<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
----------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-3685
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MCDONNELL DOUGLAS CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 43-0400674
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Post Office Box 516, St. Louis, MO 63166
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(Address and zip code of principal executive offices)
314-232-0232
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for each shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
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================================================================================
Common shares outstanding at October 31, 1996 - 212,162,047 shares
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF EARNINGS 3-4
BALANCE SHEET 5-6
CONSOLIDATED STATEMENT OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8-14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15-24
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 25
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCDONNELL DOUGLAS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(Millions of dollars, except share data)
THREE MONTHS ENDED SEPTEMBER 30 1996 1995
-------- ------
(unaudited)
Revenues $ 3,308 $ 3,346
Costs and expenses:
Cost of products, services and rentals 2,666 2,784
General and administrative expenses 183 160
Research and development 94 75
Interest expense:
Aerospace segments 31 14
Financial services and other segment 32 26
-------- -------
Total Costs and Expenses 3,006 3,059
-------- -------
EARNINGS BEFORE INCOME TAXES 302 287
Income taxes 107 95
-------- -------
NET EARNINGS $ 195 $ 192
======== =======
EARNINGS PER SHARE $ .90 $ .85
======== =======
DIVIDENDS DECLARED PER SHARE $ .12 $ .10
========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
MCDONNELL DOUGLAS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(Millions of dollars, except share data)
NINE MONTHS ENDED SEPTEMBER 30 1996 1995
-------- ------
(unaudited)
Revenues $ 9,743 $10,601
Costs and expenses:
Cost of products, services and rentals 7,843 8,914
General and administrative expenses 529 499
Research and development 273 215
Interest expense:
Aerospace segments 93 86
Financial services and other segment 94 81
-------- -------
Total Costs and Expenses 8,832 9,795
-------- -------
EARNINGS BEFORE INCOME TAXES 911 806
Income taxes 330 286
-------- -------
NET EARNINGS $ 581 $ 520
======== =======
EARNINGS PER SHARE $ 2.66 $ 2.28
======== =======
DIVIDENDS DECLARED PER SHARE $ .36 $ .30
========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 5
BALANCE SHEET
(Millions of dollars and shares)
McDonnell Douglas Corporation
and Consolidated Subsidiaries
-----------------------------
September 30 December 31
1996 1995
-------- --------
(unaudited)
Assets
Cash and cash equivalents $ 567 $ 797
Accounts receivable 879 821
Finance receivables and property on lease 2,819 2,347
Contracts in process and inventories 3,652 3,421
Prepaid income taxes - -
Property, plant and equipment 1,446 1,471
Investment in Financial Services - -
Other assets 1,585 1,609
-------- -------
Total Assets $10,948 $10,466
======== =======
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable and accrued expenses $ 2,408 $ 2,284
Accrued retiree benefits 1,131 1,205
Income taxes 76 3
Advances and billings in excess of related
costs 1,252 1,147
Notes payable and long-term debt:
Aerospace segments 1,196 1,251
Financial services and other segment 1,794 1,469
-------- -------
7,857 7,359
Minority Interest 67 66
Shareholders' Equity:
Preferred Stock - none issued
Common Stock - issued and outstanding:
1996, 212.9 shares; 1995, 223.6 shares 213 224
Additional capital - -
Retained earnings 2,839 2,835
Unearned compensation (28) (18)
-------- --------
3,024 3,041
-------- --------
Total Liabilities and Shareholders' Equity $10,948 $10,466
======== ========
The accompanying notes are an integral part of the financial statements.
