<PAGE> FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
=== EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1995
--------------------------------------
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
------------------ --------------
Commission file number 1-3685
MCDONNELL DOUGLAS CORPORATION
- ----------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Maryland 43-0400674
- ----------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Post Office Box 516, St. Louis, MO. 63166-0516
- ---------------------------------- ----------------
(Address of Principal Executive Offices) (Zip Code)
314-232-0232
--------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
- ----------------------------------------------------------------------
Common Stock, par value $1 per share New York & Pacific Stock Exchanges
Preferred Stock Purchase Rights New York & Pacific Stock Exchanges
8 5/8% Notes due April 1, 1997 New York Stock Exchange
8 1/4% Notes due July 1, 2000 New York Stock Exchange
9 1/4% Notes due April 1, 2002 New York Stock Exchange
9 3/4% Debentures due April 1, 2012 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. X
---
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold or the
average bid and asked prices of such stock, as of a specified date
within 60 days prior to the date of filing.
Aggregate market value of common stock held by non-affiliates of MDC
at February 29, 1996: $8.583 billion.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date:
Common shares outstanding at February 29, 1996: 110,952,425 shares
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1995 Annual Report to Shareholders are incorporated
by reference into Parts I, II and IV. Portions of the proxy
statement for the annual meeting to be held on April 26, 1996 are
incorporated by reference into Part III.
Exhibit Index on Page 13
10-K Page 2
PART I
ITEM 1. BUSINESS
GENERAL
The Company was incorporated in Maryland in 1939 under the name
McDonnell Aircraft Corporation. On April 19, 1967, the shareholders
approved the merger with Douglas Aircraft Company and the name of the
corporation was changed to McDonnell Douglas Corporation (the Company
or McDonnell Douglas).
The Company, its divisions and its subsidiaries operate
principally in four industry segments: military aircraft; missiles,
space, and electronic systems; commercial aircraft; and financial
services and other. Operations in the first two industry segments
are conducted primarily by McDonnell Douglas Aerospace and by
Military Transport Aircraft, unincorporated operating divisions of
the Company, which are engaged in design, development, production,
and support of the following major products: military transport
aircraft; combat aircraft and training systems; commercial and
military helicopters and ordnance; missiles; space launch vehicles
and space station systems; and defense and commercial electronics,
lasers, sensors, and command, control, communications, and
intelligence systems. Operations in the commercial aircraft segment
are conducted by Douglas Aircraft Company (DAC), an unincorporated
operating division of the Company, which designs, develops, produces,
and sells commercial transport aircraft and related spare parts.
Through its McDonnell Douglas Financial Services
<PAGE>
Corporation (MDFS) subsidiary, the Company is engaged in aircraft
financing and commercial equipment leasing. The Company's
subsidiary, McDonnell Douglas Realty Company, was established in 1972
to develop the Company's surplus real estate. While continuing to
serve that role, McDonnell Douglas Realty Company has become a full-
service developer and property manager in the commercial real estate
market as well as for the Company's aerospace business.
Since 1988, the Company's information systems business has been
divested. In 1991, McDonnell Douglas sold substantially all of the
assets of McDonnell Douglas Systems Integration Company and certain
related assets of McDonnell Douglas Information Systems International
(MDISI). In 1992, the Company sold all the outstanding stock of
TeleCheck Services, Inc. and in 1993, sold its remaining MDISI business.
The business segments in which the Company is engaged and
discussion of certain of their respective products appear under the
caption: "Military Aircraft, Missiles, Space, and Electronic
Systems" and "Commercial Aircraft" on the Pullout Section appearing
after page 20, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 22 through 29 and "Selected
Financial Data by Industry Segment" on page 30 of the Company's 1995
Annual Report to Shareholders, the text portions of which are
incorporated herein by this reference.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information regarding the Company's industry segments
is provided under the caption "Selected Financial Data by Industry
Segment" on page 30 of the Company's 1995 Annual Report to
Shareholders, which is incorporated herein by this reference.
10-K Page 3
MARKETING AND MAJOR CUSTOMER - MCDONNELL DOUGLAS AEROSPACE
Discussion regarding the Company's most significant customer in
the military aircraft and missiles, space, and electronic systems
segments is included under the captions "Business and Market
Considerations - Military Aerospace Business" and "Government
Business Audits, Reviews, and Investigations" on pages 27 through 29
in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's 1995 Annual Report to
Shareholders, which are incorporated herein by this reference.
COMPETITION
Programs and products comprising most of the Company's business
volume are of a highly technical nature, comparatively few in number,
high in unit cost, and have traditionally enjoyed relatively long
production lives. There is significant price and product competition
in the aerospace industry, both in military and commercial programs.
The Company's military segments compete in an industry composed
of a few major competitors and a limited number of customers. The
number of competitors in these segments has decreased over the past
few years due to consolidation brought about by reduced defense
spending. However, competition for military programs remains significant.
<PAGE>
The Company's commercial aircraft sales are subject to intense
competition from aircraft manufactured by other companies, both
foreign and domestic, including companies which are nationally owned
or subsidized and have a larger family of commercial aircraft to meet
varied and changing airline requirements. The Company's principal
competitors in commercial aircraft are The Boeing Company and Airbus
Industrie. To meet competition, the Company maintains a continuous
program directed toward enhancing the performance and capability of
its products. Additionally, product improvement programs which
increase airplane operational capability, improve reliability,
enhance maintainability, and increase commonality within current
airplane families and across the entire product line will continue.
The Company's strategy includes analyzing potential derivatives of
the current product line, and developing those derivatives that are
economically appropriate.
MDFS is subject to competition from other financial
institutions, including commercial banks, finance companies, and
leasing companies. Some full-service leasing companies are larger
than MDFS and have greater financial resources, greater leverage
ability, and lower effective borrowing costs.
SUBCONTRACTING, PROCUREMENT AND RAW MATERIALS
The most important raw materials required for the Company's
aerospace products, from the standpoint of aggregate cost, are
aluminum (sheet, plate, forgings, and extrusions), titanium (sheet,
plate, forgings, and extrusions) and composites (including carbon and
boron). All of these materials are purchased from outside sources
and generally are available at competitive prices. Additional
sources and capacity exist for these raw materials, but it would take
a year or more before they could become qualified alternate sources
of supply.
The Company purchases many components, such as engines and
accessories, electrical power systems, radars, landing gears, fuel
systems, refrigeration systems, navigational equipment, and flight
and engine instruments for use in aircraft, and propulsion systems,
guidance systems, telemetry and gyroscopic devices in support of its
space systems and missile programs. In addition, fabricated
subassemblies such as engine pods and pylons, fuselage sections,
wings and empennage surfaces, doors
10-K Page 4
and flaps, are sometimes subcontracted to outside suppliers. The
U.S. Government and commercial customers also furnish certain
components for incorporation into aircraft and other products they
purchase from the Company.
<PAGE>
The Company is dependent upon the ability of its large number of
suppliers and subcontractors to meet performance specifications,
quality standards, and delivery schedules at anticipated costs, and
their failure to do so would adversely affect production schedules
and contract profitability, while jeopardizing the ability of the
Company to fulfill commitments to its customers. The Company has
encountered some difficulty from time to time in assuring long-lead
time supplies of essential parts, subassemblies, and materials. The
Company's success in forestalling shortages of critical commodities
over the long term is difficult to predict because many factors
affecting such shortages are outside its control.
EMPLOYEES
At December 31, 1995, the total employment of the Company,
including subsidiaries, was 63,612.
PATENTS AND LICENSES
The Company holds many patents and has licenses under patents
held by others. The Company does not believe that the
expiration of any patent or group of patents, nor the termination of
any patent license agreement, would materially affect its business.
The Company does not believe that any of its patents or trademarks
are materially important to the conduct of its business.
ENVIRONMENTAL REGULATIONS
See "Environmental Expenditures" on page 29 in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1995 Annual Report to Shareholders,
which is incorporated herein by this reference.
RESEARCH AND DEVELOPMENT
A significant portion of the Company's business with the U.S.
Government consists of research, development, test, and evaluation
work, which are reflected as sales and costs in the Company's
financial statements. Customer-sponsored research and development
work amounted to approximately $1.227 billion in 1995, $1.393 billion
in 1994, and $1.126 billion in 1993. Company-sponsored research and
development and bid and proposal work, related to both commercial
business and business with the U.S. Government, amounted to $311
million in 1995, $297 million in 1994, and $341 million in 1993.
U.S. GOVERNMENT AND EXPORT SALES
Although there are additional risks to the Company attendant to
its non-U.S. operations and transactions, such as currency
fluctuations and devaluations, the risk of war, changes in foreign
governments and their policies, differences in foreign laws,
uncertainties as to enforcement of contract rights, and difficulties
in negotiating and litigating with foreign sovereigns, the Company's
operations and financial position have not been materially adversely
affected by these additional risks in its non-U.S. operations and
transactions.
<PAGE> 10-K Page 5
Since most of the Company's foreign export sales involve
technologically advanced products, services and expertise, U.S.
export control regulations limit the types of products and services
that may be offered and the countries and governments to which sales
may be made. The Department of State issues and maintains the
International Traffic in Arms Regulations pursuant to the Arms Export
Control Act. The Department of Commerce issues and maintains the
Export Administration Regulations pursuant to the Export
Administration Act and the Department of Treasury implements and
maintains transaction controls, sanctions, and trade embargoes
pursuant to the Trading With the Enemy Act and the International
Emergency Economic Powers Act. Pursuant to these regulations,
certain products and services cannot be exported without obtaining a
license. Most of the military products that the Company sells abroad
cannot be sold without such a license. Consequently, the Company's
international sales may be adversely affected by changes in the
United States Government's export policy, the implementation of trade
sanctions or embargoes, or the suspension or revocation of the
Company's foreign export control licenses.
Additional information required by this item is included in Note
18, "U.S. Government and Export Sales" on page 49 of the Company's
1995 Annual Report to Shareholders, which is incorporated herein by
this reference.
BACKLOG
The Company's backlog of orders at December 31 follows:
1995 1994
Backlog % Backlog %
-------- ----- ------- -----
(Dollars in millions)
Firm backlog:
Military aircraft $10,121 51.5 $ 8,340 47.6
Commercial aircraft 7,175 36.5 7,544 43.1
Missiles, space, and
electronic systems 2,344 12.0 1,619 9.3
-------- ----- -------- -----
Total Firm Backlog $19,640 100.0 $17,503 100.0
======== ===== ======== =====
Contingent backlog:
Military aircraft $ 6,298 72.3 $ 8,597 73.3
Commercial aircraft 1,669 19.1 2,234 19.0
Missiles, space, and
electronic systems 746 8.6 898 7.7
-------- ----- -------- -----
Total Contingent Backlog $ 8,713 100.0 $11,729 100.0
======== ===== ======== =====
Backlog reported is that of the aerospace segments. Customer
options and products produced for short-term lease are excluded from
backlog. For a discussion of risks associated with backlog for
commercial customers, see "Backlog" on page 29 in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1995 Annual Report to Shareholders,
which is incorporated herein by this reference.
<PAGE>
Contingent backlog includes: (a) U.S. and other government
orders not yet funded; (b) U.S. and other government orders being
negotiated as continuations of authorized programs; and (c) unearned
price escalation on firm commercial aircraft orders.
10-K Page 6
The backlog amounts include units scheduled for delivery over
extended future periods. Since substantially all work for the U.S.
and other governments is accounted for on the percentage of
completion method of accounting whereby sales are recorded as work is
performed, such amounts included in backlog cannot be segregated on
the basis of scheduled deliveries. However, with respect to
commercial jetliners and related products included in the commercial
segment (which are accounted for on a delivery method), the firm
backlog related to deliveries scheduled after one year was $5.2
billion at December 31, 1995, and $4.8 billion at December 31, 1994.
The Government may terminate its contracts for default, or for
its convenience whenever it believes that such termination would be
in the best interest of the Government. For a further discussion of
termination for default, termination for convenience, and other
government contracting risks, see "Business and Market Considerations
- - Military Aerospace Business" on page 27 in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the
Company's 1995 Annual Report to Shareholders, which is incorporated
herein by this reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company at March 6, 1996, were as
follows:
EXECUTIVE AGE POSITIONS AND OFFICES HELD
- ---------- --- ---------------------------
William M. Austin 49 McDonnell Douglas Aerospace (MDA) Vice
President/General Manager - Business
Management since July 1993. MDC Vice
President - Treasurer 1991-1993.
Edward C. Bavaria 63 DAC Deputy President since May 1995.
Self-employed consultant 1993-1995
(subsequent to retirement from General
Electric Company). Vice President and
General Manager - General Electric
Company 1983-1993.
Donald V. Black 54 DAC Senior Vice President - Marketing
and Airline Financing since February
1996. DAC Vice President/General
Manager - Airline Financing Group
1994-1995. MDFC Executive Vice
President 1989-1994.
<PAGE>
Dean C. Borgman 54 McDonnell Douglas Helicopter Systems
Senior Vice President - General Manager
since September 1993 and McDonnell
Douglas Helicopter Company (MDHC)
President since March 1992. MDHC Vice
President - Commercial Programs 1992.
MDHC General Manager MDX Program
1990-1992.
Robert L. Brand 58 MDC Vice President and Controller since
September 1992. McDonnell Douglas
Missile Systems Company (MDMSC) Vice
President-Business Management and Chief
Financial Officer 1992. MDC Controller
1987-1992.
Laurie A. Broedling 50 MDC Senior Vice President - Human
Resources and Quality since May 1995.
MDC Vice President - Human Resources
1995. Associate Administrator for
Continual Improvement of National
Aeronautics and Space Administration
1992-1995. Deputy Under Secretary of
Defense -Total Quality Management
1990-1992.
10-K Page 7
John P. Capellupo* 61 MDA President since December 1994. MDC
Executive Vice President 1992-1994.
McDonnell Aircraft Company (MCAIR)
President 1991-1992. DAC Deputy
President 1990-1991.
Michael J. Cave 35 DAC Vice President/General Manager -
Business Operations and Chief Financial
Officer since November 1995. MDA Vice
President/General Manager - Business
Management - C-17 Program 1995. MDA
Vice President - Business Management
1994-1995. MDA General Manager -
Business Program 1993-1994. MDA
General Manager - Contracts and Pricing
1991-1993.
Stanley Ebner 62 MDC Senior Vice President - Washington
Operations since December 1994. Self-
employed attorney, consultant, and
writer 1990-1994.
* Retiring, effective March 31, 1996.
<PAGE>
George G. Field 57 DAC Senior Vice President - Product
Support since January 1996. MDA Vice
President/General Manager - Integrated
Product Definition and C-17 Deputy
Program Manager 1994-1996. MDA Vice
President/General Manager - C-17
Engineering and Test 1993-1994. MDA
Vice President/General Manager -
Government Programs - Product
Development and Technology 1993-1994.
DAC Vice President MD-12 Design and
Technology 1992-1993. DAC Vice
President - MD-11 1990-1992.
Patrick J. Finneran Jr. 50 MDA Vice President/General Manager -
Production Aircraft Programs since
January 1995. MDA Vice President/
General Manager AV-8B 1992-1994. MCAIR
General Manager AV-8B 1992. MCAIR
Deputy General Manager
AV-8B 1990-1992.
Steven N. Frank 47 MDC Vice President, Associate General
Counsel and Secretary since April 1994.
MDC Vice President, Associate General
Counsel and Assistant Secretary 1992-
1994. Partner of Peper, Martin,
Jensen, Maichel & Hetlage 1988-1992.
Thomas M. Gunn 52 MDC Senior Vice President - Business
Development since May 1995. MDC Vice
President/General Manager, Strategic
Business and International Development
1994. MDC Vice President, Strategic
Business Development 1993. MDC Vice
President, Special Projects 1992. MDHC
President 1990-1992.
Frederick W. Hill 46 MDC Senior Vice President -
Communications and Community Relations
since May 1995. Vice President -
Public Affairs, Westinghouse Electric
Corporation 1993 - 1995. Executive
Director - Government Affairs,
Westinghouse Electric Corporation
1990-1993.
Robert H. Hood Jr. 63 DAC President since January 1989.
Leonard F. Impellizzeri 57 MDA Vice President/General Manager -
Production Operations and General
Services since August 1995. MDA Vice
President/General Manager - F/A-18
A/B/C/D 1992 - 1995. DAC Vice
President, Deputy General Manager -
C-17 Program 1990-1992.
<PAGE> 10-K Page 8
Donald R. Kozlowski 58 Military Transport Aircraft Senior Vice
President - C-17 Program Manager since
December 1993. MDC Vice
President/General Manager-High Speed
Civil Transport 1992-1993. MCAIR Vice
President/General Manager - F/A-18 1991-
1992. MCAIR Vice President/ General
Manager 1988-1991.
Roger A. Krone 39 MDC Vice President - Treasurer since
September 1995. MDA Division Director
- Information Systems 1994-1995. MDC
Director - Financial Planning 1992 -
1994. Program Manager - F-16 Israeli
Programs, General Dynamics Corporation
1991-1992.
F. Mark Kuhlmann 47 MDC Senior Vice President and General
Counsel since March 1996. MDC Senior
Vice President - Administration and
General Counsel 1994-1996. MDC Senior
Vice President - Administration,
General Counsel and Secretary 1992-
1994. MDC Vice President, General
Counsel and Secretary 1991-1992.
McDonnell Douglas Systems Integration
President 1989-1991.
Herbert J. Lanese 50 MDA President since March 1996. MDA
Deputy President 1995-1996. MDC
Executive Vice President and Chief
Financial Officer 1992-1995. MDC
Senior Vice President - Finance
1989-1992.
John F. McDonnell 57 MDC Chairman of the Board since
September 1994. MDC Chairman and Chief
Executive Officer 1988-1994.
Thomas J. Motherway 53 McDonnell Douglas Finance Corporation
and McDonnell Douglas Realty Company
President since January 1995.
McDonnell Douglas Realty Company
President 1991-1994. McDonnell
Douglas Realty Company Assistant to
President 1991.
Willard P. Olson 56 MDA Senior Vice President - Space and
Defense Systems since January 1995.
MDA Vice President/General Manager -
Space and Defense Systems 1994-1995.
MDA Vice President/General Manager -
Huntsville 1990-1994.
<PAGE>
Walter J. Orlowski 52 DAC Senior Vice President - MD-11,
MD-80 and MD-90 Programs since January
1996. DAC Vice President/General
Manager - Marketing and Business
Development 1993-1996. DAC Vice
President/General Manager - Development
Programs 1992-1993. DAC Vice
President/General Manager - MD-12
Program 1991-1992.
James F. Palmer 46 MDC Senior Vice President and Chief
Financial Officer since July 1995. MDC
Vice President - Treasurer 1993-1995.
MDA Vice President/General Manager -
Business Management 1992-1993. MCAIR
Chief Financial Officer 1991-1992.
Partner of Ernst & Young LLP 1985-1991.
10-K Page 9
James B. Peterson 51 MDA Vice President/General Manager -
Integrated Product Definition since
September 1995. MDA Vice
President/General Manager - Missiles
and Aerospace Support 1995. MDA Vice
President/General Manager - Cruise
Missiles 1994-1995. MDA Vice
President/ General Manager - Tomahawk
Program 1993-1994. MDA Vice President
and Deputy - New Aircraft & Missile
Products 1992-1993. MDMSC Vice
President - Advanced Programs &
Technology 1992. MDMSC Vice President
- Technology Division 1991-1992. MDMSC
Director - Tomahawk All-Up-Round (Block
III) 1986-1991.
James C. Restelli 54 MDA Vice President/General Manager -
Missile Systems and Aerospace Support
since September 1995. MDA Senior Vice
President - Operations 1995. MDA
Senior Vice President - Tactical
Aircraft and Missile Systems 1992 -
1995. MDA Executive Vice President
1991-1992. MDA Vice President -
Business Operations 1990 - 1991.
Michael M. Sears 48 MDA Vice President/General Manager -
F/A-18 since January 1994. MDA Vice
President/General Manager - F/A-18E/F
1991-1994. MCAIR Vice President/
General Manager - New Aircraft Products
Division 1990-1991.
<PAGE>
James M. Sinnett 56 MDA Senior Vice President - New
Aircraft and Missile Products since
December 1993. MDA Vice President/
General Manager - New Aircraft Products
Division 1991-1993. MCAIR Vice
President/General Manager -
ATF 1990-1991.
Harry C. Stonecipher 59 MDC President and Chief Executive
Officer since September 1994. Chairman
of the Board, President and Chief
Executive Officer of Sundstrand
Corporation 1991-1994. President and
Chief Executive Officer of Sundstrand
Corporation 1989-1991.
William L. Stowers 48 MDA Vice President/General Manager -
Supplier Management and Procurement
since October 1992. MDA Vice
President - Procurement 1990-1992.
Robert H. Trice Jr. 49 MDA Vice President/General Manager -
Business Development since October
1992. MCAIR Vice President - Business
Development 1991-1992. MCAIR Vice
President - Program Development
1990-1991.
John J. Van Gels 52 DAC Senior Vice President - Operations
since February 1996. DAC Executive
Vice President - Operations and
Production Programs 1994-1996. DAC
Vice President/General Manager -
Production Programs 1993-1994. DAC
Vice President/General Manager- MD-11
1992-1993. DAC Vice President/General
Manager - Production Center Operations
1990-1992.
John D. Wolf 51 DAC Senior Vice President - MD-95 since
February 1996. DAC Executive Vice
President - Development 1994-1996. DAC
Executive Vice President 1991-1994.
DAC Vice President/General Manager -
MD-90/MD-80/DC-9 Programs 1989-1991.
<PAGE> 10-K Page 10
All of the executive officers have been employees of the Company
at least five years except Edward C. Bavaria, Laurie A. Broedling,
Stanley Ebner, Steven N. Frank, Frederick W. Hill, Roger A. Krone,
James F. Palmer and Harry C. Stonecipher. There are no arrangements
or understandings between any of the executive officers and any other
person pursuant to which he was selected as an officer, except for
Harry C. Stonecipher, who is party to an employment agreement
incorporated by reference herein as Exhibit 10(i).
ITEM 2. PROPERTIES
At December 31, 1995 the Company's manufacturing, laboratory,
office, and warehouse areas totaled 35.8 million square feet, of
which 6.1 million square feet were leased. The Company plants are
well maintained and in good operating condition. The Company has
long-term arrangements with airport authorities enabling it to share
the use of runways, taxiways, and other airport facilities at various
locations, including St. Louis, Missouri; Long Beach, California; and
Mesa, Arizona. Reduced defense spending and reduced commercial
aircraft orders over the past several years has resulted in
downsizing of personnel and facility needs. As a result of the
Company's downsizing, certain of the Company's facilities are held
for sale and certain other facilities are currently underutilized.
The Company's principal locations are in five states and Canada.
Those in St. Louis, Missouri are chiefly devoted to military
aircraft, training systems, and missiles. Those in Mesa, Arizona are
primarily used for development, manufacture, and assembly of
helicopters. In the Los Angeles, California area, principal
properties are located in Huntington Beach and Long Beach.
Huntington Beach, California properties are utilized for research and
manufacture of spacecraft, launch vehicles, and electronics. Long
Beach, California properties are devoted to the development,
manufacture, and assembly of commercial and military transport
aircraft, and to the financial services and other segment.
Subassembly work for the commercial and military aircraft business
segments is performed at Macon, Georgia; Salt Lake City, Utah; and
Toronto, Canada for shipment to operations at Long Beach.
ITEM 3. LEGAL PROCEEDINGS
In 1991, McDonnell Douglas Corporation and General Dynamics (GD)
filed a legal action to contest the Navy's termination for default on
the A-12 contract. Additional information relative to this matter
and claims filed with the Navy on the T45 contract is included in
Note 5, "Contracts in Process and Inventories" on page 39 of the
Company's 1995 Annual Report to Shareholders, which is incorporated
herein by this reference. See also Note 16, "Commitments and
Contingencies" on page 48 of the Company's 1995 Annual Report to
Shareholders and "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Government Business Audits,
Reviews, and Investigations," page 28, which are incorporated herein
by this reference.
<PAGE>
McDonnell Douglas 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. For additional information, see "Environmental
Expenditures" on page 29 in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's 1995
Annual Report to Shareholders, which is incorporated herein by this
reference.
10-K Page 11
A number of legal proceedings and claims are pending or have
been asserted against the Company 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. The Company believes
that the final outcome of such proceedings and claims will not have a
material adverse effect on the Company's earnings, cash flow, or
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1995.
10-K Page 12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information required by this item is included on pages 44, 45,
52, and 56 of the Company's 1995 Annual Report to Shareholders, which
is incorporated herein by this reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data for the five years ended December 31,
1995, consisting of the data under the captions "Summary of
Operations" and "Balance Sheet Information" are included at page 52
of the Company's 1995 Annual Report to Shareholders, which is
incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations is contained on pages 22 through 29 of the 1995
Annual Report to Shareholders, which is incorporated herein by this
reference.
In March 1996, Standard & Poor's raised its ratings of McDonnell
Douglas and McDonnell Douglas Finance Corporation senior debt to
A-minus from BBB. The rating agency also upgraded its rating on the
MDFC subordinated debt to BBB-plus from BBB-minus.
<PAGE>
In March 1996, Duff & Phelps Credit Rating Co. raised its ratings
of McDonnell Douglas and MDFC senior debt to A-minus from BBB-plus. The
rating agency also upgraded its rating on the MDFC subordinated debt to
BBB-plus from BBB-minus.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is included on pages 30
through 49, 51, and 56 of the 1995 Annual Report to Shareholders,
which are incorporated herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
This item is not applicable.
PART III
ITEMS 10, 11, 12 and 13
The information called for by Part III, Item 10 "Directors and
Executive Officers of the Registrant" (except for certain information
concerning Executive Officers which is provided in Part I above),
Item 11 "Executive Compensation," Item 12 "Security Ownership of
Certain Beneficial Owners and Management," and Item 13 "Certain
Relationships and Related Transactions" is included in the Company's
definitive Proxy Statement for 1996 pursuant to Regulation 14A, to be
filed with the Commission within 120 days after the close of the
fiscal year ended December 31, 1995, the text portion of which is
incorporated herein by this reference. The report of the Management
Succession and Compensation Committee and the performance graph
contained in the Company's definitive Proxy Statement for 1996,
however, are not incorporated herein by reference and shall not be
deemed filed under the Securities Act of 1933 or under the Securities
Exchange Act of 1934.
10-K Page 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)1. LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of
McDonnell Douglas Corporation and Subsidiaries included
in the 1995 Annual Report to Shareholders at the pages
indicated, are incorporated herein by this reference:
Report of Ernst & Young LLP, Independent Auditors, page 51.
Consolidated Statement of Operations, years ended
December 31, 1995, 1994, and 1993, page 31.
Balance Sheet, December 31, 1995 and 1994, page 32.
Consolidated Statement of Shareholders' Equity, years
ended December 31, 1995, 1994, and 1993, page 34.
<PAGE>
Consolidated Statement of Cash Flows, years ended
December 31, 1995, 1994, and 1993, page 35.
Notes to Consolidated Financial Statements,
pages 36 through 49.
Selected Financial Data by Industry Segment, page 30.
Quarterly Results of Operations, page 56.
(a)2. LIST OF FINANCIAL STATEMENT SCHEDULES
See Index to Financial Statement Schedules on page 19.
All other schedules for which provision is made in the
applicable regulation of the Securities and Exchange
Commission are omitted either because they are not
applicable or because the required information is
included in the financial statements or notes thereto.
(a)3. EXHIBITS
See Index to Exhibits on pages 15 through 18.
(b) REPORTS ON FORM 8-K FILED DURING THE FOURTH QUARTER
OF 1995:
Form 8-K/A filed on October 11, 1995, in response to
Item 5.
10-K Page 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
MCDONNELL DOUGLAS CORPORATION
(Registrant)
Date: March 25, 1996 By: /s/ Robert L. Brand
--------------- ------------------------------
Robert L. Brand
Vice President and Controller
and Registrant's Authorized
Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the date indicated below.
<PAGE>
Signature Title Date
--------- ----- ----
/s/ Harry C. Stonecipher March 25, 1996
- ------------------------
Harry C. Stonecipher Director, President & Chief
Executive Officer
(Principal Executive Officer)
/s/ James F. Palmer March 25, 1996
- -------------------------
James F. Palmer Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Robert L. Brand March 25, 1996
- -------------------------
Robert L. Brand Vice President and Controller
(Principal Accounting Officer)
/s/ John F. McDonnell /s/ Kenneth M. Duberstein
- --------------------------- -------------------------------
John F. McDonnell, Director Kenneth M. Duberstein, Director
/s/ John H. Biggs /s/ William S. Kanaga
- --------------------------- -------------------------------
John H. Biggs, Director William S. Kanaga, Director
/s/ B.A. Bridgewater, Jr. /s/ James S. McDonnell III
- -------------------------- ------------------------------
B.A. Bridgewater, Jr., Director James S. McDonnell III, Director
/s/ Beverly B. Byron /s/ George A. Schaefer
- -------------------------- ---------------------------------
Beverly B. Byron, Director George A. Schaefer, Director
/s/ William E. Cornelius /s/ Ronald L. Thompson
- --------------------------- ---------------------------------
William E. Cornelius, Director Ronald L. Thompson, Director
/s/ William H. Danforth /s/ P. Roy Vagelos
- -------------------------- ---------------------------------
William H. Danforth, Director P. Roy Vagelos, Director
Date: March 25, 1996
<PAGE> 10-K Page 15
MCDONNELL DOUGLAS CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
EXHIBIT
3(a) Articles of Restatement of the Company's Charter, as filed
June 13, 1994.
- Incorporated by reference to Exhibit 4(b) to the
Company's Registration Statement on Form S-8, Commission
File No. 33-56129, filed with the Commission on
October 21, 1994.
3(b) Bylaws of the Company, as amended March 6, 1996.
4(a) Indenture dated as of September 1, 1985 between the Company
and The Bank of New York as Successor Trustee to Citibank,
N.A.
- Incorporated by reference to Exhibit 4(a) to the
Company's Registration Statement on Form S-3, Commission
File No. 33-36180, filed with the Commission on August 1,
1990.
4(b) First Supplemental Indenture dated as of July 1, 1986
between the Company and The Bank of New York as Successor
Trustee to Citibank, N.A.
- Incorporated by reference to Exhibit 4(b) to the
Company's Registration Statement on Form S-3, Commission
File No. 33-36180, filed with the Commission on August 1,
1990.
4(c) Second Supplemental Indenture dated as of April 2, 1992
between the Company and The Bank of New York as Successor
Trustee to Citibank, N.A.
- Incorporated by reference to Exhibit 4(c) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
4(d) Agreement of Resignation, Appointment and Acceptance dated
as of May 17, 1993 by and among the Company, Citibank, N.A.,
as Resigning Trustee, and The Bank of New York, as Successor
Trustee.
- Incorporated by reference to Exhibit 4(d) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
4(e) Form of 8-5/8% Notes due April 1, 1997.
- Incorporated by reference to Exhibit 4(f) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
4(f) Form of 9-1/4% Notes due April 1, 2002.
- Incorporated by reference to Exhibit 4(g) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
<PAGE>
4(g) Form of 9-3/4% Debentures due April 1, 2012.
- Incorporated by reference to Exhibit 4(h) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
4(h) Form of 8-1/4% Notes due July 1, 2000.
- Incorporated by reference to Exhibit 4(h) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
4(i) Rights Agreement dated as of August 2, 1990 between the
Company and First Chicago Trust Company of New York, which
includes as Exhibit B thereto the form of Rights
Certificate.
- Incorporated by reference to Exhibits 1 and 2 to the
Company's Report on Form 8-K filed with the Commission on
August 6, 1990.
4(j) Amendment Number One to Rights Agreement, dated as of
January 3, 1995.
- Incorporated by reference to Exhibit 4(j) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1994.
10(a)* McDonnell Douglas Corporation Incentive Award Plan, as
amended and restated as of July 20, 1990.
- Incorporated by reference to Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990.
10(b)* Incentive Compensation Program, as amended and restated as
of March 2, 1992 under the McDonnell Douglas Corporation
Incentive Award Plan.
- Incorporated by reference to Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991.
10(c)* Long-Term Incentive Program, as amended and restated as of
February 8, 1995 under the McDonnell Douglas Corporation
Incentive Award Plan.
- Incorporated by reference to Exhibit 10(c) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
10(d)* McDonnell Douglas Corporation Senior Executive
Performance Sharing Plan
10(e)* McDonnell Douglas Corporation Performance Sharing Plan, as
amended and restated as of 5 March 1996.
<PAGE>
10(f)* McDonnell Douglas Corporation Deferred Compensation Plan for
Nonemployee Directors.
- Incorporated by reference to Exhibit 10(e) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
10-K Page 17
10(g)* McDonnell Douglas Corporation 1995 Compensation Plan for
Nonemployee Directors.
10(h)* McDonnell Douglas Corporation 1994 Performance and Equity
Incentive Plan.
- Incorporated by reference to Exhibit 4(a) to the
Company's Registration Statement on Form S-8, Commission
File No. 33-56129, filed with the Commission on October
21, 1994.
10(i)* Employment Agreement between Harry C. Stonecipher and
McDonnell Douglas Corporation, dated as of September 24,
1994, as amended as of March 25, 1995.
10(j)* Stock Option Agreement between Harry C. Stonecipher and
McDonnell Douglas Corporation, dated as of September 24,
1994.
10(k)* Form of Termination Benefits Agreement between the Company
and eight Executive Officers of the Company, dated as of
March 15, 1996.
10(l)* Settlement Agreement and General and Special Release between
the Company and John P. Capellupo, dated as of March 7, 1996.
10(m)* Form of Performance Accelerated Restricted Stock Award
Agreement (Service-Based Vesting)
- Incorporated by reference to Exhibit 10(i) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
10(n)* Form of Performance Accelerated Restricted Stock Award
Agreement (Performance-Based Vesting)
- Incorporated by reference to Exhibit 10(j) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
11 Computation of earnings per share.
12 Computation of Ratio of Earnings to Fixed Charges.
<PAGE> 10-K Page 18
13 Sections of 1995 McDonnell Douglas Corporation Annual Report
to Shareholders appearing under the caption: "Military Aircraft,
Missiles, Space, and Electronic Systems," "Commercial
Aircraft," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Selected Financial Data
by Industry Segment," "Consolidated Statement of Operations,"
"Balance Sheet," "Consolidated Statement of Shareholders' Equity,"
"Consolidated Statement of Cash Flows," "Notes to
Consolidated Financial Statements," "Report of Ernst & Young
LLP, Independent Auditors," "Five-Year Consolidated
Financial Summary," and "Supplemental Information."
21 Subsidiaries.
23 Consents of Independent Auditors regarding incorporation of
their report included in the 1995 Annual Report to
Shareholders of McDonnell Douglas Corporation into Form 10-K
and incorporation of Form 10-K into Registration Statements
on Form S-3 and Form S-8.
27 Financial Data Schedule.
* Represents management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form
10-K.
10-K Page 19
MCDONNELL DOUGLAS CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules of McDonnell
Douglas Corporation and Subsidiaries for the year ended December 31,
1995, are included herein:
Report of Independent Auditors
Schedule II Valuation and Qualifying Accounts
<PAGE> 10-K Page 20
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of McDonnell
Douglas Corporation and subsidiaries (MDC) as of December 31, 1995
and 1994, and for each of the three years in the period ended
December 31, 1995, and have issued our report thereon dated January
17, 1996 (incorporated by reference elsewhere in this Annual Report
on Form 10-K). Our audits also included the financial statement
schedule listed in item 14(a) of this Annual Report on Form 10-K.
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information
set forth therein.
/s/ Ernst & Young LLP
St. Louis, Missouri
January 17, 1996
<PAGE> 10-K Page 21
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
McDonnell Douglas Corporation
Years Ended December 31, 1995, 1994, and 1993
(Millions of Dollars)
BALANCE CHARGED BALANCE
AT TO CHARGED AT
BEGINNING COSTS AND TO END
OF EXPENSES OTHER DEDUCTIONS OF
PERIOD ACCOUNTS PERIOD
-------- ---------- -------- ---------- -------
Year Ended
December 31, 1995:
Allowance for
commercial
aircraft financing $10 $ 3 $ $ 1 $12
Allowance for
uncollectible
accounts 50 13 13 50
--- --- --- --- ---
$60 $16 $ $14 $62
=== === === === ===
Year Ended
December 31, 1994:
Allowance for
commercial
aircraft financing $20 $ $ $10 $10
Allowance for
uncollectible
accounts 50 13 13 50
--- --- --- --- ---
$70 $13 $ $23 $60
=== === === === ===
Year Ended
December 31, 1993:
Allowance for
commercial
aircraft financing $ 6 $14 $ $ $20
Allowance for
uncollectible
accounts 48 15 2 15 50
--- --- --- --- ---
$54 $29 $ 2 $15 $70
=== === === === ===
NOTE: Amounts charged to other accounts are principally
reclassifications. Deductions are principally the write off of
uncollectible accounts.
<PAGE> Exhibit 3(b)
BYLAWS
of
MCDONNELL DOUGLAS CORPORATION
(as amended 6 March 1996)
ARTICLE I
Offices
--------
In addition to its principal office in the State of Maryland, the
corporation shall have an office in St. Louis, Missouri.
ARTICLE II
Seal
----
The name of the corporation and the words "Corporate Seal,
Maryland" shall be inscribed on the corporate seal.
ARTICLE III
Meetings of Shareholders
-------------------------
Section 1. Written or printed notice, stating the place, day and
hour of every meeting of shareholders (and in the case of special
meetings, stating the business proposed to be transacted thereat) shall
be given to each shareholder by personally delivering it to him, by
leaving it with him at his residence or usual place of business, or by
mailing it, postage prepaid, and addressed to him at his address as it
appears upon the corporate records of the Secretary, all not less than
ten (10) nor more than ninety (90) days before such meeting.
Section 2. The annual meeting of the shareholders shall be held
not earlier than April 15 nor later than May 15 of each year at a time
within such period and at such place in the United States as shall be
determined from time to time by the Board of Directors (the "Board") and
stated in the notice or waiver of notice of the meeting. All other
meetings of shareholders shall be held at such times and at such place
or places in the United States as shall be determined from time to time
by the Board and stated in the notice or waiver of notice of the
meeting.
Section 3. Special meetings of the shareholders, for any lawful
purpose or purposes, may be called by the Chairman of the Board (the
"Chairman"), the Chief Executive Officer, the President, a majority
-1- 6 March 1996
<PAGE>
of the Board or a majority of the Executive Committee, and shall, unless
otherwise prescribed by statute, be called by the Secretary at the
request in writing of shareholders entitled to cast at least twenty-five
(25) percent of all votes entitled to be cast at the meeting. Such
request shall state the purpose of the proposed meeting and the matters
to be acted upon at such meeting and shall further comply with the
provisions of Section 4 of this Article III. A meeting requested by
shareholders shall be called as set forth in (a) through (d) of this
Article III.
(a) The Secretary shall advise the shareholders who make the
request of the estimated cost of preparing and mailing notice of the
requested meeting. Such costs shall expressly include costs related to
preparation of a list of shareholders entitled to vote. Notice of the
meeting shall not be mailed until such costs are paid to the
corporation.
(b) The Secretary shall set the record date for shareholders
entitled to vote which shall not be less than five (5) nor more than ten
(10) days after the date on which the corporation has received payment
for the estimated cost of preparing and mailing notice.
(c) The notice shall be mailed within ten (10) days of the
record date.
(d) The time, date and place of the meeting shall be determined
by the Board except that such meeting date shall not be less than ten
(10) nor more than ninety (90) days after the record date.
