<PAGE> 1
10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
---------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-3685
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MCDONNELL DOUGLAS CORPORATION
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 43-0400674
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Post Office Box 516, St. Louis, MO 63166
- ------------------------------------------------------------------------
(Address and zip code of principal executive offices)
314-232-0232
- ------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for each shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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========================================================================
Common shares outstanding at October 31, 1995 - 112,024,170 shares
<PAGE> 2
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF EARNINGS 3-4
BALANCE SHEET 5-6
CONSOLIDATED STATEMENT OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8-15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16-26
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 27
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCDONNELL DOUGLAS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(Millions of dollars, except share data)
THREE MONTHS ENDED SEPTEMBER 30 1995 1994
------ ------
(unaudited)
Revenues $ 3,346 $ 3,461
Costs and expenses:
Cost of products, services and rentals 2,784 2,950
General and administrative expenses 160 150
Research and development 75 76
Interest expense:
Aerospace segments 14 23
Financial services and other segment 26 29
------- -------
Total Costs and Expenses 3,059 3,228
------- -------
EARNINGS BEFORE INCOME TAXES 287 233
Income taxes 95 72
------- -------
NET EARNINGS $ 192 $ 161
======= =======
EARNINGS PER SHARE $ 1.70 $ 1.36
======= =======
DIVIDENDS DECLARED PER SHARE $ .20 $ .13
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
MCDONNELL DOUGLAS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(Millions of dollars, except share data)
NINE MONTHS ENDED SEPTEMBER 30 1995 1994
------- -------
(unaudited)
Revenues $10,601 $ 9,664
Costs and expenses:
Cost of products, services and rentals 8,914 8,082
General and administrative expenses 499 490
Research and development 215 236
Interest expense:
Aerospace segments 86 102
Financial services and other segment 81 91
------- -------
Total Costs and Expenses 9,795 9,001
------- -------
EARNINGS BEFORE INCOME TAXES 806 663
Income taxes 286 230
------- -------
NET EARNINGS $ 520 $ 433
======= =======
EARNINGS PER SHARE $ 4.56 $ 3.66
======= =======
DIVIDENDS DECLARED PER SHARE $ .60 $ .35
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 5
BALANCE SHEET
(Millions of dollars and shares)
McDonnell Douglas Corporation
and Consolidated Subsidiaries
-----------------------------
September 30 December 31
1995 1994
-------- --------
(unaudited)
Assets
Cash and cash equivalents $ 660 $ 421
Accounts receivable 702 772
Finance receivables and property on lease 2,083 2,087
Contracts in process and inventories 5,530 5,806
Property, plant and equipment 1,495 1,597
Investment in Financial Services - -
Other assets 1,643 1,533
-------- --------
Total Assets $12,113 $12,216
======== ========
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable and accrued expenses $ 2,293 $ 2,485
Accrued retiree benefits 1,229 1,298
Income taxes 762 723
Advances and billings in excess of related
costs 1,185 1,200
Notes payable and long-term debt:
Aerospace segments 1,250 1,272
Financial services and other segment 1,308 1,297
-------- --------
8,027 8,275
Minority Interest 70 69
Shareholders' Equity:
Preferred Stock - none issued
Common Stock - issued and outstanding:
1995, 112.0 shares; 1994, 116.7 shares 112 117
Additional capital - 191
Retained earnings 3,924 3,576
Unearned compensation (20) (12)
-------- --------
4,016 3,872
-------- --------
Total Liabilities and Shareholders' Equity $12,113 $12,216
======== ========
The accompanying notes are an integral part of the financial statements.
<PAGE> 6
MDC Aerospace Financial Services
----------------- ----------------------
September 30 December 31 September 30 December 31
1995 1994 1995 1994
-------- -------- -------- --------
(unaudited) (unaudited)
$ 649 $ 408 $ 11 $ 13
820 916 2 1
147 152 1,936 1,935
5,530 5,806 - -
1,380 1,441 115 156
317 313 - -
1,512 1,420 131 113
-------- -------- -------- --------
$10,355 $10,456 $ 2,195 $ 2,218
======== ======== ======== ========
$ 2,219 $ 2,382 $ 194 $ 248
1,229 1,298 - -
442 424 320 299
1,151 1,162 34 38
1,228 1,249 22 23
- - 1,308 1,297
-------- -------- -------- --------
6,269 6,515 1,878 1,905
70 69 - -
112 117 - -
- 191 238 238
3,924 3,576 79 75
(20) (12) - -
-------- -------- -------- --------
4,016 3,872 317 313
-------- -------- -------- --------
$10,355 $10,456 $ 2,195 $ 2,218
======== ======== ======== ========
As used on this page, "MDC Aerospace" means the basis of consolidation as
described in Note 1 to the financial statements; "Financial Services" means
McDonnell Douglas Financial Services Corporation and all of its affiliates
and associated companies and McDonnell Douglas Realty Company.
Transactions between MDC Aerospace and Financial Services have been
eliminated from the "McDonnell Douglas Corporation and Consolidated
Subsidiaries" columns.
<PAGE> 7
MCDONNELL DOUGLAS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
NINE MONTHS ENDED SEPTEMBER 30 1995 1994
------- -------
(unaudited)
OPERATING ACTIVITIES
Net earnings $ 520 $ 433
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 197 210
Gain on sale of assets - (26)
Pension income (131) (99)
Change in operating assets and liabilities 204 189
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 790 707
INVESTING ACTIVITIES
Property, plant and equipment acquired (99) (82)
Finance receivables and property on lease (40) 54
Proceeds from sale of assets 25 24
Other (33) 43
------- -------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES (147) 39
FINANCING ACTIVITIES
Net change in borrowings (maturities 90 days
or less) (95) (53)
Debt having maturities more than 90 days:
New borrowings 411 450
Repayments (327) (929)
Proceeds of stock options exercised 1 3
Common shares purchased (325) -
Dividends paid (69) (41)
------- -------
NET CASH USED BY FINANCING ACTIVITIES (404) (570)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 239 176
Cash and cash equivalents at beginning of year 421 86
------- -------
Cash and cash equivalents at end of period $ 660 $ 262
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 8
MCDONNELL DOUGLAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(Millions of dollars)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements reflect all
adjustments (which comprise only normal recurring accruals) necessary, in
the opinion of management, for a fair presentation of the financial
position, the results of operations and the cash flows for the interim
periods presented. The statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in
McDonnell Douglas Corporation's Annual Report to Shareholders for the year
ended December 31, 1994.
