<PAGE>
<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 June 30, 1995
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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
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(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) Identification No.)
Post Office Box 516, St. Louis, MO 63166
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(Address and zip code of principal executive offices)
314-232-0232
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 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 July 31, 1995 - 112,983,357 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 27
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 JUNE 30 1995 1994
------- -------
(unaudited)
Revenues $ 3,922 $ 3,250
Costs and expenses:
Cost of products, services and rentals 3,336 2,712
General and administrative expenses 183 171
Research and development 72 80
Interest expense:
Aerospace segments 35 37
Financial services and other segment 28 30
------- -------
Total Costs and Expenses 3,654 3,030
------- -------
EARNINGS BEFORE INCOME TAXES 268 220
Income taxes 99 82
------- -------
NET EARNINGS $ 169 $ 138
======= =======
EARNINGS PER SHARE $ 1.48 $ 1.17
======= =======
DIVIDENDS DECLARED PER SHARE $ .20 $ .12
======= =======
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)
SIX MONTHS ENDED JUNE 30 1995 1994
------- -------
(unaudited)
Revenues $ 7,255 $ 6,203
Costs and expenses:
Cost of products, services and rentals 6,130 5,132
General and administrative expenses 339 340
Research and development 140 160
Interest expense:
Aerospace segments 72 79
Financial services and other segment 55 62
------- -------
Total Costs and Expenses 6,736 5,773
------- -------
EARNINGS BEFORE INCOME TAXES 519 430
Income taxes 191 158
------- -------
NET EARNINGS $ 328 $ 272
======= =======
EARNINGS PER SHARE $ 2.86 $ 2.30
======= =======
DIVIDENDS DECLARED PER SHARE $ .40 $ .23
======= =======
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
-----------------------------
June 30 December 31
1995 1994
-------- ----------
(unaudited)
Assets
Cash and cash equivalents $ 871 $ 421
Accounts receivable 791 772
Finance receivables and property on lease 2,135 2,087
Contracts in process and inventories 5,230 5,806
Property, plant and equipment 1,519 1,597
Investment in Financial Services - -
Other assets 1,608 1,533
------- -------
Total Assets $12,154 $12,216
======= =======
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable and accrued expenses $ 2,344 $ 2,485
Accrued retiree benefits 1,251 1,298
Income taxes 695 723
Advances and billings in excess of related
costs 1,219 1,200
Notes payable and long-term debt:
Aerospace segments 1,296 1,272
Financial services and other segment 1,353 1,297
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8,158 8,275
Minority Interest 69 69
Shareholders' Equity:
Preferred Stock - none issued
Common Stock - issued and outstanding:
1995, 113.0 shares; 1994, 116.7 shares 113 117
Additional capital - 191
Retained earnings 3,836 3,576
Unearned compensation (22) (12)
------- -------
3,927 3,872
------- -------
Total Liabilities and Shareholders' Equity $12,154 $12,216
======= =======
The accompanying notes are an integral part of the financial
statements.
