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 September 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 1-9161
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CHRYSLER CORPORATION
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(Exact name of registrant as specified in its charter)
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)
(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 662,483,139 shares of common stock outstanding as of
September 30, 1997.
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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 6-11
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
3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (unaudited)
For the Three and Nine Months Ended September 30, 1997 and 1996
(In millions of dollars)
Three Months Ended Nine Months Ended
--------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
Sales of manufactured products $12,101 $13,396 $40,650 $42,298
Finance and insurance revenues 394 436 1,204 1,316
Other revenues 681 524 1,826 1,537
------- ------- ------- -------
TOTAL REVENUES 13,176 14,356 43,680 45,151
------- ------- ------- -------
Costs, other than items below 10,145 10,975 33,205 33,720
Depreciation and special tools amortization 590 527 1,974 1,729
Selling and administrative expenses 1,139 1,108 3,560 3,415
Employee retirement benefits 325 391 961 1,008
Interest expense 251 244 739 778
------- ------- ------- -------
TOTAL EXPENSES 12,450 13,245 40,439 40,650
------- ------- ------- -------
EARNINGS BEFORE INCOME TAXES 726 1,111 3,241 4,501
Provision for income taxes 285 431 1,288 1,779
------- ------- ------- -------
NET EARNINGS $ 441 $ 680 $ 1,953 $ 2,722
Preferred stock dividends -- 1 1 3
------- ------- ------- -------
NET EARNINGS ON COMMON STOCK $ 441 $ 679 $ 1,952 $ 2,719
======= ======= ======= =======
(In dollars or millions of shares)
PRIMARY EARNINGS PER COMMON SHARE $ 0.65 $ 0.93 $ 2.83 $ 3.65
======= ======= ======= =======
Average common and dilutive equivalent
shares outstanding 679.2 728.3 690.3 745.6
FULLY DILUTED EARNINGS PER COMMON SHARE $ 0.65 $ 0.93 $ 2.82 $ 3.62
======= ======= ======= =======
Average common and dilutive equivalent
shares outstanding 681.6 732.3 693.1 751.8
DIVIDENDS DECLARED PER COMMON SHARE $ 0.40 $ 0.35 $ 1.20 $ 1.00
See notes to consolidated financial statements.
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Item 1. FINANCIAL STATEMENTS - CONTINUED
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In millions of dollars)
1997 1996
----------- ------------------------
Sept. 30 Dec. 31 Sept. 30
----------- ----------- -----------
(unaudited) (unaudited)
ASSETS:
Cash and cash equivalents $ 5,347 $ 5,158 $ 5,599
Marketable securities 2,252 2,594 3,079
------- ------- -------
Total cash, cash equivalents and marketable securities 7,599 7,752 8,678
Accounts receivable - trade and other 1,837 2,126 2,144
Inventories 6,419 5,195 5,552
Prepaid employee benefits, taxes and other expenses 1,670 1,929 640
Finance receivables and retained interests in
sold receivables 13,161 12,339 12,593
Property and equipment 16,924 14,905 13,962
Special tools 4,358 3,924 3,574
Intangible assets 1,950 1,995 1,878
Other noncurrent assets 6,201 6,019 6,701
------- ------- -------
TOTAL ASSETS $60,119 $56,184 $55,722
======= ======= =======
LIABILITIES:
Accounts payable $ 9,614 $ 8,981 $ 9,212
Accrued liabilities and expenses 9,456 8,864 8,399
Short-term debt 3,145 3,214 1,548
Payments due within one year on long-term debt 2,692 2,998 3,102
Long-term debt 10,097 7,184 8,492
Accrued noncurrent employee benefits 9,865 9,431 9,539
Other noncurrent liabilities 3,983 3,941 4,020
------- ------- -------
TOTAL LIABILITIES 48,852 44,613 44,312
------- ------- -------
SHAREHOLDERS' EQUITY: (shares in millions)
Preferred stock - $1 per share par value; authorized
20.0 shares; Series A Convertible Preferred Stock;
issued and outstanding: 1997 - 0.02 shares; 1996 - 0.04 and 0.05
shares, respectively (aggregate liquidation preference
1997 - $8 million; 1996 - $21 and $26 million, respectively) * * *
Common stock - $1 per share par value; authorized
1,000.0 shares; issued: 1997 - 823.1 shares; 1996 - 821.6
and 821.0 shares, respectively 823 822 821
Additional paid-in capital 5,232 5,129 5,118
Retained earnings 9,996 8,829 8,246
Treasury stock - at cost: 1997 - 160.6 shares;
1996 - 119.1 and 107.5 shares, respectively (4,784) (3,209) (2,775)
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 11,267 11,571 11,410
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $60,119 $56,184 $55,722
======= ======= =======
* Less than $1 million
See notes to consolidated financial statements.
