1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995, 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
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 38-2673623
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12000 CHRYSLER DRIVE, HIGHLAND PARK, MICHIGAN 48288-0001
(Address of principal executive offices) (Zip Code)
(313) 956-5741
(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 382,436,427 shares of common stock outstanding as of
June 30, 1995.
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2
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
PAGE NO.
--------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements..................................................... 1-5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 6-10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................ 10-11
Item 4. Submission of Matters to a Vote of Security Holders...................... 12
Item 5. Other Information........................................................ 13-15
Item 6. Exhibits and Reports on Form 8-K......................................... 16
Signature Page..................................................................... 17
Exhibit Index...................................................................... 18
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ------------------
1995 1994 1995 1994
------- ------- ------- -------
(IN MILLIONS OF DOLLARS)
Sales of manufactured products.......................... $11,653 $12,369 $24,482 $24,920
Finance and insurance income............................ 408 332 788 676
Other income............................................ 455 383 859 712
------- ------- ------- -------
TOTAL REVENUES..................................... 12,516 13,084 26,129 26,308
------- ------- ------- -------
Costs, other than items below........................... 9,817 9,375 20,333 18,981
Depreciation of property and equipment.................. 268 232 539 509
Amortization of special tools........................... 322 276 614 506
Selling and administrative expenses..................... 1,076 997 2,084 1,952
Pension expense......................................... 95 158 200 335
Nonpension postretirement benefit expense............... 198 204 404 407
Interest expense........................................ 270 249 515 482
Special plant provision (Note 8)........................ 232 -- 232 --
------- ------- ------- -------
TOTAL EXPENSES..................................... 12,278 11,491 24,921 23,172
------- ------- ------- -------
EARNINGS BEFORE INCOME TAXES....................... 238 1,593 1,208 3,136
Provision for income taxes.............................. 103 637 481 1,242
------- ------- ------- -------
NET EARNINGS....................................... $ 135 $ 956 $ 727 $ 1,894
Preferred stock dividends............................... 3 20 17 40
------- ------- ------- -------
NET EARNINGS ON COMMON STOCK....................... $ 132 $ 936 $ 710 $ 1,854
======= ======= ======= =======
(IN DOLLARS OR MILLIONS OF SHARES)
PRIMARY EARNINGS PER COMMON SHARE....................... $ 0.35 $ 2.61 $ 1.92 $ 5.16
======= ======= ======= =======
Average common and dilutive equivalent shares
outstanding........................................... 378.7 359.1 370.7 359.6
FULLY DILUTED EARNINGS PER COMMON SHARE................. $ 0.34 $ 2.35 $ 1.81 $ 4.64
======= ======= ======= =======
Average common and dilutive equivalent shares
outstanding........................................... 390.2 407.5 400.8 407.9
DIVIDENDS DECLARED PER COMMON SHARE..................... $ 0.50 $ 0.25 $ 0.90 $ 0.45
See notes to consolidated financial statements.
1
4
ITEM 1. FINANCIAL STATEMENTS -- CONTINUED
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
1995 1994
----------- ---------------------------
JUNE 30 DECEMBER 31 JUNE 30
----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS OF DOLLARS)
ASSETS:
Cash and cash equivalents....................................... $ 4,008 $ 5,145 $ 5,654
Marketable securities........................................... 3,828 3,226 1,212
Accounts receivable -- trade and other.......................... 2,189 1,695 1,915
Inventories (Note 2)............................................ 3,680 3,356 3,430
Prepaid taxes, pension and other expenses....................... 950 1,330 693
Finance receivables, retained interests in sold receivables and
other related amounts......................................... 12,496 12,433 11,401
Property and equipment.......................................... 11,637 11,073 9,942
Special tools................................................... 3,449 3,643 3,378
Intangible assets............................................... 2,124 2,162 4,276
Deferred tax assets............................................. 343 395 1,559
Other assets.................................................... 5,343 5,081 2,642
----------- ------------ -----------
TOTAL ASSETS.............................................. $50,047 $ 49,539 $46,102
=========== ============ ===========
LIABILITIES:
Accounts payable................................................ $ 7,739 $ 7,826 $ 7,190
Short-term debt................................................. 3,689 4,645 3,781
Payments due within one year on long-term debt.................. 1,472 811 1,110
Accrued liabilities and expenses................................ 5,725 5,582 4,891
Long-term debt.................................................. 8,119 7,650 7,361
Accrued noncurrent employee benefits............................ 8,941 8,595 9,659
Other noncurrent liabilities.................................... 3,852 3,736 3,606
----------- ------------ -----------
TOTAL LIABILITIES......................................... 39,537 38,845 37,598
----------- ------------ -----------
SHAREHOLDERS' EQUITY: (shares in millions)
(Notes 5, 6 and 7)
Preferred stock -- $1 per share par value; authorized 20.0
shares; Series A Convertible Preferred Stock; issued and
outstanding: 1995 and 1994 -- 0.3 and 1.7 shares, respectively
(aggregate liquidation preference $128 million and $863
million, respectively)........................................ * 2 2
Common stock -- $1 per share par value; authorized 1,000.0
shares; issued: 1995 and 1994 -- 404.9 shares and 364.1
shares, respectively.......................................... 405 364 364
Additional paid-in capital...................................... 5,503 5,536 5,532
Retained earnings............................................... 5,414 5,006 2,834
Treasury stock -- at cost: 1995 -- 22.5 shares; 1994 -- 9.0 and
9.9 shares, respectively...................................... (812) (214) (228)
----------- ------------ -----------
TOTAL SHAREHOLDERS' EQUITY................................ 10,510 10,694 8,504
----------- ------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $50,047 $ 49,539 $46,102
=========== ============ ===========
- -------------------------
* Less than $1 million
See notes to consolidated financial statements.