<PAGE> 6
MDC Aerospace Financial Services
---------------------- --------------------------
June 30 December 31 June 30 December 31
1995 1994 1995 1994
------- ------- ------- -------
(unaudited) (unaudited)
$ 852 $ 408 $ 19 $ 13
912 916 1 1
161 152 1,974 1,935
5,230 5,806 - -
1,404 1,441 115 156
317 313 - -
1,466 1,420 142 113
------- ------- ------- -------
$10,342 $10,456 $ 2,251 $ 2,218
======= ======= ======= =======
$ 2,254 $ 2,382 $ 212 $ 248
1,251 1,298 - -
382 424 313 299
1,185 1,162 34 38
1,274 1,249 22 23
- - 1,353 1,297
------- ------- ------- -------
6,346 6,515 1,934 1,905
69 69 - -
113 117 - -
- 191 238 238
3,836 3,576 79 75
(22) (12) - -
------- ------- ------- -------
3,927 3,872 317 313
------- ------- ------- -------
$10,342 $10,456 $ 2,251 $ 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)
SIX MONTHS ENDED JUNE 30 1995 1994
------ ------
(unaudited)
OPERATING ACTIVITIES
Net earnings $ 328 $ 272
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 127 142
Gain on sale of assets - (20)
Pension income (93) (66)
Change in operating assets and liabilities 446 337
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 808 665
INVESTING ACTIVITIES
Property, plant and equipment acquired (68) (59)
Finance receivables and property on lease (87) 65
Proceeds from sale of assets 25 23
Other (21) (18)
------ ------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES (151) 11
FINANCING ACTIVITIES
Net change in borrowings (maturities 90 days
or less) 28 28
Debt having maturities more than 90 days:
New borrowings 235 280
Repayments (183) (724)
Proceeds of stock options exercised 1 2
Common shares purchased (242) -
Dividends paid (46) (27)
------ ------
NET CASH USED BY FINANCING ACTIVITIES (207) (441)
------ ------
INCREASE IN CASH AND CASH EQUIVALENTS 450 235
Cash and cash equivalents at beginning of year 421 86
------ ------
Cash and cash equivalents at end of period $ 871 $ 321
====== ======
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 8
MCDONNELL DOUGLAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 (MDC) 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:
June 30 December 31
1995 1994
-------- --------
Government contracts in process $ 5,722 $ 5,548
Commercial products in process 3,649 4,127
Material and spare parts 696 710
Progress payments to subcontractors 1,323 1,438
Progress payments received (6,160) (6,017)
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$ 5,230 $ 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 June 30, 1995, Contracts in Process and Inventories include
approximately $566 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
<PAGE> 10
opinion, this loss provision continues to provide adequately for
the reasonably possible reduction in value of A-12 net contracts
in process and nonreimbursed supplier termination payments as of
June 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 June 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 $153 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. The estimated costs at completion of these
combined C-17 contracts, excluding general and administrative
costs and other period costs, exceed the estimated revenue of the
combined contracts. The Air Force continues to reduce payments to MDC
under the C-17 contracts, largely due to work remaining on
delivered aircraft. As of June 30, 1995, the Air Force had
withheld $61 million on the price of delivered C-17 aircraft and
$37 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 June 30, 1995, includes net
deferred production costs of $1.016 billion and unamortized
tooling of $238 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 June 30,
1994, included net deferred production costs of $1.202 billion
and $1.324 billion, respectively, and unamortized tooling of $247
million and $257 million, respectively. Under the current
costing percentage, an estimated $1.2 billion of current and
future deferred costs will be recovered from firm orders received
after June 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 11 trijets during the first six months of 1995
compared with seven during the same period of 1994. As of June
30, 1995, MDC had delivered 140 MD-11 aircraft and has 22
aircraft on firm order. In addition to the firm orders, MDC had
71 options and reserves representing potential future orders for
the MD-11. Existing orders for 13 trijets from a leasing company
were excluded from firm orders during the 1995 second quarter.
Except for the exclusion of the aforementioned 13 trijets, total
orders, representing deliveries plus undelivered firm orders,
have been flat during the last three years. 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
<PAGE> 12
extending the 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 June 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 June 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 June 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. The interest rate applicable to
each note and certain other variable terms are established at the
date of issue. As of June 30, 1995, MDC Aerospace has issued
$152 million of medium-term notes, of which $122 million is
currently outstanding. During 1993, MDC Aerospace issued $200
million of 8.25% senior debt securities due on July 1, 2000. As
of June 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 June 30, 1995.
The notes were issued in 1992 and 1993 with interest rates of
8.3% 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
June 30, 1995.
Financial Services Credit Agreements
At June 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 September 1998, MDFS can
<PAGE> 13
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 June 30,
1995. Commercial paper of $102 million outstanding at June 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.
Since June 1993, MDFC has issued $611 million of debt securities
registered with the Securities and Exchange Commission (SEC)
under shelf registrations. The interest rate applicable to each
note and certain other variable terms are established at the date
of issue. As of June 30, 1995, $38 million of securities
registered under the shelf registration remain unissued.
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 June 30, 1995, no
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.
