 $ 6,202
Marketable securities 2,937 2,950 2,461
------------ ------------ ------------
Total cash, cash equivalents and marketable securities 8,714 7,848 8,663
Accounts receivable - trade and other 2,002 1,646 1,763
Inventories 5,456 4,738 5,562
Prepaid employee benefits, taxes and other expenses 1,598 2,193 1,723
Finance receivables and retained interests in
sold receivables 15,595 13,518 13,983
Property and equipment 18,230 17,968 15,291
Special tools 4,514 4,572 3,924
Intangible assets 1,543 1,573 1,973
Other noncurrent assets 6,604 6,362 6,714
------------ ------------ -------------
TOTAL ASSETS $ 64,256 $ 60,418 $ 59,596
============ ============ =============
LIABILITIES:
Accounts payable $ 10,435 $ 9,512 $ 9,402
Accrued liabilities and expenses 9,751 9,717 8,981
Short-term debt 4,155 3,841 3,804
Payments due within one year on long-term debt 3,032 2,638 2,847
Long-term debt 10,437 9,006 9,296
Accrued noncurrent employee benefits 9,875 9,841 9,599
Other noncurrent liabilities 4,561 4,501 3,900
------------ ------------ ------------
TOTAL LIABILITIES 52,246 49,056 47,829
------------ ------------ ------------
SHAREHOLDERS' EQUITY: (shares in millions)
Preferred stock - $1 per share par value; authorized 20.0 shares; Series A
Convertible Preferred Stock; issued and outstanding: 1998 - 0.01 shares;
1997 - 0.02 and 0.03 shares, respectively (aggregate liquidation
preference 1998 - $7 million; 1997 -$8 million and $15 million,
respectively) * * *
Common stock - $1 per share par value; authorized
1,000.0 shares; issued: 1998 - 823.2 shares; 1997 -
823.1 and 822.3 shares, respectively 823 823 822
Additional paid-in capital 5,219 5,231 5,163
Retained earnings 11,392 10,605 9,560
Treasury stock - at cost: 1998 - 177.7 shares;
1997 - 174.7 and 134.4 shares, respectively (5,424) (5,297) (3,778)
------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY 12,010 11,362 11,767
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 64,256 $ 60,418 $ 59,596
============ ============ ============
</TABLE>
* Less than $50,000
See notes to consolidated financial statements.
2
<PAGE> 5
Item 1. FINANCIAL STATEMENTS - CONTINUED
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
For the Three Months Ended March 31, 1998 and 1997
(In millions of dollars)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,108 $ 1,028
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (1,041) (968)
Sales and maturities of marketable securities 1,335 1,075
Finance receivables acquired (6,980) (5,959)
Finance receivables collected 2,164 1,647
Proceeds from sales of finance receivables 4,065 3,581
Expenditures for property and equipment (655) (559)
Expenditures for special tools (342) (273)
Purchases of vehicle operating leases (590) (299)
Proceeds from sales of vehicles under purchased
operating leases 57 31
Other 60 2
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (1,927) (1,722)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt 314 590
Proceeds from long-term borrowings 2,683 3,134
Payments on long-term borrowings (900) (1,168)
Repurchases of common stock (197) (561)
Dividends paid (260) (283)
Other 58 26
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,698 1,738
------------ ------------
Change in cash and cash equivalents 879 1,044
Cash and cash equivalents at beginning of period 4,898 5,158
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,777 $ 6,202
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
Item 1. FINANCIAL STATEMENTS - CONTINUED
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 months ended March 31, 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 months ended March 31,
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
------------- ------------------------------
March 31 Dec. 31 March 31
------------- -------------- -------------
(In millions of dollars)
<S> <C> <C> <C>
Finished products, including service parts $ 2,106 $ 1,883 $ 1,674
Raw materials, finished production parts and supplies 1,575 1,445 1,462
Vehicles held for short-term lease 1,775 1,410 2,426
------------ ------------ ------------
TOTAL $ 5,456 $ 4,738 $ 5,562
============ ============ ============
</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 March 31
------------------------------
1998 1997
------------ ------------
(In millions of dollars)
<S> <C> <C>
Net earnings $ 1,052 $ 1,029
Other comprehensive loss (9) (24)
------------ ------------
Total comprehensive earnings $ 1,043 $ 1,005
============ ============
</TABLE>
NOTE 4. COMMON STOCK REPURCHASES
During the first quarter of 1998, Chrysler repurchased 5.3 million shares of its
common stock at a cost of $188 million. Chrysler plans to repurchase an
additional $1.6 billion of its common stock during the remainder of 1998 as part
of a $2 billion repurchase plan which began in November 1997. These planned
common stock repurchases are subject to market and general economic conditions.