The consolidated financial statements include the accounts of McDonnell
Douglas Corporation and its subsidiaries including McDonnell Douglas
Financial Services Corporation (MDFS), parent company of McDonnell Douglas
Finance Corporation (MDFC). In consolidation, all significant intercompany
balances and transactions are eliminated.
The consolidating balance sheet represents the adding together of all
affiliates - companies that McDonnell Douglas Corporation directly or
indirectly controls, either through majority ownership or otherwise.
Financial data and related measurements are presented in the following
categories:
MDC Aerospace. This represents the consolidation of McDonnell
Douglas Corporation and its subsidiaries other than MDFS and
McDonnell Douglas Realty Company (MDRC), which are presented on
a one-line basis as Investment in Financial Services.
Financial Services. This represents the consolidation of MDFS (and
its subsidiaries) and MDRC, both wholly-owned subsidiaries of MDC.
McDonnell Douglas Corporation and Consolidated Subsidiaries. This
represents the consolidation of McDonnell Douglas Corporation and
all its subsidiaries (MDC).
<PAGE> 9
2. Contracts in Process and Inventories
Contracts in Process and Inventories consist of the following:
September 30 December 31
1995 1994
-------- --------
Government contracts in process $ 6,099 $ 5,548
Commercial products in process 3,857 4,127
Material and spare parts 659 710
Progress payments to subcontractors 1,239 1,438
Progress payments received (6,324) (6,017)
-------- --------
$ 5,530 $ 5,806
======== ========
Substantially all government contracts in process (less applicable progress
payments received) represent unbilled revenue and revenue which is
currently not billable.
The Navy on January 7, 1991, notified MDC and General Dynamics Corporation
(the Team) that it was terminating for default the Team's contract for
development and initial production of the A-12 aircraft. On June 7, 1991,
the Team filed a legal action to contest the Navy's default termination,
assert its rights to convert the termination to one for "the convenience of
the Government," and obtain payment for work done and costs incurred on the
A-12 contract, but not paid to date. The Navy has agreed to continue to
defer repayment of $1.334 billion alleged to be due with interest from
January 7, 1991, from the Team as a result of the termination for default
of the A-12 program. The agreement provides that it remains in force until
the dispute as to the type of termination is resolved by the pending
litigation in the United States Court of Federal Claims or negotiated
settlement, subject to review by the U.S. Government annually on December
1, to determine if there has been a substantial change in the financial
condition of either Team member such that deferment is no longer in the
best interest of the Government. On December 9, 1994, the U.S. Court of
Federal Claims ordered the January 7, 1991 decision terminating the
contract for default vacated because that decision was not properly made.
A trial of certain of the remaining issues related to the termination is
scheduled to commence in late 1995.
At September 30, 1995, Contracts in Process and Inventories include
approximately $579 million of recorded costs on the A-12 contract, against
which MDC has established a loss provision of $350 million. The amount of
the provision, which was established in 1990, was based on MDC's belief
that the termination for default would be converted to a termination for
convenience, that the Team will establish a minimum of $250 million in
claims adjustments, that there is a range of reasonably possible results on
termination for convenience, and that it is prudent to provide for what MDC
believes is the upper range of possible loss on termination for
convenience, namely $350 million. In MDC's opinion, this loss provision
<PAGE> 10
continues to provide adequately for the reasonably possible reduction in
value of A-12 net contracts in process and nonreimbursed supplier
termination payments as of September 30, 1995, as a result of a
termination of the contract for the convenience of the Government. MDC has
been provided with an opinion of outside counsel that the Government's
termination of the contract for default was contrary to law and fact, that
the rights and obligations of MDC are the same as if the termination had
been issued for the convenience of the Government, and that, subject to
sustaining that the termination is properly one for the convenience of the
Government, the probable claims adjustments are not less than $250 million.
In 1984, MDC entered into a full scale development letter contract,
containing a not-to-exceed price, for the T-45 Training System which
included the conversion of the land-based British Hawk aircraft with
minimal change into a carrier-capable Navy aircraft, designated the T-45A.
The final negotiated firm fixed price contract was agreed to in 1986. As a
result of flight testing in late 1988, the Navy indicated that changes to
the T-45 aircraft were necessary to meet its operational desires. MDC
advised the Navy that incorporation of the requested improvements into the
aircraft configuration would entitle it to additional compensation. MDC
proceeded with the improvements, and their cost has increased the cost at
completion for the development and low rate initial production contracts to
a point where it exceeds the fixed price of such contracts. At
September 30, 1995, Contracts in Process and Inventories include costs for
the related contracts of $172 million. Realization of the majority of this
amount is dependent on recovery on claims filed with respect to the
improvements. MDC believes it is entitled to an equitable adjustment in
contract price and schedule and other appropriate relief for such
improvements and submitted claims to the Navy during 1990 for such relief.
During 1993, the Navy denied these claims. MDC has appealed the Navy's
decision to the Armed Services Board of Contract Appeals. The estimated
revenue of the contracts at completion includes $225 million from expected
recovery on such claims. MDC's belief as to expected claims recovery is
supported by an opinion of outside counsel provided to MDC that there are
reasonable factual and legal bases for the current claims against the Navy
and that, based on MDC's labor and cost accounting records and
computations, it is probable that MDC will recover in excess of
$225 million on the claims. Additionally, if MDC were not to recover a
portion of the claims amount related to work for which a subcontractor is
responsible, MDC, supported by the opinion of outside counsel, believes the
subcontractor would be legally liable for such costs. If revenue from such
claims is not realized, a loss provision of approximately $158 million
would be required on the related development and low rate initial
production contracts.
Resolution of claims on the A-12 and T-45 contracts will involve
negotiation with the Government or litigation, and the ultimate realization
and receipt of future revenue may vary from current estimates.