2
5
ITEM 1. FINANCIAL STATEMENTS -- CONTINUED
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
1995 1994
-------- -------
(IN MILLIONS OF
DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................................. $ 727 $ 1,894
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization.......................................... 1,153 1,015
Special plant provision (Note 8)....................................... 232 --
Provision for credit losses............................................ 189 90
Deferred income taxes.................................................. 111 659
Change in receivables.................................................. 1,196 (581)
Change in inventories.................................................. (325) 160
Change in prepaid expenses and other assets............................ (185) 81
Change in accounts payable and accrued and other liabilities........... 579 81
Other.................................................................. 140 44
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... 3,817 3,443
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities..................................... (3,195) (1,857)
Sales and maturities of marketable securities.......................... 2,640 1,680
Finance receivables acquired........................................... (12,291) (9,577)
Finance receivables collected.......................................... 2,834 2,050
Proceeds from sales of finance receivables............................. 7,288 6,702
Expenditures for property and equipment................................ (1,415) (1,117)
Expenditures for special tools......................................... (431) (438)
Other.................................................................. 367 112
-------- -------
NET CASH USED IN INVESTING ACTIVITIES............................. (4,203) (2,445)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt (less than 90-day maturities)................ (956) 484
Proceeds from long-term borrowings..................................... 1,833 703
Payments on long-term borrowings....................................... (714) (393)
Repurchase of common stock (Note 6).................................... (608) --
Dividends paid......................................................... (322) (182)
Other.................................................................. 16 4
-------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............... (751) 616
-------- -------
Change in cash and cash equivalents...................................... (1,137) 1,614
Cash and cash equivalents at beginning of period......................... 5,145 4,040
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................... $ 4,008 $ 5,654
======== =======
See notes to consolidated financial statements.
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6
ITEM 1. FINANCIAL STATEMENTS -- CONTINUED
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. 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. Intercompany accounts and transactions
have been eliminated in consolidation. The unaudited consolidated financial
statements of Chrysler for the three and six months ended June 30, 1995 and 1994
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 six
months ended June 30, 1995 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, 1994. Amounts for 1994 have been reclassified to conform with
current period classifications.
NOTE 2. INVENTORIES
Inventories, summarized by major classification, were as follows:
1995 1994
------- -----------------------
JUNE 30 DECEMBER 31 JUNE 30
-------- ------------ -------
(IN MILLIONS OF DOLLARS)
Finished products, including service parts...................... $1,197 $1,145 $ 993
Raw materials, finished production parts and supplies........... 1,410 1,223 1,143
Vehicles held for short-term lease.............................. 1,073 988 1,294
------ ------------ ------
TOTAL...................................................... $3,680 $3,356 $3,430
====== ========== ======
NOTE 3. CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1995, Chrysler adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan
- -- Income Recognition and Disclosures." These new accounting standards require
creditors to evaluate the collectibility of both contractual interest and
principal of receivables when evaluating the need for a loss accrual. The
implementation of these new accounting standards did not have a material impact
on Chrysler's consolidated operating results or financial position.
NOTE 4. SALES OF AUTOMOTIVE ASSETS AND INVESTMENTS
Chrysler sold its wiring harness operations and certain of its soft trim
operations in the first and second quarters of 1994, respectively, and entered
into long-term supply agreements with each of the purchasers. Aggregate net
proceeds from the sales and the supply agreements were $315 million. The related
pretax gains of $254 million were deferred and are being recognized over the
periods of the respective supply agreements.
NOTE 5. PREFERRED STOCK CONVERSION AND SUPPLEMENTARY EARNINGS PER SHARE DATA
During the second quarter and the first six months of 1995, holders of the
Series A Convertible Preferred Stock converted 699,575 and 1,469,172 shares,
respectively, of preferred stock into 19.4 and 40.8 million shares of common
stock, respectively. Primary earnings per common share for the second quarter
and the first six months of 1995 were calculated based upon a weighted average
of common shares outstanding which included the additional shares from the
preferred stock conversions. If all of the preferred stock conversions had
occurred on January 1, 1995, primary earnings per common share for the first six
months of 1995 would have been $1.83.
4
7
ITEM 1. FINANCIAL STATEMENTS -- CONTINUED
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6. COMMON STOCK REPURCHASE
In December 1994, Chrysler's Board of Directors approved a $1 billion
common stock repurchase program, subject to market and business conditions.