<PAGE> 6
MDC Aerospace Financial Services
---------------------- ------------------------
September 30 December 31 September 30 December 31
1996 1995 1996 1995
------- -------- --------- ------
(unaudited) (unaudited)
$ 550 $ 784 $ 17 $ 13
963 934 3 2
235 165 2,584 2,182
3,652 3,421 - -
274 315 - -
1,384 1,358 62 113
368 331 - -
1,513 1,527 72 82
-------- -------- -------- -------
$ 8,939 $ 8,835 $ 2,738 $ 2,392
======== ======== ======== =======
$ 2,331 $ 2,183 $ 164 $ 216
1,131 1,205 - -
- - 350 318
1,211 1,111 41 36
1,175 1,229 21 22
- - 1,794 1,469
-------- -------- -------- -------
5,848 5,728 2,370 2,061
67 66 - -
213 224 - -
- - 238 238
2,839 2,835 130 93
(28) (18) - -
---------- -------- ------- ------
3,024 3,041 368 331
--------- -------- -------- -------
$ 8,939 $ 8,835 $ 2,738 $ 2,392
========= ======== ======== =======
As used on this page, "MDC Aerospace" means the basis of consolidation as
described in Note 1 to the financial statements; "Financial Services" means
McDonnell Douglas Financial Services Corporation and all of its affiliates
and associated companies and McDonnell Douglas Realty Company. Transactions
between MDC Aerospace and Financial Services have been eliminated from the
"McDonnell Douglas Corporation and Consolidated Subsidiaries" columns.
<PAGE> 7
MCDONNELL DOUGLAS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
NINE MONTHS ENDED SEPTEMBER 30 1996 1995
-------- ------
(unaudited)
OPERATING ACTIVITIES
Net earnings $ 581 $ 520
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 198 197
Pension income (98) (131)
Change in operating assets and liabilities 54 189
------ -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 735 775
INVESTING ACTIVITIES
Property, plant and equipment acquired (141) (99)
Finance receivables and property on lease (506) (25)
Proceeds from sale of assets - 25
Other 27 (33)
------- --------
NET CASH USED BY INVESTING ACTIVITIES (620) (132)
FINANCING ACTIVITIES
Net change in borrowings (maturities 90 days
or less) 64 (95)
Debt having maturities more than 90 days:
New borrowings 366 411
Repayments (160) (327)
Proceeds of stock options exercised 1 1
Common shares purchased (541) (325)
Dividends paid (75) (69)
------- -------
NET CASH USED BY FINANCING ACTIVITIES (345) (404)
------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (230) 239
Cash and cash equivalents at beginning of year 797 421
------- ------
Cash and cash equivalents at end of period $ 567 $ 660
======= ======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 8
MCDONNELL DOUGLAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Millions of dollars)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements reflect all
adjustments (which comprise only normal recurring accruals) necessary, in
the opinion of management, for a fair presentation of the financial
position, the results of operations and the cash flows for the interim
periods presented. The statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in
McDonnell Douglas Corporation's Annual Report to Shareholders for the year
ended December 31, 1995.
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).
Reclassification
In 1996, McDonnell Douglas reclassified cash flow related to certain
finance receivables and property on lease from operating activities to
investing activities. The prior year has been restated to conform with the
1996 presentation.
<PAGE> 9
Stock Split
In January 1996, the McDonnell Douglas Board of Directors authorized a
two-for-one stock split to be implemented by a stock dividend of one share
for each share outstanding to shareholders of record on May 10, 1996,
payable on May 31, 1996. Shareholders' equity has been restated to give
retroactive recognition to the stock split for all periods presented by
reclassifying from retained earnings to common stock the par value of the
additional shares arising from the split. In addition, all references to
number of shares, per share amounts, and market prices of common stock have
been restated to reflect the stock split.
2. Contracts in Process and Inventories
Contracts in process and inventories consisted of the following:
September 30 December 31
1996 1995
-------- --------
Government contracts in process $ 4,762 $ 5,451
Commercial products in process 2,512 1,936
Material and spare parts 771 634
Progress payments to subcontractors 990 1,185
Progress payments received (5,383) (5,785)
-------- --------
$ 3,652 $ 3,421
======== =======
Substantially all government contracts in process (less applicable progress
payments received) represent unbilled revenue and revenue that is currently
not billable.
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, and demanded repayment of amounts paid to the Team under such
contract. 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. At September
30, 1996, Contracts in Process and Inventories included approximately $574
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, supported by an opinion of outside counsel, that the termination
for default would be converted to a termination for convenience, that the
Team would 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 then
believed was the upper range of possible loss on termination for
convenience, namely $350 million. On December 19, 1995, the U.S. Court of
Federal Claims ordered the Government's termination of the A-12 contract
<PAGE> 10
for default be converted to a termination for convenience of the
Government. On September 6, 1996, the U.S. Court of Federal Claims deferred
the then scheduled trial to determine the Team's termination for
convenience recovery, noting that the parties had agreed in principal to
stipulate a damage amount based on the Court's prior rulings. A judgment
based on such a stipulation is expected to be entered in the near future.