4
<PAGE> 7
ITEM 1. FINANCIAL STATEMENTS - CONTINUED
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 5. STOCKHOLDERS' RIGHTS PLAN
In February 1998, the Board of Directors of Chrysler adopted a new Stockholders'
Rights Plan to replace Chrysler's former rights plan, which expired February 22,
1998. Under the new plan, Chrysler declared and distributed as a dividend one
Preferred Share Purchase Right (a "Right") for each share of Chrysler common
stock outstanding at the close of business on February 23, 1998 and authorized
the distribution of one Right for each subsequently issued share of common
stock. Each Right entitles a shareholder to purchase one two-hundredth of a
share of Junior Participating Cumulative Preferred Stock of Chrysler at a price
of $145. 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
after the time (the "Stock Acquisition Time") of a public announcement or
communication to Chrysler that a person or group has acquired or has 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 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 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 $145, a number of shares of Chrysler's common stock having a market value of
$290. 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 $145, shares of the surviving or acquiring company having
a market value of $290. Chrysler's directors may redeem the Rights at $0.01 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 23,
2008.
5
<PAGE> 8
ITEM 1. FINANCIAL STATEMENTS - CONTINUED
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 March 31
---------------------------
1998 1997
---------- --------
(In millions of dollars and shares,
except per-common-share amounts)
<S> <C> <C>
Net Earnings $ 1,052 $ 1,029
============ ============
Basic EPS:
- ----------
Weighted-average common shares outstanding 646.1 697.7
============ ============
Basic EPS $ 1.63 $ 1.47
============ ============
Diluted EPS:
- ------------
Weighted-average common shares outstanding 646.1 697.7
Shares issued on exercise of dilutive options 28.2 26.5
Shares purchased with proceeds of options (20.9) (19.0)
Shares applicable to convertible preferred stock 0.8 1.9
Shares contingently issuable 2.1 1.3
------------ ------------
Shares applicable to diluted earnings 656.3 708.4
============ ============
Diluted EPS $ 1.60 $ 1.45
============ ============
</TABLE>
Unexercised employee stock options to purchase 9.0 million and 0.2 million
shares of Chrysler common stock as of March 31, 1998 and 1997, 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.
6
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto.
FINANCIAL REVIEW
Chrysler reported earnings before income taxes of $1,672 million for the
first quarter of 1998, compared with $1,704 million for the first quarter of
1997. Net earnings for the first quarter of 1998 were $1,052 million, or $1.63
per common share ($1.60 diluted earnings per common share), compared with
$1,029 million, or $1.47 per common share ($1.45 diluted earnings per common
share), in the first quarter of 1997.
The lower pretax results in the first quarter of 1998 compared with the
first quarter of 1997 resulted primarily from an increase in average sales
incentives per vehicle, largely offset by an increase in vehicle shipments.
Chrysler's worldwide vehicle shipments in the first quarter of 1998 were
825,720, an increase of 44,481 units or 6 percent, compared with the first
quarter of 1997. Chrysler's vehicle shipments outside of the U.S., Canada and
Mexico in the first quarter of 1998 were 56,780, an increase of 3,928 units or 7
percent, compared with the first quarter of 1997. The increase in worldwide
vehicle shipments was primarily due to shipments of Chrysler's all-new Dodge
Durango sport-utility vehicle. Production of the Dodge Durango began in the
third quarter of 1997.
Chrysler's revenues and results of operations are principally derived from
the U.S. and Canada automotive marketplaces. In the first 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 17.0 million units for the first quarter of 1997.
