<PAGE>
<PAGE> 1 FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
=== EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1993
-----------------------------------
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
=== EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
------------- --------------
Commission file number 1-3685
MCDONNELL DOUGLAS CORPORATION
- --------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Maryland 43-0400674
- ---------------------------------- ----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Post Office Box 516, St. Louis, MO 63166-0516
- ---------------------------------- ----------------------------------
(Address of Principal Executive (Zip Code)
Offices)
314-232-0232
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ----------------------------------- ----------------------------------
Common Stock, par value $1 a share New York & Pacific Stock Exchanges
Preferred Stock Purchase Rights New York & Pacific Stock Exchanges
8 5/8% Notes due April 1, 1997 New York Stock Exchange
8 1/4% Notes due July 1, 2000 New York Stock Exchange
9 1/4% Notes due April 1, 2002 New York Stock Exchange
9 3/4% Debentures due April 1, 2012 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) 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
=== ===
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
===
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by
reference to the price at which the stock was sold or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to
the date of filing.
Aggregate market value of common stock held by non-affiliates of MDC at
February 28, 1994: $4.077 billion.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date:
Common shares outstanding at February 28, 1994: 39,347,075 shares
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1993 Annual Report to Shareholders are incorporated by
reference into Parts I, II and IV. Portions of the proxy statement for the
annual meeting to be held on April 22, 1994 are incorporated by reference
into Part III.
Exhibit Index on Page 13
<PAGE> 3 [HARD COPY PG. 2]
PART I
ITEM 1 BUSINESS
GENERAL
The Company was incorporated in Maryland in 1939 under the name
McDonnell Aircraft Corporation. On April 19, 1967, the shareholders
approved the merger with Douglas Aircraft Company and the name of the
corporation was changed to McDonnell Douglas Corporation (the Company or
MDC).
The Company, its divisions and its subsidiaries operate principally in
four industry segments: military aircraft; missiles, space and electronic
systems; commercial aircraft; and financial services and other. Operations
in the first two industry segments are conducted primarily by McDonnell
Douglas Aerospace, an unincorporated operating division of the Company,
which is engaged in design, development, production, and support of the
following major products: military transport aircraft; combat aircraft and
training systems; missiles; space launch vehicles and space station systems
and integration; defense and commercial electronics, lasers, sensors, and
command, control, communications, and intelligence systems; and commercial
and military helicopters and ordnance. Operations in the commercial
aircraft segment are conducted by Douglas Aircraft Company (DAC), an
unincorporated operating division of the Company, which designs, develops,
produces and sells commercial transport aircraft.
DAC separated its commercial and government programs into two operating
units effective January 1, 1992. Prior to the reorganization of DAC, the
results of operations of both the commercial and military programs were
reported under the caption of "transport aircraft". The "military aircraft"
segment now includes the former "combat aircraft" segment plus the C-17
Globemaster III program and other minor military programs reported under the
"transport aircraft" caption prior to 1992. The "commercial aircraft"
segment includes the commercial programs previously reported under the
caption "transport aircraft". In August 1992, the DAC military programs
became part of the McDonnell Douglas Aerospace division.
Through its McDonnell Douglas Financial Services Corporation (MDFS)
subsidiary, the Company is engaged in aircraft financing and commercial
equipment leasing. MDFS was previously engaged in a variety of commercial
and industrial equipment and aircraft financing. During 1991 and 1992,
portfolios of several non-core businesses were sold. The Company's
subsidiary, McDonnell Douglas Realty Company, was established in 1972 to
develop the Company's surplus real estate. While continuing to serve that
role, McDonnell Douglas Realty Company has become a full-service developer
and property manager in the commercial real estate market as well as for the
Company's aerospace business.
Since 1988, substantially all of the Company's information systems
business has been divested. The Company sold its network systems business
and Health Systems Company in 1989, sold its North American Field Service
business in 1990 and discontinued its information systems assembly
operations in the U.S. in 1990. In 1991, MDC sold substantially all of the
assets of McDonnell Douglas Systems Integration Company and certain related
<PAGE> 4
assets of McDonnell Douglas Information Systems International (MDISI). In
July 1992, MDC sold all the outstanding stock of TeleCheck Services, Inc.
and in March 1993, MDC sold its remaining MDISI business.
The business segments in which the Company is engaged and discussion of
certain of their respective products appear under the captions: "Military
Aircraft", "Commercial Aircraft", "Missiles, Space and Electronic Systems",
and "Complementary Businesses" on pages 6 through 20, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 24 through 32, of the Company's 1993 Annual Report to Shareholders,
the text portions of which are incorporated herein by this reference.
[HARD COPY PG. 3]
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information regarding the Company's industry segments is
provided under the caption "Selected Financial Data by Industry Segment -
Continuing Operations" on page 33 of the Company's 1993 Annual Report to
Shareholders, which is incorporated herein by this reference.
MARKETING AND MAJOR CUSTOMER - MCDONNELL DOUGLAS AEROSPACE
Discussion regarding the Company's most significant customer in the
military aircraft and missiles, space and electronic systems segments is
included under the captions "Business and Market Considerations - Military
Aerospace Business" and "Government Business Audits, Reviews and
Investigations" on pages 30 through 32 in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
1993 Annual Report to Shareholders, which are incorporated herein by this
reference.
COMPETITION
Programs and products comprising most of the Company's business volume
are of a highly technical nature, comparatively few in number, high in unit
cost, and have traditionally enjoyed relatively long production lives.
There is significant competition in the aerospace industry, both in military
and commercial programs.
The Company's military segments compete in an industry composed of a
few major competitors and a limited number of customers. The number of
competitors in these segments has decreased over the past few years due to
consolidation brought about by reduced defense spending. However,
competition for military programs remains significant.
The Company's commercial aircraft sales are subject to intense
competition from aircraft manufactured by other companies, both foreign and
domestic, including companies which are nationally owned or subsidized and
have a larger family of commercial aircraft to meet varied and changing
airline requirements. The Company's principal competitors in commercial
aircraft are The Boeing Company and Airbus Industrie. To meet competition,
<PAGE> 5
the Company maintains a continuous program directed toward enhancing the
performance and capability of its products. Additionally, product
improvement programs which increase airplane operational capability, improve
reliability, enhance maintainability and increase commonality within current
airplane families and across the entire product line will continue. A vital
part of the Company's strategy is a program to develop derivatives of the
current product line.
MDFS is subject to competition from other financial institutions,
including commercial banks, finance companies, and leasing companies. Some
full-service leasing companies are larger than MDFS and have greater
financial resources, greater leverage ability, and lower effective borrowing
costs.
SUBCONTRACTING, PROCUREMENT AND RAW MATERIALS
The most important raw materials required for the Company's products,
from the standpoint of aggregate cost, are aluminum (sheet, plate, forgings
and extrusions), titanium (sheet, plate, forgings and extrusions) and
composites (including carbon and boron). All of these materials are
purchased from outside sources and generally are available at competitive
prices. Additional sources and capacity exist for these raw materials,
but it would take a year or more before they could become qualified
alternate sources of supply.
[HARD COPY PG. 4]
The Company purchases many components, such as engines and accessories,
electrical power systems, radars, landing gears, fuel systems, refrigeration
systems, navigational equipment, and flight and engine instruments for use
in aircraft, and propulsion systems, guidance systems, telemetry and
gyroscopic devices in support of its space systems and missile programs. In
addition, fabricated subassemblies such as engine pods and pylons, fuselage
sections, wings and empennage surfaces, doors and flaps, are sometimes
subcontracted to outside suppliers. The U.S. Government and commercial
customers also furnish many components for incorporation into aircraft and
other products they purchase from the Company.
The Company is dependent upon the ability of its large number of
suppliers and subcontractors to meet performance specifications, quality
standards, and delivery schedules at anticipated costs, and their failure to
do so would adversely affect production schedules and contract
profitability, while jeopardizing the ability of the Company to fulfill
commitments to its customers. The Company has encountered some difficulty
from time to time in assuring long-lead time supplies of essential parts,
subassemblies, and materials. The Company's success in forestalling
shortages of critical commodities over the long term is difficult to predict
because many factors affecting such shortages are outside its control.
EMPLOYEES
At December 31, 1993 the total employment of the Company, including
subsidiaries, was 70,016.
<PAGE> 6
PATENTS AND LICENSES
The Company holds many patents and has licenses under patents held by
others. The Company does not believe that the expiration of any patent or
group of patents, nor the termination of any patent license agreement, would
materially affect its business. The Company does not believe that any of
its patents or trademarks are materially important to the conduct of its
business.
ENVIRONMENTAL REGULATIONS
See "Environmental Expenditures" on page 32 in "Management's Discussion
and Analysis of Financial Conditions and Results of Operations" in the
Company's 1993 Annual Report to Shareholders, which is incorporated herein
by this reference.
RESEARCH AND DEVELOPMENT
A significant portion of the Company's business with the U.S.
Government consists of research, development, test, and evaluation work,
which are reflected as sales and costs in the Company's financial
statements. Customer-sponsored research and development work amounted to
approximately $1.126 billion in 1993, $1.018 billion in 1992, and $1.221
billion in 1991. Company-initiated research and development and bid and
proposal work, related to both commercial business and business with the
U.S. Government, amounted to $341 million in 1993, $509 million in 1992, and
$429 million in 1991.
[HARD COPY PG. 5]
U.S. GOVERNMENT AND EXPORT SALES
Although there are additional risks to the Company attendant to its
foreign operations, such as currency fluctuations and devaluations, the risk
of war, changes in foreign governments and their policies, differences in
foreign laws, uncertainties as to enforcement of contract rights, and
difficulties in negotiating and litigating with foreign sovereigns, the
Company's financial position has not been materially affected.
Since most of the Company's foreign export sales involve
technologically advanced products, services and expertise, U.S. export
control regulations limit the types of products and services that may be
offered and the countries and governments to which sales may be made. The
Department of State issues and maintains the International Traffic in Arms
Regulations pursuant to the Arms Export Control Act. The Department of
Commerce issues and maintains the Export Administration Regulations pursuant
to the Export Administration Act and the Department of Treasury implements
and maintains transaction controls, sanctions and trade embargoes pursuant
to the Trading With the Enemy Act and the International Emergency Economic
Powers Act. Pursuant to these regulations, certain products and services
cannot be exported without obtaining a license. Most of the defense
products that the Company sells abroad cannot be sold without such a
license. Consequently, the Company's international sales may be adversely
affected by changes in the United States Government's export policy, the
implementation of trade sanctions or embargoes, or the suspension or
revocation of the Company's foreign export control licenses.
<PAGE> 7
Additional information required by this item is included in Note 19,
"U.S. Government and Export Sales" on page 52 of the Company's 1993 Annual
Report to Shareholders, which is incorporated herein by this reference.
BACKLOG
The backlog of orders at December 31 of the last two years has been as
follows:
1993 1992
------------------ -------------------
Backlog % Backlog %
--------- ------- --------- -------
(Dollars in millions)
Firm backlog:
Military aircraft $ 7,997 41.3 $ 7,619 31.7
Commercial aircraft 9,172 47.3 13,364 55.5
Missiles, space and
electronic systems 2,210 11.4 3,069 12.8
--------- ------- --------- -------
Total Firm Backlog $ 19,379 100.0 $ 24,052 100.0
========= ======= ========= =======
Contingent backlog:
Military aircraft $ 10,742 65.8 $ 10,760 60.6
Commercial aircraft 3,059 18.8 4,311 24.3
Missiles, space and
electronic systems 2,518 15.4 2,683 15.1
--------- ------- --------- -------
Total Contingent Backlog $ 16,319 100.0 $ 17,754 100.0
========= ======= ========= =======
[HARD COPY PG. 6]
Backlog reported is that of the aerospace segments. Customer options
and products produced for short-term lease are excluded from backlog. For a
discussion of risks associated with backlog for commercial customers, see
"Backlog" on page 32 in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 1993 Annual Report to
Shareholders, which is incorporated herein by this reference.
Contingent backlog includes: (a) U.S. and other government orders not
yet funded; (b) U.S. and other government orders being negotiated as
continuations of authorized programs; and (c) unearned price escalation on
firm commercial aircraft orders.
The backlog amounts include units scheduled for delivery over extended
future periods. Since substantially all work for the U.S. and other
governments is accounted for on the percentage of completion method of
accounting whereby sales are recorded as work is performed, such amounts
included in backlog cannot be segregated on the basis of scheduled
deliveries. However, with respect to commercial jetliners and related
products included in the commercial segment (which are accounted for on a
delivery method), the firm backlog related to deliveries scheduled after one
year was $6.9 billion at December 31, 1993, and $9.2 billion at December 31,
1992.
<PAGE> 8
The Government may terminate its contracts for default, or for its
convenience whenever it believes that such termination would be in the best
interest of the Government. For a further discussion of termination for
default and termination for convenience risks, see "Military Aerospace
Business" on page 30 in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 1993 Annual Report to
Shareholders, which is incorporated herein by this reference.
[HARD COPY PG. 7]
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company at February 28, 1994, were as
follows:
EXECUTIVE AGE POSITIONS AND OFFICES HELD
- ------------------ --- ---------------------------------------
Dean C. Borgman 52 McDonnell Douglas Helicopter Systems
(MDHS) Senior Vice President - General
Manager since September 1993 and
McDonnell Douglas Helicopter Company
(MDHC) President since March 1992.
MDHC Vice President - Commercial
Programs 1992. MDHC General Manager
MDX Program 1990-1992. MDHC Vice
President - Advanced Product and
Technology Division 1989-1990. MDHC
Vice President - Engineering 1986-1989.
Robert L. Brand 56 MDC Vice President and Controller
since September 1992. McDonnell Douglas
Missile Systems Company (MDMSC) Vice
President - Business Management and
Chief Financial Officer 1992. MDC
Controller 1987-1992.
John P. Capellupo 59 MDC Executive Vice President since
August 1992. McDonnell Aircraft Company
(MCAIR) President 1991-1992. DAC Deputy
President 1990-1991. MDMSC President
1989-1990. MCAIR Vice President -
General Manager F/A-18 Program 1985-1989.
Kenneth A. Francis 60 MDC Executive Vice President since
August 1992. McDonnell Douglas Space
Systems Company (MDSSC) President 1990-
1992. MDSSC Executive Vice President
1989-1990. MDSSC Senior Vice President -
Operations 1987-1989.
Robert H. Hood, Jr. 61 DAC President since January 1989.
MDMSC President 1988-1989.
<PAGE> 9
Gerald A. Johnston 62 MDC President and Chief Operating
Officer since July 1991. MDC President
1988-1991. MCAIR President 1991.
Mr. Johnston is retiring from the Company
effective March 31, 1994.
Donald R. Kozlowski 56 MDC Senior Vice President - C-17 Program
Manager since December 1993. MDC Vice
President/General Manager, High Speed
Civil Transport 1992-1993. MCAIR Vice
President/General Manager - F/A-18
1991-1992. MCAIR Vice President/General
Manager 1988-1991.
F. Mark Kuhlmann 45 MDC Senior Vice President - Administration,
General Counsel and Secretary since
September 1992. MDC Vice President,
General Counsel and Secretary
1991-1992. McDonnell Douglas Systems
Integration (MDSI) President 1989-1991.
McDonnell Douglas Health Systems Company
(MDHSC) Senior Vice President and General
Manager 1988-1989.
Herbert J. Lanese 48 MDC Executive Vice President and Chief
Financial Officer since August 1992. MDC
Senior Vice President - Finance 1989-1992.
MDC Senior Vice President 1989. Vice
President and Controller of Tenneco, Inc.
1986-1989.
[HARD COPY PG. 8]
James H. MacDonald 57 MDC Senior Vice President - Total Quality
Management since September 1992. MDC
Senior Vice President 1989-1992. MDC
Senior Vice President - Employee and
External Relations 1988-1989.
John F. McDonnell 55 MDC Chairman and Chief Executive Officer
since March 1988.
Charles A. Ordahl 59 MDC Senior Vice President - Space and
Defense Systems since October 1993. MDC
Senior Vice President - Space Systems
1992-1993. MDSSC Vice President/General
Manager Advanced Product Development and
Technology Division 1989-1992.
James F. Palmer 44 MDC Vice President - Treasurer since
July 1993. MDC Vice President/General
Manager - Business Management 1992-1993.
MCAIR Chief Financial Officer 1991-1992.
Partner of Ernst & Young 1985-1991.
<PAGE> 10
James C. Restelli 52 MDC Senior Vice President - Tactical
Aircraft and Missile Systems since
January 1993. MDC Senior Vice President -
Tactical Aircraft 1992. MCAIR Executive
Vice President 1991-1992. MCAIR Vice
President - Business Operations 1990-1991.
MCAIR Vice President - Fiscal Management
1989-1990. MCAIR Vice President -
Contracts and Pricing 1986-1989.
Charles E. Suyo 50 MDHS Senior Vice President - Operations
since September 1993. MDHS Senior Vice
President - Programs 1993. MDC Senior
Vice President - Missile Systems 1992-1993.
MDMSC Vice President - Program Manager
Harpoon/SLAM 1989-1992. MDSI Senior
Vice President 1988-1989.
All executive officers serve at the pleasure of the Board of Directors
of the Company and are appointed annually. Non-executive officers may be
appointed by the Board or the Chairman. All of the executive officers have
been employees of the Company at least five years except H. J. Lanese and
J. F. Palmer. There are no arrangements or understandings between any of
the executive officers and any other person pursuant to which he was
selected as an officer.
ITEM 2. PROPERTIES
At December 31, 1993, the Company's manufacturing, laboratory, office
and warehouse areas totaled 45.8 million square feet, of which 14.8 million
square feet were leased. The Company plants are well maintained and in good
operating condition. Leases with the U.S. Government cover plants in
Columbus, Ohio and Tulsa, Oklahoma. A major commercial lease covers a plant
in Culver City, California. The Company also has long-term arrangements
with airport authorities enabling it to share the use of runways, taxiways,
and other airport facilities at various locations, including St. Louis,
Missouri; Long Beach, California; Tulsa, Oklahoma; and Mesa, Arizona. The
trend of reduced defense spending and reduced commercial aircraft orders has
resulted in downsizing of personnel and facility needs. In light of the
Company's downsizing and current business economic conditions, many of the
Company's facilities are currently underutilized. The Company has announced
plans to close its plants in Tulsa, Oklahoma; Columbus, Ohio; and Torrance
and Culver City, California. Although these plants continued to be
operational at December 31, 1993, the Company will move the operations to
other existing facilities during 1994. Leases related to Tulsa, Oklahoma;
Columbus, Ohio; and Culver City, California terminate during 1994.
<PAGE> 11 [HARD COPY PG. 9]
The Company's principal locations are in six states and Canada. Those
in St. Louis, Missouri are chiefly devoted to military aircraft,
electronics, training systems, and missiles. Those in Mesa, Arizona are
primarily used for development, manufacture, and assembly of helicopters.
In the Los Angeles, California area, principal properties are located in
Huntington Beach and Long Beach. Huntington Beach, California properties
are utilized for research and manufacture of spacecraft, launch vehicles,
and electronics. Long Beach, California properties are devoted to the
development, manufacture, and assembly of commercial and military transport
aircraft, and to the financial services and other segment. Subassembly work
for the commercial and military aircraft business segments is performed at
Macon, Georgia; Salt Lake City, Utah; and Toronto, Canada for shipment to
operations at Long Beach. Florida facilities are devoted to production of
missiles and space operations. The Culver City facilities have been devoted
to helicopters. The Columbus, Ohio and Torrance, California facilities have
been used for fabrication work for military transport aircraft and
commercial aircraft, respectively. Subassembly work has been performed at
Tulsa, Oklahoma. Work performed at the facilities to be closed during 1994
will be moved to existing facilities.
ITEM 3. LEGAL PROCEEDINGS
The Navy on January 7, 1991, notified McDonnell Douglas Corporation and
General Dynamics Corporation (the Team) that it was terminating for default
the Team's contract for development and initial production of the A-12
aircraft. On June 7, 1991, the Team filed a legal action to contest the
Navy's default termination, assert its rights to convert the termination to
one for "the convenience of the Government," and obtain payment for work
done and costs incurred on the A-12 contract, but not paid to date.
Additional information relative to this matter and claims filed with the Air
Force on the C-17 contract and the Navy on the T45 contract is included in
Note 5, "Contracts in Process and Inventories" on page 42 of the Company's
1993 Annual Report to Shareholders, which is incorporated herein by this
reference. See also Note 17, "Commitments and Contingencies" on page 51 of
the Company's 1993 Annual Report to Shareholders and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Government Business Audits, Reviews and Investigations", page 31, which are
incorporated herein by this reference.
MDC is a party to a number of proceedings brought under the
Comprehensive Environmental Response, Compensation and Liability Act,
commonly known as Superfund, or similar state statutes. MDC has been
identified as a potentially responsible party (PRP) at 28 sites. Of these,
MDC believes that it has de minimis liability at 19 sites, including 9 sites
at which it believes that it has no future liability. At the 9 sites at
which MDC's liability is not considered to be de minimis, either final or
interim cost sharing agreements have been effected between the cooperating
PRPs, although such agreements do not fix the amount of cleanup costs which
the parties will bear. In addition, MDC is remediating, or has begun
environmental engineering studies to determine cleanup requirements, at
certain of its current operating sites or former sites of industrial
activity. MDC estimates total reasonably possible costs of approximately
<PAGE> 12
$48 million for study and remediation expenditures at Superfund sites and
MDC's current and former operating sites, of which $21 million is accrued at
December 31, 1993.
A number of legal proceedings and claims are pending or have been
asserted against MDC including legal proceedings and claims relating to
alleged injuries to persons associated with the disposal of hazardous waste.
A substantial portion of such legal proceedings and claims is covered by
insurance. MDC believes that the final outcome of such proceedings and
claims will not have a material adverse effect on MDC's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter.
[HARD COPY PG. 10]
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information required by this item is included on pages 46, 47 and 55 of
the Company's 1993 Annual Report to Shareholders, which is incorporated
herein by this reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data for the five years ended December 31, 1993,
consisting of the data under the captions "Summary of Operations" and
"Balance Sheet Information" are included at page 54 of the Company's 1993
Annual Report to Shareholders, which is incorporated herein by this
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations is contained on pages 24 through 32 of the 1993 Annual Report
to Shareholders, and under the captions "Military Aircraft," "Commercial
Aircraft" and "Missiles, Space and Electronic Systems" on pages 6 through 19
of the 1993 Annual Report to Shareholders, the text portions, including
tables, which are incorporated herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is included on pages 33 through
53, and on page 56 of the 1993 Annual Report to Shareholders, which are
incorporated herein by this reference.
<PAGE> 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
This item is not applicable.
PART III
ITEMS 10, 11, 12 and 13
The information called for by Part III, Item 10 "Directors and
Executive Officers of the Registrant" (except for certain information
concerning Executive Officers which is provided in Part I above), Item 11
"Executive Compensation," Item 12 "Security Ownership of Certain Beneficial
Owners and Management," and Item 13 "Certain Relationships and Related
Transactions" is included in the Company's definitive Proxy Statement for
1993 pursuant to Regulation 14A, to be filed with the Commission within 120
days after the close of the fiscal year ended December 31, 1993, and is
incorporated herein by this reference. The report of the Management
Succession and Compensation Committee and the performance graph contained in
the Company's definitive Proxy Statement for 1993, however, are not
incorporated herein by reference and shall not be deemed filed under the
Securities Act of 1933 or under the Securities Exchange Act of 1934.
[HARD COPY PG. 11]
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of McDonnell Douglas
Corporation and Subsidiaries included in the 1993 Annual Report to
Shareholders at the pages indicated, are incorporated herein by this
reference:
Report of Ernst & Young, Independent Auditors, page 53.
Consolidated Statement of Operations, years ended December 31, 1993,
1992, and 1991, page 34.
Consolidated Balance Sheet, December 31, 1993 and 1992, page 35.
Consolidated Statement of Shareholders' Equity, years ended
December 31,1993, 1992, and 1991, page 36.
Consolidated Statement of Cash Flows, years ended December 31, 1993,
1992, and 1991, page 37.
Notes to Consolidated Financial Statements, pages 38 through 52.
Selected Financial Data by Industry Segment - Continuing Operations,
page 33.
Quarterly Results of Operations, page 56.
<PAGE> 14
(a)2. LIST OF FINANCIAL STATEMENT SCHEDULES
See Index to Financial Statement Schedules on page 16.
All other schedules for which provision is made in the applicable
regulation of the Securities and Exchange Commission are omitted either
because they are not applicable or because the required information is
included in the financial statements or notes thereto.
(a)3. EXHIBITS
See Index to Exhibits on pages 13 through 15.
(b) Reports on Form 8-K filed in 1993:
----------------------------------
Form 8-K filed on January 29, 1993 in response to Item 5.
Form 8-K filed on June 2, 1993 in response to Item 5.
Form 8-K filed on December 2, 1993 in response to Item 5.
Form 8-K filed on December 15, 1993 in response to Item 5.
Form 8-K filed on December 27, 1993 in response to Item 5.
SIGNATURES [HARD COPY PG. 12]
Pursuant to the requirements of Section 13 or 15(d) 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.
MCDONNELL DOUGLAS CORPORATION
(Registrant)
Date: March 22, 1994 By: /s/ Robert L. Brand
--------------------------------
Robert L. Brand
Vice President and Controller and
Registrant's Authorized Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the date indicated below.
Signature Title Date
- -------------------------- ---------------------------- -------------
John F. McDonnell* Director, Chairman & March 22, 1994
- -------------------------- Chief Executive Officer
John F. McDonnell (Principal Executive Officer)
Herbert J. Lanese* Executive Vice President and March 22, 1994
- -------------------------- Chief Financial Officer
Herbert J. Lanese (Principal Financial Officer)
/s/ Robert L. Brand Vice President and Controller March 22, 1994
- -------------------------- (Principal Accounting Officer)
Robert L. Brand
<PAGE> 15
John H. Biggs* Director March 22, 1994
B.A. Bridgewater, Jr.* Director March 22, 1994
Beverly B. Byron* Director March 22, 1994
William E. Cornelius* Director March 22, 1994
William H. Danforth* Director March 22, 1994
Kenneth M. Duberstein* Director March 22, 1994
Julian B. Goodman* Director March 22, 1994
Gerald A. Johnston Director March 22, 1994
William S. Kanaga* Director March 22, 1994
James S. McDonnell III* Director March 22, 1994
Sanford N. McDonnell* Director March 22, 1994
George A. Schaefer* Director March 22, 1994
*By his signature below, S. N. Frank has signed this Form 10-K as Attorney-
in-fact on behalf of the persons listed above whose names are followed by an
asterisk, pursuant to a Power of Attorney, a copy of which is filed with
this Form 10-K.
/s/ S. N. Frank
- -----------------------------
S. N. Frank, Attorney-in-fact
[HARD COPY PG. 13]
MCDONNELL DOUGLAS CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
EXHIBIT
3(a) Articles of Restatement of the Incorporated by reference
Company's Charter, as filed to Exhibit 3(a) to the
April 13, 1992. Company's Annual Report on
Form 10-K for the year
ended December 31, 1992.
3(b) Bylaws of the Company, as
amended July 30, 1993.
4(a) Indenture dated as of September 1, Incorporated by reference
1985 between the Company and The to Exhibit 4(a) to the
Bank of New York as Successor Company's Registration
Trustee to Citibank, N.A. Statement on Form S-3,
Commission File No.
33-36180, filed with the
Commission on August 1,
1990.
<PAGE> 16
4(b) First Supplemental Indenture Incorporated by reference
dated as of July 1, 1986 to Exhibit 4(b) to the
between the Company and The Company's Registration
Bank of New York as Successor Statement on Form S-3,
Trustee to Citibank, N.A. Commission File No.
33-36180, filed with the
Commission on August 1,
1990.
4(c) Second Supplemental Indenture Incorporated by reference
dated as of April 2, 1992 to Exhibit 4(c) to the
between the Company and The Company's Annual Report on
Bank of New York as Successor Form 10-K for the year ended
Trustee to Citibank, N.A. December 31, 1992.
4(d) Agreement of Resignation, Appoint-
ment and Acceptance dated as of
May 17, 1993 by and among the
Company, Citibank, N.A., as
Resigning Trustee, and The Bank
of New York, as Successor Trustee.
4(e) Form of 8-5/8% Notes due April 1, Incorporated by reference
1997. to Exhibit 4(f) to the
Company's Annual Report on
Form 10-K for the year ended
December 31, 1992.
4(f) Form of 9-1/4% Notes due April 1, Incorporated by reference
2002. to Exhibit 4(g) to the
Company's Annual Report on
Form 10-K for the year ended
December 31, 1992.
4(g) Form of 9-3/4% Debentures Incorporated by reference
due April 1, 2012. to Exhibit 4(h) to the
Company's Annual Report on
Form 10-K for the year ended
December 31, 1992.
[HARD COPY PG. 14]
4(h) Form of 8-1/4% Notes due July 1,
2000.
4(i) Rights Agreement dated as of Incorporated by reference
August 2, 1990 between the to Exhibits 1 and 2 to the
Company and First Chicago Trust Company's Report on Form
Company of New York, which 8-K filed with the
includes as Exhibit B thereto Commission on
the form of Rights Certificate. August 6, 1990.
<PAGE> 17
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Company is not filing
certain instruments with respect to long-term debt because the amount of
securities currently authorized under any of them does not exceed 10 percent
of the total assets of the Company and its subsidiaries on a consolidated
basis. The Company hereby agrees to furnish a copy of any such instrument
to the Commission upon request.
10(a)* McDonnell Douglas Corporation Incorporated by reference
Incentive Award Plan, as amended to Exhibit 10(b) to the
and restated as of July 20, 1990. Company's Annual Report on
Form 10-K for the year ended
December 31, 1990.
10(b)* Incentive Compensation Program, Incorporated by reference
as amended and restated as of to Exhibit 10(b) to the
March 2, 1992 under the McDonnell Company's Annual Report on
Award Plan. December 31, 1991.
10(c)* Long-Term Incentive Program, Incorporated by reference
as amended and restated as of to Exhibit 10(d) to the
July 20, 1990 under the McDonnell Company's Annual Report on
Douglas Corporation Incentive Form 10-K for the year ended
Award Plan. December 31, 1990.
10(d)* McDonnell Douglas Corporation Incorporated by reference
Performance Sharing Plan. to Exhibit 10(d) to the
Company's Annual Report on
Form 10-K for the year ended
December 31, 1992.
10(e)* McDonnell Douglas Corporation Incorporated by reference
Deferred Compensation Plan for to Exhibit 10(e) to the
Nonemployee Directors. Company's Annual Report on
Form 10-K for the year ended
December 31, 1992.
10(f)* Service Agreement between
Kenneth M. Duberstein and
McDonnell Douglas Corporation,
amended as of June 1, 1993.
11 Computation of earnings per
share.
[HARD COPY PG. 15]
13 1993 McDonnell Douglas
Corporation Annual Report to
Shareholders, excluding the
"Financial Highlights," MDC
Chairman's letter "To All
Shareholders and Teammates,"
"Community Involvement," and
"Directors and Management."
<PAGE> 18
21 Subsidiaries.
23 Consents of Independent Auditors
regarding incorporation of their
report included in the 1993
Annual Report to Shareholders of
McDonnell Douglas Corporation
into Form 10-K and incorporation
of Form 10-K into Registration
Statements on Form S-3 and Form
S-8.
99(a)** Form 11-K, Employee Savings Plan
of McDonnell Douglas Corporation
- Salaried Plan.
99(b)** Form 11-K, Employee Savings Plan
of McDonnell Douglas Corporation
- Component Plan.
99(c)** Form 11-K, Employee Thrift Plan
of McDonnell Douglas Corporation
- Subsidiary Plan.
99(d)** Form 11-K, Employee Thrift Plan
of McDonnell Douglas Corporation
- Hourly Plan.
99(e)** Form 11-K, McDonnell Douglas
Helicopter Company Savings Plan
for Hourly Employees.
99(f)** Form 11-K, Employee Investment
Plan of McDonnell Douglas
Corporation - Hourly West Plan.
99(g)** Form 11-K, Employee Investment
Plan of McDonnell Douglas
Corporation - Hourly East Plan.
99(h) Computation of Ratio of Earnings
to Fixed Charges.
* Represents management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
** Financial Statements and schedules prepared in accordance with ERISA have
been filed on Form SE on March 21, 1994.
<PAGE> 19 [HARD COPY PG. 16]
MCDONNELL DOUGLAS CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules of McDonnell
Douglas Corporation and Subsidiaries for the year ended December 31, 1993
are included herein:
Report of Independent Auditors
Schedule II Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees Other than
Related Parties
Schedule VII Guarantees of Securities of Other Issuers
Schedule VIII Valuation and Qualifying Accounts
Schedule IX Short-Term Borrowings
Schedule X Supplementary Income Statement Information
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of McDonnell Douglas
Corporation and subsidiaries (MDC) as of December 31, 1993 and 1992, and for
each of the three years in the period ended December 31, 1993, and have
issued our report thereon dated January 18, 1994 (incorporated by reference
elsewhere in this Annual Report on Form 10K). Our audits also included the
financial statement schedules listed in item 14(a) of this Annual Report on
Form 10K. These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As described in the notes to the consolidated financial statements, the
fixed price development contract for the A-12 advanced tactical aircraft
program was terminated for default by the United States Government on
January 7, 1991. MDC believes it will be successful in converting the
termination for default into a termination for convenience; however, failure
to do so could have a material impact on the financial position of MDC in
the future.