While the Government is expected to appeal the judgment, McDonnell Douglas
believes the judgment will be sustained on appeal. Final resolution of the
A-12 litigation will depend on conclusion of the damages stipulation, such
appeals, and possible further litigation or negotiations with the
Government. If sustained, however, the expected damages judgment, including
expected interest which the Government is disputing, ultimately could
result in pre-tax income ranging up to an amount which could more than
offset the loss provision established in 1990.
In 1984, the Company entered into a full-scale development letter contract
for the T-45 Training System. 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 proceeded with the improvements, and
their cost increased the cost at completion for the development and
low-rate initial-production contracts to a point where it exceeded the
fixed price of such contracts. The Company submitted claims to the Navy for
an equitable adjustment in contract price and schedule and other
appropriate relief for such improvements, and recorded $225 million as
expected recovery on such claims. In August 1996, the Company and the Navy
agreed to settle the T-45 claims, and in September 1996, the Navy paid
McDonnell Douglas $209 million. The agreement also provided for the
resolution of several contract issues and the conclusion of certain current
business arrangements. McDonnell Douglas recorded a $14 million charge to
pre-tax earnings in the third quarter of 1996 in connection with the
settlement and the resolution of such contract issues.
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
<PAGE> 11
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 billion in the fourth quarter of 1995.
3. Debt & Credit Arrangements
MDC Aerospace Credit Agreements
At September 30, 1996, MDC Aerospace has a revolving credit agreement (RCA)
under which MDC Aerospace may borrow up to $1.75 billion through June 2000.
Under the RCA, 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 RCA
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 RCA
at September 30, 1996.
In August 1996, MDC Aerospace filed a shelf registration statement with the
Securities and Exchange Commission (SEC) relating to debt securities. The
filing increased a prior offering, commenced in 1992 for up to $550 million
of notes (which at August 1996, had a balance of unissued securities of
$198 million), by an aggregate principal amount of $1 billion. As of
September 30, 1996, MDC Aerospace had $1.198 billion of unissued debt
securities registered with the SEC. The interest rate applicable to each
note and certain other variable terms are established at the date of issue.
Senior debt securities totaling $1.146 billion were outstanding at
September 30, 1996. The notes were issued in 1992 and 1993 with interest
rates of 8.25% to 9.75% and maturities from 1997 to 2012. Aerospace
long-term debt also includes aerospace-related obligations of McDonnell
Douglas Realty Company in the amount of $21 million at September 30, 1996.
Financial Services Credit Agreements
In August 1996, MDFS and MDFC amended their joint revolving credit
agreement to, among other things, provide for increased borrowing capacity
and extend the maturity date. Under the amended agreement, MDFC may borrow
a maximum of $240 million, reduced by MDFS borrowings under this same
agreement. By terms of this agreement, which expires in August 2001, MDFS
can borrow no more than $16 million. The interest rate, at the option of
MDFC or MDFS, is either a floating rate generally based on a defined prime
rate or fixed rate related to LIBOR.
<PAGE> 12
There were no outstanding borrowings under this agreement at September 30,
1996. Commercial paper issued by MDFC in the amount of $74 million was
outstanding at September 30, 1996. The joint RCA could therefore be used to
support the full amount of commercial paper.
The provisions of various credit and debt agreements require MDFC to
maintain a minimum net worth, restrict indebtedness, and limit MDFC's cash
dividends and other distributions.
During the 1995 second quarter, MDFC filed a shelf registration statement
with the SEC relating to up to $750 million aggregate principal amount of
debt securities. MDFC established a $500 million medium-term note program
under this registration statement, and as of September 30, 1996, had issued
$290 million of such notes.
During July 1995, MDFS initiated a medium-term note program under a private
placement of up to $100 million principal amount. This program was
increased to $200 million in April 1996. As of September 30, 1996, MDFS had
issued $135 million of securities under this program.
MDFC's senior debt at September 30, 1996, included $59 million secured by
equipment that had a carrying value of $84 million. MDRC's debt of $30
million at September 30, 1996, was secured by indentures of mortgage and
deeds of trust on MDRC's interest in real estate developments that had a
carrying value of $60 million.