Chrysler's U.S. and combined U.S. and Canada retail sales and market
share data for the first quarter of 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
First Quarter
-----------------------------------------------
Increase/
1998 1997 (Decrease)
----------- ----------- ----------
<S> <C> <C> <C>
U.S. Retail Market (1):
Car sales 175,577 202,977 (27,400)
Car market share 9.4% 10.0% (0.6)%
Truck sales (including minivans) 402,723 369,678 33,045
Truck market share 23.0% 21.9% 1.1%
Combined car and truck sales 578,300 572,655 5,645
Combined car and truck market share 16.0% 15.4% 0.6%
U.S. and Canada Retail Market (1):
Combined car and truck sales 642,089 626,844 15,245
Combined car and truck market share 16.4% 15.6% 0.8%
</TABLE>
(1) All retail sale and market share data include fleet sales.
Chrysler's U.S. car market share for the first quarter of 1998
decreased compared with the first quarter of 1997 primarily as a result of
reduced fleet sales of Chrysler's full-size sedans. Chrysler's U.S. truck
market share for the first quarter of 1998 increased compared with the first
quarter of 1997 primarily as a result of sales of the Dodge Durango.
Chrysler Financial Corporation ("CFC") reported earnings before income
taxes of $160 million for the first quarter of 1998 compared with $141 million
for the first quarter of 1997. CFC's net earnings were $108 million for the
first quarter of 1998 compared with $93 million for the first quarter of 1997.
The increase in net earnings for the first quarter of 1998 compared with the
first quarter of 1997 primarily reflects higher gains from sales of receivables
and lower operating expenses.
7
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
COMPARISON OF SELECTED ELEMENTS OF REVENUES AND EXPENSES
Chrysler's total revenues for the three months ended March 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
First Quarter
-------------------------------------
Increase/
1998 1997 (Decrease)
------------- ----------- ----------
(In millions of dollars)
<S> <C> <C> <C>
Sales of manufactured products $ 15,908 $ 15,156 5 %
Finance and insurance revenues 444 410 8 %
Other revenues 448 550 (19)%
--------- ---------
Total revenues $ 16,800 $ 16,116 4 %
========= =========
</TABLE>
The increase in Sales of manufactured products in the first quarter of 1998
compared with the first quarter of 1997 primarily reflects a 6 percent increase
in vehicle shipments.
The increase in Finance and insurance revenues in the first quarter of 1998
compared with the first quarter of 1997 was primarily attributable to increased
levels of vehicles under purchased operating leases.
The decrease in Other revenues in the first quarter of 1998 compared with
the first quarter of 1997 was primarily attributable to an initial public
offering ("IPO") of Chrysler's common stock interest in its Car Rental
Operations in December 1997.
Chrysler's total expenses for the three months ended March 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
First Quarter
-------------------------------------
Increase/
1998 1997 Decrease)
----------- ---------- ---------
(In millions of dollars)
<S> <C> <C> <C>
Costs, other than items below $ 12,556 $ 11,968 5 %
Depreciation and special tools amortization 848 678 25 %
Selling and administrative expenses 1,131 1,207 (6)%
Employee retirement benefits 315 325 (3)%
Interest expense 278 234 19 %
----------- ------------
Total expenses $ 15,128 $ 14,412 5 %
=========== ============
</TABLE>
Costs, other than items below increased in the first quarter of 1998
compared with the first quarter of 1997 primarily as a result of a 6 percent
increase in vehicle shipments. Costs, other than items below as a percent of
sales of manufactured products were 79 percent for the three months ended March
31, 1998 and 1997.
Depreciation and special tools amortization for the first quarter of 1998
increased compared with the first quarter of 1997 primarily as a result of
higher levels of property and equipment in use, including increased depreciation
related to higher levels of vehicles under purchased operating leases.
Selling and administrative expenses for the first quarter of 1998 decreased
compared with the first quarter of 1997 primarily as a result of the IPO of
Chrysler's common stock interest in its Car Rental Operations.
Interest expense for the first quarter of 1998 increased compared with the
first quarter of 1997 primarily as a result of higher average debt levels at
CFC, partially offset by lower average effective borrowing costs at CFC.