4. 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 June 30, 1995, $383 million in guarantees
are outstanding on delivered aircraft. At June 30, 1995, MDC had
made offers totaling $649 million to lease aircraft scheduled to
be delivered during 1995 to 1998 and had made offers totaling
$303 million to accept notes in payment for aircraft or guarantee
financing for customers for ordered but undelivered aircraft. In
addition, MDFS has commitments to provide leasing and other
financing in the aggregate amount of $112 million at
June 30,1995.
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 $62 million on behalf of Varig. These
payments have not had a significant adverse effect on MDC's cash
flow or financial position. MDC and Varig have tentatively
negotiated a repayment schedule calling for payments to begin
later in 1995.
<PAGE> 14
During October 1994, Trans World Airlines, Inc. (TWA), MDC's
largest aircraft leasing customer, proposed a restructuring plan
relating to its indebtedness and leasehold obligations to its
creditors. As part of its overall plan, TWA requested and MDC
agreed to defer six months of lease and other payments. Under
the agreement, deferred amounts will be repaid to MDC over a 28
month period which commenced in April 1995. On June 30, 1995,
TWA filed a prepackaged plan under Chapter 11 of the U.S.
bankruptcy laws, under which most agreements with its creditors,
including those with MDC discussed above, were negotiated in
advance. On August 4, 1995, the U.S. Bankruptcy Court confirmed
TWA's prepackaged reorganization. The restructuring plan has not
had nor is expected to have a significant 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 June 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 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.
<PAGE> 15
5. Operations of MDFS
The condensed financial data presented below have been summarized
from the consolidated financial statements of MDFS.
Six Months Ended June 30 1995 1994
------ ------
Earned income $ 96 $ 98
Costs and expenses 66 76
Net earnings 19 14
Dividends 18 11
6. Supplementary Payment Information
Six Months Ended June 30 1995 1994
------ -----
Interest paid $ 110 $ 124
Income taxes paid 195 6
7. Earnings Per Share
Earnings per share computations are based upon the weighted
average common shares outstanding during the six-month period
which were 114,783,334 in 1995 and 118,256,505 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 increased to $3.922 billion in 1995's second quarter,
compared to $3.250 billion in the same period of 1994. Revenue
for the first six months of 1995 totaled $7.255 billion, compared
to $6.203 billion in the first six months of 1994. Most of the
increase in each quarter of 1995 was associated with higher
deliveries in the commercial aircraft segment.
Net earnings for the second quarter of 1995 were $169 million,
a 22 percent increase over the second quarter of 1994 net earnings
of $138 million. Net earnings for the first six months of 1995
were $328 million, a 21 percent increase over the same period of
1994 net earnings of $272 million.
The military aircraft segment had strong operating earnings in
the second quarter of 1995 and record operating earnings for the
first six months of 1995. The commercial aircraft segment had
slightly lower earnings in the second quarter of 1995 compared to
the same period in 1994. Operating earnings in this segment for
the first six months of 1995 were improved over the first six
months of 1994. The missiles, space and electronics segment
operating earnings were lower in the second quarter and the first
six months of 1995 compared to the same periods in 1994. The
financial services and other segment reported higher earnings for
the second quarter compared to the same quarter in 1994 and
slightly reduced earnings for the first six months of 1995
compared to the same period in 1994.
Pension income totaled $43 million in the 1995 second quarter,
and $93 million for the first six months of 1995. This compared
with $33 million and $66 million in the same periods of 1994.
The increased pension income for the second quarter and the first
six 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. Pension income in the
second quarter of 1995 was lower than in the first quarter of
1995 due to improved benefits given to certain bargaining units
and a curtailment recorded in connection with the closing of a
Florida missile plant.
On August 2, 1995, MDC announced changes in its pension plans for
current and future non-union retirees. Effective December 1, 1996,
<PAGE> 17
MDC will increase the pensions of eligible non-union
retirees and their survivors. Those who retire prior to December 1,
1996, will receive a $100 per month increase for life.
Eligible survivors will receive a $50 per month increase for
life. Eligible retirees who are less than 65 years old will also
receive an additional $350 per month Social Security supplement
until the earlier of age 65 or their eligibility for full Social
Security benefits. Eligible survivors will receive 50 percent of
the benefit otherwise payable to the retiree. For eligible non-union
employees who retire on or after December 1, 1996, the pension benefit
formula will be revised, resulting in an increased benefit. As a result of
these changes, MDC estimates 1995 pension income will decrease by
approximately $5 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.