<PAGE> 11
In January 1994, MDC and the Department of Defense (DoD) agreed to a
settlement which covered a range of issues related to the C-17 military
aircraft program. MDC and the Air Force executed contract modifications to
implement the settlement in February 1995. As a result, claims and other
costs previously included in Contracts in Process and Inventories and
covered by the settlement were eliminated during the first quarter of 1995
as payments were received.
During 1991, MDC combined the C-17 contracts for the development and first
ten initial production aircraft for financial accounting purposes. In
previous years, MDC has recorded loss provisions on these combined C-17
contracts, as the estimated costs at completion, excluding general and
administrative costs and other period costs, exceeded the estimated
revenue. The Air Force continues to reduce payments to MDC under these
combined and other C-17 contracts, in part due to work remaining on
delivered aircraft. As of September 30, 1995, the Air Force had withheld
$58 million on the price of delivered C-17 aircraft and $52 million from
MDC's progress payment requests.
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. Since
inception and based upon current projections, MDC believes use of 301
aircraft in the program is appropriate. 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 September 30, 1995, includes net deferred
production costs of $1,002 million and unamortized tooling of $243 million.
These amounts are to be applied to the remainder of the 301 aircraft pool.
Commercial products in process for the MD-11 programs at December 31, 1994
and September 30, 1994, included net deferred production costs of
$1,202 million and $1,286 million, respectively, and unamortized tooling of
$247 million and $251 million, respectively. Under the current costing
percentage, an estimated $1,200 million of current and future deferred
costs will be recovered from firm orders received after September 30, 1995.
This amount represents a $200 million increase from the December 1994
estimate due to the reduction in firm orders discussed below.
MDC delivered 13 trijets during the first nine months of both 1995 and
1994. As of September 30, 1995, MDC had delivered 142 MD-11 aircraft and
has 22 aircraft on firm order. In addition to the firm orders, MDC had 61
options and reserves representing potential future orders for the MD-11.
Total orders, representing deliveries plus undelivered firm orders,
increased by two in the third quarter, after decreasing by 12 in the first
six months of 1995. Total orders were 174 and 172 at December 31, 1994 and
1993, respectively. MDC periodically, and at least annually, reviews its
assumptions as to the size of the pool, the estimated period over which the
units will be delivered and the estimated future costs and revenues
associated with the program. The percent used to charge cost of sales has
remained constant since 1992, as cost increases related to extending the
<PAGE> 12
estimated delivery period were offset by operational efficiencies.
Estimated proceeds from the undelivered aircraft in the pool exceed the
production and tooling costs in inventory at September 30, 1995, 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.
3. Debt & Credit Arrangements
MDC Aerospace Credit Agreements
At September 30, 1995, MDC Aerospace has a revolving credit agreement (RCA)
under which MDC Aerospace may borrow up to $1.75 billion through June 2000.
The RCA was amended and restated during the second quarter of 1995 to
provide for a $500 million increase in the amount that may be borrowed and
a two year extension from the original July 1998 termination date. Under
the credit agreement, the interest rate, at the option of MDC Aerospace, is
a floating rate generally based on a defined prime rate, a fixed rate
related to the London interbank offered rate (LIBOR), or as quoted under a
competitive bid. A fee is charged on the amount of the commitment. The
agreement contains restrictive covenants including but not limited to net
worth (as defined), indebtedness, subsidiary indebtedness, customer
financing, interest coverage and liens. There are no amounts outstanding
under the credit agreement at September 30, 1995.
In 1992, MDC Aerospace commenced an offering of up to $550 million of its
medium-term notes, due from and exceeding nine months from the date of
issue, pursuant to a shelf registration filed with the Securities and
Exchange Commission (SEC). The interest rate applicable to each note and
certain other variable terms are established at the date of issue. As of
September 30, 1995, MDC Aerospace has issued $152 million of medium-term
notes, of which $75 million is currently outstanding. During 1993, MDC
Aerospace issued $200 million of 8.25% senior debt securities due on
July 1, 2000. As of September 30, 1995, $198 million of securities
registered under the shelf registration remain unissued.
Senior debt securities totaling $1,145 million, including the $200 million
mentioned above, were outstanding at September 30, 1995. The notes were
issued in 1992 and 1993 with interest rates of 8.25% to 9.8% and maturities
from 1997 to 2012. Aerospace long-term debt also includes aerospace-
related obligations of McDonnell Douglas Realty Company in the amount of
$22 million at September 30, 1995.
<PAGE> 13
Financial Services Credit Agreements
At September 30, 1995, MDFS and MDFC have a joint revolving credit
agreement under which MDFC may borrow a maximum of $220 million, reduced by
MDFS borrowings under this same agreement. By terms of this agreement,
which expires in August 1999, MDFS can borrow no more than $16 million.
The interest rate, at the option of MDFC or MDFS, is either a floating rate
generally based on a defined prime rate or fixed rate related to LIBOR.
There are no outstanding borrowings under this agreement at September 30,
1995. Commercial paper of $8 million outstanding at September 30, 1995 is
fully supported by unused commitments under this agreement.
The provisions of various credit and debt agreements require MDFC to
maintain a minimum net worth, restrict indebtedness, and limit MDFC's cash
dividends and other distributions.
During the 1995 second quarter, MDFC filed a shelf registration statement
with the SEC relating to up to $750 million aggregate principal amount of
debt securities. On June 15, 1995, the SEC declared the registration
statement effective and MDFC established a $500 million medium-term note
program. As of September 30, 1995, $85 million of securities had been
issued under this shelf registration.
During July 1995, MDFS initiated a medium-term note program under a private
placement of up to $100 million aggregate principal amount. As of
September 30, 1995, $25 million of securities had been issued under the
program.
4. Income Taxes
MDC reduced the tax provision in the third quarter of both 1995 and 1994 as
a result of resolution of tax issues. The tax provision decreased by $11
million in 1995 and $15 million in 1994. The total impact related to
resolving tax issues, including the reduction in accrued interest, was an
increase in net earnings of $25 million in 1995 and $21 million in 1994.