8
<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
COMPARISON OF SELECTED ELEMENTS OF REVENUES AND EXPENSES - CONTINUED
Chrysler's effective income tax rate was 37.1 percent in the first quarter
of 1998, compared with 39.6 percent in the first quarter of 1997. This decrease
reflects ongoing income tax reduction initiatives by Chrysler.
LIQUIDITY AND CAPITAL RESOURCES
Chrysler's consolidated combined cash, cash equivalents and marketable
securities totaled $8,714 million at March 31, 1998 (including $895 million held
by CFC), compared with $7,848 million at December 31, 1997 (including $788
million held by CFC). The increase in Chrysler's combined cash, cash equivalents
and marketable securities in the first quarter of 1998 was primarily the result
of cash provided by a net increase in total debt and cash generated by operating
activities, partially offset by capital expenditures, net finance receivables
acquired, dividend payments and common stock repurchases.
During the first quarter of 1998, Chrysler repurchased 5.3 million shares
of its common stock at a cost of $188 million. Chrysler plans to repurchase an
additional $1.6 billion of its common stock during the remainder of 1998 as part
of a $2 billion repurchase plan which began in November 1997. These planned
common stock repurchases are subject to market and general economic conditions.
At March 31, 1998, Chrysler (excluding CFC) had debt maturities totaling
$121 million through 2000. At March 31, 1998, Chrysler had a $2.6 billion
revolving credit agreement which expires in April 2002. There were no amounts
outstanding under this revolving credit agreement at March 31, 1998. Chrysler
believes that cash from operations and its cash position will be sufficient to
meet its capital expenditure, debt maturity, common stock repurchase, dividend
payment and other funding requirements.
Receivable sales continued to be a significant source of funding for CFC,
which realized $2.2 billion of net proceeds from the sale of automotive retail
receivables in the first quarter of 1998 compared with $1.4 billion of net
proceeds in the first quarter of 1997. In addition, securitization of revolving
wholesale account balances provided funding for CFC which aggregated $5.9
billion and $6.8 billion at March 31, 1998 and 1997, respectively.
At March 31, 1998, CFC had contractual debt maturities of $5.4 billion for
the remainder of 1998 (including $3.3 billion of short-term notes), $3.4 billion
in 1999 and $3.2 billion in 2000. 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. At March 31, 1998,
$2 million was outstanding under CFC's revolving credit facilities. During the
first quarter of 1998, CFC began the process of negotiating a new revolving
credit facility to replace its $2 billion revolving credit facility which
expires in April 1998. CFC believes that cash provided by operations, receivable
sales, access to term debt markets and issuance of commercial paper will provide
sufficient liquidity to meet its debt maturity and other funding requirements.
9
<PAGE> 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
OUTLOOK
The statements contained in this Outlook section are based on management's
current expectations. With the exception of the historical information contained
herein, the statements presented in this Outlook section are forward-looking
statements that involve numerous risks and uncertainties. Actual results may
differ materially.
In the second quarter of 1998, Chrysler will begin volume production of
the all-new Chrysler LHS and 300M sedans. In the second quarter of 1998,
Chrysler will cease production of its current Jeep(R) Grand Cherokee and begin
the changeover to its all-new Jeep Grand Cherokee. Production of the all-new
Jeep Grand Cherokee will begin in the third quarter of 1998. Chrysler currently
estimates that this changeover will result in a decline in Jeep Grand Cherokee
production in 1998 of approximately 50,000 units as compared to 1997 production.
Chrysler's worldwide vehicle production in the first quarter of 1998 was
802,279 units, an increase of 40,034 units or 5 percent, as compared with the
first quarter of 1997. Worldwide vehicle production for the second quarter of
1998 is expected to be approximately 801,100 units, an increase of 95,600 units
or 14 percent, as compared with the second quarter of 1997. Future expected
production levels are heavily dependent on Chrysler's ability to maintain its
competitive position, continued favorable economic conditions in the U.S. and
Canada, the avoidance of work stoppages by represented employees and the
successful launch of Chrysler's new products.
Chrysler continues to operate in a very competitive automotive market
environment. This may limit Chrysler's net pricing flexibility in the near term.