Three Months Ended Six Months Ended
June 30 June30
1995 1994 1995 1994
------ ------ ------ ------
(Millions of Dollars)
Revenues
Military aircraft $ 1,969 $ 1,916 $ 3,898 $ 3,738
Commercial aircraft 1,385 810 2,302 1,399
Missiles, space and
electronic systems 471 447 878 892
Financial services and other 84 74 161 167
------- ------- ------- -------
Operating revenues 3,909 3,247 7,239 6,196
Non-operating income 13 3 16 7
------- ------- ------- -------
Total Revenues $ 3,922 $ 3,250 $ 7,255 $ 6,203
======= ======= ======= =======
Earnings
Military aircraft $ 205 $ 153 $ 415 $ 319
Commercial aircraft 21 24 33 27
Missiles, space and
electronic systems 57 80 116 140
Financial services and other 17 2 29 32
------- ------- ------- -------
Operating earnings 300 259 593 518
Corporate and other 3 (2) (2) (9)
Interest expense (35) (37) (72) (79)
Income taxes (99) (82) (191) (158)
------- ------- ------- -------
Net Earnings $ 169 $ 138 $ 328 $ 272
======= ======= ======= =======
<PAGE> 18
Military Aircraft
Revenues from the military aircraft segment in the second quarter
of 1995 were $2.0 billion, up from $1.9 billion in the second
quarter of 1994. Revenues for the first six months of 1995 in
this segment were $3.9 billion, a 4 percent increase over
the $3.7 billion in the first six months of 1994. The F-15
program was the main contributor to this increase, as a result of
production of F-15's for Saudi Arabia and Israel.
Operating earnings in the military aircraft segment in the 1995
second quarter were $205 million, a 34 percent increase over the
$153 million in 1994's second quarter. Higher earnings were
achieved despite a $18 million write-off on a modified KC-10
Dutch tanker contract involving a new product design. The
military aircraft segment had record operating earnings of $415
million for the first six months of 1995, compared with $319
million in the prior year's same period. Increased earnings in
both periods came predominately from the C-17 and F-15 programs.
Commercial Aircraft
Revenues from the commercial aircraft segment in the second
quarter of 1995 were $1.4 billion, up from $.8 billion in the
second quarter of 1994. Revenues for the first six months of
1995 were $2.3 billion, up from $1.4 billion in the first six
months of 1994.
The increase in revenues for both 1995 periods resulted from
increased commercial aircraft deliveries. McDonnell Douglas
delivered five MD-80 and three MD-90 twin jets and seven MD-11
trijets in 1995's second quarter, and also sold two MD-80 twin
jets previously recorded as lease transactions. This compares
with eight twin jets and four trijets in 1994's second quarter.
For the first six months of 1995, twin jet deliveries totaled 17
(eleven MD-80s and six MD-90s) and trijet deliveries totaled 11,
an increase of five twin jets and four trijets over the same
period of 1994.
Operating earnings in the commercial aircraft segment in the
second quarter of 1995 were $21 million, compared with $24
million in the second quarter of 1994. Lower earnings in the
second quarter of 1995 on increased revenues reflects deliveries
of low margin MD-90 twin jets and MD-11 trijets. Operating
earnings in this segment for the first six months of 1995 were
$33 million, compared with $27 million in the first six 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 contributed to the improvements in the first half of 1995.
Missiles, Space and Electronic Systems
Revenues from the missiles, space and electronic systems segment in
the second quarter of 1995 were $471 million, up from $447 million in
the second quarter of 1994. Revenues for the first six months of
1995 decreased to $878 million from $892 million in the 1994 same
period.
<PAGE> 19
The missiles, space and electronic systems segment had 1995
second quarter operating earnings of $57 million, compared with
earnings of $80 million in the second quarter of 1994. Operating
earnings in this segment for the first six months of 1995 were
$116 million, compared with $140 million in the same period in
1994. Increased earnings in the Space Station program have been
offset by lower earnings in the Delta and Harpoon programs. Both
quarters in 1995 have been 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 $17 million in the 1995 second quarter, compared to two
million dollars in the 1994 second quarter. Higher earnings in
the 1995's second quarter primarily reflected lower interest
expense and gains from a sale of property. The 1994 second
quarter included a four million dollar charge related to the early
retirement of long-term debt. Earnings for the first six months
of 1995 totaled $29 million, compared with $32 million in the
1994 same period. Most 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 June 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 June 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 June 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.