Section 4. All nominations of individuals for election to the
Board and proposals of business to be considered at any meeting of the
shareholders shall be made as set forth in this Section 4 of Article
III.
(a) Annual Meeting of Shareholders. (1) Nominations of
individuals for election to the Board and the proposal of business to be
considered by the shareholders may be made at an annual meeting of
shareholders (i) pursuant to the corporation's notice of meeting, (ii)
by or at the direction of the directors or (iii) by any shareholder of
the corporation who was a shareholder of record at the time of giving of
notice provided for in this Section 4(a) of Article III, who is entitled
to vote at the meeting and who complied with the notice procedures set
forth in this Section 4(a) of Article III.
(2) For nominations or other business to be properly
brought before an annual meeting by a shareholder pursuant to clause
(iii) of paragraph (a)(l) of this Section 4 of Article III, the
shareholder must have given timely notice thereof in writing to the
Secretary. To be timely, a shareholder's notice shall be
-2- 6 March 1996
<PAGE>
delivered to the Secretary at the principal executive offices of the
corporation not less than 60 days nor more than 90 days prior to the
first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from such
anniversary date, notice by the shareholder to be timely must be so
delivered not earlier than the 90th day prior to such annual meeting and
not later than the close of business on the later of the 60th day prior
to such annual meeting or the tenth day following the day on which
public announcement of the date of such meeting is first made. Such
shareholder's notice shall set forth (i) as to each person whom the
shareholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); (ii)
as to any other business that the shareholder proposes to bring before
the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder
and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the shareholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is
made, (x) the name and address of such shareholder, as they appear on
the corporation's books, and of such beneficial owner and (y) the class
and number of shares of stock of the corporation which are owned
beneficially and of record by such shareholder and such beneficial
owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 4 of Article III the contrary, in the
event that the number of directors to be elected to the board is
increased and there is no public announcement naming all of the nominees
for director or specifying the size of the increased Board made by the
corporation at least 70 days prior to the first anniversary of the
preceding year's annual meeting, a shareholder's notice required by
this Section 4(a) of Article III shall also be considered timely, but
only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal
executive office of the corporation not later than the close of business
on the tenth day following the day on which such public announcement is
first made by the corporation.
-3- 6 March 1996
<PAGE>
(b) Special Meetings of Shareholders. Only such business shall
be conducted at a special meeting of shareholders as shall have been
brought before the meeting pursuant to the corporation's notice of
meeting. Nominations of persons for election to the Board may be made
at a special meeting of shareholders at which directors are to be
elected (i) pursuant to the corporation's notice of meeting (ii) by or
at the direction of the Board or (iii) provided that the Board has
determined that directors shall be elected at such special meeting, by
any shareholder of the corporation who is a shareholder of record at the
time of giving of notice provided for in this Section 4(b) of Article
III, who is entitled to vote at the meeting and who complied with the
notice procedures set forth in this Section 4(b) of Article III. In the
event the corporation calls a special meeting of shareholders for the
purpose of electing one or more directors to the Board, any such
shareholder may nominate a person or persons (as the case may be) for
election to such position as specified in the corporation's notice of
meeting, if the shareholder's notice required by paragraph (a)(2) of
this Section 4 of Article III shall be delivered to the Secretary at the
principal executive offices of the corporation not earlier than the 90th
day prior to such special meeting and not later than the close of
business on the later of the 60th day prior to such special meeting or
the tenth day following the day on which public announcement is first
made of the date of the special meeting and of the nominees proposed by
the directors to be elected at such meeting. Proposals of business
other than the nomination of persons for election to the Board may be
considered at a special meeting of the shareholders requested by the
shareholders in accordance with Section 3 of Article III only if the
shareholder's notice required by paragraph (a)(2) of this Section 4 of
Article III was delivered at the time such shareholder requested the
meeting.
(c) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this Section 4 of Article
III shall be eligible to serve as directors and only such business shall
be conducted at a meeting of shareholders as shall have been brought
before the meeting in accordance with the procedures set forth in this
Section 4 of Article III. The presiding officer of the meeting shall
have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made in
accordance with the procedures set forth in this Section 4 of Article
III and, if any proposed nomination or business is not in compliance
with this Section 4 of Article III, to declare that such defective
nomination or proposal be disregarded.
-4- 6 March 1996
<PAGE>
(2) For purposes of this Section 4 of Article III, "public
announcement" shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press or comparable news service or
in a document publicly filed by the corporation with the Securities and
Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange
Act.
(3) Notwithstanding the foregoing provisions of this
Section 4 of Article III, a shareholder shall also comply with all
applicable requirements of state law and of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth
in this Section 4 of Article III. Nothing in this Section 4 of Article
III shall be deemed to affect any rights of shareholders to request
inclusion of proposals in the corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
Section 5. The Chairman, or in his absence, the Chief Executive
Officer, or the President (in the order stated), or in their absence a
member of the Board selected by the members present, shall preside at
meetings of the shareholders. At any meeting of shareholders a majority
of the shares outstanding and entitled to vote at the meeting shall
constitute a quorum for the transaction of business. If a quorum is not
present or represented at any meeting of shareholders, the shareholders
entitled to vote thereat, present in person or by proxy, shall have
power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until the requisite amount of voting
stock is represented. At such adjourned meeting at which the requisite
amount of voting stock shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 6. Each outstanding share of stock having voting power
shall be entitled to one vote on each matter submitted to a vote at each
meeting of shareholders.
Section 7. The corporation shall be entitled to treat the
holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or
other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof,
save as expressly provided by the laws of Maryland.
-5- 6 March 1996
<PAGE>
ARTICLE IV
Directors
----------
Section 1. The business and affairs of the corporation shall be
managed under the direction of the Board. All powers of the corporation
shall be exercised by or under authority of the Board except as
conferred on or reserved to the shareholders by law or by the charter or
bylaws of the corporation.
Section 2. The number of Directors of the corporation shall be
thirteen (13) which number may be increased or decreased upon an
affirmative vote of not less than 80% of the entire Board but shall
never be less than three (3). Directors shall serve for three (3) years
staggered terms, with approximately one-third (1/3) of the total number
of Directors to be elected at each annual meeting of the shareholders.
In case of a vacancy on the Board for any cause other than an increase
in the number of Directors, an affirmative vote of a majority of the
remaining Directors, even though less than a quorum, may elect a
successor to hold office for the Director whose place shall be vacant
until the next annual meeting of shareholders. A vote of not less than
80% of the entire Board shall be required to fill a vacancy on the Board
which results from an increase in the number of Directors. If the
number of Directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of Directors
in each class as nearly equal as possible. In no case will a decrease
in the number of Directors shorten the term of any incumbent Director.
A Director elected to fill a vacancy on the Board which results from an
increase in the number of Directors shall hold office until the next
annual meeting of shareholders and until such Director's successor shall
have been elected and qualified. Notwithstanding any provision of law
to the contrary, a Director may be removed with or without cause only by
the affirmative vote of the holders of not less than 80% of all of the
outstanding shares of the corporation entitled to vote at a meeting of
shareholders called for such purpose.
Section 3. The Board shall hold regular and special meetings at
such place and time as it determines for the purpose of organization,
election of certain Officers as specified in Article VI, and
consideration of other business that may come before the meeting.
Section 4. At its last meeting before, or first meeting after, the
annual meeting of shareholders, the Board shall elect one of its members
to be Chairman. The Board may elect one or more vice chairmen of the
Board. The Chairman and the vice chairmen, if any, may but need not be
officers of or employed by the corporation. The Chairman, or in his
absence, the Chief Executive Officer, or the President (in the order
stated), or in their absence a member of the Board selected by the
members present, shall preside at meetings of the Board.
-6- 6 March 1996
<PAGE>
Section 5. A majority of the entire Board shall constitute a
quorum for the transaction of all business that may properly come before
any meeting of the Board.
Section 6. Special meetings of the Board may be called by the
Chairman, the Chief Executive Officer, the President, or upon written
request of two Directors, the Secretary.
Section 7. A written notice of all regular meetings of the
Board shall be mailed to each Director at his address as listed in the
corporate records of the Secretary at least ten (10) days before any
such meeting. No irregularity of notice of any regular meeting shall
invalidate the same or any proceeding thereat, provided the notice shall
definitely specify the time and place fixed by the Board for holding the
meeting. Special meetings of the Board may be called upon twenty-four
(24) hours notice, given personally, or by mail, telecommunications, or
telephone. Any Director may waive any notice required to be given by
these bylaws.
Section 8. Board meetings may be held by means of a conference
telephone or similar communication equipment if all members
participating can hear each other at the same time.
Section 9. Directors as such shall not receive any stated
salary for their services, but by resolution of the Board, compensation
may be established for service as a Director and as a member of special
or standing committees. Nothing herein contained shall be construed to
preclude any Director from serving the corporation in any other capacity
and receiving compensation therefor.
ARTICLE V
Committees
-----------
Section 1. Designation and Membership. There shall be an
Executive Committee, a Management Compensation and Succession Committee,
an Audit Committee, a Nominating Committee, a Finance Committee, and a
Corporate Responsibility Committee and there may be such other
committees as the Board may determine, each to consist of not less than
three Directors, to be elected by the Board to hold office until the
next annual organizational meeting of the Board or until their
successors are elected and qualified. The Chairman and the Chief
Executive Officer shall be members of the Executive Committee. A
majority of the Committee members shall be public Directors. Members of
the Management Compensation and Succession Committee shall not be
eligible to participate in any remuneration plan of the Corporation
providing for the acquisition of stock or options to purchase stock of
the corporation which would disqualify such Committee members as
disinterested administrators of the corporation's remuneration plans.
-7- 6 March 1996
<PAGE>
Members of the Audit Committee and the Nominating Committee shall be
independent of management and free from any relationships that, in the
opinion of the Board, would interfere with the exercise of independent
judgment. In the absence of a member of a committee, the member or
members thereof present at any meeting, whether or not he or they
constitute a quorum, may appoint a Director to act in place of any such
absent member, provided such appointed Director is otherwise qualified
to be a member of such committee. All committees may have non-voting
advisory members.
Section 2. Powers. The committees, to the extent provided by
these bylaws and by resolution of the Board, may exercise all powers of
the Board between Board meetings except the power to vote themselves
compensation, amend the bylaws, authorize or declare dividends or
distributions on stock, issue stock other than in accordance with
Section 2-411(b) of the Maryland General Corporation Law, recommend to
shareholders any action requiring shareholders' approval, or to approve
any merger or share exchange which does not require shareholder
approval.
Section 3. Procedure. Committees may meet at any time upon
notice by any means to all members, and such notice may be waived.
Meetings may be held by any means of communication, and a majority of
the entire committee shall constitute a quorum, a majority of which may
transact all business that may properly come before the committee. In
the absence of a meeting, any resolution signed by all members of each
committee shall be valid.
ARTICLE VI
Officers
-----------
Section 1. The officers of the corporation shall include the
Chief Executive Officer, the President, the Secretary, and the
Treasurer, and may include the Chairman and one or more vice chairman of
the Board, one or more executive vice presidents, one or more component
presidents, one or more senior vice presidents, one or more vice
presidents, a chief financial officer, a chief accounting officer, a tax
officer, and one or more assistant vice presidents, assistant
secretaries, and assistant treasurers (hereinafter referred to as
Officers). Any two offices may be held by the same person except the
President may not at the same time also be any form of vice president,
secretary, treasurer or accounting officer. The Board shall elect the
Chief Executive Officer, President, chief officer of DAC, chief officer
of MDA, chief officer of Military Transport Aircraft, chief financial
officer, chief law officer, chief accounting officer, chief
communications officer, chief human resources officer, head of
Washington Office operations, chief business development officer,
Treasurer, and Secretary (hereinafter referred to as Elected Officers).
-8- 6 March 1996
<PAGE>
If the Board determines that the Chairman or any vice chairman of the
Board shall be an officer of the corporation, the Board shall elect such
person and that person shall be an Elected Officer. Either the Board or
the Chief Executive Officer may appoint any other vice president in
charge of a principal business unit, division or corporate-wide function
(such as sales, administration, law or finance), and any other persons
who perform similar policy-making functions for the corporation who are
not Elected Officers (hereinafter referred to as Executive Officers).
Either the Board or the Chief Executive Officer may appoint any other
Officers (Officers other than Elected Officers or Executive Officers
hereinafter referred to as Appointed Officers).
Section 2. The Chairman, the vice chairmen of the Board, if
any, the Chief Executive Officer and, if such person is not also the
Chief Executive Officer, the President, shall each be a member of the
Board. Any Officer may be a member of the Board. Any Officer may be
removed as an officer at any time by the Board in the manner provided by
law. Any Executive Officer or Appointed Officer may be removed as an
officer at any time by either the Board or the Chief Executive Officer.
A vacancy among the Elected Officers shall be filled by the Board. A
vacancy among the Executive Officers or Appointed Officers shall be
filled by either the Board or the Chief Executive Officer.
Section 3. The Officers of the corporation shall have the
authority and shall perform the duties in the management of the assets
and affairs of the corporation as provided in these bylaws and
determined by resolutions of the Board not inconsistent therewith.
Section 4. The compensation of all Elected Officers and
Executive Officers shall be fixed by the Board or the Management
Compensation and Succession Committee. The compensation of the
Appointed Officers shall be fixed by the Board, the Management
Compensation and Succession Committee, or the Chief Executive Officer.
Section 5. The Chairman shall lead the Board in fulfilling its
responsibilities as set forth in Section 1 of Article IV and shall also
have such other powers and perform such other duties as may be assigned
by the Board.
Section 6. Each vice chairman of the Board shall, subject to the
power of the Board, be accountable to the Chairman and shall perform
such duties as may be assigned by the Board or the Chairman.
Section 7. The Chief Executive Officer shall, subject to the power
of the Board, be the senior officer of the corporation and shall have
general executive responsibility for the conduct of the business and
affairs of the corporation, including responsibility for the
implementation of policies of the corporation as determined by the
Board. The Chief Executive Officer shall also have such other powers
and perform such other duties as may be assigned by the Board.
-9- 6 March 1996
<PAGE>
Section 8. The President shall, subject to the power of the
Board, be accountable to the Chief Executive Officer. The President
shall have such powers and perform such duties as may be assigned by the
Board or the Chief Executive Officer. For the period of any absence or
disability of the Chief Executive Officer, the President shall perform
the duties and, subject to the bylaws, exercise the powers of the Chief
Executive Officer.
Section 9. The other Elected Officers, Executive Officers and
the Appointed Officers shall have the general powers and duties usually
vested in his or her respective office, and shall perform such other
duties as may be prescribed by the Board, the Chief Executive Officer,
or the President.
ARTICLE VII
Stock
------
Section 1. Transfer of stock shall be made on the books of the
corporation only by the person named in the certificate or by attorney,
lawfully constituted in writing, and upon surrender of the certificate
therefor. Certificates of stock may be issued when bearing the manual
or facsimile signature of both (1) the Chairman, the President or a vice
president elected by the Board of Directors, and (2) the Secretary, any
assistant secretary, Treasurer, or any assistant treasurer; except that
if both such signatures are facsimiles, a manual signature will be
required of such person, transfer agent, or registrar as may be
designated by the Board or the Executive Committee. If any Officer
whose duly authorized signature or a facsimile thereof appears on blank
stock certificates dies, resigns or is removed prior to issuance of such
certificates they may nevertheless be issued or registered as
certificates of stock of the corporation and shall be valid for all
purposes.
Section 2. The Board may fix the time, not exceeding ninety
(90) days preceding the date of any meeting of shareholders, any
dividend payment date or any date for the allotment of rights, during
which the books of the corporation shall be closed against transfers of
stock. In lieu of closing the books against transfers of stock, as
aforesaid, the Board may fix a date, not exceeding ninety (90) days
preceding the date of any meeting of shareholders, any dividend payment
date or any date for the allotment of rights, as a record date for the
determination of the shareholders entitled to notice of and to vote at
such meeting, or entitled to receive such dividends or rights as the
case may be; and only shareholders of record on such date shall be
entitled to notice of and to vote at such meeting, or to receive such
dividends or rights, as the case may be.
-10- 6 March 1996
<PAGE>
Section 3. The Board may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued which are alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such
issue of a new certificate or certificates, the Board may, in its
discretion and as a condition precedent to the issuance thereof, require
the owner of such lost or destroyed certificate or certificates, or his
legal representative, to give the corporation a bond in such sum as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost or
destroyed. The Board may delegate to any Officer or Officers of the
corporation the authority to issue such new certificate or certificates
and the approval of the form and amount of such indemnity bond and the
surety thereon.
ARTICLE VIII
Authorization of Corporate Commitments
---------------------------------------
Section 1. Transactions requiring Board approval under Maryland
law, the annual budget for purchase of capital facilities, the annual
capital facilities lease budget, maximum amounts of long and short term
borrowings, and authority to proceed with new product programs and other
programs or transactions committing the corporation to financial
exposure exceeding limits of authority delegated to the Chief Executive
Officer by the Board, shall be submitted for Board review and approval.
Section 2. The Chief Executive Officer can commit the
corporation in all transactions the approval of which is not reserved to
the Board in Section 1 above. The Chief Executive Officer may delegate
his authority to other Officers or employees in writing, with or without
restrictions and with or without authority to redelegate to other
employees. Authority to approve transactions or commit the corporation
includes authority to execute necessary and appropriate documents
relative thereto.
Section 3. The Chief Executive Officer may designate one or
more Officers or employees, or their designees, to sign checks, drafts,
bills of exchange, promissory notes or other documents relative to any
borrowing, commercial paper, guarantees of indebtedness, or demands for
money of the corporation and no such instrument shall be issued unless
so signed.
-11- 6 March 1996
<PAGE>
ARTICLE IX
Limitation of Liability and Indemnification
--------------------------------------------
Section 1. No Director or Officer of the corporation shall be
liable to the corporation or its shareholders for money damages, except
to the extent such limitation of liability for Directors or Officers, as
the case may be, is not permitted under the Maryland General Corporation
Law, as the same exists or may hereafter be amended. Any repeal or
modification of the foregoing provisions of this Section 1 of Article IX
shall not adversely affect any right or protection of a Director or
Officer of the corporation existing hereunder with respect to any act or
omission occurring prior to or at the time of such repeal or
modification.
Section 2. The corporation shall indemnify, and advance
expenses (without a determination of entitlement to indemnification) to,
each person who at any time is or has served as a Director of the
corporation (including Directors who also serve or have served as
Officers of the corporation) in connection with any threatened, pending
or completed action, suit or proceeding (whether civil, criminal,
administrative, or investigative) arising out of such person's service
to the corporation or to another organization at the corporation's
request except with respect to any action, suit, or proceeding brought
by such person against the corporation or to the extent such
indemnification is expressly prohibited by the Maryland General
Corporation Law, as the same exists or may hereafter be amended. The
indemnification provided by this Section 2 of Article IX shall not be
deemed exclusive of any other rights to which the Director may be
entitled under any statute, agreement, vote of shareholders or
disinterested Directors or otherwise.
Section 3. With respect to Officers and other persons who serve
or have served the corporation, the corporation shall provide
indemnification as required by law and may, as authorized at any time by
general or specific action of the Board, provide further indemnification
and advance expenses (without a determination of entitlement to
indemnification) in connection with any threatened, pending or completed
action, suit or proceeding (whether civil, criminal, administrative or
investigative) arising out of such persons' service to the corporation
or to another organization at the corporation's request except with
respect to any action, suit, or proceeding brought by such person
against the corporation or to the extent such indemnification is
expressly prohibited by the Maryland General Corporation Law, as the
same exists or may hereafter be amended. The indemnification provided
by this Section 3 of Article IX shall not be deemed exclusive of any
other rights to which the Officer or other person may be entitled under
any statute, agreement, vote of shareholders or disinterested Directors
or otherwise.
-12- 6 March 1996
<PAGE>
Section 4. Any indemnification of, or advance of expenses to, a
Director arising out of a proceeding by or in the right of the
corporation shall be reported to the shareholders with the notice of the
next shareholders' meeting or prior to the meeting.
ARTICLE X
Amendments
----------
The Board shall have the power to make, alter and repeal the
bylaws, subject, however, to the power of the shareholders to alter,
amend, or repeal any bylaws made by the Board; provided, however, that
any amendment to the 80% vote requirements in Article IV, Section 2,
must be approved by an affirmative vote of not less than 80% of the
entire Board.
-13- 6 March 1996
<PAGE> 1 Exhibit 10(d)
MCDONNELL DOUGLAS CORPORATION
SENIOR EXECUTIVE PERFORMANCE SHARING PLAN
I. Plan Purpose
The McDonnell Douglas Corporation Senior Executive Performance Sharing
Plan is intended to provide an annual incentive whereby a significant
portion of the selected executive's compensation is based on his or her
efforts in achieving specified performance objectives established for a
given Year. The Plan is designed to attract, motivate and retain key
executives on a competitive basis in which total cash compensation levels
are closely linked with accomplishment of the Company's financial and
strategic objectives.
II. Eligibility and Participation
Within the first 90 days of each Year, the Committee shall identify,
in writing, the key employees who will participate in the Plan for such
Year. Additions to the Plan during a Year shall be made only in the event
of an unusual circumstance, such as a new hire or promotion.
III. Individual Maximum Target Awards
Individual maximum target awards shall be established by the Committee
for eligible employees. Target awards will be paid only upon the
achievement of specific performance goals established by the Committee, in
writing, within the first 90 days of each Year (or, in the case of a new
hire or promoted individual added to the Plan during a Year, before 25% of
such individual's service for the Company for the performance period
established for the individual has elapsed). Such performance goals will
be based on one or more of the following performance-based criteria:
return on assets, return on equity, return on capital, return on revenues,
cash flow, additions to firm backlog as set forth each year in MDC's Annual
Report to Shareholders, book value, McDonnell Douglas Corporation stock
price performance, earnings per share of McDonnell Douglas Corporation
stock, price earnings ratio, or total quality management score calculated
generally in accordance with criteria and scoring procedures specified by
the Malcolm Baldrige Foundation. Each of these performance criteria are to
be specifically defined by the Committee on a Company-specific basis,
business-unit basis or in comparison with peer group performance, and may
include or exclude specified items of an unusual or nonrecurring nature.
IV. Discretion to Decrease Award
The Committee, in its discretion, may cancel or decrease an earned
target award, but may not under any circumstances increase such award.
V. Maximum Award
Notwithstanding any other provision of this Plan, the maximum target
award a Participant may earn and receive in a Year is $3,000,000. The
Committee may, in its discretion, decrease this maximum, but may not, under
any circumstances, increase this maximum.
<PAGE> 2
VI. Payments
Before any payments are made under the Plan, the Committee must
certify in writing that the performance goals justifying the payment of
Plan Compensation have been met. The distribution of Plan Compensation
shall be made in cash by the end of March following the Year.
VII. Entitlements
General Rule. To receive compensation from this Plan, the Participant
must be an employee of the Company at the time of payment of Plan
Compensation as determined by the Committee, in its sole discretion.
Exceptions to this rule shall be made in the cases of death, retirement,
layoff, and disability as described in this Section. The Committee may
also, in its sole discretion, permit other exceptions to this rule.
Death, Retirement, Layoff and Disability. If a Participant dies,
retires, is laid off, or becomes disabled during the Year, the amount
earned shall be prorated and payment made by the end of March following the
Year. If death, retirement, layoff or disability occurs after the close of
a Year, but before payment is made, such event shall not affect
calculations.
VIII. Administration
The Committee is authorized and empowered to administer the Plan;
interpret the Plan; prescribe, amend and rescind rules relating to the
Plan; and determine the rights and obligations of Participants under the
Plan. The Committee may delegate certain of these activities, and all
other matters as it solely determines. All decisions of the Committee
shall be final and binding upon all parties including the Company, its
shareholders, and its participants.
IX. Miscellaneous
No Contract or Guarantee of Continued Employment. Eligibility to
participate in the Plan is not a guarantee of continued employment. The
Plan does not constitute a contract of employment, and the Company
specifically reserves the right to terminate a Participant's employment at
any time with or without cause and with or without notice or assigning a
reason.
No Guarantee of Plan Compensation. Eligibility to participate in this
Plan does not guarantee the payment of Plan Compensation. Participants who
have accrued rights to Plan Compensation shall be general creditors of the
Company and shall not have any interest in the income or assets of the
Company.
Assignments and Transfers. With the exception of transfer by
beneficiary designation, will or by the laws of descent and distribution,
rights under the Plan may not be transferred or assigned.
Withholding Tax. The Company will deduct from all cash payments due a
Participant taxes required by law to be withheld with respect to such
payments.
<PAGE> 3
X. Definitions
Except as otherwise specified or as the context may otherwise require,
the following terms have the meanings indicated below for the purposes of
this Plan:
Board means the Board of Directors of McDonnell Douglas Corporation.
Code means the Internal Revenue Code of 1986, as amended.
Committee means the Management Compensation and Succession Committee
of the Board or any such other Committee to which the Board has delegated
the responsibility for administering the Plan. The Committee shall consist
of three or more members of the Board who are "outside directors" as
defined in Code Section 162(m) and the regulations thereunder.
Company means McDonnell Douglas Corporation (MDC) and its Subsidiaries
and Joint Ventures.
Year means the fiscal year of the Company.
Disability means disability according to the terms of the Salaried
Long-Term Disability Insurance MDC-East Plan, the Salaried Long-Term
Insurance MDC-West Plan or the Long Term Disability Insurance Plan for
Salaried Employees (MDHC), as may from time to time be applicable with
respect to the particular Participant.
Joint Venture means any partnership designated by the Committee where
the Company maintains 50% or more of the voting securities of the venture
or any such lesser percentage as the Committee may determine, in its sole
discretion.
Layoff means a termination which is not for cause but rather is due to
a permanent or indefinite reduction in the work force, including, but not
limited to, the elimination of a Participant's position as a result of a
facility closure, discontinuance or relocation of operations, acquisition,
reorganization or sale (including the sale by the Company of a business
unit, division, product line or functionally related group of assets).
Participant means an eligible Company employee selected for plan
participation in accordance with the procedures set forth in Section II.
Plan means the McDonnell Douglas Corporation Senior Executive
Performance Sharing Plan as set forth herein.
Plan Compensation means the amounts earned for the Year as a
consequence of the Plan.
Retirement means retirement according to the terms of the Employee
Retirement Income Plan of McDonnell Douglas Corporation -- Salaried Plan,
as may be modified from time to time.
Subsidiary means any corporation designated by the Committee in which
the Company owns an equity interest.
<PAGE> 4
XI. Governing Law
The Plan shall be construed, administered and governed in all respects
under and by the applicable internal laws of the State of Missouri, without
giving effect to the principles of conflicts of law thereof.
XII. Plan Amendment and Termination
The Committee may, in its sole and absolute discretion, amend, suspend
or terminate the Plan at any time, with or without advance notice to
Participants. Notwithstanding the foregoing, no amendment to the Plan
shall be effective which would increase the maximum award payable under
Section V, which would change the specified performance objectives for
payment of awards under Section III, or which would modify the requirements
as to eligibility for participation under Section II unless the
stockholders of McDonnell Douglas Corporation shall have first approved
such change. Under no circumstances may the Plan be amended to permit the
Committee to increase the amount of the target award in contravention of
the requirements of Section IV.
XIII. Effective Date of the Plan
This Plan shall be effective on the date it is approved by the
shareholders of the Company which must occur within one year after approval
by the Board. Any grant of Plan Compensation prior to the approval by the
shareholders of the Company shall be void if such approval is not obtained.
<PAGE> 1 Exhibit 10(e)
MCDONNELL DOUGLAS CORPORATION
PERFORMANCE SHARING PLAN
As Amended and Restated
as of 5 March 1996
PLAN TEXT
I. Plan Purpose
The Performance Sharing Plan (PSP) of McDonnell Douglas Corporation
is intended to provide incentives and financial rewards to the employees
of the Company for their contribution to improving the profitability of
the Company.
II. Eligibility and Participation
Any person who is a free enterprise personnel (FEP) employee of the
Company and who is selected by the Committee, in its sole discretion, may
participate.
Part-year Participants shall be eligible for awards calculated pro
rata to the number of days employed during the Compensation Year.
III. Individual Target Awards
Individual PSP Target Awards shall be established by the Committee
for eligible employees. Target Awards will be paid for the achievement of
expected performance as defined by the Committee, in its sole discretion.
For Participants with a change in compensation during the
Compensation Year, the Individual Target Award shall be prorated
according to the Individual Target Awards applicable during the Year.
IV. Target Award Pools
Target PSP Award Pools shall be calculated for each of the Company's
Groups equal to the sum of all Individual Target Awards.
V. Award Pools
Separate PSP Award Pools shall be calculated by the Committee for
each Group based on Return on Net Assets, Cash Flow and TQMS Improvement
as the Committee shall determine, in its sole discretion.
VI. Allocation of the Pools
Eligible employees shall receive a share of their Group's Award Pool
which bears the same relationship as their Individual Target Award does
to their Group's Target Award Pool, adjusted upward or downward to
reflect unit, sub-unit and individual performance.
<PAGE> 2
VII. Payments
The distribution of Plan Compensation shall be made in cash by the
end of March following the Compensation Year. The Committee shall direct
that Plan Compensation that would not be deductible because of the
compensation cap of Internal Revenue Code Section 162(m), or any
successor provision, shall not be paid, but instead shall be deferred to
future calendar years under such terms and conditions as the Committee
shall determine.
VIII. Entitlements
General Rule: To receive compensation from this Plan, the
Participant must be an employee of the Company at the time of payment of
Plan Compensation as determined by the Committee, in its sole discretion.
Exceptions to this rule shall be made in the cases of death, Retirement,
Layoff, and Disability as described in this Section. The Committee may
also, in its sole discretion, permit other exceptions to this rule.
Death, Retirement, Layoff and Disability. If a Participant dies,
retires, is laid off, or becomes disabled during the Compensation Year,
the amount earned shall be prorated and payment made by the end of March
following the Compensation Year. If death, retirement, layoff or
disability occurs after the close of a Compensation Year, but before
payment is made, such event shall not affect calculations.
IX. Administration
The Committee is authorized and empowered to administer the Plan;
interpret the Plan; prescribe, amend and rescind rules relating to the
Plan; and determine the rights and obligations of Participants under the
Plan. The Committee may delegate certain of these activities, and all
other matters as it solely determines. All decisions of the Committee
shall be final and binding upon all parties including the Company, its
shareholders, and its participants.
X. Miscellaneous
No Contract or Guarantee of Continued Employment. Eligibility to
participate in the Plan is not a guarantee of continued employment. The
Plan does not constitute a contract of employment and the Company
specifically reserves the right to terminate a Participant's employment
at any time with or without cause and with or without notice or assigning
a reason.
No Guarantee of Plan Compensation. Eligibility to participate in
this Plan does not guarantee the payment of Plan Compensation.
Participants who have accrued rights to Plan Compensation shall be
general creditors of the Company and shall not have any interest in the
income or assets of the Company.
<PAGE> 3
Assignments and Transfers. With the exception of transfer by
beneficiary designation, will or by the laws of descent and distribution,
rights under the Plan may not be transferred or assigned.
Withholding Tax. The Company will deduct from all cash payments due
a Participant, taxes required by law to be withheld with respect to such
payments.
XI. Definitions
Except as otherwise specified or as the context may otherwise
require, the following terms have the meanings indicated below for the
purposes of this Plan:
Board means the Board of Directors of McDonnell Douglas Corporation.
Committee means the Management Compensation and Succession Committee
of the Board or any such other Committee to which the Board has delegated
the responsibility for administering the Plan.
Cash Flow means pretax profits less the change in net assets (year-
end minus beginning) after adjustments for unusual accounting items, as
determined by the Committee, in its sole discretion.
Company means McDonnell Douglas Corporation (MDC) and its
Subsidiaries and Joint Ventures.
Compensation Year or Year means the fiscal year of the Company.
Disability means disability according to the terms of the Salaried
Long-Term Disability Insurance MDC-East Plan, the Salaried Long-Term
Insurance MDC-West Plan or the Long Term Disability Insurance Plan for
Salaried Employees, (MDHC) as may from time to time be applicable with
respect to the particular Participant.
Group means each of McDonnell Douglas Aerospace (MDA), Douglas
Aircraft Company (DAC), Military Transport Aircraft or Corporate Office.
Joint Venture means any partnership designated by the Committee
where the Company maintains 50% or more of the voting securities of the
venture or any such lesser percentage as the Committee may determine, in
its sole discretion.
Layoff means a termination which is not for cause but rather is due
to a permanent or indefinite reduction in the work force, including, but
not limited to, the elimination of a Participant's position as a result
of a facility closure, discontinuance or relocation of operations,
acquisition, reorganization or sale (including the sale by the Company of
a business unit, division, product line or functionally related group of
assets.)
<PAGE> 4
Net Assets means average net assets after adjustments for unusual
accounting items, as determined by the Committee, in its sole discretion.
Operating Income means earnings before interest, taxes and certain
corporate items, and after adjustments for unusual accounting items, as
determined by the Committee, in its sole discretion.
Participant means an eligible Company employee selected for plan
participation in accordance with the procedures set forth in Section III.
Plan means the Performance Sharing Plan (PSP) as set forth herein.
Plan Compensation means the amounts earned for the year as a
consequence of the Plan.
Retirement means retirement according to the terms of the Employee
Retirement Income Plan of McDonnell Douglas Corporation -- Salaried Plan
or Defined Contribution Plan, as may be modified from time to time.
Return on Net Assets (RONA) means Operating Income divided by Net
Assets.
Subsidiary means any corporation designated by the Committee in
which the Company owns an equity interest.
TQMS Improvement means betterment of the Group TQMS-IE scores as
measured through the Malcolm Baldrige National Quality Award criteria.
XII. Governing Law
The Plan shall be construed, administered and governed in all
respects under and by the applicable internal laws of the State of
Missouri, without giving effect to the principles of conflicts of law
thereof.
XIII. Plan Amendment and Termination
The Company may, in its sole and absolute discretion, amend, suspend
or terminate the Plan at any time, with or without advance notice to
Participants.
XIV. Effective Date of the Plan
This Plan shall be effective as of January 1, 1993.
<PAGE> 1 Exhibit 10(g)
MCDONNELL DOUGLAS CORPORATION
1995 Compensation Plan For Nonemployee Directors
1. Purpose.
The purpose of the McDonnell Douglas Corporation 1995 Compensation
Plan for Nonemployee Directors (the "Plan") is to promote the interests
of the Company and its shareholders by basing a substantial part of the
compensation of nonemployee members of the Board of Directors of the
Company on the performance of the Company's capital stock and thereby
reinforcing the mutuality of interest between such directors and the
Company's shareholders.
2. Definitions.
When used herein, the following terms shall have the following
meanings:
(a) "Administrator" means the officer or employee of the Company
designated by the Committee from time to time to administer the
provisions of this Plan, or, in the absence of any such designation, the
Committee.
(b) "Annual Board Retainer Units" means the number of Units
calculated by dividing the dollar amount of annual board retainer
compensation established annually by the Board by the average Fair Market
Value during the 10 business day period beginning on the third business
day after the Company's annual earnings press release in January.
(c) "Board" means the Board of Directors of the Company.
(d) "Committee" means the Nominating Committee of the Company.
(e) "Common Stock" means the common stock, $1.00 par value per
share, of the Company.
(f) "Company" means McDonnell Douglas Corporation.
(g) "Effective Date" means April 1, 1995.
(h) "Fair Market Value" means the closing price of a Share on the
New York Stock Exchange on a given date or, in the absence of sales on a
given date, the closing price on the New York Stock Exchange on the last
day on which a sale occurred prior to such date.
(i) "Meeting and Committee Fees" means such committee retainers and
Board and committee attendance fees for Board and committee meetings to
which a Participant shall be entitled by virtue of his or her service as
a Director of the Company.
(j) "Notice of Election" has the meaning set forth in Section 6(a).
(k) "Participant" means any member of the Board who is eligible to
participate in this Plan pursuant to Section 4.
<PAGE> 2
(l) "Prime Rate" means the prime rate as published in The Wall
Street Journal on a given date or, in the absence of a published rate on
such date, the prime rate so published on the preceding business day or,
in the absence of published rate on such date, the prime rate as
conclusively determined by the Committee, in its discretion.
(m) "Share" means a share of Common Stock.
(n) "Subsidiary" means any corporation, other than the Company, in
an unbroken chain of corporations beginning with the Company, if each of
the corporations, other than the last corporation in the unbroken chain,
owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the corporations in such chain.
(o) "Units" means a unit, payable only in cash, designated in the
accounting records of the Company as equivalent to one Share.
(p) "Valuation Date" means the date of a Participant's death, or
termination of service as a Director of the Company.
3. Administration.
The Plan shall be administered by the Committee. A majority of the
members of the Committee shall constitute a quorum. The Committee may
act at a meeting, including a telephone meeting, by action of a majority
of the members present, or without a meeting by unanimous written
consent. The Committee may from time to time delegate the responsibility
for administering the Plan to an officer or employee of the Company.
Subject to the provisions of the Plan, the Committee shall have full
power and authority to: (i) establish from time to time any guidelines
deemed necessary or appropriate for the administration or interpretation
of the Plan, construe and interpret the Plan, and make all determinations
and take all other actions considered necessary or advisable for the
administration of the Plan; (ii) cause records to be established relating
to operation of the Plan; and (iii) cause the giving of appropriate
instructions to the Company regarding payments to Participants. All
decisions, actions and interpretations of the Committee shall be final,
conclusive and binding upon all parties, including the successors and
assigns of the Company.
4. Eligibility.
Each Director of the Company who is not also an employee of the
Company or any Subsidiary shall have the right to participate in this
Plan, even if such Director is a member of the Committee.
<PAGE> 3
5. Retainer and Meeting and Committee Fees.
(a) Board Retainer Fees. The Company shall establish a
bookkeeping account for each Participant and shall credit to such
account: (i) in the case of a Participant who serves as a Director of the
Company during an entire fiscal quarter, one-fourth of the Annual Board
Retainer Units, effective as of the last day of such fiscal quarter; (ii)
in the case of a Participant who ceases to serve as a Director of the
Company during a fiscal quarter, a pro rata portion of one-fourth of the
Annual Board Retainer Units based on the number of days of service during
such quarter, effective as of the date of termination of service during
such quarter; and (iii) in the case of a Participant who commences
service as a Director of the Company during a fiscal quarter, a pro rata
portion of one-fourth of the Annual Board Retainer Units based on the
number of days of service during such quarter, effective as of the last
day of such fiscal quarter.
(b) Meeting and Committee Fees. Each Participant shall have
the right to continue to receive Meeting and Committee Fees in cash, as
provided from time to time by the Board, or, alternatively, to elect to
defer the payment of all or any portion of the Meeting and Committee Fees
to which such Director would otherwise be entitled, through the
conversion of such Meeting and Committee Fees into Units. The Company
shall credit to the Participant's account a number of full and fractional
Units equal to the number of full and fractional Shares which could be
purchased with such deferred Meeting and Committee Fees based on the Fair
Market Value on the date such Fees would have been paid had there been no
deferral.
(c) Cash Dividends. The account of each Participant shall be
credited with additional full and fractional Units equal in value to
dividends which he or she would have received if such Participant had
been the owner of a number of Shares equal to the number of Units in his
or her account on the dividend record date. The price per share for
converting dividends into such additional Units shall be the Fair Market
Value as of the payment dates for such dividends. No such dividend
credits shall be made on or after the applicable Valuation Date. No
Participant shall be deemed to be the owner of any Shares pursuant to
this Plan.