In March 1998, Chrysler and General Motors announced that they are
considering a sale of New Venture Gear, Inc. ("NVG"), a joint venture
established in 1990. Chrysler and General Motors currently own 64 percent and 36
percent of NVG, respectively. NVG designs and manufactures transmissions and
transfer cases. NVG had sales of $1.4 billion in 1997, of which $0.8 billion
were sales to Chrysler.
In addition, Chrysler wishes to caution readers that several factors, as
well as those factors described elsewhere in this discussion or in other
Securities and Exchange Commission filings, in some cases have affected, and in
the future could affect, Chrysler's actual results and could cause Chrysler's
actual results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, Chrysler. Those factors include: government
regulations as they may affect Chrysler's ability to produce and sell the kinds
of vehicles that consumers demand, business conditions and growth in the
automotive industry and general economy; changes in gasoline and oil prices;
changes in consumer debt levels and interest rates; changes in consumer
preferences away from pickup trucks, sport-utility vehicles and minivans;
competitive factors, such as domestic and foreign rival car and truck offerings,
price pressures and sales incentives, and acceptance of new products; excess or
shortage of manufacturing capacity; risks and uncertainties associated with
Chrysler's expansion into international markets; and changes in foreign currency
exchange rates and the resulting impact on pricing strategies of major foreign
competitors. Additionally, several of Chrysler's competitors have larger
worldwide sales volumes and greater financial resources, which may, over time,
place Chrysler at a competitive disadvantage in responding to its competitors'
offerings, substantial changes in consumer preferences, government regulations,
or adverse economic conditions in the U.S. and Canada. Finally, the automotive
industry historically has been highly cyclical and the duration of these cycles
has been difficult to predict.
10
<PAGE> 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
NEW ACCOUNTING STANDARDS
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This Statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. This Statement
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures. Restatement of
disclosures for earlier periods is required. This Statement is effective for
Chrysler's financial statements for the year ended December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Opinion ("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 that entities capitalize certain internal-use software
costs once certain criteria are met. Currently, Chrysler generally expenses the
costs of developing or obtaining internal-use software as incurred.
Chrysler is currently evaluating SOP 98-1, but does not expect it to have a
material impact on its consolidated financial statements. This SOP is effective
for financial statements for fiscal years beginning after December 15, 1998.
Earlier application is encouraged in fiscal years for which annual financial
statements have not been issued.
REVIEW BY INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP, Chrysler's independent public accountants, performed
a review of the financial statements for the three months ended March 31, 1998
and 1997 in accordance with the standards for such reviews established by the
American Institute of Certified Public Accountants. The review did not
constitute an audit, and accordingly, Deloitte & Touche LLP did not express an
opinion on the aforementioned data. Refer to the Independent Accountants' Report
included at Exhibit 15A.
11
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As previously reported, on October 8,1997 a jury awarded $12.5 million in
compensatory damages and $250 million in punitive damages against Chrysler in
"Jimenez vs Chrysler Corporation", a case filed in U.S. District Court in South
Carolina. The complaint alleged that the liftgate latch striker of a 1985 Dodge
Caravan was defective and opened when the Caravan was struck by another vehicle
resulting in the ejection and death of an occupant. Chrysler has filed motions
challenging the verdict and the damage awards, and believes that it has
meritorious grounds upon which to base an appeal. A number of other complaints
are pending against Chrysler involving latches that were the subject of a
service action for minivans built before the 1996 model year. Where specified,
damages in such complaints (including jurisdictional minimums) aggregate
approximately $119 million in compensatory and $250 million in punitive damages
as of March 31, 1998. Specified damages represent amounts sought by plaintiffs
and do not necessarily constitute an accurate measure of Chrysler's ultimate
cost to resolve these complaints. Moreover, some of the complaints do not
specify damages.
Three new purported class action lawsuits, in addition to the four
purported class actions previously reported, allege that the paint applied to
all vehicles manufactured by Chrysler between 1982 and 1997 delaminates, peels
or chips as the result of defective paint, paint primer, or application
processes. One of the new cases is pending in the U.S. District Court for the
Southern District of Illinois, and the other two are pending in the Superior
Court in San Francisco County, California. Plaintiffs seek unspecified
compensatory and punitive damages, costs of repair or replacement, attorneys'
fees and costs.