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5
Item 1. FINANCIAL STATEMENTS - CONTINUED
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
For the Nine Months Ended September 30, 1997 and 1996
(In millions of dollars)
1997 1996
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,660 $ 5,856
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (1,983) (2,643)
Sales and maturities of marketable securities 2,343 3,098
Finance receivables acquired (20,739) (16,225)
Finance receivables collected 6,051 3,429
Proceeds from sales of finance receivables 13,310 12,539
Expenditures for property and equipment (2,359) (2,155)
Expenditures for special tools (1,208) (763)
Purchases of vehicle operating leases (1,427) (570)
Proceeds from the sale of nonautomotive assets -- 701
Other 299 184
------- -------
NET CASH USED IN INVESTING ACTIVITIES (5,713) (2,405)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt (69) (1,256)
Proceeds from long-term borrowings 5,550 1,268
Payments on long-term borrowings (2,938) (1,180)
Repurchases of common stock (1,593) (1,570)
Dividends paid (830) (712)
Other 122 55
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 242 (3,395)
------- -------
Change in cash and cash equivalents 189 56
Cash and cash equivalents at beginning of period 5,158 5,543
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,347 $ 5,599
======= =======
During the first nine months of 1996, Chrysler Financial Corporation acquired
$1.0 billion of marketable securities in non-cash transactions related to the
securitization of retail receivables.
See notes to consolidated financial statements.
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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 and entities. Affiliates that are 20 percent to 50
percent owned and subsidiaries where control is expected to be temporary,
primarily investments in certain dealerships, are generally accounted for on an
equity basis. Intercompany accounts and transactions have been eliminated in
consolidation. The consolidated financial statements of Chrysler for the three
and nine months ended September 30, 1997 and 1996 reflect all adjustments,
consisting of only normal and recurring items, which are, in the opinion of
management, necessary to present a fair statement of the results for the
interim periods. The operating results for the three and nine months ended
September 30, 1997 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, 1996. Certain amounts for 1996 have been reclassified to conform
with current period classifications.
NOTE 2. INVENTORIES
Inventories, summarized by major classification, were as follows:
1997 1996
-------- -----------------------
Sept. 30 Dec. 31 Sept. 30
--------- ----------- ----------
(In millions of dollars)
Finished products, including service parts $1,865 $1,569 $1,800
Raw materials, finished production parts and supplies 1,495 1,540 1,351
Vehicles held for short-term lease 3,059 2,086 2,401
-------- -------- --------
TOTAL $6,419 $5,195 $5,552
======== ======== ========
NOTE 3. CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1997, Chrysler adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." The adoption of this
accounting standard did not have a material impact on Chrysler's consolidated
financial statements.
Effective January 1, 1996, Chrysler adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The initial adoption of this new accounting standard did not have a material
impact on Chrysler's consolidated financial statements. Also, see Note 6.
NOTE 4. COMMON STOCK REPURCHASES
During 1996, Chrysler increased its planned 1997 common stock repurchases from
$1 billion to $2 billion. During the third quarter and first nine months of
1997, Chrysler repurchased 17.7 million and 49.0 million shares of its common
stock, respectively, at a cost of $641 million and $1,638 million,
respectively. In October 1997, Chrysler announced a plan to repurchase an
additional $2 billion of its common stock by the end of 1998. These common
stock repurchases are subject to market and general economic conditions.
NOTE 5. SALES OF NONAUTOMOTIVE ASSETS
During the second quarter of 1996, Chrysler completed the sale of Electrospace
Systems, Inc. and Chrysler Technologies Airborne Systems, Inc., for net
proceeds of $476 million. The sale resulted in a pretax gain of $101 million
($87 million after taxes) which is included in Costs, other than items below in
the consolidated statement of earnings for the nine months ended September 30,
1996.
During the third quarter of 1996, Chrysler Financial Corporation sold certain
nonautomotive assets for net proceeds of $225 million. The sale resulted in an
immaterial loss.