(d) Adjustments. In the event there is any change in the
outstanding Shares of the Company by reason of any stock split, stock
dividend, spin-off, split-up, spin-out, recapitalization, merger,
consolidation, reorganization, combination or exchange of shares or any
similar transaction, the Unit account of a Participant shall be
appropriately adjusted to reflect such action if such action consists of
distribution of Company stock. If such action consists of any other
distribution, the value of such distribution shall be converted to Units
on the date of such distribution, as conclusively determined by the
Committee, in its discretion.
<PAGE> 4
6. Election.
(a) Notice of Election. Each Participant who wishes either
(x) to defer the payment of Meeting and Committee Fees through the
conversion of such Fees into Units, or (y) to elect an optional
installment method of payment, shall execute and deliver to the
Administrator a "Notice of Election" in form reasonably acceptable to the
Administrator. Such Notice shall provide, as applicable, (i) the
percentage or amount of Meeting and Committee Fees, if any, to be
deferred, (ii) the date such deferral is to commence, (iii) the manner of
distribution, (iv) the beneficiary designations of the Participant, if
any, and (v) such other matters as the Administrator shall reasonably
specify. An election to defer payment of Meeting and Committee Fees
shall be applicable only to Units or Meeting and Committee Fees earned by
reason of services rendered in the calendar year beginning after the date
of such Notice; provided, that an election in 1995 shall be applicable to
any such Fees earned subsequent to the date of such election. An
election for an optional installment method of payment must be made at
least one year prior to the date of the payment to which the election
relates.
(b) Modification of Election. An election to defer Meeting
and Committee Fees shall continue in effect until modified by a
subsequent "Notice of Election," provided, however, that (i) every
election to defer Meeting and Committee Fees shall be irrevocable as to
Units earned prior to the date of modification and (ii) such election to
defer may not be revoked and may not be changed more frequently than once
per calendar year and then only to cease future deferrals or to change
the level of future deferrals. Every election for an optional
installment method shall be made not later than one year prior to the
date Units become payable to the Participant pursuant to Section 7. Any
such modification shall be made in writing to the Administrator and shall
be effective upon the date stated therein.
7. Payment of Deferred Fees.
(a) Lump Sum Payment. No Units shall be payable to a
Participant until his or her death, or termination as a Director.
Subject to Section 9 below, upon the earlier of these events, all such
Units, together with any dividend accruals thereon, as hereafter
provided, shall be payable in a single cash lump sum amount (with Units
converted into cash equal to the Fair Market Value on the Valuation Date
multiplied by the number of Units then being paid) to such Participant,
or his or her beneficiary or estate, within thirty (30) days from the
Valuation Date, unless the Participant shall have designated an optional
installment payment in the Notice of Election (as provided in Paragraph
(b) below), in which event the first such installment shall be paid
within thirty (30) days of such date.
<PAGE> 5
(b) Installment Payments. Installment payments will be made in
approximately equal periodic installments over the period specified in
the Notice of Election, which shall not exceed ten (10) years; provided,
however, that no such installment method of distribution may be elected
which will result in any regular installment being less than $500. In
the event a Participant shall elect such installment method of
distribution, interest will be credited on the undistributed sums,
compounded and adjusted quarterly at the Prime Rate in effect on the last
day of each fiscal quarter. Such interest shall accrue from the
Valuation Date.
8. Designation of Beneficiary.
Each Participant may designate one or more beneficiaries to
receive all sums due to such Participant hereunder upon his or her death.
Such beneficiary designation may be revoked or amended by such
Participant, from time to time, by appropriate notice in writing
delivered to the Administrator. In the absence of any beneficiary
designation or in the event that the designated beneficiaries shall not
be living at the time of death of the Participant, the account value on
the date of death of the Participant shall be payable and delivered to
the estate of such deceased Participant.
9. Death or Incapacity of Participant.
(a) Death. Upon the death of a Participant while serving as a
Director, a cash lump sum equal to the Fair Market Value on the date of
death multiplied by the number of Units credited to his or her account on
such date, plus any Units then due to the Director pursuant to Section 5
hereto, shall be paid to his or her designated beneficiary or estate, as
provided herein. Upon the death of a Director who had previously
terminated as a Director and had elected an installment method of
distribution, all sums remaining undistributed shall be paid in one lump
sum cash amount to his or her designated beneficiary or estate within 30
days of the date of death.
(b) Incapacity. In the event that any person to whom Units
are distributable under the terms of this Plan shall be unable to
properly manage his or her own affairs by reason of incapacity, all
amounts payable hereunder may be paid (at the time otherwise payable) to
a duly appointed personal representative, conservator or guardian or to
any person, firm or a corporation furnishing or providing support and
maintenance to such distributee. The Company and its officers and
employees shall be fully and completely exonerated from all liability to
any distributee upon making payment in accordance with the terms of this
paragraph.
<PAGE> 6
10. Amendment and Termination.
The Committee may at any time amend or terminate this Plan with
respect to Units or Meeting and Committee Fees to be earned on or after
the date of amendment or termination. No action of the Committee may
permit anyone other than the Participants eligible under Section 4 to
participate in the Plan or to withdraw the administration of the Plan
from the Committee or the Administrator who has been designated by the
Committee to administer the Plan.
The Committee also reserves the exclusive right to terminate
this Plan with respect to any individual Participant. If the Plan is
terminated in whole or part, all amounts payable will be promptly
distributed to the affected Participant in a lump sum cash amount, with
interest or dividend equivalent accruals earned to date.
11. Miscellaneous.
(a) Inalienability. No right or payment under this Plan shall
be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell,
assign, pledge, encumber or charge the same shall be null and void. No
right or payment hereunder shall be liable for or subject to the debts,
contracts, liabilities or torts of the person entitled to such benefit.
If any Participant or beneficiary hereunder should become bankrupt or
attempt to anticipate, alienate, sell, assign, pledge, encumber or charge
any right or payment hereunder, then such right or payment shall, in the
discretion of the Committee, terminate. In such a case, the Company may
hold or apply the same or any part thereof for the benefit of the
Participant or beneficiary, his or her spouse, children or other
dependents, or any of them, in such manner and in such proportion as the
Committee shall determine, and its decision shall be final, conclusive
and binding upon all persons involved.
(b) Funding. This Plan is unfunded. Amounts due under this
Plan at any time and from time to time shall be paid from the general
funds of the Company. The Company shall be under no obligation to set
aside funds to provide for amounts payable under this Plan. To the
extent any person acquires a right to benefits payable hereunder, such
right shall be no greater than that of an unsecured general creditor of
the Company. Nothing contained in this Plan and no action taken pursuant
hereto shall create or be construed to create a trust of any kind or
fiduciary relationship between the Company or a Subsidiary and any
Participant or beneficiary of any other person.
(c) No Retention Rights. Nothing in this Plan shall give any
Participant the right to be retained as a director of the Company or any
Subsidiary, nor shall any provision of this Plan require any Participant
to continue as a director of the Company or any Subsidiary or in any
other capacity.
<PAGE> 7
(d) Nature of Payments. The payments provided for herein are
in addition to any payments to which a Participant may become entitled
under any other benefit plan of the Company or any Subsidiary now in
effect or as hereafter amended, and unless otherwise agreed to by the
Participant, shall be in addition to any payments pursuant to any plans
which may supersede any of such present plans, or any other benefit plan
under which the Participant is entitled to benefits.
(e) Duties of Participants. Nothing in this Plan is intended
to subject any Participant to a higher standard of accountability to the
Company or any Subsidiary than the standard of accountability to which
any other director of such company is subject.
(f) Governing Law. This Plan shall be construed in accordance
with and governed by the laws of the State of Missouri.
(g) Section 16. This Plan is intended to comply with the
exemption contained in Rule 16a-1(c)(3), as amended from time to time and
any successor provision thereto, under the Securities Exchange Act of
1934, as amended. Any provision of this Plan that is determined to
conflict with such Rule so as to render Units or interests in this Plan
"derivative securities" within the meaning of Rule 16a-1(c)(3), as
amended from time to time or any successor provision thereto, shall be
null and void.
(h) Separability. In case any provision in this Plan shall be
invalid, illegal or unenforceable, the validity, legality or
unenforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
(i) Construction. The Section and Paragraph headings are for
convenience only and shall not affect the construction hereof.
<PAGE> 1 Exhibit 10(i)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the 24th day of
September, 1994 by and between McDonnell Douglas Corporation, a Maryland
corporation (the "Company"), and Harry C. Stonecipher ("Executive").
RECITALS
A. The Company desires to employ Executive as President and Chief
Executive Officer and for Executive to serve as a member of its Board of
Directors.
B. In return for the compensation, bonuses and other consideration
provided for herein, Executive has agreed to become President and Chief
Executive Officer and a member of the Board of Directors of the Company
pursuant to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing, and the
representations, warranties and covenants hereinafter, the parties hereto
agree as follows (the "Agreement"):
1. Employment. At all times during the Employment Period (as
hereinafter defined), Company shall employ Executive in the capacity of
President and Chief Executive Officer. In such capacity, Executive shall
devote his full time and professional efforts to such position, shall be
assigned and undertake only such duties and tasks as are appropriate for a
person in the position of President and Chief Executive Officer, and shall
exercise such authority over all of Company's operations and employees as
is customarily exercised by a President and Chief Executive Officer,
subject to the overall supervision of the Board of Directors of the Company
(the "Board").
2. Employment Period. The term of the Executive's employment
under this Agreement shall commence on September 24, 1994 (the
"Commencement Date") and shall expire, subject to earlier termination of
employment as hereinafter provided, on September 23, 1997 (the "Employment
Period"); provided, however, that on September 23, 1996 and each
anniversary of such date, the Employment Period shall automatically be
extended for an additional one year period unless prior thereto either
party has given written notice to the other that such party does not wish
to extend the term of this Agreement. Notwithstanding any other provision
of this Section 2, in no event shall the Employment Period extend beyond
May 16, 2001.
3. Compensation. Except as otherwise provided for herein,
throughout the Employment Period the Company shall pay or provide Executive
with the following, and Executive shall accept the same, as compensation
for the performance of his undertakings and the services to be rendered by
him throughout the Employment Period under this Agreement:
<PAGE> 2 Exhibit 10(i)
(a) Annual Compensation.
(i) Base Salary: $825,000 per year, to be reviewed
annually by the Management Compensation and Succession Committee
("Compensation Committee") of the Company's Board of Directors, but Base
Salary may not be reduced by the Compensation Committee to a rate that is
less than the highest rate Executive has attained on an annualized basis
unless such reduction is part of a general salary reduction applied to
members of the Company's senior management as a group.
(ii) Annual Incentive Compensation: $575,000 target
incentive compensation for 1995 pursuant to the terms and conditions of the
Company's Performance Sharing Plan or any successor plan (collectively
"PSP"); this amount is guaranteed for 1995, payable in 1996 first quarter.
Thereafter, the amount determined in accordance with the terms and
conditions of PSP as applied for other members of senior management of the
Company.
(iii) 1994 Signing Bonus: $750,000 to $1,000,000 with
the actual amount of this one-time signing bonus within these limits to be
determined by subtracting from the sum of $1,000,000, all other forms of
compensation payable by the Company to Executive in 1994, which are
includable for purposes of calculating Applicable Employee Remuneration
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code").
(b) Long Term Incentive Compensation.
(i) Years of Service based Restricted Stock: 60,000
shares of restricted stock with 42,000 shares granted effective as of the
Commencement Date and 18,000 shares granted no later than January 31, 1995
with vesting as follows:
(a) 14,000 shares of the 42,000 shares on March 31,
1995, and an additional 14,000 shares per year in each of the first
quarters of 1996 and 1997.
(b) the remaining 18,000 shares no later than the
end of the first quarter of 2002.
(ii) Performance based Restricted Stock: 40,000 shares
of performance based restricted stock to be granted in equal installments
of 10,000 shares no later than the end of the first quarter of each of the
following years: 1995, 1996, 1997 and 1998. Vesting, performance periods
and other criteria to be the same as those set for the Chief Executive
Officer's award in April 1994, or as set by the Compensation Committee for
other members of senior management in accordance with the terms and
conditions of the Company's 1994 Performance and Equity Incentive Plan
("PEIP").
<PAGE> 3 Exhibit 10(i)
(iii) Stock Options: Options to purchase 150,000 shares
of the Company's common stock at the fair market value of the Company's
common stock on the Commencement Date, vesting and exercisable as follows:
30,000 shares per year beginning on the second anniversary of the
Commencement Date, exercisable over a ten-year period, continuing after
Executive's retirement.
(c) All restricted stock and stock options shall be granted
and issued under the terms and conditions of the PEIP (including agreements
to be issued pursuant to the terms thereof), and Executive's participation
thereunder shall continue as long as such plan remains in effect, with
participation on the same basis as other corporate officers in any future
incentive compensation or other bonus plan covering the Company's executive
employees. Notwithstanding the foregoing, the Long Term Incentive
Compensation in Section 3(b) herein is intended to be the total long term
incentive compensation of Executive during his employment with Company.
Additional long term incentive awards to Executive, if any, will be granted
at the sole discretion of the Compensation Committee. Executive shall also
participate in the Company's other employee benefit plans, policies,
practices and arrangements in which senior Company executives are presently
eligible to participate, or plans and arrangements substituted therefor or
in addition thereto, including without limitation any defined benefit
retirement plan, excess or supplementary plan, profit sharing plan, savings
plan, health and dental plan, disability plan, survivor income and life
insurance plan, executive financial planning program, or other arrangement
(PEIP and such other benefit plans collectively hereinafter referred to as
the "Benefit Plans").
(d) Paid vacation of no less than four (4) weeks per year in
accordance with the Company's vacation policy as in effect from time to
time, and all paid holidays given by the Company to its executive officers.
(e) All fringe benefits and perquisites including without
limitation the payment by the Company of initiation fees and dues for one
country club in accordance with the Company's policies presently in effect.
(f) Moving and relocation expenses incurred by Executive to
move his residence to the world headquarters city of Company, including
third party relocation service for disposal of Executive's current
residence. Any pay-back provision contained in Company's moving and
relocation policy shall not apply to Executive unless he is terminated for
"Cause" as hereinafter defined. Executive shall receive a lump sum payment
in an amount sufficient to reimburse him for income taxes payable by him as
a result of such moving and relocation expenses and the payment received
under this paragraph.
<PAGE> 4 Exhibit 10(i)
(g) The Executive's entitlement to any other compensation or
benefits shall be determined in accordance with the terms and conditions of
this Agreement and the Benefit Plans and other applicable programs,
practices and arrangements then in effect, to the extent that such plans,
programs, practices and arrangements do not conflict with the terms of this
Agreement.
(h) If all or any portion of the payments and benefits
provided to Executive under this Agreement constitute "excess parachute
payments" within the meaning of Section 280G of the Code that are subject
to the tax imposed by Section 4999 of the Code (or similar tax and/or
assessment), the Company (or its successor) shall make a single lump sum
payment to Executive in an amount equal to the amount necessary to place
Executive in the same after-tax position as he would have been in (taking
into account any taxes which would be payable on such amount including, but
not limited to, income taxes) had no such tax been imposed on such payments
and benefits. The determination of the amount payable to Executive
hereunder shall initially be made, at the Company's expense, by the
independent accounting firm employed by the Company immediately prior to
the occurrence of any change of control of the Company which will result in
the imposition of such tax. If, after such lump sum payment has been made
to Executive, it is determined (pursuant to final regulations or published
rulings of the Internal Revenue Service, final judgment of a court of
competent jurisdiction or otherwise) that the amount of tax payable by
Executive pursuant to Section 4999 of the Code is greater than the amount
of such tax as calculated by the Company's independent accounting firm and
reflected in the lump sum payment made to Executive as aforesaid, then the
Company (or its successor) shall pay Executive an amount equal to the sum
of (i) the difference between the amount of such tax as initially
determined by such independent accounting firm hereunder and the amount of
such tax which is determined to be payable by Executive, (ii) any interest,
fines and penalties imposed on Executive by any taxing authority due to any
underpayment of such taxes by Executive, plus (iii) the amount necessary to
reimburse Executive for any income, excise or other taxes which are payable
by Executive with respect to the amounts specified in (i) and (ii) above,
and the reimbursement provided for by this clause (iii).
4. Expenses. During the Employment Period, the Company shall
promptly pay or reimburse Executive for all reasonable out-of-pocket
expenses incurred by Executive in the performance of duties hereunder in
accordance with the Company's policies and procedures then in effect.
5. Conditions of Employment. Throughout the Employment Period,
(a) the Company shall not require or assign duties to Executive which would
require him to have the location of his principal business office or his
principal place of residence other than at the world headquarters of the
Company, (b) the Company shall not require or assign duties to Executive
which would require him to spend more than ninety (90) normal working days
away from his office during any consecutive twelve-month period, (c) the
Company shall provide an office to Executive, the location and furnishings
of which shall be equivalent to the offices provided to other members of
<PAGE> 5 Exhibit 10(i)
the Office of the Chairman of the Company on the date of this Agreement;
and (d) the Company shall provide secretarial services and other
administrative services to Executive which shall be equivalent to the
secretarial services and other administrative services provided to other
members of the Office of the Chairman of the Company on the date of this
Agreement.
6. Termination. In addition to the termination rights in Section
2 of this Agreement, this Agreement shall terminate upon the following
circumstances:
(a) At any time at the election of Company for Cause.
"Cause" for this purpose shall mean (i) Executive committing a material
breach of this Agreement or acts involving moral turpitude, including
fraud, dishonesty, disclosure of confidential information or the commission
of a felony, or direct and deliberate acts constituting a material breach
of his duty of loyalty to Company; (ii) Executive willfully or continuously
refusing to perform the material duties reasonably assigned to him by the
Board which are consistent with the provisions of this Agreement; or (iii)
the inability of Executive to obtain and maintain appropriate United States
security clearances.
(b) At any time at the election of Executive for Good Reason.
"Good Reason" for this purpose shall mean (i) a material breach of this
Agreement by the Company; (ii) the failure of the Executive to continue to
serve as a member of the Company's Board of Directors, or removal from his
position as President and Chief Executive Officer, other than for Cause;
(iii) the assignment to Executive of duties which are reasonably deemed by
Executive not to be appropriate for someone in the position of President
and Chief Executive Officer; (iv) the Executive's responsibilities
hereunder are reasonably deemed by Executive to be substantially
diminished, or any other person shall be appointed by the Board or the
shareholders of Company to a position equal to or superior to the
Executive's position; or (v) the Company providing written notice to the
Executive pursuant to Section 2 hereof that it does not wish to extend the
term of this Agreement.
(c) Executive's death or his being unable to render the
services required to be rendered by him during the Employment Period for a
period of one hundred eighty (180) days during any twelve-month period
("Disability").
(d) In the event the Company or Executive intend to terminate
this Agreement for Cause or Good Reason, respectively, such termination may
only be accomplished upon compliance with the following procedures:
(i) The party seeking to terminate the Agreement (the
"Notifying Party") shall provide the other (the "Defaulting Party") with
written notice of its or his belief that Cause or Good Reason, as the case
may be, exists. The parties shall for a period of 30 days from the date of
such notice attempt to resolve to their mutual satisfaction whether or not
Cause or Good Reason exists, and, if so, the rights and obligations of the
parties.
<PAGE> 6 Exhibit 10(i)
(ii) In the event the parties are unable to reach a
mutually acceptable resolution during such 30-day period, the Notifying
Party shall afford the Defaulting Party an additional thirty (30) days or
such longer period as the Notifying Party may determine to cure the alleged
breach.
(iii) In the event the Defaulting Party does not cure
the breach during such 30-day period, the Notifying Party shall be required
to institute an arbitration proceeding to determine whether Cause or Good
Reason, as the case may be, existed and has not been cured. The
arbitration will be conducted in the world headquarters city of the Company
and shall be conducted in accordance with the then governing rules of the
American Arbitration Association.
(iv) This Agreement shall be terminated as of the date
when the Notifying Party institutes an arbitration proceeding in accordance
with subsection (iii) preceding; provided, however, that in the event Good
Reason exists as a result of the application of Section 6(b)(v), no further
employment services will be required or expected of Executive and Executive
and Company will coordinate the timing and press releases of his departure.
The sole decision of the arbitrator in such proceeding shall be to
determine whether Cause (if initiated by Company) or Good Reason (if
initiated by Executive) exists. Thereafter, the obligations of the parties
to each other shall be determined by applying the decision of the
arbitrator(s) in accordance with Exhibit A hereto. In the event the
Company does not prevail in any such proceeding initiated by it for Cause,
Executive's termination shall be deemed to have occurred for Good Reason.
In the event Executive does not prevail in any such proceeding initiated by
him for Good Reason, Executive shall be considered as having voluntarily
terminated employment other than for Good Reason, and his rights under this
Agreement shall be determined as if he had been terminated by Company for
Cause.
(e) Upon expiration or termination of this Agreement under
Section 2 or Section 6 herein, Executive shall be entitled to receive
compensation and other benefits provided for herein in accordance with
Exhibit A hereto. The parties agree that, in the event of termination by
Executive for Good Reason under Section 6, such payments and benefits shall
be deemed to constitute liquidated damages for the breach of this Agreement
by Company.
(f) In the event it is determined by the arbitrator that
Executive has terminated this Agreement for Good Reason, Executive shall be
entitled to receive within 30 days of such determination the net present
value of annual Base Salary and targeted Annual Incentive Compensation for
the remainder of the Employment Period, with targeted Annual Incentive
Compensation being determined for this purpose based upon the targeted
Annual Incentive Compensation for the year of termination and with net
present value calculated by using an interest rate discount factor of 6.5%.
Notwithstanding the foregoing, in the event the acceleration of any amount
payable in accordance with the preceding sentence would result in such
amount not being deductible by the Company under Section 162(m) of the
Code, as currently in effect
<PAGE> 7 Exhibit 10(i)
or as may be hereafter amended, or under any regulations promulgated
thereunder, the non-deductible amount shall be deferred and be paid to
Executive as early as possible in the next year in which the deductibility
of his compensation is not subject to or would not exceed the limitations
of Section 162(m).
7. Covenant Not to Compete. Without the consent of the Company,
Executive shall not directly or indirectly at any time during the
Employment Period (without regard to (i) an earlier termination for Cause
or Good Reason as provided for in Section 6 herein, and (ii) any future
extensions under Section 2 herein; but subject to such longer period as
provided for in Section 9) undertake employment as an owner, director,
partner, officer, employee, affiliate or consultant with any business
entity directly engaged in the manufacture and/or sale of products
competitive with any material product or product line of the Company;
provided, however, that Executive shall not be deemed to have breached this
undertaking if his sole relation with such entity consists of his holding,
directly or indirectly, an equity interest in such entity not greater than
two percent (2%) of such entity's outstanding equity interest so long as
such holding does not exceed 10% of the liquid net worth of Executive. For
purposes hereof, the term "material product or product line of the Company"
shall mean any product or product line of the Company, the gross sales of
which during any calendar year during the five (5) year period preceding
the Executive's undertaking such employment were at least $50 million.
8. Disclosure of Confidential Information. Without the express
written consent of the Company, Executive shall not at any time (either
during or after the termination of this Agreement for any reason) disclose
to any other business entity proprietary or confidential information
concerning the Company or the Company's trade secrets of which Executive
has gained knowledge during his employment with the Company.
9. Effect of Breach of Sections 7 or 8. So long as any restricted
stock grant or stock option provided for in Section 3(b) herein shall not
be vested or shall not have been exercised, the vesting of such shares and
the exercise of such stock options shall each be subject to Executive's
full compliance with the terms and conditions of Section 7 (which shall
continue to apply for this purpose) and Section 8 herein; provided,
however, that any such breach will not have any effect on restricted stock
grants vested or stock options exercised prior to the date of such breach.
Executive further agrees that a breach of Sections 7 or 8 cannot adequately
be compensated by money damages and, therefore, Company shall be entitled,
in addition to any other right or remedy available to it (including, but
not limited to, an action for damages), to an injunction restraining such
breach or a threatened breach and to specific performance of either such
provision, and Executive hereby consents to the issuance of such injunction
and to the ordering of specific performance.
10. Legal Expenses. The Company shall pay to Executive all out-of-
pocket expenses, including reasonable attorneys' fees, incurred by
Executive in connection with any claim or legal action or proceeding
brought under or involving this Agreement, whether brought by Executive or
by or on behalf of the Company or by another party; provided, however, the
Company shall not be obligated to pay to Executive out-of-pocket expense,
<PAGE> 8 Exhibit 10(i)
including attorneys' fees, incurred by Executive in any claim or legal
action or proceeding involving Sections 6, 7, 8 or 9 of this Agreement if
Company prevails in such litigation or arbitration. Company agrees to
reimburse Executive for reasonable attorneys' fees and out-of-pocket
expenses in an amount not to exceed $15,000, which are incurred by him in
the negotiation and preparation of this Agreement.
11. Retirement Plans. Notwithstanding anything stated herein to
the contrary, the benefits and obligations payable to Executive under the
Employee Retirement Income Plan of McDonnell Douglas Corporation - Salaried
Plan ("Pension Plan"), the Supplemental Employee Retirement Income Plan of
McDonnell Douglas Corporation ("Supplemental Pension Plan"), and any other
retirement plan provided by the Company shall not be reduced, offset or
otherwise limited by the Executive's coverage or benefit entitlement
pursuant to any retirement plan provided by any former employer of the
Executive, except as provided in this Section 11. For the purposes of
calculating the Executive's benefits under the Company's retirement plans,
Executive will receive credit for twice as many years of service as he
actually works for the Company with the excess benefit above what the
Pension Plan provides to be paid through the Supplemental Pension Plan. In
addition, Company agrees to provide a supplemental pension payment in an
amount equal to the difference between (i) what Executive would have
received from his current employer had he stayed with such other company
through the end of the Employment Period, or the earlier termination date
of this Agreement if it is terminated by the Company for Cause or as a
result of Executive's death or disability (the "Calculation Period"), and
(ii) the pension payments he is actually entitled to receive from such
other company and the Company (determined without regard to this sentence).
The Calculation Period shall be increased by one year in the event this
Agreement expires on a scheduled expiration date, or if terminated by
Executive for Good Reason. In determining the amount of this supplemental
pension payment, in addition to amounts payable to Executive under the
Company's Pension Plan and Supplemental Pension Plan, the actuarial
equivalent of the value of the Company's matching contributions for
Executive's benefit under its Savings Plan and Supplemental Savings Plan
shall be included. For this purpose, the actuarial assumptions set forth
in the Pension Plan shall be used. In determining amounts which would have
been payable to Executive by his current employer, it will be assumed that
Executive's final average earnings under Executive's current employer's
retirement plans (as reflected in Executive's "Personal Statement of
Benefits" from his current employer dated April 14, 1994) increases at an
annual rate of 4% from January 1, 1995 to the end of the Calculation
Period. Such additional pension amounts payable to Executive shall be made
under the Supplemental Pension Plan.
12. No Mitigation. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by
seeking other employment or otherwise and no such payment shall be offset
or reduced by the amount of any compensation or benefits provided to the
Executive in any subsequent employment.
13. Notices. All notices required or permitted under this
Agreement shall be in writing, may be made by personal delivery or
facsimile transmission, effective on the day of such delivery or receipt of
such transmission, or may be mailed by registered or certified mail,
effective two (2) days after the date of mailing, addressed as follows:
<PAGE> 9 Exhibit 10(i)
to Company: McDonnell Douglas Corporation
Post Office Box 516, Mail Code 100-1240
St. Louis, Missouri 63166-0516
Attention: F. Mark Kuhlmann
Senior Vice President-Administration and
General Counsel
Facsimile number: (314) 777-1007
or such other person or address as designated in writing to Executive at
his last known residence address or to such other addresses as designated
by him in writing to Company.
14. Successors. This Agreement may not be assigned by the Company
(other than by merger or operation of law) without the express written
consent of Executive, and the obligations of the Company provided for in
this Agreement shall be binding legal obligations of any successor to the
Company or the principal business of Company by purchase, merger,
consolidation, or otherwise. This Agreement may not be assigned by
Executive during his life, and upon his death will be binding upon and
inure to the benefit of his heirs, legatees and the legal representatives
of his estate.
15. Waiver, Modification and Interpretation. No provisions of
this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in a writing signed by Executive and
an appropriate officer of the Company empowered to sign same by the Board
of Directors of the Company. No waiver by either party at any time of any
breach by the party of, or compliance with, any condition or provision of
this Agreement to be performed by the other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same time or at
any prior to subsequent time. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the
State of Missouri; provided, however, that the corporate law of the state
of incorporation of the Company shall govern issues related to the issuance
of shares of the Company's common stock. Any action brought to enforce or
interpret this Agreement (other than an action arising under Section 6
herein, for which the arbitration procedures provided for therein shall
govern) shall be maintained in the State courts of Missouri or the U.S.
Federal District Court for the Eastern District of Missouri located in St.
Louis, Missouri. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
16. Headings. The headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation
of any provision of this Agreement.
17. Entire Agreement. This Agreement (together with the Exhibit
hereto) constitutes the entire agreement between the parties, supersedes in
all respects any prior agreement between Company and Executive and may not
be changed except by a writing duly executed and delivered by Company and
Executive in the same manner as this Agreement.
<PAGE> 10 Exhibit 10(i)
18. Counterparts. Company and Executive may execute this
Agreement in any number of counterparts, each of which shall be deemed to
be an original but all of which shall constitute but one instrument. In
proving this Agreement, it shall not be necessary to produce or account for
more than one such counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
McDONNELL DOUGLAS CORPORATION
/s/ John F. McDonnell
By: -----------------------------------
John F. McDonnell
Chairman of the Board
Executive:
/s/ Harry C. Stonecipher
By: ------------------------------------
Harry C. Stonecipher
<PAGE> 11 Exhibit 10(i)
EXHIBIT A
<TABLE>
<CAPTION>
EFFECT OF CONTRACT TERMINATION
------------------------------
Reason for Termination
-----------------------
<S> <C>
Type of Compensation/
Benefit Base Salary
- ---------------------------------------------------------------------------
Normal Expiration Date of Payable through Employment Period, as defined
Agreement or Renewal Period in contract (i.e., through end of first 3
years or renewal period).
By Executive for Receives Base Salary for remainder of Employ-
"Good Reason" ment Period, payable in accordance with
Section 6(f) of the Agreement.
By Employer for "Cause" Payable through date of early termination.
Death or Disability (as Payable through end of month in which death
defined in Agreement) or disability occurs.
Type of Compensation/
Benefit Annual Incentive Compensation
- ---------------------------------------------------------------------------
Normal Expiration Date of Payable through Employment Period; amount
Agreement or Renewal Period determined by Compensation Committee based
on Company's and Executive's performance.
By Executive for Receives targeted incentive compensation for
"Good Reason" remainder of Employment Period (based on
targeted incentive compensation for year of
termination), payable in accordance with
Section 6(f) of the Agreement.
By Employer for "Cause" Amount determined by Compensation Committee
in its sole discretion; would likely be zero.
Death or Disability (as Amount earned (determined by the Compensation
defined in Agreement) Committee based on Company's and Executive's
performance for the year in which death or
disability occurs) will be prorated.
<PAGE> 12 Exhibit 10(i)
<S> <C>
Type of Compensation/
Benefit Restricted Stock: Years of Service Shares
- ---------------------------------------------------------------------------
Normal Expiration Date of Full number of shares without reduction;
Agreement or Renewal Period however, shares vesting in 2002 still subject
to non-compete, non-disclosure provisions
until vesting date.
By Executive for Full number of shares without reduction.
"Good Reason" Shares whose scheduled vesting date has not
occurred will remain subject to non-compete,
non-disclosure provisions until scheduled
vesting date(s).
By Employer for "Cause" Shares not vested as of date of early
termination would be forfeited.
Death or Disability (as Compensation Committee would determine
defined in Agreement) reduction, if any, to the number of
restricted shares; but the number will not
be less than a pro rata amount.
Type of Compensation/
Benefit Restricted Stock: Performance Shares
- ---------------------------------------------------------------------------
Normal Expiration Date of Pro rata adjustment for each grant to be
Agreement or Renewal Period based on a fraction determined by adding
or By Executive for one year to the number of years Executive
"Good Reason" employed (or would have been employed had
he been employed for remainder of Employment
Period) during the 6-year performance period
of such grant and dividing this sum by 6;
the number of shares vested or forfeited
for each grant would then be determined in
accordance with the performance factors and
other terms and conditions of the plan/
grants; receipt of shares remains subject to
non-compete, non-disclosure provisions until
shares are vested.
By Employer for "Cause" Shares not vested as of date of early
termination would be forfeited.
Death or Disability (as Compensation Committee would determine
defined in Agreement) reduction, if any, to the number of
restricted shares; but the number will
not be less than a pro rata amount.
Shares will then vest or be forfeited
in accordance with terms and conditions
of plan/grants.
<PAGE> 13
<S> <C>
Type of Compensation/
Benefit Stock Options
- --------------------------------------------------------------------------
Normal Expiration Date of Options not vested within one year after end
Agreement or Renewal Period of Employment Period lapse/are cancelled;
options vested as of such date must be
exercised within three years, unless employ-
ment continued to May 16, 2001, in which
event vested options exercisable for
balance of 10-year term; vested but
unexercised options remain subject to non-
compete and non-disclosure provisions prior
to exercise date.
By Executive for Options not vested within one year after end
"Good Reason" of Employment Period lapse/are cancelled;
options scheduled to vest on or prior to that
time will vest as scheduled and must be
exercised within three years from that date;
vested but unexercised options remain subject
to non-compete and non-disclosure provisions
prior to exercise date.
By Employer for "Cause" Unexercised options as of termination date
lapse (whether or not vested).
Death or Disability (as Vested but unexercised options as of date of
defined in Agreement) death/disability remain exercisable for
three years from date of death or disability;
options not vested are cancelled.
Type of Compensation/ Other Employee Benefits
Benefit (including Health Insurance)
- ---------------------------------------------------------------------------
Normal Expiration Date of Continue through end of Employment Period,
Agreement or Renewal Period subject to legal and contractual rights in
plans to convert or extend coverages.
By Executive for Continue through end of Employment Period,
"Good Reason" subject to legal and contractual rights in
plans to convert or extend coverages.
By Employer for "Cause" Continue through date of early termination,
subject to legal and contractual rights in
plans to convert or extend coverages.
Death or Disability (as Continue through end of month in which death
defined in Agreement) or disability occurs, subject to legal and
contractual rights to convert or extend
coverages.
</TABLE>
<PAGE> 14 Exhibit 10(i)
March 25, 1995
Harry C. Stonecipher
President & Chief Executive Officer
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, Missouri 63144
Dear Harry:
Pursuant to Section 3(b)(i) of the Employment Agreement entered into
as of September 24, 1995 by and between you and McDonnell Douglas
Corporation (the "Company"), you have received 180,000 shares of restricted
shares of MDC stock, 42,000 of which will vest on March 31 of 1995, 1996
and 1997, and 54,000 of which will vest on March 31, 2002 (collectively the
Service Based Restricted Shares). Effective immediately, the Service Based
Restricted Shares will be converted to an equal number of MDC stock
equivalents which will vest or be forfeited on the same terms as provided
in the Employment Agreement, including Exhibit A thereto, for the Service
Based Restricted Shares. This letter sets forth the terms of the
conversion and other necessary modifications of the Employment Agreement.
Unless specifically defined in this letter, capitalized terms in this
letter shall have the same meaning ascribed to such terms in the Employment
Agreement.
Dividend equivalent payments on stock equivalents will be reinvested
on MDC dividend payment dates into additional stock equivalents based on
the closing price of MDC common stock on such dividend payment date. The
stock equivalents will not have voting rights. The stock equivalents will
be paid in cash only on the later of (i) vesting or (ii) your death,
Disability or termination of employment, subject to the termination
provisions of the Employment Agreement (such later date referred to
hereinafter as the "Payment Date" and the Payment Date may not be the same
for all stock equivalents). The value of each stock equivalent will be
fixed at the closing price of a share of MDC common stock on the applicable
Payment Date. Payment will be in a lump sum unless, at least one year
prior to the applicable Payment Date, you make a one-time irrevocable
election to receive the payment over a period of years.
If the payment is lump sum, the Company will pay you or your
beneficiary in cash (less withholding taxes) for your stock equivalents
within 14 days of the applicable Payment Date. If you elect to receive
installment payments, the value of your stock equivalents will be
determined as of the applicable Payment Date. Payment will be made to you
in cash in the number of equal annual installments that you select (less
withholding taxes) within 14 days of the applicable Payment Date and each
anniversary thereof. The unpaid amount will earn interest at a fixed rate
of the then current prime rate as reported in The Wall Street Journal,
compounded quarterly. The interest will be paid to you on the same date as
the installment to which it relates is paid.
<PAGE> 15 Exhibit 10(i)
In addition, the following amendments are being made to the Employment
Agreement:
1. Insert the following sentence after the first sentence of Section
3(c):
Stock equivalents granted hereunder are granted outside the PEIP;
however, Sections 3.3 ("Adjustments"), 19.2 ("Unfunded Status of the
Plan"), 19.3 ("Designation of Beneficiary") and 19.4 ("Nontransferability")
of the PEIP are incorporated herein and will govern the stock equivalents
as if they were issued under the PEIP. Capitalized terms in such sections
shall have the meaning ascribed to such terms in the PEIP.
2. Delete the entire first sentence of Section 9 and replace it with
the following:
So long as any restricted stock, stock equivalent or stock option
grant provided for in Section 3(b) herein shall not be vested or shall not
have been exercised, the vesting of such restricted shares or stock
equivalents and the exercise of such stock options shall each be subject to
Executive's full compliance with the terms and conditions of Section 7
(which shall continue to apply for this purpose) and Section 8 herein;
provided, however, that any such breach will not have any effect on
restricted stock or stock equivalents that vested or stock options
exercised prior to the date of such breach.
If you agree with the foregoing, please sign and return one copy of
this letter, which shall constitute an amendment to your Employment
Agreement with the Company.
Very truly yours,
/s/ Steven N. Frank
Steven N. Frank
Vice President, Associate General
Counsel & Secretary
ACCEPTED AND AGREED TO
as of the date written above:
/s/ Harry C. Stonecipher
________________________________
Harry C. Stonecipher
<PAGE> 1 Exhibit 10(j)
STOCK OPTION AGREEMENT
Agreement made as of the 24th day of September, 1994, by and between
McDonnell Douglas Corporation (hereinafter called the "Company") and Harry
C. Stonecipher, (hereinafter called the "Employee").
RECITALS
A. The Company has agreed to employ Employee and Employee has agreed to
serve as Chief Executive Officer and President of the Company pursuant
to the terms and conditions of an Employment Agreement by and between
them, dated as of September 24, 1994 (the "Employment Agreement").
B. As a significant part of his total compensation, the Company has
agreed to provide and Employee has agreed to accept equity ownership
opportunities to better match the interests of Employee with those of
shareholders.
C. Pursuant to the terms and conditions of the Employment Agreement,
Company has agreed to provide and Employee has agreed to accept
incentive compensation, the value of which will be based upon the
value of the Company's common stock.
D. Accordingly, the Company has agreed to grant to Employee an option to
acquire shares of the Company's common stock subject, however, to
certain restrictions.
In consideration of the foregoing, and the mutual promises contained herein
and in the Employment Agreement and the McDonnell Douglas Corporation 1994
Performance and Equity Incentive Plan (the "Plan"), the Company and
Employee agree as follows:
1. Amount and Price of Option Shares. The Company hereby grants to
Employee the option to purchase from the Company (the "Stock Options")
from time to time, at $110.875 per share (the "Exercise Price"), up to
150,000 shares of the Company's $1.00 par value per share common stock
(the "Option Shares").