4. Income Taxes
McDonnell Douglas reduced its tax provision by $11 million in the third
quarter of 1995 as a result of resolution of certain tax issues. The total
impact, including the reduction in accrued interest, was an increase in net
earnings of $25 million in 1995.
5. 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 September 30, 1996, the notional amount of forward exchange contracts
denominated in currencies of major industrial countries was $331 million.
The term of currency derivatives varies, but the longest is three years.
At September 30, 1996, MDFC had interest rate swap agreements outstanding
as follows:
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Contract Notional Receive Pay
Maturity Amount Rate Rate
-------- -------- -------- --------
Lease obligations 2006 - 2008 $409 Floating 6.7% - 7.6%
Medium term notes 1997 $ 20 Floating 6.7%
Medium term notes 2000 - 2001 $ 50 5.8% - 6.1% Floating
The floating rates are based on LIBOR or Federal Funds.
6. Commitments and Contingencies
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 or settlements with insurance companies. 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 marketing of commercial aircraft at times will result in agreements to
provide or guarantee long-term financing of some portion of the delivery
price of aircraft, to lease aircraft, or to guarantee customer lease
payments, tax benefit transfers, or aircraft values. At September 30, 1996,
the Company had made offers of this nature to customers totaling $2.801
billion related to aircraft on order or under option scheduled for delivery
through the year 2011, and had made guarantees and other commitments
totaling $741 million on delivered aircraft. MDFS also had commitments to
provide leasing and other financing in the aggregate amount of $201 million
at September 30, 1996. The Company does not expect these offers or
commitments to have a material 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.
In connection with that restructuring, the Company made lease, loan, and
interest payments totaling $65 million on behalf of VARIG in 1994 and 1995.
During January 1996, VARIG requested deferral of additional obligations
covering the January 1996 through January 1998 period. VARIG and the
Company agreed to defer certain payments owed to the Company, with
repayment by VARIG to begin in 1998. These restructurings and payments have
not had and, assuming restructuring steps are successful, are not expected
to have a material 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 14 sites at which it believes that it has no future liability. At
<PAGE> 14
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 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 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.
At September 30, 1996, the accrued liability for study and remediation
expenditures at Superfund sites and for the Company's current and former
operating sites was $44 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. 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. Claims for recovery are
recorded as receivables and therefore have not been netted against the
environmental liabilities. Receivables have been recorded from one
insurance carrier with which environmental coverage has been agreed, and
total $8 million at September 30, 1996.
7. Operations of MDFS
The condensed financial data presented below have been summarized from the
consolidated financial statements of MDFS:
Nine Months Ended September 30 1996 1995
-------- ------
Earned income $ 166 $ 143
Costs and expenses 117 101
Net earnings 32 27
Dividends - 26
8. Supplementary Payment Information
Supplementary interest and income tax payment information consisted of the
following:
Nine Months Ended September 30 1996 1995
-------- ------
Interest paid $ 168 $ 155
Income taxes paid 244 217
9. Earnings Per Share
Earnings per share computations are based upon the weighted average common
shares outstanding during the nine-month period, which were 218.2 million
in 1996 and 228.1 million in 1995.
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Notes to Consolidated Financial Statements beginning on page 8, and
with Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A), Audited Consolidated Financial Statements and
Notes to Consolidated Financial Statements appearing in the Company's 1995
Annual Report to Shareholders (the 1995 Annual Report).
Forward-Looking Information
Statements and financial discussion and analysis by management contained
herein and in the MD&A of the 1995 Annual Report which are not historical
facts are forward-looking statements. Such forward-looking statements in
this document are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve a number of risks and uncertainties. For a discussion of
certain risks and uncertainties which may affect the actual results of any
forward-looking information contained herein, refer to the Form 8-K filed
by the Company with the Securities and Exchange Commission (SEC) on April
17, 1996.
Results of Operations
McDonnell Douglas revenues were $3.3 billion in the third quarter of both
1996 and 1995. Revenues for the first nine months of 1996 were $9.7
billion, down from $10.6 billion in the first nine months of 1995. A
decrease in revenue in the commercial aircraft segment was only partially
offset by increased nine month revenues in the missiles, space and
electronic systems segment.