/s/ Ernst & Young
St. Louis, Missouri
January 18, 1994
<PAGE> 20
<TABLE>
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
McDonnell Douglas Corporation
Years Ended December 31, 1993, 1992, and 1991
(Dollars in Thousands)
<CAPTION>
BALANCE AT BALANCE AT
MATURITY BEGINNING AMOUNTS END OF
NAME OF DEBTOR DATE OF PERIOD ADDITIONS COLLECTED PERIOD
- --------------- -------- ---------- --------- --------- ----------
Year Ended December 31, 1993:
<S> <C> <C> <C> <C>
W. H. Brinks Apr 10, 2019 $529.2 $529.2 $0.0
C. Conrad May 24, 2020 210.0 210.0
P. T. Fagan Sep 01, 2002 179.5 179.5
A. C. Haggerty Jan 14, 2002 152.0 152.0
R. H. Hood, Jr. May 03, 2019 665.0 665.0
R. M. Linford Dec 03, 2002 259.6 259.6
E. J. Overley and
C. M. Overley Mar 23, 2019 172.0 172.0
J. B. Pirkle May 05, 2019 261.0 261.0 0.0
D. D. Snyder Mar 30, 2020 507.5 507.5 0.0
D. O. Swain Mar 20, 2019 459.4 459.4 0.0
R. E. Thomas Oct 25, 2020 227.5 227.5
J. J. Van Gels Aug 08, 2020 307.5 307.5
S. W. Vogeding Aug 10, 2020 325.0 325.0
J. D. Wolf Jun 01, 2019 460.0 460.0
B. G. Zimmerman Aug 16, 2020 277.5 277.5
-------- -------- -------- --------
$4,992.7 $1,757.1 $3,235.6
======== ======== ======== ========
</TABLE>
<PAGE> 21
<TABLE>
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES - Cont'd
McDonnell Douglas Corporation
Years Ended December 31, 1993, 1992, and 1991
(Dollars in Thousands)
<CAPTION>
BALANCE AT BALANCE AT
MATURITY BEGINNING AMOUNTS END OF
NAME OF DEBTOR DATE OF PERIOD ADDITIONS COLLECTED PERIOD
- --------------- -------- ---------- --------- --------- ----------
Year Ended December 31, 1992:
<S> <C> <C> <C> <C> <C>
W. H. Brinks Apr 10, 2019 $529.2 $529.2
C. Conrad May 24, 2020 210.0 210.0
P. T. Fagan Sep 01, 2002 $179.5 179.5
A. C. Haggerty Jan 14, 2002 152.0 152.0
R. H. Hood, Jr. May 03, 2019 665.0 665.0
L. F. Impellizzeri Jul 18, 2020 400.0 $400.0 0.0
R. M. Linford Dec 03, 2002 259.6 259.6
E. J. Overley and
C. M. Overley Mar 23, 2019 172.0 172.0
J. B. Pirkle May 05, 2019 261.0 261.0
D. D. Snyder Mar 30, 2020 507.5 507.5
D. O. Swain Mar 20, 2019 459.4 459.4
R. E. Thomas Oct 25, 2020 227.5 227.5
P. R. Thompson May 14, 1991 224.0 224.0 0.0
J. J. Van Gels Aug 08. 2020 307.5 307.5
S. W. Vogeding Aug 10, 2020 325.0 325.0
J. D. Wolf Jun 01, 2019 460.0 460.0
B. G. Zimmerman Aug 16, 2020 277.5 277.5
-------- -------- -------- --------
$5,025.6 $591.1 $624.0 $4,992.7
======== ======== ======== ========
</TABLE>
<PAGE> 22
<TABLE>
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES - Cont'd
McDonnell Douglas Corporation
Years Ended December 31, 1993, 1992, and 1991
(Dollars in Thousands)
<CAPTION>
BALANCE AT BALANCE AT
MATURITY BEGINNING AMOUNTS END OF
NAME OF DEBTOR DATE OF PERIOD ADDITIONS COLLECTED PERIOD
- --------------- -------- ---------- --------- --------- ----------
Year Ended December 31, 1991:
<S> <C> <C> <C> <C>
M. G. Brandt Mar 14, 1991 $303.0 $303.0 $0.0
W. H. Brinks Apr 10, 2019 529.2 529.2
J. P. Capellupo Apr 03, 2020 355.0 355.0 0.0
C. Conrad May 24, 2020 210.0 210.0
R. H. Hood, Jr. May 03, 2019 665.0 665.0
L. F. Impellizzeri Jul 18, 2020 400.0 400.0
E. J. Overley and
C. M. Overley Mar 23, 2019 172.0 172.0
J. B. Pirkle May 05, 2019 261.0 261.0
J. D. Smith Aug 24, 1991 591.0 591.0 0.0
D. D. Snyder Mar 30, 2020 507.5 507.5
D. O. Swain Mar 20, 2019 459.4 459.4
R. E. Thomas Oct 25, 2020 227.5 227.5
P. R. Thompson May 14, 1991 224.0 224.0
J. J. Van Gels Aug 08, 2020 307.5 307.5
S. W. Vogeding Aug 10, 2020 325.0 325.0
H. Wall, Jr. Jul 31, 2020 237.5 237.5 0.0
J. D. Wolf Jun 01, 2019 460.0 460.0
B. G. Zimmerman Aug 16, 2020 277.5 277.5
-------- -------- -------- --------
$6,512.1 $1,486.5 $5,025.6
======== ======== ======== ========
<FN>
Note: The scheduled notes are Shared Appreciation Notes, representing
relocation loans to employees for the purchase of a residence. The
Notes are secured by a second deed of trust on the employee's residence.
The proportionate share (as defined in the Note) of the fair market
value of the residence is due on the maturity date, or earlier, in case
of sale of the property, termination of employment or other events as
specified in the Note. Due to the nature of these notes, upon
liquidation amounts forgiven are included in "amounts collected" and
gains on property sold at appreciation are excluded from "amounts
collected".
</TABLE>
<PAGE> 23
<TABLE>
Schedule VII-GUARANTEES OF SECURITIES OF OTHER ISSUERS
McDonnell Douglas Corporation
December 31, 1993
(Dollars in Millions)
<CAPTION>
AMOUNT AMOUNT
TITLE OWNED IN
ISSUE OF BY PERSON TREASURY
NAME OF ISSUER EACH TOTAL OR PERSONS OF ISSUER
OF SECURITIES GUARANTEED CLASS OF GUARANTEED FOR WHICH OF NATURE NATURE
BY PERSON FOR WHICH SECURITIES AND STATEMENT SECURITIES OF OF ANY
STATEMENT IS FILED GUARANTEED OUTSTANDING IS FILED GUARANTEED GUARANTEE DEFAULT
- ------------------------ ---------- ----------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Aerolineas Argentinas Notes $36 None None A None
AeroMexico Notes 1 None None A None
Air Liberte Notes 11 None None A None
Biman Bangladesh Notes 3 None None A None
British West Indies
Airlines Notes 2 None None A None
City of Ann Arbor Bonds 3 None None A None
Continental Notes 14 None None A None
Michigan National Bank Notes 1 None None A None
Minerve Notes 6 None None A None
TWA/Ozark Airlines Notes 11 None None A None
Valujet Notes 6 None None A None
Varig Notes 112 None None A None
Zambia Airways Notes 4 None None A None
<FN>
A - MDC is obligated to purchase notes or bonds from holders in the amount shown, plus
unpaid interest, in the event of non-payment by issuer.
</TABLE>
<PAGE> 24
<TABLE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
McDonnell Douglas Corporation
Years Ended December 31, 1993, 1992, and 1991
(Dollars in Millions)
<CAPTION>
BALANCE CHARGED BALANCE
AT TO CHARGED AT
BEGINNING COSTS AND TO END
OF AND OTHER OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------- ------ -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993:
Allowance for commercial
aircraft financing $ 6 $14 $20
Allowance for uncollectible
accounts 48 15 $ 2 $15 50
--- --- --- --- ---
$54 $29 $ 2 $15 $70
=== === === === ===
Year Ended December 31, 1992:
Allowance for commercial
aircraft financing $ 6 $ 6
Allowance for uncollectible
accounts 57 $22 $31 48
--- --- --- --- ---
$63 $22 $31 $54
=== === === === ===
Year Ended December 31, 1991:
Allowance for commercial
aircraft financing $ 6 $ 6
Allowance for uncollectible
accounts 65 $53 $ 3 $64 57
--- --- --- --- ---
$71 $53 $ 3 $64 $63
=== === === === ===
<FN>
NOTE: Amounts charged to other accounts are principally reclassifications.
Deductions are principally the write off of uncollectible accounts.
</TABLE>
<PAGE> 25
<TABLE>
SCHEDULE IX - SHORT-TERM BORROWINGS
McDonnell Douglas Corporation
Years Ended December 31, 1993, 1992, and 1991
(Dollars in Millions)
<CAPTION>
Maximum Average Weighted
amount amount Average
Balance Weighted Outstanding Outstanding Interest
at Average During During Rate
Category of Aggregate End of Interest the the During
Short-term Borrowings Period Rate Period Period (A) Period (B)
<S> <C> <C> <C> <C> <C>
AEROSPACE SEGMENTS
- ------------------
Year Ended December 31, 1993:
Commercial paper (C) $0 N/A $75 $5 3.88%
Notes payable to banks (D) 0 N/A 1,418 896 3.76%
Year Ended December 31, 1992:
Commercial paper (C) 0 N/A 81 41 4.24%
Notes payable to banks (D) 774 4.16% 1,573 969 4.37%
Year Ended December 31, 1991:
Commercial paper (C) 0 N/A 110 3 9.15%
Notes payable to banks (D) 202 5.14% 1,314 926 6.72%
FINANCIAL SERVICES AND OTHER SEGMENT
- ------------------------------------
Year Ended December 31, 1993:
Commercial paper 0 N/A 0 0 N/A
Notes payable to banks 203 4.72% 220 84 6.02%
Year Ended December 31, 1992:
Commercial paper (E) 0 N/A 0 0 N/A
Notes payable to banks 124 4.76% 146 114 12.06%
Year Ended December 31, 1991:
Commercial paper (E) 0 N/A 44 2 9.20%
Notes payable to banks 158 12.25% 643 381 9.74%
<FN>
(A) - Computed by dividing the total of daily principal balances by the
number of days in the period.
(B) - Computed by dividing the actual interest expense by average
short-term debt outstanding.
(C) - Based on proceeds from commercial paper issuance.
(D) - Excludes overdraft accounts at foreign banks and note relating to
workers compensation insurance, includes notes of wholly owned
subsidiary McDonnell Douglas Canada, Ltd..
(E) - Based on face value of commercial paper issued.
</TABLE>
<PAGE> 26
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
McDonnell Douglas Corporation
Years Ended December 31, 1993, 1992, and 1991
(Dollars in Millions)
ITEM CHARGED TO COSTS AND EXPENSES
Years Ended December 31
1993 1992 1991
---- ---- ----
Maintenance and repairs $170 $271 $288
NOTE: Items not presented amount to less than 1% of revenues.
<PAGE>
<PAGE> 1 Exhibit 3(b)
BYLAWS
of
MCDONNELL DOUGLAS CORPORATION
(as amended 30 July 1993)
ARTICLE I
Offices
In addition to its principal office in the State of Maryland, the
corporation shall have an office in St. Louis, Missouri.
ARTICLE II
Seal
The name of the corporation and the words "Seal, Maryland" shall be
inscribed on the corporate seal.
ARTICLE III
Meetings of Shareholders
Section 1. Written or printed notice, stating the place, day and
hour of every meeting of shareholders (and in the case of special
meetings, stating the business proposed to be transacted thereat) shall be
given to each shareholder by personally delivering it to him, by leaving
it with him at his residence or usual place of business, or by mailing it,
postage prepaid, and addressed to him at his address as it appears upon
the corporate records of the Secretary, all not less than ten (10) nor
more than ninety (90) days before such meeting.
Section 2. The annual meeting of the shareholders shall be held not
earlier than April 15 nor later than May 15 of each year at a time within
such period and at such place in the United States as shall be determined
from time to time by the Board of Directors (the "Board") and stated in
the notice or waiver of notice of the meeting. All other meetings of
shareholders shall be held at such times and at such place or places in
the United States as shall be determined from time to time by the Board
and stated in the notice or waiver of notice of the meeting.
Section 3. Special meetings of the shareholders, for any lawful
purpose or purposes, may be called by the Chairman of the Board (the
"Chairman"), the President, a majority of the Board or a majority of the
Executive Committee, and shall, unless otherwise prescribed by statute, be
called by the Secretary at the request in writing of shareholders entitled
to cast at least twenty-five (25) percent of all votes entitled to be cast
at the meeting. Such request shall state the purpose of the proposed
meeting and the matters to be acted upon at such meeting and shall further
comply with the provisions of Section 4 of this Article III. A meeting
requested by shareholders shall be called as set forth in (a) through (d)
of this Article III.
<PAGE> 2 Exhibit 3(b)
(a) The Secretary shall advise the shareholders who make the
request of the estimated cost of preparing and mailing notice of the
requested meeting. Such costs shall expressly include costs related to
preparation of a list of shareholders entitled to vote. Notice of the
meeting shall not be mailed until such costs are paid to the corporation.
(b) The Secretary shall set the record date for shareholders
entitled to vote which shall not be less than five (5) nor more than ten
(10) days after the date on which the corporation has received payment for
the estimated cost of preparing and mailing notice.
(c) The notice shall be mailed within ten (10) days of the record
date.
(d) The time, date and place of the meeting shall be determined
by the Board except that such meeting date shall not be less than ten (10)
nor more than ninety (90) days after the record date.
Section 4. All nominations of individuals for election to the Board
and proposals of business to be considered at any meeting of the
shareholders shall be made as set forth in this Section 4 of Article III.
(a) Annual Meeting of Shareholders. (1) Nominations of
individuals for election to the Board and the proposal of business to be
considered by the shareholders may be made at an annual meeting of
shareholders (i) pursuant to the corporation's notice of meeting, (ii) by
or at the direction of the directors or (iii) by any shareholder of the
corporation who was a shareholder of record at the time of giving of
notice provided for in this Section 4(a) of Article III, who is entitled
to vote at the meeting and who complied with the notice procedures set
forth in this Section 4(a) of Article III.
(2) For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (iii) of
paragraph (a)(l) of this Section 4 of Article III, the shareholder must
have given timely notice thereof in writing to the Secretary. To be
timely, a shareholder's notice shall be delivered to the Secretary at the
principal executive offices of the corporation not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than 30 days or delayed by more than 60
days from such anniversary date, notice by the shareholder to be timely
must be so delivered not earlier than the 90th day prior to such annual
meeting and not later than the close of business on the later of the 60th
day prior to such annual meeting or the tenth day following the day on
which public announcement of the date of such meeting is first made. Such
shareholder's notice shall set forth (i) as to each person whom the
shareholder proposes to nominate for election or reelection as a director
all information relating to such person that is required to be disclosed
in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act" ); (ii) as to any
other business that the shareholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the
<PAGE> 3 Exhibit 3(b)
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such shareholder and of the
beneficial owner, if any, on whose behalf the proposal is made; and (iii)
as to the shareholder giving the notice and the beneficial owner, if any,
on whose behalf the nomination or proposal is made, (x) the name and
address of such shareholder, as they appear on the corporation's books,
and of such beneficial owner and (y) the class and number of shares of
stock of the corporation which are owned beneficially and of record by
such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 4 of Article III the contrary, in the event that
the number of directors to be elected to the Board is increased and there
is no public announcement naming all of the nominees for director or
specifying the size of the increased Board made by the corporation at
least 70 days prior to the first anniversary of the preceding year's
annual meeting, a shareholder's notice required by this Section 4(a) of
Article III shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive office of the
corporation not later than the close of business on the tenth day
following the day on which such public announcement is first made by the
corporation.
(b) Special Meetings of Shareholders. Only such business shall
be conducted at a special meeting of shareholders as shall have been
brought before the meeting pursuant to the corporation's notice of
meeting. Nominations of persons for election to the Board may be made at
a special meeting of shareholders at which directors are to be elected (i)
pursuant to the corporation's notice of meeting (ii) by or at the
direction of the Board or (iii) provided that the Board has determined
that directors shall be elected at such special meeting, by any
shareholder of the corporation who is a shareholder of record at the time
of giving of notice provided for in this Section 4(b) of Article III, who
is entitled to vote at the meeting and who complied with the notice
procedures set forth in this Section 4(b) of Article III. In the event
the corporation calls a special meeting of shareholders for the purpose of
electing one or more directors to the Board, any such shareholder may
nominate a person or persons (as the case may be) for election to such
position as specified in the corporation's notice of meeting, if the
shareholder's notice required by paragraph (a)(2) of this Section 4 of
Article III shall be delivered to the Secretary at the principal executive
offices of the corporation not earlier than the 90th day prior to such
special meeting and not later than the close of business on the later of
the 60th day prior to such special meeting or the tenth day following the
day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the directors to be elected at
such meeting. Proposals of business other than the nomination of persons
for election to the Board may be considered at a special meeting of the
shareholders requested by the shareholders in accordance with Section 3 of
Article III only if the shareholder's notice required by paragraph (a)(2)
of this Section 4 of Article III was delivered at the time such
shareholder requested the meeting.
<PAGE> 4 Exhibit 3(b)
(c) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this Section 4 of Article III
shall be eligible to serve as directors and only such business shall be
conducted at a meeting of shareholders as shall have been brought before
the meeting in accordance with the procedures set forth in this Section 4
of Article III. The presiding officer of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set
forth in this Section 4 of Article III and, if any proposed nomination or
business is not in compliance with this Section 4 of Article III, to
declare that such defective nomination or proposal be disregarded.
(2) For purposes of this Section 4 of Article III, "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable news service or in a
document publicly filed by the corporation with the Securities and
Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange
Act.
(3) Notwithstanding the foregoing provisions of this Section
4 of Article III, a shareholder shall also comply with all applicable
requirements of state law and of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth in this
Section 4 of Article III. Nothing in this Section 4 of Article III shall
be deemed to affect any rights of shareholders to request inclusion of
proposals in the corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act.
Section 5. At any meeting of shareholders a majority of the
shares outstanding and entitled to vote at the meeting shall constitute a
quorum for the transaction of business. If a quorum is not present or
represented at any meeting of shareholders, the shareholders entitled to
vote thereat, present in person or by proxy, shall have power to adjourn
the meeting from time to time, without notice other than announcement at
the meeting, until the requisite amount of voting stock is represented.
At such adjourned meeting at which the requisite amount of voting stock
shall be represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 6. Each outstanding share of stock having voting power
shall be entitled to one vote on each matter submitted to a vote at each
meeting of shareholders.
Section 7. The corporation shall be entitled to treat the holder
of record of any share or shares of stock as the holder in fact thereof
and accordingly shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person,
whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of Maryland.
<PAGE> 5 Exhibit 3(b)
ARTICLE IV
Directors
Section 1. The business and affairs of the corporation shall be
managed under the direction of the Board. All powers of the corporation
shall be exercised by or under authority of the Board except as conferred
on or reserved to the shareholders by law or by the charter or bylaws of
the corporation.
Section 2. The number of Directors of the corporation shall be
thirteen (13) which number may be increased or decreased upon an
affirmative vote of not less than 80% of the entire Board but shall never
be less than three (3). Directors shall serve for three (3) years
staggered terms, with approximately one-third (1/3) of the total number of
Directors to be elected at each annual meeting of the shareholders. In
case of a vacancy on the Board for any cause other than an increase in the
number of Directors, an affirmative vote of a majority of the remaining
Directors, even though less than a quorum, may elect a successor to hold
office for the Director whose place shall be vacant until the next annual
meeting of shareholders. A vote of not less than 80% of the entire Board
shall be required to fill a vacancy on the Board which results from an
increase in the number of Directors. If the number of Directors is
changed, any increase or decrease shall be apportioned among the classes
so as to maintain the number of Directors in each class as nearly equal as
possible. In no case will a decrease in the number of Directors shorten
the term of any incumbent Director. A Director elected to fill a vacancy
on the Board which results from an increase in the number of Directors
shall hold office until the next annual meeting of shareholders and until
such Director's successor shall have been elected and qualified.
Notwithstanding any provision of law to the contrary, a Director may be
removed with or without cause only by the affirmative vote of the holders
of not less than 80% of all of the outstanding shares of the corporation
entitled to vote at a meeting of shareholders called for such purpose.
Section 3. The Board shall hold regular and special meetings at such
place and time as it determines for the purpose of organization, election
of certain Officers as specified in Article VI, and consideration of other
business that may come before the meeting.
Section 4. A majority of the entire Board shall constitute a
quorum for the transaction of all business that may properly come before
any meeting of the Board.
Section 5. Special meetings of the Board may be called by the
Chairman, the President, or the Secretary upon written request of two
Directors.
Section 6. A written notice of all regular meetings of the Board
shall be mailed to each Director at his address as listed in the corporate
records of the Secretary at least ten (10) days before any such meeting.
No irregularity of notice of any regular meeting shall invalidate the same
or any proceeding thereat, provided the notice shall definitely specify
the time and place fixed by the Board for holding the meeting. Special
meetings of the Board may be called upon twenty-four (24) hours
<PAGE> 6 Exhibit 3(b)
notice, given personally, or by mail, telecommunications, or telephone.
Any Director may waive any notice required to be given by these bylaws.
Section 7. Board meetings may be held by means of a conference
telephone or similar communication equipment if all members participating
can hear each other at the same time.
Section 8. Directors as such shall not receive any stated salary
for their services, but by resolution of the Board, compensation may be
established for service as a Director and as a member of special or
standing committees. Nothing herein contained shall be construed to
preclude any Director from serving the corporation in any other capacity
and receiving compensation therefor.
ARTICLE V
Committees
Section 1. Designation and Membership. There shall be an
Executive Committee, a Management Compensation and Succession Committee,
an Audit Committee, and a Nominating Committee and there may be such other
committees as the Board may determine, each to consist of not less than
three Directors, to be elected by the Board to hold office until the next
annual organizational meeting of the Board or until their successors are
elected and qualified. The Chairman shall be a member of the Executive
Committee. A majority of the Committee members shall be public Directors.
Members of the Management Compensation and Succession Committee shall not
be eligible to participate in any remuneration plan of the Corporation
providing for the acquisition of stock or options to purchase stock of the
corporation which would disqualify such Committee members as disinterested
administrators of the corporation's remuneration plans. Members of the
Audit Committee and the Nominating Committee shall be independent of
management and free from any relationships that, in the opinion of the
Board, would interfere with the exercise of independent judgment. In the
absence of a member of a committee, the member or members thereof present
at any meeting, whether or not he or they constitute a quorum, may appoint
a Director to act in place of any such absent member, provided such
appointed Director is otherwise qualified to be a member of such
committee. All committees may have non-voting advisory members.
Section 2. Powers. The committees, to the extent provided by
these bylaws and by resolution of the Board, may exercise all powers of
the Board between Board meetings except the power to vote themselves
compensation, amend the bylaws, authorize or declare dividends or
distributions on stock, issue stock other than in accordance with Section
2-411(b) of the Maryland General Corporation Law, recommend to
shareholders any action requiring shareholders' approval, or to approve
any merger or share exchange which does not require shareholder approval.
<PAGE> 7 Exhibit 3(b)
Section 3. Procedure. Committees may meet at any time upon notice
by any means to all members, and such notice may be waived. Meetings may
be held by any means of communication, and a majority of the entire
committee shall constitute a quorum, a majority of which may transact all
business that may properly come before the committee. In the absence of a
meeting, any resolution signed by all members of each committee shall be
valid.
ARTICLE VI
Officers
Section 1. The officers of the corporation shall include the
Chairman, a President, a Secretary, and a Treasurer, and may include one
or more Vice Chairmen of the Board, one or more Executive Vice Presidents,
one or more component Presidents, one or more Senior Vice Presidents, one
or more Vice Presidents, one or more Assistant Vice Presidents, a Chief
Financial Officer, a Controller, a Tax Officer, and one or more Assistant
Secretaries, Assistant Treasurers, and Assistant Controllers (hereinafter
referred to as Officers). Any two offices, except those of President and
Executive Vice President, Senior Vice President, Vice President and
Assistant Vice President, may be held by the same person. The Board of
Directors shall elect the Chairman, any Vice Chairmen of the Board, the
President, any Executive Vice President, the Chief Financial Officer, the
principal accounting officer (or if none, the Controller), any Senior Vice
President, the Secretary, any Vice Presidents or component Presidents or
persons in charge of a principal business unit, division or corporate-wide
function (such as sales, administration, legal or finance), and any other
persons who perform similar policy-making functions for the corporation
(hereinafter referred to as Elected Officers). Either the Board or the
Chairman may appoint any other Officers (Officers other than Elected
Officers hereinafter referred to as Appointed Officers).
Section 2. The Chairman, the Vice Chairmen of the Board, if any,
and the President, shall each be a member of the Board. Any Officer may
be a member of the Board. Any Officer may be removed at any time by the
Board. Any Appointed Officer may be removed at any time by either the
Board or the Chairman. All vacancies among the Elected Officers shall be
filled by the Board. Vacancies among the Appointed Officers shall be
filled by either the Board or the Chairman.
Section 3. The Officers of the corporation shall have the
authority and shall perform the duties in the management of the assets and
affairs of the corporation as provided in these bylaws and determined by
resolutions of the Board not inconsistent therewith.
Section 4. The compensation of all Elected Officers shall be
fixed by the Board, or the Management Compensation and Succession
Committee. The compensation of the Appointed Officers shall be fixed by
the Board, the Chairman, or the Management Compensation and Succession
Committee.
<PAGE> 8 Exhibit 3(b)
Section 5. The Chairman shall preside at all meetings of the
Board and of the shareholders. He shall be the Chief Executive Officer
(CEO) of the corporation, and shall, subject to the power and authority of
the Board, have general supervision, direction and control of the business
and affairs of the corporation, and shall also perform such other duties
as may be assigned to him by the Board.
Section 6. Each Vice Chairman of the Board shall, subject to the
power of the Board, be accountable to the Chairman. He shall perform such
duties as may be assigned to him by the Board or the Chairman.
Section 7. The President shall, subject to the power of the
Board, be accountable to the Chairman. He shall perform such duties as
may be assigned to him by the Board or the Chairman. For the period of
any absence or disability of the Chairman, the President shall perform the
duties and, subject to the bylaws, exercise the powers of the Chairman.
In the absence of both the Chairman and the President, another Officer
designated by the Board shall preside at all meetings of the shareholders
and the Board.
Section 8. The Elected Officers and the Appointed Officers shall
have the general powers and duties usually vested in his or her respective
office, and shall perform such other duties as may be prescribed by the
Board, the Chairman, or the President.
ARTICLE VII
Stock
Section 1. Transfer of stock shall be made on the books of the
corporation only by the person named in the certificate or by attorney,
lawfully constituted in writing, and upon surrender of the certificate
therefor. Certificates of stock may be issued when bearing the manual or
facsimile signature of both (1) the Chairman, the President or a Vice
President elected by the Board of Directors, and (2) the Secretary,
Assistant Secretary, Treasurer, or Assistant Treasurer; except that if
both such signatures are facsimiles, a manual signature will be required
of such person, transfer agent, or registrar as may be designated by the
Board or the Executive Committee. If any Officer whose duly authorized
signature or a facsimile thereof appears on blank stock certificates dies,
resigns or is removed prior to issuance of such certificates they may
nevertheless be issued or registered as certificates of stock of the
corporation and shall be valid for all purposes.
Section 2. The Board may fix the time, not exceeding ninety (90)
days preceding the date of any meeting of shareholders, any dividend
payment date or any date for the allotment of rights, during which the
books of the corporation shall be closed against transfers of stock. In
lieu of closing the books against transfers of stock, as aforesaid, the
Board may fix a date, not exceeding ninety (90) days preceding the date of
any meeting of shareholders, any dividend payment date or any date for the
allotment of rights, as a record date for the determination of the
shareholders entitled to notice of and to vote at such meeting, or
<PAGE> 9 Exhibit 3(b)
entitled to receive such dividends or rights as the case may be; and only
shareholders of record on such date shall be entitled to notice of and to
vote at such meeting, or to receive such dividends or rights, as the case
may be.
Section 3. The Board may direct a new certificate or certificates
to be issued in place of any certificate or certificates theretofore
issued which are alleged to have been lost or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of
stock to be lost or destroyed. When authorizing such issue of a new
certificate or certificates, the Board may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal
representative, to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost or
destroyed. The Board may delegate to any Officer or Officers of the
corporation the authority to issue such new certificate or certificates
and the approval of the form and amount of such indemnity bond and the
surety thereon.
ARTICLE VIII
Authorization of Corporate Commitments
Section 1. Transactions requiring Board approval under Maryland
law, the annual budget for purchase of capital facilities, the annual
capital facilities lease budget, maximum amounts of long and short term
borrowings, and authority to proceed with new product programs and other
programs or transactions committing the corporation to financial exposure
exceeding limits of authority delegated to the Chairman by the Board,
shall be submitted for Board review and approval.
Section 2. The Chairman can commit the corporation in all
transactions the approval of which is not reserved to the Board in Section
1 above. The Chairman may delegate his authority to other Officers or
employees in writing, with or without restrictions and with or without
authority to redelegate to other employees. Authority to approve
transactions or commit the corporation includes authority to execute
necessary and appropriate documents relative thereto.
Section 3. The Chairman may designate one or more Officers or
employees, or their designees, to sign checks, drafts, bills of exchange,
promissory notes or other documents relative to any borrowing, commercial
paper, guarantees of indebtedness, or demands for money of the corporation
and no such instrument shall be issued unless so signed.
<PAGE> 10 Exhibit 3(b)
ARTICLE IX
Limitation of Liability and Indemnification
Section 1. No Director or Officer of the corporation shall be
liable to the corporation or its shareholders for money damages, except to
the extent such limitation of liability for Directors or Officers, as the
case may be, is not permitted under the Maryland General Corporation Law,
as the same exists or may hereafter be amended. Any repeal or
modification of the foregoing provisions of this Section 1 of Article IX
shall not adversely affect any right or protection of a Director or
Officer of the corporation existing hereunder with respect to any act or
omission occurring prior to or at the time of such repeal or modification.
Section 2. The corporation shall indemnify, and advance expenses
(without a determination of entitlement to indemnification) to, each
person who at any time is or has served as a Director of the corporation
(including Directors who also serve or have served as Officers of the
corporation) inconnection with any threatened, pending or completed
action, suit or proceeding (whether civil, criminal, administrative, or
investigative) arising out of such person's service to the corporation or
to another organization at the corporation's request except with respect
to any action, suit, or proceeding brought by such person against the
corporation or to the extent such indemnification is expressly prohibited
by the Maryland General Corporation Law, as the same exists or may
hereafter be amended. The indemnification provided by this Section 2 of
Article IX shall not be deemed exclusive of any other rights to which the
Director may be entitled under any statute, agreement, vote of
shareholders or disinterested Directors or otherwise.
Section 3. With respect to Officers and other persons who serve or
have served the corporation, the corporation shall provide indemnification
as required by law and may, as authorized at any time by general or
specific action of the Board, provide further indemnification and advance
expenses (without a determination of entitlement to indemnification) in
connection with any threatened, pending or completed action, suit or
proceeding (whether civil, criminal, administrative or investigative)
arising out of such persons' service to the corporation or to another
organization at the corporation's request except with respect to any
action, suit, or proceeding brought by such person against the corporation
or to the extent such indemnification is expressly prohibited by the
Maryland General Corporation Law, as the same exists or may hereafter be
amended. The indemnification provided by this Section 3 of Article IX
shall not be deemed exclusive of any other rights to which the Officer or
other person may be entitled under any statute, agreement, vote of
shareholders or disinterested Directors or otherwise.
Section 4. Any indemnification of, or advance of expenses to, a
Director arising out of a proceeding by or in the right of the corporation
shall be reported to the shareholders with the notice of the next
shareholders' meeting or prior to the meeting.
<PAGE> 11 Exhibit 3(b)
ARTICLE X
Amendments
The Board shall have the power to make, alter and repeal the bylaws,
subject, however, to the power of the shareholders to alter, amend, or
repeal any bylaws made by the Board; provided, however, that any amendment
to the 80% vote requirements in Article IV, Section 2, must be approved by
an affirmative vote of not less than 80% of the entire Board.
<PAGE>
<PAGE> 1 Exhibit 4(d)
AGREEMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, dated as of
May 17th, 1993 by and among MCDONNELL DOUGLAS CORPORATION, a corporation
duly organized and existing under the laws of the State of Maryland and
having its principal office in St. Louis, Missouri (the "Company"),
CITIBANK, N.A., a banking corporation duly organized and existing under the
laws of the United States of America and having its principal corporate
trust office at 111 Wall Street, New York, New York 10043 (the "Resigning
Trustee") and THE BANK OF NEW YORK, a banking corporation duly organized
and existing under the laws of the State of New York and having its
principal corporate trust office at 101 Barclay Street, New York, New York
10286 (the "Successor Trustee").