2. Agreement Subject to Employment Agreement and Plan. The Stock Options
are subject to the terms and conditions of the Employment Agreement
and the Plan, including but not limited to the Plan provisions
regarding nontransferability and adjustments for recapitalization and
other reasons. A copy of the Plan has been given to Employee and is
incorporated herein by this reference. Unless otherwise indicated,
capitalized terms in this Agreement shall have the same meaning
ascribed to such terms in the Plan.
3. Exercisability of Stock Options. Subject to the provisions of Section
5 hereof, the Stock Options will become exercisable on the dates and
in the amounts set forth below, and shall remain exercisable for ten
years following such date:
<PAGE> 2 Exhibit 10(j)
Date Number of Option Shares
---------------- ------------------------
September 24, 1996 30,000
September 24, 1997 30,000
September 24, 1998 30,000
September 24, 1999 30,000
September 24, 2000 30,000
4. Exercise of Stock Options. The Stock Options may be exercised by
delivering to the Plan Administrator from time to time a written
notice signed by the Employee specifying the number of Option Shares
the Employee then desires to purchase together with full payment
therefor as provided in Section 12.1 of the Plan. Within five
business days thereafter, the Company shall issue to Employee a
certificate for the shares so purchased, less any shares withheld
pursuant to Section 6 hereof.
5. Termination of Employment. Upon termination of the Employment
Agreement for any reason, the vesting, forfeiture and exercisability
of unexercised Stock Options shall be determined in accordance with
the Employment Agreement, including without limitation Sections 6, 7,
8 and 9 thereof.
6. Withholding. At such time as share certificates are to be delivered
to Employee in accordance with this Agreement, the Company shall
satisfy the federal, state and local withholding requirements with
respect to such distribution. Such withholding can be satisfied at
the Company's option either by (i) the Company's withholding of shares
or (ii) by requiring Employee's payment in cash by providing a
personal check in the required amount prior to delivery of the shares.
Notwithstanding the foregoing, in the event Employee is subject to
Section 16 of the Exchange Act at the time of such delivery, the
Company shall withhold shares in an amount equal to Employee's
estimated federal, state and local tax obligations, plus any
additional withholding requirements related to such delivery; provided
the total withholding hereunder shall not be less than the statutory
minimum withholding amount.
7. Investment Purpose. Employee represents that, in the event of the
exercise by him of one or more of the Stock Options hereby granted, or
any part thereof, he intends to purchase the shares acquired on such
exercise for investment and not with a view to resale or other
distribution; except that the Company, at its election, may waive or
release this condition in the event the shares acquired on exercise of
the option are registered under the Securities Act of 1933, or upon
the happening of any other contingency which the Company shall
determine warrants the waiver or release of this condition. Employee
agrees that the certificates evidencing the shares acquired by him on
exercise of all or any part of the Stock Options may bear a
restrictive legend, if appropriate, indicating that the shares have
not been registered under said Act and are subject to restrictions on
the transfer thereof.
<PAGE> 3 Exhibit 10(j)
8. Designation of Beneficiary. Employee may by written notice in form
reasonably acceptable to the Committee designate a beneficiary in
accordance with the terms and conditions of the Plan who may exercise
the options that are vested but unexercised at the time of his death
in accordance with the terms of the Employment Agreement.
9. Stock Options Not Incentive Stock Options. The Stock Options granted
hereunder are not, and will not be treated as, incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and date set forth above.
MCDONNELL DOUGLAS CORPORATION
/s/ Janet R. Wittenauer
By: __________________________________
/s/ Harry C. Stonecipher
__________________________________
Employee
<PAGE> 1 Exhibit 10(k)
TERMINATION BENEFITS AGREEMENT
THIS AGREEMENT, dated as of the ____ day of ___________,
199___, is by and between McDonnell Douglas Corporation, a Maryland
corporation (hereinafter referred to as the "Company"), and
________________ (hereinafter the "Executive").
RECITALS:
A. The Board of Directors of the Company (the "Board")
considers it essential to the best interests of the Company and its
shareholders that its key management personnel be encouraged to remain
with the Company and its subsidiaries and to continue to devote full
attention to the Company's business in the event that any third person
expresses its intention to complete a possible business combination with
the Company, or in taking any other action which could result in a change
in control of the Company. In this connection, the Board recognizes that
the possibility of a change in control and the uncertainty and questions
which it may raise among management may result in the departure or
distraction of key management personnel to the detriment of the Company
and its shareholders. The Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of key members of the Company's management to their assigned
duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
B. The Executive currently serves as a key executive of the
Company and his or her services and knowledge are valuable to the Company
in connection with the management of one or more of the Company's
principal operating facilities, divisions, subsidiaries or functions.
C. The Board believes the Executive has made and is expected
to continue to make valuable contributions to the productivity and
profitability of the Company and its subsidiaries.
D. Should the Company receive any proposal from a third
person concerning a possible business combination or any other action
which could result in a change in control of the Company, the Board
believes it imperative that the Company and the Board be able to rely
upon the Executive to continue in his or her position, and that the
Company and the Board be able to receive and rely upon his or her advice,
if so requested, as to the best interests of the Company and its
shareholders without concern that he or she might be distracted by the
personal uncertainties and risks created by such a proposal, and to
encourage Executive's full attention and dedication to the Company.
E. Should the Company receive any such proposal, in addition
to the Executive's regular duties, the Executive may be called upon to
assist in the assessment of such proposal, advise management and the
Board as to whether such proposal would be in the best interests of the
Company and its shareholders, and to take such other actions as the Board
might determine to be necessary or appropriate.
<PAGE> 2
TERMS AND CONDITIONS:
NOW, THEREFORE, to assure the Company and its subsidiaries that
it will have the continued, undivided attention, dedication and services
of the Executive and the availability of the Executive's advice and
counsel notwithstanding the possibility, threat or occurrence of a change
in control of the Company, and to induce the Executive to remain in the
employ of the Company and its subsidiaries, and for other good and
valuable consideration, the adequacy and sufficiency of which are hereby
acknowledged, the Company and the Executive agree as follows:
(1) Change in Control
-----------------
For purposes of this Agreement, a "Change in Control" of the
Company shall be deemed to have occurred upon (a) the acquisition at any
time by a "person" or "group" (as that term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (excluding, for this purpose, the Company or any
subsidiary or any employee benefit plan of the Company or any subsidiary)
of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act)
directly or indirectly, of securities representing 20% or more of the
combined voting power in the election of directors of the then-
outstanding securities of the Company or any successor of the Company;
(b) the termination of service as directors, for any reason other than
death, disability or retirement from the Board in accordance with
Resolution 706 of the Board, as it may be amended or superseded, during
any period of two consecutive years or less, of individuals who at the
beginning of such period constituted a majority of the Board, unless the
election of or nomination for election of each new director during such
period was approved by a vote of at least two-thirds of the directors
still in office who were directors at the beginning of the period; (c)
approval by the shareholders of the Company of liquidation of the Company
or any sale or disposition, or series of related sales or dispositions,
of 50% or more of the assets or earning power of the Company; or (d)
approval by the shareholders of the Company and consummation of any
merger or consolidation or statutory share exchange to which the Company
is a party as a result of which the persons who were shareholders of the
Company immediately prior to the effective date of the merger or
consolidation or statutory share exchange shall have beneficial ownership
of less than 50% of the combined voting power in the election of
directors of the surviving corporation following the effective date of
such merger or consolidation or statutory share exchange. A "Change in
Control" shall not include any reduction in ownership of an affiliate of
the Company so long as the entity continues to meet the definitions of
those terms as contained in this Section.
(2) Adjustment of Benefits upon Change in Control
---------------------------------------------
(a) The Company agrees that its Management Compensation and
Succession Committee or such other committee succeeding to such
committee's responsibilities with respect to executive compensation
(collectively, the "Compensation Committee") shall make such equitable
adjustments to any performance targets contained in any awards under the
<PAGE> 3
Company's Performance Sharing Plan (the "PSP") or Senior Executive
Performance Sharing Plan (the "Senior Executive PSP") or any successor
plan in which the Executive is a participant, as may be required to
eliminate any negative effects from any transactions relating to a Change
in Control (such as costs or expenses associated with the transaction or
any related transaction, including, without limitation, any
reorganizations, divestitures, recapitalizations or borrowings, or
changes in targets or measures to reflect the disruption of the business,
etc.), in order to preserve reward opportunities and performance
objectives.
(b) The Company agrees that in the case of a Change in
Control, all restrictions and conditions applicable to any awards of
restricted stock or stock options or other awards granted to the
Executive under the Company's 1994 Performance and Equity Incentive Plan
shall be deemed to have been satisfied as of the date the Change in
Control occurs, and this Agreement shall be deemed to amend any
agreements evidencing such awards to reflect this provision.
3. Termination Following Change in Control
---------------------------------------
(a) If any of the events described in Section 1 hereof
constituting a Change in Control of the Company shall have occurred, the
Executive shall be entitled to the benefits set forth herein upon any
termination by the Company of the Executive's employment with the Company
and its subsidiaries within two years following a Change in Control for
any reason except any of the following:
(i) Termination by reason of the Executive's death,
provided the Executive has not previously given a "Notice of Termination"
pursuant to Section 4;
(ii) Termination by reason of the Executive's
"disability," provided the Executive has not previously given a "Notice
of Termination" pursuant to Section 4. For the purposes of this
Agreement, "disability" shall be defined as the Executive's inability by
reason of illness or other physical or mental disability to perform the
principal duties required by the position held by the Executive at the
inception of such illness or disability for any consecutive 180-day
period. A determination of "disability" shall be subject to the
certification of a qualified medical doctor agreed to by the Company and
the Executive or, in the Executive's incapacity to designate a doctor,
the Executive's legal representative. If the Company and the Executive
cannot agree on the designation of a doctor, each party shall nominate a
qualified medical doctor and the two doctors shall select a third doctor;
the third doctor shall make the determination as to "disability";
(iii) Termination by reason of retirement in accordance
with and under the Company's Employee Retirement Income Plan -- Salaried
Plan, or such of the Company's other salaried employee tax-qualified
retirement plans in which the Executive participates (or any plans in
substitution thereof) as in effect on the date of this Agreement
(collectively, the "Retirement Plan"), provided the Executive has not
previously given Notice of Termination pursuant to Section 4; or
<PAGE> 4
(iv) Termination by the Company for "Cause". For
purposes of this Agreement, "Cause" shall mean (A) any act or acts by the
Executive constituting a felony under applicable law; (B) any act or acts
of gross dishonesty or gross misconduct on the Executive's part which
result or are intended to result directly or indirectly in gain or
personal enrichment at the expense of the Company or its subsidiaries to
which the Executive is not legally entitled; or (C) any material
violation by the Executive of his or her obligations under this Agreement
(other than any violation resulting from the Executive's incapacity due
to physical or mental illness), which violation is demonstrably willful
and deliberate on the Executive's part and which results in material
damage to the business or reputation of the Company or its subsidiaries.
Notwithstanding the foregoing, the employment of the Executive shall in
no event be deemed to have been terminated by the Company for "Cause" if
termination of his or her employment by the Company took place: (i) as
the result of bad judgment or negligence on the part of the Executive
other than gross negligence; (ii) because of an act or omission believed
by the Executive in good faith to have been in or not opposed to the
interests of the Company and its subsidiaries; (iii) for any act or
omission in respect of which a determination could properly be made that
the Executive met the applicable standard of conduct prescribed for
indemnification or reimbursement or payment of expenses under the charter
or bylaws of the Company or the laws of the state of incorporation of the
Company, in each case as in effect at the time of such act or omission;
(iv) as the result of an act or omission which occurred more than twelve
calendar months prior to the Executive's having been given Notice of
Termination (as defined below) for such act or omission unless the
commission of such act or omission could not at the time of such
commission or omission have been known to a member of the Board (other
than the Executive, if he or she is then a member of the Board), in which
case more than twelve calendar months from the date that the commission
of such act or such omission was or could reasonably have been so known;
or (v) as the result of a continuing course of action which commenced and
was or could reasonably have been known to a member of the Board (other
than the Executive) more than twelve calendar months prior to the
Executive having been given Notice of Termination.
(b) Notwithstanding any other provision of this Agreement,
if a Change in Control occurs and if the Executive's employment with the
Company and its subsidiaries is terminated by the Company less than six
months prior to the date on which the Change in Control occurs, and if it
is demonstrated by the Executive that such termination of employment by
the Company (i) was at the request of a third party which has taken steps
reasonably calculated to result in or effect the Change in Control or
(ii) otherwise arose in connection with or in anticipation of the Change
in Control, then for all purposes of this Agreement, such termination of
employment shall be deemed to have occurred within two years following
such Change in Control; provided, that the obligations contained in
Section 4 to deliver a Notice of Termination shall not apply.
<PAGE> 5
(c) The Company shall also provide the Executive with the
benefits set forth herein upon any termination by the Executive of
employment with the Company and its subsidiaries for Good Reason within
two years after a Change in Control. Any failure by the Executive to
give such notice to receive such benefits shall not be deemed to
constitute a waiver or otherwise to affect adversely the rights of the
Executive hereunder, provided the Executive gives notice to receive such
benefits prior to the expiration of such two year period. For purposes
of this Agreement, "Good Reason" shall mean the occurrence of any one or
more of the following events:
(i) The assignment to the Executive of any duties
inconsistent in any material adverse respect with his or her position,
authority or responsibilities with the Company and its subsidiaries
immediately prior to the Change in Control, or any other material adverse
change in such position, including titles, authority, or
responsibilities, as compared with the Executive's position immediately
prior to the Change in Control;
(ii) A reduction by the Company in the amount of the
Executive's base salary or annual or long term incentive compensation
paid or payable as compared to that which was paid or made available to
Executive immediately prior to the Change in Control; or the failure of
the Company to increase Executive's compensation each year by an amount
which is substantially the same, on a percentage basis, as the average
annual percentage increase in the base salaries of other executives of
comparable status with the Company;
(iii) The failure by the Company to continue to provide
the Executive with substantially similar perquisites or benefits the
Executive in the aggregate enjoyed under the Company's benefit programs,
such as any of the Company's pension, savings, vacation, life insurance,
medical, health and accident, or disability plans in which he or she was
participating at the time of the Change in Control (or, alternatively, if
such plans are amended, modified or discontinued, substantially similar
equivalent benefits thereto in the aggregate); the taking of any action
by the Company which would directly or indirectly cause such benefits to
be no longer substantially equivalent in the aggregate to the benefits in
effect at the time of the Change in Control; provided, that any
amendment, modification or discontinuation of any plans or benefits
referred to in this Subsection (iii) that generally affect substantially
all domestic salaried employees of the Company shall not be deemed to
constitute Good Reason;
(iv) The Company's requiring the Executive to be based
at any office or location more than 35 miles from that location at which
he or she performed his or her services immediately prior to the Change
in Control, except for travel reasonably required in the performance of
the Executive's responsibilities to the extent substantially consistent
with the Executive's business travel obligations prior to the Change in
Control;
(v) Any failure of the Company to obtain the
assumption of the obligation to perform this Agreement by any successor
as contemplated in Section 11 herein; or
<PAGE> 6
(vi) Any breach by the Company of any of the
provisions of this Agreement or any failure by the Company to carry out
any of its obligations hereunder, in either case, for a period of five
business days after receipt of written notice from the Executive and the
failure by the Company to cure such breach or failure during such five
business day period.
4. Notice of Termination
---------------------
Any termination of the Executive's employment by the Company as
contemplated by Subsection 3(a)(ii) or 3(a)(iv) or by the Executive as
contemplated by Subsection 3(c) shall be communicated by written "Notice
of Termination" to the other party hereto. Any "Notice of Termination"
shall set forth (a) the effective date of termination, which shall not be
less than 15 or more than 30 days after the date the Notice of
Termination is delivered (the "Termination Date"); (b) the specific
provision in this Agreement relied upon; and (c) in reasonable detail the
facts and circumstances claimed to provide a basis for such termination.
Notwithstanding the foregoing, if within fifteen (15) days after any
Notice of Termination is given, the party receiving such Notice of
Termination notifies the other party that a good faith dispute exists
concerning the termination, the "Date of Termination" shall be the date
on which the dispute is finally determined in accordance with the
provisions of Section 18 hereof. In the case of any good faith dispute
as to the Executive's entitlement to benefits under this Agreement
resulting from any termination by the Company for which the Company does
not deliver a Notice of Termination, the "Date of Termination" shall be
the date on which the dispute is finally determined in accordance with
the provisions of Section 18 hereof. Notwithstanding the pendency of any
such dispute referred to in the two preceding sentences, the Company
shall continue to pay the Executive his or her full compensation in
effect when the notice giving rise to the dispute was given and continue
the Executive as a participant in all compensation, benefits and
perquisites in which he or she was participating when the notice giving
rise to the dispute was given, until the dispute is finally resolved,
provided the Executive is willing to continue to provide full time
services to the Company and its subsidiaries in substantially the same
position, if so requested by the Company. Amounts paid under this
Section shall be in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due
under this Agreement. If a final determination by the Panel (as defined
in Section 18(c)(ii)) that Good Reason did not exist pursuant to Section
18(c)(v) is made in the case of a Notice of Termination by the Executive,
the Executive shall have the sole right to nullify and void his or her
Notice of Termination by delivering written notice of same to the Company
within three (3) business days of the date of such final determination,
unless the basis for the claim by the Executive of Good Reason is found
by the Panel to have been manifestly unreasonable. If the parties do not
dispute the Executive's entitlement to benefits hereunder, the "Date of
Termination" shall be the Termination Date.
<PAGE> 7
5. Termination Benefits
--------------------
(a) Base Salary and Annual Incentive Compensation. Subject
to the conditions set forth in Sections 3, 4, 8 and 10(c) hereof, the
Company shall continue to pay the Executive (subject to any applicable
payroll or other taxes required to be withheld) for a period (the
"Continuation Period") terminating on the earlier of (x) [twenty-four
(24)/thirty-six (36)] months following the date of the Change in Control,
(y) the date on which the Executive reaches normal retirement age under
the Retirement Plan, or (z) such date on which any of the contingencies
under Section 10(c) shall occur, as follows:
(i) The base salary of the Executive at the greater of
the Executive's effective monthly base salary rate at the Termination
Date or the Executive's effective monthly base salary rate immediately
prior to the Change in Control, which amount shall be payable on a
monthly basis;
(ii) A monthly amount equal to (x) the greater of (1)
the Executive's annualized target incentive compensation award relating
to the monthly base salary in Section 5(a)(i) above or (2) the
Executive's annual target incentive compensation award for the year prior
to the Change in Control, multiplied by (y) the greater of the average
percentage of the Executive's earned incentive compensation award to the
Executive's annual target incentive compensation award for the three
complete years prior to either (1) the Change in Control or (2) the
Termination Date, in either case, under the Company's PSP or Senior
Executive PSP, or any successor plan, and divided by (z) twelve (12),
which amount shall be payable on a monthly basis; and
(b) "Short Year" Annual Incentive Compensation. Subject to
the conditions set forth in Sections 3, 4, 8 and 10(c) hereof, the
Company shall pay the Executive (subject to any applicable payroll or
other taxes required to be withheld) the product of (i) the amount
determined in accordance with Section 5(a)(ii)(x) above, multiplied by
(ii) the amount determined in accordance with Section 5(a)(ii)(y) above,
multiplied by (iii) the ratio of the number of days that elapsed in such
year prior to such Termination Date divided by 365; provided, that such
"short year" annual incentive compensation shall be paid in cash in a
lump sum on the Date of Termination.
6. Other Benefits
--------------
Subject to the conditions set forth in Sections 3, 4, 8 and
10(c) hereof, the following benefits (subject to any applicable payroll
or other taxes required to be withheld) shall be paid or provided to the
Executive:
(a) Health/Welfare Benefits
-----------------------
(i) During the Continuation Period, the Company shall
continue to keep in full force and effect all programs of medical,
dental, vision, accident, disability, life insurance, including optional
term life insurance, and other similar health or welfare programs with
<PAGE> 8
respect to the Executive and his or her dependents with the same level of
coverage, upon the same terms and otherwise to the same extent as such
programs shall have been in effect immediately prior to the Termination
Date (or, if more favorable to the Executive, immediately prior to the
Change in Control), and the Company and the Executive shall share the
costs of the continuation of such insurance coverage in the same
proportion as such costs were shared immediately prior to the Termination
Date (or, if more favorable to the Executive, immediately prior to the
Change in Control) or, if the terms of such programs do not permit
continued participation by the Executive (or if the Company otherwise
determines it advisable to amend, modify or discontinue such programs for
employees generally), the Company shall otherwise provide benefits
substantially similar to and no less favorable to the Executive in terms
of cost or benefits ("Equivalent Benefits") than he or she was entitled
to receive at the end of the period of coverage, for the duration of the
Continuation Period.
(ii) If, at or prior to the end of the Continuation
Period, the Executive has attained the earliest age for retirement under
the Retirement Plan, without regard to any minimum period of service (the
"Eligible Age"), he or she shall be entitled to be enrolled at that time
or any time thereafter in the Company's retiree health program upon the
same terms and conditions as if the Executive had remained employed
during the Continuation Period, or if the terms of such program do not
permit such enrollment, the Company shall provide Equivalent Benefits
which include such retiree coverage. If, at or prior to the end of the
Continuation Period, the Executive shall not have attained the Eligible
Age, he or she shall be entitled to the foregoing benefits upon
attainment of the Eligible Age. If, at the end of the Continuation
Period, the Executive shall not have attained the Eligible Age, he or she
will be given the same rights to health care continuation as if the
health care continuation coverage rights under the Consolidated Omnibus
Reconciliation Act of 1985, as amended or replaced ("COBRA"), would apply
as of the end of such Continuation Period, such rights under COBRA to be
determined as if the end of such Continuation Period were an event
causing the Executive to lose coverage under the Company's health care
plan on account of a termination of employment.
(iii) All benefits which the Company is required by this
Section 6(a) to provide, which will not be provided by the Company's
programs described herein, shall be provided through the purchase of
insurance unless the Executive is uninsurable. If the Executive is
uninsurable, the Company will provide the benefits out of its general
assets.
(b) Retirement Benefits
-------------------
(i) Subject to Section 6(b)(v), the Executive shall be
deemed to be completely vested under the Company's Retirement Plan and
any and all supplemental non-qualified plans (or any successor plans), in
which Executive is a participant, which are in effect as of the date of
the Change in Control (collectively, the "Plans"), regardless of the
Executive's actual vesting service credit thereunder.
<PAGE> 9
(ii) In addition, subject to Section 6(b)(v), he or she
shall be deemed to have earned an additional service credit for service
and benefit calculation purposes thereunder as if he or she had continued
in the employ of the Company for the duration of the Continuation Period,
and the rate of compensation which is used in the determination of the
payment to the Executive under Section 5 shall be the rate of
compensation used for benefit calculations with respect to such
additional period, with the effect that benefits based on Salary
Compensation and Average Monthly Salary (as such terms are defined in the
Retirement Plan and as may be amended or replaced), shall reflect such
additional years of service at such rates of compensation.
(iii) In addition, the Executive shall receive all other
benefits under the Plans that he or she would have received had he or she
continued in the employ of the Company for the duration of the
Continuation Period, including, without limitation, all ancillary
benefits, such as early retirement, survivor rights and all other
benefits at retirement.
(iv) If the Executive has attained the Eligible Age as
of the Termination Date, the Executive shall be entitled to elect
retirement in lieu of deferred vested status under the Retirement Plan.
If the Executive has not attained the Eligible Age as of the Termination
Date, the Executive shall be entitled to elect retirement in lieu of
deferred vested status under the Retirement Plan upon attainment of the
Eligible Age, and for purposes of determining the adjustment, if any, to
the Executive's accrued benefit under the eighty-five (85) point rule (if
otherwise eligible under such rule) under the Retirement Plan, the
Executive shall be credited with both age and years of service until the
date he or she reaches the Eligible Age.
(v) Any part of the foregoing retirement benefits
which are otherwise required to be paid by a tax-qualified Plan but which
cannot be paid through such Plan by reason of the laws and regulations
applicable to such Plan, shall be paid by one or more supplemental non-
qualified Plans or by the Company in accordance with such Plan or Plans.
(vi) The payments calculated hereunder which are not
actually paid by the Retirement Plan shall be paid thirty (30) days
following the Date of Termination in a single lump sum cash payment (of
equivalent actuarial value to the payment calculated hereunder using the
same actuarial assumptions as are used in calculating benefits under the
Retirement Plan but using the discount rate that would be used by the
Company on the Date of Termination to determine the actuarial present
value of projected benefit obligations).
(c) Savings Plan Benefits
---------------------
(i) Subject to Section 6(c)(iii), the Executive shall
be deemed to be completely vested under the Company's Employee Savings
Plan -- Salaried Plan and all excess or supplemental savings plans (or
any successor plans) in effect as of the date of the Change in Control
("the Savings Plans") regardless of his or her actual vesting service
credit on the Termination Date.
<PAGE> 10
(ii) In addition, subject to Section 6(c)(iii), during
the Continuation Period, he or she shall be entitled to an amount equal
to the Company matching contributions (at the greater of the Company's
rates in effect at the Termination Date or the date of the Change in
Control) under the Savings Plans which would have accrued to the benefit
of the Executive had he or she continued his or her participation in, and
elected to continue to make the elective deferral or contributions under
such Savings Plans at the same rate at which he or she was electing to
make them at the time of the Termination Date.
(iii) Any part of such Savings Plans benefits which are
otherwise required to be paid by a tax-qualified Savings Plan but which
cannot be paid through such Savings Plan by reason of the laws and
regulations applicable to the Plan shall be paid by an excess or
supplemental Savings Plan or by the Company in a lump sum cash payment on
the Date of Termination.
(d) Financial Planning
------------------
During the Continuation Period, the Company shall reimburse the
Executive for costs associated with financial planning to the same extent
as was customarily provided by the Company to senior executives prior to
the Change in Control.
(e) Executive Outplacement Counseling
---------------------------------
During the Continuation Period, unless the Executive shall
reach normal retirement age during the Continuation Period, the Executive
may request in writing and the Company shall at its expense engage within
a reasonable time following such written request an outplacement
counseling service of national reputation to assist the Executive in
obtaining employment.
7. Payment of Certain Costs
------------------------
Except as otherwise provided in Section 18(c)(v), if a dispute
arises regarding a termination of the Executive or the interpretation or
enforcement of this Agreement, subsequent to a Change in Control, all of
the reasonable legal fees and expenses incurred by the Executive and all
Arbitration Costs (as hereafter defined) in contesting any such
termination or obtaining or enforcing all or part of any right or benefit
provided for in this Agreement or in otherwise pursuing all or part of
his or her claim will be paid by the Company, unless prohibited by law.
The Company further agrees to pay pre-judgment interest on any money
judgment obtained by the Executive calculated at the prime interest rate
reported in "The Wall Street Journal" in effect from time to time from
the date that payment to him or her should have been made under this
Agreement.
<PAGE> 11
8. Excise Tax Payments.
-------------------
(a) Notwithstanding anything contained in this Agreement to
the contrary, in the event that any payment (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended or
replaced (the "Code")), or distribution to or for the benefit of the
Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in connection with,
or arising out of, his or her employment with the Company (a "Payment" or
"Payments"), would be subject to the excise tax imposed by Section 4999
of the Code or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, interest and penalties
collectively referred to as the "Excise Tax"), then the Executive shall
be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all such taxes
(including any interest or penalties imposed with respect to such taxes),
including any Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Payments; provided, that the Executive shall not be entitled to
receive any additional payment relating to any interest or penalties
attributable to any action or omission by the Executive in bad faith.
(b) An initial determination shall be made by an accounting
firm mutually agreeable to the Company and the Executive and, if not
agreed to within three days after the Date of Termination, a national
independent accounting firm selected by the Executive (the "Accounting
Firm"), as to whether a Gross-Up Payment is required pursuant to this
Section 8 and the amount of such Gross-Up Payment. To permit the
Accounting Firm to make the initial determination, the Company shall
furnish the Accounting Firm with all information reasonably required for
such firm to complete such determination as soon as practicable after the
Date of Termination, but in no event more than fifteen (15) days
thereafter. All fees, costs and expenses (including, but not limited to,
the cost of retaining experts) of the Accounting Firm shall be borne by
the Company and the Company shall pay such fees, costs and expenses as
they become due. The Accounting Firm shall provide detailed supporting
calculations, reasonably acceptable both to the Company and the Executive
within thirty (30) days of the Date of Termination, if applicable, or
such other time as requested by the Company or by the Executive (provided
the Executive reasonably believes that any of the Payments may be subject
to the Excise Tax). The Gross-Up Payment, if any, as determined pursuant
to this Section 8(b) shall be paid by the Company to the Executive within
five (5) business days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive with respect to a Payment or Payments, it shall
furnish the Executive with an opinion reasonably satisfactory to the
Executive that no Excise Tax will be imposed with respect to any such
Payment or Payments. Any such initial determination by the Accounting
Firm of the Gross-Up Payment shall be binding upon the Company and the
Executive subject to the application of Section 8(c).
<PAGE> 12
(c) As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, it is possible that a Gross-Up
Payment (or a portion thereof) will be paid which should not have been
paid (an "Overpayment') or a Gross-Up Payment (or a portion thereof)
which should have been paid will not have been paid (an "Underpayment").
An Underpayment shall be deemed to have occurred upon a "Final
Determination" (as hereinafter defined) that the tax liability of the
Executive (whether in respect of the then current taxable year of the
Executive or in respect of any prior taxable year of the Executive) will
be increased by reason of the imposition of the Excise Tax on a Payment
or Payments with respect to which the Company has failed to make a
sufficient Gross-Up Payment. An Overpayment shall be deemed to have
occurred upon a "Final Determination" (as hereinafter defined) that the
Excise Tax shall not be imposed (or shall be reduced) upon a Payment or
Payments with respect to which the Executive had previously received a
Gross-Up Payment. A Final Determination shall be deemed to have occurred
when (i) in the case of an Overpayment, the Executive has received from
the applicable governmental taxing authority a refund of taxes or other
reduction in his or her tax liability imposed as a result of a Payment
or, in the case of an Underpayment, the Executive receives notice from a
competent governmental authority that his or her tax liability imposed as
a result of a Payment will be increased, and (ii) in the case of an
Overpayment or an Underpayment, upon either (x) the date a determination
is made by, or an agreement is entered into with, the applicable
governmental taxing authority which finally and conclusively binds the
Executive and such taxing authority, or in the event that a claim is
brought before a court of competent jurisdiction, the date upon which a
final determination has been made by such court and either all appeals
have been taken and finally resolved or the time for all appeals has
expired or (y) the statute of limitations with respect to the Executive's
applicable tax return has expired. If an Underpayment occurs, the
Executive shall promptly notify the Company and the Company shall
promptly pay to the Executive an additional Gross-Up Payment equal to the
amount of the Underpayment plus any interest and penalties imposed on the
Underpayment (other than interest and penalties attributable to any
action or omission by the Executive in bad faith). If an Overpayment
occurs, the amount of the Overpayment shall be treated as a loan by the
Company to the Executive and the Executive shall, within ten (10)
business days of the occurrence of such Overpayment, pay the Company the
amount of the Overpayment, without interest.
(d) Notwithstanding anything contained in this Agreement to the
contrary, in the event it is determined that an Excise Tax will be
imposed on any Payment or Payments, the Company shall pay to the
applicable governmental taxing authorities as Excise Tax withholding, the
amount of the Excise Tax that the Company has actually withheld from the
Payment or Payments.
9. Mitigation
----------
The Executive is not required to seek other employment or
otherwise mitigate the amount of any payments to be made by the Company
pursuant to this Agreement, and employment by the Executive will not
reduce or otherwise affect any amounts or benefits due the Executive
pursuant to this Agreement, except as otherwise provided in Section
10(c).
<PAGE> 13
10. Continuing Obligations
----------------------
(a) Acknowledgements by the Executive
----------------------------------
The Executive hereby recognizes and acknowledges the
following:
(i) The Company and its subsidiaries (collectively,
for purposes of this Section 10, the "Company") are engaged in, among
other things, the business of researching, designing, developing,
manufacturing, selling and distributing on a worldwide basis fighter and
military transport aircraft, commercial aircraft, helicopters, missiles,
satellite launch vehicles, and certain related and other businesses (the
"Business").
(ii) In connection with the Business, the Company has
expended a great deal of time, money and effort to develop and maintain
the secrecy and confidentiality of substantial proprietary trade secret
information and other confidential business information which, if misused
or disclosed, could be very harmful to the Business and could cause the
Company to lose its competitive edge in the marketplace.
(iii) The Executive desires to become entitled to receive
the benefits contemplated by this Agreement but which the Company would
not make available to the Executive but for the Executive's signing and
agreeing to abide by the terms of this Section 10.
(iv) The Executive's position with the Company provides
the Executive with access to certain of the Company's confidential and
proprietary trade secret information and other confidential business
information.
(v) The Company compensates its employees to, among
other things, develop and preserve goodwill with its customers on the
Company's behalf and business information for the Company's ownership and
use.
(vi) If the Executive were to leave the Company, the
Company in all fairness would need certain protection in order to ensure
that the Executive does not appropriate and misuse any confidential
information entrusted to the Executive during the course of the
Executive's employment with the Company, or take any other action which
could result in a loss of the Company's goodwill that was generated on
the Company's behalf and at its expense, and, more generally, to prevent
the Executive from having an unfair competitive advantage over the
Company.
<PAGE> 14
(b) Confidential Information.
------------------------
(i) The Executive agrees to keep secret and
confidential, and not to use or disclose to any third parties, except as
directly required for the Executive to perform the Executive's employment
responsibilities for the Company, any of the Company's confidential and
proprietary trade secret information or other confidential business
information concerning the Business acquired by the Executive during the
course of, or in connection with, the Executive's employment with the
Company (and which was not known by the Executive prior to the
Executive's being hired by the Company). The Company considers and
treats as confidential (among other things) its engineering, design and
technical data, computer software and programs, component sourcing and
supply information, pricing policies, operational methods, strategic
plans, internal financial information, research and development plans and
activities, and business acquisition and expansion plans, and, except as
provided herein, the Executive agrees to treat such information as secret
and confidential so long as such information does not become generally
known to the public through no fault or wrongful act of the Executive.
(ii) The Executive acknowledges that any and all
notes, records, sketches, computer diskettes and other documents obtained
by or provided to the Executive, or otherwise made, produced or compiled
during the course of the Executive's employment with the Company, which
contain any such confidential Company information, regardless of the type
of medium in which it is preserved, are the sole and exclusive property
of the Company and shall be surrendered to the Company upon the
Executive's termination of employment and on demand at any time by the
Company.
(c) Post-Termination Restrictions.
-----------------------------
The Executive agrees that, at any time during the Continuation
Period, the Company shall be entitled to discontinue any further payment,
allocation, accrual or provision of any amounts or benefits required by
Sections 5(a), 6(a)(i), 6(b)(ii), 6(d) and 6(e) (provided, that any such
amounts or benefits theretofore allocated or accrued with respect to the
portion of the Continuation Period preceding the occurrence of any of the
contingencies set forth below shall be preserved), if the Executive on
the Executive's own behalf or on behalf of any other person, firm,
corporation or entity in the world:
(i) provides any services for any of the Company's
significant competitors, suppliers or customers or provides any general
business, technical or strategic consulting or planning with respect to
the Business for any such companies. The Executive recognizes that such
companies could benefit greatly if they were to obtain the Company's
confidential information. The Executive may request permission to
provide services to or consult with any company that may be included in
the category of the Company's significant competitors, suppliers or
customers. The written denial or grant of such a request by the
Company's President and CEO shall be conclusive and binding on the
parties hereto. The grant of such a request will not be unreasonably
withheld, and if this request is granted, the Executive will not be held
in violation of this Section 10(d) for providing services to or
consulting with such company in accordance with the terms of this
request.
<PAGE> 15
(ii) knowingly solicits, entices, induces, hires,
employs or seeks to employ any salesperson, engineer, technician, manager
or executive-level employee of the Company, who was employed by the
Company during the Executive's last six (6) months of employment with the
Company, to provide any services with respect to the Business; or
(iii) materially breaches or violates Section 10(b) or
any Company policy regarding confidentiality.
(d) Acknowledgement Regarding Restrictions. The Executive
recognizes and agrees that the provisions of this Section 10 are
reasonable and enforceable because, among other things, (1) the Executive
is receiving compensation under this Agreement and (2) there are many
other areas in which, and companies for which, the Executive could work
in view of the Executive's background, and this Section 10 therefore does
not impose any undue hardship on the Executive. The Executive further
recognizes and agrees that the provisions of this Section 10 are
reasonable and enforceable in view of the Company's legitimate interests
in protecting its confidential information and customer goodwill and the
limitations contained therein on the duration and geographic scope of,
and activities covered by, such provisions.
(e) Breach. In the event of a breach of Section 10(b) or
the occurrence of any of the contingencies under Section 10(c), the
Company's sole remedy shall be the discontinuation of the payment,
allocation, accrual or provision of any amounts or benefits as provided
in Section 10(c). The Executive recognizes and agrees, however, that it
is the intent of the parties that neither this Agreement nor any of its
provisions shall be construed to adversely affect any rights or remedies
that Company would have had, including, without limitation, the amount of
any damages for which it could have sought recovery, had this Agreement
not been entered into. Accordingly, the parties hereby agree that
nothing stated in this Section 10 shall limit or otherwise affect the
Company's right to seek legal or equitable remedies it may otherwise
have, or the amount of damages for which it may seek recovery, in
connection with matters covered by this Section 10 but which are not
based on breach or violation of this Section 10 (including, without
limitation, claims based on the breach of fiduciary or other duties of
the Executive or any obligations of the Executive arising under any other
contracts, agreements or understandings). Without limiting the
generality of the foregoing, nothing in this Section 10 or any other
provision of this Agreement shall limit or otherwise affect the Company's
right to seek legal or equitable remedies it may otherwise have, or the
amount of damages for which it may seek recovery, resulting from or
arising out of statutory or common law or any Company policies relating
to fiduciary duties, confidential information or trade secrets. Further,
the Executive acknowledges and agrees that the fact that Subsection 10(c)
is limited to the Continuation Period, and that the sole remedy of the
Company hereunder is the discontinuation of benefits, shall not reduce or
otherwise alter any other contractual or other legal obligations of the
Executive during any period or circumstance, and shall not be construed
as establishing a maximum limit on damages for which the Company may seek
recovery.
<PAGE> 16
11. Successors
----------
(a) The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by
agreement to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. For purposes of this
Agreement, "Company" shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
beneficiaries, devises and legatees. If the Executive should die while
any amounts are payable to him or her hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, beneficiary or other
designee or, if there be no such designee, to the Executive's estate.
12. Notices
-------
For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be
deemed to have been duly given (i) on the date of delivery if delivered
by hand, (ii) on the date of transmission, if delivered by confirmed
facsimile, (iii) on the first business day following the date of deposit
if delivered by guaranteed overnight delivery service, or (iv) on the
third business day following the date delivered or mailed by United
States registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
[To Be Provided]
If to the Company:
By Mail
--------
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, Missouri 63166-0516
Attention: Chief Executive Officer
By Personal Delivery or Facsimile
---------------------------------
McDonnell Douglas Corporation
World Headquarters Building
Airport Road & McDonnell Blvd.
St. Louis, Missouri 63134
Attention: Chief Executive Officer
Facsimile: (314) 234-8296
<PAGE> 17
with a copy to:
By Mail
--------
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, Missouri 63166-0516
Attention: General Counsel
By Personal Delivery or Facsimile
---------------------------------
McDonnell Douglas Corporation
World Headquarters Building
Airport Road & McDonnell Blvd.
St. Louis, Missouri 63134
Attention: General Counsel
Facsimile: (314) 233-7958
or to such other address as either party may have furnished to the other
in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
13. Governing Law
-------------
The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of Missouri,
without regard to principles of conflicts of laws.