<PAGE> 14
5. Commitments and Contingencies
The marketing of commercial aircraft at times will result in agreements to
provide or guarantee long-term financing of some portion of the delivery
price of aircraft, to lease aircraft, or to guarantee customer lease
payments, tax benefit transfers or aircraft values. At September 30, 1995,
MDC had made offers of this nature to customers totaling $1,363 million
related to aircraft on order or under option scheduled for delivery through
the year 2000, and had made guarantees and other commitments totaling
$455 million on delivered aircraft. In addition, MDFS has commitments to
provide leasing and other financing in the aggregate amount of $112 million
at September 30, 1995. MDC does not expect these offers or commitments to
have a material adverse effect on MDC's earnings, cash flow or financial
position.
MDC's outstanding guarantees include amounts related to MD-11s operated by
Viacao Aerea Rio-Grandense, S.A. (Varig). During March 1994, Varig
notified its aircraft lenders and lessors that it was temporarily
suspending payments pending a restructuring of its financial obligations.
MDC has made lease, loan, and interest payments totaling $68 million on
behalf of Varig. These payments have not had and are not expected to have
a material adverse effect on MDC's earnings, cash flow or financial
position. MDC and Varig have tentatively negotiated a repayment schedule,
and the first payment was received in October 1995.
Trans World Airlines, Inc. (TWA), MDC's largest aircraft leasing customer,
completed a restructuring of its indebtedness and leasehold obligations to
its creditors via a prepackaged reorganization plan confirmed by the U.S.
Bankruptcy Court in August 1995. As part of the reorganization plan, MDC
agreed to defer six months of lease and other payments. The plan calls for
TWA to pay deferred amounts to MDC over a 28 month period which commenced
in April 1995. The reorganization plan is not expected to have a material
adverse effect on MDC's earnings, cash flow or financial position.
MDC is a party to a number of proceedings brought under the Comprehensive
Environmental Response, Compensation and Liability Act, commonly known as
Superfund, or similar state statutes. MDC has been identified as a
potentially responsible party (PRP) at 29 sites. Of these, MDC believes
that it has de minimis liability at 19 sites, including 14 sites at which
it believes that it has no future liability. At eight of the sites at
which MDC's liability is not considered to be de minimis, either final or
interim cost sharing agreements have been effected between the cooperating
PRPs, although such agreements do not fix the amount of cleanup costs which
the parties will bear. At the two remaining sites, MDC lacks sufficient
information to determine its probable share or amount of liability. In
addition, MDC is remediating, or has begun environmental engineering
studies to determine cleanup requirements, at certain of its current
operating sites or former sites of industrial activity.
At September 30, 1995, the accrued liability for environmental cleanup
matters at Superfund sites and for MDC's current and former operating sites
was $26 million. Claims for recovery have not been netted against the
<PAGE> 15
disclosed environmental liabilities. While ongoing litigation may
eventually result in recovery of costs expended at certain of the waste
sites, any gain is contingent upon a successful outcome and has not been
accrued. MDC believes any amounts paid in excess of the accrued liability
will not have a material effect on its financial position, results of
operations, liquidity or cash flow.
A number of legal proceedings and claims are pending or have been asserted
against MDC including legal proceedings and claims relating to alleged
injuries to persons associated with the disposal of hazardous waste. A
substantial portion of such legal proceedings and claims is covered by
insurance. MDC believes that the final outcome of such proceedings and
claims will not have a material adverse effect on MDC's financial position,
results of operations, liquidity or cash flow.
See Note 2, Contracts in Process and Inventories, for a discussion of
certain risks on fixed price development contracts.
6. Operations of MDFS
The condensed financial data presented below have been summarized from the
consolidated financial statements of MDFS.
Nine Months Ended September 30 1995 1994
------ ------
Earned income $ 143 $ 145
Costs and expenses 101 113
Net earnings 27 20
Dividends 26 16
7. Supplementary Payment Information
Nine Months Ended September 30 1995 1994
------ ------
Interest paid $ 155 $ 253
Income taxes paid 217 108
8. Earnings Per Share
Earnings per share computations are based upon the weighted average common
shares outstanding during the nine-month period which were 114,041,751 in
1995 and 118,354,644 in 1994.
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Notes to Consolidated Financial Statements beginning on page 8, and
with Management's Discussion and Analysis of Financial Condition and
Results of Operations, Audited Consolidated Financial Statements and Notes
to Consolidated Financial Statements appearing in MDC's 1994 Annual Report
to Shareholders.
Results of Operations
MDC revenue was $3.346 billion in 1995's third quarter, compared to
$3.461 billion in the same period of 1994. Revenue for the first nine
months of 1995 totaled $10.601 billion, compared to $9.664 billion for this
period in 1994.
Net earnings for the third quarter of 1995 were $192 million, an increase
of 19 percent over earnings of $161 million in 1994's third quarter. Net
earnings for the first nine months of 1995 were $520 million, an increase
of 20 percent over earnings of $433 million in 1994's first nine months.
Operating earnings for the third quarter of 1995 were $295 million, a 15
percent increase over the 1994 third quarter operating earnings of
$257 million. Operating earnings for the first nine months of 1995 were
$888 million, a 15 percent increase over the same period in 1994.
Interest expense and the tax provision were reduced in the third quarter of
both 1995 and 1994 as a result of resolution of tax issues. These
resolutions resulted in after-tax earnings of $25 million in 1995's third
quarter and $21 million in 1994's third quarter. Interest expense for the
aerospace segments in the third quarter of 1995 was $37 million, up from
$33 million in the 1994 same period, after excluding from 1995 the reversal
of $23 million and from 1994 the reversal of $10 million in interest
associated with the resolution of tax issues. Interest expense for the
aerospace segments in the first nine months of 1995 was $109 million, down
from $112 million in 1994's first nine months, after excluding the reversal
of interest associated with the previously mentioned tax issues.
On August 2, 1995, MDC announced changes in its pension plans for current
and future non-union retirees. Effective December 1, 1996, MDC will
increase the pensions of eligible non-union retirees and their survivors.
As a result of the changes, 1995 pension income decreased by approximately
$4 million per month beginning in August 1995. These changes will affect
most non-union retirees, including those who sued and threatened to sue MDC
when a retiree health care trust was established in 1992. MDC has reached
an agreement in principle to settle those cases, and the pension increase
for these individuals covered by those matters is contingent upon final
court approval.