RECITALS:
WHEREAS, there was originally authorized and issued the following
Notes, Debentures and Medium Term Notes in the aggregate principal amount
set forth below under an Indenture dated as of September 1, 1985 by and
between the Company and the Resigning Trustee as modified by a First
Supplemental Indenture dated as of July 1, 1986 by and between the Company
and Resigning Trustee and by a Second Supplemental Indenture dated as of
April 2, 1992 by and between the Company and Resigning Trustee (said Notes,
Debentures and Medium Term Notes are hereinafter collectively referred to
as "Securities" and said Indenture, First Supplemental Indenture and Second
Supplemental Indenture are hereinafter collectively referred to as the
"Indenture"):
$150 million 7 7/8% Notes due 1/15/97
$150 million 9% Notes due 7/1/93
$250 million 8 5/8% Notes due 4/1/97
$350 million 9 1/4% Notes due 4/1/02
$350 million 9 3/4% Debentures due 4/1/12
$4.00 million 5.85% Medium Term Note due 9/23/94
$6.65 million 6.30% Medium Term Note due 9/1/94
$6.65 million 7.35% Medium Term Note due 1/15/96
$6.65 million 6% Medium Term Note due 9/29/94
$6.65 million 5.70% Medium Term Note due 10/13/94
$6.65 million 5.33% Medium Term Note due 4/14/94
WHEREAS, Section 610 of the Indenture provides that the Trustee may,
at any time, with respect to the Securities of one or more series, resign
by giving written notice of such resignation to the Company, effective upon
the acceptance by a successor Trustee of its appointment as a successor
Trustee;
WHEREAS, Section 610(e) of the Indenture provides that, if the Trustee
shall resign with respect to the Securities of one or more series, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee;
<PAGE> 2 Exhibit 4(d)
WHEREAS, Section 611 of the Indenture provides that any successor
Trustee appointed under the Indenture with respect to all Securities shall
execute, acknowledge and deliver to the Company and to its predecessor
Trustee an instrument accepting such appointment under the Indenture, and
thereupon the resignation of the predecessor Trustee shall become effective
and such successor Trustee, without any further act, deed or conveyance,
shall become vested with all rights, powers, trusts and duties of the
predecessor Trustee;
WHEREAS, the Company is obligated, pursuant to Sections 305 and 307,
respectively to appoint a Security Registrar and Paying Agent to perform
the duties and obligations specified in the Indenture;
WHEREAS, the Company, pursuant to Section 1002 of the Indenture,
appointed Resigning Trustee as Security Registrar and Paying Agent;
WHEREAS, the Company desires to appoint Successor Trustee as Trustee,
Security Registrar and Paying Agent to succeed Resigning Trustee under the
Indenture; and
WHEREAS, Successor Trustee is willing to accept such appointment as
successor Trustee, Security Registrar and Paying Agent under the Indenture;
NOW, THEREFORE, the Company, Resigning Trustee and Successor Trustee,
for and in consideration of the premises and of other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby consent and agree as follows:
ARTICLE I
THE RESIGNING TRUSTEE
SECTION 101. Pursuant to Section 610(b) of the Indenture, Resigning
Trustee notified the Company in a notice dated February 14, 1993 that
Resigning Trustee is resigning as Trustee under the Indenture with respect
to all Securities and, in addition, that Resigning Trustee hereby notifies
the Company that Resigning Trustee is resigning as Security Registrar and
Paying Agent under the Indenture.
SECTION 102. Resigning Trustee hereby represents and warrants
to Successor Trustee that:
(a) No covenant or condition contained in the Indenture has been waived by
Resigning Trustee or, to the best of the knowledge of the Responsible
Officers of Resigning Trustee's Corporate Trust department, by the
Holders of the percentage in aggregate principal amount of the
Securities of any Series required by the Indenture to effect any such
waiver with respect to such Series.
(b) There is no action, suit or proceeding pending or, to the best of the
knowledge of the Responsible Officers assigned to Resigning Trustee's
Corporate Trust department, threatened against Resigning Trustee
before any court or any governmental authority arising out of any
action or omission by Resigning Trustee as Trustee under the
Indenture.
<PAGE> 3 Exhibit 4(d)
(c) As of the effective date of this Agreement, Resigning Trustee will
have delivered to the Successor Trustee all moneys or property held by
the Resigning Trustee under the Indenture.
(d) Pursuant to Section 305 of the Indenture, Resigning Trustee duly
authenticated and delivered, the aggregate principal amount of the
Securities of each series specified above, outstanding as of the
effective date hereof.
(e) Each person who so authenticated the Securities in each Series was
duly elected, qualified and acting as an officer of Resigning Trustee
and empowered to authenticate the Securities at the respective times
of such authentication and the signature of such person or persons
appearing on such Securities is each such person's genuine signature.
(f) This Agreement has been duly authorized, executed and delivered on
behalf of Resigning Trustee and constitutes its legal, valid and
binding obligation.
(g) To the best of the knowledge of the responsible Officers of the
Resigning Trustee's Corporate Trust department, no event has occurred
and is continuing which is, or after notice or lapse of time would
become, an Event of Default under Section 501 of the Indenture.
SECTION 103. Resigning Trustee hereby assigns, transfers, delivers and
confirms to Successor Trustee all right, title and interest of Resigning
Trustee in and to the trust under the Indenture and all the rights, powers
and trusts of the Trustee under the Indenture. Resigning Trustee shall
execute and deliver such further instruments and shall do such other things
as Successor Trustee may reasonably require so as to more fully and
certainly vest and confirm in Successor Trustee all the rights, trusts and
powers hereby assigned, transferred, delivered and confirmed to Successor
Trustee.
SECTION 104. Resigning Trustee shall deliver to Successor Trustee, as
of or immediately after the effective date hereof, all of the documents
listed on Exhibit A hereto.
ARTICLE II
THE COMPANY
SECTION 201. The Company hereby accepts, with respect to the
Securities of all Series, the resignation of Resigning Trustee as Trustee,
Security Registrar and Paying Agent under the Indenture.
SECTION 202. The Secretary or Assistant Secretary of the Company who
is attesting to the execution of this Agreement by the Company hereby
certifies that Exhibit B annexed hereto is a copy of the Board
Resolution(s) which was (were) duly adopted by the Board of Directors of
the Company, which is (are) in full force and effect on the date hereof,
and which authorizes (authorize) certain officers of the Company to
<PAGE> 4 Exhibit 4(d)
(a) accept Resigning Trustee's resignation as Trustee, Security Registrar
and Paying Agent under the Indenture; (b) appoint Successor Trustee as
Trustee, Security Registrar and Paying Agent under the Indenture; and (c)
execute and deliver such agreements and other instruments as may be
necessary or desirable to effectuate the succession of Successor Trustee as
Trustee, Security Registrar and Paying Agent under the Indenture.
SECTION 203. The Company hereby appoints, with respect to the
Securities of each Series, Successor Trustee as Trustee, Security Registrar
and Paying Agent under the Indenture to succeed to, and hereby vests
Successor Trustee with, all the rights, powers, trusts, duties and
obligations of Resigning Trustee under the Indenture with like effect as if
originally named as Trustee, Security Registrar and Paying Agent in the
Indenture.
SECTION 204. Promptly after the effectiveness of this Agreement, the
Company shall cause a notice, substantially in the form of Exhibit C
annexed hereto, to be sent to each Holder of the Securities in each Series
in accordance with the provisions of Section 610(f) of the Indenture.
SECTION 205. The Company hereby represents and warrants to Successor
Trustee that:
(a) The Company is a corporation duly and validly organized and existing
pursuant to the laws of the State of Maryland.
(b) The Indenture was validly and lawfully executed and delivered by the
Company and all of the Securities of each Series were duly and validly
issued by the Company.
(c) The Company has performed or fulfilled prior to the date hereof, and
will continue to perform and fulfill after the date hereof, each
covenant, agreement, condition, obligation and responsibility under
the Indenture.
(d) No event has occurred and is continuing which is, or after notice or
lapse of time would become, an Event of Default under Section 501 of
the Indenture.
(e) No covenant or condition contained in the Indenture has been waived by
the Company or, to the best of the Company's knowledge, by Holders of
the percentage in aggregate principal amount of the Securities of any
Series required to effect any such waiver.
(f) There is no action, suit or proceeding pending or, to the best of the
Company's knowledge, threatened against the Company before any court
or any governmental authority arising out of any action or omission by
the Company under the Indenture.
(g) This Agreement has been duly authorized, executed and delivered on
behalf of the Company and constitutes its legal, valid and binding
obligation.
<PAGE> 5 Exhibit 4(d)
(h) All conditions precedent relating to the appointment of The Bank of
New York as successor Trustee, Security Registrar and Paying Agent
under the Indenture have been complied with by the Company.
ARTICLE III
THE SUCCESSOR TRUSTEE
SECTION 301. Successor Trustee hereby represents and warrants to
Resigning Trustee and to the Company that:
(a) Successor Trustee is not disqualified under the provisions of Section
609 and is eligible under the provisions of Section 610 of the
Indenture to act as Trustee under the Indenture.
(b) This Agreement has been duly authorized, executed and delivered on
behalf of Successor Trustee and constitutes its legal, valid and
binding obligation.
SECTION 302. Successor Trustee hereby accepts its appointment as
successor Trustee, Security Registrar and Paying Agent under the Indenture
and accepts the rights, powers, duties, trusts, and obligations of Resigning
Trustee as Trustee, Security Registrar and Paying Agent under the
Indenture, upon the terms and conditions set forth therein, with like
effect as if originally named as Trustee, Security Registrar and Paying
Agent under the Indenture.
ARTICLE IV
MISCELLANEOUS
SECTION 401. Except as otherwise expressly provided herein or unless
the context otherwise requires, all terms used herein which are defined in
the Indenture shall have the meaning assigned to them in the Indenture.
SECTION 402. This Agreement and the resignation, appointment and
acceptance effected hereby shall be effective as of the opening of business
on the date first above written.
SECTION 403. Resigning Trustee hereby acknowledges payment or provision
for payment in full by the Company of compensation for all services rendered
by Resigning Trustee under Section 607 of the Indenture and reimbursement
in full by the Company of the expenses, disbursements and advances incurred
or made by Resigning Trustee in accordance with the provisions of the
Indenture. Resigning Trustee acknowledges that it relinquishes any lien it
may have upon all property or funds held or collected by it to secure any
amounts due it pursuant to the provisions of Section 607 of the Indenture.
The Company acknowledges its obligation set forth in Section 607 of the
Indenture to indemnify Resigning Trustee for, and to hold Resigning Trustee
harmless against, any loss, liability and expense incurred without
negligence or bad faith on the part of the Resigning Trustee and arising
out of or in connection with the acceptance or administration of the trust
evidenced by the Indenture (which obligation shall survive the execution
hereof).
<PAGE> 6 Exhibit 4(d)
SECTION 404. This Agreement shall be governed by and construed in
accordance with the laws of the jurisdiction which govern the Indenture.
SECTION 405. This Agreement may be executed in any number of
counterparts each of which shall be an original, but such counterparts
shall together constitute but one and the same instrument.
SECTION 406. The Company, Resigning Trustee and Successor Trustee
hereby acknowledge receipt of an executed and acknowledged counterpart of
this Agreement and the effectiveness thereof.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement of
Resignation, Appointment and Acceptance to be duly executed and
acknowledged and their respective seals to be affixed hereunto and duly
attested all as of the day and year first above written.
[SEAL] MCDONNELL DOUGLAS CORPORATION
Attest:
/s/ Steven N. Frank /s/ W. M. Austin
- --------------------- By: ------------------------------
Steven N. Frank Name: W. M. Austin
Assistant Secretary Title: Vice President
[SEAL]
Attest: CITIBANK, N.A., as Resigning Trustee
/s/ Robert T. Kirchner
/s/ By: ---------------------------------
- --------------------- Name: Robert T. Kirchner
Assistant Secretary Title: Vice President
Vice President
[SEAL]
THE BANK OF NEW YORK, as
Attest: Successor Trustee
/s/ /s/ T. A. Burrell
- ---------------------- By:-----------------------------------
Assistant Treasurer Name: T. A. Burrell
Title: Assistant Vice President
<PAGE>
<PAGE> 1 Exhibit 4(h)
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE THEREOF. UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED FORM,
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO A
NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR
DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS
THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO
MCDONNELL DOUGLAS CORPORATION OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
CUSIP NO.580169ANO $50,000,000
MCDONNELL DOUGLAS CORPORATION
8 1/4% Note due July 1, 2000
McDonnell Douglas Corporation, a Maryland corporation
(hereinafter called the "Company", which term includes any
successor corporation under the Indenture herein referred to),
for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of FIFTY MILLION DOLLARS
($50,000,000) on July 1, 2000 and to pay interest thereon from
July 1, 1993, or from the most recent date in respect of which
interest has been paid or duly provided for, semiannually on July
1, and January 1, in each year (each an "Interest Payment Date"),
commencing January 1, 1994 at the rate of 8 1/4% per annum, until
the principal hereof is paid or duly made available for payment.
The interest so payable and punctually paid or duly provided for
on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Note (or one or more
Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest, which shall be the
December 15 or June 15 (whether or not a Business Day) next
preceding such Interest Payment Date. Any such interest which is
payable, but is not punctually paid or duly provided for on any
Interest Payment Date, shall forthwith cease to be payable to the
registered Holder on such Regular Record Date, and may be paid to
the Person in whose name this Note or one or more Predecessor
Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be
fixed by the Trustee, notice whereof shall be given to the Holder
of this Note not less than 10 days prior to such Special Record
Date, or may be paid at any time in any other lawful manner, as
more fully provided in such Indenture.
<PAGE> 2 Exhibit 4(h)
Payment of the principal of and the interest on this Note
will be made at the office of the agency of the Company
maintained for that purpose in the Borough of Manhattan, the City
of New York, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of
public and private debts; provided, however, that payment of
interest may be made at the option of the Company by check mailed
to the address of the person entitled thereto as such address
shall appear in the Security Register.
This Note is one of the series of 8 1/4% Notes due July 1,
2000 (the "Notes"). Reference is hereby made to the further
provisions of this Note set forth on the reverse hereof, which
further provisions shall for all purposes have the same effect as
if set forth at this place.
Unless the certificate of authentication herein has been
executed by The Bank of New York, the Trustee under the
Indenture, or its successor thereunder, by the manual signature
of one of its authorized officers, this Note shall not be
entitled to any benefits under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument
to be duly executed under its corporate seal.
Dated: July 1, 1993
CERTIFICATE OF AUTHENTICATION MCDONNELL DOUGLAS CORPORATION
This is one of the Securities
of the series designated therein
referred to in the within-
mentioned Indenture
The Bank of New York, as Trustee By: --------------------------
Treasurer
By: ----------------------- Attest: ----------------------
Authorized Officer Secretary
<PAGE> 3 Exhibit 4(h)
MCDONNELL DOUGLAS CORPORATION
8 1/4% Note due July 1, 2000
This Note is one of a duly authorized issue of Securities of
the Company, issued and to be issued under an Indenture, dated as
of September 1, 1985, as amended (herein called the "Indenture"),
between the Company and The Bank of New York (as successor to
Citibank, N.A.). Trustee (herein called the "Trustee", which
term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights
thereunder of the Company, the Trustee and the Holders of the
Securities, and the terms upon which the Securities are, and are
to be, authenticated and delivered.
The Notes are not subject to redemption by the Company prior
to maturity.
If an Event of Default (as defined in the Indenture) with
respect to the Notes shall occur and be continuing, the principal
of all the Notes may be declared due and payable in the manner
and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the
rights and obligations of the Company and the rights of the
Holders of the Securities of each series to be affected under the
Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66 2/3% in aggregate principal amount
of the Securities at the time Outstanding, as defined in the
Indenture, of each series affected thereby. The Indenture also
contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities of
each series at the time Outstanding, on behalf of the Holders of
all Securities of each series, to waive compliance by the Company
with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such
consent or waiver by the Holders of this Note shall be conclusive
and binding upon such Holder and upon all future Holders of this
Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of
this Note or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and interest on this Note, at the time,
place, and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations set forth therein and on the face hereof, the
transfer of this Note may be registered on the Security Register
of the Company, upon surrender of this Note for registration of
<PAGE> 4 Exhibit 4(h)
transfer at the office or agency of the Company in the Borough of
Manhattan, The City of New York, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the
Company duly executed by, the Holder hereof or by his attorney
duly authorized in writing, and thereupon one or more new Notes,
of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form without
coupons in denominations of $1,000 and integral multiples
thereof. As provided in the Indenture and subject to certain
limitations set forth therein and on the face hereof, the Notes
are exchangeable for a like aggregate principal amount of Notes
in authorized denominations as requested by the Holder
surrendering the same. If (x) any Depository is at any time
unwilling or unable to continue as Depository and a successor
depository is not appointed by the Company within 60 days, (y)
the Company executes and delivers to the Trustee a Company Order
to the effect that this Note shall be exchangeable or (z) an
Event of Default has occurred and is continuing with respect to
the Notes, this Note shall be exchangeable for Notes in
definitive form of like tenor and of an equal aggregate principal
amount, in denominations of $1,000 and integral multiples
thereof. Such definitive Notes shall be registered in such name
or names as the Depository shall instruct the Trustee. If
definitive Notes are so delivered, the Company may make such
changes to the form of this Note as are necessary or appropriate
to allow for the issuance of such definitive Notes.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
Prior to due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this Note is
registered as the owner hereof for all purposes, whether or not
this Note be overdue, and neither the Company, the Trustee nor
any such agent shall be affected by notice to the contrary.
No recourse shall be had for the payment of the principal of
(and premium, if any) or the interest on this Note, or for any
claim based hereon, or otherwise in respect hereof, or based on
or in respect of the Indenture or any indenture supplemental
thereto, against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Company or of
any successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment
or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
All terms used in this Note which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
<PAGE>
<PAGE> 1 Exhibit 10(f)
SERVICE AGREEMENT
Service Agreement, dated as of the 1st day of April, 1992,
between Kenneth M. Duberstein ("Duberstein") and McDonnell
Douglas Corporation ("MDC").
WHEREAS, MDC is engaged in litigation arising out of the
termination by the U.S. Navy of the A-12 contract (the
"Litigation"); and
WHEREAS, MDC wishes to retain Duberstein to provide certain
services to MDC in connection with the Litigation, and Duberstein
has agreed to provide such services;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the parties agree as follows:
1. Services Provided. Duberstein shall provide advice
relative to the Litigation on behalf of MDC, to R. James Woolsey
and the law firm of Shea & Gardner, special counsel to MDC and
General Dynamics Corporation, and to such other persons as MDC
shall request. Such services shall be provided approximately the
equivalent of one day per month.
2. Duration of Contract. This Agreement shall be
effective on April 1, 1992, and shall continue until terminated
by either party upon 30 days prior written notice.
3. Compensation.
(a) Fees. For services provided hereunder, Duberstein
shall be paid a fee of $20,000 per calendar quarter, in advance,
pro rated for any partial periods.
(b) Expenses. For travel incurred at MDC's direction,
MDC will reimburse Duberstein his actual reasonable expenses for
meals and incidentals, plus the actual reasonable cost of
transportation and lodging.
(c) Duberstein shall invoice MDC quarterly for the
service fee. Invoices and requests for reimbursement of expenses
shall be directed to John F. McDonnell. MDC shall promptly pay
all such invoices and requests for reimbursement.
4. Reports. Duberstein shall furnish to MDC such
descriptions and details of its billings as MDC may reasonably
require.
5. Nature of Relationship. Duberstein is retained by MDC
as an independent contractor. Duberstein shall not enter into
any agreement nor incur any obligations on MDC's behalf, nor
commit MDC in any manner, without MDC's prior written consent.
<PAGE> 2 Exhibit 10(f)
6. Agreement and Amendment. This agreement, together with
the letter agreement, dated March 23, 1992, between the parties
hereto, constitutes the parties' entire agreement and supersedes
any other oral or written agreements or understandings between
the parties regarding the subject matter hereof. This agreement
may only be modified by a writing, signed by both parties.
7. Conflicts of Interest Warranty and Representation
Restriction:
A. Personnel
1. Conflicts of Interest. Duberstein agrees, except
as provided hereinafter:
(i) no current U.S. Government ("USG") employee
(military or civilian), special employee, or consultant may be
used. No person may be used if Duberstein has reason to believe
such person advises the U.S. Government about procurements
involving MDC as a prime or subcontractor;
(ii) no such person may be used who is a U.S.
Department of Defense military officer (0-4 [major or lieutenant
commander] or above) or civilian official (GS-12 or above) out of
service less than two years;
(iii) any person used who is required to file a DD 1787
will promptly provide a copy of such form to MDC;
(iv) no person may be used who has, within the last
five years, been convicted of or pleaded nolo contendere to a
felony related to a USG prime or subcontract, or otherwise been
suspended, debarred or proposed for debarment from receiving
contracts from the USG; and
(v) Duberstein will not, unless expressly authorized
by MDC, represent MDC before any branch or office of the United
States Government, nor any officer, employee or elected USG
official. If such representation is authorized hereunder,
Duberstein will not perform any such contract tasks with any
persons who have served in the U.S. Government within the last
ten years.
2. Exceptions. If Duberstein cannot make these warranties
and representations for any employee or agent he intends to use
on MDC's behalf, Duberstein shall request and promptly have
completed and submitted to MDC, a McDonnell Douglas Corporation
Form 4170, "Conflicts of Interest Questionnaire," by each such
employee or agent. Such employees may not be used in performance
of this contract unless the MDC Law Department approves their
use, and then, only in compliance with such restrictions as it
may require.
<PAGE> 3 Exhibit 10(f)
3. Breach. BREACH OF THIS WARRANTY AND REPRESENTATION
CLAUSE IS CAUSE FOR IMMEDIATE TERMINATION OF THIS CONTRACT FOR
DEFAULT AND/OR DUBERSTEIN'S REFUND TO MDC OF ALL PAYMENTS
RECEIVED OR OWED UNDER THIS CONTRACT FOR THE SERVICES OF ANY
INDIVIDUAL WHOSE PERFORMANCE ON MDC'S BEHALF IS BARRED BY THIS
CLAUSE.
8. Code of Ethics. By accepting this contract, Duberstein
agrees that:
(a) his personnel acting on MDC's behalf will observe
all applicable laws and the standards of business conduct agreed
to in this contract,
(b) he will avoid conflicts of interest with MDC or
its components and subsidiaries,
(c) he will observe MDC's policies regarding gifts,
meals, and transportation when dealing with MDC personnel or
third parties on MDC's behalf,
(d) he will not knowingly seek, receive, disclose or
use on MDC's behalf any information not legally available to
Duberstein or or MDC, and
(e) he will promptly and accurately disclose to MDC's
representative under this Agreement any and all possible
violations of this Code.
9. Duberstein's Conduct. Duberstein shall comply with all
applicable existing and future laws and regulations applicable to
its performance under this Agreement and the terms and conditions
of this Agreement. Duberstein agrees that it has not and shall
not make any payments from the funds received under this
Agreement directly or indirectly to any officials or employees of
any government or of any agency or other instrumentality of any
government.
10. Acquisition of Information. Duberstein shall not
solicit, obtain, use for or disclose to MDC, directly or
indirectly, any information not legally available to Duberstein
and MDC and properly authorized for release to and use by
Duberstein and MDC. Duberstein shall determine in good faith
whether its access to information is proper.
11. Disclosure. Duberstein shall not, without the prior
written consent of MDC, disclose the terms of this Agreement to
any third party except as may be required by law, in which case
Duberstein shall give MDC prior written notice of the intended
disclosure.
<PAGE> 4 Exhibit 10(f)
12. Applicable Law. This Agreement shall be construed
under the laws of Missouri.
KENNETH M. DUBERSTEIN MCDONNELL DOUGLAS CORPORATION
/s/ Kenneth M. Duberstein /s/ John F. McDonnell
- ------------------------- By:-----------------------------
John F. McDonnell
Chairman and
Chief Executive Officer
<PAGE> 5 Exhibit 10(f)
FIRST AMENDMENT TO SERVICE AGREEMENT
Reference is made to that certain Service Agreement (the
"Agreement") entered into as of the 1st day of April, 1992
between Kenneth M. Duberstein ("Duberstein") and McDonnell
Douglas Corporation ("MDC").
WHEREAS, Duberstein has been retained to provide certain
services to MDC in connection with its litigation regarding the
U.S. Navy's termination of the A-12 contract (the "Litigation");
and
WHEREAS, MDC and Duberstein wish to amend the Agreement to
retain Duberstein's additional and similar services relative to
resolving C-17 program issues (the "C-17 Matters").
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and adequacy of
which the parties hereby acknowledge, the parties hereby agree to
amend the Agreement as of the 1st day of June, 1993 to include
certain services relative to the C-17 Matters as follows:
A. Section 1 of the Agreement shall be amended by
inserting after the last sentence the following language:
"Relative to the C-17 Matters, Duberstein shall provide services
to MDC, and to such other persons as MDC shall request. Such
services shall be provided on an as needed basis."
B. Section 3(a) of the Agreement shall be amended by
inserting the words "relative to the Litigation" after the word
"hereunder" and by adding the following language to the end
thereof: "For services provided relative to the C-17 Matters,
Duberstein shall be paid $10,000 per month for the period
beginning on June 1, 1993 and ending on March 31, 1994, and
$10,000 per month for each month thereafter in which MDC notifies
Duberstein that his services are needed."
C. Section 6 of the Agreement shall be amended by
inserting between the words "agreement," and "together" in the
first line thereof, the following words: "as amended by the
First Amendment to Service Agreement, dated as of June 1, 1993
between the parties hereto,"
In all other respects, the Agreement, as hereby amended,
shall remain in full force and effect and shall be binding upon
the parties in accordance with its terms.
KENNETH M. DUBERSTEIN MCDONNELL DOUGLAS CORPORATION
/s/ Kenneth M. Duberstein /s/ John F. McDonnell
- ------------------------- By:-----------------------------
John F. McDonnell
Chairman and
Chief Executive Officer
<PAGE>
<PAGE> 1 Exhibit 11
MCDONNELL DOUGLAS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Dollar amounts in millions, except share data)
Years Ended December 31 1993 1992 1991
---- ---- ----
PRIMARY
Weighted average shares
outstanding 39,256,911 38,839,665 38,364,477
========== ========== ==========
Net earnings:
Earnings from continuing
operations before cumulative
effect of accounting change $359 $698 $357
Discontinued operations:
Earnings (loss) from operations,
net of income taxes 20 (8)
Gain on disposals, net of income
taxes 37 37 74
Cumulative effect of initial
application of new accounting
standard for postretirement
benefits (1,536)
------ ------- -------
Net earnings (loss) $396 ($781) $423
===== ====== =======
Earnings (loss) per share:
Continuing operations $ 9.17 $17.97 $ 9.32
Discontinued operations:
Earnings (loss) from operations,
net of income taxes .50 (.22)
Gain on disposals, net of
income taxes .93 .96 1.93
Cumulative effect of accounting
change (39.53)
------ -------- -------
Primary earnings (loss) per
share $10.10 ($20.10) $11.03
====== ======== ======
Earnings per share computations are based upon the weighted average
common shares outstanding during the period. Common stock equivalents
(convertible debt and options) are not material. Accordingly the
computation of fully diluted earnings per share is the same as the
primary computation.
<PAGE>
<PAGE> 1 Exhibit 13
[HARD COPY PG. 6]
Facing a Bright New Future in MILITARY AIRCRAFT
[FULL-PAGE PHOTOGRAPH]
[HARD COPY PG. 7]
As a result of strong performance across an array of programs, MDC has
further strengthened its position as the world's leading producer of
military aircraft.
MDC is producing six top-of-the-line military aircraft:
- -- The dual-role F/A-18 Hornet, the only fighter or attack aircraft chosen
by the U.S. Navy for production;
- -- The C-17 Globemaster III, the new heavy airlifter which is the key to
fulfilling the U.S. Air Force's post-Cold War mission of "global reach --
global power;"
- -- The AV-8B Harrier II Plus, the world's only in-production V/STOL
(vertical or short take-off and landing) aircraft;
- -- AH-64 Apache helicopter, in service with the U.S. Army and three allied
nations, the world's most advanced attack helicopter in production;
- -- The F-15 Eagle, widely known as "the world's premier air superiority
aircraft." In the F-15E configuration, the Eagle is the world's most
capable fighter-bomber;
- -- The T-45 trainer, the centerpiece of the U.S. Navy's first fully
integrated training system.
MDC secured new business across all six lines of military aircraft in 1993
and early 1994. That included full funding for the F/A-18 E/F development
program in the U.S. Fiscal Year 94 budget; full funding for production of
another 36 C/D model F/A-18s, six C-17 heavy airlifters, 12 T-45 trainer
aircraft, and the AV-8B and AH-64 remanufacturing programs, as well as
production of 10 new AH-64s. Foreign military sales in 1993 were
highlighted by contracts from Saudi Arabia for 72 F-15s, Switzerland for 34
F/A-18s, and Malaysia for eight F/A-18s. In January 1994, Israel announced
the selection of 20 F-15s with options for five more.
Given the pressures on our military customers caused by shrinking defense
budgets, MDC's strategy in military aircraft is keyed to providing superior
quality and enhanced capabilities at an affordable price. That is true
both at the "front end" of the business (in the development of new
technologies and new generations or models of aircraft) and at the "back
end" (assembly, delivery, and product support).
<PAGE> 2 Exhibit 13
During 1993, MDC won a series of important government research and
development contracts in military aerospace. That included a $28 million
contract award from the United States Advanced Research Projects Agency
(ARPA) to lead one of two teams selected to design and build a full-scale,
powered wind tunnel model of an Advanced Short Takeoff and Vertical Landing
(ASTOVL) technology demonstrator. The design could have future potential
as a multi-role, multi-service strike fighter in about 20 years. In
[HARD COPY PG. 8]
addition to contract research and development awards, MDC won a $70 million
prime contract to demonstrate the U.S. Army's Rotorcraft Pilot's Associate
system. This program will establish revolutionary improvements in combat
helicopter effectiveness through the automation of such physical functions
as flight, information processing, and weapons management.
Recognizing the increasing importance customers are placing on system
affordability, MDC's "Phantom Works," which spearheads development of
advanced technologies, is also involved in pioneering a number of new
concepts designed to control costs when new systems are ordered at low
rates. Among these concepts are integrated product definition, lean
manufacturing, flexible tooling and prototyping.
The insertion of new technology into existing and proven systems is an
important means of providing the customer with improved performance -- at
an affordable price. For example, the new E/F version of the F/A-18 -- now
under development -- will result in substantial improvements that will keep
the Hornet at the leading edge of combat aircraft performance for many
years to come. The E/F is being developed at only about a third of the
cost of a new aircraft -- as a result of the cost-effective application of
new technology to a proven system. The AV-8B Harrier II Plus
remanufacturing and the AH-64D Longbow Apache programs will provide similar
benefits by upgrading the world's finest VSTOL aircraft and the U.S. Army's
premier attack helicopter.
Faced with falling production rates in several programs, MDC has managed
costs aggressively, including so-called "fixed costs," such as plant,
equipment, and support functions. Across most of the U.S. defense
industry, overhead rates (the ratio of indirect costs to direct production
costs) have climbed as production has fallen -- leading to lower earnings,
higher prices, or both. But MDC has reduced its overhead costs at a faster
rate than declines in production in most military aircraft programs. The
result: higher earnings for MDC and cost savings that are passed along to
DoD and international customers through annual procurements based on lower
overhead rates.
F/A-18 Hornet
The much-awaited "Bottom Up Review" -- released by DoD on September 1 --
set forth the Clinton Administration's plans for restructuring U.S. Armed
Forces and procurement to fit the requirements of the post-Cold War world.
The document strongly endorsed the F/A-18 E/F as one of only two major
development programs in the fixed wing, fighter aircraft field.
<PAGE> 3 Exhibit 13
With a larger wing, a lengthened fuselage, and higher thrust engines, the
F/A-18 E/F will have the range and payload capabilities to perform the bulk
of the U.S. Navy's tactical aircraft missions well into the next century.
The advanced Hornet is central to the new "From the Sea" war-fighting
doctrine -- which shifts the Navy's focus from open-ocean warfare to
regional and coastal operations. The E/F will have up to 50% more range
than earlier versions, combined with two new weapon stations, improved
survivability, and substantial capacity for future growth.
The E/F program won high praise from the Navy in passing its Preliminary
Design Review in June. The program is on-cost, on-schedule, and on-
performance. The first flight of the F/A-18 E/F is scheduled for late
1995. MDC will design and build seven flight test aircraft and three
ground test articles. The new Hornet will enter service in 1998.
[HARD COPY PG. 9]
Further successes for C/D model F/A-18s in winning export contracts in 1993
confirmed the aircraft's reputation as "the fighter of choice in
international markets." The Hornet program now has been selected as the
front-line fighter of seven countries outside the U.S.: Canada, Australia,
Spain, Kuwait, Finland, Switzerland, and Malaysia.
On June 6, voters in Switzerland overwhelmingly approved the purchase of 34
F/A-18s for the Swiss Air Force. The F/A-18 was first selected by the
Swiss Air Force in 1988, after an intensive competition with the F-16, the
Swedish JAS-39, and the French Mirage 2000-5. The Swiss Federal Council
reaffirmed the Hornet selection over the Mirage in June 1991, and the Swiss
Parliament approved the Hornet acquisition bill in the summer of 1992.