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Item 1. FINANCIAL STATEMENTS - CONTINUED
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 6. LOSS ON ASSETS TO BE SOLD
Through its Pentastar Transportation Group, Inc. ("Pentastar") subsidiary,
Chrysler owns Thrifty-Rent-A-Car System, Inc. ("Thrifty") and Dollar Rent A Car
Systems, Inc. ("Dollar"). Thrifty and Dollar are engaged in short-term vehicle
rental activities and represent substantially all of the operating activities
of Pentastar. During the second quarter of 1996, Chrysler committed to a plan
of disposal for Thrifty and recognized a $65 million pretax loss ($100 million
after taxes) to write down Thrifty's carrying value to estimated fair value
less cost to sell. The pretax loss is included in Costs, other than items
below in the consolidated statement of earnings. Chrysler is continuing with
its efforts to dispose of Thrifty and is uncertain when a disposition of
Thrifty may occur. In addition, Chrysler is also exploring the potential
disposition of Dollar. Chrysler believes that if it were to commit to a plan
of disposal for Dollar no write-down of Dollar's carrying value would be
required. Pentastar's assets and liabilities at September 30, 1997, and its
results of operations for the three and nine months ended September 30, 1997
were immaterial to Chrysler's consolidated assets and liabilities and results
of operations, respectively.
NOTE 7. LONG-TERM DEBT
In July 1997, Chrysler sold $500 million of 7.40% Debentures due 2097 for net
proceeds of $495 million. In August 1997, Chrysler extinguished its $267
million 10.95% Debentures due 2017 and $245 million 10.40% Notes due 1999 for
$529 million.
NOTE 8. NEW ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings per Share." This Statement establishes standards for
computing and presenting earnings per share ("EPS") and applies to all entities
with publicly held common stock or potential common stock. This Statement
replaces the presentation of primary EPS and fully diluted EPS with a
presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes
dilution and is computed by dividing earnings available to common stockholders
by the weighted-average number of common shares outstanding for the period.
Similar to fully diluted EPS, diluted EPS reflects the potential dilution of
securities that could share in the earnings. This Statement is not expected to
have a material effect on Chrysler's reported EPS amounts. Restatement of all
prior period EPS data presented is required. This Statement is effective for
Chrysler's consolidated financial statements for the year ended December 31,
1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
effective for fiscal years beginning after December 15, 1997. This Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This Statement further requires that an entity display an amount
representing total comprehensive income for the period in that financial
statement. This Statement also requires that an entity classify items of other
comprehensive income by their nature in a financial statement. For example,
other comprehensive income may include foreign currency items, minimum pension
liability adjustments, and unrealized gains and losses on certain investments
in debt and equity securities. Reclassification of financial statements for
earlier periods, provided for comparative purposes, is required. Based on
current accounting standards, this Statement is not expected to have a material
impact on Chrysler's consolidated financial statements. Chrysler will adopt
this accounting standard on January 1, 1998, as required.
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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 $726 million for the
third quarter of 1997, compared with $1,111 million for the third quarter of
1996. For the first nine months of 1997, Chrysler reported earnings before
income taxes of $3,241 million, compared with $4,501 million for the first nine
months of 1996. Net earnings for the third quarter of 1997 were $441 million,
or $0.65 per common share, compared with $680 million, or $0.93 per common
share, for the third quarter of 1996. Net earnings for the first nine months
of 1997 were $1,953 million, or $2.83 per common share, compared with $2,722
million, or $3.65 per common share, for the first nine months of 1996.
Earnings for the third quarter and first nine months of 1997 include a $41
million charge ($25 million after taxes) for costs related to the decision to
discontinue Chrysler's Eagle brand at the end of the 1998 model year. Earnings
for the third quarter and first nine months of 1996 included a charge of $88
million ($55 million after taxes) for costs associated with a voluntary early
retirement program for certain salaried employees. Earnings for the first nine
months of 1996 also included a gain of $101 million ($87 million after taxes)
from the sale of Electrospace Systems, Inc. ("ESI") and Chrysler Technologies
Airborne Systems, Inc. ("CTAS"), and a charge of $65 million ($100 million
after taxes) related to a write-down of Thrifty Rent-A-Car System, Inc.
The decrease in earnings for the third quarter and first nine months of
1997 compared with the third quarter and first nine months of 1996 primarily
reflects a decrease in vehicle shipments and an increase in average sales
incentives per vehicle, partially offset by lower profit-based employee
compensation costs. Chrysler's worldwide vehicle shipments in the third
quarter and first nine months of 1997 were 605,356 units and 2,125,048 units,
respectively, compared with 650,529 units and 2,205,474 units, respectively, in
the third quarter and first nine months of 1996. The decrease in vehicle
shipments for the third quarter of 1997 is primarily related to lower shipments
of Dodge Intrepid and Chrysler Concorde sedans and Neon compact cars. The
lower Intrepid and Concorde shipments are primarily related to the changeover
to Chrysler's all-new Intrepid and Concorde sedans which began in the third
quarter of 1997. The decrease in shipments for the first nine months of 1997
also reflects lower shipments of Jeep(R) Grand Cherokees and Dodge Ram pickup
trucks resulting primarily from the unfavorable impact of a 29-day strike that
temporarily shut down seven of Chrysler's assembly plants and certain
automotive component operations during the second quarter of 1997. Also, the
increase in average sales incentives per vehicle and lower vehicle shipments
reflect an increasingly competitive environment resulting primarily from new
product offerings from competitors and greater flexibility in vehicle pricing
by Japanese manufacturers who have benefited from currency exchange rate
changes between the Japanese yen and U.S. dollar.
