<PAGE>
<PAGE> 1
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 28, 1994)
MCDONNELL DOUGLAS CORPORATION
MEDIUM-TERM NOTES
DUE FROM AND EXCEEDING NINE MONTHS FROM DATE OF ISSUE
---------------
McDonnell Douglas Corporation (the "Company") may offer from time to time
up to $218,000,000 aggregate initial offering price, or the equivalent
thereof in one or more foreign or composite currencies, of its Medium-Term
Notes (the "Notes"). Each Note will mature on a Business Day from and
exceeding nine months from the date of issue, as selected by the purchaser
and agreed to by the Company, and may be subject to redemption by the
Company or repayment at the option of the Holder thereof, in each case, in
whole or in part, prior to its Stated Maturity, as set forth therein and
specified in a pricing supplement hereto (each, a "Pricing Supplement"). As
of the date of this Prospectus Supplement, $125,000,000 of the Notes
are outstanding.
The interest rate, if any, or the formula for the determination of any
such interest rate, applicable to each Note and other variable terms of the
Notes as described herein will be established by the Company at the date of
issue of such Note and will be set forth therein and specified in a Pricing
Supplement. Interest rates, interest rate formulae and such other variable
terms are subject to change by the Company, but no change will affect any
Note already issued or as to which an offer to purchase has been accepted
by the Company. Each Note will be issued in fully registered book-entry
form (a "Book-Entry Note") or definitive form (a "Definitive Note"), as set
forth in the applicable Pricing Supplement, in denominations of $1,000 and
integral multiples thereof, unless otherwise specified in the applicable
Pricing Supplement. Each Book-Entry Note will be represented by a global
security deposited with or on behalf of The Depository Trust Company (or
such other depository as is identified in an applicable Pricing Supplement)
(the "Depository") and registered in the name of the Depository's nominee.
Interests in Book-Entry Notes will be shown on, and transfers thereof will
be effected only through, records maintained by the Depository (with
respect to its participants) and the Depository's participants (with
respect to beneficial owners).
Unless otherwise specified in an applicable Pricing Supplement, the Notes
will bear interest at fixed rates (the "Fixed Rate Notes") or at floating
rates (the "Floating Rate Notes"). The applicable Pricing Supplement will
specify whether a Floating Rate Note is a Regular Floating Rate Note, a
Floating Rate/Fixed Rate Note or Inverse Floating Rate Note or whether its
rate of interest is determined by reference to one or more of the CD Rate,
the Commercial Paper Rate, the Federal Funds Rate, LIBOR, the Prime Rate or
the Treasury Rate (each, an "Interest Rate Basis"), or any other interest
rate formula, as adjusted by any Spread and/or Spread Multiplier and will
specify such other terms applicable to such Note. See "Description of
Notes." Interest on Fixed Rate Notes will accrue from their date of issue
and, unless otherwise specified in the applicable Pricing Supplement, will
be payable semiannually in arrears on January 15 and July 15 of each year
and at Maturity. The rate of interest on each Floating Rate Note will be
reset daily, weekly, monthly, quarterly, semiannually or annually, as set
forth therein and specified in the applicable Pricing Supplement, and
interest on each Floating Rate Note will accrue from its date of issue and
<PAGE> 2
will be payable in arrears monthly, quarterly, semiannually or annually, as
specified in the applicable Pricing Supplement, and at Maturity. Notes may
also be issued with original issue discount, and such Notes may or may not
currently pay interest. Notes may also be issued with the principal amount
payable at Maturity and/or interest to be paid thereon to be determined
with reference to the price or prices of specified commodities or stocks,
the exchange rate of one or more specified currencies (including a
composite currency such as the European Currency Unit) relative to an
indexed currency, or such other price or exchange rate as may be specified
in such Note ("Indexed Notes"), as set forth in an Indexed Note Supplement.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE
PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGENTS' DISCOUNTS
PRICE TO AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2)(3) THE COMPANY(2)(4)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note..... 100% .125%-.75% 99.875%-99.25%
Total.......$218,000,000 $272,500-$1,635,000 $217,727,500-$216,365,000
</TABLE> ------------------------------------------------------------------
(1) Unless otherwise specified in an applicable Pricing Supplement, the
Notes will be issued at 100% of their principal amount.
(2) The Company will pay a commission ranging from .125% to .750% (or, with
respect to Notes for which the Stated Maturity is in excess of 30 years,
such commission as shall be agreed upon by the Company and the related
Agent at the time of sale) of the principal amount of a Note, depending
upon its Stated Maturity, to Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Chase Securities, Inc., Citicorp Securities,
Inc., J.P. Morgan Securities Inc. or Salomon Brothers Inc. (each, an
"Agent" and collectively, the "Agents") and may sell Notes to one or more
Agents, as principal, for resale to investors and other purchasers at
varying prices related to prevailing market prices at the time of resale,
as determined by such Agent or, if so agreed, at a fixed public offering
price. Unless otherwise specified in the applicable Pricing Supplement, any
Note sold to an Agent as principal will be purchased by such Agent at a
price equal to 100% of the principal amount thereof less a percentage equal
to the commission applicable to an agency sale of a Note of identical
maturity.
<PAGE> 3
(3) The Company has agreed to indemnify the Agents against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Plan of Distribution."
(4) Before deducting expenses payable by the Company.
---------------
The Notes are being offered on a continuing basis by the Company through
the Agents, who have agreed to use their reasonable efforts to solicit
offers to purchase the Notes. The Company may also sell Notes to an Agent,
as principal, for resale to investors and other purchasers and has reserved
the right to sell Notes directly to investors on its own behalf. Unless
otherwise specified in an applicable Pricing Supplement, the Notes will not
be listed on any securities exchange and there can be no assurance that the
Notes offered by this Prospectus Supplement will be sold or that there will
be a secondary market for the Notes. The Company reserves the right to
cancel or modify the offer made hereby without notice. The Company or an
Agent, if it solicits the offer, may reject any offer to purchase Notes in
whole or in part. See "Plan of Distribution."
---------------
MERRILL LYNCH & CO.
CHASE SECURITIES, INC.
CITICORP SECURITIES, INC.
J.P. MORGAN SECURITIES INC.
SALOMON BROTHERS INC.
---------------
The date of this Prospectus Supplement is April , 1994.
S-1
DESCRIPTION OF NOTES
The Notes will be issued as a series of debt securities under an
Indenture dated as of September 1, 1985, as amended (the "Indenture"),
between the Company and The Bank of New York, as trustee (the "Trustee"),
more fully described in the attached Prospectus. The following summary of
certain provisions of the Notes and of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture, a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus Supplement and the accompanying Prospectus are a
part. Capitalized terms used but not defined herein have the meanings given
to them in the Indenture or the Notes, as the case may be. The term "Debt
Securities", as used under this caption, refers to all securities issued
and issuable from time to time under the Indenture and includes the Notes
as a separate series of such Debt Securities.
The following description of Notes will apply unless otherwise specified
in an applicable Pricing Supplement.
<PAGE> 4
GENERAL
All Debt Securities, including the Notes, issued and to be issued under
the Indenture will be unsecured obligations of the Company and will rank on
a parity with all other unsecured and unsubordinated indebtedness of the
Company from time to time outstanding. The Indenture does not limit the
aggregate principal amount of Debt Securities which may be issued
thereunder or of any particular series of such Debt Securities and Debt
Securities may be issued thereunder from time to time as a single series or
in two or more separate series up to the aggregate principal amount from
time to time authorized by the Company for each series. The Company may,
from time to time, without the consent of the Holders of the Notes, provide
for the issuance of Notes or other Debt Securities under the Indenture in
addition to the $218,000,000 aggregate initial offering price of Notes
authorized as of the date of this Prospectus Supplement.
The Notes are currently limited to $218,000,000 aggregate initial
offering price. The Notes will be offered on a continuing basis and will
mature on a Business Day (as defined herein) from and exceeding nine months
from the date of issue, as selected by the purchaser and agreed to by the
Company. Unless otherwise specified in an applicable Pricing Supplement,
interest-bearing Notes will either be Fixed Rate Notes or Floating Rate
Notes as specified in the applicable Pricing Supplement. Notes may be
issued at significant discounts from their principal amount payable at
Stated Maturity (or on any prior date on which the principal or an
installment of principal of a Note becomes due and payable, whether by the
declaration of acceleration, call for redemption at the option of the
Company, repayment at the option of the Holder or otherwise)(each such
date, a "Maturity"), and some Notes may not bear stated interest.
Unless otherwise indicated in a Note or in a foreign currency supplement
hereto (a "Multiple-Currency Supplement") or Indexed Note (as defined
below) supplement hereto (an "Indexed Note Supplement"), the Notes will be
denominated in United States dollars and payments of principal of, and
premium, if any, and interest on, the Notes will be made in United States
dollars. If any of the Notes are to be denominated other than in United
States dollars or if the principal of, and interest on, the Notes, and any
premium provided for in any Note is to be payable in or by reference to a
currency (or in composite currency units or in amounts determined by
reference to one or more currencies) other than in which such Note is
denominated, provisions with respect thereto will be set forth in such Note
and in the applicable Multi-Currency Supplement or Indexed Note Supplement.
Interest rates, interest rate formulae and other variable terms of the
Notes are subject to change by the Company from time to time, but no such
change will affect any Note already issued or as to which an offer to
purchase has been accepted by the Company.
Each Note will be issued in fully registered book-entry form (a "Book-
Entry Note") or definitive form (a "Definitive Note"), in denominations of
$1,000 and integral multiples thereof, unless otherwise specified in the
applicable Pricing Supplement. Book-Entry Notes may be transferred or
exchanged only through a participating member of The Depository Trust
Company (or such other depository as is identified in an applicable Pricing
Supplement) (the "Depository"). See "Book-Entry Notes". Registration of
S-2
<PAGE> 5
transfer of Definitive Notes will be made at the office of the Trustee at
101 Barclay Street, New York, New York 10286 (the "Corporate Trust
Office"). No service charge will be made by the Company, the Trustee or the
Security Registrar for any such registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith (other
than exchanges pursuant to the Indenture, not involving any transfer).
Payments of principal of, and premium and interest, if any, on Book-Entry
Notes will be made by the Company through the Trustee to the Depository.
See "Book-Entry Notes". In the case of Definitive Notes, payment of
principal or premium, if any, at the Maturity of each Definitive Note will
be made in immediately available funds upon presentation of the Definitive
Note at the Corporate Trust Office of the Trustee, or at such other place
as the Company may designate. Payment of interest due at Maturity will be
made to the person to whom payment of the principal of the Definitive Note
shall be made. Payment of interest due on Definitive Notes other than at
Maturity will be made at the Corporate Trust Office of the Trustee or, at
the option of the Company, may be made by check mailed to the address of
the Person entitled thereto as such address shall appear in the Security
Register. Notwithstanding the foregoing, a Holder of $10,000,000 or more in
aggregate principal amount of Definitive Notes having the same Interest
Payment Dates will, at the option of the Company, be entitled to receive
interest payments (other than at Maturity) by wire transfer of immediately
available funds if appropriate wire transfer instructions have been
received in writing by the Trustee not less than 15 days prior to the
applicable Interest Payment Date.
REDEMPTION AT THE OPTION OF THE COMPANY
The Notes will not have a sinking fund but will be redeemable at the
option of the Company prior to their stated maturity only if an Initial
Redemption Date is specified therein and in the applicable Pricing
Supplement. If so indicated in the applicable Pricing Supplement, Notes
will be subject to redemption at the option of the Company on any date on
and after the applicable Initial Redemption Date specified in such Pricing
Supplement. On and after the Initial Redemption Date, if any, the related
Note may be redeemed at any time in whole or from time to time in part in
increments of $1,000 at the option of the Company at the applicable
Redemption Price (as defined below) together with interest thereon payable
to the Redemption Date, on notice given not more than 60 nor less than 30
days prior to the Redemption Date. "Redemption Price" with respect to a
Note will initially mean a percentage, the Initial Redemption Percentage,
of the principal amount of such Note to be redeemed specified in the
applicable Pricing Supplement and shall decline at each anniversary of the
Initial Redemption Date by a percentage, the Annual Redemption Percentage
Reduction, if any, specified in the applicable Pricing Supplement, of the
principal amount to be redeemed until the Redemption Price is 100% of such
principal amount.
<PAGE> 6
REPAYMENT AT THE OPTION OF THE HOLDER
If so indicated in an applicable Pricing Supplement, Notes will be
repayable by the Company in whole or in part at the option of the Holders
thereof on their respective Optional Repayment Dates specified in such
Pricing Supplement. If no Optional Repayment Date is indicated with respect
to a Note, such Note will not be repayable at the option of the Holder
prior to Maturity. Any repayment in part will be in increments of $1,000
provided that any remaining principal amount of such Note will be an
authorized denomination of such Note. The repurchase price for any Note so
repurchased will be 100% of the principal amount to be repaid, together
with interest thereon payable to the date of repayment.