14. Miscellaneous
-------------
No provisions of this Agreement may be amended, modified,
waived or discharged unless such amendment, waiver, modification or
discharge is agreed to in writing signed by the Executive and the
Company. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement.
Section headings contained herein are for convenience of reference only
and shall not affect the interpretation of this Agreement.
15. Counterparts
------------
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which will
constitute one and the same instrument.
16. Non-Assignability
-----------------
This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, or transfer this
Agreement or any rights or obligations hereunder, except as provided in
Section 11. Without limiting the foregoing, the Executive's right to
receive payments hereunder shall not be assignable or transferable,
whether by pledge, creation of a security interest or otherwise, other
than a transfer by his or her will or trust or by the laws of descent or
distribution, and in the event of any attempted assignment or transfer
contrary to this paragraph the Company shall have no liability to pay any
amount so attempted to be assigned or transferred.
<PAGE> 18
17. Term of Agreement
-----------------
This Agreement shall commence on the date hereof and shall
continue in effect through December 31 of 1998; provided, however, that
commencing on January 1 of 1998 and of each year thereafter, the term of
this Agreement shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company or
the Executive shall have given notice to the other party that it does not
wish to extend this Agreement; provided further, if a Change in Control
of the Company shall have occurred during the original or any extended
term of this Agreement, this Agreement shall continue in effect for a
period of thirty-six (36) months beyond the month in which such Change in
Control occurred; and, provided further, that if the Company shall become
obligated to make any payments or provide any benefits pursuant to
Section 5 or 6 hereof, this Agreement shall continue in effect
indefinitely.
18. Arbitration
-----------
(a) Scope; Initiation. Resolution of any and all disputes
arising from or in connection with this Agreement, whether based on
contract, tort, statute or otherwise, including disputes over
arbitrability and disputes in connection with claims by third persons
("Disputes") shall be exclusively governed by and settled in accordance
with the provisions of this Section 18. Either party to this Agreement
(each a "Party" and together the "Parties") may commence proceedings
hereunder by delivery of written notice providing a reasonable
description of the Dispute to the other, including a reference to this
Section (the "Dispute Notice").
(b) Negotiations Between Parties. The Parties shall first
attempt in good faith to resolve promptly any Dispute by good faith
negotiations. Not later than three (3) business days after delivery of
the Dispute Notice, the Company shall appoint an executive to meet with
the Executive or his or her representative at a reasonably acceptable
time and place, and thereafter as such representatives deem reasonably
necessary. The Parties shall exchange relevant non-privileged
information and endeavor to resolve the Dispute. Prior to any such
meeting, each Party or representative shall advise the other as to any
other individuals who will attend such meeting. All negotiations
pursuant to this Section 18(b) shall be confidential and shall be treated
as compromise negotiations for purposes of Rule 408 of the Federal Rules
of Evidence and similarly under other federal and state rules of
evidence.
(c) Binding Arbitration. The Parties hereby agree to submit
all Disputes to arbitration under the following provisions, which
arbitration shall be final and binding upon the Parties, their successors
and assigns, and that the following provisions constitute a binding
arbitration clause under applicable law.
(i) Either Party may initiate arbitration of a Dispute
by delivery of a demand therefor (the "Arbitration Demand") to the other
Party not sooner than five (5) business days after the date of delivery
of the Dispute Notice but at any time thereafter.
<PAGE> 19
(ii) The arbitration shall be conducted in the County
of St. Louis, Missouri, by three arbitrators (acting by majority vote,
the "Panel") selected by agreement of the Parties not later than 10 days
after delivery of the Arbitration Demand or, failing such agreement,
appointed pursuant to the Commercial Arbitration Rules of the American
Arbitration Association, as amended from time to time (the "AAA Rules").
If an arbitrator becomes unable to serve, his or her successor(s) shall
be similarly selected or appointed.
(iii) The arbitration shall be conducted pursuant to
the Federal Arbitration Act and the Missouri Uniform Arbitration Act,
such procedures as the Parties may agree or, in the absence of or failing
such agreement, pursuant to the AAA Rules. Notwithstanding the
foregoing: (w) each party shall be allowed to conduct discovery through
written requests for information, document requests, requests for
stipulations of fact, and depositions; (x) the nature and extent of such
discovery shall be determined by the Panel, taking into account the needs
of the Parties and the desirability of making discovery expeditious and
cost-effective; (y) the Panel may issue orders to protect the
confidentiality of information, to be disclosed in discovery; and (z) the
Panel's discovery rulings may be enforced in any court of competent
jurisdiction.
(iv) All hearings shall be conducted on an expedited
schedule, and all proceedings shall be confidential. Either Party may at
its expense make a stenographic record thereof.
(v) The Panel shall complete all hearings not later
than twenty (20) days after selection or appointment, and shall make a
final award not later than ten (10) days thereafter. The award shall be
in writing and shall specify the factual and legal bases for the award,
and shall include a determination as to whether any claim by the
Executive of Good Reason was manifestly unreasonable for purposes of the
second-to-last sentence of Section 4. Notwithstanding anything contained
in Section 7, in circumstances where a Dispute has been asserted by the
Executive or defended against by the Executive on grounds that the Panel
deems manifestly unreasonable (whether related to a claim of Good Reason
or otherwise), the Panel may assess all or part of the costs and expenses
of the arbitration, including the Panel's fees and expenses and fees and
expenses of experts and legal counsel ("Arbitration Costs"), against the
Executive and may include in the award the Executive's and the Company's
attorney's fees and expenses in connection with any and all proceedings
under this Section 18. Notwithstanding the foregoing, in no event may
the Panel award multiple, punitive or exemplary damages to either party.
(d) Confidentiality - Notice. Each Party shall notify the
other promptly, and in any event prior to disclosure to any third person,
if it receives any request for access to confidential information or
proceedings hereunder.
19. No Setoff
---------
The Company shall have no right of setoff or counterclaim in
respect of any claim, debt or obligation against any payment provided for
in this Agreement.
<PAGE> 20
20. Non-Exclusivity of Rights
-------------------------
Nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any of its
subsidiaries or successors and for which the Executive may qualify, nor
shall anything herein limit or reduce such rights as the Executive may
have under any other agreements with the Company or any of its
subsidiaries or successors. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program
of the Company or any of its subsidiaries shall be payable in accordance
with such plan or program, except as explicitly modified by this
Agreement.
21. No Guaranteed Employment
------------------------
The Executive and the Company acknowledge that this Agreement
shall not confer upon the Executive any right to continued employment and
shall not interfere with the right of the Company to terminate the
employment of the Executive at any time.
22. Invalidity of Provisions
------------------------
In the event that any provision of this Agreement is
adjudicated to be invalid or unenforceable under applicable law in any
jurisdiction, the validity or enforceability of the remaining provisions
thereof shall be unaffected as to such jurisdiction and such adjudication
shall not affect the validity or enforceability of such provision in any
other jurisdiction. To the extent that any provision of this Agreement,
including, without limitation, Section 10 hereof, is adjudicated to be
invalid or unenforceable because it is overbroad, that provision shall
not be void but rather shall be limited to the extent required by
applicable law and enforced as so limited. The parties expressly
acknowledge and agree that this Section 22 is reasonable in view of the
parties' respective interests.
23. Non-Waiver of Rights
--------------------
The failure by the Company or the Executive to enforce at any
time any of the provisions of this Agreement or to require at any time
performance by the other party of any of the provisions hereof shall in
no way be construed to be a waiver of such provisions or to affect either
the validity of this Agreement, or any part hereof, or the right of the
Company or the Executive thereafter to enforce each and every provision
in accordance with the terms of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered as of the day and year first above set forth.
PLEASE NOTE: BY SIGNING THIS TERMINATION BENEFITS AGREEMENT, THE
EXECUTIVE IS HEREBY CERTIFYING THAT THE EXECUTIVE (A) HAS RECEIVED A COPY
OF THIS AGREEMENT FOR REVIEW AND STUDY BEFORE EXECUTING IT; (B) HAS READ
THIS AGREEMENT CAREFULLY BEFORE SIGNING IT; (C) HAS HAD SUFFICIENT
OPPORTUNITY BEFORE SIGNING THE AGREEMENT TO ASK ANY QUESTIONS THE
EXECUTIVE HAS ABOUT THE AGREEMENT AND HAS RECEIVED SATISFACTORY ANSWERS
TO ALL SUCH QUESTIONS; AND (D) UNDERSTANDS THE EXECUTIVE'S RIGHTS AND
OBLIGATIONS UNDER THE AGREEMENT.
<PAGE> 21
THIS AGREEMENT IN SECTION 18 CONTAINS A BINDING ARBITRATION
PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.
MCDONNELL DOUGLAS CORPORATION
By:_________________________________
EXECUTIVE:
_______________________________________
<PAGE> 1 Exhibit 10(l)
SETTLEMENT AGREEMENT AND
GENERAL AND SPECIAL RELEASE
1. PARTIES. The parties to this Settlement Agreement and General and
Special Release ("Agreement") are:
(a) John P. Capellupo ("Capellupo"), and
(b) McDonnell Douglas Corporation ("MDC").
2. RECITALS. This Agreement is entered into to effectuate Capellupo's
retirement from MDC, and the parties, through this Agreement, agree
to fully and finally settle all claims, known and unknown, that
either party may have against the other arising from Capellupo's
relationship with MDC and MDC's relationship with Capellupo,
including, but not limited to, claims relating to Capellupo's
employment, his retirement and the terms and scope of monetary
payments made by, or required to be made by, MDC to him.
3. CONTRACTUAL TERMS. In consideration of the terms and covenants of
this Agreement, MDC agrees to permit, perform, allow or facilitate
certain acts on Capellupo's behalf and to pay certain monies, all as
more fully set out below:
(a) From the date of the execution of this Agreement until and
including March 31, 1996, Capellupo will continue in full-time
employment at MDC;
(b) At the close of business on March 31, 1996, Capellupo will
retire from MDC;
(c) Capellupo will receive a payment under MDC's Senior
Executive Performance Sharing Plan ("PSP") of $524,100, subject to
normal taxation and withholdings, which payment shall be in complete
satisfaction of any award under PSP for the Plan Year 1995. Payment
under this paragraph shall issue in accordance with MDC's normal PSP
cycle on or about March 29, 1996;
(d) Promptly following his retirement on March 31, 1996,
Capellupo will receive a lump-sum payment for all accrued and unused
vacation days, subject to normal taxation and withholding;
(e) The number of restricted shares of MDC stock granted under
the two Performance Accelerated Restricted Stock ("PARS") Agreements
dated February 25, 1994, shall be reduced from 7,500 under each
agreement to 5,625 shares under each agreement. Such reduced number
of shares shall vest or be forfeited in accordance with the terms of
the PARS Agreements as if Capellupo was still employed by MDC
through the Performance Periods;
(f) The number of restricted shares of MDC stock granted under
the Performance Accelerated Restricted Stock ("PARS") Agreement
dated March 20, 1995, shall be reduced from 18,000 to 7,500
shares. Such reduced number of shares shall vest or be forfeited in
accordance with the terms of the PARS Agreement as if Capellupo was
still employed by MDC through the Performance Periods;
<PAGE> 2
(g) Capellupo's number of restricted shares of MDC Stock granted
under the Performance Accelerated Restricted Stock Award Agreement
dated February 1, 1996, shall be canceled in their entirety;
(h) Subject to paragraph 3(j), the number of shares of MDC Stock
awarded to Capellupo under the Long-Term Incentive Program ("LTIP")
on April 6, 1993, shall remain at 18,000 shares. Capellupo's
entitlement to receive an Earned LTIP Award with respect to said
April 6, 1993, award shall be determined in accordance with the
terms of the LTIP;
(i) Capellupo will be awarded a Target Incentive Compensation
Award ("TICA") of $235,000 for calendar year 1996. His Performance
Adjusted TICA ("PAT") will be determined in accordance with the plan
provisions in the first quarter of 1997. He will receive one-fourth
(1/4) of said PAT on or before March 31, 1997. His annual base
salary will remain at $400,000 until his retirement on March 31,
1996;
(j) Any LTIP or PSP amounts that previously would have been
paid to Capellupo but were deferred because they would not have been
deductible due to the compensation cap of Internal Revenue Code
Section 162(m), (the "162(m) Deferral"), together with additional
amounts otherwise payable to him under paragraph 3(h) shall continue
to be deferred (the "Total Deferral"). Subject to paragraph 5(c),
one-half (1/2) of such amounts shall vest and be paid in cash
to Capellupo on the last business day of March, 1998, and the
balance shall vest and be paid in cash to him on the last business
day of March, 1999. The deferred amounts related to the 162(m)
Deferral will continue to earn interest at 11% until MDC pays
the 1996 LTIP award in accordance with the LTIP. Thereafter, the
Total Deferral will earn 7% interest compounded quarterly during the
deferral period; and
(k) Capellupo shall be entitled to receive other employee
benefits in accordance with MDC's established plans, including the
Employee Retirement Income Plan of MDC - Salaried Plan, the
Supplemental Executive Retirement Income Plan, the Employee Savings
Plan of MDC - Salaried Plan and the Supplemental Executive Savings
Plan, all in accordance with the terms of such plans.
4. ADDITIONAL CONTRACTUAL TERMS & GENERAL AND SPECIAL RELEASE. In
consideration of the terms and provisions of this Agreement,
Capellupo, on behalf of himself and his related individuals and
entities including, but not limited to, his successors, assigns,
attorneys, representatives, and any and all other related
individuals and entities, does hereby release and discharge MDC and
its respective predecessors, successors, assigns, attorneys,
affiliated components and corporations, and their officers,
directors, agents and employees from any and all claims,
liabilities, costs and expenses (including, but not limited to,
attorney's fees), damages, actions and causes of action, of whatever
<PAGE> 3
kind or nature arising out of acts or omissions occurring before the
execution of this Agreement (collectively referred to as "claims"),
including, without limitation, any statutory, civil or
administrative claim, claims based on this Agreement, claims arising
from rights under federal, state, and local laws prohibiting
discrimination on any basis (including age discrimination and
alleged violation of the Age Discrimination in Employment Act), and
common law claims of any kind, including, but not limited to,
contract, tort, and property rights claims including, but not
limited to, breach of contract, breach of the implied covenant of
good faith and fair dealing, tortious interference with contract or
current or prospective economic advantage, fraud, deceit, libel,
slander, misrepresentation, defamation, infliction of emotional
distress, and any other common law claim of any kind.
Notwithstanding anything herein to the contrary, the Indemnification
Agreement dated June 21, 1991, by and between MDC and Capellupo will
survive this Agreement.
The monies and other considerations outlined in paragraphs 3(a)
through (k) herein, the sufficiencies of which are expressly
acknowledged by Capellupo, are accepted by him in complete
satisfaction of all claims, known or unknown, disputed or otherwise.
In consideration of the terms and provisions of this Agreement, MDC,
its successors, assigns, attorneys, representatives and any and all
other related individuals and entities do hereby release and
discharge Capellupo, and his respective predecessors, successors,
assigns and attorneys from any and all claims, including, without
limitation, any statutory, civil or administrative claim, claims
based on, or arising out of, or related to the subject matter of the
claims referred to in this Agreement, and common law claims of any
kind, claims, including, but not limited to, breach of contract,
breach of the implied covenant of good faith and fair dealing,
tortious interference with contract or current or prospective
economic advantage, fraud, deceit, libel, slander,
misrepresentation, defamation, infliction of emotional distress, and
any other common law claim of any kind.
5. CONTINUING OBLIGATIONS.
(a) Acknowledgements by Capellupo. Capellupo hereby
acknowledges the following:
(i) MDC is engaged in, among other things, the business of
researching, designing, developing, manufacturing, selling and
distributing on a worldwide basis fighter and military transport
aircraft, commercial aircraft, helicopters, missiles, satellite
launch vehicles, and certain related and other businesses (the
"Business").
(ii) In connection with the Business, MDC has expended a
great deal of time, money and effort to develop and maintain the
secrecy and confidentiality of substantial proprietary trade secret
information and other confidential business information which, if
misused or disclosed, could be very harmful to the Business and
could cause MDC to lose its competitive edge in the marketplace.
<PAGE> 4
(iii) Capellupo desires to become entitled to receive the
benefits contemplated by this Agreement but which MDC would not make
available to him but for his signing and agreeing to abide by the
terms of this Section 5.
(iv) Capellupo recognizes and acknowledges that his
position with MDC provides him with access to certain of MDC's
confidential and proprietary trade secret information and other
confidential business information.
(v) MDC compensates its employees to, among other things,
develop and preserve goodwill with its customers on MDC's behalf and
business information for MDC's ownership and use.
(vi) Capellupo recognizes and acknowledges that MDC in all
fairness would need certain protection in order to ensure that
Capellupo does not appropriate and misuse any confidential
information entrusted to him during the course of his employment
with MDC, or take any other action which could result in a loss of
MDC's goodwill that was generated on MDC's behalf and at its
expense, and, more generally, to prevent Capellupo from having an
unfair competitive advantage over MDC.
(b) Confidential Information.
(i) Capellupo agrees to keep secret and confidential, and
not to use or disclose to any third parties, any of MDC's
confidential and proprietary trade secret information or other
confidential business information concerning the Business acquired
by Capellupo during the course of, or in connection with, his
employment with MDC. MDC considers and treats as confidential
(among other things) its engineering, design and technical data,
computer software and programs, component sourcing and supply
information, pricing policies, operational methods, strategic plans,
internal financial information, research and development plans and
activities, and business acquisition and expansion plans, and,
except as provided herein, Capellupo agrees to treat such
information as secret and confidential so long as such information
does not become generally known to the public through no fault or
wrongful act of Capellupo.
(ii) Capellupo acknowledges that any and all notes,
records, sketches, computer diskettes and other documents obtained
by or provided to him, or otherwise made, produced or compiled
during the course of his employment with MDC, which contain any such
confidential MDC information, regardless of the type of medium in
which it is preserved, are the sole and exclusive property of MDC
and shall be surrendered to MDC upon his retirement.
<PAGE> 5
(c) Post-Termination Restrictions. Capellupo agrees that, at
any time prior to the vesting or forfeiture of all restricted stock
under the PARS agreements pursuant to paragraphs 3(e) and (f) or the
vesting of deferred compensation pursuant of paragraph 3(j),
Capellupo shall forfeit all rights (1) to vesting or otherwise
receiving any restricted stock under the PARS agreements pursuant to
paragraphs 3(e) and (f) and (2) to vesting and receipt of deferred
compensation pursuant to paragraph 3(j) if he, on his own behalf or
on behalf of any other person, firm, corporation or entity in the
world:
(i) provides any services for any of MDC's significant
competitors, suppliers or customers or provides any general
business, technical or strategic consulting or planning with respect
to the Business for any such companies. Capellupo recognizes that
such companies could benefit greatly if they were to obtain MDC's
confidential information. Capellupo may request permission to
provide services to or consult with any company that may be included
in the category of MDC's significant competitors, suppliers or
customers. The written denial or grant of such a request by MDC's
President and CEO shall be conclusive and binding on the parties
hereto. The grant of such a request will not be unreasonably
withheld, and if the request is granted, Capellupo will not be held
in violation of this paragraph 5(c) for providing services to or
consulting with such company in accordance with the terms of the
request;
(ii) knowingly solicits, entices, induces, hires, employs
or seeks to employ any salesperson, engineer, technician, manager or
executive-level employee of MDC, who was employed by MDC on March
31, 1996, to provide any services with respect to the Business; or
(iii) breaches or violates paragraphs 5(b), (d) or (e) or
any MDC policy regarding confidentiality.
(d) Agreement to Refrain from Using Disparaging Comments.
Capellupo shall indefinitely refrain, in writing and orally, from
using examples or narrative which are derogatory of MDC, its present
or former management, its policies or practices, etc.
(e) Agreement re Cooperation. Capellupo agrees to readily and
fully cooperate with MDC should it become necessary to develop
factual bases to protect or defend MDC's business interests. As
such, among other matters yet to be directed, Capellupo will attend:
ceremonies on April 3, 1996, at which he will be presented the
Nimitz Award; a Navy panel in Pensacola, Florida, on May 10, 1996;
and the June 7-10, 1996 Gathering of Eagles. MDC shall pay for all
expenses related to Capellupo's cooperation hereunder, including,
but not limited to travel, lodging, and food.
<PAGE> 6
(f) Acknowledgement Regarding Restrictions. Capellupo
recognizes and agrees that the provisions of this Section 5 are
reasonable and enforceable because, among other things, (1) he is
receiving compensation under this Agreement and (2) there are many
other areas in which, and companies for which, he could work in view
of his background, and this paragraph 5 therefore does not impose
any undue hardship on him. He further recognizes and agrees that
the provisions of this paragraph 5 are reasonable and enforceable in
view of MDC's legitimate interests in protecting its confidential
information and customer goodwill and the limitations contained
therein on the duration and geographic scope of, and activities
covered by, such provisions.
6. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and shall be binding upon the successors and assigns of the
parties hereto, and each of them. In the case of MDC, this
Agreement is intended to release and inure to the benefit of MDC's
affiliated components and corporations, their divisions and
shareholders, officers, directors, agents, representatives,
employees, and any and all other related individuals and entities,
if any, individually as well as in the capacity indicated.
7. INTEGRATION. This Agreement constitutes a single, integrated
written contract expressing the entire agreement of the parties to
this Agreement concerning its subject matters. No covenants,
agreements, or warranties of any kind, whether express or implied in
law or fact, have been made by any party to this Agreement, except
as specifically set forth in this Agreement. All prior and
contemporaneous discussions and negotiations have been and are
merged and integrated into, and are superseded by, this Agreement.
8. MODIFICATIONS. No modification, amendment or waiver of any of the
provisions contained in this Agreement, or any future
representation, promise, or condition in connection with the subject
matter of this Agreement, shall be binding upon any party hereto
unless made in writing and signed by such party or by a duly
authorized officer or agent of such party.
9. SEVERABILITY. In the event that any provision of this Agreement
should be held to be void, voidable, unlawful or for any reason
unenforceable, the remaining portions of this Agreement shall remain
in full force and effect.
10. NON-ASSIGNMENT OF CLAIMS. Capellupo and MDC each represent and
warrant that he and it has not assigned or transferred any portion
of the claims released herein to any other individual, firm,
corporation, or other entity, and that no other individual, firm,
corporation or other entity has any lien, claim or interest in any
of such claims, including but not limited to, any claim or interest
arising out of, related to or connected with the matters referenced
herein. Capellupo and MDC each covenant and agree not to bring,
induce, or assist, in any claim, action or proceeding of any kind or
nature against the other party, directly or indirectly, regarding,
connected with, arising out of, or relating to in any manner the
matters released by this Agreement and to indemnify the other party
from and against all liability of any kind relating in any way to
the activities described in this paragraph.
<PAGE> 7
11. MISCELLANEOUS TERMS. Each of the parties to this Agreement further
represents, warrants, and agrees as follows:
(a) Each of the parties has had the opportunity to review this
Agreement and seek advice on the advisability of making the
settlement provided for herein and executing this Agreement,
including the opportunity to consult with the legal counsel of the
party's choice. Capellupo acknowledges that he has been given the
opportunity to consider settling the claims referenced herein, in
accordance with the terms of this Agreement, for twenty-one (21)
days, and that he may take as much of that time as he wants to
consider the Agreement before signing it. Capellupo also
acknowledges that he may revoke this agreement within seven (7) days
of the date he signs it, and that if he does not revoke the
Agreement within seven (7) days, the Agreement will be effective,
binding and enforceable;
(b) Each of the parties has read the Agreement carefully, knows
and understands the contents thereof, and has made such
investigation of the facts pertaining to the settlement and this
Agreement and of all matters pertaining hereto as it deems necessary
or desirable;
(c) The terms of this Agreement are contractual and result from
discussions between the parties;
(d) Each party agrees that such party will not take any action
which would interfere with the performance of this Agreement by any
of the parties hereto or which would adversely affect the status of
the rights provided for, or the claims surrendered, herein; and
(e) In entering into this Agreement and the settlement provided
for herein, the parties, and each of them, acknowledge that this
Agreement is intended to be final and binding between MDC and
Capellupo, and is further intended to be effective as a full and
final accord and satisfaction between them. Each party relies on
the finality of this Agreement as a material factor inducing that
party's execution of this Agreement.
12. SETTLEMENT. The parties hereto acknowledge and covenant that this
Agreement represents a settlement of disputed rights and claims and
that by entering into this Agreement, no party hereto admits or
acknowledges the existence of any liability or wrongdoing, all such
liability being expressly denied. No provision of this Agreement,
or of any related document, shall be construed as an admission or
concession of liability, of any wrongdoing or of any preexisting
liability.
<PAGE> 8
13. CONFIDENTIALITY. Capellupo and MDC agree that the existence, fact,
terms, or provisions of or information concerning this Agreement
shall remain confidential and shall not be disclosed to the mass
media or the press, or to any person, firm, corporation, or other
entity (collectively referred to as "any person") with the sole and
exclusive exceptions of: (a) as required by any governmental agency
or court, or otherwise required by law, so long as the party being
compelled to disclose provides the other party with written notice
of such requirement fifteen (15) days prior to the required
disclosure; (b) to Capellupo's attorney or accountant as may be
required for the rendition of professional services, so long as any
such attorney or accountant is informed of this confidentiality
agreement prior to the disclosure of information protected by it and
agrees to abide by its terms; (c) to a limited number of MDC
employees tasked with implementation of the terms of the Agreement;
(d) to a Court(s) of competent jurisdiction should either party be
required to enforce any provisions hereunder or to sue for beach;
and (e) to Capellupo's prospective employers on a very limited
basis. In the unlikely event that Capellupo is requested or
required to share the particulars of this Agreement with prospective
employers, MDC shall be notified prior to any proposed disclosure
and shall narrowly tailor and limit the scope of such
communications.
14. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Missouri.
IN WITNESS WHEREOF, the parties hereto have approved and executed
this Agreement on the date(s) specified below.
/s/ John P. Capellupo
- ------------------------------------ March 7, 1996
John P. Capellupo
/s/ Harry C. Stonecipher
- ------------------------------------ March 7, 1996
McDonnell Douglas Corporation
By: Harry C. Stonecipher
President & CEO
<PAGE> Exhibit 11
MCDONNELL DOUGLAS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Dollars in Millions)
Years Ended December 31 1995 1994 1993
------ ------ ------
PRIMARY
Weighted average shares
outstanding 113,529,238 118,301,352 117,770,733
=========== =========== ===========
Net earnings (loss):
Earnings (loss) from continuing
operations ($416) $598 $359
Discontinued operations, net of
income taxes 37
----------- ----------- -----------
($416) $598 $396
=========== =========== ===========
Earnings (loss) per share:
Continuing operations ($3.66) $5.05 $3.06
Discontinued operations,
net of income taxes .31
----------- ----------- -----------
($3.66) $5.05 $3.37
=========== =========== ===========
Earnings per share computations are based upon the weighted average common
shares outstanding during the year. Common stock equivalents (options) are
not material. The computation of fully diluted earnings (loss) per share is
the same as the primary computation.
<PAGE> Exhibit 12
MCDONNELL DOUGLAS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Years Ended December 31
---------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ -----
EARNINGS
Earnings (loss) from
continuing operations
before income taxes
and cumulative effect
of accounting change ($750) $920 $459 $1,086 $615
ADD: Interest expense 225 249 215 468 453
Interest factor
in rents 32 35 39 57 66
Amortization of
capitalized
interest 1 1 1 2 2
------ ------ ------ ------ ------
($492) $1,205 $714 $1,613 $1,136
====== ====== ====== ====== ======
FIXED CHARGES
Interest expense $225 $249 $215 $468 $453
Capitalized interest 2
Interest factor in rents 32 35 39 57 66
------ ------ ------ ------ ------
$257 $284 $256 $525 $519
====== ====== ====== ====== ======
Ratio of earnings to fixed
charges (1.9X)(A) 4.2X 2.8X 3.1X 2.2X
====== ====== ====== ====== ======
(A) For the year ended December 31, 1995, earnings were inadequate to
cover fixed charges. The amount of such deficiency for the period
was $749 million.
<PAGE> [Company Pull-Out Section]
MILITARY AIRCRAFT; MISSILES, SPACE, AND ELECTRONIC SYSTEMS
McDonnell Douglas Aerospace is primarily the defense-related operating
unit of the McDonnell Douglas Corporation.
McDonnell Douglas Aerospace (Primary Locations)
TACTICAL AIRCRAFT AND MISSILES
St. Louis, Missouri
Employees: 22,200
History: Founded as the McDonnell Aircraft Company in 1939 by James S.
McDonnell.
Markets Served: U.S. and international armed forces.
Products/Services: F-15 Eagle dual-role fighter; multimission F/A-18
Hornet and Super Hornet (in development) strike fighters; AV-8B
Harrier II Plus vertical/short takeoff and landing tactical aircraft;
T-45 Training System; Harpoon and Standoff Land Attack Missiles; Joint
Direct Attack Munition; ACES II ejection seat; training systems,
technical support; research and development in aerospace structures,
avionics, and systems.
HELICOPTERS
Mesa, Arizona
Employees: 2,800
History: In 1984, McDonnell Douglas purchased Hughes Helicopters,
which had been founded in 1934 by Howard R. Hughes Jr.
Markets Served: U.S. and international armed forces; commercial light-
helicopter operators; police forces and public-service providers,
including air ambulance.
Products/Services: AH-64A Apache and AH-64D Longbow Apache multirole
combat helicopters; MD 500 and MD 600 series of light helicopters,
featuring the NOTAR[TM] -- or no-tail-rotor -- system for anti-torque
and directional control; MD Explorer twin-turbine helicopter with the
NOTAR[TM] System.
SPACE AND DEFENSE SYSTEMS
Huntington Beach, California
Employees: 11,200 worldwide (including 5,700 in Huntington Beach)
History: Space and defense systems was formed from portions of the
McDonnell and Douglas aircraft companies, which pioneered the
development of U.S. space exploration.
Markets Served: U.S. National Aeronautics and Space Administration
(NASA); U.S. military services; international governments and space
agencies; U.S. and international commercial-satellite manufacturers.
Products/Services: Delta II launch vehicle; Delta III intermediate-
class rocket (in development); International Space Station truss
structure and major systems; payload integration; Mast Mounted Sight
and Thermal Imaging Sensor System.
<PAGE> [Company Pull-Out Section]
C-17 PROGRAM
Long Beach, California
Employees: 8,400
History: Although the C-17 transport aircraft program now operates as
a separate unit, the Globemaster III began as part of the Douglas
Aircraft Company. Douglas had produced a number of other military
transports, including the Globemaster I and II.
Markets Served: U.S. armed forces. Potential for international armed
forces and commercial heavy-cargo transport industry.
Products/Services: C-17 Globemaster III transport aircraft.
C-17 GLOBEMASTER III
- --------------------
Cited as the most versatile airlifter in aviation history, the C-17
can fly long distances, land on short, unimproved runways close to the
front lines, and deliver heavy cargo. The first U.S. Air Force C-17
squadron was declared operationally ready for service in January 1995.
In the summer, the wide-body airlifter demonstrated unprecedented
reliability, maintainability, and availability during a rigorous
four-week evaluation. In November, the Department of Defense announced
plans to procure 80 additional C-17s beyond the 40 for which it
previously committed. Under a multiyear agreement, the government would
pay at least $16.6 billion for the 80 aircraft. In December 1995,
C-17s began a heavy schedule of missions to Bosnia-Herzegovina in
support of the international peacekeeping effort there. McDonnell
Douglas delivered six C-17s in 1995, when the aircraft was awarded
aviation's prestigious Collier Trophy. A number of international
customers have expressed interest in the Globemaster III. A commercial
version, the MD-17, will address a niche market for the delivery of
outsize cargo -- such as large pieces of oil rigs or construction
equipment.
Propulsion: Four Pratt & Whitney F117-PW-100 series turbofans, each
producing 40,700 lb. of thrust and equipped with directed-flow thrust
reversers that enable the C-17 to land on short runways and to back up
while fully loaded.
Dimensions: Length 174 ft. (53 m.); height 55 ft. (16.8 m.);
wingspan 170 ft. (51.8 m.).
Maximum Payload: 169,000 lb. (76,658 kg.)
Crew: Two pilots, one loadmaster.
<PAGE> [Company Pull-Out Section]
F/A-18 HORNET
- -------------
The F/A-18 is a multimission aircraft, known as a strike fighter. It
is flown by the U.S. Navy/Marine Corps and the air forces of Canada,
Australia, Spain, Kuwait, Finland, and Switzerland. It is the first
tactical aircraft designed from its inception to carry out both air-to-
air and air-to-ground missions, to operate reliably, and to be easy to
maintain even during long periods flying from aircraft carriers in the
corrosive environment at sea. Production began in 1977. The upgraded
Night Strike F/A-18C/D, introduced in 1989, enables crews to fly and
fight at night and in adverse weather, with improved survivability and
the ability to deliver a greater range of precision-guided weapons. In
1995, McDonnell Douglas delivered 43 F/A-18C/Ds, including the first 7
of Finland's 64 Hornets. The first of 34 Swiss Hornets was delivered
in January 1996. Malaysia will begin taking delivery of its eight
Hornets in October 1996. In 1995, Thailand declared its interest to
the U.S. government in procuring eight F/A-18s.
Propulsion: In the F/A-18C/D, two General Electric F404-GE-402
engines, delivering 35,400 lb. of combined thrust (17,700 lb. each).
Dimensions: Length 56 ft. (17.1 m.); height 15.3 ft. (4.7 m.);
wingspan 40.4 ft. (12.3 m.).
Maximum Payload: Up to 14,900 lb. (6,757 kg.) externally.
Crew: One in F/A-18A and C; two in F/A-18B and D.
F/A-18E/F SUPER HORNET
- ----------------------
The F/A-18E/F Super Hornet will be the centerpiece of U.S. naval
aviation as the 21st century unfolds. Now in development and testing,
it is scheduled to enter operational service with the U.S. Navy in
2001. The Super Hornet adds greater range and payload-carrying
ability, improves the Hornet's benchmark reliability and
maintainability, and allows for the extensive integration of new
systems and technologies. It also incorporates stealth and other
features to improve survivability significantly. The first flight was
in November 1995. The Navy began flight testing the first two
developmental aircraft in early 1996. The Department of the Navy plans
to purchase 1,000 aircraft -- at an estimated program cost of $89
billion -- through 2015. McDonnell Douglas is the prime contractor and
Northrop Grumman the principal subcontractor for all versions of the
F/A-18.
Propulsion: Two General Electric F414 turbofan engines, producing
44,000 lb. of combined thrust (22,000 lb. each).
Dimensions: Length 60.3 ft. (18.4 m.); height 16 ft. (4.9 m.);
wingspan 44.9 ft. (13.7 m.).
Maximum Payload: Up to 17,750 lb. (8,051 kg.) externally.
Crew: One in F/A-18E; two in F/A-18F.
<PAGE> [Company Pull-Out Section]
AV-8B HARRIER II PLUS
- ---------------------
The AV-8B Harrier II -- a combat aircraft designed for vertical/short
takeoffs and landings -- can operate where other fixed-wing aircraft
cannot. McDonnell Douglas and British Aerospace jointly developed the
Harrier II in the early 1980s for the U.S. Marine Corps and the
British Royal Air Force. Designed to provide fast and effective
interdiction and close air support to forces on the ground, it can
hover and land in confined spaces. The radar-equipped Harrier II Plus
configuration makes the aircraft even more accurate and
versatile. Assembly of newly manufactured Harrier II Pluses by Spain
and Italy -- partners with the United States in the development of
this upgraded aircraft -- continues through the decade. Through the
Marine Corps' remanufacturing program, 73 day-attack Harrier IIs now
in the fleet are being converted to Harrier II Plus radar/night-attack
aircraft. Remanufactured Harriers gain a new service life at
two-thirds the cost of an all-new aircraft. The Harrier II Plus had three
first-flight milestones in 1995 -- the first aircraft assembled by
Alenia of Italy, the first aircraft assembled by Construcciones
Aeronauticas S.A. (CASA) of Spain, and the U.S. Marine Corps' first
remanufactured Harrier II Plus, assembled in the United States.
Propulsion: One Rolls Royce F402-RR-408 turbofan engine, delivering
23,800 lb. of thrust.
Dimensions: Length 47.8 ft. (14.6 m.); height 11.6 ft. (3.5 m.);
wingspan 30.3 ft. (9.2 m.).
Maximum Payload: 11,795 lb. (5,350 kg.) externally.
Crew: One (two in TAV-8B trainer).
F-15 EAGLE
- ----------
The F-15 (A, B, C, and D versions) was originally designed for the
U.S. Air Force as the world's premier air-superiority fighter. One of
its latest versions, the F-15E Strike Eagle, added the capability for
long-range, precision air-to-surface interdiction, making the Eagle
the USAF's most capable fighter-bomber. It can operate around the
clock and in any type of weather. F-15 production, which began in
1972, has been extended into 1999 by orders for 72 F-15S aircraft for
Saudi Arabia and 25 F-15I aircraft for Israel. Four F-15S Eagles were
delivered in 1995. The U.S. government is planning to procure six
attrition replacement F-15Es for the U.S. Air Force in fiscal year
1996 and is providing advance procurement for six aircraft in fiscal
year 1997.
Propulsion: Two Pratt & Whitney F100-PW-100/220s (25,000 lb. thrust
each) in F-15 C/D; two F-100-PW-220/229s (29,000 lb. thrust each) in
F-15E. The General Electric F110-GE-129 (29,000 lb. thrust) is being
qualified for future F-15 programs.
Dimensions: Length 63.8 ft. (19.4 m.); height 18.6 ft. (5.7 m.);
wingspan 42.8 ft. (13 m.).
Maximum Payload: Up to 23,000 lb. (10,433 kg.) in F-15C/D; up to
19,000 lb. (8,618 kg.) in F-15E (with conformal fuel tanks).
<PAGE> [Company Pull-Out Section]
Crew: One in F-15A and C; one or two in F-15B and D trainers;
two in tactical F-15E.
T-45 TRAINING SYSTEM (T45TS)
- ---------------------------
The first totally integrated training system developed for and used by
the U.S. Navy, the system includes the T-45A Goshawk training
aircraft, advanced flight simulators, academics, computer-assisted
instructional programs, a computerized training-integration system,
and a contractor logistics support package. McDonnell Douglas and
British Aerospace share production of the T-45A. Hughes Training Inc.
is the principal subcontractor for the simulators. Training in the
T45TS began in January 1994, with graduates of the first class earning
their wings in October 1994. Plans call for about 200 T-45A Goshawks
to be delivered to the Navy. Fifteen were delivered in 1995. The U.S.
government plans to procure 12 in fiscal year 1996.
Propulsion: One Rolls Royce F405-RR-401 Adour turbofan engine,
producing 5,845 lb. of thrust.
Dimensions: Length 39.3 ft. (12 m.); height 13.5 ft. (4.1 m.);
wingspan 30.8 ft. (9.4 m.).
Crew: Two -- one instructor and one student pilot.
AH-64 APACHE
- -------------
The U.S. Army's four-bladed AH-64 Apache is the newest and most
advanced multimission helicopter in the U.S. inventory. The AH-64D
Longbow Apache fires its weapons more accurately from longer
ranges, fires more sophisticated weapons, and fights even more
effectively than the AH-64A, day or night and in adverse weather. The
Longbow Apache completed a three-month initial operational test and
evaluation program in 1995. Beginning in mid-1996, U.S. Army AH-64As
will be remanufactured into Longbow Apaches. Two international
customers selected the Longbow Apache in 1995 -- the Netherlands,
which will purchase 30 for its Royal Air Force, and the United
Kingdom, which plans to order 67. McDonnell Douglas delivered 36
Apaches in 1995.