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
June 30, 1995.
<PAGE> 20
On May 26, 1995, Duff & Phelps Credit Rating Company raised its
rating of MDC and MDFC debt. MDC's and MDFC's senior debt
ratings were raised to BBB+ from BBB. MDFC's subordinated debt
was also raised to BBB from BBB-.
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 principally use
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 June 30, 1995, MDC had repurchased 5.9 million shares, or
more than 5 percent of its common stock, at a cost of
$326 million.
Aerospace Cash & Cash Equivalents. Although aerospace debt
remained steady at just under $1.3 billion, aerospace cash and
cash equivalents at June 30, 1995, more than doubled the December
31, 1994 level. Aerospace cash and cash equivalents were $852 million
at June 30, 1995 compared with $408 million at December 31, 1994. Cash
flow from aerospace operations for the first six months of 1995 was
slightly under $700 million, prior to reductions of $242 million used by
McDonnell Douglas to purchase 4.1 million shares of its common stock. Cash
flow from aerospace operations in the 1995 second quarter was just under
$100 million, prior to purchasing 1.9 million shares of its common stock
for $123 million.
Commercial Aircraft Financing. Difficulties in the commercial
airline industry may continue to result in airlines not taking
deliveries of aircraft, requesting changes in delivery schedules,
or defaulting on contracts for firm orders. Aircraft delivery
delays or defaults by commercial aircraft customers not
anticipated by MDC could have a negative short-term impact on
cash flow. During recent years, several airlines have filed for
protection under the Federal Bankruptcy Code or became delinquent
on their obligations for commercial aircraft. As indicated in
Note 4, Commitments and Contingencies, page 13, MDC also has
outstanding guarantees of $383 million related to the marketing
of commercial aircraft. MDC does not anticipate that the
existence of such guarantees will have a material adverse effect
upon its earnings, cash flow or financial position.
MDC has made lease, loan principal, and interest payments
totaling $62 million on behalf of Viacao Aerea Rio-Grandense, S.A. (Varig).
In addition, Trans World Airlines, Inc. (TWA), MDC's largest aircraft
leasing customer, filed for a prepackaged plan under Chapter 11 of the
U.S. bankruptcy laws on June 30, 1995. On August 4, 1995, the
U.S. Bankruptcy Court confirmed TWA's prepackaged reorganization.
Neither unexpected delays in payments from Varig nor the effects
of the TWA bankruptcy are expected to have a material adverse
effect on earnings, cash flow or financial position of MDC. See
Note 4, Commitments and Contingencies, page 13, for a further
discussion of Varig and TWA.
MDC has also made offers totaling $649 million to lease aircraft
scheduled for delivery during 1995 to 1998 and has made financing offers
<PAGE> 21
totaling $303 million for ordered but undelivered aircraft.
Although earnings, cash flow, and financial position could be
adversely impacted, MDC does not anticipate that the existence of
such lease or financing offers will have a material adverse effect on
earnings, cash flow or financial position. See also Note 4,
Commitments and Contingencies, page 13.
Financial Services. Financial Services debt on June 30, 1995,
was $1.4 billion, up from $1.3 billion at December 31, 1994.
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. Since June 1993, MDFC has
issued $611 million of debt securities registered with the SEC
under shelf registrations.
During July 1995, MDFS initiated a medium-term note program under
a private placement 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 June 30, 1995, no
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.
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.
<PAGE> 22
In March 1995, MDC announced that in late 1995 it will close two
facilities, one in Titusville, Florida and another in St.
Charles, Missouri, as part of its continuing consolidation of
facilities due to excess capacity throughout MDC. The plant in
Titusville will close after production of Tomahawk cruise
missiles for the U.S. Navy and other operations come to an end
there later in 1995. Operations at the St. Charles facility,
which included production of electrical wire bundles and
ground support equipment for aircraft and missile systems, will
be reassigned to other MDC locations.