The U.S. Attorney's Office in Indianapolis, Indiana and the Criminal
Investigation Division of the U.S. Environmental Protection Agency are
investigating certain wastewater discharges at Chrysler's transmission plant in
Kokomo, Indiana. Chrysler is unable to estimate the amount of fines and
penalties, if any, that may ultimately be imposed in connection with this
matter.
12
<PAGE> 15
Item 5. OTHER INFORMATION
SUPPLEMENTAL INFORMATION
CHRYSLER (WITH CFC AND CAR RENTAL OPERATIONS ON AN EQUITY BASIS)
STATEMENT OF EARNINGS (unaudited)
For the Three Months Ended March 31, 1998 and 1997
(In millions of dollars)
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Sales of manufactured products $ 15,715 $ 15,261
Equity in earnings of unconsolidated subsidiaries and affiliates 182 133
Interest income and other revenues 201 201
------------ ------------
TOTAL REVENUES 16,098 15,595
------------ ------------
Costs, other than items below 12,242 11,866
Depreciation and special tools amortization 773 641
Selling and administrative expenses 1,024 999
Employee retirement benefits 309 322
Interest expense 78 63
------------ ------------
TOTAL EXPENSES 14,426 13,891
------------ ------------
EARNINGS BEFORE INCOME TAXES 1,672 1,704
Provision for income taxes 620 675
------------ ------------
NET EARNINGS $ 1,052 $ 1,029
============ ============
</TABLE>
This Supplemental Information does not present the results of operations of
Chrysler in accordance with generally accepted accounting principles. This
Supplemental Information reflects the results of operations of Chrysler with its
investments in Chrysler Financial Corporation ("CFC") and short-term vehicle
rental subsidiaries (the "Car Rental Operations") accounted for on an equity
basis rather than as consolidated subsidiaries and, therefore, does not comply
with Statement of Financial Accounting Standards ("SFAS") No. 94, "Consolidation
of All Majority-Owned Subsidiaries." Because the operations of CFC and the Car
Rental Operations are different in nature than Chrysler's manufacturing
operations, management believes that this disaggregated financial data enhances
an understanding of the consolidated financial statements. In December 1997,
Chrysler completed an initial public offering of its common stock interest in
the Car Rental Operations.
13
<PAGE> 16
Item 5. OTHER INFORMATION - CONTINUED
SUPPLEMENTAL INFORMATION
CHRYSLER (WITH CFC AND CAR RENTAL OPERATIONS ON AN EQUITY BASIS)
BALANCE SHEET (unaudited)
(In millions of dollars)
<TABLE>
<CAPTION>
1998 1997
------------- ----------------------------
March 31 Dec. 31 March 31
------------- ------------ ------------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 5,341 $ 4,533 $ 5,560
Marketable securities 2,510 2,542 2,064
------------ ------------ -------------
Total cash, cash equivalents and marketable securities 7,851 7,075 7,624
Accounts receivable - trade and other 1,530 936 928
Inventories 5,456 4,738 4,644
Prepaid employee benefits, taxes and other expenses 1,582 2,174 1,686
Property and equipment 15,769 15,923 14,110
Special tools 4,514 4,572 3,924
Investments in and advances to unconsolidated subsidiaries 3,698 3,405 3,699
Intangible assets 1,543 1,573 1,612
Deferred tax assets 1,764 1,977 1,668
Other noncurrent assets 5,548 5,474 5,976
------------ ------------ -------------
TOTAL ASSETS $ 49,255 $ 47,847 $ 45,871
============ ============= =============
LIABILITIES:
Accounts payable $ 9,581 $ 8,599 $ 8,604
Accrued liabilities and expenses 9,611 9,303 8,719
Short-term debt 419 378 314
Payments due within one year on long-term debt 41 19 21
Amounts due CFC 1,264 1,667 626
Long-term debt 2,272 2,258 2,288
Accrued noncurrent employee benefits 9,816 9,783 9,537
Other noncurrent liabilities 4,241 4,478 3,995
------------ ------------ ------------
TOTAL LIABILITIES 37,245 36,485 34,104
------------ ------------ ------------
SHAREHOLDERS' EQUITY: (shares in millions)
Preferred stock - $1 per share par value; authorized 20.0 shares; Series A
Convertible Preferred Stock; issued and outstanding: 1998 - 0.01; shares 1997 -
0.02 and 0.03 shares, respectively (aggregate liquidation preference 1998 -