During the second quarter and the first six months of 1995, Chrysler repurchased
5.5 and 14.1 million shares, respectively, of its common stock under this
program at a cost of $239 and $608 million, respectively.
NOTE 7. TRACINDA CORPORATION TENDER OFFER
On April 12, 1995, Tracinda Corporation ("Tracinda"), which owned
approximately 10 percent of the outstanding common stock of Chrysler, sent
Chrysler a letter proposing to acquire the remaining 90 percent of Chrysler's
common stock at $55 per share. After a thorough and careful review, Chrysler's
Board of Directors unanimously rejected the leveraged buy-out proposal. Tracinda
formally withdrew its $55 per share offer on May 31, 1995. On June 27, 1995,
Tracinda commenced a cash tender offer for up to 14 million shares of Chrysler
common stock at a price of $50 per share. Due to the small percentage of shares
sought by Tracinda, Chrysler's Board of Directors has determined not to take a
position with respect to the tender offer.
NOTE 8. SPECIAL PLANT PROVISION
The results of operations for the second quarter of 1995 include a $232
million provision for costs associated with planned production changes at
Chrysler's Newark assembly plant. The plant will end production of Chrysler's
LeBaron convertibles in July 1995. In addition, Newark production of the
Chrysler Concorde and Dodge Intrepid will be reduced to one shift in August 1995
and will end prior to production of a new vehicle in the fall of 1997. The
provision includes the recognition of supplemental unemployment benefits, job
security benefits and other related employee costs, and the write-down of
certain equipment and tooling.
5
8
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 $238 million for the
second quarter of 1995, compared with $1,593 million for the second quarter of
1994. For the first six months of 1995, Chrysler reported earnings before income
taxes of $1,208 million, compared with $3,136 million for the first six months
of 1994. Pretax earnings for the second quarter and first six months of 1995
include a $232 million charge for costs associated with planned production
changes at Chrysler's Newark assembly plant. Net earnings for the second quarter
of 1995 were $135 million, or $0.35 per common share, compared with $956
million, or $2.61 per common share for the second quarter of 1994. Net earnings
for the six months ended June 30, 1995 were $727 million or $1.92 per common
share, compared with $1,894 million or $5.16 per common share for the comparable
1994 period. Net earnings for the second quarter and first six months of 1995
were reduced by $143 million as a result of the Newark assembly plant charge.
The lower operating results in the second quarter and first six months of
1995 compared with the corresponding periods of 1994 resulted primarily from
lower minivan production and costs associated with the model changeover and
launch of Chrysler's all-new minivans, the charge related to the Newark assembly
plant, higher incentives and material costs, costs associated with the voluntary
minivan owner service action, a lower mix of higher-margin vehicles, and lower
factory unit sales in Mexico. Lower minivan production and costs associated with
the model changeover and launch of the all-new minivans will continue into the
third quarter of 1995. In addition, Chrysler expects higher incentives and
material costs, a lower mix of higher-margin vehicles, and lower factory unit
sales in Mexico in the third quarter of 1995 as compared with the third quarter
of 1994. Pretax earnings for the first quarter and first six months of 1995
include a charge of $115 million for the voluntary minivan owner service action.
Chrysler's worldwide factory car and truck sales for the three and six
months ended June 30, 1995 were 635,151 and 1,349,916 units, respectively, a
decrease of 67,651 and 93,484 units from the second quarter and first six months
of 1994, respectively. Minivan factory units sales for the second quarter and
first six months of 1995 were 117,963 and 262,910 units, respectively, a
decrease of 59,637 and 92,417 units from the comparable 1994 periods. The
decline in minivan factory units sales was primarily attributable to the model
changeover and launch of Chrysler's all-new minivans. Combined U.S. and Canadian
dealers' days supply of vehicle inventory was 45 days at June 30, 1995, as
compared with 69 days at December 31, 1994 and 45 days at June 30, 1994.
Chrysler's revenues and results of operations are principally derived from
the U.S. and Canada automotive marketplace. In the second quarter of 1995, U.S.
and Canada vehicle industry retail sales, on a Seasonally Adjusted Annual Rate
basis, were 15.8 million cars and trucks, compared to 16.4 million units for the
second quarter of 1994, a decrease of 4 percent. This decrease is primarily due
to a slowdown in economic growth and higher interest rates, which resulted in
Chrysler increasing retail incentives in the first half of 1995 and lowering
total year 1995 planned production.