Deliveries of aircraft kits to Switzerland will begin in September 1995
with delivery of all 34 F/A-18 aircraft to the Swiss Air Force scheduled
for completion by September 1996.
On June 26, the F/A-18 program won another international order. On that
date, the Malaysian government announced an order for eight F/A-18s, with
the potential of more to come, as part of a program to modernize its air
force.
DoD is planning to continue annual purchases of C/D model F/A-18s through
FY 97, when the transition to F/A-18 E/F procurements will begin.
C-17 Globemaster III
The C-17 achieved a major milestone in June 1993 with the delivery of the
first new airlifter to an operational unit of the U.S. Air Force. Four C-
17 Globemaster IIIs were delivered to Charleston Air Force Base, S.C.,
during 1993. Combined with six aircraft in the flight test program, ten C-
17s were flying by year-end.
The C-17's basic mission is to provide rapid deployment in time of
emergency. Wherever the future crisis may be, U.S. forces will be able to
get there quickly -- and in strength -- as a result of the combination of
heavy lift, extended range, and on-the-ground agility provided by the C-17.
The C-17 is the only aircraft that can deliver heavy firepower -- such as
<PAGE> 4 Exhibit 13
Patriot missile batteries, Apache helicopters, and main battle tanks --
over intercontinental distances direct to small, austere airfields.
The C-17 program passed major structural tests of the fuselage and wing in
1993 -- permitting flight test of the aircraft up to 100% of design limit
load. The flight test program was almost 75% complete at the end of 1993,
and is expected to conclude in late 1994. The C-17 successfully tested
some of its mission systems in 1993, such as equipment and cargo loading
and parachute drops of troops and containers. MDC began preparations for
testing low-altitude deliveries of combat cargo extracted from the aircraft
by parachute.
Following an extensive review of the program in 1993, DoD and MDC reached a
settlement of a wide range of issues related to the C-17 fixed price
development contract. The settlement -- which is subject to Congressional
approval -- was the principal cause of a $450 million pre-tax write-off
against MDC's 1993 earnings. The settlement resolves a number of areas of
conflict between MDC and the customer, and it modifies certain
specifications without compromising the aircraft's ability to perform its
mission. The settlement contemplates an initial purchase of up to 40
aircraft, including nine already delivered by the end of 1993 and another
11 in different stages of production. That gives MDC until the end of 1995
[HARD COPY PG. 10]
to demonstrate it can deliver high quality airplanes on schedule, on
specification, and at affordable costs. If successful in improving
contract performance, MDC believes there will be additional orders for C-
17s in future years well beyond the initial purchase.
AV-8B Harrier II Plus & AH-64D Longbow Apache
New radar-equipped versions of AV-8B Harrier and the AH-64 Apache provide
substantially improved capability at affordable prices.
With the addition of the proven APG-65 radar and night attack systems, the
Harrier becomes a more versatile, multi-mission aircraft -- featuring new
air-to-air capabilities to complement its renowned air-to-ground
capabilities.
On February 26, 1993 Spain authorized the purchase of eight Harrier II Plus
aircraft. That followed Italy's decision in late 1992 to purchase 13 radar-
equipped Harrier II Plus aircraft.
The U.S. FY 94 budget contains funds for the remanufacture of four day-
attack Harriers from the Marine Corps fleet to the Harrier II Plus
configuration. The remanufacturing program will equip existing day-attack
Harrier IIs with new fuselages, APG-65 radar, night attack avionics,
increased thrust engines, and other new systems. At two thirds the cost of
new aircraft, the Marines will receive remanufactured Harriers with
expanded multi-mission capabilities -- and with the same functional 6,000-
hour service life as new aircraft. Current DoD plans call for the
remanufacture of a total of 73 AV-8Bs in coming years. Nevertheless, in a
<PAGE> 5 Exhibit 13
declining defense budget environment, this is a program that will have to
be rejustified every year.
Similarly, the U.S. Army plans to modernize its entire fleet of nearly 800
Apache helicopters through a remanufacturing program adding greater
firepower and the capability of including the Longbow Fire Control Radar.
The fully-modernized Apache is able to detect and classify up to 256
targets within 30 seconds, and to engage its choice of targets from extreme
standoff ranges, and in virtually all weather conditions. By year's end,
five AH-64D Longbow Apache prototypes had flown more than 800 combined
hours.
The FY 94 budget contains funds for an additional 10 AH-64A Apaches for the
U.S. Army. There have been a total of 94 Apache aircraft orders from five
allied nations. In order to sustain the production line into 1996, when
the U.S. Army plans to begin the Apache remanufacture program, MDC needs to
obtain approximately 44 new Apache orders in 1994 from domestic and
international customers.
F-15 Eagle
In May 1993, Saudi Arabia signed a letter of offer and acceptance with the
U.S. for the purchase of 72 F-15s. In early 1994, the government of Saudi
Arabia, MDC, the U.S. Government, and other major U.S. defense contractors
[HARD COPY PG. 11]
developed a conceptual outline aimed at restructuring payments due from
Saudi Arabia in 1994 for military product purchases, including the purchase
of F-15s. On January 27, 1994, Israel announced its intent to order at
least 20 new F-15s to meet future defense requirements. The Saudi and
Israeli orders assure production into the late 1990s, and provide
additional opportunities for the program to win export orders.
Along with most other MDC combat aircraft programs, the F-15 program
maintained a perfect record of on-time or ahead-of-schedule deliveries in
1993. In May MDC delivered the 200th and last F-15E of the Air Force's
original procurement. An additional order for nine F-15Es was made as part
of a Desert Storm supplemental appropriation. MDC delivered the first of
those in December -- seven months ahead of schedule.
T-45 Training System
In January 1994, the first class of naval aviators at the Naval Air Station
in Kingsville, Texas, began training with MDC's T45TS training system. The
T-45 passed sea trials in September 1993 and successfully completed the
first phase of operational evaluation in November. Current Navy plans call
for 268 aircraft to be delivered through the year 2003.
Light Helicopters
The MD Explorer, a new twin-engine, eight-place helicopter that made its
maiden flight on December 18, 1992, is on schedule to receive FAA
certification in the last quarter of 1994. Two additional production
prototype MD Explorers joined the test program in 1993. The three aircraft
flew more than 150 hours.
<PAGE> 6 Exhibit 13
The MD Explorer incorporates the company's exclusive NOTAR(R) system for
anti-torque and directional control. The NOTAR system entered service in
October 1991 on the MD 520N, a single-engine, five-place helicopter that is
regarded as the quietest helicopter flying.
MDC delivered 21 MD 520Ns in 1993, down from 30 in 1992, due mainly to
depressed market conditions. The super-quiet MD 520N has proved
particularly popular with law enforcement agencies, which must fly low over
populated areas. Six law enforcement agencies in Arizona, California and
Ohio currently operate MD 520N helicopters. MDC continues to produce MD
500 configurations for commercial and military customers.
In Conclusion
MDC's military aircraft businesses performed extremely well in 1993 despite
continuing defense budget reductions. MDC continued to strengthen its
product lines through the cost-effective application of new technologies to
existing, proven systems. Looking toward the future, MDC now has six
military aircraft programs in production and has won a variety of advanced
research and development contracts involving new technologies that will be
essential to new generations of aircraft.
[HARD COPY PG. 12]
Facing a Bright New Future in COMMERCIAL AIRCRAFT
[FULL-PAGE PHOTOGRAPH]
[HARD COPY PG. 13]
In the midst of the worst airline recession in history, MDC's commercial
aircraft business has reduced costs, improved quality, successfully
defended its customer base, and continued to invest in the future.
It also made a profit in 1993 for the third consecutive year and generated
a large positive cash flow.
Specific achievements in 1993 include:
- -- further reductions in costs and assembly span times in both the twin jet
and trijet lines.
MDC delivered 42 MD-80s during the year, down from 84 in 1992 and 138 in
1991. Despite the large decline in volume, assembly hours per MD-80
continued to fall. Assembly hours per MD-11 have also come down
substantially.
- -- continued improvements in quality at all stages of the production
process -- and in customer service.
Dramatic reductions in costs have been achieved through increased quality.
The rejection rate for parts delivered was cut by more than 50% in 1993 and
the total cost of processing and working around rejected parts was
similarly reduced. During 1993, MDC had a 100% success rate in meeting on-
time delivery commitments to customers. The new MD-11 trijet achieved a
dispatch reliability in airline service of 98% for the last 12 weeks of 1993.
<PAGE> 7 Exhibit 13
- -- achievement of a succession of milestones in the MD-11 program.
The 100th MD-11 came off the assembly line in mid-year. MDC delivered a
total of 36 MD-11s over the course of 1993. By the end of 1993, a
worldwide fleet of 112 MD-11s was in service or about to enter service with
17 airlines, serving more than 90 cities around the world. Carriers with
fleets of five or more MD-11s include American Airlines, Delta, and Federal
Express in the U.S., and Alitalia, China Eastern, Garuda, Korean Air,
Swissair, and Varig, among international carriers. Two more of the world's
most prestigious airlines -- Japan Airlines and KLM Royal Dutch Airlines --
took deliveries of their first MD-11 trijets late in 1993.
- -- reaffirmation of customer commitments to MDC aircraft.
Finnair decided to maintain a predominantly MDC-built fleet of aircraft in
1993 after considering an aggressive bid by competitors to provide the
airline with a mixture of new and used Boeing aircraft. MDC was also
successful in maintaining its MD-11s in the fleet of LTU, the large German
charter operator, following a challenge mounted by Airbus Industrie. MDC's
finance subsidiary assisted Garuda in finding the financing required to
take delivery of three MD-11s in 1993.
- -- successful placement of 13 "white tail" aircraft with new customers.
[HARD COPY PG. 14]
MDC placed eight twin jets and five trijets in 1993 that were without
purchase commitments early in the year. As a result, MDC ended 1993 with
no unsold airplanes in finished inventory.
- -- roll-out and first flight of the new MD-90 twin jet.
The MD-90 accumulated over 700 hours in flight test in 1993. The program
is within budget and on schedule in progressing toward FAA certification in
late 1994, with first deliveries to customers expected in early 1995. The
MD-90 is the quietest aircraft in the 150-seat class, and the cleanest
environmentally. It also has the most fuel efficient engines in its class.
MDC has 77 firm orders for the new twin jet.
Many of the world's airlines have suffered devastating financial losses
over the past few years. Those losses have depleted their equity capital
and resulted in an on-going drought in new orders for jetliners. The
world's airlines and leasing companies placed firm orders for only 26 new
airliners in 1993, net of cancellations. There were bookings for only 626
new airliners in all of 1991, 1992, and 1993. By contrast, over the 1988
to 1990 period, when the commercial aircraft market was booming, airlines
and leasing companies placed orders for more than 3,500 aircraft.
Some airlines had improved earnings in 1993, although many continued to
suffer losses. MDC does not expect a strong, industry-wide resumption in
orders for new aircraft until 1995, at the earliest. However, MDC expects
to book some new orders in 1994. In February 1994, Saudi Arabian Airlines
announced its intention of purchasing a total of about 50 commercial
airliners from MDC and Boeing. The number and type of aircraft has not yet
been finally determined.
<PAGE> 8 Exhibit 13
During 1993, MDC received six new orders for MD-11s and ten new orders for
MD-80s, but those orders were offset by the loss of seven trijet orders and
eleven twin jet orders. As of December 31, 1993, the MD-11 program status
included 112 deliveries, 60 aircraft on firm order, and 101 options and
reserves representing potential future orders. On the same date, the
MD80/90 program included 1,089 deliveries, 143 aircraft on firm order, and
185 options and reserves.
The small number of incoming orders placed in the past three years dictates
further reductions in aircraft deliveries in 1994. However, MDC's
commercial aircraft business expects to continue to generate a positive
cash flow for 1994 as a whole due to continued cost controls and continued
improvements in productivity.
MDC's near-term strategy in commercial aircraft is based on reducing costs
and assembly span times on current models, improving current products
through enhancements and advanced derivatives, and delivering high quality,
defect-free airplanes to customers. The focus is on providing customers
with affordable technology and low-cost product improvements. When the
next upturn in the industry's new order cycle begins, MDC is positioned to
expand and grow within at least the two important segments of the overall
market that are now served by MDC products. While MDC has a 9% share of
world firm
[HARD COPY PG. 15]
backlog for large jetliners of all types, the MD80/90 program holds a 31%
share of the world market in the medium-range, 150-seat category, competing
against the Boeing 737-400 and the Airbus A320. The MD-11 program holds a
34% market share in the long-range, 300-seat category, competing against
the Boeing 777B and the Airbus A340.
MDC invested over $75 million on research and development in the commercial
aircraft business in 1993. That included spending on the MD-90 twin jet,
which, in addition to fuel-efficient new engines and an all-digital
cockpit, includes a long list of improvements in aircraft systems aimed at
reducing airline maintenance costs and making the MD-90 the industry leader
in dispatch reliability. MDC is also examining possible extensions of the
MD-11 line to include stretched and unstretched versions of the aircraft
that would provide more seating, longer range, or both.
MDC expects to launch a DC-9X modernization program -- a program that would
provide substantial cost savings for customer airlines. The upgrade
program will take full advantage of the durable and reliable airframe and
systems of the DC-9 aircraft. There is a potential for modernization of up
to 600 DC-9s in service with airlines around the world. Government-
mandated noise requirements would otherwise force the retirement of many of
these popular aircraft in the U.S. and other countries over the next few
years. The DC-9X program will offer upgraded propulsion options and
introduce new avionics and a major overhaul of their interiors. The
program will provide DC-9X customers with an extended warranty and service
life policy -- and serve as a bridge to the MD-95, a 100-seat aircraft now
under consideration at MDC. MDC will act as the DC-9X integrator,
responsible for design, contracting, and product support.
<PAGE> 9 Exhibit 13
As described in the chairman's letter (see p.5), MDC's long-term strategy
in commercial aircraft includes the potential of transforming the airliner
business into an international alliance with multiple owners.
MDC's reputation with key airline customers has steadily improved as a
result of a sustained period of on-time deliveries of high-quality
airplanes and enhanced customer service. As a result of large improvements
in productivity, the company is positioned to remain healthy through the
current downturn and to take advantage of the opportunities that will arise
in the next upturn in the market for commercial airliners.
[HARD COPY PG. 16]
Facing a Bright New Future in MISSILES, SPACE & ELECTRONIC SYSTEMS
[FULL-PAGE PHOTOGRAPH]
[HARD COPY PG. 17]
This segment had record operating earnings of $338 million in 1993 -- a 77%
increase over the previous record of $191 million set a year earlier in
1992. The large increase in earnings occurred despite reduced business
volume. Revenues totaled $2.575 billion, down 19% from $3.169 billion in
1992.
There have been steady improvements in productivity and profit margins
across many of the businesses in this segment since 1989. But the decisive
factor in lifting earnings to new heights in 1993 was an MDC-wide
organizational restructuring, announced in the fall of 1992, aimed at
reducing costs in advance of anticipated declines in revenues. MDC's
consolidation of six semi-independent defense companies into one group with
two regions resulted in major reductions in overhead costs in the Missiles,
Space and Electronic Systems segment.
Space
The Delta II -- the world's most reliable launch vehicle -- broke its own
record of consecutive successful launches on August 30, 1993 with its 44th
in a row -- boosting a U.S. Air Force NAVSTAR Global Positioning System
into geosynchronous transfer orbit. The Delta II extended its record to 45
on October 26 -- and to 46 on December 7. In total, the Delta II completed
seven launches in 1993, which included six launches for the Air Force, and
one for a commercial customer. The Delta's string of successful launches
dates back to 1986. The Delta has had 89 successes in 90 launches between
1977 and the end of 1993. In April 1993, MDC won a new contract to launch
up to 36 payloads for the Air Force between 1996 and 2002, including 25
additional NAVSTAR GPS satellites. The contract value could exceed $1
billion if all options are exercised.
While the Delta II was setting new records for reliability, the MDC-
designed and built Delta Clipper Experimental (DC-X) successfully completed
a series of "first ever" maneuvers -- in a Government-funded program
designed to demonstrate vertical takeoff and landing, subsonic
<PAGE> 10 Exhibit 13
maneuverability, and airplane-like supportability and maintainability in a
true reusable rocket. In three flights between mid-August and the end of
September, the rocket-powered DC-X ascended to a maximum height of 1,200
feet, hovered, moved laterally in a straight line, and then descended
vertically, coming to rest on its landing pad.
In late October, further flight tests were halted after Government funding
for the program was exhausted. However, in late January 1994, NASA
provided nearly $1 million to maintain the DC-X vehicle and ground systems
in a readiness state for future flight testing. NASA and DoD may decide to
resume flight testing of the experimental launch vehicle.
[HARD COPY PG. 18]
MDC remains one of the largest contractors in the U.S. Space Station
program, but the company's role underwent significant change in 1993 as a
result of a major restructuring of the program. Previously, MDC had been
responsible for the largest part of the program. In August, NASA appointed
The Boeing Company as prime contractor for a redesigned Space Station. The
Clinton Administration also moved during the year to broaden international
and popular support for Space Station by including Russian-built propulsion
and power systems. The Space Station program is now undergoing final
definition. As a major subcontractor to Boeing, MDC will develop and build
unpressurized structures and four of the major systems (command and data
handling; communications and tracking; active thermal control; and extra-
vehicular activities and health monitoring) for Space Station.
Missiles
In March 1993, the Navy announced its intention of selecting a single
supplier for production of Tomahawk missiles for the years FY 94 to FY 98
and development of the new Block IV Tomahawk. MDC and GM/Hughes are
competing for the award, valued at approximately $1.4 billion for the
production and development of approximately 1,000 missiles over the
anticipated life of the program. The Navy is expected to select a winner
in 1994.
MDC has won the majority production share in the last two annual dual-
source competitions to build Navy Tomahawks. In January 1993, MDC received
a $201.6 million contract to build 120 Tomahawks and to remanufacture an
additional 120 missiles in inventory into upgraded Block III Tomahawks.
The contract represents 60% of the total Tomahawk procurement for FY 93,
and includes 70% of the depot maintenance work for the year.
MDC delivered the first Tomahawk with Block III systems improvements to the
Navy in March 1993. Developed by MDC, the Block III upgrades include the
addition of a Global Position System receiver and antenna, plus guidance,
payload, software, and propulsion improvements. MDC was awarded the Block
III development contract in December 1988.
The FY 94 defense budget includes funds for continued production of Harpoon-
derived Standoff Land Attack Missiles, or SLAMs, and the budget also
includes funds for development of an "Expanded Response" upgrade of the
same missile, called SLAM ER. MDC expects to receive a contract from the
Navy in mid 1994 to commence work on SLAM ER development. Production
<PAGE> 11 Exhibit 13
[HARD COPY PG. 19]
of baseline SLAMs is expected to continue through 1997, when production
work on retrofitting existing SLAMs to the new ER configuration would
begin. The SLAM ER will include aerodynamic and guidance system
improvements extending the missile's range by more than 50% and improving
the warhead's ability to penetrate hardened targets.
Initial funding of the SLAM ER development program strengthens MDC's
position in the competition for the United Kingdom's Conventionally Armed
Stand Off Missile (CASOM) program. MDC will submit a variant of SLAM ER in
that competition in a bid to be submitted in 1994. The U.K. Government has
said it will award a contract in 1996. The program is valued at over $1
billion. The basic Harpoon has been in service with the Royal Air Force
and Royal Navy for more than a decade.
While U.S. orders for the Harpoon missile ended in FY 89, the missile
continues to win international orders. Overseas customers ordered 103
Harpoon anti-ship missiles in FY 93. Almost half of the 6,100-plus
Harpoons ordered since the program began 22 years ago have been delivered
to foreign customers.
Electronics
The electronic systems business reported a loss in 1993 as a result of
charges in several advanced programs, including the Nighthawk electro-
optical surveillance and targeting system. The Government decided in
November to discontinue a laser crosslink program, which had been the
source of more than $130 million in losses for MDC since 1980. The laser
crosslink is an advanced product that enables satellites to communicate
directly with one another in orbit.
In 1993 MDC completed the divestiture of its Visual Simulation Systems
business, which produced computer-generated image display systems for
aircraft simulators.
For FY 94, Congress approved another 15 Mast Mounted Sights for the U.S.
Army and seven for sale to Taiwan, bringing the total number of systems
bought to 412. The Mast Mounted Sight is an electro-optical system which
enables helicopter pilots or ships' crews to detect and designate targets,
at night or day and in inclement weather.
Most parts of MDC's electronic systems business continued to operate
profitably in 1993. Work performed in complex software, micro-processors,
and lasers contributes to many MDC products. MDC is also involved in the
command, control, communications, and intelligence (C3I) field.
[HARD COPY PG. 20]
COMPLIMENTARY BUSINESS
McDonnell Douglas Finance Corporation (MDFC)
While continuing to dispose of peripheral businesses, MDFC performed well
in 1993 in its core markets of aircraft and commercial equipment leasing.
<PAGE> 12 Exhibit 13
MDFC's aircraft financing operation provided $450 million in financing for
MDC commercial aircraft customers -- more than double the previous year's
aircraft financing volume. MDFC funding included purchases of two MD-83
aircraft for Transwede; two MD-11s for Garuda; and six MD-83s for TWA.
Also, MDFC was instrumental in arranging another $1 billion in third-party
financing for an additional 24 aircraft.
At year end, the MDFC aircraft portfolio totaled $1.3 billion, with MDC-
built aircraft accounting for 82% of the total.
MDFC's commercial equipment operation wrote $38 million in new leases in
1993 and ended the year with a portfolio totaling $422 million. Included
in its business is the lease of corporate aircraft and other large
equipment items.
MDFC obtained better access to capital markets and lower borrowing costs as
a result of improved earnings and reduced debt of MDC, the parent
corporation. This improved access to capital markets will enhance MDFC's
competitiveness.
McDonnell Douglas Realty Company (MDRC)
MDRC manages a 4.9 million square-foot real estate portfolio valued in
excess of $500 million. In 1993, MDRC provided increased consulting
services to other units in MDC which were in the process of disposing of
excess facilities. MDRC negotiated rental reductions, audited existing
lease arrangements, and consolidated lease facilities to utilize space more
efficiently.
McDonnell Douglas Technical Services Company (MDTSC)
MDTSC's pool of experienced and skilled workers (including retirees)
provided $68 million of temporary professional assistance to MDC and other
employers in 1993. For the second consecutive year, MDTSC's business
increased by more than 50% as it placed professionals in over 3,000
contract assignments within MDC and at commercial clients. In 1993, MDTSC
provided increased services in commercial markets for engineering, computer
software development, and aircraft maintenance.
McDonnell Douglas Travel Company (MDTC)
MDTC increased business travel sales to $169 million in 1993, up 11% from
1992. External sales increased to over two thirds of total sales,
reflecting MDTC's increasing penetration into the business travel market.
MDTC's primary client remains the MDC business traveler.
<PAGE> 13 Exhibit 13
[HARD COPY PG. 24]
Management's Discussion and Analysis of Financial
Condition and Results of Operations
- -------------------------------------------------
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto beginning on page 34,
which are incorporated herein by this reference. Narrative descriptions of
MDC's principal products appear under the captions "Military Aircraft",
"Commercial Aircraft" and "Missiles, Space and Electronics" beginning at
page 6 and "Selected Financial Data by Industry Segment - Continuing
Operations" at page 33, which descriptions are also incorporated herein by
this reference.
Overview
MDC exceeded all of its key financial goals in 1993 with the exception
of achieving positive earnings on the C-17. Aerospace debt decreased
$1.142 billion, or 41%, during 1993. The year-end level fell to $1.625
billion, the lowest debt level in six years. MDC's trijet, the MD-11, was
cash positive in every quarter and $454 million positive for the year.
Earnings per share were $10.10, almost a five times increase over 1992,
excluding last year's unusual items related to the adoption of a new
retiree health care accounting standard.
The C-17 program was not profitable in 1993 as a result of a $450
million pre-tax loss provision reflecting the estimated impact of a C-17
business settlement with the Department of Defense (DoD) and other
increases in the estimated remaining cost on the development and initial
production contracts. However, MDC was able to reach a settlement with the
DoD which resolves many past differences and conflicts, establishes new
parameters for success, and provides for an initial purchase of up to 40
C-17s. MDC and the Air Force will be developing plans and contractual
modifications and agreements to implement the settlement, which is subject
to congressional authorization and appropriations.
Financial Condition
General. MDC's financial statements include McDonnell Douglas Financial
Services Corporation (MDFS) and McDonnell Douglas Realty Company (MDRC) on
a fully consolidated basis. MDFS is the parent company of McDonnell
Douglas Finance Corporation (MDFC), a diversified financial services
company that has a capital structure significantly different from MDC's
other business segments. The following table allocates MDC's capital
structure at December 31, 1993 and December 31, 1992 between its aerospace
segments (including aerospace-related obligations of MDRC in the amount of
$107 million and $111 million as of December 31, 1993 and
December 31, 1992, respectively) and its financial services and other
segment, which is comprised principally of MDFS, MDFC and MDRC. The debt
of MDFS, MDFC and MDRC is non-recourse to MDC. See also Note 11, Debt and
Credit Arrangements, page 46 and Note 4, Finance Receivables and Property
on Lease, page 41.
<PAGE> 14 Exhibit 13
<TABLE>
<CAPTION>
Financial
Services
Aerospace and Other
December 31, 1993 Segments Segment Total
- ----------------- --------- ---------- -------
(Dollar amounts in millions)
<S> <C> <C> <C>
Debt $ 1,625 $ 1,513 $ 3,138
Equity 3,123 290 3,413
------- ------- -------
$ 4,748 $ 1,803 $ 6,551
======= ======= =======
Debt-to-equity ratio .52 5.22
======= =======
Financial
Services
Aerospace and Other
December 31, 1992 Segments Segment Total
- ----------------- --------- --------- ------
(Dollar amounts in millions)
Debt $ 2,767 $ 1,474 $ 4,241
Equity 2,750 272 3,022
------- ------ ------
$ 5,517 $ 1,746 $ 7,263
======= ======= =======
Debt-to-equity ratio 1.01 5.42
======= =======
</TABLE>
The aerospace segments' debt-to-equity ratio decreased during 1993 as a
result of improved earnings and a $1.142 billion reduction in aerospace
debt. MDC generated positive cash flow from operations, primarily due to
improved operating results, the reduction of inventories which was
partially offset by reduced accounts payable and accrued expenses in the
commercial aircraft segment, and from divestitures of non-core assets which
were used to reduce debt during 1993. Cash provided by aerospace
operations, exclusive of the approximately $200 million generated from
divestitures of non-core assets, was approximately $900 million in 1993
while cash used by aerospace operations was approximately $300 million in
1992. Cash provided by operations on a consolidated basis was $475 million
during 1993 while cash used by operations on the same basis was $587
million during 1992.
<PAGE> 15 Exhibit 13
[HARD COPY PG. 25]
Commercial Aircraft. MDC delivered 42 MD-80 twin jets (including eight
under lease arrangements) and 36 MD-11 trijets (including three under lease
arrangements) during 1993 as compared to 84 twin jets and 42 trijets during
1992. The weakness in the commercial aircraft market is expected to
continue during 1994. Current aircraft production rates reflect
approximately 20 MD-80 twin jet and 20 MD-11 trijet deliveries in 1994.
MDC has undertaken aggressive cost reduction actions in the commercial
aircraft segment in its effort to match costs with its production rate.
Employment in the commercial aircraft segment decreased from 35,418 at
December 31, 1991 to 12,540 at December 31, 1993, reflecting cost reduction
efforts and scheduled production rate declines.
C-17 Globemaster III. During 1993 and 1992, MDC increased its cost
estimate at completion for the C-17 Globemaster III contracts for the full-
scale engineering development and first ten initial production aircraft.
The 1993 charge reflected the estimated impact of the C-17 settlement with
the DoD and other increases in the estimated remaining cost on the
development and initial production contracts. The 1992 charges reflected
the estimated cost of strengthening the C-17 wing, which was damaged during
stress tests on October 1, 1992, and other cost growth in test, assembly
and procurement. See Note 5, Contracts in Process and Inventories, page 42
and Results of Operations.
A-12. MDC and General Dynamics Corporation (GD) have filed a legal
action to contest the Navy's termination for default on the A-12 contract.
MDC and GD have reported different financial results for the program. For
the quarter ended June 30, 1990, GD reported a $450 million pre-tax
provision for loss on the full-scale development and test portion and the
first production option on the contract which included reversing
$24 million of earnings it had previously recognized on the contract. At
that time, MDC reported no loss on the contract (including the first
production option) based on cost estimates that differed from those used by
GD, the recognition of the probable recovery of claims as future revenue,
and the fact that it had not previously recognized earnings on the
contract. For the fourth quarter of 1990, GD announced an additional loss
provision on the A-12 contract of $274 million, and MDC established a pre-
tax provision of $350 million for loss on the contract. See Note 5,
Contracts in Process and Inventories, page 42.
The Navy has agreed to continue to defer repayment of $1.335 billion
alleged to be due, with interest from January 7, 1991, from MDC and GD as a
result of the termination for default of the A-12 program. The agreement
provides that it will remain in force until the dispute as to the type of
termination is resolved by the pending litigation in the U.S. Court of
Federal Claims or negotiated settlement, subject to review by the U.S.
Government annually on December 1, to determine if there has been a
substantial change in the financial condition of either MDC or GD such that
deferment is no longer in the best interest of the Government. The
Government, which extended the December 1, 1993 review beyond the time to
which MDC and GD agreed, has not advised the contractors of the results of
that review. On February 15, 1994, however, the U.S. Court of Federal
Claims entered an Order, deferring rulings on the merits of the legal
action to July 21, 1994, to enable the parties to pursue settlement
<PAGE> 16 Exhibit 13
negotiations among other things, conditioned on an undertaking made by the
Government that it would not seek to terminate the deferment agreement in
the interim. MDC firmly believes it is entitled to continuation of the
deferment agreement in accordance with its terms. However, if the
agreement is not continued, MDC intends to contest collection efforts. If
payments of the deferred amount were required, such payments would have a
material adverse effect on MDC's cash flows.
For additional information regarding Government claims and inquiries on
the C-17 and A-12 programs, see also Government Business Audits, Reviews
and Investigations, page 31.
Results of Operations
MDC revenues decreased 17% in 1993 to $14.487 billion, down from $17.365
billion in 1992 and $18.061 billion in 1991. The 1993 decrease resulted
principally from reduced deliveries in the commercial aircraft segment and
lower volume in the F-15 program, and to a lesser extent due to the winding
down of the Advanced Cruise Missile program and reduced commercial space
launches.
In spite of the revenue decrease, MDC's 1993 earnings increased to $396
million. That compares with 1992 earnings of $79 million and 1991 earnings
of $423 million, after excluding from 1992 a charge of $1.536 billion
related to the adoption of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and a subsequent curtailment
gain of $676 million related to the termination of certain postretirement
health care benefits. MDC had a 1992 net loss of $781 million including
these SFAS No. 106 items. Excluding curtailment gains, after-tax retiree
health care costs associated with SFAS No. 106 were $117 million lower in
1993 than in 1992, and $26 million lower than in 1991 when these costs were
recorded on a pay-as-you-go basis. The lower costs in 1993 reflect the
elimination or reduction of company-paid health care for many current and
future retirees.
The 1993 and 1992 military aircraft segment results were reduced by C-17
loss provisions. Earnings in the commercial aircraft segment decreased in
both 1993 and 1992 due to significant reductions in MD-80 deliveries and an
[HARD COPY PG. 26]
increased costing percentage on the MD-11 implemented in the second quarter
of 1992. These decreases were partially offset by increased 1993 earnings
in the missiles, space and electronic systems segment.
Net earnings in each of the last three years included gains from
discontinued operations. These totaled $37 million in 1993, $57 million in
1992, and $66 million in 1991. Earnings in 1993 and 1991 included $158
million and $32 million, respectively, associated with successful
resolution of issues with the IRS, offset in 1993 by $13 million resulting
from an additional tax provision related to the Omnibus Budget
Reconciliation Act. Earnings in 1993 also include a $43 million
postretirement benefit curtailment gain.
<PAGE> 17 Exhibit 13
Pension income totaled $138 million in 1993, up from $106 million in
1992 and $34 million in 1991. During the first quarter of 1992, actuarial
assumptions were changed with respect to (i) the expected long-term return
on plan assets, (ii) withdrawal and (iii) retirement used in the
determination of pension income. At the latest measure-ment date (December
31, 1993), MDC recognized decreasing long-term interest rates by reducing
the discount rate from 9% to 7.5%. As a result, pension credits are
expected to be moderately lower in 1994 than in 1993. See Note 15,
Retirement Plans, page 49.
In 1993, MDC reclassified certain income and expense related to an
executive life insurance program to general and administrative expenses.
These items were previously reflected as revenues or interest expense.
Prior years have been restated to conform with the 1993 presentation.
Neither the first quarter 1992 one-time charge for adoption of the
accounting change for postretirement health care benefits nor the
subsequent postretirement benefit curtailment gains impact the revenues or
operating earnings of the business segments.
In light of declining defense spending and the continuing depressed
condition of the commercial aircraft business, reported financial
information by segment may not be indicative of MDC's future operating
results.