Net earnings for the third quarter of 1996 were $195 million, or $.90 per
share, which included an after-tax charge of $9 million, or 4 cents per
share, for settlement of T-45 claims. That compares with earnings of $192
million, or $.85 per share, in the 1995 third quarter, which included
earnings of $25 million, or $.11 per share, as a result of resolution of
certain tax issues. Net earnings for the first nine months of 1996 were
$581 million, or $2.66 per share, compared with $520 million, or $2.28 per
share, in the first nine months of 1995. The 1996 earnings per share were
17 percent higher than the 1995 first nine months. The 99-day strike at the
St. Louis, Mo., facilities, which ended in mid-September, has not and is
not expected to have a material adverse effect on its earnings or financial
position. Delayed deliveries caused by the strike resulted in reduced cash
flow in the third quarter of 1996 and are expected to continue to
negatively impact cash flow in the fourth quarter of 1996 and early 1997.
Deliveries, and the associated cash flow, are expected to be largely
recovered in the second half of 1997.
<PAGE> 16
Operating earnings were $339 million for the third quarter of 1996, and
$1.014 billion for the first nine months of 1996. That compares with $295
million and $888 million, respectively, for the same periods in 1995.
Improvement in the military aircraft and commercial aircraft segments led
the increase in the 1996 third quarter. The operating earnings improvement
for the nine months was primarily in the military aircraft segment and, to
a lesser extent, in the commercial aircraft segment.
Interest expense and the tax provision were reduced in the third quarter of
1995 as a result of resolution of certain tax issues, resulting in
after-tax earnings of $25 million. Interest expense for the aerospace
segments in the third quarter of 1996 was $31 million, down from $37
million in the 1995 same period, after excluding from 1995 the reversal of
$23 million in interest associated with the resolution of the tax issues.
Interest expense for the aerospace segment in the first nine months of 1996
was $93 million, down from $109 million in the 1995 first nine months,
after excluding the reversal of interest associated with the 1995 tax
issues. The lower interest reflects reduced aerospace debt.
Pension income totaled $33 million in the third quarter and $98 million in
the 1996 first nine months, compared with $38 million and $131 million,
respectively, in the same periods of 1995. Increases in pension benefits
announced in the second quarter of 1995 and a change in the actuarial
interest assumption for the discount rate contributed to the 1996
reduction. In connection with the settlement of a union negotiation in
September 1996, McDonnell Douglas agreed to changes in its pension plans
covering certain of its future union retirees. The changes provide for
increased pension benefits and an early retirement option for certain
employees. As a result of the changes, pension income in the 1996 fourth
quarter will decrease by approximately $6 million.
<PAGE> 17
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
------ ------ ------ -----
(Millions of Dollars)
Revenues
Military aircraft $ 1,902 $ 2,102 $ 5,864 $ 6,000
Commercial aircraft 773 663 1,923 2,965
Missiles, space and
electronic systems 533 488 1,670 1,366
Financial services and other 99 81 273 242
-------- ------- -------- -------
Operating revenues 3,307 3,334 9,730 10,573
Non-operating income 1 12 13 28
-------- -------- -------- -------
Total Revenues $ 3,308 $ 3,346 $ 9,743 $10,601
======== ======== ======== =======
Earnings (Losses)
Military aircraft $ 253 $ 237 $ 746 $ 652
Commercial aircraft 23 (7) 60 26
Missiles, space and
electronic systems 43 52 154 168
Financial services and other 20 13 54 42
-------- -------- -------- -------
Operating earnings 339 295 1,014 888
Corporate and other (6) 6 (10) 4
Interest expense (31) (14) (93) (86)
Income taxes (107) (95) (330) (286)
-------- -------- ------- --------
Net Earnings $ 195 $ 192 $ 581 $ 520
======== ======== ======== =======
Military Aircraft
Revenues for the military aircraft segment were $1.9 billion for the third
quarter and $5.9 billion for the first nine months of 1996. That compares
with $2.1 billion and $6.0 billion, respectively, for the same periods in
1995. The third quarter 1996 revenue decrease was largely associated with a
99-day strike at the St. Louis, Mo., facilities, which ended
in mid-September.