While the Notes are represented by Global Securities held by or on behalf
of the Depository, and registered in the name of the Depository's nominee,
the option for repayment may be exercised by the applicable Participant (as
defined below under "Description of Notes--Book-Entry Notes") on behalf of
the beneficial owners of such Notes by delivering a written notice to the
Trustee at the Corporate Trust Office, not more than 60 nor less than 30
days prior to the Optional Repayment Date. Notices of elections from
Participants on behalf of beneficial owners of the Notes to exercise their
S-3
option to have the Notes repaid must be received by the Trustee by 5:00
p.m., New York City time, on the last day for giving such notice. In order
to ensure that a notice is received by the Trustee on a particular day, the
beneficial owner of Notes must so direct the applicable Participant before
such Participant's cut-off time for accepting instructions for that day.
Different firms may have different cut-off times for accepting instructions
from their customers. Accordingly, beneficial owners of Notes should
consult the Participants through which they own their interest in the Notes
for the cut-off times for such Participants. All notices shall be executed
by a duly authorized officer of such Participant (with signature
guaranteed) and shall be irrevocable. In addition, such beneficial owners
of Notes shall effect delivery of such Notes at the time such notices of
election are given to the Depository by causing the Participant to transfer
such beneficial owner's interest in the Notes, on the Depository's records,
to the Trustee. Conveyance of notices and other communications by the
Depository to Participants, by Participants to indirect Participants and by
Participants and indirect Participants to beneficial owners of the Notes
will be governed by agreements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
INTEREST
General
Unless otherwise specified in an applicable Pricing Supplement, each Note
will bear interest from the date of issue at the rate per annum or, in the
case of a Floating Rate Note, pursuant to the interest rate formula stated
therein and in the applicable Pricing Supplement, until the principal
thereof is paid or made available for payment. Interest will be payable in
arrears on each date specified in the applicable Pricing Supplement on
which an installment of interest is due and payable (an "Interest Payment
<PAGE> 7
Date") and at Maturity. Unless otherwise specified in an applicable Pricing
Supplement, the first payment of interest on any Note originally issued
between a Regular Record Date and the related Interest Payment Date will be
made on the Interest Payment Date immediately following the next succeeding
Regular Record Date to the registered Holder on such next succeeding
Regular Record Date. Unless otherwise specified in an applicable Pricing
Supplement, a "Regular Record Date" for Floating Rate Notes shall be the
fifteenth day (whether or not a Business Day, as defined below) immediately
preceding the related Interest Payment Date and for Fixed Rate Notes the
January 1 or July 1 next preceding the Interest Payment Date.
Fixed Rate Notes
Unless otherwise specified in an applicable Pricing Supplement, each
Fixed Rate Note will bear interest from, and including, the date of issue,
or the most recent date to which interest has been paid or duly provided
for, to, but excluding, the Interest Payment Date or Maturity, as the case
may be, at the rate per annum stated on the face thereof until the
principal amount thereof is paid or made available for payment. Unless
otherwise specified in an applicable Pricing Supplement, interest on Fixed
Rate Notes will be computed on the basis of a 360-day year of twelve 30-day
months.
Interest on Fixed Rate Notes will be payable semiannually on January 15
and July 15 of each year, unless otherwise specified in an applicable
Pricing Supplement, and at Maturity. If any Interest Payment Date or the
Maturity of a Fixed Rate Note falls on a day that is not a Business Day,
the related payment of principal, premium, if any, or interest will be made
on the next succeeding Business Day as if made on the date such payment was
due, and no interest will accrue on the amount so payable for the period
from and after such Interest Payment Date or Maturity, as the case may be.
Floating Rate Notes
Unless otherwise specified in an applicable Pricing Supplement, Floating
Rate Notes will be issued as described below. Each applicable Pricing
Supplement will specify certain terms with respect to which such Floating
Rate Note is being delivered, including: whether such Floating Rate Note is
a "Regular Floating Rate Note" (as defined below), an "Inverse Floating
Rate Note" (as defined below) or a "Floating Rate/Fixed Rate Note" (as
defined below); the Interest Rate Basis or Bases, Initial Interest Rate,
S-4
Interest Reset Dates, Interest Reset Period, Regular Record Dates, Interest
Payment Dates, Index Maturity, maximum interest rate and minimum interest
rate, if any, and the "Spread" and/or "Spread Multiplier" (both as defined
below), if any, as described below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
<PAGE> 8
(i) Unless such Floating Rate Note is designated as a Floating Rate/Fixed
Rate Note, an Inverse Floating Rate Note or as having an Addendum attached,
such Floating Rate Note will be designated a "Regular Floating Rate Note"
and, except as described below or in an applicable Pricing Supplement, will
bear interest at the rate determined by reference to the applicable
Interest Rate Basis (i) plus or minus the applicable Spread, if any, and/or
(ii) multiplied by the applicable Spread Multiplier, if any. Commencing on
the initial Interest Reset Date, the rate at which interest on such Regular
Floating Rate Note shall be payable shall be reset as of each Interest
Reset Date; provided, however, that (i) the interest rate in effect for the
period from the Original Issue Date to the initial Interest Reset Date will
be the Initial Interest Rate, and (ii) unless otherwise specified in the
applicable Pricing Supplement, the interest rate in effect for the 10 days
immediately prior to Maturity shall be that in effect on the tenth day
preceding such Maturity.
(ii) If such Floating Rate Note is designated as a "Floating Rate/Fixed
Rate Note," then, except as described below or in an applicable Pricing
Supplement, such Floating Rate Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis (i) plus or
minus the applicable Spread, if any, and/or (ii) multiplied by the
applicable Spread Multiplier, if any. Commencing on the initial Interest
Reset Date, the rate at which interest on such Floating Rate/Fixed Rate
Note shall be payable shall be reset as of each Interest Reset Date;
provided, however, that (i) the interest rate in effect for the period from
the Original Issue Date to the initial Interest Reset Date will be the
Initial Interest Rate; (ii) unless otherwise specified in the applicable
Pricing Supplement, the interest rate in effect for the 10 days immediately
prior to the Fixed Rate Commencement Date shall be that in effect on the
tenth day preceding the Fixed Rate Commencement Date; and (iii) the
interest rate in effect commencing on, and including, the Fixed Rate
Commencement Date to Maturity shall be the Fixed Interest Rate, if such
rate is specified in the applicable Pricing Supplement, or if no such Fixed
Interest Rate is so specified, the interest rate in effect thereon on the
day immediately preceding the Fixed Rate Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below or in an applicable Pricing
Supplement, such Floating Rate Note will bear interest equal to the Fixed
Interest Rate specified in the related Pricing Supplement minus the rate
determined by reference to the Interest Rate Basis (i) plus or minus the
applicable Spread, if any, and/or (ii) multiplied by the applicable Spread
Multiplier, if any; provided, however, that the interest rate thereon will
not be less than zero. Commencing on the initial Interest Reset Date, the
rate at which interest on such Inverse Floating Rate Note is payable shall
be reset as of each Interest Reset Date; provided, however, that (i) the
interest rate in effect for the period from the Original Issue Date to the
initial Interest Reset Date will be the Initial Interest Rate, and (ii)
unless otherwise specified in the applicable Pricing Supplement, the
interest rate in effect for the 10 days immediately prior to Maturity shall
be that in effect on the tenth day preceding such Maturity.
Notwithstanding the foregoing, if such Floating Rate Note is designated
as having an Addendum attached as specified on the face thereof, such
Floating Rate Note shall bear interest in accordance with the terms
described in such Addendum and the applicable Pricing Supplement.
<PAGE> 9
Unless otherwise provided in the applicable Pricing Supplement, each
Interest Rate Basis shall be the rate determined in accordance with the
applicable provisions below. Except as set forth above or in an applicable
Pricing Supplement, the interest rate in effect on each day shall be (a) if
such day is an Interest Reset Date, the interest rate determined on the
Interest Determination Date (as defined below) immediately preceding such
Interest Reset Date or (b) if such day is not an Interest Reset Date, the
interest rate determined on the Interest Determination Date immediately
S-5
preceding the immediately preceding Interest Reset Date; provided, however,
that (i) the interest rate in effect for the period from the Original Issue
Date to the initial Interest Reset Date will be the Initial Interest Rate,
and (ii) unless otherwise specified in the applicable Pricing Supplement,
the interest rate in effect for the 10 days immediately prior to Maturity
shall be that in effect on the tenth day preceding such Maturity.
Interest on Floating Rate Notes will be determined by reference to an
"Interest Rate Basis," which may be one or more of (i) the "CD Rate", (ii)
the "Commercial Paper Rate", (iii) the "Federal Funds Rate", (iv) "LIBOR",
(v) the "Prime Rate", (vi) the "Treasury Rate", or (vii) such other
interest rate formula as may be set forth in the applicable Pricing
Supplement; provided, however, that with respect to a Floating Rate/Fixed
Rate Note, the interest rate commencing on the Fixed Rate Commencement Date
and continuing, unless otherwise specified in the applicable Pricing
Supplement, until Maturity shall be the Fixed Interest Rate, if such rate
is specified in the applicable Pricing Supplement, or if no such Fixed
Interest Rate is so specified, the interest rate in effect thereon on the
day immediately preceding the Fixed Rate Commencement Date. In addition, a
Floating Rate Note may bear interest in respect of the lowest of two or
more Interest Rate Bases.
The "Spread" is the number of basis points to be added to or subtracted
from the related Interest Rate Basis or Bases applicable to such Floating
Rate Note. The "Spread Multiplier" is the percentage of the related
Interest Rate Basis or Bases applicable to such Floating Rate Note by which
such Interest Rate Basis or Bases will be multiplied to determine the
applicable interest rate on such Floating Rate Note. The "Index Maturity"
is the period to maturity of the instrument or obligation with respect to
which the Interest Rate Basis or Bases will be calculated. The Spread,
Spread Multiplier, Index Maturity and other variable terms of the Floating
Rate Notes are subject to change by the Company from time to time, but no
such change will affect any Floating Rate Note previously issued or as to
which an offer has been accepted by the Company.
Each applicable Pricing Supplement will specify whether the rate of
interest on the related Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semiannually, annually or such other specified period
(each, an "Interest Reset Period") and the dates on which such Interest
Rate will be reset (each, an "Interest Reset Date"). Unless otherwise
specified in the applicable Pricing Supplement, the Interest Reset Date
will be, in the case of Floating Rate Notes which reset: (i) daily, each
Business Day; (ii) weekly, the Wednesday of each week (with the exception
of weekly reset Treasury Rate Notes which will reset the Tuesday of each
<PAGE> 10
week, except as specified below); (iii) monthly, the third Wednesday of
each month; (iv) quarterly, the third Wednesday of March, June, September
and December of each year; (v) semiannually, the third Wednesday of the two
months specified in the applicable Pricing Supplement; and (vi) annually,
the third Wednesday of the month specified in the applicable Pricing
Supplement; provided, however, that, with respect to Floating Rate/Fixed
Rate Notes, the fixed rate of interest in effect for the period from the
Fixed Rate Commencement Date until Maturity shall be the Fixed Interest
Rate or the interest rate in effect on the day immediately preceding the
Fixed Rate Commencement Date, as specified in the applicable Pricing
Supplement. If any Interest Reset Date for any Floating Rate Note would
otherwise be a day that is not a Business Day, such Interest Reset Date
will be postponed to the next succeeding day that is a Business Day, except
that in the case of a Floating Rate Note as to which LIBOR is the
applicable Interest Rate Basis, if such Business Day falls in the next
succeeding calendar month, such Interest Reset Date will be the immediately
preceding Business Day. As used herein, "Business Day" means, unless
otherwise specified in the applicable Pricing Supplement, each Monday,
Tuesday, Wednesday, Thursday or Friday which is not a day on which banking
institutions in The City of New York are authorized or obligated by law to
close. As used herein, "London Business Day" means any day on which
dealings in deposits in United States dollars are transacted in the London
interbank market.
A Floating Rate Note may also have either or both of the following: (i) a
maximum numerical limitation, or ceiling (a "Maximum Interest Rate"), on
the rate at which interest may accrue during any interest period and (ii) a
minimum numerical limitation, or floor (a "Minimum Interest Rate"), on the
rate at which interest may accrue during any interest period. In addition
to any Maximum Interest Rate that may be applicable to any Floating Rate
Note pursuant to the above provisions, the interest rate on Floating Rate
Notes will in no event be higher than the maximum rate permitted by New
York law, as the same may be modified by United States law of general
application.