Military Aircraft
Operating revenues in the military aircraft segment decreased 5% in 1993
after a 7% decrease in 1992. The 1993 decrease was largely due to reduced
volume in the F-15 program, partially offset by increased revenue in the C-
17 program. Loss provisions on the C-17 program and decreased production
in the F-15 program accounted for the decrease in 1992 revenues from the
1991 level.
The military aircraft segment reported operating earnings of $83 million
in 1993 as compared to $8 million in 1992 and $394 million in 1991. The
1993 and 1992 operating earnings were reduced by pre-tax loss provisions of
$450 million and $383 million, respectively, on the C-17 program. The 1993
charge covered both a settlement of a range of issues related to the C-17
military aircraft program and increased cost on the C-17 development and
first ten initial production aircraft contracts, which was in part
interrelated to the settlement. The settlement is subject to congressional
authorization and appropriations. The 1992 charges reflected the estimated
cost of strengthening the C-17 wing, and other cost growth in test,
assembly and procurement. See Note 5, Contracts in Process and
Inventories, page 42.
The increase in 1993 operating earnings over the 1992 level was in part
related to the C-17. Even with a loss provision in 1993 in excess of the
1992 loss provisions, C-17 program losses in 1993 were lower than in 1992.
Decreased production in the F-15 program reduced earnings in this segment.
Pre-tax retiree health care costs in this segment decreased by $82 million
in 1993, reflecting the elimination or reduction of company-paid health
care for many current and future retirees. Pre-tax retiree health care
costs increased $58 million in 1992 when SFAS No. 106 was first adopted.
<PAGE> 18 Exhibit 13
The T-45 program generated positive operating earnings in 1993 and 1992
as the program moved from development to the production stage. Earnings
from the AH-64 Apache helicopter and reduced losses on other helicopter
programs also had a positive impact on both 1993 and 1992 earnings. Other
helicopter programs recorded losses in 1991 primarily as a result of
adjustments to inventory.
Commercial Aircraft
Operating revenues in the commercial aircraft segment decreased 28% in
1993 after a 2% decrease in 1992. The sharp decrease in 1993 revenues is
due to reduced aircraft deliveries. MDC delivered 42 MD-80 twin jets
(including 8 under lease arrangements) in 1993, as compared with 84 in 1992
and 138 in 1991. The continued decrease in MD-80 deliveries reflects the
overall softness in the commercial aircraft market. MDC delivered 36
trijets (including 3 under lease arrangements) in 1993, compared with 42 in
1992 and 31 in 1991.
The commercial aircraft segment reported operating earnings of $40
million in 1993, and $102 million and $283 million in 1992 and 1991,
respectively. Similar to revenues, earnings reductions were the result of
fewer MD-80 deliveries. In addition, margins on the MD-11 trijet, which
are determined using the program-average cost method, were reduced by
approximately 4% of the airframe sales price in 1992 from the 1991 level.
Operating earnings for the commercial aircraft segment in 1993 included a
$41 million pre-tax gain from the sale of McDonnell Douglas' 25% interest
in Irish Aerospace, more than offset by charges of $61 million related to a
commercial lease guarantee, a product enhancement associated with a
[HARD COPY PG. 27]
commercial customer, and other items. The retention of $37 million of
advance payments made by commercial airline customers which defaulted on
their contracts contributed to earnings in 1992. Reduced development costs
and lower retiree health care costs allocated to the segment also
contributed to the segment's continued profitability in 1993. Development
expenditures decreased $111 million in 1993 compared to 1992, principally
as a result of decreased research and development expenditures on the MD-12
and lower MD-90 development costs. MD-90 development costs for 1993 were
reduced by $27 million received from risk-sharing subcontractors. Pre-tax
retiree health care costs in this segment decreased by $51 million in 1993,
reflecting the elimination or reduction of company-paid health care for
many current and future retirees. Pre-tax retiree health care costs
increased $42 million in 1992 when SFAS No. 106 was first adopted.
The MD-11 program incurred an operating loss in 1993 slightly greater
than its 1992 loss. MDC is accounting for the MD-11 program on a delivery
basis using the program-average cost method. Under this method, certain
production costs incurred during assembly of early MD-11 aircraft as well
as tooling costs are being deferred and will be recognized on delivery of
aircraft in future years based on a planned number of aircraft in the
program. Production costs, combined with an allocation of tooling costs,
on some aircraft delivered in 1993 were less than program-average costs.
<PAGE> 19 Exhibit 13
Deferred costs in total on the MD-11 program decreased in 1993. See Note
5, Contracts in Process and Inventories, page 42. Due to costs on the MD-
11 program not declining as rapidly as planned, MDC raised its cost
estimate for the total program during the second quarter of 1992. As a
result, under the program-average cost method, MDC reduced the reported
earnings for each MD-11 aircraft delivered subsequent to March 31, 1992 by
approximately 4% of the airframe sales price. This increased cost estimate
has a significant negative impact on MD-11 earnings. Program development
costs and general and administrative costs are expensed as incurred as
period costs. See Note 1, Accounting Policies, page 38 and Note 5,
Contracts in Process and Inventories, page 42.
Missiles, Space and Electronic Systems
Operating revenues in the missiles, space and electronic systems segment
decreased 19% in 1993 as compared to 1992, primarily as a result of the
winding down of the Advanced Cruise Missile program, which was terminated
in 1992, lower electronic systems' revenues as a result of reduced defense
budgets on the Strategic Defense Initiative Organization (SDIO) and
surveillance activity, and lower Delta and other space systems program
activities. Operating revenues in 1992 increased 6% from 1991. Increased
1992 activity in the Delta and Space Station programs more than offset
reduced revenues in the electronic systems programs. Increased Tomahawk
cruise missile 1992 revenues, due to MDC winning a higher percentage of a
competitively awarded production contract, were offset by reductions in the
Harpoon missile program.
Operating earnings of the missiles, space and electronic systems segment
were $338 million in 1993, up 77% from $191 million in 1992 and $163
million in 1991. MDC's missile programs had significantly higher operating
earnings due to the realization of lower costs brought about by an MDC-wide
organizational restructuring in the fall of 1992 and overall improved
contract performance. Earnings in 1993 also include a bonus earned for
achieving 100% launch success on a Delta Global Positioning Satellite
contract for the Air Force. Pre-tax retiree health care costs in this
segment decreased by $52 million in 1993, reflecting the elimination or
reduction of company-paid health care for many current and future retirees.
Pre-tax retiree health care costs increased $33 million in 1992 when SFAS
No. 106 was first adopted.
The electronic systems programs' 1993 results include $70 million in pre-
tax loss provisions recorded as a result of difficulties in several
electronic systems programs. The electronic systems 1992 results included
$38 million in pre-tax loss provisions on the Air Force Defense Support
Program (DSP). The DSP program was terminated for convenience of the
government during the fourth quarter of 1993.
Financial Services and Other
Operating revenues in the financial services and other segment, which
are primarily from MDFC operations, decreased to $287 million in 1993
compared to $352 million in 1992 and $519 million in 1991. Decreased
<PAGE> 20 Exhibit 13
revenues are primarily the result of the significant decrease in the size
of the financial services unit's portfolio following the sale of assets of
several of its non-core businesses in 1991 and 1992. A decision was made
in 1991 to streamline MDFC's operations and focus its new business efforts
almost entirely within its two core business lines, aircraft financing and
commercial equipment leasing.
Operating earnings of the segment were $31 million in 1993 as compared
to $20 million in 1992 and $26 million in 1991. Gains on sale and re-lease
of equipment, including aircraft, were $24 million in 1993 as compared to
$37 million in 1992 and $46 million in 1991. Operating earnings of the
financial services and other segment have been reduced by interest expense,
an operating expense of that segment.
[HARD COPY PG. 28]
Interest Expense
Interest expense allocated between the aerospace segments and financial
services and other segment is shown below:
Years Ended December 31 1993 1992 1991
- ---------------------- ---- ---- ----
(Millions of dollars)
Aerospace segments $ 89 $309 $232
Financial services and
other segment 126 159 221
---- ---- ----
$215 $468 $453
==== ==== ====
Interest expense related to aerospace segments was reduced by $135
million in 1993 and by $107 million in 1991 to reflect the reversal of
previously accrued IRS settlement related interest expense. Beginning in
the first quarter of 1989, provisions for interest expense were made for
anticipated resolution with the IRS as to when certain long-term contracts
are completed for tax purposes. In November 1991, MDC settled tax years
1977-1985 with the IRS and all issues for this period were resolved. See
Note 10, Income Taxes, page 45.
Excluding the effect of the settlement related interest expense,
aerospace interest expense decreased 28% in 1993 following a 9% decrease in
1992. The interest expense decrease reflects lower debt levels and reduced
interest rates.
Interest expense in the financial services and other segment decreased
21% in 1993 after decreasing 28% in 1992. The decreases are a result of
significant reductions in both short-term and long-term average borrowings
as business volume decreased and the segment sold assets to generate cash
and improve liquidity.
<PAGE> 21 Exhibit 13
Discontinued Operations
Earnings from discontinued operations were $37 million in 1993, compared
to $57 million in 1992 and $66 million in 1991. The 1993 discontinued
operations include the gain related to the sale of McDonnell Douglas
Information Systems International (MDISI). Discontinued operations for
1992 include the gain related to the sale of TeleCheck Services, Inc.
(TeleCheck) and the 1992 operations related to MDISI. Discontinued
operations in 1991 include MDC's sale of substantially all of the assets of
McDonnell Douglas Systems Integration Company and certain related assets of
MDISI. See Note 2, Discontinued Operations, page 40.
Liquidity
As detailed in the following, MDC believes that it has sufficient
sources of capital to meet anticipated needs. In addition to the
discussion in this section which follows, see also A-12, page 25, for a
discussion of the A-12 deferment status.
Debt and Credit Arrangements. MDC has in place a number of credit
facilities with banks and other institutions. At December 31, 1993, MDC
had two revolving credit agreements aggregating $1.4 billion, which are in
effect until April 30, 1995, and a third revolving credit agreement under
which MDC could borrow up to $175 million through January 28, 1994. There
were no amounts outstanding under these credit agreements at December 31,
1993.
In August 1992, MDC commenced an offering of up to $550 million
aggregate principal amount of its medium-term notes. As of December 31,
1993, MDC had issued $132 million of medium-term notes and $200 million of
8.25% senior debt securities under the shelf registration.
Amounts available under these credit facilities may be accessed to meet
cash requirements. Increased borrowings under the revolving credit
agreements may not be available in the event of a material adverse change
in the operations, financial condition, business or prospects of MDC and
its consolidated subsidiaries, taken as a whole.
On December 22, 1993 MDC notified holders of its 7.875% notes due
January 15, 1997 that the $150 million issue would be redeemed on January
21, 1994. The notes were redeemed at 100% of their principal amount plus
accrued interest to the redemption date.
In August 1990, MDC entered into a three-year agreement with a financial
institution to sell a participation interest in a designated pool of
government and commercial receivables, with limited recourse, in amounts up
to $300 million. A replacement agreement with another financial
institution for up to $300 million was completed during February 1994.
Under both agreements, participation interests in new receivables have been
and will continue to be sold as previously sold amounts are collected. The
participation interests are sold at a discount which is included in general
and administrative expenses in the consolidated statement of operations.
<PAGE> 22 Exhibit 13
Under both agreements, MDC has and will continue to act as an agent for the
purchaser by performing record keeping and collection functions. During
the negotiation of the replacement agreement, MDC continued to sell, and
the original financial institution continued to purchase, participation
interests. At December 31, 1993, accounts receivable are net of $100
million, representing receivable interests sold pursuant to that agreement.
See Note 3, Accounts Receivable, page 40.
On September 8, 1992, Standard and Poor's affirmed MDC's senior long-
term debt credit rating at BBB and short-term debt rating for commercial
paper at A-3 and removed MDC's ratings from CreditWatch. On
February 2, 1993, Moody's Investors Service Inc. (Moody's) lowered its
ratings of MDC and MDFC debt. MDC's senior debt rating was lowered to Ba-2
[HARD COPY PG. 29]
from Baa-3, while the short-term debt rating for commercial paper was cut
to Not Prime from Prime-3. Ratings on the senior debt of MDFC were reduced
to Ba-1 from Baa-2; on subordinated debt to Ba-3 from Ba-1; and on its
shelf registration to (P) Ba-1 and (P) Ba-3 from (P) Baa-2 and (P) Ba-1.
In November 1993, Moody's placed the debt ratings of MDC and MDFC under
review for possible upgrade.
During 1993, MDC received a credit rating from Duff & Phelps Credit
Rating Co. This rating, announced in June 1993, assigned an initial
investment grade rating of BBB- to MDC's senior unsecured debt.
Additionally, Duff & Phelps assigned ratings of BBB and BBB- to MDFC's
senior unsecured debt and subordinated debt, respectively.
Taxes. In November 1991, MDC settled tax years 1977-1985 with the
Internal Revenue Service (IRS). The settlement resulted in net earnings of
$32 million in 1991 and a substantial future obligation payable upon
completion of the 1986-1989 IRS audit. MDC is currently under audit by the
IRS for tax years 1986-1989. Issues resolved in the IRS settlement of the
tax years 1977-1985 will impact results of the current IRS audit. During
1993, MDC resolved several issues with the IRS related to prior years'
taxes. The resolution of these issues resulted in net earnings of $158
million in 1993. Excluding the after-tax benefit of the related reduction
in accrued interest, the resolution of such issues resulted in a $75
million federal tax benefit.
Taxes and interest related to the payment for the 1986-1989 tax period
have been provided. Payment of the tax and interest for the 1986-1989 tax
period obligation approximates $300 million and is expected to be made in
mid-1994. See Note 10, Income Taxes, page 45.
C-17 Settlement. As previously discussed, MDC recently reached a
settlement with the DoD which covered a range of issues related to the C-17
military aircraft program. The settlement is subject to congressional
authorization and appropriations. The settlement is not expected to have
any significant adverse cash impact.
<PAGE> 23 Exhibit 13
Government Progress Payment Rate. During 1993, progress payment rates
on domestic and foreign military sales contracts entered into subsequent to
November 10, 1993 were reduced by congressional action from 85% to 75%.
This reduction will negatively impact cash flow, primarily in years
subsequent to 1994.
Foreign Military Product Purchases. In an effort to restructure work
and payments due in 1994 for military product purchases of the government
of Saudi Arabia, MDC, the U.S. Government, and other major U.S. defense
contractors have been meeting with Saudi representatives. Although a
restructuring plan has not been finalized, a conceptual outline has been
developed. MDC does not anticipate any significant adverse cash impact in
1994 as a result of this restructuring plan.
Commercial Aircraft Financing. Difficulties in the commercial aircraft
industry may continue to result in airlines not taking deliveries of
aircraft, requesting changes in delivery schedules, or defaulting on
contracts for firm orders. Aircraft delivery delays or defaults by
commercial aircraft customers not anticipated by MDC could have a negative
short-term impact on cash flow. During recent years, several airlines
filed for protection under the Federal Bankruptcy Code or became delinquent
on their obligations for commercial aircraft. As indicated in Note 17,
Commitments and Contingencies, page 51, MDC also has outstanding guarantees
of $251 million related to the marketing of commercial aircraft. MDC does
not anticipate that the existence of such guarantees will have a material
adverse effect upon its financial condition. In addition, some existing
commercial aircraft contracts contain provisions requiring MDC to
repurchase used aircraft at the option of the commercial customers. In
view of the current market conditions for used aircraft, MDC's earnings and
cash flows could be adversely impacted by the exercise of such options.
However, it is not anticipated that the existence of such repurchase
obligations will have a material adverse effect on cash flow or financial
position. See also Note 4, Finance Receivables and Property on Lease,
page 41, for additional details regarding concentration of credit risk.
Capital Expenditures. MDC's capital expenditures were $64 million in
1993, $217 million in 1992, and $171 million in 1991. At December 31,
1993, MDC was not committed to the purchase of a significant amount of
property, plant and equipment. Capital expenditures comparable to 1992 are
expected in 1994.
Asset Sales. MDC closed the sale of its Visual Simulation Systems (VSS)
business unit on January 29, 1993 and the sale of its remaining information
technology business, MDISI, in March 1993.
Operations. Employment levels were reduced 20% during 1993 to 70,016 as
a result of consolidation and streamlining of MDC's government aerospace
companies, reduced production on several major programs, and personnel
reduction associated with the divestitures of MDISI and VSS and the
outsourcing of data processing services. MDC has continued implementing
its aggressive asset management plan of reducing accounts receivable,
inventory, and work in process levels, as well as reducing facilities
commensurate with the levels of ongoing business.
<PAGE> 24 Exhibit 13
MDFS and Other. The financial services and other segment debt on
December 31, 1993 was $1.513 billion, compared with $1.474 billion at
December 31, 1992. MDFS, through its MDFC subsidiary, has traditionally
[HARD COPY PG. 30]
obtained cash from operating activities, placements of debt, issuances of
commercial paper and the normal run-off of its portfolio to fund its
operations. Beginning in 1990 and continuing through mid-1993, MDFC's
access to new capital had been severely limited due to a lowering of MDFC's
credit ratings, the recession, and capital constraints imposed by MDC.
MDFC has utilized bank borrowings available under its credit facilities in
recent years to fund operations. These limitations had less impact on MDFC
in 1993. In June 1993, MDFC commenced an offering of up to $250 million of
its unsecured senior debt securities, its first debt offering since 1990,
and in November 1993 commenced accepting inquires for the sale of its
medium-term notes. As of December 31, 1993, approximately $81 million
associated with the June offering and $90 million associated with the
medium-term notes had been sold.
MDFC has also used asset sales and secured borrowings as sources of
funding. MDFC anticipates using asset sales and the normal run-off of the
lease portfolio as sources to provide additional liquidity in the future.
Business and Market Considerations
General
MDC is a major participant in both the defense and commercial aerospace
industries. MDC has a wide range of programs in production and
development, and is the world's leading producer of military aircraft.
Since 1987, MDC has been the largest U.S. defense contractor, based on the
DoD's list of prime contract awards and one of the larger NASA prime
contractors based on prime contracts awarded. MDC is one of the three
principal manufacturers of large commercial transport aircraft outside the
former Soviet Union. Programs and products comprising most of MDC's
business volume are of a highly technical nature, comparatively few in
number, high in unit cost, and have traditionally enjoyed relatively long
production lives.
MDC's aerospace segments compete in an industry composed of a few major
competitors and a limited number of customers. The number of competitors
in the military segment of the business has decreased over the past few
years due to consolidations brought about by reduced defense spending.
However, competition remains significant both in military and commercial
programs.
The trend of reduced defense spending and reduced commercial aircraft
orders has resulted in the downsizing of MDC over the last several years.
MDC has reduced its capital expenditures from $396 million in 1990 to $64
million in 1993 and total employment from 132,960 at June 30, 1990 to
70,016 at December 31, 1993.
<PAGE> 25 Exhibit 13
The downsizing has had and continues to have a negative impact on the
utilization of MDC's facilities and capacity, and on labor costs due to
inefficiencies caused by the reassignment of workers as a result of
layoffs. During 1992, MDC consolidated its six government aerospace
companies into one division and since then has closed or announced plans to
close several of its manufacturing facilities to streamline operations and
create greater efficiencies. MDC also communicated its strategy to
concentrate on its principal aerospace businesses, and as a result
completed sales of non-core business assets to implement this strategy.
As a result of this strategy, MDC: sold TeleCheck in July 1992; signed a
10-year outsourcing agreement with, transferred 1,400 employees to, and
sold its data processing assets to Integrated Systems Solutions Corp. in
December 1992; completed the sale of its VSS business unit in January 1993;
and in March 1993 sold its remaining information technology business,
MDISI, to a group of investors in the United Kingdom. MDC continues to
pursue a possible strategic alliance with organizations throughout the
world in order to support the commercial aircraft segment. See also
Note 2, Discontinued Operations, page 40, and Note 7, Outsourcing of
Information Technology Operations, page 44.
Military Aerospace Business
MDC's most significant customer in the military aircraft and missiles,
space and electronic systems segments is the U.S. Government. Certain
foreign governments also purchase a significant share of MDC's aerospace
products. Companies engaged in supplying military and space equipment to
the U.S. Government are subject to risks in addition to those found in
commercial business. These additional risks include dependence on
congressional appropriations and annual administrative allotment of funds,
general reductions in the U.S. defense budget, and changes in Government
policies. In addition, at times MDC invests funds in programs that are
both competitive and still in the pre-development stage yet may never
result in production. Moreover, the costs of maintaining adequate research
and development as well as manufacturing capabilities are substantial.
MDC may also enter into firm fixed-price contracts. Under these
arrangements, work is performed and paid for at a fixed amount without
adjustment for actual costs experienced in connection with the contract.
While this arrangement offers MDC opportunities for increased profits if
costs are lower than expected, risk of loss due to increased cost is also
borne by MDC.
In addition, the U.S. Government may terminate its contracts (i) for its
convenience whenever it believes that such termination would be in the best
interest of the Government or (ii) for default. Under contracts terminated
for the convenience of the Government, a contractor is generally entitled
to receive payments for its contract cost and the proportionate share of
[HARD COPY PG. 31]
its fee or earnings for the work done, subject to the availability of
funding. The U.S. Government may terminate a contract for default if the
contractor materially breaches the contract.
<PAGE> 26 Exhibit 13
Defense spending by the U.S. Government has declined, and is likely to
continue to decline. In November 1993, Congress completed its action on
the 1994 defense spending bill, and the President formally approved the
fiscal year (FY) 94 defense budget. Adjusting for inflation, the 1994
defense procurement budget represents a real decline of 18% from 1993 and
33% from 1992 expenditures. On the same basis, the 1994 defense research
and development budget represents a real decline of 10% from 1993.
Further significant reductions in defense spending and the U.S.
Government's decision to emphasize weapons research over production may
have a material impact on MDC. The loss of a major program or a major
reduction or stretch-out in one or more programs could have a material
adverse impact on MDC's future revenues, earnings and cash flow. However,
any such impact could be mitigated by foreign sales and by programs to
upgrade existing products. Certain foreign sales may require some portion
of the production to be completed in the purchasing country. In light of
the uncertainty regarding the changes in defense spending, reported
financial information may not be indicative of MDC's future operating
results. Production contracts awarded under the FY 94 budget will
generally continue through 1996.
Commercial Aircraft Business
MDC is currently engaged in production of the MD-80 twin jet and MD-11
trijet commercial aircraft, development and initial production of the MD-90
advanced version of the MD-80, and support of commercial aircraft, spare
parts and related services. As discussed later in this section, MDC has
also considered a new wide-body commercial aircraft designated the MD-12.
The commercial aircraft business is market sensitive, which causes
disruptions in production and procurement and attendant costs, and requires
large investments to develop new derivatives of existing aircraft or new
aircraft.
Due to increasing air travel, particularly in the Asia/Pacific region,
an aging fleet, stricter noise and pollution standards and the desire to
assure delivery positions in production lines that were near capacity, a
large number of commercial transport aircraft were ordered during 1988
through 1990. Since then, as airlines dealt with falling profits, orders
for all types of aircraft have dramatically declined. Difficulties in the
industry have resulted and may continue to result in airlines not taking
deliveries of aircraft, requesting changes in delivery schedules,
defaulting on contracts for firm orders, or not exercising options or
reserves. These difficulties could have a negative short-term impact on
cash flows; the impact could be mitigated by MDC's retention of progress
payments on firm orders. See also "Backlog", page 32, for a discussion of
certain risks related to commercial aircraft customers.
The commercial aircraft market for new orders (including the MD-11 and
MD-80/MD-90) is currently very soft, and the competition and pricing is
very aggressive. MDC has refrained from drastic price reductions, instead
focusing on cost control measures. As cost controls are put in place and
the commercial aircraft market rebounds, MDC believes it will be in a good
position to capture profitable new orders.
<PAGE> 27 Exhibit 13
Continued research and development effort on the MD-12 has been deferred
due to the softness in the commercial aircraft market. In order to
strengthen the commercial aircraft segment, MDC is continuing to pursue
strategic alliances with organizations throughout the world. Over the past
few years, MDC has had discussions with risk-sharing subcontractors and
potential equity investors to obtain a globally competitive production
capability, improve financial strength, and increase market presence. No
prediction can be made as to whether or when MDC will reach an agreement
with potential risk-sharing subcontractors or equity investors.
Government Business Audits, Reviews and Investigations
MDC, as a large defense contractor, is subject to many audits, reviews
and investigations by the U.S. Government of its negotiation and
performance of, accounting for, and general practices relating to
Government contracts. An indictment of a contractor may result in
suspension from eligibility for award of any new government contract, and a
guilty plea or conviction may result in debarment from eligibility for
awards. The Government may, in certain cases, also terminate existing
contracts, recover damages, and impose other sanctions and penalties.
Based upon presently known facts, MDC believes that it has not engaged in
any criminal misconduct with respect to any of the matters currently known
to be under investigation and that the ultimate resolution of these
investigations will not have a material adverse effect on MDC's financial
position.
In March 1991, the Securities and Exchange Commission (SEC) issued a
Formal Order of Private Investigation (the "1991 SEC Investigation")
looking into whether MDC violated the Securities Act of 1933 and the
Securities Exchange Act of 1934 in connection with disclosures about and
accounting for the A-12. In February 1993, the SEC issued subpoenas
requesting additional information and broadened its inquiry to include the
C-17 and possibly other programs. MDC believes that it has properly
reported and disclosed information and accounted for its programs in
accordance with generally accepted accounting principles.
[HARD COPY PG. 32]
In January 1993, the DoD Inspector General (IG) completed an inquiry
into an allegation of favoritism and advantageous treatment accorded MDC by
the DoD in connection with the C-17 Globemaster III program. The IG's
report questioned contracting actions and payments by the U.S. Air Force
and related information provided by the U.S. Air Force and MDC personnel.
MDC believes that it properly reported and disclosed information relative
to the C-17 contract and that it properly submitted bills to and was paid
by the U.S. Air Force in accordance with DoD rules then in effect for work
performed. In April 1993, the Air Force issued an extensive report
responding to the allegations made by the DoD. Although the Air Force
report reflected the difference between the parties concerning the
segregation and payment of certain C-17 engineering costs, the report
concluded that there was no illegal or improper plan or actions taken to
provide payments to MDC and that the integrity of the acquisition system
had not been compromised. In a November 1993 reply, the IG reasserted his
conclusion that there had been an Air Force plan to assist MDC that
exceeded the limits of what was permissible.
<PAGE> 28 Exhibit 13
In May 1993, a Defense Acquisition Board (DAB) initiated by the Under
Secretary of Defense for Acquisitions began a review of the C-17 program in
an effort to resolve outstanding issues and to make recommendations
regarding the C-17's future. In connection with the review, MDC provided
data and participated in numerous discussions. The DoD, in conjunction
with the DAB, submitted a proposal to MDC in December 1993 for a business
settlement of a variety of issues concerning the C-17 program. In January
1994, MDC and the DoD agreed to such a settlement. MDC and the Air Force
will be developing plans and contractual modifications and agreements to
implement the business settlement, which is subject to congressional
authorization and appropriations. This process is expected to be completed
during 1994.
The settlement covered issues open as of the date of the settlement,
including the allocation of sustaining engineering costs to the development
and production contracts, the sharing of flight test costs over a previous
level, and the resolution of claims and of performance/specification
issues. The settlement also stipulated that MDC will expend additional
funds in an effort to achieve product and systems improvements.
MDC estimated the financial impact of the settlement in conjunction with
a review of the estimated remaining costs on the C-17 development and
initial production contracts. This resulted in recording a pre-tax charge
of $450 million, excluding general and administrative and other period
expenses, in the fourth quarter of 1993.
Environmental Expenditures
MDC believes that expenditures which may be required to comply with
federal, state, and local provisions regulating the discharge of materials
into the environment or otherwise relating to the environment will not be
material in relation to the financial position of MDC. Compliance with
such regulations has not had a material effect on earnings or the financial
condition of MDC; however, the costs of complying with environmental
regulations is increasing.
MDC is a party to a number of proceedings brought under the
Comprehensive Environmental Response, Compensation and Liability Act,
commonly known as Superfund, or similar state statutes. MDC has been
identified as a potentially responsible party (PRP) at 28 sites. Of these,
MDC believes that it has de minimis liability at 19 sites, including 9
sites at which it believes that it has no future liability. At the 9 sites
at which MDC's liability is not considered to be de minimis, either final
or interim cost sharing agreements have been affected between the
cooperating PRPs, although such agreements do not fix the amount of cleanup
costs which the parties will bear. In addition, MDC is remediating, or has
begun environmental engineering studies to determine cleanup requirements,
at certain of its current operating sites or former sites of industrial
activity. MDC estimates total reasonably possible costs of approximately
$48 million for study and remediation expenditures at Superfund sites and
at MDC's current and former operating sites, of which $21 million is
accrued at December 31, 1993.
<PAGE> 29 Exhibit 13
Backlog
Several risk factors should be considered in evaluating MDC's firm
backlog for commercial customers. Approximately 75% of the firm backlog
for commercial aircraft is scheduled for delivery after 1994. Difficulties
in the commercial airline industry, in part related to falling profits,
could result in less than currently anticipated airline equipment
requirements resulting in requests to negotiate rescheduling, or defaults
by customers, of firm orders. Also, approximately 15% of the commercial
aircraft backlog represents orders from leasing companies which may be at
risk if not supported by firm contracts between such leasing companies and
airlines.
Orders from customers which have filed for bankruptcy, purchase options
and announced orders for which definitive contracts have not been executed
are excluded from firm backlog.
Inflation
The effects of inflation have not been significant to MDC because
inflation rates have been relatively low. Contracts for both government
and commercial products generally either include estimates of inflation or
adjust for inflation's effect.
[HARD COPY PG. 33]
Selected Financial Data by Industry Segment - Continuing Operations
(Millions of Dollars)
MDC's aerospace segments include military aircraft, commercial aircraft,
and missiles, space and electronic systems. The military aircraft
segment's products include the design, development and production of attack
and fighter aircraft, military and commercial helicopters, and military
transport aircraft, spare parts and related services. The attack and
fighter aircraft cover a full spectrum of missions (air superiority, all
weather and night attack, close air-support, reconnaissance, etc.) and
include land-based and aircraft carrier-based aircraft as well as the
latest in vertical-takeoff-and-landing technologies. The commercial
aircraft segment's products include commercial aircraft, spare parts and
related services. The missiles, space and electronic systems segment's
products include advanced studies and development and production of
tactical and strategic missiles, satellite launching vehicles, space
station design and development, space shuttle and payload integration,
lasers and laser communication systems, ballistic missile defense systems,
and defense electronic components and systems.
<PAGE> 30 Exhibit 13
The financial services and other segment is engaged in a wide range of
financial services, including the financing of commercial and private
aircraft, commercial equipment, and real estate. The segment also acquires
and develops properties for other MDC segments and commercial customers.
The financial services and other segment includes McDonnell Douglas
Financial Services Corporation and McDonnell Douglas Realty Company.
Operating earnings of the segment have been reduced by interest expense, an
operating expense of that segment. The financial services and other
segment includes interest earned on advances or loans to other industry
segments in its operating revenues and earnings. Other intersegment
revenues and earnings were immaterial and have been eliminated. Assets of
individual segments have been stated net of applicable progress payments.