Operating earnings in this segment in the 1996 third quarter were $253
million, compared with $237 million in the third quarter of 1995. Increased
volume and improved margins on the C-17 and Longbow Apache programs led the
improvement in 1996. Third quarter 1996 results included an award fee on
the C-17 program, partially offset by a $14 million pre-tax charge
associated with the settlement of the T-45 claims. Third quarter 1995
results included award fees on both the C-17 and F/A-18E/F programs.
Operating earnings in this segment for the first nine months of 1996 were
$746 million, compared with $652 million in the 1995 same period, a 14
percent improvement over 1995. Improved earnings in the C-17, F/A-18 and
military helicopter programs accounted for most of the improvement. The
<PAGE> 18
1996 nine month results included a charge associated with the
aforementioned T-45 claims settlement, and the 1995 same period included an
$18 million write-off on a modified KDC-10 Dutch Tanker contract involving
a new product design.
Commercial Aircraft
Revenues in the commercial aircraft segment were $.8 billion for the third
quarter and $1.9 billion for the first nine months of 1996, compared with
$.7 billion in the third quarter and $3.0 billion in the first nine months
of 1995. McDonnell Douglas delivered four MD-80 and four MD-90 twin jets
and three MD-11 trijets in 1996's third quarter. This compared with four
MD-80 and four MD-90 twin jets and two MD-11 trijets in 1995's third
quarter. For the first nine months of 1996, twin jet deliveries totaled 19
(11 MD-80s and eight MD-90s) and trijet deliveries totaled ten, a decrease
of six twin jets and three trijets from the same period in 1995. Three of
the twin jet and two of the trijet 1996 deliveries were accounted for as
operating leases with minimal revenue recorded on such transactions at the
time of delivery.
Operating earnings in the commercial aircraft segment were $23 million in
the 1996 third quarter, compared with a loss of $7 million in the 1995
third quarter. Earnings from the sale of spare parts and related services
continued their contribution to earnings in the 1996 third quarter and were
partially offset by losses incurred on the MD-95 program, which is
presently in the development phase. Loss provisions on several MD-90 twin
jets contributed to the loss in the 1995 third quarter.
Operating earnings in the commercial aircraft segment for the first nine
months of 1996 were $60 million, compared with $26 million in the 1995 same
period. Earnings in the 1996 second quarter included recoveries from an
insurance carrier of charges previously expensed related to a 1987 airline
accident, and in the first quarter included recoveries associated with
environmental insurance coverage. Development costs associated with the
MD-95, which were higher in the 1996 first nine months compared with the
1995 same period, have more than offset these insurance recoveries.
Effective October 1, 1995, McDonnell Douglas began recording cost of sales
on MD-11 trijet sales on the specific-unit cost basis. Prior to October 1,
1995, MD-11 trijet production and tooling costs were charged to cost of
sales using the program-average cost basis. See Note 2, "Contracts in
Process and Inventories," page 9, for a further discussion of this change.
McDonnell Douglas received orders for seven MD-80 twin jets and one MD-11
passenger trijet in the third quarter of 1996. The MD-11 trijet is
scheduled for delivery in 1996. The MD-80 twin jets are scheduled for
delivery in 1997. Recently announced orders for five MD-11s and ten MD-80s
will be included in backlog when contracts are completed. On September 30,
1996, McDonnell Douglas had firm orders for 20 MD-80 twin jets, 121 MD-90
twin jets, 50 MD-95 twin jets, and 17 MD-11 trijets.
<PAGE> 19
Missiles, Space and Electronic Systems
Revenues for the missiles, space and electronic systems segment were $533
million for the third quarter and $1.7 billion for the first nine months of
1996. That compares with $488 million and $1.4 billion for the same periods
in 1995. Higher revenue in the Delta II and Space Station programs,
partially offset by lower revenue in the missiles programs, contributed to
the increase in the 1996 periods.
Operating earnings in the missiles, space and electronic systems segment in
the 1996 third quarter and first nine months were $43 million and $154
million, respectively, compared to $52 million and $168 million in the 1995
same periods. Expenditures on the Delta III, a launch vehicle currently
under development, were partially offset by improved earnings in the Delta
II program during each of the first three quarters of 1996.