Chrysler's vehicle shipments outside of the U.S., Canada and Mexico in the
third quarter and first nine months of 1997 were 54,138 units and 179,298
units, respectively, compared with 51,319 units and 154,573 units,
respectively, in the third quarter and first nine months of 1996.
Chrysler's revenues and results of operations are principally derived from
the U.S. and Canada automotive marketplaces. In the third quarter of 1997,
retail industry sales (including fleet) of new cars and trucks in the U.S. and
Canada, on a Seasonally Adjusted Annual Rate basis, were 17.2 million units,
compared with 16.7 million units for the third quarter of 1996.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
FINANCIAL REVIEW - CONTINUED
Chrysler's U.S. and combined U.S. and Canada retail sales and market share
data for the third quarter and first nine months of 1997 and 1996 were as
follows:
Third Quarter Nine Months
------------------------------------- --------------------------------------------
Increase/ Increase/
1997 1996 (Decrease) 1997 1996 (Decrease)
------- ------- ---------- ------- ------- ----------
U.S. Retail Market (1):
Car sales 165,010 190,451 (25,441) 583,325 661,717 (78,392)
Car market share 7.7% 8.7% (1.0)% 9.1% 9.9% (0.8)%
Truck sales (including minivans) 379,177 399,658 (20,481) 1,162,007 1,224,284 (62,277)
Truck market share 20.9% 23.5% (2.6)% 21.5% 23.5% (2.0)%
Combined car and truck sales 544,187 590,109 (45,922) 1,745,332 1,886,001 (140,669)
Combined car and truck
market share 13.7% 15.2% (1.5)% 14.8% 15.9% (1.1)%
U.S. and Canada Retail Market (1):
Combined car and truck sales 607,789 645,766 (37,977) 1,936,843 2,063,461 (126,618)
Combined car and truck
market share 14.1% 15.5% (1.4)% 15.1% 16.2% (1.1)%
(1) All retail sale and market share data include fleet sales.
Chrysler's U.S. car market share for the third quarter and first nine
months of 1997 decreased compared with the third quarter and first nine months
of 1996 primarily as a result of decreased sales of its Neon, Intrepid and
Concorde models. Chrysler's U.S. truck market share for the third quarter and
first nine months of 1997 decreased compared with the third quarter and first
nine months of 1996 primarily as a result of decreased sales of its Jeep
Cherokees, Grand Cherokees and Dodge Ram pickup trucks.
Chrysler Financial Corporation ("CFC") reported earnings before income
taxes of $168 million for the third quarter of 1997 compared with $144 million
for the third quarter of 1996. For the first nine months of 1997, CFC reported
earnings before income taxes of $465 million compared with $453 million for the
first nine months of 1996. CFC's net earnings for the third quarter and first
nine months of 1997 were $111 million and $307 million, respectively, compared
with $94 million and $293 million for the third quarter and first nine months
of 1996, respectively. The increase in net earnings for the third quarter of
1997 compared with the third quarter of 1996 primarily reflects an increase in
gains from sales of retail receivables, partially offset by an increase in
provisions for credit losses.
COMPARISON OF SELECTED ELEMENTS OF REVENUES AND EXPENSES
Chrysler's total revenues for the third quarter and first nine months of
1997 and 1996 were as follows:
Third Quarter Nine Months
----------------------------------------- ----------------------------------
Increase/ Increase/
(In millions of dollars) 1997 1996 (Decrease) 1997 1996 (Decrease)
-------- ------- ---------- ------- -------- ----------
Sales of manufactured products $ 12,101 $ 13,396 (10)% $ 40,650 $ 42,298 (4)%
Finance and insurance revenues 394 436 (10)% 1,204 1,316 (9)%
Other revenues 681 524 30 % 1,826 1,537 19 %
-------- -------- --------- -------- --------
Total revenues $ 13,176 $ 14,356 (8)% $ 43,680 $ 45,151 (3)%
======== ======== ========= ======== ========
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10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
COMPARISON OF SELECTED ELEMENTS OF REVENUES AND EXPENSES - CONTINUED
The decrease in sales of manufactured products in the third quarter of
1997 compared with the third quarter of 1996 primarily reflects a 7 percent
decrease in vehicle shipments and a decrease in average revenue per unit, net
of sales incentives, from approximately $20,800 in the third quarter of 1996 to
approximately $20,400 in the third quarter of 1997. The decrease in average
revenue per unit in the third quarter of 1997 primarily reflects higher average
sales incentives per vehicle. The decrease in sales of manufactured products in
the first nine months of 1997 compared with the first nine months of 1996
primarily reflects a 4 percent decrease in vehicle shipments.