Discussions under the captions "Military Aerospace Business,"
"Commercial Aircraft Business" and "Government Business Audits,
Reviews and Investigations" reflect developments during the
second 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
period ended March 31, 1995.
Military Aerospace Business
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 falling well below the maximum rate permitted by contract.
Utilization rates, one of the more critical performance areas, easily
exceeded required target rates. The DoD is expected to make a decision in
late 1995 on whether to extend the total buy of C-17s beyond the 40 aircraft
to which it is now committed.
On July 11, 1995, a C-17 transport surpassed the equivalent of two
design lifetimes - or 60,000 hours - of simulated flight in
durability testing. During the testing, a C-17 airframe was
subjected to simulated flight loads and conditions expected to be
encountered in two lifetimes of service with the U.S. Air Force.
The 60,000-hour milestone was reached seven weeks ahead of
schedule.
Three C-17 production aircraft, P-19, P-20, and P-21 were
delivered to the Air Force in April, June, and July of 1995
respectively. P-21 is the ninth C-17 in a row delivered ahead
<PAGE> 23
of schedule. To date, the Air Force has taken delivery of twenty-
two C-17s. The next production aircraft is scheduled for
delivery during the third quarter.
For additional information regarding Government inquiries on the
C-17 program, see also "Government Business Audits, Reviews and
Investigations," page 25.
F-18 Hornet. On June 7, 1995, a roll-out ceremony was held for
the first of 64 F-18 Hornets for the Finnish Air Force. The
first four aircraft will arrive in Finland in November. MDC is
under contract to assemble and deliver the first seven Finnish
F-18Ds. The remaining 57 Hornets for Finland, all single seat
C models, will undergo final assembly at Valmet Aviation Industries
in Halli, Finland.
On May 8, 1995, final assembly for the initial F/A-18E/F advanced
tactical strike fighter began, continuing the aircraft on
schedule and on budget toward its first flight in December 1995.
MDC plans a roll-out ceremony for the advanced Hornet in
September 1995 at its facilities in St. Louis.
AH-64 Apache. In April 1995, the Royal Netherlands Air Force
chose the Apache AH-64D helicopters for its defense forces. MDC
is expected to begin delivering the first of 30 helicopters in
1998. In early July 1995, the Westland-MDC Apache team was
selected to provide the British Ministry of Defence with 67
advanced attack helicopters. Deliveries are expected to begin in
early 1998, and continue into the year 2003. These two contracts
represent approximately $2 billion in future revenues for MDC.
Earlier this year, the AH-64D Longbow Apache participated in the
U.S. Army's rigorous Initial Operational Test and Evaluation
(IOTE) exercises. Results of the IOTE are expected to be released later
this year after the U.S. Army evaluates all test data. The U.S. Army plans
to upgrade its entire AH-64A fleet into the next-generation Longbow Apache,
with the first modernized aircraft entering service in mid-1997.
Delta Clipper. The Delta Clipper Experimental (DC-X) conducted
flights in May, June, and July 1995 bringing the number of DC-X
completed flights to eight. Now that this year's flight test
program has ended, MDC will integrate key advanced technology
components into the experimental vehicle under a series of
cooperative agreements awarded by NASA. Flight tests are
scheduled to resume on the advanced vehicle in 1996; the vehicle
will be designated the DC-XA.
Delta II. On August 5, 1995, a Delta II expendable launch
vehicle placed the Republic of Korea's first communications
satellite into a lower than planned orbit. An investigative committee
has been formed to establish the cause of the performance shortfall.
Delta III. MDC announced in May 1995 its intent to develop the
Delta III, a launch vehicle with payload capacity of 8,400
<PAGE> 24
pounds, more than twice that of the Delta II. The first launch
of this intermediate-class rocket is planned for 1998. MDC and
Hughes Space and Communications International Inc. have signed a
contract for 10 firm launches, plus options for additional
launches through 2005. The total value of the contract could be
up to $1.5 billion.