Years Ended December 31 1993 1992 1991
--------- --------- ---------
REVENUES
Military aircraft $ 6,852 $ 7,238 $ 7,795
Commercial aircraft 4,760 6,595 6,752
Missiles, space and electronic
systems 2,575 3,169 2,979
Financial services and other 287 352 519
--------- --------- ---------
Operating revenues 14,474 17,354 18,045
Non-operating income 13 11 16
--------- --------- ---------
$14,487 $17,365 $18,061
========= ========= =========
Years Ended December 31 1993 1992 1991
--------- --------- ---------
EARNINGS
Military aircraft $ 83 $ 8 $ 394
Commercial aircraft 40 102 283
Missiles, space and electronic
systems 338 191 163
Financial services and other 31 20 26
------ ------ ------
Operating earnings 492 321 866
Discontinued operations 37 57 66
Non-operating/net (5) (4) (13)
General corporate expenses (9) (12) (6)
Postretirement benefit curtailment 70 1,090 -
Interest expense (89) (309) (232)
Income taxes (100) (388) (258)
Cumulative effect of accounting
change - (1,536) -
--------- --------- ---------
$ 396 $ (781) $ 423
========= ========= =========
<PAGE> 31 Exhibit 13
Years Ended December 31 1993 1992 1991
--------- --------- ---------
FIRM BACKLOG (Unaudited)
Military aircraft $ 7,997 $ 7,619 $ 9,540
Commercial aircraft 9,172 13,364 17,913
Missiles, space and electronic
systems 2,210 3,069 2,995
--------- --------- ---------
$19,379 $24,052 $30,448
========= ========= =========
Years Ended December 31 1993 1992 1991
--------- --------- ---------
Assets
Military aircraft $ 3,715 $ 3,960 $ 4,328
Commercial aircraft 4,561 5,850 5,529
Missiles, space and electronic
systems 1,330 1,524 1,741
Financial services and other 2,340 2,222 2,793
--------- --------- ---------
Continuing operations 11,946 13,556 14,391
Corporate 80 133 133
Discontinued operations - 92 77
--------- --------- ---------
$12,026 $13,781 $14,601
========= ========= =========
Years Ended December 31 1993 1992 1991
--------- --------- ---------
Property, Plant and Equipment
Acquired
Military aircraft $ 23 $ 70 $ 49
Commercial aircraft 1 29 51
Missiles, space and electronic
systems 38 116 70
Financial services and other - 2 -
--------- --------- ---------
Continuing operations 62 217 170
Corporate 2 - 1
--------- --------- ---------
$ 64 $ 217 $ 171
========= ========= =========
<PAGE> 32 Exhibit 13
Years Ended December 31 1993 1992 1991
--------- --------- ---------
Depreciation and Amortization
Military aircraft $ 149 $ 191 $ 212
Commercial aircraft 70 89 79
Missiles, space and electronic
systems 48 102 102
Financial services and other 49 71 102
--------- --------- ---------
Continuing operations 316 453 495
Corporate 7 12 4
--------- --------- ---------
$ 323 $ 465 $ 499
========= ========= =========
<PAGE> 33 Exhibit 13
[HARD COPY PG. 34]
CONSOLIDATED STATEMENT OF OPERATIONS
(Millions of dollars, except share data)
YEARS ENDED DECEMBER 31 1993 1992 1991
------ ------ -----
Revenues $14,487 $17,365 $18,061
Costs and expenses:
Cost of products, services and rentals 12,822 15,567 15,561
General and administrative expenses 720 825 1,003
Research and development 341 509 429
Postretirement benefit curtailment (70) (1,090) -
Interest expense:
Aerospace segments 89 309 232
Financial services and other segment 126 159 221
-------- -------- --------
Total Costs and Expenses 14,028 16,279 17,446
-------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 459 1,086 615
Income taxes 100 388 258
-------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE 359 698 357
Discontinued operations:
Earnings from operations, net of income taxes - 20 (8)
Gain on disposals, net of income taxes 37 37 74
-------- -------- --------
37 57 66
-------- -------- --------
EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 396 755 423
Cumulative effect of initial application of
new accounting standard for postretirement
benefits - (1,536) -
-------- -------- --------
NET EARNINGS (LOSS) $ 396 $ (781) $ 423
======== ======== ========
EARNINGS (LOSS) PER SHARE:
Continuing operations $ 9.17 $ 17.97 $ 9.32
Discontinued operations:
Earnings from operations - .50 (.22)
Gain on disposals .93 .96 1.93
Cumulative effect of accounting change - (39.53) -
-------- -------- --------
$ 10.10 $(20.10) $ 11.03
======== ======== ========
DIVIDENDS DECLARED PER SHARE $ 1.40 $ 1.40 $ 1.40
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 34 Exhibit 13
[HARD COPY PG. 35]
CONSOLIDATED BALANCE SHEET
(Millions of dollars and shares)
DEC 31 DEC 31
1993 1992
--------- ---------
ASSETS
Cash and cash equivalents $ 86 $ 82
Accounts receivable 555 604
Finance receivables and property on lease 2,357 2,262
Contracts in process and inventories 5,774 7,230
Property, plant and equipment 1,750 1,991
Other assets 1,504 1,612
--------- ---------
Total Assets $ 12,026 $ 13,781
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 2,190 $ 3,018
Accrued retiree benefits 1,388 1,544
Income taxes 574 572
Advances and billings in excess of related
costs 1,251 1,384
Notes payable and long-term debt:
Aerospace segments 1,625 2,767
Financial services and other segment 1,513 1,474
--------- ---------
8,541 10,759
Minority Interest 72 -
Shareholders' Equity:
Preferred Stock - none issued
Common Stock - issued and outstanding:
1993, 39.3 shares; 1992, 39.2 shares 39 39
Additional capital 335 327
Retained earnings 3,043 2,702
Translation of foreign currency statements (4) (10)
Unearned ESOP compensation - (36)
--------- ---------
3,413 3,022
--------- ---------
Total Liabilities and Shareholders' Equity $ 12,026 $ 13,781
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 35 Exhibit 13
[HARD COPY PG. 36]
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Millions of dollars)
YEARS ENDED DECEMBER 31 1993 1992 1991
-------- -------- --------
COMMON STOCK
Beginning balance $ 39 $ 38 $ 38
Shares issued to employee savings plans - 1 -
-------- -------- --------
39 39 38
ADDITIONAL CAPITAL
Beginning balance 327 287 283
Employee stock awards and options 6 2 4
Shares issued to employee savings plans 2 38 -
-------- -------- --------
335 327 287
RETAINED EARNINGS
Beginning balance 2,702 3,538 3,168
Net earnings (loss) 396 (781) 423
Cash dividends declared (55) (55) (53)
-------- -------- --------
3,043 2,702 3,538
TRANSLATION OF FOREIGN CURRENCY STATEMENTS (4) (10) 14
UNEARNED ESOP COMPENSATION
Beginning balance (36) - -
Prepayment of future employee benefits - (50) -
Shares allocated to employees 36 14 -
-------- -------- --------
- (36) -
-------- -------- --------
SHAREHOLDERS' EQUITY $ 3,413 $ 3,022 $ 3,877
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 36 Exhibit 13
[HARD COPY PG. 37]
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
YEARS ENDED DECEMBER 31 1993 1992 1991
-------- -------- --------
OPERATING ACTIVITIES
Earnings from continuing operations before
cumulative effect of accounting change $ 359 $ 698 $ 357
Adjustments to reconcile earnings from
continuing operations before cumulative
effect of accounting change to net cash
provided (used) by operating activities:
Depreciation of property, plant and
equipment 258 353 370
Depreciation of rental equipment 50 58 89
Amortization of intangible and other
assets 15 54 40
Gain on sale of assets (44) - -
Pension income (138) (107) (55)
Postretirement benefit curtailment (70) (1,090) -
Non-cash retiree health care costs 20 133 -
Change in operating assets and liabilities:
Accounts receivable 40 97 2
Finance receivables and property on
lease (521) (316) 111
Contracts in process and inventories 1,445 43 (1,098)
Accounts payable and accrued expenses (822) (22) 612
Income taxes (5) 217 240
Advances and billings in excess of
related costs (112) (703) 38
Discontinued operations - (2) (26)
-------- -------- --------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 475 (587) 680
INVESTING ACTIVITIES
Property, plant and equipment acquired (64) (217) (171)
Proceeds from sale of property, plant
and equipment - 173 -
Finance receivables and property on lease 414 529 706
Proceeds from sale of discontinued businesses 181 70 200
Proceeds from sale of assets 32 - -
Other, including discontinued operations 11 (51) (2)
-------- -------- --------
NET CASH PROVIDED BY INVESTING
ACTIVITIES 574 504 733
<PAGE> 37 Exhibit 13
YEARS ENDED DECEMBER 31 1993 1992 1991
(Continued) -------- -------- --------
FINANCING ACTIVITIES
Net change in borrowings (maturities 90 days
or less) (830) 574 (1,087)
Debt having maturities more than 90 days:
New borrowings 681 1,461 487
Repayments (954) (2,009) (743)
Minority interest 72 - -
Payments from (to) ESOP - net 36 (36) -
Proceeds of stock options exercised 5 - -
Dividends paid (55) (54) (67)
-------- -------- --------
NET CASH USED BY FINANCING ACTIVITIES (1,045) (64) (1,410)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4 (147) 3
Cash and cash equivalents at
beginning of year 82 229 226
-------- -------- --------
Cash and cash equivalents at end
of year $ 86 $ 82 $ 229
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
[HARD COPY PG. 38]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Millions of dollars, except share data)
1. Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of McDonnell
Douglas Corporation and its subsidiaries (MDC) including McDonnell Douglas
Financial Services Corporation (MDFS), parent company of McDonnell Douglas
Finance Corporation (MDFC). In consolidation, all significant intercompany
balances and transactions are eliminated.
Accounting and Reporting Changes
Effective January 1, 1992, MDC adopted Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and SFAS No. 109, "Accounting for Income
Taxes" as described in Notes 15 and 10, respectively.
<PAGE> 38 Exhibit 13
Revenue Recognition
Revenues and earnings on cost-reimbursement and fixed price government
contracts are generally recognized on the percentage-of-completion method
of accounting as costs are incurred (cost-to-cost basis). Revenues include
costs incurred plus a portion of estimated fees or profits based on the
relationship of costs incurred to total estimated costs. Some contracts
contain incentive provisions which provide increased or decreased earnings
based upon performance in relation to established targets. Incentives
based upon cost performance are generally recorded currently and other
incentives are recorded when such amounts can reasonably be determined.
Revenues relating to contracts or contract changes that have not been
completely priced, negotiated, documented, or funded are not recognized
unless realization is considered probable.
Major contracts for complex military systems are performed over extended
periods of time and are subject to changes in scope of work and delivery
schedules. Pricing negotiations on changes and settlement of claims often
extend over prolonged periods of time. Any anticipated losses on contracts
(estimated final contract costs, excluding period costs, in excess of
estimated final contract revenues) are charged to current operations as
soon as they are evident. Estimates of final contract revenues on certain
fixed price development contracts include future revenue from expected
recovery on claims. Such revenues are generally included when it is
probable that the claim will result in additional contract revenue and when
the amount can be reliably estimated.
Revenues are recognized on commercial aircraft programs based on sales
prices as aircraft are delivered. Cost of sales of the MD-80 aircraft
program is determined on a specific-unit cost method. Cost of sales of the
MD-11 aircraft program is determined on a program-average cost method and
is computed as a percentage of the sales price of the aircraft. The
percentage is calculated as the total of estimated tooling and production
costs for the entire program divided by the estimated sales prices of all
aircraft in the program.
Revenues, costs and earnings on government contracts and commercial
aircraft programs are determined, in part, based on estimates. Adjustment
of such estimates are made on a cumulative basis whereby the effect of such
changes is recognized currently. Losses anticipated on government
contracts or commercial programs, excluding period costs, are charged to
operations in full when determined.
Revenues and costs from the manufacturing aspects of sales-type leases are
generally recognized at the inception of such leases. Revenues from the
financing aspects of sales-type and direct financing leases are recognized
as the excess of aggregate rentals over the cost of leased equipment
(reduced by estimated residual values) using the interest method. The
interest method results in a constant rate of return on the unrecovered
investment.
<PAGE> 39 Exhibit 13
Contracts in Process and Inventories
Government contracts in process are stated on the basis of incurred costs
plus estimated earnings, less amounts billed to customers when items are
completed and delivered. Incurred costs include production costs and
related overhead. Commercial products in process are stated on the basis
of production and tooling costs incurred, less the cost allocated to
delivered items, reduced to realizable market, where applicable. Material
and spare parts are stated at the lower of cost (principally moving
average) or market.
[HARD COPY PG. 39]
General and administrative expenses and research and development expenses
are considered period costs and, accordingly, are charged to operations on
a current basis.
The U.S. Government has title to, or a security interest in, certain
inventories by reason of progress payments.
Cash and Cash Equivalents
Cash equivalents consist of short-term highly liquid investments purchased
with a maturity of three months or less. Cash equivalents are stated at
cost which approximates market.
Finance Receivables and Property on Lease
Rental equipment subject to operating leases is stated at cost and is
generally depreciated using the straight line method, except for aircraft
which are depreciated using the declining balance method.
Property, Plant and Equipment
Property, plant and equipment is carried at cost and depreciated over the
useful lives of the various classes of properties, using primarily
accelerated methods.
Intangible Assets
Intangible assets consist principally of computer software, deferred debt
expense and deferred leasing costs. Intangibles are being amortized over
three to ten years.
Income Taxes
United States and foreign income taxes are computed at current tax rates,
less tax credits, and adjusted both for items that do not have tax
consequences and for the cumulative effect of any changes in tax rates from
those previously used to determine deferred tax assets or liabilities. Tax
provisions include amounts that are currently payable, plus changes in
deferred tax assets and liabilities that arise because of temporary
differences between the time when items of income and expense are
recognized for financial reporting and income tax purposes.
<PAGE> 40 Exhibit 13
The undistributed earnings of foreign subsidiaries are considered to be
permanently invested for continuing operations; accordingly, no provisions
are made for taxes which would become payable upon the distribution of such
earnings as a dividend to MDC. MDC files a consolidated return for federal
and certain state income taxes, and dividends from domestic subsidiaries
included therein are not subject to income tax.
Minority Interest
Minority interest represents the limited partner's equity interest in a
real estate venture. MDC is the general partner and contributed land,
buildings and improvements to the partnership. At December 31, 1993, MDC's
participation in the partnership was approximately 53%.
Foreign Currency Translation
Assets and liabilities for MDC's foreign subsidiaries whose functional
currencies are other than the U.S. dollar are translated to U.S. dollars at
current exchange rates, with the resulting translation adjustments carried
as a separate component of shareholders' equity.
Research and Development
Research and development costs include the costs of independent research
and development, bid and proposal efforts, and costs incurred in excess of
amounts estimated to be recoverable under cost-sharing research and
development agreements, and all such costs are expensed as incurred.
Research and development expense has been reduced by $27 million in 1993,
$6 million in 1992 and $20 million in 1991 for risk-sharing funds received
from vendors and subcontractors participating in the development of
commercial aircraft. Some amounts may be repayable under certain
circumstances.
Environmental
Liabilities are recorded when environmental assessments and/or remedial
efforts are probable, and the costs can be reasonably estimated.
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current
or future revenue generation, are expensed.
Earnings per Share
Earnings per share computations are based upon the weighted average of
common shares outstanding during the year. Common stock equivalents
(options) are not material.
Reclassification
In 1993, MDC reclassified certain income and expense related to an
executive life insurance program to general and administrative expenses.
These items were previously reflected as revenues or interest expense.
Prior years have been restated to conform with the 1993 presentation.
<PAGE> 41 Exhibit 13
[HARD COPY PG. 40]
2. Discontinued Operations
Over the past several years, MDC divested its information systems business.
In 1991, MDC sold substantially all of the assets of McDonnell Douglas
Systems Integration Company and certain related assets of McDonnell Douglas
Information Systems International (MDISI) to Electronic Data Systems
Corporation. The terms of this sale included a provision for additional
contingent cash consideration which was not included in the gain on
disposal. In July 1992, MDC sold all the outstanding stock of TeleCheck
Services, Inc., and in March 1993, effective January 1, 1993, MDC sold its
remaining MDISI business. Operating results of these businesses were
classified as discontinued operations. Gains on disposal of the
discontinued businesses were $37 million in 1993 and 1992, and $74 million
in 1991, net of income taxes of $25 million, $23 million and $33 million,
respectively.
Operating results of the discontinued operations were as follows:
Years Ended December 31 1992 1991
------ ------
Revenues $ 316 $ 646
====== ======
Earnings before income taxes $ 15 $ 5
Income taxes (benefit) (5) 13
------ ------
Net earnings (loss) from discontinued
operations $ 20 $ (8)
====== ======
Net assets of the discontinued operations of $92 million were classified as
Other Assets in the 1992 consolidated balance sheet.
3. Accounts Receivable
Accounts receivable consist of the following at December 31:
1993 1992
------ ------
U.S. Government - primarily from
long-term contracts:
Billed $ 187 $ 236
Unbilled 273 273
------ ------
460 509
Commercial and other governments 95 95
------ ------
$ 555 $ 604
====== ======
Unbilled receivables at December 31, 1993 include unbillable amounts of
$136 million. Unbillable amounts include the estimated sales value of
items delivered or other work performed which lack contractual
documentation to permit billing. Approximately $64 million of the 1993
unbilled amount is expected to be collected after one year.
<PAGE> 42 Exhibit 13
In August 1990, MDC entered into a three-year agreement with a financial
institution to sell a participation interest in a designated pool of
government and commercial receivables, with limited recourse, in amounts up
to $300 million. A replacement agreement with another financial
institution for up to $300 million was completed during February 1994.
Under the agreements, participation interests in new receivables have been
and will continue to be sold as previously sold amounts are collected. The
participation interests are sold at a discount which is included in general
and administrative expenses in the consolidated statement of operations.
Under both agreements, MDC has and will continue to act as an agent for the
purchaser by performing record keeping and collection functions.
During the negotiation of the replacement agreement, MDC continued to sell,
and the original financial institution continued to purchase, participation
interests. At December 31, 1993 and 1992, accounts receivable are net of
$100 million and $151 million, respectively, representing receivable
interests sold.
[HARD COPY PG. 41]
4. Finance Receivables and Property on Lease
Finance and lease receivables and property on lease consist of the
following at December 31:
1993 1992
-------- --------
Sales-type and direct financing leases:
Minimum lease payments $ 1,744 $ 1,356
Residual values 313 226
Unearned income (793) (572)
-------- --------
1,264 1,010
Notes receivable 381 600
-------- --------
1,645 1,610
Allowances for doubtful receivables (36) (39)
-------- --------
1,609 1,571
Investment in operating leases, net of
accumulated depreciation of $182 in
1993, $175 in 1992 635 446
-------- --------
2,244 2,017
Property held for sale or lease 113 245
-------- --------
$ 2,357 $ 2,262
======== ========
<PAGE> 43 Exhibit 13
The aggregate amount of scheduled principal payments and installments to be
received on notes and lease receivables and minimum rentals to be received
under noncancelable operating leases consist of the following at
December 31, 1993:
Principal Payments Minimum
and Installments Rentals
------------------ -------
1994 $380 $116
1995 267 90
1996 217 66
1997 186 61
1998 191 51
After 1998 884 133
Concentration of Credit Risk
MDC provides a diversified range of financing and leasing arrangements
through its wholly owned subsidiary, MDFS, to customers and industries
throughout the United States, the United Kingdom and to a lesser extent,
other countries.
MDFS' financing and leasing portfolio consists of the following at
December 31:
1993 1992
-------------- --------------
Commercial aircraft financing:
MDC commercial jet transports
on lease $1,048 56.3% $ 769 42.7%
Other commercial aircraft on
lease 217 11.6% 247 13.7%
------ ------ ------ ------
1,265 67.9% 1,016 56.4%
Other commercial and industrial
financing:
Real estate 124 6.7% 147 8.2%
Transportation services 69 3.7% 98 5.4%
Transportation equipment 43 2.3% 39 2.2%
Motor freight transportation
and warehousing 39 2.1% 67 3.7%
Furniture and home furnishings 31 1.7% 43 2.4%
Other 292 15.6% 391 21.7%
------ ------ ------ ------
598 32.1% 785 43.6%
------ ------ ------ ------
Total Portfolio $1,863 100.0% $1,801 100.0%
====== ====== ====== ======
The single largest commercial aircraft financing customer accounted for
$276 million (14.8% of total portfolio) in 1993 and $136 million (7.5% of
total portfolio) in 1992. The five largest accounted for $726 million
(39.0%) and $460 million (25.5%) in 1993 and 1992, respectively.
There were no significant concentrations by customer in MDFS' other
commercial and industrial financing portfolio.
<PAGE> 44 Exhibit 13
MDC holds title to all leased equipment and generally has a perfected
security interest in the assets financed through note and loan
arrangements.
[HARD COPY PG. 42]
5. Contracts in Process and Inventories
Contracts in process and inventories consist of the following at December
31:
1993 1992
-------- --------
Government contracts in process $ 6,347 $ 6,535
Commercial products in process 4,005 5,598
Material and spare parts 873 1,091
Progress payments to subcontractors 1,362 1,421
Progress payments received (6,813) (7,415)
-------- --------
$ 5,774 $ 7,230
======== ========
Substantially all government contracts in process (less applicable progress
payments received) represent unbilled revenue and revenue which is
currently not billable.
The Navy on January 7, 1991, notified MDC and General Dynamics Corporation
(the Team) that it was terminating for default the Team's contract for
development and initial production of the A-12 aircraft. On June 7, 1991,
the Team filed a legal action to contest the Navy's default termination,
assert its rights to convert the termination to one for "the convenience of
the Government," and obtain payment for work done and costs incurred on the
A-12 contract, but not paid to date. The Navy has agreed to continue to
defer repayment of $1.335 billion alleged to be due with interest from
January 7, 1991, from the Team as a result of the termination for default
of the A-12 program. The agreement provides that it will remain in force
until the dispute as to the type of termination is resolved by the pending
litigation in the United States Court of Federal Claims or negotiated
settlement, subject to review by the U.S. Government annually on
December 1, to determine if there has been a substantial change in the
financial condition of either Team member such that deferment is no longer
in the best interest of the Government. The Government, which extended the
December 1, 1993 review beyond the time to which MDC and GD agreed, has not
advised the contractors of the results of that review. On February 15,
1994, however, the U.S. Court of Federal Claims entered an Order, deferring
rulings on the merits of the legal action to July 21, 1994, to enable the
parties to pursue settlement negotiations among other things, conditioned
on an undertaking made by the Government that it would not seek to
terminate the deferment agreement in the interim. MDC firmly believes it
is entitled to continuation of the deferment agreement in accordance with
its terms.
At December 31, 1993, Contracts in Process and Inventories include
approximately $508 million of recorded costs on the A-12 contract, against
which MDC has established a loss provision of $350 million. The amount of
the provision, which was established in 1990, is based on MDC's belief that
<PAGE> 45 Exhibit 13
the termination for default will be converted to a termination for
convenience, that the Team will recover a minimum of $250 million in
claims, that there is a range of reasonably possible results on termination
for convenience and that it is prudent to provide for what MDC believes is
the upper range of possible loss on termination for convenience, namely
$350 million. In MDC's opinion, this loss provision continues to provide
adequately for the reasonably possible reduction in value of A-12 net
contracts in process and nonreimbursed supplier termination payments as of
December 31, 1993, as a result of termination of the contract for the
convenience of the Government. MDC has been provided with an opinion of
outside counsel that the Government's termination of the contract for
default is contrary to law and fact, that the default is excusable, that
the rights and obligations of MDC are the same as if the termination had
been issued for the convenience of the Government and that, subject to
prevailing that the termination is properly one for the convenience of the
Government, the probable recovery on the claims is not less than
$250 million.
If, contrary to MDC's belief, the termination is not deemed to be for the
convenience of the Government, it is estimated that an additional loss
would be incurred which could amount to approximately $1.2 billion.
In 1984, MDC entered into a full scale development letter contract,
containing a not-to-exceed price, for the conversion of the land-based
British Hawk aircraft with minimal change into a carrier-capable Navy
aircraft, designated the T-45A, and to provide training systems. The final
negotiated firm fixed price contract was agreed to in 1986. As a result of
flight testing in late 1988, the Navy indicated that changes to the T-45
aircraft were necessary to meet its operational desires. MDC advised the
Navy that incorporation of the requested improvements into the aircraft
configuration would entitle it to additional compensation. MDC proceeded
with the improvements, and their cost has increased the cost at completion
for the development and low rate initial production contracts to a point
where it exceeds the fixed price of such contracts. At December 31, 1993,
Contracts in Process and Inventories include costs for the related
contracts of $192 million. Realization of this amount is dependent in part on
[HARD COPY PG. 43]
(i) costs to complete these contracts not exceeding present estimates and (ii)
realization of expected amounts of recovery on claims filed with respect to
these contracts. MDC believes it is entitled to an equitable adjustment in
contract price and schedule and other appropriate relief for such
improvements and submitted claims to the Navy during 1990 for such relief.
During 1993 the Navy denied these claims. MDC has appealed the Navy's
decision to the Armed Services Board of Contract Appeals. The estimated
revenue of the contracts at completion includes $225 million from expected
recovery on such claims filed with the Navy. MDC's belief as to expected
claims recovery is supported by an opinion of outside counsel provided to
MDC that there are reasonable factual and legal bases for the current
claims against the Navy and that, based on MDC's labor and cost accounting
records and computations, it is probable that MDC will recover in excess of
$225 million on the claims. Additionally, if MDC were not to recover a
portion of the claims amount related to work for which a subcontractor is
responsible, MDC, supported by the opinion of outside counsel, believes the
<PAGE> 46 Exhibit 13
subcontractor would be legally liable for such costs. If revenue from such
claims is not realized, a loss provision of approximately $148 million
would be required on the related development and low rate initial
production contracts.
Resolution of claims on the A-12 and T-45 contracts will involve
negotiation with the Government or litigation, and the ultimate realization
and receipt of future revenue may vary from current estimates.
In May 1993, a Defense Acquisition Board (DAB) initiated by the Under
Secretary of Defense for Acquisitions began a review of the C-17 program in
an effort to resolve outstanding issues and to make recommendations
regarding the C-17's future. In connection with the review, MDC provided
data and participated in numerous discussions. The Department of Defense
(DoD), in conjunction with the DAB, submitted a proposal to MDC in December
1993 for a business settlement of a variety of issues concerning the C-17
program. In January 1994, MDC and the DoD agreed to such a settlement.
MDC and the Air Force will be developing plans and contractual
modifications and agreements to implement the business settlement, which is
subject to congressional authorization and appropriations. Completion of
this process is expected during 1994.
The settlement covered many issues open as of the date of the settlement,
including the allocation of sustaining engineering costs to the development
and production contracts, the sharing of flight test costs over a previous
level, and the resolution of claims and of performance/specification
issues. Terms of the settlement also stipulated that MDC will expend funds
in an effort to achieve product and systems improvements.
MDC estimated the financial impact of the settlement in conjunction with a
review of the estimated remaining cost on the C-17 development and initial
production contracts. As a result, MDC recorded a loss provision of $450
million, excluding general and administrative and other period expenses, in
the fourth quarter of 1993. The $450 million loss provision reflects some
increases in the estimated costs to complete the C-17 development and
initial production contracts, which was in part interrelated to the
settlement.
At December 31, 1993, Contracts in Process and Inventories include incurred
costs totaling $702 million for the fixed price type contracts for
development and first ten initial production C-17 military transport
aircraft for the Air Force. The estimated value of these contracts at
completion includes $208 million of claim revenues expected to be collected
as part of the settlement. MDC's loss provision of $450 million is an
offset to the December 31, 1993 balance, resulting in a $252 million net
balance associated with these contracts.
During 1991, MDC combined the C-17 contracts for the development and
first ten initial production aircraft for financial accounting purposes.
The estimated costs at completion of the combined C-17 contracts, excluding
general and administrative costs and other period costs, exceed the
estimated revenue of the combined contracts. For the year ended
December 31, 1992, MDC recorded loss provisions totaling $383 million,
which
<PAGE> 47 Exhibit 13
represent the amount by which estimated costs on the combined contracts,
excluding general and administrative costs and other period costs, exceeded
estimated revenues from the remaining work on the contracts.
[HARD COPY PG. 44]
Since 1990, the Air Force has reduced the progress payments to MDC under
the C-17 contracts because the DoD has projected the development and
initial production costs at completion to be substantially in excess of the
ceiling price of the then authorized work and in excess of MDC's estimate
at completion. In addition, during 1992 the Air Force questioned MDC's
segregation of certain C-17 engineering costs between full-scale
engineering development (FSED) and production lots. Pending resolution of
the segregation question, for progress payment purposes the Air Force has
reclassified to FSED a substantial portion of sustaining engineering costs
applied by MDC to production lots. As of December 31, 1993, the Air Force
had withheld approximately $312 million from MDC's progress payment
requests on the C-17 contracts principally as a result of higher cost
estimates and the sustaining engineering reclassification.
MD-11 production and tooling costs are charged to cost of sales based upon
the estimated average unit cost for the program. The estimated average
unit costs are based upon cost estimates of a 301 aircraft program. The
costs incurred in excess of the estimated average unit cost are deferred to
be recovered by production and sale of lower-than-average cost units.
Commercial products in process for the MD-11 program at December 31, 1993,
includes net deferred production costs of $1.324 billion and unamortized
tooling of $257 million. These amounts are being averaged over the 301
aircraft pool. Under the current costing percentage, an estimated $1.1
billion of current and future deferred costs will be recovered from firm
orders received after December 31, 1993.
As of December 31, 1993, MDC had delivered 112 MD-11 aircraft, including
one aircraft leased by MDC, and has 60 aircraft on firm order. In
addition, MDC had 101 options and reserves representing potential future
orders for the MD-11. Estimated proceeds from the undelivered aircraft in
the pool exceed the production and tooling costs in inventory at
December 31, 1993, plus the estimated additional production and tooling
costs to be incurred. However, if fewer than 301 MD-11 aircraft are sold,
if the proceeds from future sales of MD-11 aircraft are less than currently
estimated, or if the costs to complete the program exceed current
estimates, substantial amounts of unrecoverable costs may be charged to
expense in subsequent fiscal periods. MDC believes that the slowdown in
MD-11 orders is temporary and that it will sell in excess of 301 MD-11
aircraft over the life of the program.
<PAGE> 48 Exhibit 13
6. Property, Plant and Equipment
The major categories of properties consist of the following at December 31:
1993 1992
-------- --------
Land $ 116 $ 117
Buildings and fixtures 1,809 1,819
Machinery and equipment 2,428 2,518
-------- --------
4,353 4,454
Accumulated depreciation (2,603) (2,463)
-------- --------
$ 1,750 $ 1,991
======== ========
7. Outsourcing of Information Technology Operations
In December 1992, MDC signed an agreement with Integrated Systems Solutions
Corporation (ISSC), a wholly owned subsidiary of IBM Corporation, for the
outsourcing of its information technology operations and the related sale
of its data center processing, network, and dedicated end user service
assets. Net proceeds from the sale of assets at book value were $173
million. Approximately 1,400 personnel became employees of ISSC as a
result of the agreement. ISSC provided data processing services to MDC
under the agreement during 1993. Service payments are expected to
aggregate approximately $3 billion over the term of the 10 year agreement.
The contract is cancelable after two years with substantial buy out/
termination provisions in the early years.
8. Other Assets
Other assets consist of the following at December 31:
1993 1992
-------- --------
Prepaid pension asset $ 1,161 $ 1,126
Prepaid expenses 52 76
Intangible assets 53 49
Net assets of discontinued operations - 92
Other 238 269
-------- --------
$ 1,504 $ 1,612
======== ========
<PAGE> 49 Exhibit 13
9. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following at
December 31:
1993 1992
-------- --------
Accounts and drafts payable $ 796 $ 1,466
Accrued expenses 1,105 1,243
Employee compensation 289 309
-------- --------
$ 2,190 $ 3,018
======== ========
[HARD COPY PG. 45]
10. Income Taxes
MDC adopted SFAS No. 109, "Accounting for Income Taxes," as of January 1,
1992. This statement supersedes SFAS No. 96, which MDC previously adopted
as of January 1, 1989. The impact of the adoption of SFAS No. 109 was not
material.
Income taxes consist of the following:
December 31 1993 1992
------ ------
Current $ 208 $(157)
Deferred 366 729
------ ------
$ 574 $ 572
====== ======
Tax effects of temporary differences that gave rise to the deferred tax
liability consist of the following:
December 31 1993 1992
------ ------
Deferred tax assets:
Retiree medical $ (513) $ (486)
Bad debts (75) (74)
Other (219) (167)
------- -------
(807) (727)
Deferred tax liabilities:
Pension plan 441 380
Leased assets 278 294
Long-term contracts 290 574
Other 164 208
------- -------
1,173 1,456
------- -------
Net deferred tax liability $ 366 $ 729
======= =======
<PAGE> 50 Exhibit 13
The income tax provision consists of the following:
Years Ended December 31 1993 1992 1991
------ ------ ------
U.S. federal:
Current $ 120 $(117) $ 211
Deferred (50) 434 (7)
------ ------ ------
70 317 204
State:
Current 26 - 41
Deferred 1 63 3
------ ------ ------
27 63 44
Foreign 3 8 10
------ ------ ------
Income tax provision $ 100 $ 388 $ 258
====== ====== ======
The 1993 income tax provision includes $13 million relating to the
increased tax rates applicable to previously deferred taxes as a result of
various 1993 federal and state tax legislation.
Reconciliation of the pro forma income tax provision, computed by applying
the U.S. federal statutory rate of 35% in 1993 and 34% in 1992 and 1991, to
the recorded income tax provision follows:
Years Ended December 31 1993 1992 1991
------ ------ ------
Pro forma income tax provision
computed at the statutory U.S.
federal income tax rate $ 161 $ 369 $ 209
State income tax provision
net of effect on pro forma
U.S. federal tax 18 41 29
Increase (decrease) in taxes
resulting from:
Export tax-exempt income (7) (15) (15)
Federal tax rate change 13 - -
IRS federal settlement (75) - 35
Executive life insurance (11) (6) (2)
Other - net 1 (1) 2
------ ------ ------
Income tax provision $ 100 $ 388 $ 258
====== ====== ======
Pre-tax earnings from foreign subsidiaries included in continuing
operations, but excluding the operations of McDonnell Douglas Foreign Sales
Corporation, were $3 million in 1993, $13 million in 1992 and $25 million
in 1991. Provisions for foreign income taxes are computed using applicable
foreign rates. Undistributed earnings of foreign subsidiaries are
considered to be permanently invested. Accordingly, no provision has been
made for U.S. federal income taxes on $122 million of undistributed
earnings of foreign subsidiaries.
<PAGE> 51 Exhibit 13
In November 1991, MDC settled tax years 1977-1985 with the Internal Revenue
Service (IRS). The settlement resulted in net earnings of $32 million in
1991 and a substantial future obligation payable upon completion of the
1986-1989 IRS audit. During 1993, this obligation was reduced by the
resolution with the IRS of certain accounting method and tax credit issues.