Propulsion: Two General Electric T700-GE-701C turbine engines.
Dimensions: Length 58.2 ft. (17.7 m.); Apache height 15.2 ft.
(4.6 m.), Longbow Apache height 16.25 ft. (5 m.); main rotor diameter
48 ft. (14.6m.).
Maximum Payload: Apache 9,950 lb. (4,510 kg.); Longbow Apache 10,570
lb. (4,795 kg.).
Crew: One pilot and one co-pilot.
<PAGE> [Company Pull-Out Section]
MD 500
- -------
Descended from the U.S. Army's OH-6A Cayuse, MD 500 Series
helicopters, including the MD 500E, the MD 530F and the MD 520N, are
among the fastest, lightest, and most advanced light rotorcraft in
service. Primarily considered civil helicopters, they also are
available in military "Defender" configurations. The five-place
MD 520N features the revolutionary NOTAR[TM] -- or no-tail-rotor --
anti-torque system, which makes it the quietest helicopter in
the world and adds a greater margin of safety and noise reduction for
pilots, passengers, and ground crews. The MD 500 Series features a
five-bladed main rotor. McDonnell Douglas delivered 27 helicopters of
this series in 1995.
Propulsion: One Allison Model 250-C20R gas turbine.*
Dimensions: Length 32.1 ft. (9.8 m.); height 9.7 ft. (2.9 m.);
main rotor diameter 27.4 ft. (8.3 m.)*
Useful Load: 2,364 lb. (1,072 kg.)*
*All specifications are for the MD 520N. Engines, dimensions, and
useful load vary from model to model.
MD 600N
- -------
The latest derivative to arise out of the MD 500 Series is the seven-
to eight-place MD 600N. Its first year's production was sold out on
the day it was introduced to prospective commercial customers in
January 1995. The high-performance, large-cabin MD 600N features a
six-bladed main rotor, the NOTAR[TM] anti-torque system, a more powerful
engine, and a more powerful drive system. It offers lower operating
costs, greater lifting capability, larger aft cabin, increased speed,
lower noise, and enhanced safety. The first flight of the first
production prototype aircraft took place in December 1995. A phase of
rigorous testing is expected to lead to Federal Aviation
Administration certification in 1996. First deliveries will follow
immediately afterward.
Propulsion: One Allison Model 250-C47 gas turbine.
Dimensions: Length 36.9 ft. (11.2 m.); height 9.7 ft (2.9 m.);
main rotor diameter 27.5 ft. (8.4 m.).
Useful load: 2,750 lb. (1,247 kg.).
<PAGE> [Company Pull-Out Section]
MD EXPLORER
- ------------
The MD Explorer is the first all-new commercial helicopter in its
class to receive FAA certification in more than a decade. Twelve were
delivered in 1995. The eight-place, twin-engine, five-bladed
helicopter incorporates the NOTAR[TM] anti-torque system and is used
in air-medical, corporate, utility, law-enforcement, offshore, and
other roles. The MD Explorer is the first rotorcraft to combine
several major new technologies: It uses the first all-composite,
bearingless main rotor, flexbeam, and blade system; it is the first
helicopter with composite materials making up a major portion of its
primary structure; and it is the first commercial helicopter with a
liquid-crystal instrument display system. A militarized version, the
Military Explorer -- which made its debut at the 1995 Paris Air
Show -- can be configured for utility, medevac, or troop-transport
assignments.
Propulsion: Two Pratt & Whitney 206A gas turbines.
Dimensions: Length 38.8 ft. (11.8 m.); height 12 ft. (3.7 m.); main
rotor diameter 33.8 ft. (10.3 m.).
Useful Load: 3,635 lb. (1,649 kg.).
DELTA II
- --------
The Delta II medium rocket is the world's most reliable satellite
launch vehicle. A continuously improved version of the Delta rockets
that McDonnell Douglas has built and launched since 1960, the Delta
II's lifetime success rate is greater than 95 percent.
Dimensions: Height 125 ft. (38.1 m.); diameter 8 ft. (2.4 m.).
Payload Capacity: 4,100 lb. (1,860 kg.) to geosynchronous transfer
orbit.
DELTA III
- ---------
McDonnell Douglas announced the development of Delta III -- the latest
addition to the Delta family of launch vehicles -- in May 1995. An
intermediate-class rocket that builds upon the Delta II's success,
Delta III will deliver more than twice the lifting power. Its payload
range is one for which customer needs are growing, with the greatest
concentration of commercial and government satellites. Hughes Space and
Communications International Inc. is the initial customer; the first
launch is planned for 1998.
Dimensions: Height 128.2 ft. (39.1 m.); upper-stage diameter 13.1 ft.
(4 m.); lower-stage diameter 7.8 ft. (2.4 m.).
Payload Capacity: 8,400 lb. (3,810 kg.) to geosynchronous transfer
orbit.
<PAGE> [Company Pull-Out Section]
DELTA CLIPPER
- -------------
The Delta Clipper-Experimental (DC-X) is a rapidly prototyped, single-
stage, fully reusable rocket that takes off and lands vertically. In
1995, the DC-X completed a series of eight low-altitude
flight tests, which confirmed that a single-stage rocket can fly
successive missions with no more maintenance than that required by
airplanes. In 1996, the vehicle is being modified for use as NASA's
DC-XA (advanced) test bed. DC-XA flight tests, expected to begin in
spring 1996, will enable early proof testing of selected critical
components and structures technology for NASA's X-33 program -- the
next step toward a fully orbital reusable launch vehicle that could
replace the space shuttle.
Dimensions: Height 40 ft. (12.2 m.); 13.5 ft. (4.1 m.) across base
heat shield.
SPACE STATION
- --------------
As a major subcontractor on the International Space Station, McDonnell
Douglas is developing and building five integrated truss segments,
along with major systems. McDonnell Douglas also will provide other
hardware and software elements, including the mobile transporter used
to support assembly and operations on orbit, pressurized mating
adapters used to dock the space shuttle to the station, and outfitting
for pressurized nodes that connect laboratory and habitation modules.
The space agencies of the United States (NASA), Europe, Canada, Japan,
and Russia are participating in the program. The first two launches of
hardware are planned for late 1997.
HARPOON
- -------
After more than 20 years of service, the AGM 84A/C/D Harpoon is still
deployed as the U.S. Navy's primary anti-ship missile and has been
ordered by 23 international customers. It can be launched from
aircraft, surface ships, submarines, and land-based installations.
STANDOFF LAND ATTACK MISSILES
- -----------------------------
A derivative of the Harpoon, the AGM 84E Standoff Land Attack Missile
(SLAM) is the U.S. Navy's only air-launched, precision-guided standoff
missile system in production. In March 1995, the Navy awarded
McDonnell Douglas a $91.6 million contract to develop the SLAM
Expanded Response (SLAM ER). This retrofit program upgrades
existing SLAMs for longer range, greater effectiveness, more
resistance to jamming, and easier mission planning.
<PAGE> [Company Pull-Out Section]
JOINT DIRECT ATTACK MUNITION
- ----------------------------
In October 1995, McDonnell Douglas won a $63 million U.S. Department
of Defense competition for development of the Joint Direct Attack
Munition (JDAM). Production orders could total about $4 billion over
the next two decades. JDAM is a guidance kit that converts existing
1,000-pound and 2,000-pound unguided, free-falling bombs into
precision-guided "smart" munitions that can autonomously strike
targets in all weather conditions. JDAM also minimizes collateral
damage while leaving strike aircraft crews less exposed to hostile
fire.
C4I SYSTEMS
- -----------
McDonnell Douglas's command, control, communications, computers, and
intelligence (C4I) work encompasses information warfare, airborne
surveillance and detection, and maritime warfare systems. McDonnell
Douglas's multisensored Thermal Imaging Sensor System (TISS)
provides U.S. Navy surface ships with the capability to detect
floating mines, speedboats, and swimmers in reduced visibility. The
unit's Mast Mounted Sight, the precursor to TISS, is in operation on
nearly 500 helicopters and ships worldwide.
COMMERCIAL AIRCRAFT
- -------------------
The Douglas Aircraft Company is the commercial aircraft component of
the McDonnell Douglas Corporation.
Douglas Aircraft Company
Long Beach, California
Employees: 11,000
History: Since its founding in 1920 by Donald W. Douglas, the company
has delivered more than 45,000 airplanes, including the long line of
Douglas Commercial (DC) and McDonnell Douglas (MD) models. In 1995,
the Douglas Aircraft Company celebrated its 75th anniversary and
commemorated the DC-3 airliner's 60th year of service.
Markets Served: Passenger airlines and freight-shipping services.
Products/Services: MD-11 wide-cabin trijet; MD-80 midsize twin jet;
MD-90 advanced technology, midsize twin jet; MD-95 advanced technology
twin jet (in development).
<PAGE> [Company Pull-Out Section]
MD-11
- -----
Nearly 150 of aviation's most advanced wide-cabin trijets have been
delivered to customers around the world. Delivery began in 1990. The
MD-11 is the only aircraft of its type available in four models --
passenger, all freighter, convertible freighter (which can be quickly
reconfigured to carry either passengers or freight), and "combi"
(which carries both passengers and freight on the main deck and
additional freight below). Although outwardly similar to the DC-10,
the MD-11 is larger and features advanced aerodynamics, propulsion,
aircraft systems, cockpit systems, and interior design. These advances
contribute to optimum performance and operating economy. Delivery of
an extended-range version -- the MD-11ER for routes up to 8,280
statute mi. (13,323 km.) -- is scheduled to begin at the end of the first
quarter of 1996.
Engines: Three, with three available options -- General Electric
CF6-80C2 at 61,500 lb. thrust each; Pratt & Whitney 4460 at 60,000 lb.
thrust each; or Pratt & Whitney 4462 at 62,000 lb. thrust each.
Dimensions: Length 200.8 ft. (61.2 m.); height 57.8 ft. (17.6 m.);
wingspan 169.5 ft. (51.7 m.).
Capacity: Passenger version -- 233 to 410, depending on seating
configuration (300 nominal); freighter version -- 23,932 cubic ft. of
cargo.
Range: 4,550 to 8,280 statute mi., depending on model and total gross
takeoff weight.
MD-80
- -----
The MD-80 is a highly reliable twin jet. More than 1,100 have been
delivered since it entered service in 1980. The MD-80 features
commercial aviation's first digital flight-guidance system. It is
available in five models -- the MD-81, MD-82, MD-83, MD-88, and the
smaller MD-87.
Engines: Two Pratt & Whitney JT8D-200s at 18,500 to 21,000 lb. of
thrust each.
Dimensions: Length 147.8 ft. (45 m.); height 29.6 ft. (9 m.); wingspan
107.8 ft. (32.9 m.). MD-87 length 130.4 ft. (39.7 m.).
Capacity: 150 to 172 passengers.
MD-87 capacity 130 to 139.
Range: 1,500 to 3,260 statute mi. (2,414 to 5,245 km.), depending on
model and configuration.
<PAGE> [Company Pull-Out Section]
MD-90
- ------
The MD-90 series of twin jets is a family of advanced midsize,
medium-range airliners designed to be technically and economically
competitive well into the 21st century. The aircraft entered revenue
service in April 1995. The MD-90 is the quietest large commercial
jetliner in the skies, with engines also designed for fuel efficiency
and reduced exhaust emissions.
Engines: Two International Aero Engines V2500s, delivering 25,000 lb.
of thrust each.
Dimensions: Length 152.6 ft. (46.5 m.); height 30.6 ft. (9.3 m.);
wingspan 107.8 ft. (32.9 m.).
Capacity: 153 to 172.
Range: 2,400 to 3,205 statute mi. (3,862 to 5,169 km.), depending on
model and configuration.
MD-95
- -----
The MD-95 family of twin-jet airliners was launched in 1995 to serve
the market for aircraft carrying about 100 passengers. ValuJet
Airlines is the launch customer, and the first delivery is scheduled
for 1999. The MD-95 is designed to operate economically on
high-frequency, short- to medium-range routes such as those now flown
by hundreds of DC-9s and similar aircraft. Like all McDonnell Douglas
twin jets, the MD-95 features popular five-across coach-class seating
and incorporates an all-new interior, with illuminated handrails and
larger overhead baggage racks. The two-person cockpit features
advanced technology systems developed for the MD-90. The MD-95 also
continues the environmental tradition of the MD-90 with reduced fuel
consumption, reduced exhaust emissions, and significantly lower sound
levels compared to similar-size aircraft now in service. Additional
models -- including an extended-range version and a 127-passenger
model -- are planned, with an 80-passenger commuter derivative under
study.
Engines: Two BMW/Rolls-Royce BR715s, delivering 18,500 to 21,000 lb.
of thrust each.
Dimensions: Length 124 ft. (37.8 m.); height 29.3 ft. (8.9 m.);
wingspan 93.3 ft. (28.4 m.).
Capacity: 106 (nominal D can vary depending on configuration).
Range: 1,781 statute mi. (2,866 km.); 2,304 statute mi. (3,707 km.)
for extended-range model with optional auxiliary fuel tanks.
<PAGE> [Annual Report Page 22]
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto beginning on
page 31, which are incorporated herein by this reference.
Overview
McDonnell Douglas (the Company) reported improved earnings for
1995, prior to the recognition of an accounting charge related to the
MD-11 trijet program. The military aircraft segment again led the way
with record operating earnings. Total revenues in 1995 increased 9
percent over 1994. Cash flow remained strong, and McDonnell Douglas
finished 1995 with more cash than in any of the last 10 years. There
were other significant accomplishments in 1995. After the C-17
Globemaster III passed a 30-day Reliability, Maintainability, and
Availability Evaluation (RM&AE) with high marks, the U.S. Department
of Defense announced plans to procure 80 more C-17s. The F/A-18 E/F
completed its first flight, and the program continued on budget, on
schedule, and below the weight specification. The Apache helicopter
program received commitments from the Netherlands and the United
Kingdom. A new 100-seat airliner, the MD-95, was launched with a 100-
aircraft order (50 firm and 50 options)from ValuJet Airlines Inc.
Results of Operations
McDonnell Douglas revenues for 1995 were $14.332 billion, a 9
percent increase over 1994 revenues of $13.176 billion. The 1995
revenues were comparable with the 1993 level. The 1995 increase was
associated with more commercial aircraft deliveries and increased
military segment revenue. The 1994 decrease from 1993 resulted
principally from fewer commercial aircraft deliveries and lower volume
on the downsized Space Station and several missile and electronic
systems programs.
Excluding the effect of the accounting charge related to the MD-11
trijet, McDonnell Douglas had 1995 profit of $707 million, an 18
percent improvement over the 1994 earnings of $598 million. Military
aircraft operating earnings were at a record level for 1995,
surpassing the previous record year, 1994, by 28 percent. Earnings in
1993 totaled $396 million, and included gains from discontinued
operations of $37 million and from a postretirement benefit
curtailment of $43 million. Earnings in 1993 also included $158
million associated with successful resolution of tax issues and a $450
million pretax charge associated with the C-17 program.
<PAGE>
Military Aircraft
Operating revenues in the military aircraft segment increased 5
percent in 1995, following a 14 percent increase in 1994. Higher
volume in the F/A-18 program from production rate increases
contributed to each year's increase. More activity on the F-15
program in 1995 and the C-17 program in 1994 also contributed to
revenue growth.
The military aircraft segment reported record operating earnings of
$905 million in 1995. Improved earnings in the C-17 and F-15 programs
led the way in 1995. Almost all of the C-17 activity in 1995 was
associated with ongoing production lots, as relatively minor activity
remained on the development and initial-production lots. The F-15
earnings improvement was principally a result of volume increases.
Award fees on the C-17 and F/A-18 programs also contributed to the
1995 improvement. Operating margins in the segment exceeded 11
percent in 1995, compared with 9 percent in 1994. Operating earnings
in this segment were $708 million in 1994 and $533 million in 1993,
before the 1993 earnings amount was reduced by a pretax loss provision
of $450 million on the C-17 program. The 1994 C-17 operating earnings
were lower than in 1995, and included cost growth in the development
and initial-production lots, reduced cost estimates associated with
the 1993 omnibus settlement, and comparatively lower earnings on
ongoing production lots. The 1993 charge of $450 million reflected
the estimated impact of the C-17 omnibus settlement with the DOD and
other increases in the estimated remaining cost on the development and
initial-production contracts. For additional information regarding
Government claims and inquiries on the C-17 program, see also
"Government Business Audits, Reviews, and Investigations," page 28.
Commercial Aircraft
Operating revenues in the commercial aircraft segment increased 23
percent in 1995 after a 34 percent decline in 1994. Aircraft
deliveries in 1995 exceeded the 1994 level, but were lower than
deliveries in 1993. McDonnell Douglas delivered 18 MD-80 and 14 MD-90
twin jets in 1995, compared with 22 MD-80 twin jets in 1994 and 42 MD-
80 twin jets (including 8 under lease arrangements) in 1993.
McDonnell Douglas delivered 18 trijets in 1995, compared with 17 in
1994, and 36 (including 3 under lease arrangements) in 1993. Current
commercial aircraft production plans for 1996 anticipate MD-80/90 twin-
jet
[Annual Report Page 23]
deliveries in the high 30s, with twice as many deliveries of MD-90 as
MD-80s. MD-11 trijet deliveries in 1996 are expected to be in the low
teens to mid teens.
The commercial aircraft segment had operating earnings of $39
million in 1995, prior to a charge related to the MD-11 trijet,
discussed below. That compares with operating earnings of $47 million
in 1994 and $40 million in 1993.
<PAGE>
Prior to October 1, 1995, production and tooling costs for the
MD-11 program were charged to cost of sales based on the estimated
average unit cost for the program. The estimated average unit costs
were based on cost estimates of a 301-aircraft program. The costs
incurred per unit in excess of the estimated average unit cost were
deferred, to be recovered by production and sale of lower-than-average-
cost units. In applying the program-average method, the Company
estimated (a) the number of units to be produced and sold in the
program, (b) the rate at which the units were expected to be produced
and sold and thus the period of time to accomplish that, and (c)
selling prices, production costs, and the gross profit margin for the
total program. The gross profit margin for the MD-11 was unchanged
from 1993 through September 30, 1995. After deducting period costs,
the MD-11 program operated at a loss during this period.
Effective October 1, 1995, McDonnell Douglas changed its accounting
for cost of sales on the MD-11 aircraft program from the program-
average cost basis to the specific-unit cost basis. At the same time,
the Company revalued MD-11 program support costs, which previously
were included in inventories, consistent with the program-average cost
concept. MD-11 program support costs are now allocated to current
production. This change to the specific-unit costing method for the
MD-11 program was made in recognition of production rates, existing
order base, and length of time required to achieve program deliveries
and thus, the resultant increased difficulty - which became apparent
in the fourth quarter of 1995 - in making the estimates necessary
under the program-average method of accounting. Because the effect of
this change in accounting principle was inseparable from the effect of
the change in accounting estimate, the change was accounted for as a
change in estimate. As a result, the Company recorded a noncash
charge to operations of $1,838 million in the 1995 fourth quarter.
The $1,838 million MD-11 noncash charge included (a) net deferred
production costs, which as of September 30, 1995, totaled $1,002
million; (b) a portion of unamortized tooling, which as of September
30, 1995, totaled $243 million; (c) estimates of costs to complete
already delivered MD-11 aircraft, which as of September 30, 1995, had
been deducted from deferred production costs to arrive at the net
amount of $1,002 million; (d) certain sustaining engineering,
planning, training, publication, and other MD-11 program support
costs, which as of September 30, 1995, had been included in
inventories; and (e) miscellaneous inventory and other MD-11
associated items.
Operating earnings in the commercial aircraft segment, excluding
the $1,838 million MD-11 charge, reflect MD-11 earnings on a program-
average cost basis through September 30, 1995, and on a specific-unit
cost basis for the last quarter of 1995. Profits from the MD-11 in
the 1995 fourth quarter under the new method were offset in part by a
write-off of MD-80 inventory amounts.
<PAGE>
Before period costs, MD-11 operating margins in 1996 are expected
to be minimal. Increased per-unit support costs as determined under
the revised allocation basis, coupled with certain deliveries expected
to be accounted for as operating leases rather than sales, and with
substantial price competition, are expected to produce near-term
downward pressure on operating margins.
Reduced development costs contributed to the segment's continued
profitability in both 1995 and 1994. Development expenditures
decreased $14 million in 1995 after a $27 million decrease in 1994.
The lower costs in 1995 and 1994 principally related to a trend of
reduced spending on the MD-90 twin jet, which received certification
in the 1994 fourth quarter. Development costs are expected to
increase in this segment during 1996, as activity on the recently
launched MD-95 twin jet accelerates.
Missiles, Space, and Electronic Systems
Operating revenues in the missiles, space, and electronic systems
segment remained constant in 1995, after declining 27 percent in 1994
from 1993 levels. Higher 1995 revenues in Space Station and Delta
programs were offset by decreased volume in the higher-margin Tomahawk
missile program. Decreased revenues in 1994 were attributable to
lower volume on the downsized Space Station and several missile and
electronic systems programs.
Operating earnings in the missiles, space, and electronic systems segment
were $198 million in 1995, down from $262 million in 1994, and down
[Annual Report Page 24]
from record 1993 earnings of $338 million. Increased spending on the
Delta III, a launch vehicle under development, and increased costs
related to the closing of a Florida missile facility contributed to
lower earnings for 1995. The lower earnings in 1994 as compared with
1993 were driven by reduced volume. Operating margins in this segment
were comparable in 1994 and 1993. The electronic systems programs'
1993 results included $70 million in pretax loss provisions recorded
as a result of difficulties in several programs. In addition, 1993
earnings included a $20 million bonus earned for achieving 100 percent
launch success on a Delta Global Positioning Satellite contract for
the U.S. Air Force.
<PAGE>
Financial Services and Other
Operating revenues in the financial services and other segment
increased to $334 million in 1995, compared with $326 million in 1994
and $287 million in 1993. Operating earnings of the segment were $61
million in 1995, compared with $50 million in 1994 and $31 million in
1993. These 1995 operating earnings were at their highest level in
the last five years. Operating earnings in this segment have grown in
each of the last two years as a result of increased volume in
selective markets. Operating earnings of the financial services and
other segment are reduced by interest expense, an operating expense of
that segment.
Interest Expense
Interest expense related to aerospace segments was $139 million in
1995, $141 million in 1994, and $224 million in 1993, after excluding
from each year reversal of interest associated with the resolution of
tax issues. Interest expense was reduced by $23 million in 1995, $10
million in 1994, and $135 million in 1993 associated with resolving
these tax issues. The 1994 interest expense decrease from 1993
reflected lower debt levels. See Note 9, "Income Taxes," page 42.
Interest expense in the financial services and other segment
decreased 8 percent in 1995 and 6 percent in 1994 from prior year's
levels. The decreases were a result of the refinancing of high coupon
debt to lower rates.
The Company settled certain state tax issues in 1995, resulting in
net earnings of $35 million, of which $14 million ($23 million pretax)
related to reductions in accrued interest. The Company settled
certain accounting method and tax credit issues with the Internal
Revenue Service (IRS) in 1993 and 1994 in connection with the IRS
audit of the years 1986 through 1989. The resolution of these issues
resulted in net earnings of $158 million in 1993, of which $83 million
($135 million pretax) related to reductions in accrued interest.
Issues resolved in 1994 resulted in net earnings of $21 million, of
which $6 million ($10 million pretax) related to reductions in accrued
interest. See Note 9, "Income Taxes," page 42.
Liquidity
Debt and Credit Arrangements. McDonnell Douglas has in place a
number of credit facilities with banks and other institutions. At
December 31, 1995, the Company had a revolving credit agreement (RCA)
under which it could borrow up to $1.75 billion through June 2000.
The RCA was amended and restated during the second quarter of 1995.
It now provides 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 December 31, 1995.
<PAGE>
In 1992, McDonnell Douglas 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 December 31, 1995, $198 million of securities
registered under the shelf registration remain unissued.
The Company also 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. As of December 31, 1995, no receivable interests were sold.
See Note 3, "Accounts Receivable," page 38.
Amounts available under the RCA, medium-term note program, and the
receivables program discussed above may be used to meet cash
requirements. The Company believes that it has sufficient sources of
capital to meet anticipated needs.
During 1995, rating agencies raised and/or affirmed their ratings
of McDonnell Douglas and McDonnell Douglas Finance Corporation (MDFC)
debt. Moody's Investors Service Inc. (Moody's) raised its ratings of
McDonnell Douglas and MDFC senior debt to Baa-2 from Baa-3, and upgraded
the short-term debt rating for commercial paper to Prime-2 from
[Annual Report Page 25]
Prime-3. Moody's also raised ratings on MDFC subordinated debt to Baa-
3 from Ba-2. MDFC short-term debt rating for commercial paper was
upgraded to Prime-2 from Prime-3. Duff & Phelps Credit Rating Company
raised its rating of McDonnell Douglas and MDFC senior debt to BBB+
from BBB. MDFC's subordinated debt was also raised to BBB from BBB-.
Shareholder Initiatives. On October 28, 1994, the Company's Board
of Directors authorized a stock repurchase plan that authorizes
McDonnell Douglas to purchase up to 18 million shares, or about 15
percent of its then-outstanding common stock. Although funds are
available under existing debt agreements, the Company intends to
continue to use excess cash flow to fund the stock repurchase program
and does not expect the program to affect negatively the Company's
ability to fund capital spending, research and development, or
acquisitions. Through December 31, 1995, the Company had acquired 7.1
million shares, or about 6 percent of its common stock, at a cost of
$422 million.
On January 26, 1996, the Company's Board of Directors authorized a
20 percent increase in the quarterly dividend and a two-for-one split
of the common stock. The quarterly dividend was increased from 20
cents per share to 24 cents per share, payable on April 1, 1996, to
shareholders of record on March 1, 1996. The stock split is subject
to approval (at the annual meeting of shareholders on April 26, 1996)
of an increase in the Company's authorized common stock from 200
million to 400 million shares with a par value of one dollar per
share. If the increase in the number of authorized shares is
approved, shareholders of record at the close of business on May 10,
1996, would be entitled to receive on May 31, 1996, an additional
stock certificate representing one additional common share for each
share of common stock held.
<PAGE>
Aerospace Cash & Cash Equivalents. Although aerospace debt
remained steady at less than $1.3 billion, aerospace cash and cash
equivalents increased to $784 million at December 31, 1995. This 1995
cash and cash equivalent balance exceeds the balance in any of the
last 10 years. The increase in cash and cash equivalents in 1995
reflects strong cash flow from operations and also reflects receipts
related to the 1993 C-17 omnibus settlement, even after cash was used
to repurchase shares under the stock repurchase plan.
Development Programs. In October 1995, McDonnell Douglas launched
the MD-95, a 100-seat medium-range airliner. Initial deliveries of
the MD-95 to ValuJet Airlines Inc. are scheduled in 1999. In
addition, in May 1995, McDonnell Douglas announced the development of
the Delta III, its newest expendable launch vehicle. The MD-95 twin
jet and the Delta III launch vehicle will require investments in
development, inventory, and tooling during the next several years,
which the Company intends to fund with excess cash flow or from
resources available under its existing credit agreements.
Commercial Aircraft Financing. If difficulties recur in the
commercial airline industry, airlines may decline deliveries of
aircraft, request changes in delivery schedules, or default on
contracts for firm orders. Aircraft delivery delays or defaults by
commercial aircraft customers not anticipated by the Company could
have a negative short-term impact on cash flow. During recent years,
several airlines filed for protection under the Federal Bankruptcy
Code or became delinquent on their obligations for commercial
aircraft. As indicated in Note 16, "Commitments and Contingencies,"
page 48, the Company also has outstanding guarantees of $615 million
related to the marketing of commercial aircraft. The Company does not
believe that the existence of such guarantees, after considering
residual values, or delays or defaults by commercial aircraft
customers, will have a material adverse effect upon its earnings, cash
flow, or financial position.
McDonnell Douglas has made lease, loan principal, and interest
payments totaling $65 million and has tentatively agreed to make
certain additional loan principal payments through January 1998 on
behalf of Viacao Aerea Rio-Grandense, S.A. (Varig). In addition,
Trans World Airlines Inc. (TWA), the Company'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 the
Company. See Note 16, "Commitments and Contingencies," page 48, for a
further discussion of Varig and TWA.
The Company, including MDFC, has also made offers totaling $1,642
million to arrange or provide financing for ordered but undelivered
aircraft. The Company 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 16, "Commitments and
Contingencies," page 48.
<PAGE> [Annual Report Page 26]
Capital Expenditures. The Company's capital expenditures were $143
million in 1995, $112 million in 1994, and $64 million in 1993. At
December 31, 1995, the Company was not committed to the purchase of a
significant amount of property, plant, and equipment. Capital
expenditures are expected to exceed $200 million in 1996.
Operations. Employment levels were reduced by 3 percent during
1995 to 63,612 as a result of continued consolidation and streamlining
of the Company's government operations and reduced production on
several major programs.
Financial Services. Financial Services debt at December 31, 1995,
was approximately $1.5 billion, up from approximately $1.3 billion at
December 31, 1994. The increase in debt is consistent with the
increased portfolio of MDFC. McDonnell Douglas Financial Services
Corporation (MDFS), through its MDFC subsidiary, has traditionally
obtained cash from operating activities, placements of debt, issuances
of commercial paper, and the normal runoff of its portfolio to fund
its operations.
During 1995, MDFC filed a shelf registration statement with the SEC
providing for up to $750 million aggregate principal amount of debt
securities. MDFC established a $500 million medium-term note program
under this registration statement, and as of December 31, 1995, had
issued $135 million of securities.
During 1995, MDFS also initiated a medium-term note program under a
private placement of up to $100 million aggregate principal amount.
As of December 31, 1995, MDFS had issued $85 million of securities
under the program.
MDFC has available $120 million in uncommitted, short-term bank
credit facilities whereby MDFC may borrow, at interest rates that are
negotiated at the time of the borrowing, on such terms as MDFC and the
participating banks may mutually agree. At December 31, 1995,
borrowing under this credit facility totaled $10 million.
MDFC has also used, and in the future anticipates using, cash
provided by operations, commercial paper borrowings, borrowings under
bank credit lines, and unsecured term borrowings as its primary
sources of funding. MDFC anticipates using proceeds from the issuance
of additional public debt to fund future growth.
<PAGE>
Business and Market Considerations
General
McDonnell Douglas is a major participant in both the government and
commercial aerospace industries. McDonnell Douglas has a wide range
of programs in production and development, and is the world's leading
producer of military aircraft. McDonnell Douglas is one of the
largest U.S. defense contractors and NASA prime contractors. It is one
of the three principal manufacturers of large commercial transport
aircraft outside the former Soviet Union. The programs and products
that account for most of the Company's business volume are of a highly
technical nature, comparatively few in number, and high in unit cost;
they have traditionally had relatively long production lives.
The Company's aerospace segments compete in an industry composed of
a few major competitors and a limited number of customers. The number
of competitors in the military segment of the business has decreased
over the past few years because of consolidations brought about by
reduced defense spending. However, competition remains significant
both in military and commercial programs.
Reduced defense spending and reduced commercial aircraft orders
resulted in the downsizing of McDonnell Douglas in the early 1990s.
The Company reduced its capital expenditures from $396 million in 1990
to $64 million in 1993 and total employment from 132,960 at June 30,
1990 to 70,016 at December 31, 1993. Employment levels continued to
decline in 1994 and in 1995 (63,612 at December 31, 1995), principally
because of the continued consolidation and streamlining of government-
program operations.
Downsizing that began in 1990 has had and continues to have a
negative impact on the use of the Company's facilities and capacity,
as well as on labor costs due to inefficiencies caused by
contractually required reassignment of workers as a result of layoffs
at some facilities. McDonnell Douglas has closed several of its
manufacturing facilities to streamline operations and create greater
efficiencies. The Company also communicated its strategy to
concentrate on its principal aerospace businesses and sold noncore
business assets to implement this strategy.
Beginning in 1994 and continuing through 1995, McDonnell Douglas
has generated increased defense-related revenues. This trend is
expected to continue into 1996. The Company increased capital
expenditures and development funding in 1994 and 1995, and this trend
[Annual Report Page 27]
is also expected to continue into 1996. McDonnell Douglas believes
that its strong military base, anchored by the C-17 and F/A-18
programs, positions the Company well in the current defense
environment.
<PAGE>
Military Aerospace Business
The Company's most significant customer in the military aircraft
and in the missiles, space, and electronic systems segments is the
U.S. Government. Certain foreign governments also purchase a
significant share of the Company's aerospace products directly or
through contracts for foreign military sales with U.S. Government
agencies. Companies engaged in supplying military and space equipment
to the U.S. Government are subject to risks in addition to those found
in commercial business. These additional risks include dependence on
Congressional appropriations and annual administrative allotment of
funds, general reductions in the U.S. and worldwide defense budgets,
and changes in Government policies, including weapons export policies.
In addition, at times McDonnell Douglas invests in competitive
programs still in the pre-development stage, some of which may never
result in production. Moreover, the costs of maintaining adequate
research and development as well as manufacturing capabilities are
substantial.
The U.S. Government may terminate its contracts (a) for its
convenience whenever it believes that such termination would be in the
best interest of the Government or (b) for default. Under contracts
terminated for the convenience of the Government, a contractor is
generally entitled to receive payments for its contract cost and the
proportionate share of its fee or earnings for the work done, subject
to the availability of funding. The U.S. Government may terminate a
contract for default if the contractor materially breaches the
contract.
Defense spending by the U.S. Government, which has declined in
recent years, is expected to remain at about the same level in 1996 as
it was in 1995, based upon the FY 96 defense budget. In an era of
shrinking or static defense budgets, military customers are more
constrained in their ability to support new development programs.
Declines in new development programs can have a negative impact on
defense contractors. Additionally, the loss of a major program, or a
major reduction or stretch-out in one or more programs, could have a
material adverse impact on the Company's future revenues, earnings,
and cash flow. However, any such impact could be mitigated by foreign
sales and by programs to upgrade existing products. Certain foreign
sales may require some portion of the production to be performed or
completed in the purchasing country. McDonnell Douglas believes it is
well positioned in this defense era; the DOD has indicated its
commitment to several of the Company's relatively new programs and/or
to pursuing significant modifications that will extend the duration of
existing production lines. Because McDonnell Douglas is the largest
producer of military aircraft, the extension of existing programs
could have favorable competitive results. In light of the uncertainty
regarding the changes in defense spending, reported financial
information may not be indicative of the Company's future operating
results. Production contracts awarded under the fiscal year 1996
budget will generally continue through 1998.
<PAGE>
Commercial Aircraft Business
McDonnell Douglas is producing the MD-80 and MD-90 twin jets and MD-
11 trijet commercial aircraft, developing the MD-95 twin-jet
commercial aircraft, and supporting commercial aircraft, spare parts,
and related services. The commercial aircraft business is market
sensitive, which causes disruptions in production and procurement and
attendant costs. It also requires large investments to develop new
aircraft or derivatives of existing aircraft.
On October 19, 1995, McDonnell Douglas 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.
A large number of commercial transport aircraft were ordered from
1988 through 1990 because of increasing air travel (particularly in
the Asia/Pacific region), an aging fleet, stricter noise and pollution
standards, and the desire to assure delivery positions in production
lines that were near capacity. From 1990 through 1994, as airlines
dealt with falling profits, orders for all types of aircraft
dramatically declined. Difficulties in the commercial aircraft
industry have resulted and may again result in airlines declining
deliveries of aircraft, requesting changes in delivery schedules,
defaulting on contracts for firm orders, or not exercising options or
reserves. These difficulties could have a negative short-term impact
on cash flows, although the impact could
[Annual Report Page 28]
be mitigated by the Company's retention of progress payments on firm
orders. Commercial aircraft order activity increased in 1995, with
McDonnell Douglas receiving orders for 51 MD-80/90 twin jets, 50 MD-95
twin jets, and, excluding the debooking of 15 trijet orders, 9 MD-11
trijet firm orders. Seven of the nine MD-11 orders received in 1995
were for the freighter configuration of the trijet. The pace of MD-11
new bookings in 1995 was less than expected. As of December 31, 1995,
McDonnell Douglas had firm orders for 141 MD-80/90 twin jets, 50 MD-95
twin jets, and 21 MD-11 trijets. The MD-11 firm backlog will deliver
principally over the next two years. MD-11 deliveries are expected to
be in the low teens to mid teens in 1996 and 1997, and certain of the
deliveries are expected to be accounted for as operating leases.
Current production rates assume additional aircraft sales and
conversion of existing options to firm-order status for delivery
during this period. Earnings and cash flow recorded on transactions
accounted for as operating leases are minimal. See also "Backlog,"
page 29, for a discussion of certain risks related to commercial
aircraft customers and "Commercial Aircraft," page 22, for a
discussion of the status of commercial aircraft orders.
<PAGE>
Government Business Audits, Reviews, and Investigations
McDonnell Douglas, 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 on presently known facts, the Company
believes that it has not engaged in any criminal misconduct with
respect to any of these matters currently known to be under
investigation and that the ultimate resolution of these investigations
will not have a material adverse effect on the Company's earnings,
cash flow, or financial position.
In March 1991, the Securities and Exchange Commission (SEC) issued
a Formal Order of Private Investigation (the 1991 SEC Investigation)
looking into whether the Company violated the Securities Act of 1933
and the Securities Exchange Act of 1934 in connection with disclosures
about and accounting for the A-12. In February 1993, the SEC issued
subpoenas requesting additional information, and it broadened its
inquiry to include the C-17 program and possibly other programs. The
Company believes that it has properly reported and disclosed
information and accounted for its programs in accordance with
generally accepted accounting principles.
In January 1993, the DOD Inspector General (IG) completed an
inquiry into an allegation of favoritism and advantageous treatment
accorded the Company by the DOD in connection with the C-17
Globemaster III program. The IG's report questioned contracting
actions and payments by the U.S. Air Force and related information
provided by the Air Force and McDonnell Douglas personnel. The
Company believes that it properly reported and disclosed information
relative to the C-17 contract and that it properly submitted bills to
and was paid by the 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 IG.
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 McDonnell
Douglas and that the integrity of the acquisition system had not been
compromised. In a November 1993 reply, the IG reasserted his
conclusion that there had been an Air Force plan to assist the Company
that exceeded permissible limits.
<PAGE>
In 1991, McDonnell Douglas and General Dynamics Corporation (the
Team) filed a legal action to contest the U.S. Navy's termination for
default on the A-12 contract. See Note 5, "Contracts in Process and
Inventories," page 39. The Navy has agreed to continue to defer
repayment of $1.334 billion alleged to be due with interest from
January 7, 1991, from McDonnell Douglas and General Dynamics
Corporation (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
[Annual Report Page 29]
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 McDonnell Douglas 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; and on
December 19, 1995, a further order was issued that converts the
Government termination of the A-12 contract for default to termination
for convenience of the Government. A trial of all remaining issues,
including damages due to the Team, is scheduled to commence in
November 1996. See also Note 5, "Contracts in Process and
Inventories," page 39.
Environmental Expenditures
The Company believes that expenditures which may be required to
comply with federal, state, and local provisions regulating the
discharge of materials into the environment or otherwise relating to
the environment will not be material in relation to its earnings, cash
flow, or financial position. Compliance with such regulations has not
had a material effect on the Company's earnings, cash flow, or the
financial position. However, the Company's costs of complying with
environmental regulations is increasing.
McDonnell Douglas is a party to a number of proceedings brought
under the Comprehensive Environmental Response, Compensation and
Liability Act, commonly known as Superfund, or similar state statutes.