The decrease in finance and insurance revenues in the third quarter and
first nine months of 1997 compared with the corresponding 1996 periods is
primarily attributable to the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Prior to 1997, income
from sold wholesale receivables was included in Finance and insurance revenues.
Effective January 1, 1997, gains from sales of wholesale receivables are
reported in Other revenues in accordance with SFAS No. 125.
The increase in other revenues for the third quarter and first nine months
of 1997 compared with the corresponding 1996 periods is primarily attributable
to higher gains from sales of retail and wholesale receivables at CFC and
increased revenues by Car Rental Operations.
Chrysler's total expenses for the third quarter and first nine months of
1997 and 1996 were as follows:
Third Quarter Nine Months
---------------------------- --------------------------------
Increase/ Increase/
1997 1996 (Decrease) 1997 1996 (Decrease)
------- ------- ---------- ------- ------- ----------
(In millions of dollars)
Costs, other than items below $10,145 $10,975 (8)% $33,205 $33,720 (2)%
Depreciation and special tools
amortization 590 527 12 % 1,974 1,729 14 %
Selling and administrative expenses 1,139 1,108 3 % 3,560 3,415 4 %
Employee retirement benefits 325 391 (17)% 961 1,008 (5)%
Interest expense 251 244 3 % 739 778 (5)%
------- ------- ------- -------
Total expenses $12,450 $13,245 (6)% $40,439 $40,650 (1)%
======= ======= ======= =======
Costs, other than items below decreased in the third quarter and first
nine months of 1997 compared with the corresponding 1996 periods, primarily as
a result of a 7 percent and 4 percent decrease in vehicle shipments,
respectively. Costs, other than items below were 84 percent and 82 percent of
sales of manufactured products for the third quarter and first nine months of
1997, respectively, compared with 82 percent and 80 percent for the third
quarter and first nine months of 1996, respectively.
Depreciation and special tools amortization for the third quarter and
first nine months of 1997 increased compared with the corresponding 1996
periods primarily as a result of higher levels of property and equipment in
use, including increased depreciation related to vehicles under purchased
operating leases.
Selling and administrative expenses for the third quarter and first nine
months of 1997 increased compared with the corresponding 1996 periods primarily
as a result of increased advertising expenses and increased expenses associated
with Chrysler's expanding international operations, partially offset by lower
profit-based employee compensation costs.
Employee retirement benefits for the third quarter and first nine months
of 1997 decreased compared with the corresponding 1996 periods primarily as a
result of costs associated with a voluntary early retirement program for
certain salaried employees recognized in the third quarter of 1996.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
COMPARISON OF SELECTED ELEMENTS OF REVENUES AND EXPENSES - CONTINUED
During the second quarter of 1996, Chrysler completed the sale of ESI and
CTAS for net proceeds of $476 million. The sale resulted in a pretax gain of
$101 million ($87 million after taxes) which is included in Costs, other than
items below in the consolidated statement of earnings for the nine months ended
September 30, 1996.
Through its Pentastar Transportation Group, Inc. ("Pentastar") subsidiary,
Chrysler owns Thrifty-Rent-A-Car System, Inc. ("Thrifty") and Dollar Rent A Car
Systems, Inc. ("Dollar"). Thrifty and Dollar are engaged in short-term vehicle
rental activities and represent substantially all of the operating activities
of Pentastar. During the second quarter of 1996, Chrysler committed to a plan
of disposal for Thrifty and recognized a $65 million pretax loss ($100 million
after taxes) to write down Thrifty's carrying value to estimated fair value
less cost to sell. The pretax loss is included in Costs, other than items
below in the consolidated statement of earnings. Chrysler is continuing with
its efforts to dispose of Thrifty and is uncertain when a disposition of
Thrifty may occur. In addition, Chrysler is also exploring the potential
disposition of Dollar. Chrysler believes that if it were to commit to a plan
of disposal for Dollar no write-down of Dollar's carrying value would be
required. Pentastar's assets and liabilities at September 30, 1997, and its
results of operations for the three and nine months ended September 30, 1997
were immaterial to Chrysler's consolidated assets and liabilities and results
of operations, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Chrysler's consolidated combined cash, cash equivalents and marketable
securities totaled $7,599 million at September 30, 1997 (including $718 million
held by CFC and Car Rental Operations), compared with $7,752 million at
December 31, 1996 (including $797 million held by CFC and Car Rental
Operations).