The resolution of these issues for the 1986-1989 tax period resulted in net
earnings of $158 million in 1993. Excluding the after-tax benefit of the
related reduction in accrued interest, the resolution of such issues
resulted in a $75 million federal tax benefit. Payment of the tax and
interest for the 1986-1989 tax period obligation approximates $300 million
and is expected to be made in mid-1994. Taxes and interest related to this
payment have been provided.
<PAGE> 52 Exhibit 13
[HARD COPY PG. 46]
11. Debt and Credit Arrangements
Consolidated debt consists of the following classifications at December 31:
Interest Rate
Averages or
Ranges 1993 1992
------------ -------- --------
Short-Term Debt
Aerospace segments:
Revolving credit agreements $ - $ 689
Other notes 4.99% 91 434
-------- --------
91 1,123
Financial services and other
segment:
Revolving credit agreements 4.82% 53 108
Other notes 4.75% 150 16
-------- --------
203 124
-------- --------
Total short-term debt 294 1,247
Long-Term Debt
Aerospace segments:
Senior debt securities,
due through 2012 7.9%-9.8% 1,295 1,494
Senior medium-term notes,
due through 1996 5.3%-7.4% 132 37
Other debt, due through 2003 7.3%-11.5% 107 113
-------- --------
1,534 1,644
Financial services and other
segment:
Senior debt securities,
due through 2008 3.9%-13.0% 421 365
Senior medium-term notes,
due through 2005 5.6%-14.2% 737 817
Subordinated notes,
due through 1999 8.9%-12.4% 78 93
Other notes, due through 2017 4.0%-12.9% 74 75
----- -----
1,310 1,350
-------- --------
Total long-term debt 2,844 2,994
-------- --------
Total Debt $ 3,138 $ 4,241
======== ========
<PAGE> 53 Exhibit 13
The aggregate amount of long-term debt at December 31, 1993 maturing by
calendar year for 1994 to 1998 is as follows:
Aerospace Financial Services
Segments and Other Segment
--------- ------------------
1994 $ 192 $ 187
1995 51 269
1996 61 148
1997 255 133
1998 11 160
Aerospace Credit Agreements
At December 31, 1993, MDC has two revolving credit agreements under which
MDC may borrow up to $1.4 billion through April 1995, and a third revolving
credit agreement under which MDC may borrow up to $175 million to January
28, 1994. MDC did not renew this third revolving credit agreement. Under
the three credit agreements, the interest rate, at the option of MDC, is a
floating rate generally based on a defined prime rate, a fixed rate related
to either the London interbank offered rate (LIBOR) or a certificate of
deposit rate, or as quoted under a competitive bid or a negotiated rate. A
fee is charged on the amount of the commitments. The agreements contain
restrictive covenants relating to net worth (as defined), liquidity (as
defined), indebtedness, customer financing, fixed asset dispositions and
subsidiary indebtedness. There are no amounts outstanding under the credit
agreements at December 31, 1993.
In August 1992, MDC commenced an offering of up to $550 million of its
medium-term notes due from and exceeding nine months from the date of
issue. The interest rate applicable to each note and certain other
variable terms are established at the date of issue. As of December 31,
1993, MDC has issued $132 million of medium-term notes at rates ranging
from 5.3% to 7.4% due in 1994 through 1996. On July 1, 1993, MDC issued
$200 million of 8.25% senior debt securities due on July 1, 2000. As of
December 31, 1993, $218 million of securities registered under the shelf
registration remain unissued.
On December 22, 1993, MDC notified holders of its 7.875% notes due January
15, 1997 that the $150 million issue would be redeemed on January 21, 1994.
The notes were redeemed at 100% of their principal amount plus accrued
interest to the redemption date.
Financial Services Credit Agreements
At December 31, 1993, McDonnell Douglas Finance Corporation (MDFC) has a
revolving credit agreement under which it can borrow a maximum of $125
million through January 31, 1995. The maximum amount available to MDFC is
reduced quarterly by $25 million through January 1995. The interest rate,
at the option of MDFC, is either a floating rate generally based on a
defined prime rate, a fixed rate related to either LIBOR or a certificate
of deposit rate, or as quoted under a competitive bid. Borrowings of $53
million under the revolving credit agreement are outstanding at December
31, 1993.
<PAGE> 54 Exhibit 13
At December 31, 1993, MDFS and MDFC has a revolving credit agreement under
which MDFC may borrow a maximum of $45 million, reduced by MDFS borrowings
under this same agreement. Under this agreement, MDFS can borrow a maximum
[HARD COPY PG. 47]
of $6 million. The interest rate, at the option of MDFC, is either a
floating rate generally based on a defined prime rate or fixed rate related
to LIBOR. There are no outstanding borrowings under this agreement at
December 31, 1993. Commercial paper, when outstanding, is fully supported
by unused commitments under this agreement.
The provisions of various credit and debt agreements require MDFC to
maintain a minimum net worth, restrict indebtedness, and limit MDFC's cash
dividends and other distributions.
MDFC's senior debt at December 31, 1993 includes $249 million secured by
equipment having a carrying value of $288 million.
In June 1993, MDFC commenced an offering of up to $250 million of its
general term notes and in November 1993 an offering of up to $250 million
of its medium-term notes. The interest rate applicable to each note and
certain other variable terms are established at the date of issue. As of
December 31, 1993, MDFC has issued $81 million of general term notes at
rates ranging from 5.3% to 8.4% due in 1995 through 2008, and $90 million
of medium-term notes at rates ranging from 4.6% to 6.8% due in 1995 through
1998.
McDonnell Douglas Bank, Limited has entered into several interest rate swap
agreements which have effectively fixed interest rates on 11 million pounds
sterling ($17 million) of LIBOR based notes. The fixed rates payable under
these agreements range from 11.5% to 13.3% with terms expiring at various
dates through the year 1995. The interest rate differential to be received
or paid is recognized over the lives of the agreements as an adjustment to
interest expense.
McDonnell Douglas Realty Company's (MDRC) debt of $180 million at
December 31, 1993 is secured by indentures of mortgage and deeds of trust
on MDRC's interest in real estate developments having a carrying value of
$233 million.
12. Fair Values of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable
to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements.
The following methods and assumptions were used in estimating the fair
value disclosures of financial instruments:
<PAGE> 55 Exhibit 13
Cash and cash equivalents: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair
value.
Notes receivable: Fair values for variable rate notes that reprice
frequently and with no significant change in credit risk are based on
carrying values. The fair values of fixed rate notes are estimated
using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar
credit quality.
Short and long-term debt: The carrying amounts of borrowings under
the short-term revolving credit agreements approximate their fair
value. The fair values of long-term debt, which excludes capital lease
obligations, are estimated using public quotations or discounted cash
flow analyses, based on current incremental borrowing rates for similar
types of borrowing arrangements.
Foreign currency exchange contracts: The fair values of foreign
currency exchange forward contracts are estimated based on quoted
market prices of comparable contracts. At December 31, 1993 and 1992,
MDC had approximately $77 million and $94 million, respectively, of
foreign currency exchange forward contracts. The fair values of these
off-balance sheet financial instruments represent the amount at which
the contracts could be settled.
The carrying amounts and fair values of financial instruments are as
follows:
Financial Services
Aerospace Segments and Other Segment
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
December 31, 1993
-----------------
Cash and cash
equivalents $ 15 $ 15 $ 71 $ 71
Notes receivable 80 79 301 301
Short-term notes
payable 91 91 203 203
Long-term debt 1,534 1,685 1,221 1,334
Foreign currency
exchange contracts - (2) - -
December 31, 1992
-----------------
Cash and cash
equivalents $ 65 $ 65 $ 17 $ 17
Notes receivable 143 135 457 458
Short-term notes
payable 1,123 1,123 124 124
Long-term debt 1,644 1,598 1,254 1,310
Foreign currency
exchange contracts - (6) - -
<PAGE> 56 Exhibit 13
[HARD COPY PG. 48]
13. Common and Preferred Shares
The authorized common stock of MDC is 100 million shares, each of $1.00 par
value. The following table summarizes changes in shares outstanding for
the periods presented.
Common Shares
Outstanding
-------------
Balance January 1, 1992 38,391,313
Employee stock awards and options 29,120
Shares issued to employee savings plans 766,455
Other 3,331
------------
Balance December 31, 1992 39,190,219
Employee stock awards and options 118,681
Shares issued to employee savings plans 15,008
Other 3,662
------------
Balance December 31, 1993 39,327,570
============
At December 31, 1993, a total of 2,529,122 shares of authorized and
unissued common stock are reserved for issuance of stock awards and options
granted or authorized to be granted. Also 3,975,607 shares are reserved
for contributions to MDC's savings plans. At December 31, 1993, there are
10 million shares, $1.00 par value, preferred stock authorized for
issuance; however, none have been issued.
During 1990, the Board of Directors declared a dividend distribution of one
preferred stock purchase right (Right) for each outstanding share of common
stock. Among other provisions, each Right may be exercised to purchase
from MDC one one-hundredth of a share of a new series of preferred stock,
at an exercise price of $200 (Purchase Price), subject to adjustment. The
Rights are exercisable only after (i) a person or group has acquired or
obtained the right to acquire 20% or more of MDC's Common Stock or
(ii) following the commencement of a tender offer or exchange offer, for
20% or more of the voting power of MDC. The Rights expire on
August 2, 2000, and may be redeemed by MDC at a price of 1 cent per Right
at any time until ten business days after the acquisition of 20% of MDC's
Common Stock. The Board of Directors of MDC retains a broad ability to
amend or supplement the Rights.
If any person or group acquires 20% of MDC's Common Stock, each holder of a
Right will have the right to receive upon exercise the number of shares of
common stock having a market value of two times the exercise price of the
Right. If MDC is acquired, each Right may be exercised to purchase the
number of shares of common stock of the surviving or purchasing company
which at the time of such transaction would have a market value of two
times the Purchase Price.
<PAGE> 57 Exhibit 13
14. Stock Option and Incentive Plans
Awards may be granted under the Incentive Award Plan (Plan) approved by
shareholders in 1986 in the form of cash, stock, non-qualified stock
options, incentive stock options or stock appreciation rights. Under the
Plan, options (including stock appreciation rights) are limited to a
maximum of 2,500,000 shares through January 1, 1996. Options may be
granted to officers and employees at an exercise price of either the market
price on the date of grant or the average market price for a specified
period of time.
Options to purchase MDC Common Stock have been granted under MDC's Plan and
other incentive compensation and option plans. A summary of options for
MDC Common Stock follows:
Years Ended December 31 1993 1992
-------- --------
Granted under the Plan:
Number of shares 18,923 40,380
Price per share $56 $62
Exercised:
Number of shares 101,553 7,402
Price per share $38-$62 $38-$62
December 31 1993 1992
-------- --------
Outstanding:
Number of shares 107,296 230,555
Price per share $38-$90 $38-$90
Exercisable:
Number of shares 88,964 192,256
Price per share $38-$90 $38-$90
At December 31, 1993, a total of 30,657 stock appreciation rights are
outstanding and exercisable at prices ranging from $41 to $90 per right.
MDC has a Long-Term Incentive Plan (LTIP) approved by shareholders in 1986.
Participants in LTIP are selected by a committee of the Board of Directors
and awards earned are payable in either cash or stock. Earned awards are
achieved when MDC Common Stock yields a return superior to a peer group of
companies during a defined period which may range from 2 to 5 years. At
December 31, 1993 MDC has accrued $16 million for LTIP.
[HARD COPY PG. 49]
15. Retirement Plans
Substantially all employees of MDC and its subsidiaries are members of
defined benefit pension plans, including several multi-employer and foreign
plans. In addition, MDC has a supplementary unfunded pension plan to
provide those benefits otherwise due employees under the defined benefit
pension plans' benefit formulas, but which are in excess of benefits
permitted by the Internal Revenue Code to be covered under the defined
benefit pension plans. Benefits for salaried plans are based primarily
upon salary and years of service while benefits for hourly plans are
generally based upon a fixed dollar amount per year of service.
<PAGE> 58 Exhibit 13
MDC measures pension cost and makes contributions to its pension plans
based upon independent actuarial valuations. The projected unit credit
actuarial cost method is used to determine pension cost for financial
accounting purposes consistent with the provisions of SFAS No. 87,
"Employers' Accounting for Pensions." Funding levels and pension cost
allocable to government contracts are determined by the entry age normal
actuarial cost method and are not affected by SFAS No. 87.
The assets of the plans consist principally of marketable fixed income and
equity securities. At December 31, 1993, the plans hold $30 million of
MDC's medium-term notes and $36 million of MDC's senior debt securities
with varying interest rates and maturity dates, and 35,000 shares of MDC
Common Stock.
Assumptions used in determining net periodic pension expense (income) and
the actuarial present value of benefit obligations for the significant
domestic plans were:
Years Ended December 31 1993 1992 1991
-------- -------- --------
Discount rate:
January 1 9.0% 9.0% 9.0%
December 31 7.5% 9.0% 9.0%
Average rates of increase in
compensation based upon age -
salaried plans
January 1 6.0% 6.7% 6.9%
December 31 5.0% 6.7% 6.9%
Expected return on plan assets 9.3% 9.3% 8.3%
Components of periodic pension expense (income) for the significant
domestic plans include the following:
Years Ended December 31 1993 1992 1991
------ ------ ------
Service cost for the year $ 100 $ 126 $ 130
Interest cost on pension
benefit obligations 266 246 235
Return on plan assets:
Actual (426) (512) (624)
Deferred gain (loss) (13) 93 283
Net amortization (65) (59) (58)
------- ------ ------
Domestic plans $(138) $(106) $ (34)
====== ====== ======
Foreign and other plans $ 7 $ 7 $ 8
====== ====== ======
<PAGE> 59 Exhibit 13
An analysis of the funded status of the significant domestic pension plans
follows:
December 31 1993 1992
-------- --------
Actuarial present value of accumulated
benefit obligations:
Vested $ 3,191 $ 2,687
Non-vested 272 273
-------- --------
Accumulated benefit obligation 3,463 2,960
Additional amounts related to projected
future salary increases 343 368
-------- --------
Projected benefit obligation 3,806 3,328
Plan assets, at fair value 5,260 5,348
-------- --------
Excess of plan assets 1,454 2,020
Items not yet recognized in earnings:
Unrecognized net transition asset (563) (636)
Unrecognized prior service cost 446 524
Deferred net gain (186) (789)
-------- --------
1,151 1,119
Foreign plans 10 7
-------- --------
Prepaid pension asset $ 1,161 $ 1,126
======== ========
Effective January 1, 1993, MDC amended its significant domestic pension
plans to provide a supplemental pension benefit to non-union retirees
electing to participate in the new health care plan funded entirely by
participant contributions. The effect of this amendment was to increase
unrecognized prior service cost as of December 31, 1992 by $385 million.
MDC recorded this liability in connection with the adoption of and
subsequent accounting for SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," during 1992.
MDC has no intention of terminating any of its pension plans. However, if
a qualified defined benefit pension plan is terminated and all accrued
liabilities to employees and their beneficiaries are satisfied, all
remaining assets in the plan's trust revert to the employer (except in
certain limited circumstances where a change in control has occurred within
the five-year period preceding the termination), with the following
consequences: first, a non-deductible 20% to 50% excise tax upon the gross
amount of the reversion is imposed; second, the Department of Defense and
other Government contracting agencies have issued a regulation which
indicates that the Government is entitled to its equitable share, to the
extent that the Government participated in pension costs through their
contracts with MDC; third, any amount that the employer then retains is
treated as taxable income.
<PAGE> 60 Exhibit 13
[HARD COPY PG. 50]
In addition to the defined benefit pension plans, MDC provides eligible
employees the opportunity to participate in savings plans that permit both
pre-tax and after-tax contributions. Most domestic employees with at least
30 days of continuous service are eligible to participate in a plan. Under
these plans, the employee may contribute to various savings alternatives,
including investment in MDC's Common Stock. In most cases, MDC matches a
portion of the employee's contribution with contributions to the MDC Common
Stock fund. Generally, MDC's contributions are vested after five years of
service. MDC's contributions to the savings plans during 1993 totaled $59
million of which $1 million was the market value of 15,008 shares of MDC
Common Stock contributed, and during 1992 totaled $94 million of which
$39 million was the market value of 766,455 shares of MDC Common Stock
contributed. Contributions for the year ended December 31, 1991 amounted
to $61 million.
In August 1992, MDC converted the company matching portion of its existing
salaried employee savings plan to an employee stock ownership plan (ESOP).
The ESOP borrowed $50 million from MDC to fund the plan. The ESOP used the
proceeds to purchase 1,216,992 shares of MDC Common Stock. Unearned
compensation (equal to the outstanding balance of the ESOP loan) of
$36 million was reflected as a reduction of Shareholders' Equity at
December 31, 1992. No balance remained on the ESOP loan as of December 31,
1993.
MDC made contributions to the plan sufficient to enable the ESOP to repay
its loan, including interest. These contributions were classified as
expense when the related shares were allocated to employees' accounts.
Contributions to the ESOP of $36 million and $14 million were expensed
during 1993 and 1992, respectively.
In addition to the above plans, MDC and certain of its domestic
subsidiaries provide health care benefits for their retirees covered by
collective bargaining agreements. Generally, employees become eligible for
retiree health care upon retirement from active service at or after age 55
with 10 or more years of service. Qualifying dependents are also eligible
for medical coverage. MDC's policy is to fund the cost of medical benefits
as claims are received. The retiree health care plan has provisions for
participant contributions, deductibles, coinsurance percentages, out-of-
pocket limits, schedule of reasonable fees, coordination of benefits with
other plans, Medicare carve-out, and a maximum lifetime benefit per covered
individual.
MDC and certain of its domestic subsidiaries previously provided health
care coverage similar to the above for its non-union retirees. On
October 8, 1992, effective January 1, 1993, MDC terminated company-paid
retiree health care for both current and future non-union retirees and
their dependents and survivors and replaced it with a new arrangement
funded entirely by participant contributions. At the same time, MDC
amended its existing pension plans to provide a supplemental pension
benefit to current and future non-union retirees who elect to receive
health care during the period 1993 through 1996 under the new arrangement.
The supplemental benefit, net of withholding taxes, approximates the
expected average cost of benefits for the period 1993 through 1996.
<PAGE> 61 Exhibit 13
During 1993, MDC and the International Association of Machinists and
Aerospace Workers (IAMAW) in St. Louis, Huntington Beach, Long Beach and
Torrance, California agreed to a new three-year union contract. The new
contract includes a provision requiring employees retiring subsequent to
1993 to pay one-third of the cost of their retiree health care.
Prior to 1992, company-paid retiree health care benefits were included in
costs as covered expenses were actually incurred. Accordingly, MDC
recorded expenses of $122 million in 1991. In December 1990, the Financial
Accounting Standards Board issued SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS No. 106 requires
companies to accelerate the recognition of costs by causing their full
accrual over the employees' years of service up to their date of full
eligibility. MDC elected to implement this new accounting standard for
1992 by immediately recognizing the January 1, 1992 accumulated
postretirement benefit obligation of $2.477 billion ($1.536 billion after-
tax). The effect of adopting SFAS No. 106 increased net periodic
postretirement health care cost by $133 million and decreased net income by
$82 million, prior to the recording of a curtailment gain in the 1992
fourth quarter.
MDC recorded a curtailment gain of $1.090 billion in the 1992 fourth
quarter, reflecting the aforementioned termination of company-paid retiree
health care for both current and future non-union retirees. The gain
equaled the reduction in accrued retiree benefits, after providing as a
liability the $385 million representing the aforementioned supplemental
pension benefit. MDC recorded a curtailment gain of $70 million in the
second quarter of 1993, reflecting a similar arrangement negotiated with
the Southern California Professional Engineering Association for employees
retiring after July 1, 1993.
[HARD COPY PG. 51]
An analysis of the accrued retiree benefits at December 31 follows:
1993 1992
-------- --------
Accumulated postretirement benefit
obligation:
Retirees $ 790 $ 559
Active participants fully eligible
to retire 130 246
Other active participants 149 273
-------- --------
Accumulated postretirement benefit
obligation 1,069 1,078
Items not yet recognized in earnings:
Unrecognized prior service gain 205 37
Deferred net gain (loss) (175) 44
-------- --------
Accrued retiree health care liability 1,099 1,159
Liability for pension supplement 289 385
-------- --------
Accrued retiree benefits $ 1,388 $ 1,544
======== ========
<PAGE> 62 Exhibit 13
Components of periodic postretirement benefit expense, exclusive of the
curtailment gains, include the following:
Years Ended December 31 1993 1992
------ ------
Service cost for the year $ 13 $ 74
Interest cost on accumulated post-
retirement benefit obligations 80 189
Net amortization (11) -
------ ------
$ 82 $ 263
====== ======
Assumptions used in determining periodic postretirement benefit costs and
the actuarial present value of benefit obligations were as follows:
Years Ended December 31 1993 1992
-------- --------
Discount rate:
January 1 9.0% 9.0%
December 31 7.5% 9.0%
Health care cost trend rate*
Non-medicare 11.0% 15.0%
Medicare 9.0% 9.0%
HMO premiums 6.5% 9.0%
* Decreasing to 5.3% after 2002
Increasing the health care cost trend rates by one percentage point would
result in an 8% increase in the sum of the service and interest cost
components of periodic postretirement benefit cost and an 8% increase in
the accumulated postretirement benefit obligation at December 31, 1993.
16. Leased Properties
Rental expense for leased properties, substantially all of which is minimum
rentals, was $106 million in 1993, $155 million in 1992 and $193 million in
1991. Minimum rental payments under operating leases with initial or
remaining terms of one year or more at December 31, 1993, aggregated
$210 million, and payments due during the next several years are: 1994,
$80 million; 1995, $46 million; 1996, $35 million; 1997, $27 million and
1998, $12 million.
MDC has negotiated noncancelable sublease agreements on certain of its
facilities and equipment totaling $52 million during the next several
years.
17. Commitments and Contingencies
The marketing of commercial aircraft at times will result in agreements to
provide or guarantee long-term financing of some portion of the delivery
price of aircraft, to lease aircraft, or to guarantee customer lease
payments, tax benefit transfers or aircraft values. At December 31, 1993,
$251 million in guarantees are outstanding, and commitments of $116 million
are outstanding to lease aircraft, accept notes in payment for aircraft, or
<PAGE> 63 Exhibit 13
guarantee financing for customers for ordered but undelivered aircraft. In
addition, MDFS has commitments to provide leasing and other financing in
the aggregate amount of $34 million at December 31, 1993.
MDC is a party to a number of proceedings brought under the Comprehensive
Environmental Response, Compensation and Liability Act, commonly known as
Superfund, or similar state statutes. MDC has been identified as a
potentially responsible party (PRP) at 28 sites. Of these, MDC believes
that it has de minimis liability at 19 sites, including 9 sites at which it
believes that it has no future liability. At the 9 sites at which MDC's
liability is not considered to be de minimis, either final or interim cost
sharing agreements have been effected between the cooperating PRPs,
although such agreements do not fix the amount of cleanup costs which the
parties will bear. In addition, MDC is remediating, or has begun
environmental engineering studies to determine cleanup requirements, at
certain of its current operating sites or former sites of industrial
activity. At December 31, 1993, the accrued liability for environmental
cleanup matters at Superfund sites and on MDC's current and former
operating sites was $21 million.
[HARD COPY PG. 52]
A number of legal proceedings and claims are pending or have been asserted
against MDC including legal proceedings and claims relating to alleged
injuries to persons associated with the disposal of hazardous waste. A
substantial portion of such legal proceedings and claims is covered by
insurance. MDC believes that the final outcome of such proceedings and
claims will not have a material adverse effect on MDC's financial position.
See Note 5, Contracts in Process and Inventories, for a discussion of
certain risks on fixed price development contracts including the
termination on January 7, 1991, by the Navy of a contract with MDC and
General Dynamics Corporation for the development and initial production of
the A-12 aircraft.
18. Investment in Financial Services Subsidiary
The condensed financial data presented below have been summarized from the
audited consolidated financial statements of MDFS. Prior year amounts have
been reclassified to conform to the current year presentation.
<PAGE> 64 Exhibit 13
December 31 1993 1992
-------- --------
Assets
Cash and cash equivalents $ 65 $ 15
Accounts with MDC 59 43
Notes and leases receivable - net 1,467 1,431
Investment in operating leases 358 333
Other assets 154 194
-------- --------
Total $ 2,103 $ 2,016
======== ========
Liabilities and Equity
Accounts payable and accrued expenses $ 128 $ 121
Income taxes 303 299
Notes payable and long-term debt 1,456 1,393
Shareholder's equity 216 203
-------- --------
Total $ 2,103 $ 2,016
======== ========
Years Ended December 31 1993 1992 1991
------ ------ ------
Earned income $ 201 $ 256 $ 373
Costs and expenses 166 222 322
Cumulative effect of accounting
change - (2) -
Net earnings 13 23 33
Dividends and other distributions - 103 67
19. U.S. Government and Export Sales
Consolidated sales to U.S. Government agencies (including sales to foreign
governments through foreign military sales contracts with U.S. Government
agencies) amounted to $9.052 billion in 1993, $9.286 billion in 1992, and
$10.196 billion in 1991. No other single customer accounted for 10% or
more of consolidated revenues in 1993, 1992, or 1991.
Foreign sales by geographical area, of which a portion were through foreign
military sales contracts with the U.S. Government, are shown in the table
below:
Years Ended December 31 1993 1992 1991
------- ------- -------
North America $ 41 $ 43 $ 70
South America 306 348 14
Europe 1,000 2,195 3,428
Asia/Pacific 1,114 1,561 1,264
Mideast/Africa 944 836 1,082
------- ------- -------
$ 3,405 $ 4,983 $ 5,858
======= ======= =======
<PAGE> 65 Exhibit 13
20. Future Accounting and Reporting Requirements
SFAS No. 112, "Employers' Accounting for Postemployment Benefits" was
issued in December 1992. SFAS No. 112 is effective beginning in 1994 and
requires using an accrual approach for accounting for benefits other than
retiree health care to former or inactive employees. The impact of MDC's
adoption of this standard is not expected to be material.
21. Supplementary Payment Information
Years Ended December 31 1993 1992 1991
------- ------- -------
Interest paid $ 314 $ 446 $ 532
Income taxes paid 84 158 32
22. Business Segment Reporting
Selected Financial Data by Industry Segment is presented on page 33.
[HARD COPY PG. 53]
Report of Management Responsibilities
The financial statements of McDonnell Douglas Corporation and consolidated
subsidiaries have been prepared under the direction of management in
conformity with generally accepted accounting principles and, particularly
with respect to long-term contracts and programs, include amounts based
upon estimates and judgments. The integrity and reliability of data in
these financial statements is the responsibility of management. In the
opinion of management, the financial statements set forth a fair
presentation of the consolidated financial condition of MDC at December 31,
1993 and 1992, and the consolidated results of its operations for the years
ended December 31, 1993, 1992 and 1991.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the
circumvention or overriding of controls. Accordingly, even an effective
internal control system can provide only reasonable assurance with respect
to financial statement preparation. Furthermore, the effectiveness of an
internal control system can change with circumstances.
MDC and its consolidated subsidiaries maintain accounting systems and
related internal controls which, in the opinion of management, provide
reasonable assurances that transactions are executed in accordance with
management's authorization, that financial statements are prepared in
accordance with generally accepted accounting principles, and that assets
are properly accounted for and safeguarded.
Ethical decision making is a fundamental key in MDC's management
philosophy. Management recognizes its responsibility for fostering a
strong ethical climate. Written codes of ethics and standards of business
conduct are distributed to every employee, and each employee has been
trained or is being scheduled to be trained in ethical decision making.
The Board of Directors' Corporate Responsibility Committee has oversight
responsibilities relative to standards of business conduct.
<PAGE> 66 Exhibit 13
The Board of Directors has appointed four of its non-employee members as an
Audit Committee. This Committee meets periodically with management and the
internal and independent auditors. Both internal and independent auditors
have unrestricted access to the Audit Committee to discuss the results of
their examinations and the adequacy of internal controls. In addition, the
Audit Committee makes its recommendation as to the selection of independent
auditors to the Board.
/s/ J. F. McDonnell
Chairman and Chief Executive Officer
/s/ R. L. Brand
Vice President and Controller
January 18, 1994
Report of Ernst & Young, Independent Auditors
Shareholders and Board of Directors
McDonnell Douglas Corporation
We have audited the accompanying consolidated balance sheet of McDonnell
Douglas Corporation and subsidiaries (MDC) as of December 31, 1993 and
1992, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1993. These financial statements are the responsibility of
MDC's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of McDonnell
Douglas Corporation and subsidiaries at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles.
<PAGE> 67 Exhibit 13
As described in Note 5 to the consolidated financial statements, the fixed
price development contract for the A-12 advanced tactical aircraft program
was terminated for default by the United States Government on January 7,
1991. MDC believes it will be successful in converting the termination for
default into a termination for convenience; however, failure to do so could
have a material impact on the financial position of MDC in the future.
As discussed in Note 15 to the consolidated financial statements, in 1992
MDC changed its method of accounting for retiree health care benefits.
/s/ Ernst & Young
St. Louis, Missouri
January 18, 1994
<PAGE> 68 Exhibit 13
<TABLE> [HARD COPY PG. 54 & 55]
Ten Year Consolidated Financial Summary
- -----------------------------------------------------------------------------------------------
(Dollar amounts in millions, except per share data)
<CAPTION>
- -----------------------------------------------------------------------------------------------
December 31 or Years Then Ended 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Revenues by industry segment:
Military aircraft $ 6,852 $ 7,238 $ 7,795 $ 7,707 $ 7,484
Commercial aircraft 4,760 6,595 6,752 3,935 3,151
Missiles, space and
electronic systems 2,575 3,169 2,979 3,188 2,761
Financial services and other 287 352 519 658 534
--------------------------------------------------------
Operating revenues 14,474 17,354 18,045 15,488 13,930
Earnings (loss) from
continuing operations 359 698 (a) 357 258 (c) (30)
Per share 9.17 17.97 (a) 9.32 6.73 (c) (0.78)
Net earnings (loss) 396 (781)(b) 423 306 (c) 219(d)
Per share 10.10 (20.10)(b) 11.03 7.99 (c) 5.72(d)
As a % of revenues 2.7% 2.3% 2.0% 1.6%
As a % of beginning equity 13.1% 12.0% 9.3% 6.9%
Research and development 341 509 429 565 571
Interest expense:
Aerospace segments 89 309 232 343 335
Financial services and
other segment 126 159 221 233 198
Income taxes (benefit) 100 388 258 108 (92)
Cash dividends declared 55 55 53 108 108
Per share 1.40 1.40 1.40 2.82 2.82
- ---------------------------------------------------------------------------------------------
Balance Sheet Information
Receivables and property on lease $ 2,912 $ 2,866 $ 3,234 $ 4,144 $ 4,372
Contracts in process and
inventories 5,774 7,230 7,273 6,175 5,103
Property, plant and equipment 1,750 1,991 2,307 2,446 2,474
Total assets 12,026 13,781 14,601 14,692 13,160
Notes payable and long-term debt:
Aerospace segments 1,625 2,767 2,324 2,944 2,558
Financial services and
other segment 1,513 1,474 1,891 2,614 2,338
Shareholders' equity 3,413 3,022 3,877 3,514 3,287
Per share 86.80 77.10 100.99 91.72 85.88
Debt-to-equity ratios:
Aerospace segments .52 1.01 .66 .95 .87
Financial services and
other segment 5.22 5.42 5.25 6.55 6.82
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 69 Exhibit 13
<TABLE>
Ten Year Consolidated Financial Summary (cont.)
- -----------------------------------------------------------------------------------------------
(Dollar amounts in millions, except per share data)
<CAPTION>
- -----------------------------------------------------------------------------------------------
December 31 or Years Then Ended 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
General Information
Shares outstanding (in millions) 39.3 39.2 38.4 38.3 38.3
Shareholders of record 28,513 34,124 35,039 37,662 33,237
Personnel 70,016 87,377 109,123 121,190 127,926
Salaries and wages $ 3,464 $ 4,258 $ 4,905 $ 5,300 $ 4,969
Firm backlog $19,379 $24,052 $ 30,448 $ 36,544 $ 32,531
Total backlog $35,698 $41,806 $ 42,577 $ 52,770 $ 50,230
<FN>
(a) Includes a gain of $676 million ($17.40 per share) from a
postretirement benefit curtailment relating to SFAS No. 106.
(b) Includes a net charge of $860 million ($22.13 per share) related to
the initial adoption and subsequent curtailment gain associated with
SFAS No. 106.
(c) Includes $376 million earnings ($9.82 per share) from pension
settlement.
(d) Includes earnings from the cumulative effect of an accounting change
of $179 million ($4.68 per share).
</TABLE>
Total backlog includes firm backlog plus (i) U.S. and other government
orders not yet funded, (ii) U.S. and other government orders being
negotiated as continuations of authorized programs and (iii) unearned price
escalation on firm commercial aircraft orders. Backlog is that of the
aerospace segments only and includes all but a minor portion of the work to
be performed under long-term contracts. Customer options and products
produced for short-term lease are excluded from backlog.
In 1993, MDC reclassified certain income and expense related to an
executive life insurance program to general and administrative expenses.
These items were previously reflected as revenues and interest expense.