S-6
Each Floating Rate Note will bear interest from the date of issue at the
rates specified herein until the principal thereof is paid or otherwise
made available for payment. Except as provided below or in an applicable
Pricing Supplement, interest will be payable in the case of Floating Rate
Notes which reset; (i) daily, weekly or monthly, on the third Wednesday of
each month or on the third Wednesday of March, June, September and December
of each year as specified in the applicable Pricing Supplement; (ii)
quarterly, on the third Wednesday of March, June, September and December of
each year; (iii) semiannually, on the third Wednesday of the two months of
each year specified in the applicable Pricing Supplement; and (iv)
annually, on the third Wednesday of the month of each year specified in the
applicable Pricing Supplement (each, an "Interest Payment Date") and, in
each case, at Maturity. If any Interest Payment Date for any Floating Rate
Note would otherwise be a day that is not a Business Day, such Interest
Payment Date will be the next succeeding day that is a Business Day except
that in the case of a Floating Rate Note as to which LIBOR is an applicable
Interest Rate Basis, if such Business Day falls in the next succeeding
<PAGE> 11
calendar month, such Interest Payment Date will be the immediately
preceding Business Day. If the Maturity of a Floating Rate Note falls on a
day that is not a Business Day, the payment of principal, premium, if any,
and interest will be made on the next succeeding Business Day, and no
interest on such payment shall accrue for the period from and after such
Maturity.
All percentages resulting from any calculation on Floating Rate Notes
will be rounded upwards, if necessary, to the next highest one hundred-
thousandth of a percentage point (e.g., 9.876545% (or .09876545) would be
rounded to 9.87655% (or .0987655)), and all dollar amounts used in or
resulting from such calculation on Floating Rate Notes will be rounded to
the nearest cent (with one-half cent being rounded upward).
Unless otherwise specified in the applicable Pricing Supplement, interest
payments on Floating Rate Notes will equal the amount of interest accrued
from and including the next preceding Interest Payment Date in respect of
which interest has been paid (or from and including the date of issue, if
no interest has been paid with respect to such Floating Rate Notes), to but
excluding the related Interest Payment Date; provided, however, that in the
case of Floating Rate Notes on which the interest rate is reset daily or
weekly, interest payments will include interest accrued from and including
the date of issue or from but excluding the last Regular Record Date to
which interest has been paid, as the case may be, through and including the
Regular Record Date next preceding the applicable Interest Payment Date,
unless otherwise specified in the applicable Pricing Supplement; and
provided further that, the interest payments on Floating Rate Notes made at
Maturity will include interest accrued to but excluding the date of
Maturity.
With respect to each Floating Rate Note, accrued interest is calculated
by multiplying its face amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for
each day from the date of issue, or from the last day to which interest has
been paid or duly provided for, to the date for which accrued interest is
being calculated. Unless otherwise specified in the applicable Pricing
Supplement, the interest factor for each such day will be computed by
dividing the interest rate applicable to such day by 360, in the case of
Notes for which the Interest Rate Basis is the CD Rate, the Commercial
Paper Rate, the Federal Funds Rate, LIBOR or the Prime Rate, or by the
actual number of days in the year in the case of Notes for which the
Interest Rate Basis is the Treasury Rate. Unless otherwise specified in an
applicable Pricing Supplement, the interest factor for Notes for which the
interest rate is calculated with reference to two or more Interest Rate
Bases will be calculated in each period in the same manner as if only one
of the applicable Interest Rate Bases applied.
The interest rate applicable to each Interest Reset Period commencing on
the Interest Reset Date with respect to such Interest Reset Period will be
the rate determined on the applicable "Interest Determination Date". Unless
otherwise specified in the applicable Pricing Supplement, the Interest
Determination Date with respect to the CD Rate, the Commercial Paper Rate,
the Federal Funds Rate and the Prime Rate will be the second Business Day
preceding each Interest Reset Date for the related Note; the Interest
Determination Date with respect to LIBOR will be the second London Business
<PAGE> 12
Day preceding each Interest Rate Date. With respect to the Treasury Rate,
unless otherwise specified in an applicable Pricing Supplement, the
S-7
Interest Determination Date will be the day in the week in which the
related Interest Reset Date falls on which day Treasury Bills (as defined
below) are normally auctioned (Treasury Bills are normally sold at auction
on Monday of each week, unless that day is a legal holiday, in which case
the auction is normally held on the following Tuesday, except that such
auction may be held on the preceding Friday); provided, however, that if an
auction is held on the Friday of the week preceding the week in which the
related Interest Reset Date falls, the related Interest Determination Date
will be such preceding Friday; and provided, further, that if an auction
falls on any Interest Reset Date, then the related Interest Reset Date will
instead be the first Business Day following such auction. Unless otherwise
specified in the applicable Pricing Supplement, the Interest Determination
Date pertaining to a Floating Rate Note the interest rate of which is
determined with reference to two or more Interest Rate Bases will be the
latest Business Day which is at least two Business Days prior to such
Interest Reset Date for such Floating Rate Note on which each Interest Rate
Basis is determinable. Each Interest Rate Basis will be determined and
compared on such date, and the applicable interest rate will take effect on
the related Interest Reset Date.
Unless otherwise provided in the applicable Pricing Supplement, The Bank
of New York will be the "Calculation Agent". Upon request of the Holder of
any Floating Rate Note, the Trustee will provide the interest rate then in
effect and, if determined, the interest rate that will become effective as
a result of a determination made for the next Interest Reset Date with
respect to such Floating Rate Note. Unless otherwise specified in the
applicable Pricing Supplement, the "Calculation Date," if applicable,
pertaining to any Interest Determination Date will be the earlier of (i)
the tenth calendar day after such Interest Determination Date, or, if such
day is not a Business Day, the next succeeding Business Day, or (ii) the
Business Day prior to the Interest Payment Date on which such accrued
interest will be payable.
CD Rate. CD Rate Notes will bear interest at the rates (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any)
specified in such CD Rate Notes and in any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD
Rate" means, with respect to any Interest Determination Date relating to a
CD Rate Note or any Floating Rate Note for which the interest rate is
determined with reference to the CD Rate (a "CD Rate Interest Determination
Date"), the rate on such date for negotiable certificates of deposit having
the Index Maturity specified in the applicable Pricing Supplement as
published in "Statistical Release H.15(519), Selected Interest Rates" or
any successor publication ("H.15(519)") under the heading "CDs (Secondary
Market)," or, if not published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such CD Rate Interest Determination
Date for negotiable certificates of deposit of the Index Maturity specified
in the applicable Pricing Supplement as published by the Federal Reserve
Bank of New York in its daily statistical release "Composite 3:30 P.M.
<PAGE> 13
Quotations for U.S. Government Securities" or any successor publication
("Composite Quotations") under the heading "Certificates of Deposit". If
such rate is not yet published in either H.15(519) or Composite Quotations
by 3:00 P.M., New York City time, on the related Calculation Date, then the
CD Rate on such CD Rate Interest Determination Date will be calculated by
the Calculation Agent and will be the arithmetic mean of the secondary
market offered rates as of 10:00 A.M., New York City time, on such CD Rate
Interest Determination Date, of three leading nonbank dealers in negotiable
United States dollar certificates of deposit in The City of New York
selected by the Calculation Agent (after consultation with and agreement by
the Company) for negotiable certificates of deposit of major United States
money center banks of the highest credit standing for negotiable
certificates of deposit with a remaining maturity closest to the Index
Maturity designated in the applicable Pricing Supplement in denominations
of $5,000,000; provided, however, that if any of the dealers so selected by
the Calculation Agent are not quoting as set forth above, the CD Rate with
respect to such CD Rate Interest Determination Date will be the CD Rate in
effect on such CD Rate Interest Determination Date.
Commercial Paper Rate. Commercial Paper Rate Notes will bear interest at
the rates (calculated with reference to the Commercial Paper Rate and the
Spread and/or Spread Multiplier, if any) specified in such Commercial Paper
Rate Notes and in any applicable Pricing Supplement.
S-8
Unless otherwise specified in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Determination
Date relating to a Commercial Paper Rate Note or any Floating Rate Note for
which the interest rate is determined with reference to the Commercial
Paper Rate (a "Commercial Paper Rate Interest Determination Date"), the
Money Market Yield (as defined below) on such date of the rate for
commercial paper having the Index Maturity specified in the applicable
Pricing Supplement as published by the Board of Governors of the Federal
Reserve System in H.15(519) under the heading "Commercial Paper". In the
event that such rate is not published by 3:00 P.M., New York City time, on
the related Calculation Date, then the Commercial Paper Rate will be the
Money Market Yield on such Commercial Paper Rate Interest Determination
Date of the rate for commercial paper having the Index Maturity specified
in the applicable Pricing Supplement as published in Composite Quotations
under the heading "Commercial Paper" (with an Index Maturity of one month
or three months being deemed to be equivalent to an Index Maturity of 30
days or 90 days, respectively). If by 3:00 P.M., New York City time, on the
related Calculation Date such rate is not yet published in either H.15(519)
or Composite Quotations, then the Commercial Paper Rate for such Commercial
Paper Rate Interest Determination Date will be calculated by the
Calculation Agent and will be the Money Market Yield of the arithmetic mean
of the offered rates at approximately 11:00 A.M., New York City time, on
such Commercial Paper Rate Interest Determination Date of three leading
dealers of commercial paper in The City of New York selected by the
Calculation Agent for commercial paper having the Index Maturity designated
in the applicable Pricing Supplement placed for an industrial issuer whose
bond rating is "AA", or the equivalent, from a nationally recognized
securities rating agency; provided, however, that if any of the dealers so
<PAGE> 14
selected by the Calculation Agent (after consultation with and agreement by
the Company) are not quoting as mentioned in this sentence, the Commercial
Paper Rate determined on such Commercial Paper Rate Interest Determination
Date will be the rate in effect on such Commercial Paper Rate Interest
Determination Date.
"Money Market Yield" means a yield (expressed as a percentage rounded to
the nearest one ten-thousandth of a percent, with five one hundred-
thousandths of a percent rounded upward) calculated in accordance with the
following formula:
D X 360
Money Market Yield = -------------- X 100
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper
quoted on a bank discount basis and expressed as a decimal, and "M" refers
to the actual number of days in the interest period for which interest is
being calculated.
Federal Funds Rate. Federal Funds Rate Notes will bear interest at the
rates (calculated with reference to the Federal Funds Rate and the Spread
and/or Spread Multiplier, if any) specified in such Federal Funds Rate
Notes and in any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Federal
Funds Rate" means, with respect to any Interest Determination Date relating
to a Federal Funds Rate Note or any Floating Rate Note for which the
interest rate is determined with reference to the Federal Funds Rate (a
"Federal Funds Rate Interest Determination Date"), the rate on such date
for Federal Funds as published in H.15(519) under the heading "Federal
Funds (Effective)" or, if not published by 3:00 P.M., New York City time,
on the related Calculation Date, the rate on such Federal Funds Rate
Interest Determination Date as published in Composite Quotations under the
heading "Federal Funds/Effective Rate". If such rate is not published in
either H.15(519) or Composite Quotations by 3:00 P.M., New York City time,
on the related Calculation Date, the Federal Funds Rate for such Federal
Funds Rate Interest Determination Date will be calculated by the
Calculation Agent and will be the arithmetic mean of the rates for the last
transaction in overnight United States dollar federal funds arranged by
three leading brokers of federal funds transactions in The City of New York
selected by the Calculation Agent (after consultation with and agreement by
the Company) as of 11:00 A.M., New York City time on such Federal Funds
S-9
Rate Interest Determination Date; provided, however, that if any of the
brokers so selected by the Calculation Agent are not quoting as mentioned
in this sentence, the Federal Funds Rate with respect to such Federal Funds
Rate Interest Determination Date will be the Federal Funds Rate in effect
on such Federal Funds Rate Interest Determination Date.
LIBOR. LIBOR Notes will bear interest at the rates (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any)
specified in such LIBOR Notes and in any applicable Pricing Supplement.
<PAGE> 15
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
means the rate determined by the Calculation Agent in accordance with the
following provisions:
(i) With respect to an Interest Determination Date relating to a LIBOR
Note or any Floating Rate Note for which the interest rate is determined
with reference to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will
be determined on the basis of the offered rates for deposits in United
States dollars for the period of any Index Maturity specified in the
applicable Pricing Supplement, commencing on the second London Business Day
immediately following the related LIBOR Interest Determination Date, which
appear on the Reuters Screen LIBO Page (as defined below) at approximately
11:00 A.M., London time, on such LIBOR Interest Determination Date. If at
least two such offered rates appear on the Reuters Screen LIBO Page, LIBOR
determined on the LIBOR Interest Determination Date will be the arithmetic
mean (rounded, if necessary, to the nearest one hundred-thousandth of a
percent) of such offered rates determined by the Calculation Agent. If
fewer than two offered rates appear, LIBOR in respect of the related LIBOR
Interest Determination Date will be determined as if the parties had
specified the rate described in clause (ii) below. "Reuters Screen LIBO
Page" means the display designated as Page "LIBO" on the Reuters Monitor
Money Rate Service (or such other page as may replace the LIBOR Page on
that service for the purpose of displaying London interbank offered rates
of major banks).