The Company has been identified as a potentially responsible party
(PRP) at 33 sites. Of these, McDonnell Douglas believes that it has
de minimis liability at 21 sites, including 12 sites at which it
believes that it has no future liability. At four of the sites at
which the Company's liability is not considered to be de minimis,
McDonnell Douglas lacks sufficient information to determine its
probable share or amount of liability. At seven of the remaining
eight sites at which the Company's liability is not considered to be
de minimis, either final or interim cost-sharing agreements have been
<PAGE>
effected between the cooperating PRPs, although such agreements do not
fix the amount of cleanup costs that the parties will bear. In
addition, the Company is remediating, or has begun environmental
engineering studies to determine cleanup requirements, at certain of
its current operating sites or former sites of industrial activity.
McDonnell Douglas estimates total reasonably possible costs of
approximately $53 million for study and remediation expenditures at
Superfund sites and for the Company's current and former operating
sites, of which $45 million was accrued at December 31, 1995. Because
of uncertainty inherent in the estimation process, it is at least
reasonably possible that actual costs will differ from estimates.
Ongoing operating and maintenance costs on current operating sites and
remediation expenditures on property held for sale are not included in
the amounts. Claims for recovery have not been netted against these
environmental liabilities. Receivables have been recorded from those
insurance carriers with which environmental coverage has been agreed
to; these total $12 million at December 31, 1995. Although ongoing
litigation may eventually result in recovery of costs expended at
certain of the waste sites, any gain is contingent on a successful
outcome and has not been accrued.
The Company believes that any amounts paid in excess of the accrued
liability will not have a material effect on its earnings, cash flow,
or financial position.
Union Negotiations
McDonnell Douglas has six union contracts that will expire in 1996,
covering five bargaining units and 7,800 people in St. Louis,
Missouri. Contract negotiations with these unions are expected to
begin in late March or in April 1996.
Backlog
Several risk factors should be considered in evaluating the
Company's firm backlog for commercial customers. Approximately 73
percent of the firm backlog for commercial aircraft is scheduled for
delivery after 1996. If difficulties recur in the commercial airline
industry, airlines may decline deliveries of aircraft, request changes
in delivery schedules, or default on contracts for firm orders. Also,
approximately 3 percent of the commercial aircraft backlog represents
orders from leasing companies that may be at risk if not supported by
firm contracts between such leasing companies and airlines. Orders
from customers that have filed for bankruptcy, and purchase options
and announced orders for which definitive contracts have not been
executed, are excluded from firm backlog. See also "Firm Backlog"
column in the table on page 30.
Inflation
The effects of inflation have not been significant to McDonnell
Douglas because inflation rates have been relatively low. Contracts
for both government and commercial products generally either include
estimates of inflation or adjust for inflation's effect.
<PAGE> [Annual Report Page 30]
SELECTED FINANCIAL DATA BY INDUSTRY SEGMENT
The Company's aerospace segments include military aircraft; commercial
aircraft; and missiles, space, and electronic systems. The military
aircraft segment's products include the design, development, and
production of attack and fighter aircraft, military and commercial
helicopters, military transport aircraft, training systems, spare
parts, and related services. The attack and fighter aircraft cover a
full spectrum of missions (air superiority, all-weather and day/night
attack, close air support, reconnaissance, etc.) and include land-
based and aircraft carrier-based aircraft as well as the latest in
vertical-takeoff and-landing technologies. The commercial aircraft
segment's products include commercial aircraft, spare parts, and
related services. The missiles, space, and electronic systems
segment's products include advanced studies and development and
production of tactical missiles, satellite launching vehicles, space
station design and development, space shuttle payload integration,
lasers, ballistic missile defense systems, and defense electronic
components and systems.
The financial services and other segment is engaged in a wide range of
financial services including the financing of commercial and private
aircraft, commercial equipment, and real estate. The segment also
acquires and develops properties for other McDonnell Douglas segments
and commercial customers. The financial services and other segment
includes McDonnell Douglas Financial Services Corporation and
McDonnell Douglas Realty Company. Operating earnings of the segment
have been reduced by interest expense, an operating expense of that
segment. The financial services and other segment includes interest
earned on advances or loans to other industry segments in its
operating revenues and earnings. Other intersegment revenues and
earnings were immaterial and have been eliminated. Assets of
individual segments have been stated net of applicable progress
payments.
(Millions of dollars) Revenues
December 31 or Years Then Ended 1995 1994 1993
--------- --------- ---------
Military aircraft $ 8,158 $ 7,804 $ 6,852
Commercial aircraft 3,891 3,155 4,760
Missiles, space, and electronic
systems 1,917 1,877 2,575
Financial services and other 334 326 287
--------- --------- ---------
Operating revenues 14,300 13,162 14,474
Nonoperating - net 32 14 13
--------- --------- ---------
$14,332 $13,176 $14,487
========= ========= =========
<PAGE>
(Millions of dollars) Earnings (Loss)
December 31 or Years Then Ended 1995 1994 1993
--------- --------- ---------
Military aircraft $ 905 $ 708 $ 83
Commercial aircraft (1,799) 47 40
Missiles, space, and electronic
systems 198 262 338
Financial services and other 61 50 31
--------- --------- ---------
Operating earnings (loss) (635) 1,067 492
Nonoperating - net 19 (3) (5)
Discontinued operations 37
General corporate expenses (18) (13) (9)
Postretirement benefit curtailment 70
Interest expense (116) (131) (89)
Income taxes (benefit) 334 (322) (100)
--------- --------- ---------
$ (416) $ 598 $ 396
========= ========= =========
(Millions of dollars) Firm Backlog (Unaudited)*
December 31 or Years Then Ended 1995 1994 1993
--------- --------- ---------
Military aircraft $10,121 $ 8,340 $ 7,997
Commercial aircraft 7,175 7,544 9,172
Missiles, space, and electronic
systems 2,344 1,619 2,210
--------- --------- ---------
$19,640 $17,503 $19,379
========= ========= =========
(Millions of dollars) Assets*
December 31 or Years Then Ended 1995 1994 1993
--------- --------- ---------
Military aircraft $ 3,678 $ 3,860 $ 3,715
Commercial aircraft 2,480 4,559 4,561
Missiles, space, and electronic
systems 1,081 1,175 1,330
Financial services and other 2,306 2,160 2,340
--------- --------- ---------
9,545 11,754 11,946
Corporate 921 462 80
-------- -------- --------
$10,466 $12,216 $12,026
========= ========= =========
* Amounts as of December 31
<PAGE>
Property, Plant, and
(Millions of dollars) Equipment Acquired
December 31 or Years Then Ended 1995 1994 1993
--------- --------- ---------
Military aircraft $ 76 $ 88 $ 23
Commercial aircraft 16 17 1
Missiles, space, and electronic
systems 40 4 38
Financial services and other 1 2
--------- --------- ---------
133 111 62
Corporate 10 1 2
--------- --------- ---------
$ 143 $ 112 $ 64
========= ========= =========
(Millions of dollars) Depreciation and Amortization
December 31 or Years Then Ended 1995 1994 1993
------- ------- -------
Military aircraft $ 120 $ 123 $ 149
Commercial aircraft 46 53 70
Missiles, space, and electronic
systems 43 43 48
Financial services and other 56 55 49
--------- --------- ---------
265 274 316
Corporate 8 5 7
--------- --------- ---------
$ 273 $ 279 $ 323
========= ========= =========
<PAGE> [Annual Report Page 31]
CONSOLIDATED STATEMENT OF OPERATIONS
(Millions of dollars, except share data)
Years Ended December 31 1995 1994 1993
-------- -------- --------
Revenues $14,332 $13,176 $14,487
Costs and expenses
Cost of products, services, and rentals 12,027 11,026 12,822
MD-11 accounting charge 1,838
General and administrative expenses 681 684 720
Research and development 311 297 341
Postretirement benefit curtailment (70)
Interest expense
Aerospace segments 116 131 89
Financial services and other segment 109 118 126
-------- -------- --------
Total costs and expenses 15,082 12,256 14,028
-------- -------- --------
Earnings (Loss) from Continuing
Operations before Income Taxes (750) 920 459
Income taxes (benefit) (334) 322 100
-------- -------- --------
Earnings (Loss) from Continuing
Operations (416) 598 359
Discontinued operations, net of income
taxes 37
-------- -------- --------
Net Earnings (Loss) $ (416) $ 598 $ 396
======== ======== ========
Earnings (Loss) per Share
Continuing operations $ (3.66) $ 5.05 $ 3.06
Discontinued operations .31
-------- -------- --------
$ (3.66) $ 5.05 $ 3.37
======== ======== ========
Dividends Declared per Share $ .80 $ .55 $ .47
======== ======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> [Annual Report Page 32]
BALANCE SHEET
(Millions of dollars and shares)
McDonnell Douglas Corporation
and Consolidated Subsidiaries
----------------------------
December 31 1995 1994
--------- ---------
Assets
Cash and cash equivalents $ 797 $ 421
Accounts receivable 821 772
Finance receivables and property on lease 2,347 2,087
Contracts in process and inventories 3,421 5,806
Prepaid income taxes
Property, plant, and equipment 1,471 1,597
Investment in Financial Services
Other assets 1,609 1,533
--------- ---------
Total Assets $ 10,466 $ 12,216
========= =========
Liabilities And Shareholders' Equity
Liabilities
Accounts payable and accrued expenses $ 2,284 $ 2,485
Accrued retiree benefits 1,205 1,298
Income taxes 3 723
Advances and billings in excess of related
costs 1,147 1,200
Notes payable and long-term debt
Aerospace segments 1,251 1,272
Financial services and other segment 1,469 1,297
--------- ---------
7,359 8,275
Minority interest 66 69
Shareholders' equity
Preferred stock - none issued
Common stock - issued and outstanding
1995, 111.8 shares; 1994, 116.7 shares 112 117
Additional capital 191
Retained earnings 2,947 3,576
Unearned compensation (18) (12)
--------- ---------
3,041 3,872
--------- ---------
Total Liabilities and Shareholders' Equity $ 10,466 $ 12,216
========= =========
The accompanying notes are an integral part of the financial
statements.
<PAGE> [Annual Report Page 33]
MDC Aerospace Financial Services
---------------------- ----------------------
1995 1994 1995 1994
--------- --------- --------- ---------
$ 784 $ 408 $ 13 $ 13
934 916 2 1
165 152 2,182 1,935
3,421 5,806
315
1,358 1,441 113 156
331 313
1,527 1,420 82 113
--------- --------- --------- ---------
$ 8,835 $ 10,456 $ 2,392 $ 2,218
========= ========= ========= =========
$ 2,183 $ 2,382 $ 216 $ 248
1,205 1,298
424 318 299
1,111 1,162 36 38
1,229 1,249 22 23
1,469 1,297
--------- --------- --------- ---------
5,728 6,515 2,061 1,905
66 69
112 117
191 238 238
2,947 3,576 93 75
(18) (12)
--------- --------- --------- ---------
3,041 3,872 331 313
--------- --------- --------- ---------
$ 8,835 $ 10,456 $ 2,392 $ 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> [Annual Report Page 34]
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Millions of dollars)
<S> <C> <C> <C>
Years Ended December 31 1995 1994 1993
-------- -------- --------
Common Stock
Beginning balance $ 117 $ 118 $ 118
Shares purchased (5) (2)
Employee stock awards and options 1
-------- -------- --------
112 117 118
Additional Capital
Beginning balance 191 256 248
Shares purchased (209) (90)
Employee stock awards and options 18 25 6
Shares issued to employee savings plans 2
-------- -------- --------
191 256
Retained Earnings
Beginning balance 3,576 3,043 2,702
Net earnings (loss) (416) 598 396
Shares purchased (123)
Dividends declared (90) (65) (55)
-------- -------- --------
2,947 3,576 3,043
Translation of Foreign Currency Statements (4)
Unearned Compensation
Beginning balance (12) (36)
ESOP shares allocated to employees 36
Unamortized restricted stock compensation (17) (17)
Compensation amortized 11 5
-------- -------- --------
(18) (12)
-------- -------- --------
Shareholders' Equity $ 3,041 $ 3,872 $ 3,413
======== ======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE> [Annual Report Page 35]
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
<S> <C> <C> <C>
Years Ended December 31 1995 1994 1993
-------- -------- --------
Operating Activities
Earnings (loss)from continuing
operations $ (416) $ 598 $ 359
Adjustments to reconcile earnings (loss)
from continuing operations to net cash
provided by operating activities
Depreciation of property, plant, and
equipment 196 213 258
Depreciation of rental equipment 58 51 50
Amortization of intangible and other
assets 19 15 15
Gain on sale of assets (26) (44)
Pension income (165) (132) (138)
Postretirement benefit curtailment (70)
Change in operating assets and
liabilities
Accounts receivable (49) (217) 40
Finance receivables and property on
lease (200) 133 (521)
Contracts in process and inventories 547 (32) 1,445
MD-11 accounting charge 1,838
Accounts payable and accrued expenses (186) 285 (802)
Income taxes (720) 149 (5)
Advances and billings in excess of
related costs (53) (51) (112)
-------- -------- -------
Net Cash Provided by
Operating Activities 869 986 475
Investing Activities
Property, plant, and equipment acquired (143) (112) (64)
Finance receivables and property on lease (104) 84 414
Proceeds from sale of discontinued business 181
Proceeds from sale of assets 25 24 32
Other, including discontinued operations 9 62 11
-------- -------- --------
Net Cash Provided (Used) by
Investing Activities (213) 58 574
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
(Continued) -------- -------- --------
<S> <C> <C> <C>
Financing Activities
Net change in borrowings (maturities
90 days or less) (103) 50 (830)
Debt having maturities more than 90 days
New borrowings 695 450 681
Repayments (441) (1,069) (954)
Minority interest (3) (3) 72
Payments from ESOP 36
Proceeds of stock options exercised 1 3 5
Common shares purchased (337) (85)
Dividends paid (92) (55) (55)
-------- -------- --------
Net Cash Used by Financing
Activities (280) (709) (1,045)
-------- -------- --------
Increase in Cash and
Cash Equivalents 376 335 4
Cash and cash equivalents at
beginning of year 421 86 82
-------- -------- --------
Cash and cash equivalents at end
of year $ 797 $ 421 $ 86
======== ======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE> [Annual Report Page 36]
McDonnell Douglas Corporation
Notes To Consolidated Financial Statements
December 31, 1995
(Millions of dollars, except share data)
1. Accounting Policies
Basis of Presentation
The consolidated financial statements comprise the accounts of
McDonnell Douglas Corporation and its subsidiaries, including McDonnell
Douglas Financial Services Corporation (MDFS), which is the parent
company of McDonnell Douglas Finance Corporation (MDFC). In
consolidation, all significant intercompany balances and transactions
are eliminated.
The consolidating balance sheet represents the sum of all affiliates -
companies that McDonnell Douglas Corporation directly or indirectly
controls 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 all of its subsidiaries other than MDFS and
McDonnell Douglas Realty Company (MDRC). Those two 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
McDonnell Douglas.
McDonnell Douglas Corporation and Consolidated Subsidiaries. This
represents the consolidation of McDonnell Douglas Corporation and
all its subsidiaries (the Company).
Nature of Operations
McDonnell Douglas is a major participant in both the government and
commercial aerospace industries. The Company has a wide range of
programs in production and development, and it is the world's leading
producer of military aircraft. The Company is one of the largest U.S.
defense contractors and NASA prime contractors. The Company is one of
the three principal manufacturers of large commercial transport
aircraft outside the former Soviet Union. The programs and products
that account for most of McDonnell Douglas's business volume are of a
highly technical nature, comparatively few in number, and high in unit
cost; they have traditionally had relatively long production lives.
<PAGE>
McDonnell Douglas's aerospace segments compete in an industry composed
of a few major competitors and a limited number of customers.
McDonnell Douglas's most significant customer in the military aircraft
and in the missiles, space, and electronic systems segments is the
U.S. Government. Certain foreign governments also purchase a
significant share of the Company's aerospace products directly or
through contracts for foreign military sales with U.S. Government
agencies. The commercial aircraft business is market sensitive, which
causes disruptions in production and procurement and attendant costs.
It also requires large investments to develop new aircraft or
derivatives of existing aircraft.
Through MDFS, McDonnell Douglas is engaged in aircraft financing and
commercial equipment leasing. MDRC is a full-service developer and
property manager in the commercial real estate market, as well as for
McDonnell Douglas's aerospace business.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition
Revenues and earnings on cost-reimbursement and fixed-price government
contracts are generally recognized on the percentage-of-completion
method of accounting as costs are incurred (cost-to-cost basis) in
accordance with Statement of Position 81-1, "Accounting for
Performance of Construction Type and Certain Production Type
Contracts" (SOP 81-1). Revenues include costs incurred plus a portion
of estimated fees or profits based on the relationship of costs
incurred to total estimated costs. Some contracts contain incentive
provisions that provide increased or decreased earnings based upon
performance in relation to established targets. Incentives based upon
cost performance are generally recorded currently, and other
incentives are recorded when such amounts can reasonably be
determined. Revenues relating to contracts or contract changes that
have not been completely priced, negotiated, documented, or funded are
not recognized unless realization is considered probable.
Major contracts for complex military systems are performed over
extended periods and are subject to changes in scope of work and
delivery schedules. Pricing negotiations on changes and settlement of
claims often extend over prolonged periods. Any anticipated losses on
contracts (estimated final contract costs, excluding period costs, in
excess of estimated final contract revenues) are charged to current
operations as soon as they are evident. Estimates of final contract
revenues on certain fixed-price development contracts include future
revenue from expected recovery on claims. Such revenues are generally
included when it is probable that
<PAGE> [Annual Report Page 37]
the claim will result in additional contract revenue and when the
amount can be reliably estimated.
Revenues are recognized on commercial aircraft programs based on sales
prices as aircraft are delivered. Cost of sales of the MD-80 and
MD-90 aircraft programs are determined on a specific-unit cost method.
As described in Note 5, "Contracts in Process and Inventories,"
effective October 1, 1995, McDonnell Douglas changed its accounting
for the MD-11 aircraft program such that cost of sales is determined
on a specific-unit cost method. Prior to October 1, 1995, cost of
sales of the MD-11 aircraft program was determined on a program-
average cost method, and it was computed as a percentage of the sales
price of the aircraft. Under the program-average cost method, the
percentage was calculated as the total of estimated tooling and
production costs for the entire program divided by the estimated sales
prices of all aircraft in the program. A constant gross margin was
achieved by deferring or accelerating a portion of the average unit
cost on each unit delivered.
Revenues, costs, and earnings on government contracts and commercial
aircraft programs are based, in part, on estimates. Because of
uncertainties inherent in the estimation process as it relates to long-
term contracts, it is at least reasonably possible that actual
earnings will differ from estimates. Under the prior MD-11 program-
average cost method of accounting, such adjustments were made
prospectively. Such adjustments on government contracts are made on a
cumulative basis whereby the effect of such changes is recognized
currently. Losses anticipated on government contracts or commercial
programs, excluding period costs, are charged to operations as soon as
they are evident.
Revenues and costs from the manufacturing aspects of sales-type leases
are generally recognized at the inception of such leases. Revenues
from the financing aspects of sales-type and direct-financing leases
are recognized as the excess of aggregate rentals over the cost of
leased equipment (reduced by estimated residual values) by the
interest method. The interest method results in a constant rate of
return on the unrecovered investment.
Contracts in Process and Inventories
Government contracts in process represent incurred costs plus
estimated earnings (unbilled revenues), less amounts billed to
customers when items are completed and delivered. Incurred costs
include production costs and related overhead. Commercial products in
process are stated at the lower of cost (principally specific unit)
or market. Material and spare parts are stated at the lower of cost
(principally moving average) or market.
General and administrative expenses and research-and-development
expenses are considered period costs and, accordingly, are charged to
operations on a current basis.
<PAGE>
The U.S. Government has title to, or a security interest in, certain
inventories by reason of progress payments.
Cash and Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments
purchased with a maturity of three months or less. Cash equivalents
are stated at cost that approximates market.
Finance Receivables and Property on Lease
Rental equipment subject to operating leases is stated at cost; it is
generally depreciated using the straight-line method.
Property, Plant, and Equipment
Property, plant, and equipment is carried at cost and depreciated over
the useful lives of the various classes of properties, using primarily
accelerated methods.
Intangible Assets
Intangible assets consist principally of computer software, deferred
debt expense, and deferred leasing costs. Intangibles are being
amortized over 3 to 10 years.
Income Taxes
United States and foreign income taxes are computed at current tax
rates, less tax credits, and adjusted both for items that do not have
tax consequences and for the cumulative effect of any changes in tax
rates from those previously used to determine deferred tax assets or
liabilities. Tax provisions include amounts that are currently
payable, plus changes in deferred tax assets and liabilities that
arise because of temporary differences between the time when items of
income and expense are recognized for financial reporting and income
tax purposes.
The undistributed earnings of foreign subsidiaries are considered
permanently invested for continuing operations; accordingly, no
provisions are made for taxes which would become payable upon the
distribution of such earnings as a dividend to the Company. The
Company files a consolidated return for federal and certain state
income taxes, and dividends from domestic subsidiaries included
therein are not subject to federal and most state income taxes.
<PAGE> [Annual Report Page 38]
Minority Interest
Minority interest represents the limited partner's equity interest in
a real estate venture. McDonnell Douglas is the general partner. It
contributed land, buildings, and improvements to the partnership. At
December 31, 1995, McDonnell Douglas's participation in the
partnership was approximately 51 percent.
Research and Development
Research-and-development costs include the costs of independent
research and development, bid and proposal efforts, and costs incurred
in excess of amounts estimated to be recoverable under cost-sharing
research-and-development agreements. All such costs are expensed as
incurred.
Research-and-development expense has been reduced by $5 million in
1995, $32 million in 1994, and $27 million in 1993 for risk-sharing
funds received from vendors and subcontractors participating in the
development of commercial aircraft. Some amounts may be repayable
under certain circumstances.
Environmental
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that extend the
life, increase the capacity, or mitigate or prevent environmental
contamination are capitalized. Expenditures that relate to an
existing condition caused by past operations and that do not
contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and the costs can be reasonably
estimated. Estimated liabilities are not discounted to present value.
See also Note 16, "Commitments and Contingencies."
Earnings per Share
Earnings per share computations are based upon the weighted average of
common shares outstanding during the year. Common stock equivalents
(options) are not material.
Common Stock-Based Compensation
McDonnell Douglas accounts for stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees and related Interpretations.
<PAGE>
2. Discontinued Operations
In March 1993, the Company sold its remaining McDonnell Douglas
Information Systems International business, effective January 1, 1993.
The gain on disposal of the discontinued business was $37 million in
1993, net of income taxes of $25 million.
3. Accounts Receivable
Accounts receivable consisted of the following:
December 31 1995 1994
------ ------
MDC Aerospace
U.S. Government - primarily from
long-term contracts
Billed $ 361 $ 395
Unbilled 322 302
------ ------
683 697
Commercial and other governments 136 74
Financial Services 2 1
------ ------
$ 821 $ 772
====== ======
MDC Aerospace also had net receivables from Financial Services of $115
million and $145 million at December 31, 1995 and 1994, respectively.
Unbilled receivables at December 31, 1995, include unbillable amounts
of $188 million. Unbillable amounts include the estimated sales value
of items delivered or other work performed that lacks contractual
documentation to permit billing. Approximately $71 million of the
1995 unbilled amount is not expected to be collected within one year.
McDonnell Douglas 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. Under the agreement, participation interests in new
receivables are sold as previously sold amounts are collected. The
participation interests are sold at a discount, which is included in
general and administrative expenses in the consolidated statement of
operations. The Company acts as an agent for the purchaser by
performing record-keeping and collection functions. No receivable
interests were sold as of December 31, 1995. At December 31, 1994,
accounts receivable were net of $35 million, representing receivable
interests sold.
<PAGE> [Annual Report Page 39]
4. Finance Receivables and Property on Lease
Finance and lease receivables and property on lease consisted of the
following:
December 31 1995 1994
-------- --------
Financial Services
Investment in finance leases
Minimum lease payments $ 1,800 $ 1,477
Residual values 322 266
Unearned income (801) (651)
-------- --------
1,321 1,092
Notes receivable 271 368
Allowances for doubtful receivables (42) (41)
Investment in operating leases, net of
accumulated depreciation of $172 in
1995, $147 in 1994 568 463
Property held for sale or lease 64 53
-------- --------
2,182 1,935
MDC Aerospace 165 152
-------- --------
$ 2,347 $ 2,087
======== ========
The aggregate amount of scheduled principal payments and installments
to be received on notes and lease receivables and minimum rentals to
be received under noncancelable operating leases for Financial
Services consisted of the following at December 31, 1995:
Principal Payments
and Installments Minimum Rentals
------------------ ---------------
1996 $ 403 $104
1997 231 88
1998 192 81
1999 211 68
2000 164 47
After 2000 870 71
<PAGE>
Concentration of Credit Risk
Financial Services financing and leasing portfolio, excluding $135
million at December 31, 1995, and $128 million at December 31, 1994,
of MDRC, consisted of the following:
December 31 1995 1994
--------------- ---------------
Commercial aircraft financing
McDonnell Douglas aircraft
financing $1,286 62.8% $1,141 63.1%
Other commercial aircraft
financing 194 9.5% 207 11.5%
------ ------ ------ ------
1,480 72.3% 1,348 74.6%
Commercial equipment leasing 567 27.7% 459 25.4%
------ ------ ------ ------
Total portfolio $2,047 100.0% $1,807 100.0%
====== ====== ====== ======
The single largest commercial aircraft financing customer accounted
for $282 million (13.8 percent of total portfolio) in 1995 and $288
million (15.9 percent of total portfolio) in 1994. The five largest
accounted for $921 million (45.0 percent) and $743 million (41.1
percent) in 1995 and 1994, respectively.
There were no significant concentrations by customer in Financial
Services' portfolio for commercial equipment leasing.
Financial Services generally holds title to all leased equipment. It
generally has a perfected security interest in the assets financed
through note and loan arrangements.
5. Contracts in Process and Inventories
Contracts in process and inventories consisted of the following:
December 31 1995 1994
-------- --------
Government contracts in process $ 5,451 $ 5,548
Commercial products in process 1,936 4,127
Material and spare parts 634 710
Progress payments to subcontractors 1,185 1,438
Progress payments received (5,785) (6,017)
-------- --------
$ 3,421 $ 5,806
======== ========
Substantially all government contracts in process (less applicable
progress payments received) represent unbilled revenue and revenue
that is currently not billable.
<PAGE>
The U.S. Navy on January 7, 1991, notified McDonnell Douglas 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, to assert its rights to
convert the termination to one for "the convenience of the
Government," and to 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 remain in force until the dispute as to the type of
termination is resolved by the pending litigation in the U.S. Court of
Federal Claims or negotiated settlement, subject to review by the U.S.
Government annually on December 1, to determine if there has been a
substantial change in the financial condition of either 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; and on
December 19, 1995, a further order was issued that converts the
Government's termination of the A-12 contract for default to
termination for convenience of the Government. A trial of all
remaining issues, including damages due to the Team, is scheduled to
commence in November 1996.
[Annual Report Page 40]
At December 31, 1995, Contracts in Process and Inventories included
approximately $573 million of recorded costs on the A-12 contract,
against which the Company has established a loss provision of $350
million. The amount of the provision, which was established in 1990,
was based on the Company'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 was a range of reasonably possible results on termination for
convenience, and that it was prudent to provide for what the Company
believed was the upper range of possible loss on termination for
convenience, namely $350 million. In the Company's opinion, this loss
provision continues to provide adequately for the reasonably possible
reduction in value of A-12 net contracts in process and nonreimbursed
supplier termination payments as of December 31, 1995, as a result of
a termination of the contract for the convenience of the Government.
The Company has been provided with an opinion of outside counsel that
the Government's termination of the contract for default was contrary
to law and fact, that the rights and obligations of the Company are
the same as if the termination had been issued for the convenience of
the Government, and that, subject to prevailing that the termination
is properly one for the convenience of the Government, the probable
claims adjustments are not less than $250 million.
<PAGE>
In 1984, the Company entered into a full-scale development letter
contract, containing a not-to-exceed price for the T-45 Training
System that included the conversion of the land-based British Hawk
aircraft with minimal change into a carrier-capable U.S. 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. The Company advised the
Navy that incorporation of the requested improvements into the
aircraft configuration would entitle it to additional compensation.
The Company proceeded with the improvements, and its cost has
increased the cost at completion for the development and low-rate
initial-production contracts to a point where it exceeds the fixed
price of such contracts. At December 31, 1995, Contracts in Process
and Inventories included costs for the related contracts of $165
million. Realization of the majority of this amount is dependent on
the Company's recovery on claims filed with respect to the
improvements. The Company 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. The Company
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. The Company's belief as to expected claims recovery is
supported by an opinion of outside counsel provided to the Company
that there are reasonable factual and legal bases for the current
claims against the Navy and that, based on the Company's labor and
cost accounting records and computations, it is probable that
McDonnell Douglas will recover in excess of $225 million on the
claims. Additionally, if the Company were not to recover a portion of
the claims amount related to work for which a subcontractor is
responsible, the Company, 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 $156 million would be required on the related
development and low-rate initial-production contracts.
Resolution of claims on the A-12 and T-45 contracts will involve
negotiation with the Government or litigation, and the ultimate
realization and receipt of future revenue may vary from current
estimates.
In May 1993, a Defense Acquisition Board (DAB) initiated by the
Under-secretary of Defense for Acquisition began a review of the C-17
program in an effort to resolve outstanding issues and to make
recommendations regarding the C-17's future. The Department of
Defense (DOD), in conjunction with the DAB, submitted a proposal to
the Company in December 1993 for a business settlement of a variety of
issues concerning the C-17 program. During the fourth quarter of
1993, the Company recorded a $450 million pretax charge associated
with the business settlement and cost growth on the development and
initial-production contracts. In January 1994, the Company and the
DOD agreed to such a settlement.
<PAGE> [Annual Report Page 41]
Prior to October 1, 1995, MD-11 production and tooling costs were
charged to cost of sales based on the estimated average unit cost for
the program. The estimated average unit costs were based on cost
estimates of a 301-aircraft program. The costs incurred per unit in
excess of the estimated average unit cost were deferred, to be
recovered by production and sale of lower-than-average cost units. In
applying the program-average method, the Company estimated (a) the
number of units to be produced and sold in the program, (b) the rate
at which the units were expected to be produced and sold, and thus the
period of time to accomplish that, and (c) selling prices, production
costs, and the gross profit margin for the total program.
Effective October 1, 1995, McDonnell Douglas changed its accounting
for cost of sales on the MD-11 aircraft program from the program-
average cost basis to the specific-unit cost basis. At the same time,
McDonnell Douglas revalued MD-11 program support costs previously
valued in inventories consistent with the program-average cost
concept. MD-11 program support costs are now allocated to current
production. This change to the specific-unit costing method for the
MD-11 program was made in recognition of production rates, existing
order base, and length of time required to achieve program deliveries,
and thus, the resultant increased difficulty - which became apparent
in the fourth quarter of 1995 - in making the estimates necessary
under the program-average method of accounting. Because the effect of
this change in accounting principle was inseparable from the effect of
the change in accounting estimate, the change was accounted for as a
change in estimate. As a result, McDonnell Douglas recorded a noncash
charge to operations of $1,838 million in the fourth quarter of 1995.
The effect of the charge was to decrease 1995 net earnings by $1,123
million, or $9.90 per share.
The $1,838 million MD-11 noncash charge included (a) net deferred
production costs, which as of September 30, 1995, totaled $1,002
million; (b) a portion of unamortized tooling, which as of September
30, 1995, totaled $243 million; (c) estimates of costs to complete
already delivered MD-11 aircraft, which as of September 30, 1995, had
been deducted from deferred production costs to arrive at the net
amount of $1,002 million; (d) certain sustaining engineering,
planning, training, publication, and other MD-11 program support
costs, which as of September 30, 1995, had been included in
inventories; and (e) miscellaneous inventory and other MD-11
associated items.
<PAGE>
6. Property, Plant, and Equipment
The major categories of properties consisted of the following:
December 31 1995 1994
-------- --------
MDC Aerospace
Land $ 91 $ 92
Buildings and fixtures 1,647 1,630
Machinery and equipment 2,161 2,243
Accumulated depreciation (2,541) (2,524)
-------- --------
1,358 1,441
Financial Services - net 113 156
-------- --------
$ 1,471 $ 1,597
======== ========
7. Other Assets
Other assets consisted of the following:
December 31 1995 1994
-------- --------
MDC Aerospace
Prepaid pension asset* $ 1,267 $ 1,198
Prepaid expenses 69 69
Intangible assets 55 44
Other 136 109
-------- --------
1,527 1,420
Financial Services 82 113
-------- --------
$ 1,609 $ 1,533
*See Note 14 ======== ========
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
December 31 1995 1994
-------- --------
MDC Aerospace
Accounts and drafts payable $ 1,065 $ 1,171
Accrued expenses 783 891
Employee compensation 335 320
-------- --------
2,183 2,382
Financial Services 101 103
-------- --------
$ 2,284 $ 2,485
======== ========
Financial Services also had net accounts payable to MDC Aerospace of
$115 million and $145 million as of December 31, 1995 and 1994,
respectively.
<PAGE> [Annual Report Page 42]
9. Income Taxes
Income taxes consisted of the following:
December 31 1995 1994
------ ------
Financial Services
Current tax assets $ (6) $ (1)
Deferred tax liabilities 324 300
------ ------
Net tax liability 318 299
MDC Aerospace
Current tax liabilities 62 71
Deferred tax liabilities (assets) (377) 353
------ ------
Net tax liability(asset) (315) 424
------- ------
$ 3 $ 723
======= ======
Tax effects of temporary differences that gave rise to the deferred
tax liability (asset) consisted of the following:
December 31 1995 1994
------ ------
Financial Services
Deferred tax assets
Bad debts $ (42) $ (12)
Other (14) (22)
Deferred tax liabilities
Leased assets 371 314
Other 9 20
------- -------
Net deferred tax liabilities 324 300
MDC Aerospace
Deferred tax assets
Retiree medical (453) (485)
Long-term contracts (269)
Other (300) (258)
Deferred tax liabilities
Pension plan 478 453
Long-term contracts 452
Other 167 191
------- -------
Net deferred tax liabilities (assets) (377) 353
------- -------
Net deferred tax liability (asset) $ (53) $ 653
======= =======
<PAGE>
The Company's income tax provision (benefit) consisted of the
following:
Years Ended December 31 1995 1994 1993
------ ------ ------
U.S. federal
Current $ 289 $ 115 $ 120
Deferred (546) 151 (50)
------ ------ ------
(257) 266 70
State
Current 33 20 26
Deferred (112) 33 1
------ ------ ------
(79) 53 27
Foreign 2 3 3
------ ------ ------
Income tax provision (benefit) $ (334) $ 322 $ 100
====== ====== ======
Reconciliation of the pro forma income tax provision (benefit)
computed by applying the U.S. federal statutory rate of 35 percent to
the recorded income tax provision follows:
Years Ended December 31 1995 1994 1993
------ ------ ------
Pro forma income tax provision (benefit)
computed at the statutory U.S.
federal income tax rate $ (262) $ 322 $ 161
State income tax provision (benefit)
net of effect on pro forma
U.S. federal tax (31) 34 18
Increase (decrease) in taxes
resulting from:
Export tax-exempt income (10) (8) (7)
Federal tax-rate change 13
Executive life insurance (16) (12) (11)
Settlement of tax issues (21) (15) (75)
Other - net 6 1 1
------ ------ ------
Income tax provision (benefit) $(334) $ 322 $ 100
====== ====== ======
Pretax earnings from foreign subsidiaries included in continuing
operations, but excluding the operations of McDonnell Douglas Foreign
Sales Corporation, were $4 million in 1995, $2 million in 1994, and $3
million in 1993. Provisions for foreign income taxes are computed
using applicable foreign rates. Undistributed earnings of foreign
subsidiaries are considered to be permanently invested. Accordingly,
no provision has been made for U.S. federal income taxes on $121
million of undistributed earnings of foreign subsidiaries.
<PAGE>
The Company settled certain state tax issues in 1995, which resulted
in net earnings of $35 million, of which $14 million was related to
reductions in accrued interest and $21 million was related to tax
reductions. The Company settled certain accounting method and tax
credit issues with the Internal Revenue Service (IRS) in 1993 and 1994
in connection with the IRS audit of the years 1986 through 1989. The
resolution of these issues resulted in net earnings of $158 million in
1993, of which $83 million was related to reductions in accrued
interest. Issues resolved in 1994 resulted in net earnings of $21
million, of which $6 million was related to reductions in accrued
interest.
McDonnell Douglas filed with the IRS refund claims dating back to
1986, in which the Company is seeking to recover additional research-
and-development tax credits it believes it is due in relation to
several of its government fixed-price development programs. McDonnell
Douglas has not recorded these credits as the claims are under review
by the IRS. Should the Company prevail, the credits earned will
increase income.
<PAGE> [Annual Report Page 43]
10. Debt and Credit Arrangements
Consolidated debt consisted of the following classifications:
Current
December 31 Interest Rate 1995 1994
------------- -------- --------
Short-term debt
Financial Services 6.05% $ 10 $ 103
Long-term debt
MDC Aerospace
Senior debt securities,
due 1997 through 2012 8.3%- 9.8% 1,145 1,145
Senior medium-term notes,
due through 1997 6.0%- 8.1% 75 101
Other debt, due through 2005 7.3%-11.5% 9 3
-------- --------
Total MDC Aerospace long-term debt 1,229 1,249
Financial Services
Senior debt securities,
due through 2011 3.9%-10.3% 217 311
Senior medium-term notes,
due through 2005 5.3%-13.6% 867 701
Subordinated notes,
due through 2004 6.1%-12.4% 120 88
Other notes, due through 2017 6.5%-10.0% 7 12
Other debt, due through 2003 8.7%-10.4% 22 23
Capital lease obligations,
due through 2007 248 82
-------- --------
Total Financial Services long-term debt 1,481 1,217
-------- --------
Total long-term debt 2,710 2,466
-------- --------
Total debt $ 2,720 $ 2,569
======== ========
The aggregate amount of long-term debt at December 31, 1995, maturing
by calendar year for 1996 to 2000, was as follows:
MDC Aerospace Financial Services
------------- ------------------
1996 $ 56 $ 200
1997 270 190
1998 1 218
1999 1 186
2000 201 204
The weighted average interest rate on short-term borrowings
outstanding at December 31, 1995 and 1994, was 6.05 percent and 6.55
percent, respectively.
<PAGE>
MDC Aerospace Credit Agreements
At December 31, 1995, MDC Aerospace had 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 December 31, 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
December 31, 1995, MDC Aerospace had issued $152 million of medium-
term notes, of which $75 million is currently outstanding. During
1993, MDC Aerospace issued $200 million of 8.25 percent senior debt
securities due on July 1, 2000. As of December 31, 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 December 31, 1995. The
notes were issued in 1992 and 1993 with interest rates of 8.3 percent
to 9.8 percent and maturities from 1997 to 2012.
Financial Services Credit Agreements
At December 31, 1995, MDFS and MDFC had a joint revolving credit
agreement under which MDFC might 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 may 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 were no outstanding borrowings
under this agreement at December 31, 1995. Commercial paper, when
outstanding, is fully supported by unused commitments under this
agreement.
The provisions of various credit and debt agreements require MDFC to
maintain a minimum net worth, restrict indebtedness, and limit MDFC's
cash dividends and other distributions.
During 1995, MDFC filed a shelf registration statement with the
Securities and Exchange Commission relating to up to $750 million
aggregate principal amount of debt securities. MDFC established a
$500 million medium-term note program under this registration
statement, and as of December 31, 1995, had issued $135 million of
securities.