$7 million; 1997 - $8 million and $15 million, respectively) * * *
Common stock - $1 per share par value; authorized
1,000.0 shares; issued: 1998 - 823.2 shares; 1997 - 823.1
and 822.3 shares, respectively 823 823 822
Additional paid-in capital 5,219 5,231 5,163
Retained earnings 11,392 10,605 9,560
Treasury stock - at cost: 1998 - 177.7 shares;
1997 - 174.7 and 134.4 shares, respectively (5,424) (5,297) (3,778)
------------- -------------- -------------
TOTAL SHAREHOLDERS' EQUITY 12,010 11,362 11,767
------------- -------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 49,255 $ 47,847 $ 45,871
============= ============== =============
</TABLE>
* Less than $50,000
This Supplemental Information does not present the financial position of
Chrysler in accordance with generally accepted accounting principles. This
Supplemental Information reflects the financial position of Chrysler with its
investments in CFC and the Car Rental Operations accounted for on an equity
basis rather than as consolidated subsidiaries and, therefore, does not comply
with SFAS No. 94, "Consolidation of All Majority-Owned Subsidiaries." The
financial covenant contained in Chrysler's revolving credit facility is based on
this Supplemental Information. In addition, because the operations of CFC and
the Car Rental Operations are different in nature than Chrysler's manufacturing
operations, management believes that this disaggregated financial data enhances
an understanding of the consolidated financial statements. In December 1997,
Chrysler completed an initial public offering of its common stock interest in
the Car Rental Operations.
14
<PAGE> 17
Item 5. OTHER INFORMATION - Continued
SUPPLEMENTAL INFORMATION
CHRYSLER (WITH CFC AND CAR RENTAL OPERATIONS ON AN EQUITY BASIS)
CONDENSED STATEMENT OF CASH FLOWS (unaudited)
For the Three Months Ended March 31, 1998 and 1997
(In millions of dollars)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,173 $ 1,555
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (203) (181)
Sales and maturities of marketable securities 507 219
Expenditures for property and equipment (651) (540)
Expenditures for special tools (342) (273)
Purchases of vehicle operating leases (17) (89)
Proceeds from sales of vehicles under purchased
operating leases 27 12
Other 81 (11)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (598) (863)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt 41 (32)
Proceeds from long-term borrowings -- 1,088
Payments on long-term borrowings (6) (2)
Change in advances from CFC (403) (193)
Repurchases of common stock (197) (561)
Dividends paid (260) (283)
Other 58 26
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (767) 43
------- -------
Change in cash and cash equivalents 808 735
Cash and cash equivalents at beginning of period 4,533 4,825
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $5,341 $5,560
====== ======
</TABLE>
This Supplemental Information does not present the cash flows of Chrysler in
accordance with generally accepted accounting principles. This Supplemental
Information reflects the cash flows of Chrysler with its investments in CFC and
the Car Rental Operations accounted for on an equity basis rather than as
consolidated subsidiaries and, therefore, does not comply with SFAS No. 94,
"Consolidation of All Majority-Owned Subsidiaries." Because the operations of
CFC and the Car Rental Operations are different in nature than Chrysler's
manufacturing operations, management believes that this disaggregated financial
data enhances an understanding of the consolidated financial statements. In
December 1997, Chrysler completed an initial public offering of its common stock
interest in the Car Rental Operations.
15
<PAGE> 18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits filed with this Report are listed in the Exhibit Index which
immediately precedes such exhibits.
(b) Reports on Form 8-K
A report on Form 8-K, dated February 6, 1998, was filed during the three
months ended March 31, 1998, reporting the issuance of Preferred Share
Purchase Rights to stockholders of record as of February 23, 1998. This
item was reported under Item 5 of such Form 8-K.