(ii) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear on the Reuters Screen LIBO Page as specified
in clause (i) above, the Calculation Agent will request the principal
London offices of each of four major banks in the London interbank market,
as selected by the Calculation Agent (after consultation with and agreement
by the Company), to provide the Calculation Agent with its offered
quotation for deposits in United States dollars for the period of the Index
Maturity designated in the applicable Pricing Supplement, commencing on the
second London Business Day immediately following such LIBOR Interest
Determination Date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such LIBOR Interest Determination
Date and in a principal amount that is representative for a single
transaction in such market at such time. The Calculation Agent will request
the principal London office of each of such banks to provide a quotation of
its rate. If at least two such quotations are provided, LIBOR determined on
such LIBOR Interest Determination Date will be the arithmetic mean of such
quotations. If fewer than two quotations are provided, LIBOR determined on
such LIBOR Interest Determination Date will be the arithmetic mean of the
offered rates quoted at approximately 11:00 A.M., New York City time, on
such LIBOR Interest Determination Date by three major banks in The City of
New York selected by the Calculation Agent (after consultation with and
agreement by the Company) for loans in United States dollars to leading
European banks, having the Index Maturity designated in the applicable
Pricing Supplement and in a principal amount that is representative for a
single transaction in such market at such time; provided, however, that if
any of the banks so selected by the Calculation Agent are not quoting as
mentioned in this sentence, LIBOR determined on such LIBOR Interest
Determination Date will be LIBOR in effect on such LIBOR Interest
Determination Date.
<PAGE> 16
Prime Rate. Prime Rate Notes will bear interest at the rates (calculated
with reference to the Prime Rate and the Spread and/or Spread Multiplier,
if any) specified in such Prime Rate Notes and in any applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date relating to a
Prime Rate Note or any Floating Rate Note for which the interest rate is
determined with reference to the Prime Rate (a "Prime Rate Determination
S-10
Date") the rate on that day set forth in H.15(519) opposite the caption
"Bank Prime Loan". If such rate is not yet published in H.15(519) by 3:00
P.M., New York City time, on the Calculation Date, the Prime Rate will be
the arithmetic mean of the rates of interest publicly announced by each
bank that appears on the Reuters Screen NYMF Page (as defined below) as
such bank's prime rate or base lending rate as in effect for such Prime
Rate Determination Date. If fewer than four such rates appear on such
Reuters Screen NYMF Page for such Prime Rate Determination Date, the Prime
Rate will be determined by the Calculation Agent and will be the arithmetic
mean of the prime rates quoted on the basis of the actual number of days in
the year divided by a 360-day year as of the close of business on such
Prime Rate Determination Date by three, or two if only two such rates are
quoted, major money center banks in New York City selected by the
Calculation Agent (after consultation with and agreement by the Company).
If fewer than two such rates are quoted as aforesaid, the Prime Rate will
be determined by the Calculation Agent on the basis of the prime rates
quoted in New York City by three, or two if only two are available,
substitute banks or trust companies organized and doing business under the
laws of the United States, or any State thereof, having total equity
capital of at least $500 million and being subject to supervision or
examination by a Federal or State authority, selected by the Calculation
Agent (after consultation with and agreement by the Company) to provide
such rates; provided, however, that if fewer than two of such substitute
banks or trust companies selected as aforesaid by the Calculation Agent are
not quoting as mentioned in this sentence, the Prime Rate will be the Prime
Rate then in effect on such Prime Rate Determination Date. "Reuters Screen
NYMF Page" means the display designated as page "NYMF" on the Reuters
Monitor Money Rates Service (or such other page as may replace the NYMF
page on that service for the purpose of displaying prime rates or base
lending rates of major United States banks).
Treasury Rate. Treasury Rate Notes will bear interest at the rates
(calculated with reference to the Treasury Rate and the Spread and/or
Spread Multiplier, if any) specified in such Treasury Rate Notes and in any
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Treasury Rate" means, with respect to any Interest Determination Date
relating to a Treasury Rate Note or any Floating Rate Note for which the
interest rate is determined by reference to the Treasury Rate (a "Treasury
Rate Interest Determination Date"), the rate applicable to the most recent
auction of direct obligations of the United States ("Treasury Bills")
having the Index Maturity specified in the applicable Pricing Supplement,
<PAGE> 17
as such rate is published in H.15(519) under the heading "U.S. Government
Securities/Treasury Bills-auction average (investment)" or, if not
published by 3:00 P.M., New York City time, on the related Calculation
Date, the auction average rate (expressed as a bond equivalent on the basis
of a year of 365 or 366 days, as applicable, and applied on a daily basis)
as otherwise announced by the United States Department of Treasury. In the
event that the results of the auction of Treasury Bills having the Index
Maturity designated in the applicable Pricing Supplement are not reported
as provided by 3:00 P.M., New York City time, on such Calculation Date, or
if no such auction is held in a particular week, then the Treasury Rate
will be calculated by the Calculation Agent and will be a yield to maturity
(expressed as a bond equivalent on the basis of a year of 365 or 366 days,
as applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates, as of approximately 3:30 P.M., New York City
time, on such Treasury Rate Interest Determination Date, of three leading
primary United States government securities dealers (which may include one
or more of the Agents) selected by the Calculation Agent (after
consultation with and agreement by the Company), for the issue of Treasury
Bills with a remaining maturity closest to the Index Maturity designated in
the applicable Pricing Supplement; provided, however, that if any of the
dealers so selected by the Calculation Agent are not quoting as mentioned
in this sentence, the Treasury Rate with respect to such Treasury Rate
Interest Determination Date will be the Treasury Rate in effect on such
Treasury Rate Interest Determination Date.
OTHER PROVISIONS; ADDENDA
Any provisions with respect to the determination of an Interest Rate
Basis, the specification of Interest Rate Basis, calculation of the
interest rate applicable to a Fixed or Floating Rate Note, its Interest
Payment Dates or any other matter relating thereto may be modified by the
terms as specified under "Other Provisions" on the face thereof or in an
Addendum relating thereto, if so specified on the face thereof and in the
applicable Pricing Supplement.
S-11
ORIGINAL ISSUE DISCOUNT NOTES
Notes may be issued at a price less than their redemption price at
Maturity, resulting in such Notes being treated as issued with original
issue discount for United States federal income tax purposes ("Original
Issue Discount Notes"). Such Original Issue Discount Notes may currently
pay no interest or interest at a rate which at the time of issuance is
below market rates. Certain additional considerations relating to any
Original Issue Discount Notes may be described in the Pricing Supplement
relating thereto.
INDEXED NOTES
Notes also may be issued with the principal amount payable at Maturity
and/or interest to be paid thereon to be determined with reference to the
price or prices of specified commodities or stocks, the exchange rate of
one or more specified currencies (including a composite currency such as
the European Currency Unit) relative to an indexed currency, or such other
<PAGE> 18
price or exchange rate as may be specified in such Note ("Indexed Notes"),
as set forth in an Indexed Note Supplement. Holders of such Notes may
receive a principal amount at Maturity that is greater than or less than
the face amount of the Notes depending upon the relative value at Maturity
of the specified indexed item. Information as to the method for determining
the principal amount payable at Maturity, certain historical information
with respect to the specified indexed item and tax considerations
associated with investment in Indexed Notes will be set forth in the
applicable Indexed Note Supplement.
BOOK-ENTRY NOTES
Upon issuance, all Book-Entry Notes having the same Original Issue Date,
Stated Maturity and otherwise having identical terms and provisions will be
represented by a single global security (each, a "Global Security");
provided, however, that if by reason of the foregoing, a single Global
Security would exceed $150,000,000 in aggregate principal amount, one
Global Security will be issued to represent each $150,000,000 of aggregate
principal amount and an additional Global Security will be issued to
represent any remaining principal amount. Each Global Security representing
Book-Entry Notes will be deposited with, or on behalf of, the Depository,
registered in the name of the Depository or a nominee thereof. Except as
set forth below, a Global Security may not be transferred except as a whole
by the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository or by the
Depository or any nominee to a successor of the Depository or a nominee of
such successor.
The Depository Trust Company, New York, New York, will be the initial
Depository with respect to the Notes. The Depository has advised the
Company and the Agents that it is a limited-purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as
amended. The Depository was created to hold securities of its participants
("Participants") and to facilitate the clearance and settlement of
securities transactions among its Participants in such securities through
electronic book-entry changes in accounts of the Participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's Participants include securities brokers and dealers (including
the Agents), banks, trust companies, clearing corporations and certain
other organizations. The Depository is owned by a number of Participants
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc.
and the National Association of Securities Dealers, Inc. Access to the
Depository's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities held by
the Depository only through Participants.
Upon the issuance of the Notes represented by a Global Security, the
Depository will credit, on its book-entry registration and transfer system,
the principal amounts of the Notes represented by such Global Security to
the accounts of Participants. The accounts to be credited will be
designated by the relevant Agent.
S-12
<PAGE> 19
Ownership of beneficial interests in the Global Security will be limited
to Participants or persons that hold interests through Participants.
Ownership of beneficial interest in the Notes will be shown on, and the
transfer of that ownership will be effected only through, records
maintained by the Depository (with respect to interests of Participants in
the Depository), or by Participants in the Depository or persons that may
hold interest through such Participants (with respect to persons other than
Participants in the Depository). The laws of some states require that
certain purchasers of securities take physical delivery of such securities
in definitive form. Such limitations and such laws may impair the ability
of beneficial owners of the Notes to transfer beneficial interests in a
Global Security.
SO LONG AS THE DEPOSITORY FOR A GLOBAL SECURITY, OR ITS NOMINEE, IS THE
REGISTERED OWNER OF SUCH GLOBAL SECURITY, THE DEPOSITORY OR ITS NOMINEE, AS
THE CASE MAY BE, WILL BE CONSIDERED THE SOLE OWNER OR HOLDER OF THE NOTES
REPRESENTED BY SUCH GLOBAL SECURITY FOR ALL PURPOSES UNDER THE INDENTURE.
EXCEPT AS PROVIDED BELOW, OWNERS OF BENEFICIAL INTERESTS IN THE NOTES
REPRESENTED BY A GLOBAL SECURITY WILL NOT BE ENTITLED TO HAVE THE NOTES
REPRESENTED BY SUCH GLOBAL SECURITY REGISTERED IN THEIR NAMES, WILL NOT
RECEIVE OR BE ENTITLED TO RECEIVE PHYSICAL DELIVERY OF THE NOTES IN
DEFINITIVE FORM AND WILL NOT BE CONSIDERED THE OWNERS OR HOLDERS THEREOF
UNDER THE INDENTURE. Accordingly, each Person owning a beneficial interest
in a Global Security must rely on the procedures of the Depository and, if
such Person is not a Participant, on the procedures of the Participant
through which such Person owns its interest, to exercise any rights of a
Holder under the Indenture. The Company understands that under existing
industry practices, in the event that the Company requests any action of
Holders or that an owner of a beneficial interest in such a Global Security
desires to give or take any action which a Holder is entitled to give or
take under the Indenture, the Depository would authorize the Participants
holding the relevant beneficial interests to give or take such action, and
such Participants would authorize beneficial owners owning through such
Participants to give or take such action or would otherwise act upon the
instructions of beneficial owners through them. Conveyance of notices and
other communications by the Depository to Participants, by Participants to
indirect Participants, and by Participants and indirect Participants to
beneficial owners of interests in the Global Security will be governed by
arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Payments of principal of and interest on the Notes will be made by the
Company through the Trustee to the Depository or its nominee, as the case
may be, as the registered owner of a Global Security. Neither the Company
nor the Trustee will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests of a Global Security or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests. The Company
expects that the Depository, upon receipt of any payment of principal or
interest in respect of a Global Security, will credit the accounts of the
related Participants with payment in amounts proportionate to their
respective holdings in principal amount of beneficial interest in such
Global Security as shown on the records of the Depository. The Company also
expects that payments by Participants to owners of beneficial interests in
a Global Security will be governed by standing customer instructions and
<PAGE> 20
customary practices, as is now the case with securities held for the
accounts of customers in bearer form or registered in "street name" and
will be the responsibility of such Participants.
If (x) the 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 the Global Securities shall be
exchangeable or (z) an Event of Default has occurred and is continuing with
respect to the Notes, the Global Securities will 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. It is expected that such
instructions may be based upon directions received by the Depository from
Participants with respect to ownership of beneficial interests in such
Global Securities.