<PAGE> 17
Pension income totaled $38 million in the 1995 third quarter, and
$131 million for the first nine months of 1995. This compared with
$33 million and $99 million in the same periods of 1994. The increased
pension income for the third quarter and the first nine months of 1995
compared to the same periods of 1994 reflects a higher actuarial interest
assumption for the discount rate and a greater amount of earnings (on the
same rate of return assumption) on an increased asset base. These
increases were partially offset by the increased benefits referred to above
and a curtailment recorded earlier in 1995 in connection with the closing
of a Florida missile plant.
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
------ ------ ------ ------
(Millions of Dollars)
Revenues
Military aircraft $ 2,102 $ 1,991 $ 6,000 $ 5,729
Commercial aircraft 663 967 2,965 2,366
Missiles, space and
electronic systems 488 420 1,366 1,312
Financial services and other 81 80 242 247
-------- -------- -------- --------
Operating revenues 3,334 3,458 10,573 9,654
Non-operating income 12 3 28 10
-------- -------- -------- --------
Total Revenues $ 3,346 $ 3,461 $10,601 $ 9,664
======== ======== ======== ========
Earnings (Losses)
Military aircraft $ 237 $ 182 $ 652 $ 501
Commercial aircraft (7) 8 26 35
Missiles, space and
electronic systems 52 56 168 196
Financial services and other 13 11 42 43
-------- -------- -------- --------
Operating earnings 295 257 888 775
Corporate and other 6 (1) (4) (10)
Interest expense (14) (23) (86) (102)
Income taxes (95) (72) (286) (230)
-------- -------- -------- --------
Net Earnings $ 192 $ 161 $ 520 $ 433
======== ======== ======== ========
<PAGE> 18
Military Aircraft
Revenues from the military aircraft segment in the third quarter of 1995
were $2.1 billion, up from $2.0 billion in the third quarter of 1994.
Revenues for the first nine months of 1995 in this segment were
$6.0 billion, a five percent increase over the $5.7 billion in the first nine
months of 1994. Increased volume in the F-15 and F/A-18 programs was the
main contributor to this increase.
Operating earnings in the military aircraft segment in the 1995 third
quarter were $237 million, compared with $182 million in 1994's third
quarter. Third quarter results in 1995 included award fees on both the
C-17 and F/A-18 E/F programs. The military aircraft segment had record
operating earnings of $652 million for the first nine months of 1995,
compared with $501 million in the same period of 1994. Operating margins in
this segment exceeded 11 percent in the third quarter of 1995 -- compared
to nine percent in the third quarter of 1994 -- and were just under 11 percent
for the first nine months of 1995. Increased earnings in the third quarter
came predominately from the improved margins in the C-17 program, and for
the nine months came from improved margins in the C-17 program and higher
volume in the F-15 program.
Commercial Aircraft
Revenues from the commercial aircraft segment in the third quarter of 1995
were $663 million, down from $967 million in the third quarter of 1994.
Revenues for the first nine months of 1995 were $3.0 billion, up from
$2.4 billion in the first nine months of 1994. McDonnell Douglas delivered
four MD-80 and four MD-90 twin jets and two MD-11 trijets in 1995's third
quarter. This compares with four twin jets and six trijets in 1994's third
quarter. For the first nine months of 1995, twin jet deliveries totaled 25
(15 MD-80s and ten MD-90s), an increase of nine twin jets over the same
period of 1994. Trijet deliveries totaled 13 for the first nine months of
each year. McDonnell Douglas received orders for six twin jets and two
trijets during the third quarter of 1995.
The commercial aircraft segment had an operating loss of $7 million in the
third quarter of 1995, compared with operating earnings of $8 million in
the third quarter of 1994. The change in third quarter earnings resulted
from recording of loss provisions in the 1995 third quarter on several
MD-90 twin jets scheduled for delivery in 1996. McDonnell Douglas has
delivered ten MD-90 twin jets since deliveries began in the first quarter
of 1995. Operating earnings in this segment for the first nine months of
1995 were $26 million, compared with $35 million in the first nine months
of 1994. Increased earnings from the sale of spare parts and related
services and from the sale of two twin jets previously on lease were offset
by the aforementioned MD-90 twin jet loss provision.
<PAGE> 19
Missiles, Space and Electronic Systems
Revenues in the missiles, space and electronic systems segment for the
third quarter of 1995 were $488 million, an increase of 16 percent from the
$420 million in the third quarter of 1994. Revenues for the first nine
months of 1995 increased to $1.366 billion, an increase of four percent from
the $1.312 billion in the first nine months of 1994. Higher revenue in the
Delta and Space Station programs was partially offset by decreased volume
in the higher margin Tomahawk missile program.
Operating earnings in this segment in the third quarter of 1995 were
$52 million, compared with earnings of $56 million in the third quarter of
1994. Increased spending on the Delta III, a launch vehicle currently
under development, contributed to lower earnings in 1995's third quarter.
Operating earnings in this segment for the first nine months of 1995 were
$168 million, compared with $196 million in the same period in 1994. The
first two quarters in 1995 were affected by increased costs related to the
impending closure of a Florida missile facility.
Financial Services
Operating earnings in the financial services and other segment were
$13 million in the 1995 third quarter, compared to $11 million in the 1994
third quarter. Earnings for the first nine months of 1995 totaled
$42 million, compared with $43 million in the 1994 same period. Just under
50 percent of 1994's earnings related to a first quarter sale of property
by McDonnell Douglas Realty Company.
Liquidity
As detailed in this section, MDC believes that it has sufficient sources of
capital to meet anticipated needs.
Debt and Credit Arrangements. MDC has in place a number of credit
facilities with banks and other institutions. At September 30, 1995, MDC
had a revolving credit agreement (RCA) under which MDC could borrow up to
$1.75 billion through June 2000. The RCA was amended and restated during
the second quarter of 1995 to provide for a $500 million increase in the
amount that may be borrowed and a two year extension from the original July
1998 termination date. There were no amounts outstanding under the credit
agreement at September 30, 1995.
In 1992, MDC commenced an offering of up to $550 million aggregate
principal amount of its medium-term notes pursuant to a shelf registration
filed with the Securities and Exchange Commission (SEC). As of
September 30, 1995, $198 million of securities registered under the shelf
registration remain unissued.