Chrysler's U.S. and Canada combined retail car and truck market share for
the three and six months ended June 30, 1995 decreased compared with the
corresponding 1994 periods. Increases in car market share
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- CONTINUED
were offset by decreases in truck market share in the second quarter and first
six months of 1995, as shown in the following table:
SECOND QUARTER SIX MONTHS
---------------------------------- --------------------------------------
INCREASE/ INCREASE/
1995 1994 (DECREASE) 1995 1994 (DECREASE)
------- ------- ---------- --------- --------- ----------
U.S. Retail Market(1):
Car sales......................... 228,183 234,299 (6,116) 442,219 448,281 (6,062)
Car market share.................. 9.7% 9.5% 0.2% 10.1% 9.6% 0.5%
Truck sales....................... 384,104 396,438 (12,334) 694,648 747,671 (53,023)
Truck market share................ 21.9% 22.9% (1.0)% 21.1% 23.1% (2.0)%
Combined car and truck sales...... 612,287 630,737 (18,450) 1,136,867 1,195,952 (59,085)
Combined car and truck market
share........................... 14.9% 15.0% (0.1)% 14.8% 15.1% (0.3)%
U.S. and Canada Retail Market(1):
Combined car and truck sales...... 680,505 709,158 (28,653) 1,253,637 1,334,453 (80,816)
Combined car and truck market
share........................... 15.2% 15.4% (0.2)% 15.1% 15.6% (0.5)%
- -------------------------
(1) All retail sale and market share data include fleet sales.
Chrysler's U.S. car market share increased in the second quarter and first
six months of 1995 primarily as a result of increased sales of Chrysler's
mid-size sedans and coupes. The decrease in Chrysler's U.S. truck market share
for the three and six months ended June 30, 1995 was primarily the result of
decreases in retail minivan sales of 17,147 and 51,274, respectively.
Chrysler vehicles manufactured and sold in Mexico during the second quarter
and first six months of 1995 were 4,300 and 10,100 units, respectively, a
decrease of 13,900 and 32,500 units from the corresponding 1994 periods,
respectively. The impact of the lower sales in Mexico during the second quarter
and first six months of 1995 was partially offset by increased sales of, and
higher profits on, vehicles manufactured in Mexico and exported to other
markets. The devaluation of the peso and the continuing economic uncertainties
in Mexico will continue to negatively impact Chrysler's operating results and
financial position for the remainder of 1995.
Pretax earnings of Chrysler Financial Corporation ("CFC") for the second
quarter of 1995 and 1994 were $127 million and $69 million, respectively. For
the six months ended June 30, 1995, CFC's pretax earnings were $236 million
compared with $144 million for the first six months of 1994. The improved
results in the second quarter and first six months of 1995 compared with the
corresponding 1994 periods were primarily the result of higher levels of
automotive financing and lower bank costs. CFC's net earnings for the second
quarter of 1995 and 1994 were $86 million and $44 million, respectively. CFC's
net earnings for the six months ended June 30, 1995 and 1994 were $155 million
and $91 million, respectively.
7
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 second quarter and first six months of
1995 and 1994 were as follows:
SECOND QUARTER SIX MONTHS
-------------------------------- --------------------------------
INCREASE/ INCREASE/
1995 1994 (DECREASE) 1995 1994 (DECREASE)
------- ------- ---------- ------- ------- ----------
Sales of manufactured products...... $11,653 $12,369 (6)% $24,482 $24,920 (2)%
Finance and insurance income........ 408 332 23% 788 676 17%
Other income........................ 455 383 19% 859 712 21%
------- ------- ------- -------
Total revenues................. $12,516 $13,084 (4)% $26,129 $26,308 (1)%
======= ======= ======= =======
The decrease in sales of manufactured products in the second quarter of
1995 as compared with the second quarter of 1994 primarily reflects a 10 percent
decrease in factory unit sales partially offset by an increase in average
revenue per unit, net of sales incentives, from $17,676 to $18,198. The decrease
in sales of manufactured products in the first six months of 1995 as compared
with the first six months of 1994 primarily reflects a 6 percent decrease in
factory unit sales partially offset by an increase in average revenue per unit,
net of sales incentives, from $17,236 to $17,964.
The increase in finance and insurance income for the three and six months
ended June 30, 1995 as compared with the corresponding 1994 periods was
primarily attributable to higher levels of automotive financing volume. Total
automotive financing volume in the second quarter and first six months of 1995
was $21.4 billion and $41.9 billion, respectively, compared with $17.9 billion
and $35.0 billion for the corresponding 1994 periods.
The increase in other income for the three and six months ended June 30,
1995 as compared with the corresponding periods in 1994 was principally due to
increased interest income resulting from higher cash, cash equivalents and
marketable securities balances and higher interest rates.