S-13
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the Distribution Agreement, the
Notes are being offered on a continuing basis for sale by the Company
through one or more of the Agents, who have agreed to use their reasonable
efforts to solicit offers to purchase the Notes and the Company may also
sell Notes to an Agent, as principal, for resale to investors and other
purchasers at varying prices related to prevailing market prices at the
time of resale to be determined by such Agent or, if so agreed, at a fixed
public offering price. The Company also reserves the right to sell Notes
directly on its own behalf or through additional agents, acting either as
agent or principal, on substantially identical terms as those applicable to
the Agents. The Company reserves the right to withdraw, cancel or modify
the offer made hereby without notice and may reject orders in whole or in
part whether placed directly with the Company or through one of the Agents.
The Agents will have the right, in their discretion reasonably exercised,
to reject in whole or in part any offer to purchase Notes received by them.
The Company will pay the related Agent, in the form of a discount or
otherwise, a commission, ranging from .125% to .750%, depending on the
Stated Maturity of the Note (or, with respect to Notes for which the Stated
Maturity is in excess of 30 years, such commission as shall be agreed upon
by the Company and the related Agent at the time of sale), of the principal
amount of any Note sold through such Agent.
In addition, with the Company's consent, the Agents may offer the Notes
they have purchased as principal to other dealers. The Agents may sell
Notes to any dealer at a discount and, unless otherwise specified in the
applicable Pricing Supplement, such discount allowed to any dealer will not
be in excess of 66 2/3% of the discount to be received by such Agent from
the Company. Unless otherwise indicated in the applicable Pricing
Supplement, any Note sold to an Agent as principal will be purchased by
such Agent at a price equal to 100% of the principal amount thereof less a
percentage equal to the commission applicable to any agency sale of a Note
of identical maturity, and may be resold by the Agent to investors and
other purchasers from time to time in one or more transactions, including
<PAGE> 21
negotiated transactions, at a fixed public offering price or at varying
prices determined at the time of sale or may be resold to certain dealers
as described above. After the initial public offering of Notes to be resold
to investors and other purchasers on a fixed public offering price basis,
the public offering price, concession and discount may be changed.
Unless otherwise specified in an applicable Pricing Supplement, payment
of the purchase price of the Notes will be required to be made in
immediately available funds in New York City on the date of settlement.
No Note will have an established trading market when issued. The Notes
will not be listed on any securities exchange. Each of the Agents may from
time to time purchase and sell Notes in the secondary market, but no Agent
is obligated to do so, and there can be no assurance that there will be a
secondary market for the Notes or liquidity in the secondary market if one
develops. From time to time, each of the Agents may make a market in the Notes.
Each Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). The Company has
agreed to indemnify the Agents against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments the
Agents may be required to make in respect thereof. The Company has agreed
to reimburse each of the Agents for certain expenses.
In the ordinary course of their respective business, certain of the Agents
and/or their affiliates engage and may in the future engage in commercial
banking and investment banking transactions with the Company and affiliates
of the Company.
S-14
<PAGE> 22
PROSPECTUS
MCDONNELL DOUGLAS CORPORATION
DEBT SECURITIES AND DEBT WARRANTS
McDonnell Douglas Corporation (the "Company") from time to time may offer
and sell up to $218,000,000 aggregate principal amount (or net proceeds in
the case of securities issued at an original issue discount), or its
equivalent, based on the applicable exchange rate at the time of offering,
in such foreign currencies, units or composites of two or more thereof as
shall be designated by the Company at the time of offering, of its debt
securities (the "Debt Securities") and of warrants to purchase Debt
Securities (the "Debt Warrants"). As of the date of this Prospectus,
$125,000,000 of the Debt Securities are outstanding. The Debt Securities
and Debt Warrants, which are collectively referred to herein as the
"Securities," may be offered in one or more separate series in amounts,
at prices and on terms to be determined at the time of sale. The Company
may sell Securities to or through dealers, acting as principals for their
own account or as agents, and also may sell Securities directly to other
purchasers. See "Plan of Distribution."
The Debt Securities will be unsecured obligations of the Company and will
rank equally with all other unsecured and unsubordinated indebtedness of
the Company. See "Description of Debt Securities" and "Description of Debt
Warrants".
The terms of the Securities, including, where applicable, the specific
designation, aggregate principal amount, authorized denominations,
maturity, interest rate (which may be fixed or variable) and time of
payment of interest, if any, terms for any extension, redemption or
repayment at the option of the Company or the holder, terms for sinking
fund payment, if any, whether the Securities are Debt Securities or Debt
Warrants, the initial public offering price or purchase price, the names
of, and the principal amounts to be purchased by dealers, if any, the
compensation of such dealers and the proceeds to be received by the Company
and the other terms in connection with the offering and sale of the
Securities in respect of which this Prospectus is being delivered, are set
forth in the accompanying Prospectus Supplement (the "Prospectus
Supplement"). As used herein, Securities shall include securities
denominated in United States dollars or, at the option of the Company if so
specified in the applicable Prospectus Supplement, in any other currency or
units or composite currencies or in amounts determined by reference to an
index.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
<PAGE> 23
The Securities may be sold to underwriters for public offering pursuant
to terms of an offering fixed at the time of sale. Such underwriters may
include, or may be a group of underwriters represented by, Merrill Lynch,
Pierce, Fenner & Smith Incorporated or one or more other firms. In
addition, the Securities may be sold by the Company directly or through
agents. No Securities may be sold without delivery of a Prospectus
Supplement describing such issue of Securities and the method and terms of
offering thereof.
----------------
The Date of this Prospectus is April 28, 1994.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") Registration Statements on Form S-3 with respect to the
Securities under the Securities Act of 1933, as amended (the "Act"). This
Prospectus does not contain all of the information set forth in such
Registration Statements, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information
pertaining to these Securities and the Company, reference is made to the
Registration Statements. The Company is subject to the informational
requirements of the Securities Exchange Act of 1934 (the "Exchange Act")
and in accordance therewith files reports and other information with the
Commission. Reports, information statements and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following Regional Offices of the Commission: Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and New York Regional Office, Seven World Trade Center,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Company's common stock is
listed on the New York Stock Exchange and Pacific Stock Exchange. Reports,
proxy and information statements and other information concerning the
Company may also be inspected at the offices of the New York Stock Exchange
and Pacific Stock Exchange.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1993, as filed with the Commission, is hereby incorporated by reference
into this Prospectus and made a part hereof.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from
the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein, or contained
in this Prospectus, shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this Prospectus.
<PAGE> 24
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a
copy (without exhibits) of any or all documents incorporated by reference
into this Prospectus. Requests for such copies should be directed to Mr.
James F. Palmer, Vice President-Treasurer, McDonnell Douglas Corporation,
P.O. Box 516, Mailcode 1001330, St. Louis, Missouri 63166-0516; telephone
number (314) 234-7032.
Unless otherwise indicated, currency amounts in this Prospectus and the
Prospectus Supplement are stated in United States dollars ("U.S. dollars,"
"dollars," "$" or "U.S. $").
2
THE COMPANY
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"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" herein for a discussion of recent developments relating to the
Company.
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 combined 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.
<PAGE> 25
Through its McDonnell Douglas Financial Services Corporation ("MDFS")
subsidiary, the Company is engaged in aircraft financing and commercial
equipment leasing. The Company's subsidiary, McDonnell Douglas Realty
Company ("MDRC"), was established in 1972 to develop the Company's surplus
real estate. While continuing to serve that role, MDRC has become a full-
service developer and property manager in the commercial real estate market
as well as for the Company's aerospace business.
The Company is a major participant in both the defense and the commercial
aerospace industries. The Company has a wide range of programs in
production and development, and is the world's leading producer of military
aircraft. Since 1987, the Company has been the largest U.S. defense
contractor, based on the Department of Defense's list of prime contract
awards and one of the larger NASA prime contractors based on prime
contracts awarded. The Company is one of the three principal manufacturers
of large commercial transport aircraft outside the former Soviet Union.
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.
MILITARY AIRCRAFT
The Company's McDonnell Douglas Aerospace division is currently producing
the F-15 Eagle, the F/A-18 Hornet, the C-17 Globemaster III, the AV-8B
Harrier II, and the T-45 Goshawk and military training systems. The F-15
Eagle is a supersonic, tactical fighter that is currently operated by the
U.S. Air Force, Japan, Saudi Arabia and Israel. The F/A-18 Hornet is a
multi-mission strike fighter produced primarily for the U.S. Navy and
Marine Corps. The F/A-18 Hornet is also currently operated by Canada,
Australia, Spain and Kuwait, and has been selected by Finland, Switzerland,
and Malaysia. The Company is the prime contractor for the U.S. Air Force C-
17 Globemaster III military transport. The C-17 is designed to carry
outsize cargo into austere airfields. The AV-8B Harrier II is a
3
vertical/short takeoff and landing attack aircraft which began U.S. Marine
Corps service in January 1984. The AV8B Harrier II is also currently
operated by the United Kingdom, Spain, and Italy. The T-45 Goshawk is a
carrier capable single engine trainer which the U.S. Navy selected in 1984
to replace its intermediate T-2C and advanced TA-4J trainers. McDonnell
Douglas Helicopter Company, which operationally is part of the McDonnell
Douglas Aerospace division, currently produces the AH-64 Apache, an
advanced attack helicopter for the U.S. Army, Israel, Egypt, Saudi Arabia,
United Arab Emirates, and Greece. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" herein for further
discussion.
MISSILES, SPACE AND ELECTRONIC SYSTEMS
The Company, through its McDonnell Douglas Aerospace division, is also
engaged in a wide variety of programs in tactical missiles, combat weapons
and related systems. The division produces several missile systems,
including the Harpoon anti-ship missile, the Standoff Land Attack Missile
and the Tomahawk cruise missile.
<PAGE> 26
In addition, the McDonnell Douglas Aerospace division includes the Delta
Launch Vehicle, Space Products, Space Station, Strategic Defense, and
Advanced Product Development and Technology businesses and technical
services business. The McDonnell Douglas Aerospace division also develops
and produces a variety of defense and electronic systems and products,
including commercial and military aircraft avionics; command and
information systems; surveillance, detection, and tracking systems; and
laser systems for communications and electro-optical measures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" herein for further discussion.
COMMERCIAL AIRCRAFT
The Company, through DAC, is 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. The MD-90 is an advanced derivative of
the MD-80, featuring additional seat capacity and new fuel-efficient
engines with reduced noise and exhaust emissions. Initial customer
deliveries of the MD-90 are scheduled for early 1995. The MD-11 is an
advanced technology trijet designed to fulfill airline needs in the 1990s
and beyond. Current customers for the Company's commercial transport
aircraft include American Airlines, Delta Air Lines and Federal Express
Corporation in the United States; and Alitalia, China Eastern, Garuda,
Japan Airlines, KLM Royal Dutch Airlines, Korean Air, Swissair, and Varig,
among international carriers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" herein for further
discussion.
FINANCIAL SERVICES
MDFS, headquartered in Long Beach, California, is the parent company of
McDonnell Douglas Finance Corporation ("MDFC"), a subsidiary that is
engaged in aircraft financing and commercial equipment leasing. During 1991
and 1992, MDFS significantly scaled back its operations, disposed of
certain selected lines of business and assets, and focused its new business
efforts almost entirely within its two core business lines, aircraft
financing and commercial equipment leasing. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" herein for
further discussion. MDRC, a subsidiary of the Company, was established to
develop the Company's surplus real estate. MDRC has since become a full-
service developer and property manager in the commercial real estate
market. MDRC is active in developing property adjacent to the Company's
offices and plants, and is involved in other property and construction
projects that are not connected with the Company's own requirements.
ADDRESS OF COMPANY
The Company's principal executive offices are located at the intersection
of J.S. McDonnell Boulevard and Airport Road, P.O. Box 516, St. Louis,
Missouri 63166-0516; telephone (314) 232-0232.
4
<PAGE> 27
SUMMARY FINANCIAL INFORMATION
The following tables present selected consolidated financial information
concerning the Company and its consolidated subsidiaries. The information
in the tables and the notes thereto should be read in conjunction with the
consolidated financial statements and related notes thereto contained in
the Company's Annual Report on Form 10-K for the year ended December 31,
1993. See "Incorporation of Certain Documents by Reference."
The Company's results frequently vary significantly from period to
period. Because of a number of factors, including declining defense
spending and the continuing depressed condition of the commercial aircraft
business, it is likely that the Company's net earnings and revenues will
continue to fluctuate.