Financial Services
Operating earnings in the financial services and other segment were $20
million for the third quarter and $54 million in the 1996 first nine
months, compared with $13 million and $42 million, respectively, in the
1995 same periods. Revenues in this segment were up $18 million during the
quarter to $99 million and were $273 million for the first nine months of
1996, $31 million higher than in the first nine months of 1995. The
earnings improvement and revenues increase reflect the Company's continued
focus on growing this segment of its business.
Liquidity
As detailed in this section, McDonnell Douglas believes that it has
sufficient sources of capital to meet existing commitments and plans.
Debt and Credit Arrangements. MDC Aerospace has in place a number of credit
facilities with banks and other institutions. At September 30, 1996, MDC
Aerospace had a revolving credit agreement (RCA) under which it can borrow
up to $1.75 billion through June 2000. There were no amounts outstanding
under the RCA at September 30, 1996.
In August 1996, MDC Aerospace filed a shelf registration with the SEC, to
register an additional $1 billion in debt securities. As of September 30,
1996, MDC Aerospace had $1.198 billion of unissued debt securities
registered with the SEC. In the 1996 fourth quarter, the Company issued
$250 million of 6.875% notes due in 2006 under this shelf registration.
Amounts available under the RCA and the shelf registration may be accessed
to meet cash requirements.
McDonnell Douglas has an agreement with a financial institution to sell a
participation interest in a designated pool of government and
<PAGE> 20
commercial receivables in amounts up to $300 million. As of September 30,
1996, no current receivable interests have been sold.
In September 1996, Moody's Investor Service raised its ratings of McDonnell
Douglas existing senior debt to Baa1 from Baa2. The investment-grade rating
also applies to $1.198 billion of available securities registered with the
SEC through a shelf registration in August 1996.
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 36 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 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 September 30, 1996, the Company had
acquired 25.6 million shares, or about 71 percent of the authorized
repurchase amount, at a cost of $962 million.
Aerospace Cash & Cash Equivalents. Aerospace cash and cash equivalents were
$550 million at September 30, 1996, compared with $784 million at December
31, 1995. Aerospace debt decreased by $54 million during the same period.
Cash provided by aerospace operations was $362 million for the first nine
months of 1996, prior to reductions of $541 million for common stock
repurchases. Cash flow included $209 million received from settlement of
long-standing T-45 claims with the U.S. Government. See Note 2, "Contracts
in Process and Inventories," page 9, for a further discussion of the
agreement.
Development Programs. In October 1995, McDonnell Douglas launched the
MD-95, a 100-seat medium-range airliner. Initial deliveries of the MD-95
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 cash
expenditures in development, inventory, and tooling during the next several
years, which the Company intends to fund with cash flow, from resources
available under its existing credit agreements, or from the issuance of
additional debt securities.
Commercial Aircraft Financing. 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 6, "Commitments
and Contingencies," page 13, the Company also has outstanding guarantees of
$741 million related to the marketing of commercial aircraft. The Company
does not believe that the existence of such guarantees, after considering
residual values of the aircraft, or delays or defaults by commercial
<PAGE> 21
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 agreed to make certain additional loan
principal payments through January 1998 on behalf of Viacao Aerea
Rio-Grandense S.A. (VARIG). Payments on behalf of VARIG are not expected to
have a material adverse effect on earnings, cash flow, or financial
position of the Company. See Note 6, "Commitments and Contingencies," page
13, for a further discussion of VARIG.
The Company, including MDFC, has also made offers totaling $2.801 billion
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 its earnings, cash flow, or
financial position. See Note 6, "Commitments and Contingencies," page 13.
Financial Services. Financial Services debt at September 30, 1996, was
approximately $1.8 billion, up from approximately $1.5 billion at December
31, 1995. The increase in debt is consistent with the increased finance
receivables and property on lease portfolio of MDFC.
In August 1996, MDFS and MDFC amended their joint revolving credit
agreement to, among other things, provide for increased borrowing capacity
and extend the maturity date. Under the amended agreement, MDFC may borrow
a maximum of $240 million, reduced by MDFS borrowings under this same
agreement. By terms of this agreement, which expires in August 2001, MDFS
can borrow no more than $16 million. There were no outstanding borrowings
under this agreement at September 30, 1996. Commercial paper issued by MDFC
in the amount of $74 million was outstanding at September 30, 1996. The
joint revolving credit agreement could therefore be used to support the
full amount of commercial paper.