Prior years have been restated to conform with the 1993 presentation.
<PAGE> 70 Exhibit 13
[HARD COPY PG. 54-55 cont.]
<TABLE>
Ten Year Consolidated Financial Summary
- -----------------------------------------------------------------------------------------------
(Dollar amounts in millions, except per share data)
<CAPTION>
- -----------------------------------------------------------------------------------------------
December 31 or Years Then Ended 1988 1987 1986 1985 1984
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Revenues by industry segment:
Military aircraft $ 7,426 $ 7,144 $ 7,049 $ 6,930 $ 5,953
Commercial aircraft 3,499 2,728 2,493 1,903 1,558
Missiles, space and
electronic systems 2,390 2,176 2,040 1,681 1,420
Financial services and other 465 387 317 242 198
--------------------------------------------------------
Operating revenues 13,780 12,435 11,899 10,756 9,129
Earnings (loss) from
continuing operations 407 347 312 398 342
Per share 10.62 8.60 7.73 9.90 8.51
Net earnings (loss) 350 313 277 346 325
Per share 9.13 7.75 6.86 8.60 8.10
As a % of revenues 2.5% 2.5% 2.3% 3.2% 3.6%
As a % of beginning equity 11.8% 11.0% 10.5% 14.8% 15.7%
Research and development 520 567 449 376 326
Interest expense:
Aerospace segments 173 109 95 89 57
Financial services and
other segment 145 113 105 99 84
Income taxes (benefit) 184 164 242 257 157
Cash dividends declared 98 94 84 74 65
Per share 2.56 2.32 2.08 1.84 1.62
- ---------------------------------------------------------------------------------------------
Balance Sheet Information
Receivables and property on lease $ 3,745 $ 3,227 $ 2,999 $ 2,638 $ 2,295
Contracts in process and
inventories 4,207 3,673 3,154 2,925 2,470
Property, plant and equipment 2,242 2,002 1,700 1,350 1,114
Total assets 11,562 10,327 9,233 8,318 7,081
Notes payable and long-term debt:
Aerospace segments 1,840 1,596 927 936 689
Financial services and
other segment 1,770 1,464 1,096 899 785
Shareholders' equity 3,186 2,970 2,845 2,635 2,344
Per share 83.42 76.71 70.13 65.34 58.55
Debt-to-equity ratios:
Aerospace segments .64 .59 .35 .38 .32
Financial services and
other segment 5.92 5.25 4.72 5.08 4.82
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>71 Exhibit 13
<TABLE>
Ten Year Consolidated Financial Summary (cont.)
- -----------------------------------------------------------------------------------------------
(Dollar amounts in millions, except per share data)
<CAPTION>
- -----------------------------------------------------------------------------------------------
December 31 or Years Then Ended 1988 1987 1986 1985 1984
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
General Information
Shares outstanding (in millions) 38.2 38.7 40.6 40.3 40.0
Shareholders of record 34,310 35,354 37,525 38,959 40,534
Personnel 121,421 112,400 105,696 97,067 88,391
Salaries and wages $ 4,399 $ 3,913 $ 3,561 $ 3,057 $ 2,648
Firm backlog $26,351 $ 18,890 $ 16,512 $ 16,585 $ 14,968
Total backlog $40,492 $ 33,102 $ 28,419 $ 23,914 $ 22,460
</TABLE>
Supplemental Information
Quarterly Common Stock Prices and Dividends
The range of market prices for a share of MDC Common Stock
is shown below, by quarters for 1993 and 1992. Prices are as
reported in the consolidated transaction reporting system.
- ------------------------------------------------------------
1993 1992
- ------------------------------------------------------------
Quarter High Low High Low
1st $67-3/4 $47-7/8 $78 $57-3/4
2nd 74-3/4 54-1/2 62-5/8 36-3/8
3rd 90-7/8 67-3/8 44-1/8 34-1/2
4th 118-3/8 88-1/8 57-1/2 34-1/4
Cash dividends of $.35 a share were declared for each
quarter in 1993 and 1992.
The number of holders of MDC common stock at January 31, 1994
was 27,628.
<PAGE> 72 Exhibit 13
[HARD COPY PG. 55]
Annual Report on Form 10-K
Shareholders may obtain a copy of MDC's or MDFC's most recent Annual
Report on Form 10-K filed with the Securities and Exchange Commission by
writing Shareholder Services Department, Mailcode 1001240, McDonnell
Douglas Corporation, P.O. Box 516, St. Louis, MO 63166-0516.
Transfer Agent and Registrar
Correspondence and questions concerning shareholder accounts, payment
of dividends, or transfer of stock should be addressed to: First Chicago
Trust Company, Attn: Shareholder Relations Department, 30 W. Broadway, New
York, NY 10007.
Stock Exchanges
McDonnell Douglas Corporation's Common Stock is listed on the New York
Stock and Pacific Stock Exchanges (ticker symbol MD) and is traded on these
and other exchanges. It is commonly abbreviated in market reports as
"McDnD".
[HARD COPY PG. 56]
Supplemental Information (continued)
(Dollar amounts in millions, except per share data)
Quarterly Results of Operations
The tables below present unaudited quarterly financial information for
the years ended December 31, 1993 and 1992. Gross margin is net of
interest expense of the financial services and other segment.
The sum of the 1992 quarterly earnings per share does not equal the
1992 annual earnings per share due to the significant earnings impact in
the first and fourth quarters of 1992 relating to the adoption of SFAS No.
106 concurrent with increasing shares outstanding during the year.
<PAGE> 73 Exhibit 13
<TABLE>
<CAPTION>
1993
- ------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $3,617 $3,810 $3,428 $3,632
Gross margin 469 495 447 128
Earnings (loss) from
continuing operations 179 170 142 (132)
Net earnings(loss) 216 170 142 (132)
Earnings (loss) per share 5.51 4.33 3.62 (3.36)
1992
- ------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $4,058 $4,799 $3,888 $4,620
Gross margin 426 420 254 539
Earnings (loss) from
continuing operations 20 5 (83) 756 **
Net earnings (loss) (1,512)* 11 (42) 762 **
Earnings (loss) per share (39.29)* 0.29 (1.09) 19.46 **
<FN>
* Includes the cumulative effect of an accounting change of $1.536
billion or $39.91 per share.
** Includes postretirement benefit curtailment gain of $676 or $17.26 per
share.
</TABLE>
Quarterly revenues and gross margin for 1992 and the first three
quarters of 1993 have been restated for the reclassification of certain
income and expense related to an executive life insurance program to
general and administrative expenses. These items were previously
reflected as revenues or interest expense.
<PAGE> 74 Exhibit 13
<TABLE>
<CAPTION>
1993
--------------------------------------------------------------
Quarter 1st 2nd 3rd
--------------------------------------------------------------
<S> <C> <C> <C>
Revenues as previously reported $3,620 $3,817 $3,436
Reclassification (3) (7) (8)
------ -------- -------
Revenues as restated $3,617 $3,810 $3,428
===============================================================
Gross margin as previously
reported $472 $502 $455
Reclassification (3) (7) (8)
----- ----- -----
Gross margin as restated $469 $495 $447
================================================================
</TABLE>
<TABLE>
<CAPTION>
1992
--------------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues as previously reported $4,061 $4,803 $3,893 $4,627
Reclassification (3) (4) (5) (7)
------ ------ ------ ------
Revenues as restated $4,058 $4,799 $3,888 $4,620
=====================================================================
Gross margin as previously
reported $429 $424 $259 $546
Reclassification (3) (4) (5) (7)
----- ----- ----- -----
Gross margin as restated $426 $420 $254 $539
======================================================================
</TABLE>
<PAGE> 75 Exhibit 13
ANNUAL REPORT APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OF THE
COMPANY'S 1993 ANNUAL REPORT
Hard Copy Page 6
(Full-page photo: An MDC Field Representative discussing C-17 operations
with two U.S. Air Force representatives -- C-17 tail in the background.)
Hard Copy Page 7
(Top photo: Integrated Management Information and Control System Team
consisting of 16 MDC employees who were 1993 Spirit of Excellence Award
winners. Quote relating to photo: The philosophy behind IMICS is open
communication. "Everybody gets the same data at the same time -- no
exceptions!")
(Bottom photo: Artist concept of the F/A-18 E/F Hornet.)
Hard Copy Page 8
(Photo: Two F/A-18 Hornets.)
Hard Copy Page 9
(Photo: C-17 Globemaster III.)
Hard Copy Page 10
(Top photo: AH-64D Longbow Apache.)
(Bottom photo: AV-8B Harrier II Plus.)
(Chart: Two bar graphs depicting the five-year history of Military
Aircraft Segment Revenues and Operating Earnings.)
Hard Copy Page 11
(Top photo: F-15E Eagle.)
(Middle photo: T-45 Goshawk.)
(Bottom photo: MD 520N.)
Hard Copy Page 12
(Full-page photo: Three MD-80 employees in a discussion on the production
floor.)
<PAGE> 76 Exhibit 13
Hard Copy Page 13
(Top photo: MD-11 Fuel Team consisting of 9 MDC employees who were 1993
Spirit of Excellence Award winners. Quote relating to photo: "We
investigated anything that came up and we would trace problems to the root
cause.")
(Bottom photo: MD-11 trijet.)
Hard Copy Page 14
(Chart: Two bar graphs depicting the five-year history of Commercial
Aircraft Market Share of Boeing, Airbus, MDC and Other for Seats Delivered
and Firm Backlog.)
(Photo: Six MD-80's on Douglas Aircraft Company's flight ramp.)
Hard Copy Page 15
(Photo: MD-90.)
(Chart: Two bar graphs depicting the five-year history of Commercial
Aircraft Segment Revenues and Operating Earnings.)
Hard Copy Page 16
(Full-page photo: Three Delta Advanced Launch Control System engineers in
a discussion.)
Hard Copy Page 17
(Top photo: Delta Propulsion Engineering Team consisting of 7 MDC
employees who were 1993 Spirit of Excellence Award winners. Quote relating
to photo: "We go out of our way to make sure the customer is satisfied,
and that starts with a great deal of openness.")
(Bottom photo: Delta Clipper Experimental.)
Hard Copy Page 18
(Chart: Two bar graphs depicting the five-year history of Missiles, Space
& Electronics Systems Segment Revenues and Operating Earnings.)
(Photo: Harpoon missile.)
Hard Copy Page 19
(Photo: Tomahawk Cruise Missile.)
Hard Copy Page 20
(Chart: Two bar graphs depicting the five-year history of Financial
Services and Other Segment Revenues and Operating Earnings.)
<PAGE>
<PAGE> 1 Exhibit 21
MCDONNELL DOUGLAS CORPORATION
SUBSIDIARIES (1)
<TABLE>
<CAPTION>
State of
Company Incorporation Business Name
------- ------------- --------------
<S> <C> <C>
McDonnell Douglas Financial Delaware McDonnell Douglas Financial
Services Corporation (2) Services Corporation or MDFS
McDonnell Douglas Finance Delaware McDonnell Douglas Finance
Corporation (3) Corporation or MDFC
McDonnell Douglas Helicopter Delaware McDonnell Douglas Helicopter
Company Company (MDHC) or McDonnell
Douglas Helicopter Systems (MDHS)
<FN>
(1) All other subsidiaries have been omitted from this listing, as considered
in the aggregate as a single subsidiary, they would not constitute a
significant subsidiary.
(2) A consolidated subsidiary meeting the test as a significant subsidiary.
(3) A consolidated subsidiary of McDonnell Douglas Financial Services
Corporation meeting the test as a significant subsidiary.
</TABLE>
<PAGE>
<PAGE> 1 Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference of our report dated January
18, 1994 on the consolidated financial statements and schedules of
McDonnell Douglas Corporation and subsidiaries incorporated by reference in
the annual report on Form 10-K of McDonnell Douglas Corporation for the
year ended December 31, 1993 in the following filings:
- -- Registration Statement File Numbers 33-34326 (filed April 11,1990) and
33-50063 (filed August 23, 1993) on Form S-8, Employee Savings Plan of
McDonnell Douglas Corporation - Salaried Plan.
- -- Post Effective Amendment Number 7 to Registration Statement File
Number 2-76396 on Form S-8, Employee Savings Plan of McDonnell Douglas
Corporation - Component Plan, filed April 4, 1988.
- -- Registration Statement File Numbers 33-40207 (filed April 29, 1991)
and 33-50059 (filed August 23, 1993) on Form S-8, Employee Thrift Plan
of McDonnell Douglas Corporation - Subsidiary Plan.
- -- Post Effective Amendment Number 1 to Registration Statement File
Number 33-11144 on Form S-8, Employee Thrift Plan of McDonnell Douglas
Corporation - Hourly Plan, filed April 29, 1988.
- -- Post Effective Amendment Number 2 to Registration Statement File
Number 33-13342 on Form S-8 (which pursuant to Rule 429, also
constitutes Post Effective Amendment Number 10 to S-8 Registration
Statement File Number 2-64039), Incentive Award Plan, Incentive
Compensation Plan and Non-Qualified Stock Option Plan, filed April 28,
1989.
- -- Registration Statement File Numbers 33-40205 (filed April 29, 1991)
and 33-50057 (filed August 23, 1993) on Form S-8, Employee Investment
Plan of McDonnell Douglas Corporation - Hourly West Plan.
- -- Registration Statement File Numbers 33-40206 (filed April 29, 1991)
and 33-50055 (filed August 23, 1993) on Form S-8, Employee Investment
Plan of McDonnell Douglas Corporation - Hourly East Plan.
- -- Registration Statement File Numbers 33-26542 (filed January 13, 1989)
and 33-50061 (filed August 23, 1993) on Form S-8, McDonnell Douglas
Helicopter Company Savings Plan for Hourly Employees.
- -- Registration Statement File Number 33-36180 on Form S-3, McDonnell
Douglas Corporation Senior Debt Securities, filed August 1, 1990 and
Amendment No. 1 thereto filed March 5, 1992.
/s/ Ernst & Young
St. Louis, Missouri
March 21, 1994
<PAGE> 2 Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 Number 2-76396, Post Effective Amendment Number 7) pertaining to
the Employee Savings Plan of McDonnell Douglas Corporation - Component
Plan, of our report dated March 4, 1994, with respect to the financial
statements and Schedule I - Assets Held for Investment of the McDonnell
Douglas Corporation - Master Savings Trust of the Employee Savings Plan of
McDonnell Douglas Corporation - Component Plan included in this Annual
Report (Form 11-K) for the fiscal year ended November 28, 1993.
/s/ Ernst & Young
St. Louis, Missouri
March 21, 1994
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Numbers 33-40207 and 33-50059) pertaining to the Employee Thrift
Plan of McDonnell Douglas Corporation - Subsidiary Plan, of our report
dated March 4, 1994, with respect to the financial statements and Schedule
I - Assets Held for Investment of the McDonnell Douglas Corporation -
Master Savings Trust of the Employee Thrift Plan of McDonnell Douglas
Corporation - Subsidiary Plan included in this Annual Report (Form 11-K)
for the fiscal year ended November 28, 1993.
/s/ Ernst & Young
St. Louis, Missouri
March 21, 1994
<PAGE> 3 Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 Number 33-11144, Post Effective Amendment Number 1) pertaining to
the Employee Thrift Plan of McDonnell Douglas Corporation - Hourly Plan, of
our report dated March 4, 1994, with respect to the financial statements
and Schedule I - Assets Held for Investment of the McDonnell Douglas
Corporation - Master Savings Trust of the Employee Thrift Plan of McDonnell
Douglas Corporation - Hourly Plan included in this Annual Report (Form 11-
K) for the fiscal year ended November 28, 1993.
/s/ Ernst & Young
St. Louis, Missouri
March 21, 1994
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Numbers 33-26542 and 33-50061) pertaining to the McDonnell
Douglas Helicopter Company Savings Plan for Hourly Employees, of our report
dated March 4, 1994, with respect to the financial statements and Schedule
I - Assets Held for Investment of the McDonnell Douglas Corporation -
Master Savings Trust of the McDonnell Douglas Helicopter Company Savings
Plan for Hourly Employees included in this Annual Report (Form 11-K) for
the fiscal year ended November 28, 1993.
/s/ Ernst & Young
St. Louis, Missouri
March 21, 1994
<PAGE> 4 Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Numbers 33-40205 and 33-50057) pertaining to the Employee
Investment Plan of McDonnell Douglas Corporation - Hourly West Plan, of our
report dated March 4, 1994, with respect to the financial statements and
Schedule I - Assets Held for Investment of the McDonnell Douglas
Corporation - Master Savings Trust of the Employee Investment Plan of
McDonnell Douglas Corporation - Hourly West Plan included in this Annual
Report (Form 11-K) for the fiscal year ended November 28, 1993.
/s/ Ernst & Young
St. Louis, Missouri
March 21, 1994
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Numbers 33-34326 and 33-50063) pertaining to the Employee Savings
Plan of McDonnell Douglas Corporation - Salaried Plan, of our report dated
March 4, 1994, with respect to the financial statements and Schedule I -
Assets Held for Investment of the McDonnell Douglas Corporation - Master
Savings Trust of the Employee Savings Plan of McDonnell Douglas Corporation
- - Salaried Plan included in this Annual Report (Form 11-K) for the fiscal
year ended November 28, 1993.
/s/ Ernst & Young
St. Louis, Missouri
March 21, 1994
<PAGE> 5 Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Numbers 33-40206 and 33-50055) pertaining to the Employee
Investment Plan of McDonnell Douglas Corporation - Hourly East Plan, of our
report dated March 4, 1994, with respect to the financial statements and
Schedule I - Assets Held for Investment of the McDonnell Douglas
Corporation - Master Savings Trust of the Employee Investment Plan of
McDonnell Douglas Corporation - Hourly East Plan included in this Annual
Report (Form 11-K) for the fiscal year ended November 28, 1993.
/s/ Ernst & Young
St. Louis, Missouri
March 21, 1994
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-
K) of McDonnell Douglas Corporation and subsidiaries of our report dated
January 18, 1994, included in the 1993 Annual Report to Shareholders of
McDonnell Douglas Corporation and subsidiaries.
/s/ Ernst & Young
St. Louis, Missouri
March 21, 1994
<PAGE>
<PAGE> 1 Exhibit 24
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below does hereby constitute and appoint F. Mark Kuhlmann and
Steven N. Frank and each of them, acting severally, his true and lawful
attorneys and agents to execute, in his or her name, place and stead
(whether on behalf of McDonnell Douglas Corporation, as an officer or
director thereof, or otherwise) McDonnell Douglas Corporation's Annual
Report on Form 10-K for the year ended December 31, 1993, and any and all
amendments thereto, and to file the same with all exhibits thereto, and any
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys and agents may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned have duly executed this power of
attorney as of the 22 day of March, 1994.
/s/ John F. McDonnell /s/ Julian B. Goodman
- ----------------------------- ----------------------------
John F. McDonnell Julian B. Goodman
/s/ John H. Biggs /s/ William S. Kanaga
- ----------------------------- -----------------------------
John H. Biggs William S. Kanaga
/s/ B. A. Bridgewater, Jr. /s/ James S. McDonnell III
- -------------------------- -----------------------------
B. A. Bridgewater, Jr. James S. McDonnell III
/s/ Beverly B. Byron /s/ Sanford N. McDonnell
- -------------------------- -----------------------------
Beverly B. Byron Sanford N. McDonnell
/s/ William E. Cornelius /s/ George A. Schaefer
- -------------------------- ------------------------------
William E. Cornelius George A. Schaefer
/s/ William H. Danforth /s/ Herbert J. Lanese
- -------------------------- ------------------------------
Willam H. Danforth Herbert J. Lanese
/s/ Kenneth M. Duberstein
- ---------------------------
Kenneth M. Duberstein Gerald A. Johnston
<PAGE>
<PAGE> 1 Exhibit 99(a)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended November 28, 1993
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
EMPLOYEE SAVINGS PLAN OF MCDONNELL DOUGLAS
CORPORATION - SALARIED PLAN
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
MCDONNELL DOUGLAS CORPORATION
P.O. BOX 516
ST. LOUIS, MISSOURI 63166
Financial Statements and Exhibits
----------------------------------
a. Financial Statements
The following financial statements of the Plan, together with the
report of Ernst & Young, Independent Auditors, are included
herein:
Statement of Net Assets Available for Plan Benefits as of
November 28, 1993 and November 29, 1992
Statement of Changes in Net Assets Available for Plan Benefits
for the fiscal years ended November 28, 1993, November 29, 1992
and November 24, 1991
<PAGE> 2 Exhibit 99(a)
Notes to Financial Statements
b. Exhibits
The following financial statements and schedule of the McDonnell
Douglas Corporation - Master Savings Trust, together with the
report of Ernst & Young, Independent Auditors are included herein:
Statement of Net Assets as of November 28, 1993 and November 29, 1992
Statement of Changes in Trust Equity for the fiscal years ended
November 28, 1993, November 29, 1992 and November 24, 1991
Notes to Financial Statements
Schedule - Investments in Securities as of November 28, 1993
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Administrator has duly caused this annual report to be signed on its behalf
by the undersigned thereunto duly authorized.
EMPLOYEE SAVINGS PLAN OF MCDONNELL
DOUGLAS CORPORATION-SALARIED PLAN
----------------------------------
(Name of Plan)
Date: March 17, 1994
/s/ R. M. Smoski
R. M. Smoski, Director, Compensation Administration
<PAGE>
<PAGE> 1 Exhibit 99(b)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended November 28, 1993
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
EMPLOYEE SAVINGS PLAN OF MCDONNELL DOUGLAS
CORPORATION - COMPONENT PLAN
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
MCDONNELL DOUGLAS CORPORATION
P.O. BOX 516
ST. LOUIS, MISSOURI 63166
Financial Statements and Exhibits
----------------------------------
a. Financial Statements
The following financial statements of the Plan, together with
the report of Ernst & Young, Independent Auditors, are included
herein:
Statement of Net Assets Available for Plan Benefits as of
November 28, 1993 and November 29, 1992
Statement of Changes in Net Assets Available for Plan Benefits
for the fiscal years ended November 28, 1993, November 29, 1992
and November 24, 1991
<PAGE> 2 Exhibit 99(b)
Notes to Financial Statements
b. Exhibits
The following financial statements and schedule of the McDonnell
Douglas Corporation - Master Savings Trust, together with the
report of Ernst & Young, Independent Auditors are included herein:
Statement of Net Assets as of November 28, 1993 and
November 29, 1992
Statement of Changes in Trust Equity for the fiscal years ended
November 28, 1993, November 29, 1992 and November 24, 1991
Notes to Financial Statements
Schedule - Investments in Securities as of November 28, 1993
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Administrator has duly caused this annual report to be signed on its behalf
by the undersigned thereunto duly authorized.
EMPLOYEE SAVINGS PLAN OF MCDONNELL
DOUGLAS CORPORATION-COMPONENT PLAN
----------------------------------
(Name of Plan)
Date: March 17, 1994
/s/ R. M. Smoski
R. M. Smoski, Director, Compensation Administration
<PAGE>
<PAGE> 1 Exhibit 99(c)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended November 28, 1993
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
EMPLOYEE THRIFT PLAN OF MCDONNELL DOUGLAS
CORPORATION - SUBSIDIARY PLAN
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
MCDONNELL DOUGLAS CORPORATION
P.O. BOX 516
ST. LOUIS, MISSOURI 63166
Financial Statements and Exhibits
---------------------------------
a. Financial Statements
The following financial statements of the Plan, together with
the report of Ernst & Young, Independent Auditors, are included
herein:
Statement of Net Assets Available for Plan Benefits as of
November 28, 1993 and November 29, 1992
Statement of Changes in Net Assets Available for Plan Benefits
for the fiscal years ended November 28, 1993, November 29, 1992
and November 24, 1991
<PAGE> 2 Exhibit 99(c)
Notes to Financial Statements
b. Exhibits
The following financial statements and schedule of the McDonnell
Douglas Corporation - Master Savings Trust, together with the
report of Ernst & Young, Independent Auditors are included herein:
Statement of Net Assets as of November 28, 1993 and
November 29, 1992
Statement of Changes in Trust Equity for the fiscal years ended
November 28, 1993, November 29, 1992 and November 24, 1991
Notes to Financial Statements
Schedule - Investments in Securities as of November 28, 1993
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Administrator has duly caused this annual report to be signed on its behalf
by the undersigned thereunto duly authorized.
EMPLOYEE THRIFT PLAN OF MCDONNELL
DOUGLAS CORPORATION-SSUBSIDIARY PLAN
------------------------------------
(Name of Plan)
Date: March 17, 1994
/s/ R. M. Smoski
R. M. Smoski, Director, Compensation Administration
<PAGE>
<PAGE> 1 Exhibit 99(d)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended November 28, 1993
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
EMPLOYEE THRIFT PLAN OF MCDONNELL DOUGLAS
CORPORATION - HOURLY PLAN
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
MCDONNELL DOUGLAS CORPORATION
P.O. BOX 516
ST. LOUIS, MISSOURI 63166
Financial Statements and Exhibits
----------------------------------
a. Financial Statements
The following financial statements of the Plan, together with
the report of Ernst & Young, Independent Auditors, are included
herein:
Statement of Net Assets Available for Plan Benefits as of
November 28, 1993 and November 29, 1992
Statement of Changes in Net Assets Available for Plan Benefits
for the fiscal years ended November 28, 1993, November 29, 1992
and November 24, 1991
<PAGE> 2 Exhibit 99(d)
Notes to Financial Statements
b. Exhibits
The following financial statements and schedule of the McDonnell
Douglas Corporation - Master Savings Trust, together with the
report of Ernst & Young, Independent Auditors are included herein:
Statement of Net Assets as of November 28, 1993 and
November 29, 1992
Statement of Changes in Trust Equity for the fiscal years ended
November 28, 1993, November 29, 1992 and November 24, 1991
Notes to Financial Statements
Schedule - Investments in Securities as of November 28, 1993
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Administrator has duly caused this annual report to be signed on
its behalf by the undersigned thereunto duly authorized.
EMPLOYEE THRIFT PLAN OF MCDONNELL
DOUGLAS CORPORATION-HOURLY PLAN
---------------------------------
(Name of Plan)
Date: March 17, 1994
/s/ R. M. Smoski
R. M. Smoski, Director, Compensation Administration
<PAGE>
<PAGE> 1 Exhibit 99(e)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended November 28, 1993
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
MCDONNELL DOUGLAS HELICOPTER COMPANY
SAVINGS PLAN FOR HOURLY EMPLOYEES
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
MCDONNELL DOUGLAS CORPORATION
P.O. BOX 516
ST. LOUIS, MISSOURI 63166
Financial Statements and Exhibits
----------------------------------
a. Financial Statements
The following financial statements of the Plan, together with the
report of Ernst & Young, Independent Auditors, are included
herein:
Statement of Net Assets Available for Plan Benefits as of
November 28, 1993 and November 29, 1992
Statement of Changes in Net Assets Available for Plan Benefits
for the fiscal years ended November 28, 1993, November 29, 1992
and November 24, 1991
<PAGE> 2 Exhibit 99(e)
Notes to Financial Statements
b. Exhibits
The following financial statements and schedule of the McDonnell
Douglas Corporation - Master Savings Trust, together with the
report of Ernst & Young, Independent Auditors are included herein:
Statement of Net Assets as of November 28, 1993 and
November 29, 1992
Statement of Changes in Trust Equity for the fiscal years ended
November 28, 1993, November 29, 1992 and November 24, 1991
Notes to Financial Statements
Schedule - Investments in Securities as of November 28, 1993
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Administrator has duly caused this annual report to be signed on its behalf
by the undersigned thereunto duly authorized.
MCDONNELL DOUGLAS HELICOPTER COMPANY
SAVINGS PLAN FOR HOURLY EMPLOYEES
------------------------------------
(Name of Plan)
Date: March 17, 1994
/s/ R. M. Smoski
R. M. Smoski, Director, Compensation Administration
<PAGE>
<PAGE> 1 Exhibit 99(f)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended November 28, 1993
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
EMPLOYEE INVESTMENT PLAN OF MCDONNELL DOUGLAS
CORPORATION - HOURLY WEST PLAN
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
MCDONNELL DOUGLAS CORPORATION
P.O. BOX 516
ST. LOUIS, MISSOURI 63166
Financial Statements and Exhibits
---------------------------------
a. Financial Statements
The following financial statements of the Plan, together with the
report of Ernst & Young, Independent Auditors, are included
herein:
Statement of Net Assets Available for Plan Benefits as of
November 28, 1993 and November 29, 1992
Statement of Changes in Net Assets Available for Plan Benefits
for the fiscal years ended November 28, 1993, November 29, 1992
and November 24, 1991
<PAGE> 2 Exhibit 99(f)
Notes to Financial Statements
b. Exhibits
The following financial statements and schedule of the McDonnell
Douglas Corporation - Master Savings Trust, together with the
report of Ernst & Young, Independent Auditors are included herein:
Statement of Net Assets as of November 28, 1993 and
November 29, 1992
Statement of Changes in Trust Equity for the fiscal years ended
November 28, 1993, November 29, 1992 and November 24, 1991
Notes to Financial Statements
Schedule - Investments in Securities as of November 28, 1993
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Administrator has duly caused this annual report to be signed on
its behalf by the undersigned thereunto duly authorized.
EMPLOYEE INVESTMENT PLAN OF MCDONNELL
DOUGLAS CORPORATION-HOURLY WEST PLAN
--------------------------------------
(Name of Plan)
Date: March 17, 1994
/s/ R. M. Smoski
R. M. Smoski, Director, Compensation Administration
<PAGE>
<PAGE> 1 Exhibit 99(g)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended November 28, 1993
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
EMPLOYEE INVESTMENT PLAN OF MCDONNELL DOUGLAS
CORPORATION - HOURLY EAST PLAN
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
MCDONNELL DOUGLAS CORPORATION
P.O. BOX 516
ST. LOUIS, MISSOURI 63166
Financial Statements and Exhibits
a. Financial Statements
The following financial statements of the Plan, together with the
report of Ernst & Young, Independent Auditors, are included
herein:
Statement of Net Assets Available for Plan Benefits as of
November 28, 1993 and November 29, 1992
Statement of Changes in Net Assets Available for Plan Benefits
for the fiscal years ended November 28, 1993, November 29, 1992
and November 24, 1991
<PAGE> 2 Exhibit 99(g)
Notes to Financial Statements
b. Exhibits
The following financial statements and schedule of the McDonnell
Douglas Corporation - Master Savings Trust, together with the
report of Ernst & Young, Independent Auditors are included herein:
Statement of Net Assets as of November 28,1993 and
November 29, 1992
Statement of Changes in Trust Equity for the fiscal years ended
November 28, 1993, November 29, 1992 and November 24, 1991
Notes to Financial Statements
Schedule - Investments in Securities as of November 28, 1993
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Administrator has duly caused this annual report to be signed on
its behalf by the undersigned thereunto duly authorized.
EMPLOYEE INVESTMENT PLAN OF MCDONNELL
DOUGLAS CORPORATION-HOURLY EAST PLAN
--------------------------------------
(Name of Plan)
Date: March 17, 1994
/s/ R. M. Smoski
R. M. Smoski, Director, Compensation Administration
<PAGE>
<PAGE> 1 Exhibit 99(h)
<TABLE>
<CAPTION>
MCDONNELL DOUGLAS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Years Ended December 31
-------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
EARNINGS
Earnings (loss) from continuing
operations before income taxes
and cumulative effect of
accounting change $459 $1,086 $615 $366 ($122)
ADD: Interest expense (A) 215 468 453 576 533
Interest factor in rents 39 57 66 64 50
Amortization of capitalized
interest 1 2 2 2 2
------ ------ ------ ------ ------
$714 $1,613 $1,136 $1,008 $463
====== ====== ====== ====== ======
FIXED CHARGES
Interest expense (A) $215 $468 $453 $576 $533
Capitalized interest 2 4
Interest factor in rents 39 57 66 64 50
------ ------ ------ ------ ------
$256 $525 $519 $640 $587
====== ====== ====== ====== ======
Ratio of earnings to fixed charges 2.8X 3.1X 2.2X 1.6X .8X(B)
====== ====== ====== ====== ======
<FN>
(A) Prior year amounts have been restated for the reclassification of interest
expense related to an executive life insurance program to general and
administrative expenses.
(B) For the year ended December 31, 1989, earnings of the Company were inadequate
to cover fixed charges. The amount of such deficiency for the period was
$124 million.
</TABLE>
<PAGE>
LAW DEPARTMENT
STEVEN N. FRANK
Associate General Counsel &
Assistant Secretary
(314) 234-8091
March 22, 1994
Securities and Exchange Commission
Operations Center
Stop 0-7
6432 General Green Way
Alexandria, VA 22312
Re: McDonnell Douglas Corporation
1993 Annual Report on Form 10-K
Ladies and Gentlemen:
On behalf of McDonnell Douglas Corporation, I enclose
(via EDGAR transmission) MDC's Annual Report on Form 10-K
for the year ended December 31, 1993 for filing pursuant to
Section 13 of the Securities Exchange Act of 1934. The
company has previously wired $250 to the SEC lockbox in
payment of the filing fee.
If you have any questions or comments, please call me
at (314) 234-8091. Thank you for your assistance
Very truly yours,
/s/ Steven N. Frank
Steven N. Frank