Amounts available under the revolving credit agreement and medium-term note
program may be accessed to meet cash requirements.
<PAGE> 20
MDC has an 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. No receivable
interests were sold as of September 30, 1995.
On October 26, 1995, Moody's Investor's Service Inc. raised its ratings of
MDC and McDonnell Douglas Finance Corporation (MDFC) debt. MDC's senior
debt rating was raised to Baa2 from Baa3, while the short-term debt rating
for commercial paper was upgraded to Prime-2 from Prime-3. Ratings on the
senior debt of MDFC were increased to Baa2 from Baa3 and on subordinated
debt to Baa3 from Ba2. MDFC's short-term debt rating for commercial paper
was upgraded to Prime-2 from Prime-3.
Shareholder Initiatives. On October 28, 1994, MDC's Board of Directors
authorized a stock repurchase plan which authorizes MDC to purchase up to
18 million shares, or about 15 percent of MDC's then outstanding common
stock. MDC intends to use principally excess cash flow to fund the stock
repurchase program and does not expect the program to affect negatively
MDC's ability to fund capital spending, research and development, or
acquisitions. Through September 30, 1995, MDC has acquired 6.9 million
shares, or about six percent of its common stock, at a cost of $410
million.
Aerospace Cash & Cash Equivalents. Although aerospace debt remained steady
at just under $1.3 billion, aerospace cash and cash equivalents at
September 30, 1995, increased by 59 percent over the December 31, 1994
level. Aerospace cash and cash equivalents were $649 million at
September 30, 1995 compared with $408 million at December 31, 1994. Cash
flow from aerospace operations for the first nine months of 1995 was about
$625 million, prior to reductions of $325 million used by McDonnell Douglas
to purchase 5.1 million shares of its common stock. Cash used by aerospace
operations in the 1995 third quarter was about $75 million, prior to MDC
purchasing 1.0 million shares of its common stock for $83 million.
Development Programs. In October 1995, MDC launched the MD-95, a 100-seat
medium range commercial airliner. Initial deliveries of the MD-95 to
ValuJet Airlines, Inc. are scheduled in 1999. In addition, in May 1995,
MDC announced the development of the Delta III, a next generation
expendable launch vehicle. The MD-95 twin jet and Delta III launch vehicle
will require investments in development, inventory, and tooling during the
next several years.
Commercial Aircraft Financing. Difficulties in the commercial airline
industry may continue to result in airlines not taking deliveries of
<PAGE> 21
aircraft, requesting changes in delivery schedules, or defaulting on
contracts for firm orders. Aircraft delivery delays or defaults by
commercial aircraft customers not anticipated by MDC could have a negative
short-term impact on cash flow. During recent years, several airlines have
filed for protection under the Federal Bankruptcy Code or became delinquent
on their obligations for commercial aircraft. As indicated in Note 5,
Commitments and Contingencies, page 14, MDC also has outstanding guarantees
and other commitments totaling $455 million related to the marketing of
commercial aircraft. MDC does not anticipate that the existence of such
guarantees and other commitments will have a material adverse effect upon
its earnings, cash flow or financial position.
MDC has made lease, loan principal, and interest payments totaling
$68 million on behalf of Viacao Aerea Rio-Grandense, S.A. (Varig). In
addition, Trans World Airlines, Inc. (TWA), MDC's largest aircraft leasing
customer, completed a restructuring via a prepackaged reorganization plan
confirmed by the U.S. Bankruptcy Court in August 1995. Neither unexpected
delays in payments from Varig nor the effects of the TWA reorganization are
expected to have a material adverse effect on earnings, cash flow or
financial position of MDC. See Note 5, Commitments and Contingencies, page
14, for a further discussion of Varig and TWA.
MDC has also made offers totaling $1,363 million to arrange or provide
financing for ordered but undelivered aircraft. MDC does not anticipate
that the existence of such financing offers will have a material adverse
effect on earnings, cash flow or financial position. See also Note 5,
Commitments and Contingencies, page 14.
Financial Services. Financial Services debt on September 30, 1995, was
$1.3 billion, unchanged from the December 31, 1994 level. McDonnell
Douglas Financial Services Corporation (MDFS), through its McDonnell
Douglas Finance Corporation (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.
During July 1995, MDFS initiated a medium-term note program under a
private placement of up to $100 million aggregate principal amount.
During the 1995 second quarter, MDFC filed a shelf registration statement
with the SEC relating to up to $750 million aggregate principal amount of
debt securities. On June 15, 1995, the SEC declared the registration
statement effective and MDFC established a $500 million medium-term note
program. As of September 30, 1995, $85 million of securities had been
issued under this shelf registration.
MDFC has also used, and in the future anticipates using, cash provided by
operations, commercial paper borrowings, borrowings under bank credit lines
and term borrowings as its primary sources of funding. MDFC anticipates
using proceeds from the issuance of additional debt to fund future growth.
<PAGE> 22
Business and Market Considerations
General
MDC is a major participant in both the defense and commercial aerospace
industries. MDC has a wide range of programs in production and
development, and is the world's leading producer of military aircraft. MDC
is one of the largest U.S. defense contractors and NASA prime contractors
based on prime contracts awarded. MDC is one of the three principal
manufacturers of large commercial transport aircraft outside the former
Soviet Union.
Downsizing has had and continues to have a negative impact on the
utilization of MDC's facilities and capacity, and on labor costs due to
inefficiencies caused by the reassignment of workers as a result of
layoffs. During 1992, MDC consolidated its six government aerospace
companies into one division and since then has closed several of its
manufacturing facilities to streamline operations and create greater
efficiencies. MDC also communicated its strategy to concentrate on its
principal aerospace businesses, and as a result sold non-core business
assets to implement this strategy.
Discussions under the captions "Military Aerospace Business," "Commercial
Aircraft Business" and "Government Business Audits, Reviews and
Investigations" reflect developments during the third quarter of 1995 and
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations in MDC's 1994 Annual Report
to Shareholders and in MDC's quarterly report on Form 10-Q for the
quarterly periods ended March 31, 1995 and June 30, 1995.