During 1996, Chrysler increased its planned 1997 common stock repurchases
from $1 billion to $2 billion. During the third quarter and first nine months
of 1997, Chrysler repurchased 17.7 million and 49.0 million shares of its
common stock, respectively, at a cost of $641 million and $1,638 million,
respectively. In October 1997, Chrysler announced a plan to repurchase an
additional $2 billion of its common stock by the end of 1998. These common
stock repurchases are subject to market and general economic conditions.
In February 1997, Chrysler sold $500 million of 7.45% Debentures due 2097
and $600 million of 7.45% Debentures due 2027 for net proceeds of $485 million
and $592 million, respectively. In July 1997, Chrysler sold $500 million of
7.40% Debentures due 2097 for net proceeds of $495 million.
In August 1997, Chrysler extinguished its $267 million 10.95% Debentures
due 2017 and $245 million 10.40% Notes due 1999 for $529 million.
At September 30, 1997, Chrysler (excluding CFC) had debt maturities
totaling $506 million through 1999. At September 30, 1997, Chrysler had a $2.6
billion revolving credit agreement which expires in April 2002. There were no
amounts outstanding under the revolving credit agreement during the third
quarter of 1997. 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 $6.1 billion of net proceeds from the sale of automotive retail
receivables in the first nine months of 1997 compared with $5.9 billion of net
proceeds in the first nine months of 1996. In addition, securitization of
revolving wholesale account balances provided funding for CFC which aggregated
$7.0 billion and $5.8 billion at September 30, 1997 and 1996, respectively.
9
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
At September 30, 1997, CFC had contractual debt maturities of $3.5 billion
for the remainder of 1997 (including $2.3 billion of short-term notes), $2.6
billion in 1998 and $3.3 billion in 1999. 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
September 30, 1997, $9 million of this amount was utilized. CFC believes that
cash from operations, receivable sales, securitizations, and the issuance of
term debt and commercial paper will provide sufficient liquidity to meet its
debt maturity and other funding requirements.
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.
Chrysler's average sales incentives per vehicle increased during the first
nine months of 1997 as a result of an increasingly competitive automotive
environment. Chrysler expects to continue to face an increasingly competitive
automotive environment which is likely to continue to limit vehicle pricing
flexibility and may result in a further increase in average sales incentives
per vehicle in the near term.
In the third quarter of 1997, Chrysler began production of the all-new
Dodge Intrepid sedan and Dodge Durango sport utility vehicle, and new Dodge
Ram Four Door Club Cab pickup truck. In the fourth quarter of 1997, Chrysler
will begin production of the all-new Chrysler Concorde and restyled full-size
Dodge Ram Van and Wagons. In the first quarter of 1998, Chrysler will begin
production of the all-new Chrysler LHS and 300M sedans.
Chrysler's worldwide vehicle production in the third quarter of 1997 was
572,518 units, a decrease of 58,477 units or 9 percent, compared with the third
quarter of 1996. Worldwide vehicle production for the fourth quarter of 1997
is expected to be approximately 713,000 units, an increase of 2,000 units
compared with the fourth quarter of 1996. This expected production level is
heavily dependent on Chrysler's ability to maintain its competitive position,
continued favorable economic conditions in the U.S. and Canada where Chrysler's
sales are concentrated, the avoidance of work stoppages by represented
employees, and the successful launch of Chrysler's new products.
Chrysler projects that full-year 1997 retail (including fleet) industry
sales for the U.S. will be approximately 15.4 million units and that full-year
1997 retail (including fleet) industry sales for Canada will be approximately
1.4 million units. Full-year 1996 retail (including fleet) industry sales were
15.4 million units and 1.2 million units in the U.S. and Canada, respectively.
Actual levels of industry retail (including fleet) sales will depend on, among
other things, economic conditions in the U.S. and Canada. Accordingly, there
can be no assurance that Chrysler's estimates will be accurate.
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: 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, sales incentives, consumer acceptance of new products and
price pressures; 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.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
NEW ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share." This Statement establishes standards for
computing and presenting earnings per share ("EPS") and applies to all entities
with publicly held common stock or potential common stock. This Statement
replaces the presentation of primary EPS and fully diluted EPS with a
presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes
dilution and is computed by dividing earnings available to common stockholders
by the weighted-average number of common shares outstanding for the period.
Similar to fully diluted EPS, diluted EPS reflects the potential dilution of
securities that could share in the earnings. This Statement is not expected to
have a material effect on Chrysler's reported EPS amounts. Restatement of all
prior period EPS data presented is required. This Statement is effective for
Chrysler's consolidated financial statements for the year ended December 31,
1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," effective for fiscal years beginning after December 15, 1997. This
Statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This Statement further requires that an entity display
an amount representing total comprehensive income for the period in that
financial statement. This Statement also requires that an entity classify
items of other comprehensive income by their nature in a financial statement.