Chrysler's total expenses for the second quarter and first six months of
1995 and 1994 were as follows:
SECOND QUARTER SIX MONTHS
-------------------------------- --------------------------------
INCREASE/ INCREASE/
1995 1994 (DECREASE) 1995 1994 (DECREASE)
------- ------- ---------- ------- ------- ----------
Costs, other than items below....... $ 9,817 $ 9,375 5% $20,333 $18,981 7%
Depreciation of property and
equipment......................... 268 232 16% 539 509 6%
Amortization of special tools....... 322 276 17% 614 506 21%
Selling and administrative
expenses.......................... 1,076 997 8% 2,084 1,952 7%
Pension expense..................... 95 158 (40)% 200 335 (40)%
Nonpension postretirement benefit
expense........................... 198 204 (3)% 404 407 (1)%
Interest expense.................... 270 249 8% 515 482 7%
Special plant provision............. 232 -- -- 232 -- --
------- ------- ------- -------
Total expenses................. $12,278 $11,491 7% $24,921 $23,172 8%
======= ======= ======= =======
Costs, other than items below increased in the second quarter and first six
months of 1995, as compared with the corresponding 1994 periods, primarily as a
result of increased product costs and costs associated with the changeover and
launch of Chrysler's all-new minivans, partially offset by the effect of a
decrease in factory unit sales of 10 percent and 6 percent, respectively. The
increase in product costs for the second quarter and first six months of 1995
resulted primarily from higher material and warranty costs and increased product
content. In addition, Costs, other than items below for the six months ended
June 30, 1995 includes a charge of $115 million related to the voluntary minivan
owner service action. Costs, other than items below were 84
8
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- CONTINUED
percent and 83 percent of sales of manufactured products for the respective
three and six month periods ended June 30, 1995, compared with 76 percent for
both the three and six month periods ended June 30, 1994.
Depreciation of property and equipment for the second quarter and first six
months of 1995 increased as compared with the corresponding 1994 periods
primarily as a result of higher investments in, and modernization of, property
and equipment.
Special tooling amortization increased in the second quarter and first six
months of 1995 as compared with the corresponding 1994 periods primarily as a
result of production of Chrysler's all-new minivan and mid-size sedan products.
The increase in selling and administrative expenses for the second quarter
and first six months of 1995, as compared with the corresponding 1994 periods,
was principally due to increased advertising related to Chrysler's all-new
sedans and mid-size coupes.
Pension expense decreased for the three and six months ended June 30, 1995
as compared to the corresponding 1994 periods, due to improved funding of the
pension plans and an increase in the discount rate used to determine pension
expense.
The increase in interest expense for the three and six months ended June
30, 1995 was primarily due to higher average CFC borrowings, partially offset by
the effect of automotive debt repayments. CFC's average effective cost of
borrowings was 8.3 percent and 8.1 percent in the second quarter and first six
months of 1995, respectively, compared with 8.4 percent in both the
corresponding periods of 1994. This improvement in the average effective
borrowing costs reflects lower bank facility costs.
LIQUIDITY AND CAPITAL RESOURCES
Chrysler's combined cash, cash equivalents and marketable securities
totaled $7.8 billion at June 30, 1995 (including $988 million held by CFC),
compared with $8.4 billion at December 31, 1994. The decrease in the first six
months of 1995 was the result of capital expenditures, profit-based employee
payments, debt repayments, common stock repurchases and dividend payments,
largely offset by cash generated by operating activities.
In December 1994, Chrysler's Board of Directors approved a $1 billion
common stock repurchase program, subject to market and business conditions.
During the second quarter and the first six months of 1995, Chrysler repurchased
5.5 and 14.1 million shares, respectively, of its common stock under this
program at a cost of $239 and $608 million, respectively. During the second
quarter and the first six months of 1995, holders of the Series A Convertible
Preferred Stock converted 699,575 and 1,469,172 shares, respectively, of
preferred stock into 19.4 and 40.8 million shares of common stock, respectively.
In the second quarter of 1995, Chrysler increased its quarterly common
dividend from $0.40 to $0.50 per common share.
At June 30, 1995, Chrysler (excluding CFC), had debt maturities totaling
$226 million through 1997. During the first six months of 1995, Chrysler
redeemed $300 million of its 13% Debentures Due 1997 and repaid $170 million of
other debt. At June 30, 1995, Chrysler had a $1.7 billion revolving credit
agreement which expires in July 1999. At June 30, 1995, none of the commitment
was drawn upon. Chrysler believes that cash from operations and its cash
position will be sufficient to enable it to meet its capital expenditure, debt
maturity, common stock repurchase and other funding requirements.
Receivable sales continued to be a significant source of funding for CFC,
which realized $3.2 billion of net proceeds from the sale of automotive retail
receivables in the first six months of 1995, compared with $3.5 billion of net
proceeds in the first six months of 1994. In addition, securitization of
wholesale receivables
9
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- CONTINUED
provided funding for CFC which aggregated $7.3 billion and $4.5 billion at June
30, 1995 and 1994, respectively.
During the second quarter of 1995, CFC replaced its existing U.S. and
Canadian revolving credit and receivable sales agreements with new revolving
credit facilities totaling $8.0 billion. At June 30, 1995, no amounts were
outstanding under CFC's revolving credit facilities.
At June 30, 1995, CFC had contractual debt maturities of $4.4 billion
during the remainder of 1995 (including $3.4 billion of short-term notes), $1.6
billion in 1996 and $1.7 billion in 1997. 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 funding
requirements.
NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," effective for fiscal years
beginning after December 15, 1995. 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. Chrysler has not determined
the impact that the adoption of this accounting standard will have on its
consolidated operating results or financial position. Chrysler will adopt this
accounting standard on or before January 1, 1996, as required.