Military Aerospace Business
F-15 Eagle. On September 12, 1995, MDC held a roll-out ceremony for the
first F-15S for the Royal Saudi Air Force. Later in September, MDC
delivered the first of 72 F-15S aircraft to the U.S. Air Force, which will
in turn deliver the aircraft to the Royal Saudi Air Force under a foreign
military sales program. Deliveries will continue through 1999.
F-18 Hornet. On September 18, 1995, MDC held a roll-out ceremony for the
F/A-18 E/F Super Hornet strike fighter. The aircraft was designed
specifically to extend the Hornet's long-term viability for U.S. aircraft
carrier operations. The E/F model is a structural upgrade which
incorporates the same mission software used in the current C/D model
Hornet, but is 25 percent larger and offers longer range, greater
endurance, increased weapons and fuel-carrying ability, improved
survivability, and substantial capacity for future growth.
The F/A-18 E/F is on schedule and on budget, both established more than
three years ago when development began. Additionally, it is meeting or
exceeding all of its performance requirements, including weight -- a key
<PAGE> 23
performance predictor. The E/F weighs about 1,000 pounds less than its
contractually mandated maximum weight. The engineering management and
development program is about 61 percent complete from a cost standpoint.
First flight is scheduled for December 1995 and will be followed by a
three-year flight test program. Low-rate initial production is scheduled
to begin in late 1996 and operational service is expected in 2001.
Joint Aircraft Strike Technology (JAST). On September 26, 1995, MDC
announced that it received a $64.8 million contract for a JAST technology
maturation program. MDC will lead one of three teams developing portions
of the JAST program.
Joint Direct Attack Munition (JDAM). On October 11, 1995, MDC was awarded
a $62.6 million U.S. Air Force contract for development of the JDAM, a
guidance unit designed to be attached to unguided bombs, turning them into
precision-guided munitions. The contract includes development, production
of hardware, and flight testing, with options for up to five production
lots. The Department of Defense (DoD) plans to buy 74,000 JDAMs under a
production program that is expected to continue well into the next century
with an estimated value of up to $2 billion. JDAM production is scheduled
to begin in 1997.
C-17 Globemaster III. Twelve C-17s completed a 30-day Reliability,
Maintainability and Availability Evaluation (RM&AE) on August 5, 1995.
During the RM&AE, the C-17 fleet was tested under peacetime and simulated
wartime emergency conditions. The intensive evaluation, designed to
compare actual aircraft performance with design requirements and goals, put
the aircraft through its paces in operationally realistic scenarios.
Launch reliability, the C-17's "on time departure" rate for the entire 30
days, exceeded 99 percent, with requirements for necessary maintenance per
flight hour being well below the maximum rate permitted by contract.
Utilization rates, one of the more critical performance areas, easily
exceeded required target rates.
On November 3, 1995, the DoD announced its decision to plan, procure, and
budget for a total fleet of 120 C-17s. This extension of the C-17 program,
to include an additional 80 aircraft, represents potential revenues of $18
billion and provides for continued C-17 production well into the next
century. Of the first 40 C-17s previously authorized, MDC and the Air Force
have signed contracts for 32 with eight additional C-17s included in the
proposed FY96 defense bill. Through October 1995, MDC had delivered 22
production C-17s to the Air Force, with the 23rd production C-17 scheduled
for delivery later during the fourth quarter. P-22, delivered at the end
of the third quarter, was the tenth consecutive C-17 delivered ahead of
schedule.
For additional information regarding Government inquiries on the C-17
program, see also "Government Business Audits, Reviews and Investigations,"
page 25.
<PAGE> 24
AH-64 Apache. During September, 1995, a pre-production AH-64D Longbow
Apache made its first flight. The prototype was remanufactured using the
same components, processes and tooling that will be used to upgrade the
U.S. Army's entire Apache fleet beginning in 1996, with the first Apaches
to be delivered in early 1997.
Harpoon and SLAM. In August 1995, MDC received a $139 million missile
order for Harpoons and SLAMs from the U.S. Navy. The Harpoons are being
purchased for several foreign countries while the SLAMs are being purchased
for use by the U.S. Navy. The missiles are to be delivered by
December 1997.
Commercial Aircraft Business
The commercial aircraft business continues to be highly market sensitive,
and therefore competition and pricing are aggressive. Difficulties in the
commercial aircraft 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.
On October 19, 1995, MDC and ValuJet Airlines, Inc. announced that an
agreement had been reached on a 50-plane launch order for a new 100 seat
airliner, the MD-95. The order is valued at more than $1 billion. In
addition, ValuJet has options to purchase 50 more of the new twin-engine
jets. The first MD-95 is expected to be delivered to ValuJet in 1999.
On October 26, 1995, McDonnell Douglas announced the signing of agreements
with Saudi Arabian aviation officials for the sale of 33 jetliners to Saudi
Arabian Airlines. Saudia, the national airline of the Kingdom of Saudi
Arabia, ordered four MD-11 freighters for cargo service on its
international routes and 29 MD-90 twin jets for domestic and regional
operations. Saudia plans to take delivery of the first MD-11s and MD-90s
in 1997.
On September 30, 1995, the MD-80/90 program included 1,136 deliveries, 108
aircraft on firm order, and 119 options and reserves. On the same date,
the MD-11 program included 142 deliveries, 22 aircraft on firm order, and
61 options and reserves representing potential firm orders. During the
third quarter, MDC received orders for six MD-80/90 twin jets and two MD-11
trijets. These orders are included in firm orders and backlog as of
September 30, 1995. Orders announced subsequent to September 30, 1995,
including those from Saudi Arabian Airlines and ValuJet discussed above as
well as other airlines, are not included in the September 30, 1995 backlog.
<PAGE> 25
The MD-11 program continues to operate at a loss after deducting period
costs. MDC is accounting for the MD-11 program on a delivery basis using
the program-average cost method. Under this method, certain production
costs incurred during assembly of early MD-11 aircraft as well as tooling
costs are being deferred and will be recognized on delivery of aircraft in
future years based on a planned number of aircraft in the program.
Production costs, combined with an allocation of tooling costs, on most of
the aircraft delivered since 1993 were less than program-average costs.