For example, other comprehensive income may include foreign currency items,
minimum pension liability adjustments, and unrealized gains and losses on
certain investments in debt and equity securities. Reclassification of
financial statements for earlier periods, provided for comparative purposes, is
required. Based on current accounting standards, this Statement is not
expected to have a material impact on Chrysler's consolidated financial
statements. Chrysler will adopt this accounting standard on January 1, 1998,
as required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," effective for fiscal years beginning
after December 15, 1997. This Statement establishes standards for reporting
information about operating segments in annual financial statements and
requires selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. This Statement requires reporting segment profit or
loss, certain specific revenue and expense items and segment assets. It also
requires reconciliations of total segment revenues, total segment profit or
loss, total segment assets, and other amounts disclosed for segments to
corresponding amounts reported in the consolidated financial statements.
Restatement of comparative information for earlier periods presented is
required in the initial year of application. Interim information is not
required until the second year of application, at which time comparative
information is required. Chrysler has not determined the impact that the
adoption of this new accounting standard will have on its consolidated
financial statement disclosures. Chrysler will adopt this accounting standard
on January 1, 1998, 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 nine months
ended September 30, 1997 and 1996 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.
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PART 11. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Chrysler and its subsidiaries are parties to various legal proceedings,
including some purporting to be class actions, and some which demand large
monetary damages or other relief which, if granted, would require significant
expenditures. Chrysler believes that the proceedings described below constitute
ordinary routine litigation incidental to the business conducted by Chrysler.
Many of the legal proceedings seek damages for personal injuries claimed
to have resulted from alleged defects in the design or manufacture of products
distributed by Chrysler. The complaints filed in such matters specify
approximately $603 million in compensatory and $130 million in punitive damages
in the aggregate as of September 30, 1997. These amounts represent damages
sought by plaintiffs and, therefore, do not necessarily constitute an accurate
measure of Chrysler's cost to resolve such matters. Further, many complaints
do not specify a dollar amount of damages or specify only the jurisdictional
minimum. These amounts may vary significantly from one period to the next
depending on the number of new complaints filed or pending cases resolved in a
given period.
These complaints seek compensatory and punitive damages for personal
injuries sustained in accidents involving alleged defects in occupant restraint
systems, seats, heater cores, liftgage latches, or various other components in
several different vehicle models, and involving alleged rollovers of Jeep(R)CJ
vehicles. Some complaints seek repair of the vehicles or compensation for
their alleged reduction in value.
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 the United States District Court in South
Carolina. The complaint alleged that the liftgage 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 intends to file post-trial
motions challenging the verdict and the damage awards, and believes that it
has meritorious grounds upon which to base an appeal.
Litigation is subject to many uncertainties, and the outcome of individual
matters is not predictable with assurance. It is reasonably possible that the
final resolution of some of these matters may require Chrysler to make
expenditures, in excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated. Although the
final resolution of any such matters could have a material effect on Chrysler's
consolidated operating results for the particular reporting period in which an
adjustment of the estimated reserves is recorded, Chrysler believes that any
resulting adjustment should not materially affect its consolidated financial
position.