<PAGE> 28
<TABLE>
<CAPTION> YEARS ENDED DECEMBER 31,
-----------------------------------------------
1993 1992 1991 1990 1989
------- ------- ------- ------- ------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS(1)
Revenues by industry
segment:(2)
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(2)... 14,474 17,354 18,045 15,488 13,930
Earnings (loss) from
continuing operations
before cumulative
effect of accounting
change................. 359 698 (3) 357 258(5) (30)
Per share.............. 9.17 17.97 (3) 9.32 6.73(5) (.78)
Net earnings (loss)..... 396 (781)(4) 423 306(5) 219(6)
Per share.............. 10.10 (20.10)(4) 11.03 7.99(5) 5.72(6)
Interest expense:
Aerospace segments(2).. 89(7) 309 232(7) 343 335
Financial services and
other segment......... 126 159 221 233 198
------- ------- ------- ------- -------
Total(2)............ 215 468 453 576 533
BALANCE SHEET INFORMATION(1)
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
OTHER INFORMATION(8)
Firm backlog.......... $19,379 $24,052 $30,448 $36,544 $32,531
Total backlog(9)...... $35,698 $41,806 $42,577 $52,770 $50,230
Ratio of Earnings to
Fixed
Charges(1)(2)(10)...... 2.8x 3.1x 2.2x 1.6x .8x
</TABLE>
(Notes to table appear on following page.)
5
<PAGE> 29
- --------
(1) Summary of Operations Information, Balance Sheet Information and Ratio
of Earnings to Fixed Charges have been restated to reflect discontinued
operations. The captions "military aircraft" and "commercial aircraft" were
shown as "combat aircraft" and "transport aircraft" prior to 1992.
"Military aircraft" now includes the former "combat aircraft" segment plus
the C-17 program and other minor military programs previously included in
the "transport aircraft" segment.
(2) 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.
(3) Includes a gain of $676 million ($17.40 per share) from a
postretirement benefit curtailment relating to Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employer's Accounting for
Postretirement Benefits Other Than Pensions."
(4) Includes a net charge of $860 million ($22.13 per share) relating to
the initial adoption and subsequent curtailment gain associated with SFAS
No. 106.
(5) Includes $376 million earnings ($9.82 per share) from pension
settlement.
(6) Includes earnings from the cumulative effect of an accounting change
of $179 million ($4.68 per share).
(7) Includes reduction of $107 million in 1991 and $135 million in 1993 to
reflect the reversal of previously accrued IRS settlement related interest
expense. See "Management's Discussion and Analysis--Interest Expense."
(8) Unaudited.
(9) Total backlog includes firm backlog plus (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. Backlog is that of the
aerospace segments. Customer options and products produced for short-term
lease are excluded from backlog.
(10) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" have been calculated by adding interest expense (including
amortization of capitalized interest) and the portion of rentals estimated
to represent the interest factor to earnings (loss) from continuing
operations before income taxes and cumulative effect of accounting change,
and eliminating therefrom the undistributed earnings of less than 50% owned
affiliates. "Fixed charges" include interest charges (including capitalized
interest) and the portion of rentals estimated to represent the interest
factor. For the year ended December 31, 1989 earnings of the Company were
inadequate to cover fixed charges and the amount of such deficiency was
$124 million.
6
<PAGE> 30
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 contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1993.
OVERVIEW
The Company exceeded all of its key financial goals in 1993 with the
exception of achieving positive earnings on the C-17 program. The key
financial goals set by the Company were: substantially reducing aerospace
debt, achieving a positive cash flow on the MD-11 trijet, improving
earnings per share beyond analysts' expectations, and achieving positive
earnings on the C-17 program. 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. The Company's trijet, the MD-11, had a positive
cash flow 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, the Company 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. The Company 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. The Company'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
the Company's other business segments. The following table allocates the
Company'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 the Company.
<PAGE> 31
<TABLE>
<CAPTION>
FINANCIAL
SERVICES
AEROSPACE AND OTHER
SEGMENTS SEGMENT TOTAL
---------------------------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
DECEMBER 31, 1993
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
====== ======
DECEMBER 31, 1992
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>
7
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. The Company 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.
Commercial Aircraft. The Company 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 would result in
approximately 20 MD-80 twin jet and 20 MD-11 trijet deliveries in 1994. The
Company 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.
<PAGE> 32
C-17 Globemaster III. During 1993 and 1992, the Company 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 "Results of Operations," page 10 and
"Government Business Audits, Reviews and Investigations," page 18.
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 claims revenues expected to be
collected as part of the settlement. The Company's 1993 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, the Company 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, the Company recorded loss provisions totaling $383
million, which 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.
Since 1990, the Air Force has reduced the progress payments to the
Company 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
the Company's estimate at completion. In addition, during 1992 the Air
Force questioned the Company'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 the Company to production lots. As
of December 31, 1993, the Air Force had withheld approximately $312 million
from the Company's progress payment requests on the C-17 contracts
principally as a result of higher cost estimates and the sustaining
engineering reclassification.
8
A-12. The Navy on January 7, 1991, notified the Company 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.
<PAGE> 33
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 Company and
General Dynamics Corporation ("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 the Company 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 the Company
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.
The Company firmly believes it is entitled to continuation of the deferment
agreement in accordance with its terms. However, if the agreement is not
continued, the Company intends to contest collection efforts. If payments
of the deferred amount were required, such payments would have a material
adverse effect on the Company's cash flows.
At December 31, 1993, Contracts in Process and Inventories include
approximately $508 million of recorded costs on the A-12 contract, against
which the Company has established a loss provision of $350 million. The
amount of the provision, which was established in 1990, is based on the
Company's belief that 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 reasonable possible results on
termination for convenience and that it is prudent to provide for what the
Company believes is the upper range of possible loss on termination for
convenience, namely $350 million. In the Company's opinion, this loss
provision continues to provide adequately for the reasonable 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. The
Company 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 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 the Company'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.
The Company 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, the Company reported no loss on the contract (including the first
<PAGE> 34
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 the Company established
a pre-tax provision of $350 million for loss on the contract.
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 18.
9
RESULTS OF OPERATIONS
The Company 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, the Company'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. The Company 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
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 Internal Revenue Service ("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> 35
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 measurement date
(December 31, 1993), the Company recognized decreasing long-term interest
rates by reducing the discount rate used to project pension liabilities
from 9% to 7.5%. As a result, pension credits are expected to be moderately
lower in 1994 than in 1993.
In 1993, the Company 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 the Company's future
operating results.
10
<PAGE> 36
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1993 1992 1991
------- ------- ------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
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
------- ------- ------
Total Revenues............................. $14,487 $17,365 $18,061
======= ======= =======
EARNINGS (LOSS)
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 from
continuing operations .................. 492 321 866
Non-operating income....................... (5) (4) (13)
Discontinued operations ................... 37 57 66
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)
------- ------- ------
Net Earnings (Loss)........................ $ 396 $ (781) $ 423
======= ======= =======
</TABLE>
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
<PAGE> 37
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.
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.
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
11
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. The Company 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. The Company
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
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
<PAGE> 38
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. The Company 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. Deferred costs in total on the MD-11 program decreased in 1993. Due
to costs on the MD-11 program not declining as rapidly as planned, the
Company raised its cost estimate for the total program during the second
quarter of 1992. As a result, under the program-average cost method, the
Company 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.
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.
12
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> 39
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 the Company 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. The Company's missile programs had significantly higher
operating earnings due to the realization of lower costs brought about by a
Company-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 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 release 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.
13
<PAGE> 40
INTEREST EXPENSE
Interest expense allocated between the aerospace segments and financial
services and other segment is shown below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
- --------------------------- ---- ---- ----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Aerospace segments .. ................. $ 89 $309 $232
Financial services and other segment. . 126 159 221
---- ---- ---
$215 $468 $453
==== ==== ====
</TABLE>
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, the Company settled tax
years 1977-1985 with the IRS and all issues for this period were resolved.
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.
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 the Company's sale of substantially all of the
assets of McDonnell Douglas Systems Integration Company and certain related
assets of MDISI.
LIQUIDITY
As detailed in the following, the Company 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 9, for a discussion of
the A-12 deferment status.
<PAGE> 41
Debt and Credit Arrangements. The Company has in place a number of credit
facilities with banks and other institutions. At December 31, 1993, the
Company 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 the Company 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, the Company commenced an offering of up to $550 million
aggregate principal amount of its medium-term notes. As of December 31,
1993, $218 million of securities registered under the shelf registration
remain unissued.
Amounts available under the revolving credit agreement and the medium-
term note program 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 the Company and its consolidated
subsidiaries, taken as a whole.
14
On December 22, 1993 the Company 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, the Company 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.
Under both agreements, the Company 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, the Company 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.
On March 31, 1994, Moody's Investors Service Inc. (Moody's) raised its
ratings of the Company's and MDFC's debt. The Company's senior debt rating
was raised to Baa-3 from Ba-2, while its short-term debt rating for
commercial paper was raised to Prime-3 from Not Prime. Ratings on the
senior debt of MDFC were raised to Baa-3 from Ba-1, its subordinated debt
was raised to Ba-2 from Ba-3, and its shelf registration ratings to (P) Baa-
3 and (P) Ba-2 from (P) Ba-1 and (P) Ba-3, respectively. MDFC's short-term
debt rating for commercial paper was raised to Prime-3 from Not Prime.
On March 17, 1994, Duff & Phelps placed the Company on Credit Watch-Up for
a possible upgrade of its debt ratings. This action did not affect MDFC.
<PAGE> 42
During 1993, the Company 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 the Company's senior unsecured debt.
Additionally, Duff & Phelps assigned ratings of BBB and BBB- to MDFC's
senior unsecured debt and subordinated debt, respectively. In September
1992, Standard and Poor's affirmed the Company's senior long-term debt
credit rating at BBB and short-term debt rating for commercial paper at A-
3.
Taxes. In November 1991, the Company settled tax years 1977-1985 with the
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. The Company 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, the Company 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.
C-17 Settlement. As previously discussed, the Company 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.
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.
15
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, the Company, 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. The Company 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 the Company 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. The Company also
<PAGE> 43
has outstanding guarantees of $251 million related to the marketing of
commercial aircraft. The Company 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 the Company to repurchase used aircraft at the option
of the commercial customers. In view of the current market conditions for
used aircraft, the Company'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.
Capital Expenditures. The Company's capital expenditures were $64 million
in 1993, $217 million in 1992, and $171 million in 1991. At December 31,
1993, the Company 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. The Company 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 the Company'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. The Company 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.
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
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 the
Company. 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.
<PAGE> 44
BUSINESS AND MARKET CONSIDERATIONS
GENERAL
The Company is a major participant in both the defense and commercial
aerospace industries. The Company has a wide range of programs in
production and development, and is the world's leading producer of military
aircraft. Since 1987, the Company has been the largest U.S. defense
contractor, based on the
16
DoD's list of prime contract awards and one of the larger NASA prime
contractors based on prime contracts awarded. The Company is one of the
three principal manufacturers of large commercial transport aircraft
outside the former Soviet Union. 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.
The Company'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 the Company over the last several
years. The Company 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.
The downsizing has had and continues to have a negative impact on the
utilization of the Company's facilities and capacity, and on labor costs
due to inefficiencies caused by the reassignment of workers as a result of
layoffs. During 1992, the Company 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. The Company 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, the Company: 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. The Company
continues to pursue a possible strategic alliance with organizations
throughout the world in order to support the commercial aircraft segment.
<PAGE> 45
MILITARY AEROSPACE BUSINESS
The Company'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 the
Company'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 the Company 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.
The Company 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 the Company opportunities for increased
profits if costs are lower than expected, risk of loss due to increased
cost is also borne by the Company.
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
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.
17
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 the Company. 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 the Company'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 the Company's
future operating results. Production contracts awarded under the FY 94
budget will generally continue through 1996.
<PAGE> 46
COMMERCIAL AIRCRAFT BUSINESS
The Company 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, the
Company 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 the Company's retention of
progress payments on firm orders. See also "Backlog," page 20, 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. The Company 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, the Company believes it
will be in a good position to capture profitable new orders.
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, the Company is continuing to
pursue strategic alliances with organizations through-out the world. Over
the past few years, the Company 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 the
Company will reach an agreement with potential risk-sharing subcontractors
or equity investors.
GOVERNMENT BUSINESS AUDITS, REVIEWS AND INVESTIGATIONS
The Company, 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
18
<PAGE> 47
awards. The Government may, in certain cases, also terminate existing
contracts, recover damages, and impose other sanctions and penalties. Based
upon presently known facts, the Company 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 the Company'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 the Company 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. The Company believes that it has properly
reported and disclosed information and accounted for its programs in
accordance with generally accepted accounting principles.
In January 1993, the DoD Inspector General ("IG") completed an inquiry
into an allegation of favoritism and advantageous treatment accorded the
Company 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 the
Company personnel. The Company 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 the Company 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 the Company that exceeded the limits of what was permissible.