REVIEW BY INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP, Chrysler's independent public accountants, performed
a review of the financial statements for the three and six months ended June 30,
1995 and 1994 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
OTHER MATTERS
In December 1990 and January 1991, eight class action lawsuits were
commenced by separate plaintiffs against Chrysler and certain of its directors
in the Court of Chancery of the State of Delaware for New Castle County,
Delaware. The Complaints in these suits are very similar and allege that the
directors breached their fiduciary duties to stockholders by amending Chrysler's
Share Purchase Rights Plan in a manner designed to entrench themselves in office
and to impair the right of stockholders to avail themselves of offers to
purchase their shares by an acquiror not favored by management. The Complaints
ask for (a) certification of the class, (b) rescission of and an injunction
against implementation of the Rights Plan amendments, (c) an order that Chrysler
cooperate with Kirk Kerkorian, the holder of 9.8% of Chrysler's common stock at
the time the complaints were filed, and take steps to enhance its attractiveness
as a merger/acquisition candidate, and (d) damages and costs. On January 9,
1991, the eight suits were consolidated into one. On January 28, 1991,
10
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ITEM 1. LEGAL PROCEEDINGS -- CONTINUED
Chrysler filed an Answer and Affirmative Defenses in the consolidated case. On
March 7, 1991, the parties agreed to allow an Amended Complaint to be filed
which purports to assert a derivative claim brought on behalf of Chrysler, in
addition to class action claims as originally filed. In this regard, the Amended
Complaint alleges injury to Chrysler as a direct result of violations of
fiduciary duties by the individual defendants. On July 25, 1991, Chrysler filed
a motion to dismiss the consolidated lawsuit. On July 27, 1992, the Court
entered a memorandum opinion dismissing the complaint as to all claims for
relief other than rescission. Chrysler later filed a Motion for Reargument which
was denied on August 11, 1992. On June 6, 1995, Chrysler entered into a
Memorandum of Understanding which contemplates settlement of the litigation. The
Memorandum is subject to several conditions, including satisfactory completion
of discovery as to the fairness of the proposed settlement, and the settlement
itself is subject to Court approval. The Memorandum also contemplates that the
settlement, if approved, will consist of Chrysler's recent action further
amending its Rights Plan.
In April 1995, thirty four class action lawsuits were commenced by separate
plaintiffs against Chrysler, certain of its current and former directors and, in
some cases, Tracinda, a holding company wholly owned by Mr. Kerkorian and the
beneficial owner of approximately 9.41% of the outstanding common stock of
Chrysler as of June 30, 1995, and its affiliates, in the Court of Chancery of
the State of Delaware for New Castle County, Delaware. The Complaints in these
suits fall into two general categories: (a) those which allege that the
directors breached their fiduciary duties to stockholders by failing to
negotiate with Tracinda, regarding its proposal to acquire all of the
outstanding stock of Chrysler not then owned by it; and (b) those which allege
that the directors breached their fiduciary duties to stockholders by
contemplating, planning and/or effecting Tracinda's proposal at a time when the
market price of Chrysler's stock was depressed and did not reflect its true
value. The Complaints in the former category ask for, among other things, (a) an
injunction or an order obligating the Board of Directors to undertake an
evaluation of alternatives, including measures with respect to the Company's
Rights Plan, designed to maximize shareholder value, (b) a declaration that the
defendants have breached their fiduciary duties to the plaintiffs, (c)
compensatory damages and interest, and (d) costs and fees. The Complaints in the
latter category ask for, among other things, (a) a declaration that the
transaction proposed by Tracinda is unfair, unjust and inequitable, (b) an
injunction against implementation of the transaction proposed by Tracinda and
any improper device which impedes maximization of shareholder value, (c) damages
and interest, (d) costs and fees, and (e) such other relief as may be just and
proper. Four of these actions have subsequently been dismissed without prejudice
by the plaintiffs.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of Chrysler Corporation was held on May
18, 1995.