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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 Nine Months Ended September 30, 1997 and 1996
(In millions of dollars)
Three Months Ended Nine Months Ended
------------------ -------------------
1997 1996 1997 1996
------ ------- ------- --------
Sales of manufactured products $12,385 $13,551 $41,317 $42,828
Equity in earnings of unconsolidated subsidiaries
and affiliates 207 174 516 431
Interest income and other revenues 197 188 604 562
------- ------- ------- -------
TOTAL REVENUES 12,789 13,913 42,437 43,821
------- ------- ------- -------
Costs, other than items below 10,215 10,953 33,278 33,661
Depreciation and special tools amortization 536 496 1,836 1,637
Selling and administrative expenses 936 919 2,951 2,864
Employee retirement benefits 321 376 947 981
Interest expense 55 58 184 177
------- ------- ------- -------
TOTAL EXPENSES 12,063 12,802 39,196 39,320
------- ------- ------- -------
EARNINGS BEFORE INCOME TAXES 726 1,111 3,241 4,501
Provision for income taxes 285 431 1,288 1,779
------- ------- ------- -------
NET EARNINGS $ 441 $ 680 $ 1,953 $ 2,722
======= ======= ======= =======
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 from 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)
BALANCE SHEET (unaudited)
(In millions of dollars)
1997 1996
-------- -----------------
Sept. 30 Dec. 31 Sept. 30
-------- ------- --------
ASSETS:
Cash and cash equivalents $ 5,041 $ 4,825 $ 5,134
Marketable securities 1,839 2,122 2,356
-------- ------- --------
Total cash, cash equivalents and marketable securities 6,880 6,947 7,490
Accounts receivable - trade and other 694 630 1,762
Inventories 5,224 4,364 4,568
Prepaid employee benefits, taxes and other expenses 1,631 1,893 600
Property and equipment 15,182 13,877 12,885
Special tools 4,358 3,924 3,574
Investments in and advances from/to unconsolidated subsidiaries
and affiliated companies 2,601 2,874 3,450
Intangible assets 1,600 1,627 1,510
Deferred tax assets 1,857 1,624 1,776
Other noncurrent assets 5,470 5,448 5,891
-------- ------- --------
TOTAL ASSETS $45,497 $43,208 $43,506
======== ======= ========
LIABILITIES:
Accounts payable $ 8,430 $ 8,238 $ 8,468
Accrued liabilities and expenses 9,148 8,525 8,097
Short-term debt 385 346 220
Payments due within one year on long-term debt 20 22 39
Long-term debt 2,267 1,206 1,746
Accrued noncurrent employee benefits 9,805 9,365 9,474
Other noncurrent liabilities 4,175 3,935 4,052
-------- ------- --------
TOTAL LIABILITIES 34,230 31,637 32,096
-------- ------- --------
SHAREHOLDERS' EQUITY: (shares in millions)
Preferred stock - $1 per share par value; authorized
20.0 shares; Series A Convertible Preferred Stock;
issued and outstanding: 1997 - 0.02 shares; 1996-
0.04 and 0.05 shares, respectively (aggregate
liquidation preference 1997 - $8 million; 1996
$21 and $26 million, respectively) * * *
Common stock - $1 per share par value; authorized
1,000.0 shares; issued: 1997 - 823.1 shares; 1996 - 821.6
and 821.0 shares, respectively 823 822 821
Additional paid-in capital 5,232 5,129 5,118
Retained earnings 9,996 8,829 8,246
Treasury stock - at cost: 1997 - 160.6 shares;
1996 - 119.1 and 107.5 shares, respectively (4,784) (3,209) (2,775)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 11,267 11,571 11,410
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $45,497 $43,208 $43,506
======== ======== ========
* Less than $1 million
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 from 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)
CONDENSED STATEMENT OF CASH FLOWS (unaudited)
For the Nine Months Ended September 30, 1997 and 1996
(In millions of dollars)
1997 1996
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 4,641 $ 5,178
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (579) (1,929)
Sales and maturities of marketable securities 868 1,452
Expenditures for property and equipment (2,290) (2,123)
Expenditures for special tools (1,208) (763)
Purchases of vehicle operating leases (448) (217)
Proceeds from sale of nonautomotive assets -- 476
Other 122 149
------- -------
NET CASH USED IN INVESTING ACTIVITIES (3,535) (2,955)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt 39 (50)
Proceeds from long-term borrowings 1,588 14
Payments on long-term borrowings (524) (26)
Change in advances from CFC 308 221
Repurchases of common stock (1,593) (1,570)
Dividends paid (830) (712)
Other 122 54
------- -------
NET CASH USED IN FINANCING ACTIVITIES (890) (2,069)
------- -------
Change in cash and cash equivalents 216 154
Cash and cash equivalents at beginning of period 4,825 4,980
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,041 $ 5,134
======= =======
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 from 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
September 30, 1997.
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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: October 10, 1997 By J. D. Donlon, III
---------------- -----------------
J. D. Donlon, III
Vice President and
Controller
(Principal Accounting
Officer)
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EXHIBIT INDEX
-------------
For Quarterly Report on Form 10-Q for the
Quarterly Period Ended September 30, 1997
EXHIBIT
- -------
4-D-10 Appendix H to Indenture, dated as of March 1, 1985, as amended
and supplemented, between Chrysler Corporation and State Street
Bank and Trust Company, as successor Trustee to Manufacturers Hanover
Trust Company. (Filed with this report).
10-A-13 Copy of Chrysler Corporation 1991 Stock Compensation Plan, as amended
through July 3, 1997. (Filed with this report).
10-A-14 Copy of Chrysler Corporation Stock Option Plan, as amended through July
3, 1997. (Filed with this report).
11 Statement regarding computation of earnings per common share. (Filed
with this report.)
15A Letter, dated October 10, 1997, re unaudited interim information.
(Filed with this report.)
15B Letter, dated October 10, 1997, re unaudited interim information.
(Filed with this report.)
27 Financial Data Schedule for the nine months ended September 30, 1997.
(Filed with this report).
18