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, the Company
provided data and participated in numerous discussions. The DoD, in
conjunction with the DAB, submitted a proposal to the Company in December
1993 for a business settlement of a variety of issues concerning the C-17
program. In January 1994, the Company and the DoD agreed to such a
settlement. The Company 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. Terms of the settlement also stipulated that the Company will
expend additional funds in an effort to achieve product and systems
improvements.
<PAGE> 48
The Company 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. 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.
19
ENVIRONMENTAL EXPENDITURES
The Company 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 the Company.
Compliance with such regulations has not had a material effect on earnings
or the financial condition of the Company; however, the costs of complying
with environmental regulations is increasing.
The Company 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. The Company has
been identified as a potentially responsible party ("PRP") at 28 sites. Of
these, the Company 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 the Company'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, the
Company 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. The Company estimates total
reasonably possible costs of approximately $48 million for study and
remediation expenditures at Superfund sites and at the Company's current
and former operating sites, of which $21 million is accrued at December 31,
1993.
BACKLOG
Several risk factors should be considered in evaluating the Company'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.
<PAGE> 49
INFLATION
The effects of inflation have not been significant to the Company 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.
20
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the
Securities to finance inventories, to provide other working capital, to
repay short-term and/or long-term borrowings and for general corporate
purposes. Management of the Company expects that it will, on a recurrent
basis, engage in additional financings as the need arises to finance the
operations of the Company and its subsidiaries or to lengthen the average
maturity of its borrowings.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an indenture, as amended (the
"Indenture"), between the Company and The Bank of New York, as trustee
("Trustee"). A copy of the Indenture is filed as an exhibit to the
Registration Statement. The Indenture provides that there may be more than
one Trustee thereunder, each with respect to one or more series of Debt
Securities.
The following information concerning the Debt Securities and certain
provisions of the Indenture is intended to provide a summary thereof and
does not purport to be complete and is subject to, and qualified in its
entirety by reference to, all of the provisions of the Indenture, including
the definitions therein of certain terms. Wherever reference is made to
defined terms (which are capitalized herein) of the Indenture, such defined
terms are incorporated herein by reference.
GENERAL
Reference is made to the Prospectus Supplement relating to a particular
series of Debt Securities offered thereby for the following terms of such
Debt Securities: (1) the title of such Debt Securities and the series of
which such Debt Securities shall be a part; (2) whether such Debt
Securities are issuable in global form; (3) the aggregate principal amount
of such Debt Securities; (4) the date or dates on which such Debt
Securities will mature; (5) the rate or rates per annum (which may be fixed
or variable) at which such Debt Securities will bear interest, if any; (6)
the times at which such interest, if any, will be payable; (7) the
provisions for redemption, if any, of such Debt Securities and the
redemption prices; (8) the sinking fund requirements, if any, with respect
to such Debt Securities; (9) whether the Debt Securities are denominated or
provide for payment in United States dollars or a foreign currency, units
or composites of two or more foreign currencies; (10) whether payment of
the Debt Securities is to be determined by reference to an index, formula
or other method based on a coin or currency other than that in which the
<PAGE> 50
Debt Securities are stated to be payable; (11) additional provisions, if
any, for the defeasance of such Debt Securities; and (12) any other terms
of such Debt Securities (which terms shall not be inconsistent with the
provisions of the Indenture).
The Debt Securities may be issued as Original Issue Discount Debt
Securities to be sold at a substantial discount below their principal
amount and may be denominated in currencies other than United States
dollars. Special United States federal income tax considerations applicable
to any such Debt Securities will be set forth in a Prospectus Supplement
relating thereto.
The Debt Securities will be unsecured obligations of the Company and will
rank on a parity with all other unsecured and unsubordinated indebtedness
of the Company.
The Indenture does not limit the aggregate principal amount of Debt
Securities that may be issued thereunder or of any particular series of
such Debt Securities and provides that securities, in addition to the Debt
Securities, may be issued thereunder from time to time in one or more
series. All Debt Securities issued under the Indenture will rank equally
and ratably with any such additional securities issued under the Indenture.
21
Under the Indenture, the Company will have the ability, in addition to
the ability to issue Debt Securities with terms the same as or different
from those of Debt Securities previously issued, to "reopen" a previous
series of Debt Securities and issue additional Debt Securities of such
series.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
The Debt Securities of a series may be issued only in fully registered
form without coupons and may be issuable in whole or in part in the form of
one or more global Debt Securities, as described below under "Global
Securities."
Debt Securities may be presented for exchange, and, unless otherwise
indicated in an applicable Prospectus Supplement, may be presented for
registration of transfer (duly endorsed, or accompanied by a duly executed
written instrument of transfer), at the office of The Bank of New York, 101
Barclay Street, New York, New York, Attention: Corporate Trust Office
(Trustee being a "Security Registrar"), in each case, without service
charge and upon payment of any taxes and other governmental charges as
described in the Indenture. In addition, Debt Securities may be presented
for exchange or registration of transfer at the office of any transfer
agent designated by the Company for such purpose with respect to any series
of Debt Securities and referred to in the Prospectus Supplement relating
thereto. Such transfer or exchange will be effected by the Security
Registrar, being satisfied with the documents of title and identity of the
person making the request. If a Prospectus Supplement refers to any
transfer agents (in addition to the Security Registrar) designated by the
Company with respect to any series of Debt Securities, the Company may at
<PAGE> 51
any time rescind the designation of any such transfer agent or approve a
change in the location through which any such transfer agent acts. The
Company may at any time designate additional transfer agents with respect
to any series of Debt Securities.
In the event of any partial redemption of Debt Securities of any series,
the Company will not be required to (i) issue, register the transfer of or
exchange Debt Securities of that series during a period beginning at the
opening of business 15 days before the day of the mailing of a notice of
redemption of Debt Securities selected for redemption and ending at the
close of business on the day of mailing of the relevant notice of
redemption or (ii) register the transfer of or exchange any Debt Security,
or portion thereof, called for redemption, except the unredeemed portion of
any Debt Security being redeemed in part.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the Prospectus Supplement relating thereto,
payment of principal of and interest, if any, on Debt Securities will be
made at the office of such Paying Agent or Paying Agents as the Company may
designate from time to time, except that at the option of the Company,
payment of any interest may be made (i) by check mailed to the address of
the Person entitled thereto as such address shall appear in the security
register, or (ii) by wire transfer to an account maintained by the Person
entitled thereto as specified in such security register. Unless otherwise
indicated in the Prospectus Supplement relating thereto, payment of any
installment of interest on Debt Securities will be made to the Person in
whose name such Debt Security is registered at the close of business on the
Regular Record Date for such interest.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the principal office of The Bank of New York will be designated as the
Company's sole Paying Agent for payments with respect to Debt Securities.
Any Paying Agents outside the United States and any other Paying Agents in
the United States initially designated by the Company for the Debt
Securities will be named in an applicable Prospectus Supplement. The
Company may at any time designate additional Paying Agents or rescind the
designation of any Paying Agent or approve a change in the office through
which any Paying Agent acts.
All moneys paid by the Company to the applicable Paying Agent for the
payment of principal of or interest, if any, on any Debt Security
which remain unclaimed at the end of three years after such principal
22
or interest shall have become due and payable, will be repaid to the
Company and the Holder of any such Debt Security will thereafter look only
to the Company for payment thereof.
<PAGE> 52
GLOBAL SECURITIES
The Indenture provides that the Debt Securities may be issued in global
form. If any series of Debt Securities is issuable in global form, the
applicable Prospectus Supplement will describe the circumstances, if any,
under which beneficial owners of interests in any such global Debt
Securities may exchange such interests for Debt Securities of such series
and of like tenor and principal amount in any authorized form and
denomination. Principal of, and any premium and interest on, a global Debt
Security will be payable in the manner described in the applicable
Prospectus Supplement.
CERTAIN DEFINED TERMS
The definitions which follow are qualified in their entirety by reference
to the definitions contained in the Indenture.
"Net Tangible Assets" is defined to mean the aggregate amount at which
assets of the Company and all Restricted Subsidiaries are reported on the
asset side of the consolidated statement of financial position (after
deducting all related depreciation, amortization and other valuation
reserves and after excluding patents, trademarks, goodwill and similar
intangibles and investments in and advances to Subsidiaries other than
Restricted Subsidiaries) less all current liabilities (excluding deferred
taxes) on the consolidated statement of financial position.
"Original Issue Discount Security" is defined as any Security which
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the Maturity thereof, as
provided in the Indenture.
"Principal Property" is defined to mean any manufacturing plant owned by
the Company or any Restricted Subsidiary which is located within North
America and the gross book value of which (without deduction of any
depreciation reserves) on the date as of which the determination is being
made exceeds 5% of Net Tangible Assets. Principal Property excludes,
however, (i) aircraft and aerospace products and spare parts, (ii) certain
other types of personal property and equipment, (iii) property financed
through tax-exempt state or municipal securities and (iv) any real property
held for development, lease or sale.
"Restricted Subsidiary" is defined as a Subsidiary other than MDRC, MDFC,
MDFS or any other Subsidiary which is primarily engaged in the business of
financing or leasing.
"Subsidiary" of the Company is defined as a corporation more than 50% of
the voting stock of which is owned by the Company and/or one or more
Subsidiaries.
<PAGE> 53
LIMITATIONS ON LIENS
The Indenture provides that if the Company or any Restricted Subsidiary
shall issue, assume or guarantee any evidence of indebtedness for money
borrowed ("indebtedness") secured by a mortgage, security interest, pledge
or lien ("mortgage") on any Principal Property of the Company or any
Restricted Subsidiary, or shares of stock or indebtedness of any Restricted
Subsidiary, the Company will secure or cause such Restricted Subsidiary to
secure the Debt Securities equally and ratably with such secured
indebtedness, unless the aggregate amount of all such secured indebtedness,
together with all indebtedness with respect to sale and lease-back
transactions involving Principal Properties (with the exception of such
transactions which are excluded as described in "Limitations on Sale and
Lease-Back Transactions" below), would not exceed 10% of Net Tangible
Assets.
23
Such limitation will not apply to indebtedness secured by (a) mortgages
on property of any corporation existing at the time such corporation
becomes a Restricted Subsidiary, (b) mortgages on any property existing at
the date of the Indenture or at the time of acquisition by the Company or a
Restricted Subsidiary (including acquisition through merger or
consolidation), (c) mortgages securing indebtedness of a Restricted
Subsidiary to the Company or to another Restricted Subsidiary, (d) purchase
money and construction mortgages entered into within specified time limits,
(e) mechanics' liens, tax liens, liens in favor of any governmental body to
secure progress, advance or other payments for the acquisition of real or
personal property from such governmental body pursuant to contract or
provision of statute; any other liens, charges and encumbrances incidental
to construction, conduct of business or ownership of property of the
Company or any Restricted Subsidiary which were not incurred in connection
with borrowing money, obtaining advances or credits for the acquisition of
property and which in the aggregate, do not materially impair use of any
Principal Property, or which are being contested in good faith, or (f) any
extension, renewal or replacement of any of the aforementioned mortgages
not in excess of the principal amount of such indebtedness plus the fee
incurred in connection with such transaction.
LIMITATIONS ON SALE AND LEASE-BACK TRANSACTIONS
The Indenture provides that neither the Company nor any Restricted
Subsidiary may enter into any Sale and Lease-Back Transaction involving any
Principal Property, unless the aggregate amount of all attributable debt
(as defined in the Indenture) with respect to such transaction plus all
indebtedness secured by mortgages on Principal Properties (with the
exception of secured indebtedness which is excluded as described in
"Limitations on Liens" above) would not exceed 10% of Net Tangible Assets.
Such limitation will not apply to any sale and lease-back transaction if
(a) the lease is for a period of not more than three years, (b) the sale or
transfer of the Principal Property is made within a specified period after
its acquisition or construction, (c) the rent payable pursuant to such
lease is to be reimbursed under a contract with the United States
Government or any instrumentality or agency thereof, (d) the transaction is
between the Company and a Restricted Subsidiary or between Restricted
<PAGE> 54
Subsidiaries, or (e) the Company or such Restricted Subsidiary, within 180
days after the sale is completed, applies to the retirement of indebtedness
of the Company or a Restricted Subsidiary, an amount not less than the
greater of (i) the net proceeds of the sale of the Principal Property
leased or (ii) the fair market value of the Principal Property leased. In
lieu of applying proceeds to the retirement of indebtedness, debentures or
notes (including the Debt Securities) of the Company or a Restricted
Subsidiary may be surrendered to the applicable trustee for cancellation at
a value equal to the redemption price thereof or the Company or a
Restricted Subsidiary may credit the principal amount of indebtedness
voluntarily retired within 180 days after such sale.