16
<PAGE> 19
CONFORMED
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHRYSLER CORPORATION
------------------------------------
(Registrant)
Date: April 9, 1998 By J. D. Donlon, III
---------------------- ------------------------------
J. D. Donlon, III
Vice President and Controller
(Principal Accounting Officer)
17
<PAGE> 20
EXHIBIT INDEX
For Quarterly Report on Form 10-Q for the
Quarterly Period Ended March 31, 1998
EXHIBIT
4C Copy of Rights Agreement, dated as of February 4, 1998, between Chrysler
Corporation and First Chicago Trust Company of New York, as Rights
Agent, relating to Rights to purchase Chrysler Corporation Junior
Participating Cumulative Preferred Stock. Filed as Exhibit 1 to Chrysler
Corporation Current Report on Form 8-K, dated February 6, 1998, and
incorporated herein by reference.
15A Letter, dated April 8, 1998, re unaudited interim information. (Filed
with this report).
15B Letter, dated April 8, 1998, re unaudited interim information. (Filed
with this report).
27 Financial Data Schedule for three months ended March 31, 1998
(Filed with this report).
18
<PAGE> 1
EXHIBIT 15A
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 March 31, 1998 and 1997
and the related condensed consolidated statements of earnings and cash flows for
the three-month periods ended March 31, 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 previously 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.
Detroit, Michigan
April 8, 1998
<PAGE> 1
EXHIBIT 15B
April 8, 1998
Chrysler Corporation
1000 Chrysler Drive
Auburn Hills, Michigan
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Chrysler Corporation and consolidated subsidiaries for the
three-month periods ended March 31, 1998 and 1997, as indicated in our report
dated April 8, 1998. Because we did not perform an audit, we expressed no
opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is
incorporated by reference in the following Registration Statements:
<TABLE>
<CAPTION>
REGISTRATION
FORM STATEMENT NO. DESCRIPTION
<S> <C> <C>
S-8 33-5588 Chrysler Salaried Employees' Savings Plan
S-8 33-6117 Chrysler Corporation Stock Option Plan
S-3 33-13739 Chrysler Corporation Common Stock deliverable to Selling
stockholder named therein
S-3 33-15716 Chrysler Corporation Common Stock deliverable to Selling
stockholders named therein
S-8 33-15544 Chrysler Corporation Common Stock
(Post-Effective deliverable pursuant to the 1972 and 1980
Amendment No. 1) American Motors Corporation Stock Option Plans
S-3 33-15849 Chrysler Corporation Debt Securities
S-3 33-22233 Chrysler Corporation Common Stock deliverable to Selling
stockholders named therein
S-3 33-39688 Chrysler Corporation Common Stock deliverable to Selling
stockholders named therein
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
REGISTRATION
FORM STATEMENT NO. DESCRIPTION
<S> <C> <C>
S-8 33-47986 Chrysler Corporation 1991 Stock Compensation Plan
S-3 33-59294 Chrysler Corporation Common Stock deliverable to Selling
stockholder named therein
S-8 33-55817 Chrysler Corporation 1991 Stock Compensation Plan
S-3 33-21589 Chrysler Corporation Debt Securities
S-4 333-21849 Chrysler Corporation Debt Securities
</TABLE>
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
Detroit, Michigan
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,777
<SECURITIES> 2,937
<RECEIVABLES> 2,002
<ALLOWANCES> 66
<INVENTORY> 5,456
<CURRENT-ASSETS> 0
<PP&E> 27,295
<DEPRECIATION> 9,065
<TOTAL-ASSETS> 64,256
<CURRENT-LIABILITIES> 0
<BONDS> 10,437
0<F2>
0
<COMMON> 823
<OTHER-SE> 11,187
<TOTAL-LIABILITY-AND-EQUITY> 64,256
<SALES> 15,908
<TOTAL-REVENUES> 16,800
<CGS> 12,556<F1>
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 278
<INCOME-PRETAX> 1,672
<INCOME-TAX> 620
<INCOME-CONTINUING> 1,052
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,052
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.60
<FN>
<F1> Excludes depreciation and special tools
amortization and employee retirement benefits.
<F2> Less than $50,000
</FN>
</TABLE>