<PAGE>
During July 1995, MDFS initiated a medium-term note program under a
private placement of up to $100 million aggregate principal amount.
As of December 31, 1995, MDFS had issued $85 million of securities
under the program.
[Annual Report Page 44]
MDFC has available $120 million in uncommitted, short-term bank credit
facilities whereby MDFC may borrow, at interest rates that are
negotiated at the time of the borrowing, upon such terms as MDFC and
the participating banks may mutually agree. At December 31, 1995,
borrowings under this credit facility totaled $10 million.
MDFC's senior debt at December 31, 1995, includes $72 million secured
by equipment that had a carrying value of $98 million. MDRC's debt of
$29 million at December 31, 1995, was secured by indentures of
mortgage and deeds of trust on MDRC's interest in real estate
developments that had a carrying value of $61 million.
11. Fair Values of Financial Instruments
McDonnell Douglas uses derivative financial instruments to manage well-
defined foreign exchange subcontract price risks and foreign currency
denominated debt risks, and on a selective basis to reduce the impact
of interest-rate fluctuations on certain debt instruments. McDonnell
Douglas does not trade in derivatives for speculative purposes.
At December 31, 1995, the notional amount of forward exchange
contracts denominated in currencies of major industrial countries was
$105 million. The term of the currency derivatives varies, but the
longest is three years.
MDFC has interest-rate swap agreements that have effectively fixed
interest rates on $40 million of variable rate notes. At December 31,
1995, the fixed rates payable under these agreements range from 5.51
percent to 6.65 percent with terms expiring through 2000. MDFC also
entered into a series of swap agreements that resulted in reduced
fixed interest rates on $168 million of capital lease obligations. At
December 31, 1995, the fixed rate payable under these agreements range
from 6.65 percent to 6.89 percent with terms expiring in 2007. The
interest-rate differential to be received or paid is recognized over
the lives of the agreements as an adjustment to MDFC's interest
expense.
At December 31, 1995, unrealized gains and losses on foreign exchange
contracts and swap agreements were not material. Because of the off-
balance-sheet nature of these derivative instruments, counterparty
failure would result in recognition of such gains and losses.
However, the Company anticipates that counterparties will fully
satisfy their obligations under the contracts.
The following methods and assumptions were used in estimating the fair
value disclosures of financial instruments:
<PAGE>
Cash and cash equivalents: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair
value.
Notes receivable: Fair values for variable rate notes that
reprice frequently and with no significant change in credit risk
are based on carrying values. The fair values of fixed rate notes
are estimated in discounted cash flow analyses, with the use of
interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Short-and long-term debt: Carrying amounts of borrowings under
the short-term revolving credit agreements approximate their fair
value. The fair values of long-term debt, excluding capital lease
obligations, are estimated with the use of public quotations or
discounted cash flow analyses, based on current incremental
borrowing rates for similar types of borrowing arrangements.
The carrying amounts and fair values of financial instruments are as
follows:
MDC Aerospace Financial Services
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
December 31, 1995
-----------------
Cash and cash
equivalents $ 784 $ 784 $ 13 $ 13
Notes receivable 67 67 265 273
Short-term notes
payable 10 10
Long-term debt 1,229 1,404 1,233 1,302
December 31, 1994
-----------------
Cash and cash
equivalents $ 408 $ 408 $ 13 $ 13
Notes receivable 37 30 358 346
Short-term notes
payable 103 103
Long-term debt 1,249 1,281 1,135 1,162
<PAGE>
12. Common and Preferred Shares
The authorized common stock of McDonnell Douglas is 200 million
shares, each of $1.00 par value. The following table summarizes
changes in shares outstanding for the periods presented:
Common Shares
Outstanding
-------------
Balance January 1, 1994 117,982,710
Shares repurchased (1,955,400)
Employee stock awards and options 706,497
Other 2,484
-------------
Balance December 31, 1994 116,736,291
Shares repurchased (5,215,100)
Employee stock awards and options 302,548
-------------
Balance December 31, 1995 111,823,739
=============
In October 1994, the McDonnell Douglas Board of Directors authorized a
three-for-one stock split to be implemented by a stock dividend of two
shares for each share outstanding to shareholders of record on
[Annual Report Page 45]
December 2, 1994, payable on January 3, 1995. All references to
number of shares, per share amounts, stock option data, and market
prices of common stock reflect the stock split.
The Board of Directors also approved a stock repurchase plan in
October 1994. The plan authorizes the Company to purchase up to 18
million shares from time to time in the open market, through privately
negotiated transactions or self-tender offers. Repurchased common
shares are treated as authorized but unissued shares, and they remain
available for use to meet the Company's current and future common
stock requirements for its benefit plans and for other corporate
purposes. Through December 31, 1995, the Company had acquired 7.1
million shares in connection with this stock repurchase plan.
In January 1996, the McDonnell Douglas Board of Directors authorized a
two-for-one split of the common stock. The stock split is subject to
approval (at the April 1996 annual meeting of shareholders) of an
increase in the Company's authorized common stock to 400 million
shares. References to number of shares, per share amounts, stock
option data, and market prices of common stock do not reflect these
proposed changes, since these changes have not been finalized.
<PAGE>
At December 31, 1995, a total of 6,285,648 shares of authorized and
unissued common stock are reserved for issuance of stock awards and
options granted or authorized to be granted. Also, 11,926,821 shares
were reserved for contributions to the Company's savings plans. At
December 31, 1995, there are 10 million shares, $1.00 par value,
preferred stock authorized for issuance; however, none had been
issued.
During 1990, the Board of Directors declared a dividend distribution
of one preferred stock purchase right (Right) for each outstanding
share of common stock. Among other provisions, each Right may be
exercised to purchase from the Company one one-hundredth of a share of
a new series of preferred stock. The Rights are exercisable only (a)
after a person or group has acquired or obtained the right to acquire
20 percent or more of the Company's common stock or (b) the
commencement of a tender offer or exchange offer, for 20 percent or
more of the voting power of the Company. In conjunction with the 1994
stock split, the Board of Directors authorized the adjustment of the
exercise price to $125 and an extension of the expiration date to
December 31, 2004. The Rights may be redeemed by the Company at a
price of 1 cent per Right at any time until 10 business days after the
acquisition of 20 percent of the Company's common stock. The Board of
Directors of the Company retains a broad ability to amend or
supplement the Rights.
If any person or group acquires 20 percent of the Company's common
stock, each holder of a Right will have the right to receive upon
exercise the number of shares of common stock having a market value of
two times the exercise price of the Right. If the Company is
acquired, each Right may be exercised to purchase the number of shares
of common stock of the surviving or purchasing company that at the
time of such transaction would have a market value of two times the
Purchase Price.
13. Stock-Option and Incentive Plans
In April 1994, the Company's shareholders approved the 1994
Performance and Equity Incentive Plan (PEIP). Under the PEIP,
5,700,000 shares were authorized for issuance or sale in connection
with stock options, stock appreciation rights, restricted stock,
performance shares, and other stock-based awards. Options may be
granted to officers and employees at an exercise price of no less than
the fair-market value of the shares on the date of grant. As of
December 31, 1995, a total of 640,310 restricted shares of McDonnell
Douglas common stock had been granted. Compensation related to these
restricted shares is being amortized to expense over periods of three
to five years, depending on the award. Unearned compensation is
reflected as a component of shareholders' equity.
Awards granted prior to approval of the PEIP under the Incentive Award
Plan (IA Plan) approved by shareholders in 1986 in the form of stock,
nonqualified stock options, and incentive stock options remain
outstanding.
<PAGE>
Options to purchase the McDonnell Douglas common stock have been
granted under the Company's compensation plans. A summary of options
for McDonnell Douglas common stock follows:
Years Ended December 31 1995 1994
-------- --------
Granted under the PEIP Plan
Number of shares 20,000 450,000
Price per share $49 $37
Exercised under the IA Plan
Number of shares 68,305 123,324
Price per share $13-$21 $13-$30
December 31 1995 1994
-------- --------
Outstanding
Number of shares 557,393 605,646
Price per share $13-$49 $13-$37
Exercisable
Number of shares 92,393 155,646
Price per share $13-$49 $13-$21
McDonnell Douglas has a Long-Term Incentive Program (the LTIP) adopted
under the IA Plan. Participants in LTIP were selected by a committee
[Annual Report Page 46]
of the Board of Directors. Awards earned are payable in either cash
or stock. Earned awards are achieved when McDonnell Douglas common
stock yields a return superior to a peer group of companies during a
five-year period. The Company had accrued $19 million for LTIP at
December 31, 1995. No awards have been granted under LTIP since 1993
and no further awards will be granted.
14. Retirement Plans
Most employees of the Company are participants in defined benefit
pension plans, including several multiemployer and foreign plans. In
addition, the Company has a supplementary unfunded pension plan to
provide those benefits otherwise due employees under the defined
benefit pension plans' benefit formulas, but which are in excess of
the benefits the Internal Revenue Code permits companies to offer
under the defined benefit pension plans. Benefits for salaried plans
are based primarily on salary and years of service, whereas benefits
for hourly plans are generally based on a fixed dollar amount per year
of service.
<PAGE>
The Company measures pension cost and makes contributions to its
pension plans based according to independent actuarial valuations.
The projected unit credit actuarial cost method is used to determine
pension cost for financial accounting purposes and, beginning in 1996,
to determine funding levels and pension cost allocable to government
contracts consistent with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 87, "Employers' Accounting for
Pensions." Funding levels and pension cost allocable to government
contracts were previously determined by the entry-age normal actuarial
cost method.
The assets of the plans consist principally of marketable fixed income
and equity securities. At December 31, 1995, the plans held
$11 million of the Company's medium-term notes and $35 million of its
senior debt securities with varying interest rates and maturity dates,
as well as 81,000 shares of McDonnell Douglas common stock.
Assumptions used in determining net periodic pension expense (income)
and the actuarial present value of benefit obligations for the
significant domestic plans were:
Years Ended December 31 1995 1994 1993
-------- -------- --------
Discount rate
January 1 8.25% 7.5% 9.0%
December 31 7.5% 8.25% 7.5%
Average rates of increase in
compensation based upon age -
salaried plans
January 1 5.0% 5.0% 6.0%
December 31 4.5% 5.0% 5.0%
Expected return on plan assets 9.3% 9.3% 9.3%
Components of periodic pension expense (income) for the significant
domestic pension plans include the following:
Years Ended December 31 1995 1994 1993
-------- ------ ------
Service cost for the year $ 91 $ 119 $ 100
Interest cost on pension
benefit obligations 305 278 266
Return on plan assets
Actual (1,285) (64) (426)
Deferred gain (loss) 791 (403) (13)
Net amortization (67) (62) (65)
-------- ------ ------
Domestic plans $ (165) $(132) $(138)
======== ====== ======
Foreign and other plans $ 4 $ 6 $ 7
======== ====== ======
<PAGE>
An analysis of the funded status of the significant pension plans
follows:
December 31 1995 1994
-------- --------
Actuarial present value of accumulated
benefit obligations
Vested $ 4,002 $ 3,028
Nonvested 276 254
-------- --------
Accumulated benefit obligation 4,278 3,282
Additional amounts related to projected
future salary increases 355 298
-------- --------
Projected benefit obligation 4,633 3,580
Plan assets, at fair value 6,140 5,091
-------- --------
Excess of plan assets 1,507 1,511
Items not yet recognized in earnings
Unrecognized net transition asset (418) (490)
Unrecognized prior service cost 657 338
Deferred net gain (490) (172)
-------- --------
Domestic plans 1,256 1,187
Foreign plans 11 11
-------- --------
Prepaid pension asset $ 1,267 $ 1,198
======== ========
During 1995, the Company amended its significant domestic pension
plans to provide increases to pension benefits for current and future
non-union retirees. The increases become effective December 1, 1996.
These amendments will affect most nonunion retirees, including those
who sued and threatened to sue the Company when a retiree health care
trust was established in 1992. A settlement resolving these matters
has been reached and has been approved by the trial court.
Effective January 1, 1993, the Company amended its significant
domestic pension plans to provide a supplemental pension benefit to
nonunion retirees electing to participate in the new health care plan
funded entirely by participant contributions. The effect of this
amendment was to increase unrecognized prior service cost as of
December 31, 1992, by $385 million. The Company recorded this
liability in connection with the adoption of and subsequent accounting
for SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," during 1992.
The Company has no intention of terminating any of its pension plans. However,
if a qualified defined benefit pension plan is terminated and all accrued
<PAGE> [Annual Report Page 47]
liabilities to employees and their beneficiaries are satisfied, all
remaining assets in the plan's trust revert to the employer (except in
certain limited circumstances where a change in control has occurred
within the five-year period preceding the termination). In such a
case, the following consequences would ensue. First, a nondeductible
20 percent to 50 percent excise tax on the gross amount of the
reversion is imposed. Second, the U.S. Department of Defense and
other Government contracting agencies have issued a regulation that
indicates that the Government is entitled to its equitable share, to
the extent that the Government participated in pension costs through
its contracts with the Company. Third, any amount that the employer
then retains is treated as taxable income.
In addition to the defined benefit pension plans, the Company provides
eligible employees the opportunity to participate in savings plans
that permit both pretax and after-tax contributions. Most domestic
employees with at least 30 days of continuous service are eligible to
participate in a plan. Under these plans, the employee may contribute
to various savings alternatives, including investment in the Company's
common stock. In most cases, the Company matches a portion of the
employee's contribution with contributions to the McDonnell Douglas
Common Stock fund in the plans. Generally, the Company's
contributions are vested after five years of service. The Company's
contributions to the savings plans during 1995 and 1994 totaled $78
million and $73 million, respectively, and during 1993 totaled $59
million, of which $1 million was contributed in McDonnell Douglas
common stock.
In addition to the above plans, the Company and certain of its
domestic subsidiaries provide health care benefits for their retirees
covered by collective bargaining agreements. Generally, such
employees become eligible for retiree health care upon retirement from
active service at or after age 55 with 10 or more years of service.
Qualifying dependents are also eligible for medical coverage. The
Company's policy is to fund the cost of medical benefits as claims are
received. The retiree health care plan has provisions for participant
contributions, deductibles, coinsurance percentages, out-of-pocket
limits, schedule of reasonable fees, maintenance of benefits with
other plans, Medicare carve-out, and a maximum lifetime benefit per
covered individual.
The Company and certain of its domestic subsidiaries previously
provided health care coverage similar to the above for its nonunion
retirees. On October 8, 1992, effective January 1, 1993, McDonnell
Douglas terminated company-paid retiree health care for both current
and future nonunion retirees and their dependents and survivors and
replaced it with a new arrangement funded entirely by participant
contributions. At the same time, the Company amended its existing
pension plans to provide a supplemental pension benefit to current and
future nonunion retirees who elect to receive health care during the
period 1993 through 1996 under the new arrangement. The supplemental
benefit, net of withholding taxes, approximates the expected average
cost of benefits for the period 1993 through 1996. During 1993, the
Company recorded a curtailment gain of $70 million, reflecting a
similar arrangement negotiated with the Southern California
Professional Engineering Association for employees who retire after
July 1, 1993.
<PAGE>
During 1993, McDonnell Douglas and the International Association of
Machinists and Aerospace Workers (IAMAW) in St. Louis, Missouri and
Huntington Beach, Long Beach, and Torrance, California, agreed to a
three-year union contract. The contract includes a provision
requiring employees who retire after 1993 to pay one-third of the cost
of their retiree health care.
An analysis of the accrued retiree benefits follows:
December 31 1995 1994
-------- --------
Accumulated postretirement benefit
obligation
Retirees $ 753 $ 795
Active participants fully eligible
to retire 126 121
Other active participants 122 107
-------- --------
Accumulated postretirement benefit
obligation 1,001 1,023
Items not yet recognized in earnings
Unrecognized prior service gain 200 194
Deferred net loss (92) (112)
-------- --------
Accrued retiree health care liability 1,109 1,105
Liability for pension supplement 96 193
-------- --------
Accrued retiree benefits $ 1,205 $ 1,298
======== ========
Components of periodic postretirement benefit expense, exclusive of the
curtailment gain in 1993, include the following:
Years Ended December 31 1995 1994 1993
------ ------ ------
Service cost for the year $ 7 $ 9 $ 13
Interest cost on accumulated post-
retirement benefit obligations 78 77 80
Net amortization (17) (10) (11)
------ ------ ------
$ 68 $ 76 $ 82
====== ====== ======
<PAGE>
Assumptions used in determining periodic postretirement benefit costs
and the actuarial present value of benefit obligations were as
follows:
Years Ended December 31 1995 1994 1993
------ ------ -----
Discount rate
January 1 8.25% 7.5% 9.0%
December 31 7.5% 8.25% 7.5%
Health care cost trend rate
Preferred provider non-medicare* 10.3% 10.2% 11.0%
Point of service non-medicare* 8.0%
Medicare* 8.9% 8.5% 9.0%
HMO premiums 5.0% 6.0% 6.5%
* Decreasing to 5.5% after 2003
[Annual Report Page 48]
Increasing the health care cost trend rates by one percentage point
would result in an 8.1 percent increase in the sum of the service and
interest cost components of periodic postretirement benefit cost and
an 8.4 percent increase in the accumulated postretirement benefit
obligation at December 31, 1995.
15. Leased Properties
Rental expense for leased properties was $61 million in 1995, $79
million in 1994, and $96 million in 1993. These expenses,
substantially all minimum rentals, are net of sublease income. The
Company has negotiated noncancelable sublease agreements on certain of
its facilities and equipment totaling $54 million during the next
several years. Minimum rental payments under operating leases with
initial or remaining terms of one year or more aggregated $180 million
at December 31, 1995. Payments, net of sublease amounts, due during
the next several years were: 1996, $36 million; 1997, $21 million;
1998, $15 million; 1999, $11 million; and 2000, $11 million.
In 1995, the Company purchased $360 million in data processing
services from an unaffiliated company pursuant to an outsourcing of
its information-technology operations in 1992. During the remaining
seven-year term of the outsourcing agreement, data processing service
payments are expected to aggregate approximately $2 billion.
<PAGE>
16. Commitments and Contingencies
The marketing of commercial aircraft at times will result in
agreements to provide or guarantee long-term financing of some portion
of the delivery price of aircraft, to lease aircraft, or to guarantee
customer lease payments, tax benefit transfers, or aircraft values.
At December 31, 1995, the Company had made offers of this nature to
customers totaling $1,525 million related to aircraft on order or
under option scheduled for delivery through the year 2002 and had made
guarantees and other commitments totaling $615 million on delivered
aircraft. MDFS also had commitments to provide leasing and other
financing in the aggregate amount of $117 million at December 31,
1995. The Company does not expect these offers or commitments to have
a significant adverse effect on its earnings, cash flow, or financial
position.
The Company's outstanding guarantees include amounts related to MD-11s
operated by Viacao Aerea Rio-Grandense, S.A. (Varig). During 1994,
Varig notified its aircraft lenders and lessors that it was
temporarily suspending payments pending a restructuring of its
financial obligations. The Company made lease, loan, and interest
payments totaling $65 million on behalf of Varig in 1994 and 1995. The
Company and Varig negotiated a repayment schedule, and the first
payment by Varig was received in October 1995. In January 1996, the
Company tentatively agreed to pay certain loan principal payments on
behalf of Varig from January 1996 through January 1998. The Company
and Varig negotiated a repayment schedule, with the first payment by
Varig to begin in 1998. These restructurings and payments have not had
and are not expected to have a significant adverse effect on the
Company's earnings, cash flow, or financial position.
During October 1994, Trans World Airlines Inc. (TWA), the Company'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, the Company
agreed to defer six months of lease and other payments. The plan
calls for TWA to pay deferred amounts to the Company over a 28-month
period that commenced in April 1995. The reorganization plan is not
expected to have a significant adverse effect on the Company's
earnings, cash flow, or financial position.
The Company is a party to a number of proceedings brought under the
Comprehensive Environmental Response, Compensation, and Liability Act,
commonly known as Superfund, or similar state statutes. The Company
has been identified as a potentially responsible party (PRP) at 33
sites. Of these, the Company believes that it has de minimis
liability at 21 sites, including 12 sites at which it believes that it
has no future liability. At four of the sites where the Company's
liability is not considered to be de minimis, the Company lacks
sufficient information to determine its probable share or amount of
liability. At seven of the remaining eight sites at which the
Company's liability is not considered to be de minimis, either final
<PAGE>
or interim cost sharing agreements have been effected between the
cooperating PRPs, although such agreements do not fix the amount of
cleanup costs which the parties will bear. In addition, the Company is
remediating, or has begun environmental engineering studies to
determine cleanup requirements, at certain of its current operating
sites or former sites of industrial activity.
[Annual Report Page 49]
At December 31, 1995, the accrued liability for study and remediation
expenditures at Superfund sites and for the Company's current and
former operating sites was $45 million. Because of uncertainty
inherent in the estimation process, it is at least reasonably possible
that actual costs will differ from estimates. Ongoing operating and
maintenance costs on current operating sites and remediation
expenditures on property held for sale are not included in this
amount. Claims for recovery have not been netted against the
environmental liabilities. Receivables have been recorded from those
insurance carriers with which environmental coverage has been agreed
to; these totaled $12 million at December 31, 1995. While ongoing
litigation may eventually result in additional recovery of costs
expended at certain of the waste sites, any gain is contingent on a
successful outcome and has not been accrued.
The Company believes any amounts paid in excess of the accrued
liability will not have a material effect on its earnings, cash flow,
or financial position.
A number of legal proceedings and claims are pending or have been
asserted against the Company, including legal proceedings and claims
relating to alleged injuries to persons associated with the disposal
of hazardous substances. A substantial portion of such legal
proceedings and claims is covered by insurance. The Company believes
that the final outcome of such proceedings and claims will not have a
material adverse effect on its earnings, cash flow, or financial
position.
The Company has six union contracts that expire in 1996, covering five
bargaining units and 7,800 people in St. Louis, Missouri. Contract
negotiations with these unions are expected to begin in late March or
in April 1996.
See Note 5, "Contracts in Process and Inventories," for a discussion
of certain risks on fixed-price development contracts.
17. Operations of MDFS
The condensed financial data presented below have been summarized from
the audited consolidated financial statements of MDFS:
Years Ended December 31 1995 1994 1993
------ ------ ------
Earned income $ 194 $ 190 $ 201
Costs and expenses 136 154 166
Net earnings 37 25 13
Dividends 26 25
<PAGE>
18. U.S. Government and Export Sales
Consolidated sales to U.S. Government agencies (including sales to
foreign governments through foreign military sales contracts with U.S.
Government agencies) amounted to $9.621 billion in 1995, $9.229
billion in 1994, and $9.052 billion in 1993. No other single customer
accounted for 10 percent or more of consolidated revenues in 1995,
1994, or 1993.
Foreign sales by geographical area, of which a portion were through
foreign military sales contracts with the U.S. Government, are shown
in the table below:
Years Ended December 31 1995 1994 1993
------- ------- -------
North America $ 35 $ 58 $ 38
Central and South America 224 25 309
Western Europe 2,186 2,161 978
Eastern Europe and Asia 1,531 1,032 973
Africa and the Middle East 1,098 703 965
The South Pacific 173 256 142
------- ------- -------
$ 5,247 $ 4,235 $ 3,405
======= ======= =======
19. Future Accounting and Reporting Requirements
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," was issued in March 1995.
SFAS No. 121, which is effective beginning in 1996, addresses
accounting for the impairment of long-lived assets to be disposed of
or that will be held and used in operations. The impact of the
Company's adoption of this standard is not expected to be material.
SFAS No. 123, "Accounting for Stock Based Compensation," was issued in
October 1995. SFAS No. 123, which is effective beginning in 1996,
establishes financial accounting and reporting standards for stock-
based employee compensation plans. The Company will comply with this
standard in 1996. It is currently determining which alternatives
available within the standard will be adopted.
20. Supplementary Payment Information
Years Ended December 31 1995 1994 1993
------- ------- -------
Interest paid $ 265 $ 313 $ 314
Income taxes paid 354 162 84
21. Business Segment Reporting
Selected financial data By industry segment is presented on page 30.
<PAGE> [Annual Report Page 50]
Report of Management Responsibilities
The financial statements of McDonnell Douglas Corporation and
consolidated subsidiaries have been prepared under the direction of
management in conformity with generally accepted accounting principles
and, particularly with respect to long-term contracts and programs,
include amounts based upon estimates and judgments. The integrity and
reliability of data in these financial statements is the
responsibility of management. In the opinion of management, the
financial statements set forth a fair presentation of the consolidated
financial condition of McDonnell Douglas at December 31, 1995 and
1994, and the consolidated results of its operations for the years
ended December 31, 1995, 1994 and 1993.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the
circumvention or overriding of controls. Accordingly, even an
effective internal control system can provide only reasonable
assurance with respect to financial statement preparation.
Furthermore, the effectiveness of an internal control system can
change with circumstances.
McDonnell Douglas and its consolidated subsidiaries maintain
accounting systems and related internal controls that, in the opinion
of management, provide reasonable assurances that transactions are
executed in accordance with management's authorization, that financial
statements are prepared in accordance with generally accepted
accounting principles, and that assets are properly accounted for and
safeguarded.
Ethical decision making is a fundamental key in the Company's
management philosophy. Management recognizes its responsibility for
fostering a strong ethical climate. Written codes of ethics and
standards of business conduct are distributed to every employee, and
each employee has been trained or is being scheduled to be trained in
ethical decision making. The Board of Directors' Corporate
Responsibility Committee has oversight responsibilities relative to
standards of business conduct.
The Board of Directors has appointed four of its nonemployee members
as an Audit Committee. This committee meets periodically with
management and the internal and independent auditors. Both internal
and independent auditors have unrestricted access to the Audit
Committee to discuss the results of their examinations and the
adequacy of internal controls. In addition, the Audit Committee makes
its recommendation as to the selection of independent auditors to the
Board.
/s/ H. C. Stonecipher
President and Chief Executive Officer
/s/ J. F. Palmer
Senior Vice President and Chief Financial Officer
January 17, 1996
<PAGE> [Annual Report Page 51]
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
McDonnell Douglas Corporation
We have audited the accompanying balance sheet (including the
consolidating data for MDC Aerospace and Financial Services) of
McDonnell Douglas Corporation and consolidated subsidiaries (MDC) as
of December 31, 1995 and 1994, and the related consolidated statements
of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These financial
statements are the responsibility of MDC's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of McDonnell
Douglas Corporation and consolidated subsidiaries at December 31, 1995
and 1994, and the consolidated results of MDC's operations and MDC's
cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 5 to the consolidated financial
statements, in 1995 MDC changed its method of accounting for the MD-11
commercial aircraft program.
/s/ Ernst & Young LLP
St. Louis, Missouri
January 17, 1996
<PAGE> [Annual Report Page 52]
<TABLE>
<CAPTION>
Five-Year Consolidated Financial Summary
- ------------------------------------------------------------------------------------------
(Dollar amounts in millions, except per share data)
- ------------------------------------------------------------------------------------------
December 31 or Years Then Ended 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Revenues by industry segment
Military aircraft $ 8,158 $ 7,804 $ 6,852 $ 7,238 $ 7,795
Commercial aircraft 3,891 3,155 4,760 6,595 6,752
Missiles, space, and
electronic systems 1,917 1,877 2,575 3,169 2,979
Financial services and other 334 326 287 352 519
------------------------------------------------------
Operating revenues 14,300 13,162 14,474 17,354 18,045
Earnings (loss) from
continuing operations (416) (a) 598 359 698 (b) 357
Per share (3.66) (a) 5.05 3.06 5.99 (b) 3.11
Net earnings (loss) (4.16) (a) 598 396 (781)(c) 423
Per share (3.66) (a) 5.05 3.37 (6.70)(c) 3.68
As a percentage of revenues 4.5% 2.7% 2.3%
As a percentage of beginning equity 17.5% 13.1% 12.0%
Research and development 311 297 341 509 429
Interest expense
Aerospace segments 116 131 89 309 232
Financial services and
other segment 109 118 126 159 221
Income taxes (benefit) (334) 322 100 388 258
Cash dividends declared 90 65 55 55 53
Per share .80 .55 .47 .47 .47
- ---------------------------------------------------------------------------------------------
Balance Sheet Information
Cash and cash equivalents $ 797 $ 421 $ 86 $ 82 $ 229
Receivables and property on lease 3,168 2,859 2,912 2,866 3,234
Contracts in process and
inventories 3,421 5,806 5,774 7,230 7,273
Property, plant, and equipment 1,471 1,597 1,750 1,991 2,307
Total assets 10,466 12,216 12,026 13,781 14,601
Notes payable and long-term debt
Aerospace segments 1,251 1,272 1,625 2,767 2,324
Financial services and
other segment 1,469 1,297 1,513 1,474 1,891
Shareholders' equity 3,041 3,872 3,413 3,022 3,877
Per share 27.19 33.17 28.93 25.70 33.66
Debt-to-equity ratios
Aerospace segments .46 .36 .52 1.01 .66
Financial services and other segment 4.44 4.14 5.22 5.42 5.25
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Five-Year Consolidated Financial Summary (cont.)
- ----------------------------------------------------------------------------------------------
(Dollar amounts in millions, except per share data)
- ----------------------------------------------------------------------------------------------
December 31 or Years Then Ended 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
General Information
Shares outstanding (in millions) 111.8 116.7 118.0 117.6 115.2
Shareholders of record 23,582 24,479 28,513 34,124 35,039
Personnel 63,612 65,760 70,016 87,377 109,123
Salaries and wages $ 3,347 $ 3,238 $ 3,464 $ 4,258 $ 4,905
Firm backlog $19,640 $17,503 $19,379 $24,052 $ 30,448
Total backlog $28,353 $29,232 $35,698 $41,806 $ 42,577
</TABLE>
(a) Includes a charge of $1.123 billion ($9.90 per share) related to
the MD-11 commercial aircraft.
(b) Includes a gain of $676 million ($5.80 per share) from a
postretirement benefit curtailment relating to SFAS No. 106.
(c) Includes a net charge of $860 million ($7.38 per share) related
to the initial adoption and subsequent curtailment gain
associated with SFAS No. 106.
Total backlog includes firm backlog plus (a) U.S. and other government
orders not yet funded, (b) U.S. and other government orders being
negotiated as continuations of authorized programs, and (c) unearned
price escalation on firm commercial aircraft orders. Backlog is that
of the aerospace segments only and includes all but a minor portion of
the work to be performed under long-term contracts. Customer options
and products produced for short-term leases are excluded from backlog.
<PAGE> [Annual Report Page 56]
Supplemental Information
Quarterly Common Stock Prices and Dividends
The range of market prices for a share of McDonnell Douglas Common
Stock is shown below, by quarters for 1995 and 1994. Prices are as
reported in the consolidated transaction reporting system.
1995
Quarter High Low
-------- ------- --------
1st $58 $46 1/2
2nd 78 3/4 55 3/4
3rd 86 1/8 75 5/8
4th 92 1/8 76 1/2
1994
Quarter High Low
-------- ------- --------
1st $40 7/8 $34 1/8
2nd 41 5/8 34 7/8
3rd 40 36 5/8
4th 48 5/8 38 1/8
Cash dividends of $.20 a share were declared for each of the
quarters in 1995 and for the fourth quarter in 1994. Cash dividends
of $.12 a share were declared for each of the first three quarters in
1994. The number of holders of McDonnell Douglas Common Stock at
January 31, 1996, was 23,525.
Shareholder Information
Both the McDonnell Douglas Corporation and the McDonnell Finance
Corporation file Forms 10-K and 10-Q with the Securities and Exchange
Commission. Shareholders may obtain copies of these reports, and of
McDonnell Douglas's Annual Report to Shareholders, by writing or
calling:
Shareholder Services
Mail Code 100-1240
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, MO 63166-0516
(800) 233-8193
A recorded summary of quarterly financial results is also available
through the toll-free number shortly after release of the results.
<PAGE>
Transfer Agent and Registrar
Correspondence and questions, concerning shareholder accounts,
payment of dividends, or transfer of stock should be addressed to:
First Chicago Trust Company of New York
Attn: Shareholder Relations Department
P.O. Box 2500
Jersey City, NJ 07303-2500
(800) 446-2617
Investor Relations
Securities analysts should contact:
Investor Relations
Mail code 100-1320
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, MO 63166-0516
(314) 232-6358
Corporate Public Relations
Members of the news media should contact:
Corporate Communications
Mail Code 100-1195
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, MO 63166-0516
(314) 233-8957
McDonnell Douglas issues its news releases through PR Newswire.
Faxed copies of news releases are available at no charge. To get
them, call Company News On-Call at 1-800-758-5804. This electronic
system requests a six-digit code (543287) and allows callers to choose
from a menu of McDonnell Douglas news releases. The requested release
will be faxed within minutes of the inquiry. This service is
available 24 hours a day, 7 days a week. The On-Call information is
also posted on the Internet's World Wide Web at
http://www.prnewswire.com.
Other Reports
McDonnell Douglas's 1995 safety, health, and environmental affairs
report summarizes the corporation's progress in preventing pollution,
recycling waste, conserving energy, and protecting employee health and
safety. To obtain a copy, contact:
Safety, Health, and Environmental Affairs
Mail Code 100-1210
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, MO 63166-0516
(314) 233-9469
<PAGE>
The 1995 community relations report summarizes the charitable and
philanthropic activities of McDonnell Douglas and its employees. A
copy may be requested from:
Community Relations
Mail Code 100-1530
McDonnell Douglas Corporation
P.O. Box 516
St. Louis, MO 63166-0516
(314) 233-8264
Stock Exchanges
McDonnell Douglas Corporation's Common Stock is listed on the New
York and Pacific stock exchanges (ticker symbol MD) and is traded on
these and other exchanges. It is commonly abbreviated in market
reports as "McDnD."
Quarterly Results of Operations
The tables below present unaudited quarterly financial information
for the years ended December 31, 1995 and 1994. Gross margin is net
of interest expense of the financial services and other segment.
The sum of the 1995 quarterly earnings per share does not equal the
1995 annual earnings per share. This is because of a combination of
two factors. First, the number of shares outstanding decreased each
quarter, and second, the MD-11 accounting charge had a significant
impact on fourth-quarter earnings.
(Dollar amounts in millions, except per share data)
1995
Quarter 1st 2nd 3rd 4th
- ------- -------- -------- -------- -------
Revenues $ 3,333 $ 3,922 $ 3,346 $ 3,731
Gross margin 512 558 536 (1,248)*
Net earnings (loss) 159 169 192 (936)*
Earnings (loss) per share 1.38 1.48 1.70 (8.35)*
1994
Quarter 1st 2nd 3rd 4th
- ------- -------- -------- -------- -------
Revenues $ 2,953 $ 3,250 $ 3,461 $ 3,512
Gross margin 501 508 482 541
Net earnings 134 138 161 165
Earnings per share 1.13 1.17 1.36 1.39
*Includes MD-11 accounting charge of $1,838 million ($1,123 million
after-tax) or $10.03 per share.
<PAGE> Exhibit 21
MCDONNELL DOUGLAS CORPORATION
SUBSIDIARIES (1)
<TABLE>
<CAPTION>
State of
Company Incorporation Business Name
------- ------------- --------------
<S> <C> <C>
McDonnell Douglas Financial Delaware McDonnell Douglas Financial
Services Corporation (2) Services Corporation or MDFS
McDonnell Douglas Finance Delaware McDonnell Douglas Finance
Corporation (3) Corporation or MDFC
McDonnell Douglas Helicopter Delaware McDonnell Douglas Helicopter
Company (4) Company (MDHC) or McDonnell
Douglas Helicopter Systems (MDHS)
(1) All other subsidiaries have been omitted from this listing, as considered
in the aggregate as a single subsidiary, they would not constitute a
significant subsidiary.
(2) A consolidated subsidiary meeting the test as a significant subsidiary.
(3) A consolidated subsidiary of McDonnell Douglas Financial Services
Corporation meeting the test as a significant subsidiary.
(4) A consolidated subsidiary of McDonnell Douglas Corporation.
</TABLE>
<PAGE> Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference of our report dated
January 17, 1996 on the consolidated financial statements and schedule of
McDonnell Douglas Corporation and subsidiaries incorporated by reference
in the annual report on Form 10-K of McDonnell Douglas Corporation for
the year ended December 31, 1995 in the following filings:
- - Registration Statement File Number 33-56129 (filed October 21, 1994)
on Form S-8, McDonnell Douglas Corporation 1994 Performance and
Equity Incentive Plan.
- - Registration Statement File Number 33-50063 (filed August 23, 1993)
on Form S-8, Employee Savings Plan of McDonnell Douglas Corporation
- Salaried Plan.
- - Post Effective Amendment Number 7 to Registration Statement File
Number 2-76396 on Form S-8, Employee Savings Plan of McDonnell
Douglas Corporation - Component Plan, filed April 4, 1988.
- - Registration Statement File Numbers 33-40207 (filed April 29, 1991)
and 33-50059 (filed August 23, 1993) on Form S-8, Employee Thrift
Plan of McDonnell Douglas Corporation - Subsidiary Plan.
- - Post Effective Amendment Number 1 to Registration Statement File
Number 33-11144 on Form S-8, Employee Thrift Plan of McDonnell
Douglas Corporation - Hourly Plan, filed April 29, 1988.
- - Post Effective Amendment Number 2 to Registration Statement File
Number 33-13342 on Form S-8 (which pursuant to Rule 429, also
constitutes Post Effective Amendment Number 10 to S-8 Registration
Statement File Number 2-64039), Incentive Award Plan, Incentive
Compensation Plan and Non-Qualified Stock Option Plan, filed
April 28, 1989.
- - Registration Statement File Number 33-50057 (filed August 23, 1993)
on Form S-8, Employee Investment Plan of McDonnell Douglas
Corporation - Hourly West Plan.
- - Registration Statement File Number 33-50055 (filed August 23, 1993)
on Form S-8, Employee Investment Plan of McDonnell Douglas
Corporation - Hourly East Plan.
- - Registration Statement File Numbers 33-26542 (filed January 13,
1989) and 33-50061 (filed August 23, 1993) on Form S-8, McDonnell
Douglas Helicopter Company Savings Plan for Hourly Employees.
- - Registration Statement File Number 33-36180 on Form S-3, McDonnell
Douglas Corporation Senior Debt Securities, filed August 1, 1990 and
Amendment No. 1 thereto filed March 5, 1992.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 21, 1996
<PAGE> Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form
10-K) of McDonnell Douglas Corporation and subsidiaries of our report
dated January 17, 1996, included in the 1995 Annual Report to
Shareholders of McDonnell Douglas Corporation and subsidiaries.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 21, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
McDonnell Douglas Corporation
Financial Data Schedule (FDS)
December 31, 1995
</LEGEND>
<CIK> 0000063917
<NAME> MCDONNELL DOUGLAS CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 797
<SECURITIES> 0
<RECEIVABLES> 821
<ALLOWANCES> 0
<INVENTORY> 3,421
<CURRENT-ASSETS> 0
<PP&E> 4,045
<DEPRECIATION> 2,574
<TOTAL-ASSETS> 10,466
<CURRENT-LIABILITIES> 0
<BONDS> 2,720 <F1>
0
0
<COMMON> 112
<OTHER-SE> 2,929
<TOTAL-LIABILITY-AND-EQUITY> 10,466
<SALES> 13,964
<TOTAL-REVENUES> 14,332
<CGS> 13,974
<TOTAL-COSTS> 15,082
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116
<INCOME-PRETAX> (750)
<INCOME-TAX> (334)
<INCOME-CONTINUING> (416)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (416)
<EPS-PRIMARY> (3.66)
<EPS-DILUTED> (3.66)
<FN>
(1) MORTGAGES AND SIMILAR DEBT
</FN>
</TABLE>