(c) At the meeting, the following matters were submitted to a vote of the
stockholders of Chrysler Corporation:
(1) the election of the following nominees as directors of Chrysler
Corporation. The vote with respect to each nominee was as follows:
NOMINEE FOR WITHHELD
---------------------------------------------------- ----------- ---------
Lilyan H. Affinito.................................. 327,577,744 6,780,932
Robert E. Allen..................................... 327,732,190 6,626,486
Joseph E. Antonini.................................. 325,859,741 8,498,935
Joseph A. Califano, Jr.............................. 327,185,076 7,173,600
Thomas G. Denomme................................... 327,761,319 6,597,357
Robert J. Eaton..................................... 327,724,066 6,634,610
Earl G. Graves...................................... 327,630,951 6,727,725
Kent Kresa.......................................... 327,836,762 6,521,914
Robert J. Lanigan................................... 327,787,151 6,571,525
Robert A. Lutz...................................... 327,743,357 6,615,319
Peter A. Magowan.................................... 327,781,971 6,576,705
Malcolm T. Stamper.................................. 327,750,039 6,608,637
Lynton R. Wilson.................................... 327,748,942 6,609,734
(2) a recommendation of the Board of Directors that the stockholders
appoint the firm of Deloitte and Touche LLP as independent accountants
to audit the books, records and accounts of Chrysler Corporation for
the year 1995. The vote on this matter was as follows:
BROKER
FOR AGAINST ABSTAIN NON-VOTES
- ----------- --------- --------- ----------
331,994,705 1,611,011 1,672,295 0
(3) a proposal by a stockholder requesting that the Board of Directors take
the necessary steps to provide for cumulative voting in the election of
directors. The vote on this matter was as follows:
BROKER
FOR AGAINST ABSTAIN NON-VOTES
- ----------- --------- --------- ----------
42,591,744 180,864,032 33,131,610 78,690,566
(4) a proposal by a stockholder requesting that the Board of Directors
institute an Executive Compensation Review and prepare a report
available to shareholders by October 1995 describing the results of
their review and any recommended changes in practice. The vote on this
matter was as follows:
BROKER
FOR AGAINST ABSTAIN NON-VOTES
- ----------- --------- --------- ----------
23,084,144 214,290,166 19,213,081 78,690,567
(5) a proposal by a stockholder requesting that the Board of Directors take
the necessary steps to limit each director's compensation to 1,000
shares of Chrysler common stock each year. The vote on this matter was
as follows:
BROKER
FOR AGAINST ABSTAIN NON-VOTES
- ----------- --------- --------- ----------
32,126,341 206,970,121 17,492,002 78,689,488
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ITEM 5. OTHER INFORMATION
SUPPLEMENTAL INFORMATION
CHRYSLER (WITH CFC AND CAR RENTAL OPERATIONS ON AN EQUITY BASIS)
STATEMENT OF EARNINGS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ------------------
1995 1994 1995 1994
------- ------- ------- -------
(IN MILLIONS OF DOLLARS)
Sales of manufactured products.......................... $11,776 $12,587 $24,721 $25,221
Equity in earnings of unconsolidated subsidiaries and
affiliates............................................ 132 54 229 104
Interest and other income............................... 125 77 246 132
------- ------- ------- -------
TOTAL REVENUES..................................... 12,033 12,718 25,196 25,457
------- ------- ------- -------
Costs, other than items below........................... 9,736 9,413 20,165 18,931
Depreciation of property and equipment.................. 252 214 506 469
Amortization of special tools........................... 322 276 614 506
Selling and administrative expenses..................... 912 800 1,764 1,564
Pension expense......................................... 93 156 196 331
Nonpension postretirement benefit expense............... 196 203 400 405
Interest expense........................................ 52 63 111 115
Special plant provision................................. 232 -- 232 --
------- ------- ------- -------
TOTAL EXPENSES..................................... 11,795 11,125 23,988 22,321
------- ------- ------- -------
EARNINGS BEFORE INCOME TAXES....................... 238 1,593 1,208 3,136
Provision for income taxes.............................. 103 637 481 1,242
------- ------- ------- -------
NET EARNINGS....................................... $ 135 $ 956 $ 727 $ 1,894
======= ======= ======= =======
This Supplemental Information, "Chrysler (with CFC and Car Rental
Operations on an Equity Basis)," reflects the results of operations of Chrysler
with its investments in Chrysler Financial Corporation ("CFC") and its
investments in short-term vehicle rental subsidiaries (the "Car Rental
Operations") accounted for on an equity basis rather than as consolidated
subsidiaries. This Supplemental Information does not purport to present results
of operations in accordance with generally accepted accounting principles
because it does not comply with Statement of Financial Accounting Standards
("SFAS") No. 94, "Consolidation of All Majority-Owned Subsidiaries." Due to the
fact that 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.