CONSOLIDATION, MERGER AND TRANSFER OF ASSETS
The Company, without the consent of any Holder of Outstanding Debt
Securities, may consolidate or merge with or into, or transfer or lease its
assets substantially as an entirety to, any corporation or may acquire or
lease the assets of any Person, provided that the corporation formed by
such consolidation or into which the Company is merged or which acquires or
leases the assets of the Company substantially as an entirety is organized
under the laws of any United States jurisdiction and assumes the Company's
obligations on the Debt Securities and under the Indenture, that after
giving effect to the transaction no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of Default,
shall have happened and be continuing, and that certain other conditions
are met.
The Indenture provides that neither the Company nor any Restricted
Subsidiary may transfer any Principal Property to MDRC, MDFC, MDFS or to
any other Subsidiary other than to a Restricted Subsidiary.
24
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the
Company and the Trustee with the consent of the Holders of 66 2/3% in
principal amount of the outstanding Debt Securities of each series affected
thereby, provided that no such modification or amendment may, without the
consent of the Holder of each outstanding Debt Security affected thereby,
(a) change the Stated Maturity of any installment of principal of, or
interest on, any Debt Security or change the Redemption Price; (b) reduce
the principal amount of, or the interest on, any Debt Security or reduce
the amount of principal which could be declared due and payable prior to
the Stated Maturity; (c) change the place or currency of any payment of
principal or interest on any Debt Security; (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Debt Security; (e) reduce the percentage in principal amount of the
outstanding Debt Securities of any series, the consent of whose Holders is
required to modify or amend such Indenture; or (f) modify the foregoing
requirements or reduce the percentage of outstanding Debt Securities
necessary to waive any past default to less than a majority. Except with
respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of outstanding Debt Securities of any series
<PAGE> 55
may, with respect to such series, waive past defaults under the Indenture
and waive compliance by the Company with certain provisions of the
Indenture.
DEFEASANCE
If the terms of the particular series of Debt Securities so provide, the
Company may discharge its indebtedness and its obligations under the
Indenture with respect to such series by depositing funds or obligations
issued or guaranteed by the United States with the Trustee. The Prospectus
Supplement will more fully describe the provisions, if any, relating to
such discharge.
EVENTS OF DEFAULT
Under the Indenture, the following will be Events of Default with respect
to any series of Debt Securities: (a) default in the payment of any
interest upon any Debt Security of that series when due, continued for 30
days; (b) default in the payment of any principal or premium, if any, on
any Debt Security of that series when due; (c) default in the deposit of
any sinking fund payment, when due, in respect of any Debt Security of that
series; (d) default in the performance of any other covenant of the Company
contained in the Indenture or in the Debt Securities of such series,
continued for 90 days after written notice as provided in the Indenture;
(e) acceleration of any indebtedness for money borrowed in an aggregate
principal amount exceeding $10 million by the Company or any Restricted
Subsidiary under the terms of the instrument under which such indebtedness
is issued or secured, if such acceleration is not annulled, or such
indebtedness is not discharged, within 10 days after written notice as
provided in the Indenture; (f) certain events in bankruptcy, insolvency or
reorganization; and (g) any other Event of Default provided with respect of
Securities of that series. The Trustee or the Holders of 25% in principal
amount of the outstanding Debt Securities of that series may declare the
principal amount (or such lesser amount as may be provided for in the Debt
Securities of that series) of all outstanding Debt Securities of that
series due and payable immediately if an Event of Default with respect to
Debt Securities of such series shall occur and be continuing at the time of
declaration. At any time after a declaration of acceleration has been made
with respect to Debt Securities of any series but before a judgment or
decree for payment of money due has been obtained by the Trustee, the
Holders of a majority in principal amount of the outstanding Debt
Securities of that series may rescind any declaration of acceleration and
its consequences, if all payments due (other than those due as a result of
acceleration) have been made and all Events of Default have been remedied
or waived. Any Event of Default with respect to Debt Securities of any
series may be waived by the Holders of a majority in principal amount of
all outstanding Debt Securities of that series, except (i) in a case of
failure to pay principal or premium, if any, or interest on any Debt
Security of that series for which payment had not been subsequently made or
(ii) in respect of a covenant or provision which cannot be modified or
amended without the consent of the Holder of each Outstanding Security of
such series affected.
25
<PAGE> 56
The Holders of a majority in principal amount of the outstanding Debt
Securities of a series may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any
trust or power conferred on the Trustee with respect to Debt Securities of
such series, provided that such direction shall not be in conflict with any
rule of law or the Indenture. Before proceeding to exercise any right or
power under the Indenture at the direction of such Holders, the Trustee
shall be entitled to receive from such Holders reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in complying with any such direction.
The Company will be required to furnish to the Trustee annually a
statement as to the fulfillment by the Company of all of its obligations
under the Indenture.
THE TRUSTEES UNDER THE INDENTURES
The Bank of New York is the Trustee under the Indenture. The Company
maintains banking and borrowing relations with The Bank of New York.
DESCRIPTION OF DEBT WARRANTS
The Company may issue, together with Debt Securities or separately, Debt
Warrants for the purchase of Debt Securities. The Debt Warrants are to be
issued under Debt Warrant Agreements (each a "Debt Warrant Agreement") to
be entered into between the Company and a bank or trust company, as Debt
Warrant Agent (the "Debt Warrant Agent"), all as shall be set forth in the
Prospectus Supplement relating to Debt Warrants being offered thereby. A
copy of the form of Debt Warrant Agreement, including the form of Warrant
Certificates representing the Debt Warrants (the "Debt Warrant
Certificates"), reflecting the alternative provisions to be included in the
Debt Warrant Agreements that will be entered into with respect to
particular offerings of Debt Warrants, is filed as an exhibit to the
Registration Statement relating to the Securities. The following summaries
of certain provisions of the Debt Warrant Agreement and the Debt Warrant
Certificates do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the Debt
Warrant Agreement and the Debt Warrant Certificates, respectively,
including the definitions therein of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of Debt
Warrants offered thereby, the Debt Warrant Agreement relating to such Debt
Warrants and the Debt Warrant Certificates representing such Debt Warrants,
including the following: (1) the designation, aggregate principal amount
and terms of the Debt Securities purchasable upon exercise of such Debt
Warrants and the procedures and conditions relating to the exercise of such
Debt Warrants; (2) the designation and terms of any related Debt Securities
with which such Debt Warrants are issued and the number of such Debt
Warrants issued with each such Debt Security; (3) the date, if any, on and
after which such Debt Warrants and the related Debt Securities will be
separately transferable; (4) the principal amount of Debt Securities
purchasable upon exercise of each Debt Warrant and the price at which such
principal amount of Debt Securities may be purchased upon such exercise;
<PAGE> 57
(5) the date on which the right to exercise such Debt Warrants shall
commence and the date on which such right shall expire (the "Expiration
Date"); (6) if the Debt Securities purchasable upon exercise of such Debt
Warrants are Original Issue Discount Debt Securities, a discussion of
federal income tax considerations applicable thereto; and (7) where Debt
Warrant Certificates may be transferred and registered.
Debt Warrant Certificates will be exchangeable for new Debt Warrant
Certificates of different denominations and Debt Warrants may be exercised
at the corporate trust office of the Debt Warrant Agent or any other office
indicated in the Prospectus Supplement. Prior to the exercise of their Debt
Warrants, holders of Debt Warrants will not have any of the rights of
Holders of the Debt Securities purchasable upon
26
such exercise and will not be entitled to payments of principal or premium,
if any, or interest, if any, on the Debt Securities purchasable upon such
exercise.
EXERCISE OF DEBT WARRANTS
Each Debt Warrant will entitle the Holder to purchase for cash (or such
other consideration as may be set forth in the Prospectus Supplement
relating to the Debt Warrants offered thereby) such principal amount of
Debt Securities at such exercise price as shall in each case be set forth
in, or be determinable as set forth in, the Prospectus Supplement relating
to the Debt Warrants offered thereby. Debt Warrants may be exercised at any
time up to the close of business on the Expiration Date set forth in the
Prospectus Supplement relating to the Debt Warrants offered thereby. After
the close of business on the Expiration Date, unexercised Debt Warrants
will become void.
Debt Warrants may be exercised as set forth in the Prospectus Supplement
relating to the Debt Warrants offered thereby. Upon receipt of payment and
the Debt Warrant Certificate properly completed and duly executed at the
corporate trust office of the Debt Warrant Agent or any other office
indicated in the Prospectus Supplement, the Company will, as soon as
practicable, forward the Debt Securities purchasable upon such exercise. If
less than all of the Debt Warrants represented by such Debt Warrant
Certificate are exercised, a new Debt Warrant Certificate will be issued
for the remaining amount of Debt Warrants.
PLAN OF DISTRIBUTION
The Company may sell the Securities to or through underwriters, and also
may sell the Securities directly to other purchasers or through agents.
Such underwriters may include Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") or may be a group of underwriters
represented by Merrill Lynch or one or more other firms. Only underwriters
named in the Prospectus Supplement are deemed to be underwriters in
connection with the Securities offered thereby.
<PAGE> 58
The distribution of the Securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from the Company or from purchasers of the Securities for whom
they may act as agents in the form of discounts, concessions or
commissions. Underwriters, dealers and agents that participate in the
distribution of the Securities may be deemed to be underwriters, and any
discounts or commissions received by them and any profit on the resale of
the Securities by them may be deemed to be underwriting discounts and
commissions under the Act. Any such underwriter or agent will be
identified, and any such compensation will be described, in the Prospectus
Supplement.
If so indicated in the Prospectus Supplement, the Company will authorize
the underwriters to solicit offers by certain institutions to purchase
Securities from the Company pursuant to Delayed Delivery Contracts
providing for payment and delivery on the date stated in the Prospectus
Supplement. Delayed Delivery Contracts will not be subject to any
conditions except that the purchase by an institution of the Securities
covered thereby shall not at the time of delivery be prohibited under the
laws of any jurisdiction to which such institution is subject.
Under agreements which may be entered into by the Company, underwriters,
dealers and agents who participate in the distribution of the Securities
may be entitled to indemnification by the Company against certain
liabilities, including liabilities under the Act, or to contribution with
respect to payments which the underwriters, dealers or agents may be
required to make in respect thereof.
27
The Company may authorize dealers or other persons acting as the
Company's agents to solicit offers by certain institutions to purchase the
Securities from the Company pursuant to contracts providing for payment and
delivery on a future date. The dealers and such other persons acting as the
Company's agents will not have any responsibility in respect of the
validity or performance of such contracts.
LEGAL MATTERS
The validity of each issue of the Securities will be passed upon for the
Company by F. Mark Kuhlmann, Esq., Senior Vice President--Administration,
General Counsel and Secretary of the Company, and for the underwriters or
agents by Brown & Wood.
EXPERTS
The consolidated financial statements of McDonnell Douglas Corporation
and subsidiaries incorporated by reference in the Company's annual report
(Form 10-K) for the year ended December 31, 1993 have been audited by Ernst
& Young, independent auditors, as set forth in their report (which includes
a description of an uncertainty regarding the termination for default of
<PAGE> 59
the A-12 advanced tactical aircraft program by the United States Government
and the potential impact on the Company if it is not successful in
converting such termination to a termination for the convenience of the
Government as described in the notes to the consolidated financial
statements) thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference
in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
28
- ---------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER OR AGENT. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND
THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
----------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
Description of Notes.................. ................ S-2
Plan of Distribution...... .............................. S-14
PROSPECTUS
Available Information.................................... 2
Incorporation of Certain Documents by Reference.......... 2
The Company.............................................. 3
Summary Financial Information............................ 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 7
Use of Proceeds.......................................... 27
Description of Debt Securities........................... 27
Description of Debt Warrants............................. 32
Plan of Distribution..................................... 33
Legal Matters............................................ 34
Experts.................................................. 34
</TABLE>
<PAGE> 60
MCDONNELL DOUGLAS CORPORATION
MEDIUM-TERM NOTES
----------------
PROSPECTUS SUPPLEMENT
----------------
MERRILL LYNCH & CO.
CHASE SECURITIES, INC. CITICORP SECURITIES, INC.
J.P. MORGAN SECURITIES INC. SALOMON BROTHERS INC
APRIL 28, 1994
<PAGE>
<PAGE> 61
LAW DEPARTMENT
April 28, 1994
Securities and Exchange Commission
Operations Center
Stop 0-7
6432 General Green Way
Alexandria, VA 22312
Re: McDonnell Douglas Corporation Prospectus Supplement
Ladies and Gentlemen:
Enclosed (via EDGAR transmission) is a copy of the
Prospectus Supplement dated April 28, 1994 for McDonnell
Douglas Corporation.
Copies of this Prospectus Supplement will also be
mailed to the New York and Pacific Stock Exchanges.
If you have any questions or comments, please call me
at (314) 233-8587
Thank you for your assistance.
Very truly yours,
/s/ Arthur D. Jordan
Arthur D. Jordan
Counsel
Enclosures