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 June 30, 1995, the MD-80/90 program included 1,128 deliveries,
110 aircraft on firm order, and 110 options and reserves. On the
same date, the MD-11 program included 140 deliveries, 22 aircraft
on firm order, and 71 options and reserves representing potential
firm orders. During the second quarter, MDC received orders for
five MD-80 twin jets and two trijets. Recently announced
purchases by Saudi Arabian Airlines of 29 MD-90 twin jets and
four trijets have not been included in orders or reported backlog
pending the finalization of the order. Existing orders for 13
trijets from a leasing company were excluded from firm orders and
reported backlog during the 1995 second quarter.
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
deliveries in the high teens planned for 1995. As a result,
during the first quarter of 1995, MDC made a tentative decision
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
<PAGE> 25
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.
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.
<PAGE> 26
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
During April 1995, MDC and the United Aerospace Workers in Long
Beach, California and various other locations ratified a new five
year contract which will expire in the year 2000.
MDC also has union contracts with the International Association
of Machinist and Aerospace Workers in California and various
other unions which expire in the fourth quarter of 1995.
<PAGE> 27
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of MDC's shareholders was held on Friday,
April 28, 1995.
(b) [Need not be answered because (1) proxies for the meeting were
solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934, (2) there was no solicitation in
opposition to management's nominees as listed in the proxy
statement, and (3) all such nominees were elected.]
(c) The following is a brief description of matters voted upon at
the meeting:
Four Directors were elected at the annual meeting. John H.
Biggs: 99,056,311 shares were voted for election and 2,743,268
shares were withheld. James S. McDonnell III: 98,292,225
shares were voted for election and 3,507,354 shares were
withheld. Harry C. Stonecipher: 98,346,128 shares were voted
for election and 3,453,451 shares were withheld. P. Roy
Vagelos, M.D.: 99,005,064 shares were voted for election and
2,794,515 shares were withheld.
The shareholders considered a proposal to approve the MDC
Senior Executive Performance Sharing Plan. This proposal was
approved; 89,196,967 shares were voted for the proposal,
11,322,212 shares were voted against it, 1,280,273 shares were
abstained, and 144 shares were broker non-votes.
A shareholder proposal requested that MDC establish a
Nominating Committee to recommend candidates to stand for
election to MDC's Board of Directors and that the Committee be
comprised solely of independent directors as defined in the
proposal. This proposal was defeated; 24,647,215 shares were
voted for the proposal, 68,342,617 shares were voted against
it, 2,499,892 shares were abstained, and 6,309,872 shares were
broker non-votes.
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
<PAGE 28>
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: August 11, 1995 /s/ R. L. Brand
R. L. Brand
Vice President and Controller
and Registrant's Authorized
Officer
<PAGE>
Exhibit 12
McDonnell Douglas Corporation
Computation of Ratio of Earnings to Fixed Charges
Six Months Ended June 30, 1995
(Dollars in Millions)
Earnings
Earnings before income taxes $519
Add: Interest expense 127
Interest factor in rents 16
----
$662
====
Fixed Charges
Interest expense $127
Interest factor in rents 16
----
$143
====
Ratio of earnings to fixed charges 4.6X
====
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
McDonnell Douglas Corporation
Financial Data Schedule (FDS)
</LEGEND>
<CIK> 0000063917
<NAME> MCDONNELL DOUGLAS
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 871
<SECURITIES> 0
<RECEIVABLES> 791
<ALLOWANCES> 0
<INVENTORY> 5,230
<CURRENT-ASSETS> 0
<PP&E> 4,115<F1>
<DEPRECIATION> 2,596<F2>
<TOTAL-ASSETS> 12,154
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 113
0
0
<OTHER-SE> 3,814
<TOTAL-LIABILITY-AND-EQUITY> 12,154
<SALES> 7,082
<TOTAL-REVENUES> 7,255
<CGS> 6,185
<TOTAL-COSTS> 6,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> 519
<INCOME-TAX> 191
<INCOME-CONTINUING> 328
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 328
<EPS-PRIMARY> 2.86
<EPS-DILUTED> 0
<FN>
<F1>PP&E includes MDC Aerospace of $3,969 and Financial Services of $146.
<F2>Depreciation includes MDC Aerospace of $2,565 and Financial Services of $31.
</FN>
</TABLE>