13
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ITEM 5. OTHER INFORMATION -- CONTINUED
SUPPLEMENTAL INFORMATION
CHRYSLER (WITH CFC AND CAR RENTAL OPERATIONS ON AN EQUITY BASIS)
BALANCE SHEET (UNAUDITED)
1995 1994
------- -----------------------
JUNE 30 DECEMBER 31 JUNE 30
------- ------------ -------
(IN MILLIONS OF DOLLARS)
ASSETS:
Cash and cash equivalents............................................. $ 3,781 $ 4,972 $ 5,479
Marketable securities................................................. 3,071 2,643 873
Accounts receivable -- trade and other................................ 680 459 1,109
Inventories........................................................... 2,882 2,645 2,395
Prepaid taxes, pension and other expenses............................. 885 1,272 632
Property and equipment................................................ 10,845 10,347 9,275
Special tools......................................................... 3,449 3,643 3,378
Investments in and advances to unconsolidated subsidiaries and
affiliated companies................................................ 3,692 3,642 3,705
Intangible assets..................................................... 1,754 1,781 3,841
Deferred tax assets................................................... 1,822 1,951 3,046
Other assets.......................................................... 5,019 4,722 2,090
------- ------------ -------
TOTAL ASSETS...................................................... $37,880 $ 38,077 $35,823
======== ============ ========
LIABILITIES:
Accounts payable...................................................... $ 7,234 $ 7,403 $ 6,695
Short-term debt....................................................... 140 140 134
Payments due within one year on long-term debt........................ 27 187 543
Accrued liabilities and expenses...................................... 5,458 5,333 4,646
Long-term debt........................................................ 1,797 2,097 2,119
Accrued noncurrent employee benefits.................................. 8,882 8,547 9,606
Other noncurrent liabilities.......................................... 3,832 3,676 3,576
------- ------------ -------
TOTAL LIABILITIES................................................. 27,370 27,383 27,319
------- ------------ -------
SHAREHOLDERS' EQUITY: (shares in millions)
Preferred stock -- $1 per share par value; authorized 20.0 shares;
Series A Convertible Preferred Stock; issued and outstanding: 1995
and 1994 -- 0.3 and 1.7 shares, respectively (aggregate liquidation
preference -- $128 million and $863 million, respectively).......... * 2 2
Common stock -- $1 per share par value; authorized 1,000.0 shares;
issued: 1995 and 1994 -- 404.9 shares and 364.1 shares,
respectively........................................................ 405 364 364
Additional paid-in capital............................................ 5,503 5,536 5,532
Retained earnings..................................................... 5,414 5,006 2,834
Treasury stock -- at cost: 1995 -- 22.5 shares; 1994 -- 9.0 and 9.9
shares, respectively................................................ (812) (214) (228)
------- ------------ -------
TOTAL SHAREHOLDERS' EQUITY........................................ 10,510 10,694 8,504
------- ------------ -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................ $37,880 $ 38,077 $35,823
======== ============ ========
- -------------------------
* Less than $1 million
This Supplemental Information, "Chrysler (with CFC and Car Rental
Operations on an Equity Basis)," 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. This Supplemental
Information does not purport to present financial position in accordance with
generally accepted accounting principles because it 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.
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ITEM 5. OTHER INFORMATION -- CONTINUED
SUPPLEMENTAL INFORMATION
CHRYSLER (WITH CFC AND CAR RENTAL OPERATIONS ON AN EQUITY BASIS)
STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
1995 1994
------- -------
(IN MILLIONS OF
DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................................. $ 727 $ 1,894
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization........................................... 1,120 975
Special plant provision................................................. 232 --
Equity in earnings of unconsolidated subsidiaries and affiliates........ (229) (104)
Deferred income taxes................................................... 111 659
Change in accounts receivable........................................... (222) (305)
Change in inventories................................................... (238) 49
Change in prepaid expenses and other assets............................. (183) 14
Change in accounts payable and accrued and other liabilities............ 661 181
Dividends received from affiliate....................................... 142 --
Other................................................................... 162 72
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......................... 2,283 3,435
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities...................................... (2,111) (1,071)
Sales and maturities of marketable securities........................... 1,708 896
Expenditures for property and equipment................................. (1,251) (1,031)
Expenditures for special tools.......................................... (431) (438)
Other................................................................... (4) 80
------- -------
NET CASH USED IN INVESTING ACTIVITIES.............................. (2,089) (1,564)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt (less than 90-day maturities)................. -- 34
Proceeds from long-term borrowings...................................... -- 1
Payments on long-term borrowings........................................ (470) (26)
Repurchase of common stock.............................................. (608) --
Dividends paid.......................................................... (322) (182)
Other................................................................... 15 4
------- -------
NET CASH USED IN FINANCING ACTIVITIES.............................. (1,385) (169)
------- -------
Change in cash and cash equivalents....................................... (1,191) 1,702
Cash and cash equivalents at beginning of period.......................... 4,972 3,777
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 3,781 $ 5,479
======= =======
This Supplemental Information, "Chrysler (with CFC and Car Rental
Operations on an Equity Basis)," 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. This Supplemental Information
does not purport to present cash flows in accordance with generally accepted
accounting principles because it does not comply with SFAS No. 94,
"Consolidation of All Majority-Owned Subsidiaries." Due to the fact that 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.
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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
There were no reports on Form 8-K filed during the three months ended June
30, 1995.
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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: July 18, 1995 By J. D. Donlon, III
--------------------------------------
J. D. Donlon, III
Vice President and Controller
(Chief Accounting Officer)
17
20
EXHIBIT INDEX
FOR QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 1995
EXHIBIT
- -------
10-B-1 Copy of Chrysler Corporation Incentive Compensation Plan, as amended and in effect
on and after May 31, 1995 (Filed with this report.)
10-B-4 Copy of Chrysler Corporation Discretionary Incentive Compensation Plan as in effect
on and after May 31, 1995 (Filed with this report.)
10-B-5 Copy of Chrysler Corporation Long-Term Incentive Plan, as amended and in effect on
and after May 31, 1995 (Filed with this report.)
11 Statement regarding computation of earnings per common share (Filed with this
report.)
15A Letter, dated July 14, 1995, re unaudited interim information (Filed with this
report.)
15B Letter, dated July 17, 1995, re unaudited interim information (Filed with this
report.)
27 Financial Data Schedule for the six months ended June 30, 1995 (Filed with this
report.)
18