Based on current orders and scheduled delivery dates, MD-11 deliveries in
1996 and 1997 are expected to be lower than 1995 deliveries. As a result,
MDC plans to schedule production at the lower rate for the next two years.
MDC periodically, and at least annually, reviews its assumptions as to the
size of the MD-11 pool, the estimated period over which the units will be
delivered and the estimated future costs and revenues associated with the
program. As part of this analysis during 1995, the estimated total costs
to complete the 301 aircraft in the pool reflected decreases related to
subcontractor costs and production and assembly costs, where MDC continues
to improve efficiency in the production process from procurement through
assembly and delivery. These decreases, however, were offset by a similar
amount of increased costs related to extending the period over which the
301 aircraft in the pool are expected to be delivered. In the aggregate,
these changes had an offsetting impact and, as a result, there was no
change in the costing percentage used by MDC on the MD-11 program.
Government Business Audits, Reviews and Investigations
MDC, as a large defense contractor, is subject to many audits, reviews and
investigations by the U.S. Government of its negotiation and performance
of, accounting for, and general practices relating to Government contracts.
An indictment of a contractor may result in suspension from eligibility for
award of any new government contract, and a guilty plea or conviction may
result in debarment from eligibility for awards. The Government may, in
certain cases, also terminate existing contracts, recover damages, and
impose other sanctions and penalties. Based upon presently known facts,
MDC believes that it has not engaged in any criminal misconduct with
respect to any of the matters currently known to be under investigation and
that the ultimate resolution of these investigations will not have a
material adverse effect on MDC's financial position.
In March 1991, the Securities and Exchange Commission (SEC) issued a Formal
Order of Private Investigation looking into whether MDC violated the
Securities Act of 1933 and the Securities Exchange Act of 1934 in
connection with disclosures about and accounting for the A-12. In February
1993, the SEC issued subpoenas requesting additional information and
broadened its inquiry to include the C-17 and possibly other programs. MDC
believes that it has properly reported and disclosed information and
accounted for its programs in accordance with generally accepted accounting
principles.
<PAGE> 26
In January 1993, the DoD Inspector General (IG) completed an inquiry into
an allegation of favoritism and advantageous treatment accorded MDC by the
DoD in connection with the C-17 Globemaster III program. The IG's report
questioned contracting actions and payments by the U.S. Air Force and
related information provided by the U.S. Air Force and MDC personnel. MDC
believes that it properly reported and disclosed information relative to
the C-17 contract and that it properly submitted bills to and was paid by
the U.S. Air Force in accordance with DoD rules then in effect for work
performed. In April 1993, the Air Force issued an extensive report
responding to the allegations made by the DoD. Although the Air Force
report reflected the difference between the parties concerning the
segregation and payment of certain C-17 engineering costs, the report
concluded that there was no illegal or improper plan or actions taken to
provide payments to MDC and that the integrity of the acquisition system
had not been compromised. In a November 1993 reply, the IG reasserted his
conclusion that there had been an Air Force plan to assist MDC that
exceeded the limits of what was permissible. See also Note 2, Contracts in
Process and Inventories, page 9.
MDC and General Dynamics Corporation (GD) have filed a legal action to
contest the Navy's termination for default on the A-12 contract. The Navy
has agreed to continue to defer repayment of $1.334 billion alleged to be
due with interest from January 7, 1991, from MDC and GD as a result of the
termination for default of the A-12 program. The agreement provides that
it remains in force until the dispute as to the type of termination is
resolved by the pending litigation in the U.S. Court of Federal Claims or
negotiated settlement, subject to review by the U.S. Government annually on
December 1, to determine if there has been a substantial change in the
financial condition of either MDC or GD such that deferment is no longer in
the best interest of the Government. On December 9, 1994, the U.S. Court
of Federal Claims ordered the January 7, 1991 decision terminating the
contract for default vacated because that decision was not properly made.
A trial of certain of the remaining issues related to the termination is
scheduled to commence in late 1995. See also Note 2, Contracts in Process
and Inventories, page 9.
Union Negotiations
MDC has nine union contracts, covering approximately 3,700 employees in
the United States and Canada, due to expire in the fourth quarter of 1995.
MDC is currently in negotiations covering these contracts. MDC and the
International Association of Machinist and Aerospace Workers (IAMAW) in
California have agreed to extend the current contract which would have
expired on October 22, 1995 on a day-to-day basis.
<PAGE> 27
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, its principal accounting officer, thereunto duly
authorized.
MCDONNELL DOUGLAS CORPORATION
(Registrant)
Date: November 10, 1995 /s/ R. L. Brand
R. L. Brand
Vice President and Controller
and Registrant's Authorized
Officer
Exhibit 12
McDonnell Douglas Corporation
Computation of Ratio of Earnings to Fixed Charges
Nine Months Ended September 30, 1995
(Dollars in Millions)
Earnings
Earnings before income taxes $806
Add: Interest expense 167
Interest factor in rents 24
----
$997
====
Fixed Charges
Interest expense $167
Interest factor in rents 24
----
$191
====
Ratio of earnings to fixed charges 5.2X
====
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000063917
<NAME> MCDONNELL DOUGLAS
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 660
<SECURITIES> 0
<RECEIVABLES> 702
<ALLOWANCES> 0
<INVENTORY> 5,530
<CURRENT-ASSETS> 0
<PP&E> 4,091<F1>
<DEPRECIATION> 2,596<F2>
<TOTAL-ASSETS> 12,113
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 112
0
0
<OTHER-SE> 3,904
<TOTAL-LIABILITY-AND-EQUITY> 12,113
<SALES> 10,337
<TOTAL-REVENUES> 10,601
<CGS> 8,995
<TOTAL-COSTS> 9,795
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167
<INCOME-PRETAX> 806
<INCOME-TAX> 286
<INCOME-CONTINUING> 520
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<NET-INCOME> 520
<EPS-PRIMARY> 4.56
<EPS-DILUTED> 0
<FN>
<F1>PP&E includes MDC Aerospace of $3,944 and Financial Services of $147.
<F2>Depreciation includes MDC Aerospace of $2,564 and Finacial Services of $32.
</FN>
</TABLE>