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 September 30, 1996, had issued $290
million of debt securities under this program.
During 1995, MDFS also initiated a medium-term note program under a private
placement of up to $100 million aggregate principal amount. This program
was increased to $200 million in April 1996. As of September 30, 1996, MDFS
had issued $135 million of securities under this program.
MDFC has also used, and in the future anticipates using, cash provided by
operations, commercial paper borrowings, borrowings under bank credit
lines, and term borrowings as its primary sources of funding. MDFC also
anticipates using proceeds from the issuance of additional public and
private debt to fund future growth.
<PAGE> 22
Business and Market Considerations
General
McDonnell Douglas Corporation is one of the largest U.S. defense
contractors and NASA prime contractors. 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 also a manufacturer of
large commercial transport aircraft.
Discussion under the captions "Military Aerospace Business", "Commercial
Aircraft Business", and "Government Business Audits, Reviews and
Investigations" reflect developments since June 30, 1996 and should be read
in conjunction with the "Business and Market Considerations" discussion in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in McDonnell Douglas Corporation's 1995 Annual Report to
Shareholders and in its quarterly report on Form 10-Q for the quarterly
periods ended March 31, 1996 and June 30, 1996.
Military Aerospace Business
F/A-18 Hornet. In August 1996, the government of Thailand signed an
agreement with the U.S. Navy to purchase eight McDonnell Douglas F/A-18C/D
aircraft with an estimated value of $245 million.
C-17 Globemaster III. In July 1996, the C-17 Globemaster III surpassed the
equivalent of three design lifetimes, 90,000 hours, of simulated flight in
durability testing. The 90,000 hours represents more than 25,000 simulated
flights and 36,000 landings, the equivalent of approximately 90 years of
actual flying time. The Air Force originally contracted for two lifetimes,
60,000 hours, of testing.
AH-64D Longbow Apache. In August 1996, the U.S. Army and McDonnell Douglas
signed a multi-year agreement for the remanufacture of 232 AH-64D Longbow
Apache helicopters. The contract value is $1.9 billion, over the next five
years. First deliveries are scheduled for March 1997.
Commercial Aircraft Business
In October 1996, McDonnell Douglas decided not to proceed with a new high
capacity, long-range three-engine jetliner, designated the MD-XX. Several
factors influenced the decision. Key among those were the amount of product
and internal infrastructure investment required to bring the Company to the
level of the other major players in the commercial aerospace industry,
level of risk and marketplace price expectations.
<PAGE> 23
The Company intends to redeploy its people resources involved in the MD-XX
study to existing programs or to new business opportunities, to the extent
possible. In addition, McDonnell Douglas intends to study synergy
opportunities within the Company for the commercial aircraft operations.
Work force reductions may occur as a result of redeployment decisions.
McDonnell Douglas has a substantial presence in the commercial aerospace
industry although its market share has declined in recent years. As a
significant niche player, the Company's attention will be focused on its
existing product line of MD-80 and MD-90 twin jets and MD-11 trijet
commercial aircraft, its MD-95 twin jet in development, and its commercial
aircraft modification, support, spare parts and related services. The
Company has emphasized cost reduction efforts during the recent years and
those efforts will continue. Significant price competition also currently
exists in the marketplace and the Company's competitors offer broader
product lines. These factors cause downward pressure on profit margins.
Estimated costs for development and initial production of new aircraft,
such as the MD-95, include assumptions, analyses, and forecasts which are
subject to continuous reassessment during the development and initial
production period. Technological risks, as well as risks with suppliers and
customers, are inherent in development programs.
Estimated development and initial production costs on new aircraft and
production costs on existing aircraft may fluctuate from current estimates.
Fluctuations on development programs generally diminish as the project
approaches initial deliveries.
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 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.
<PAGE> 24
Backlog
McDonnell Douglas had firm backlog of $22.271 billion on September 30,
1996, compared with $19.640 billion on December 31, 1995. Total backlog was
$45.962 billion on September 30, 1996, compared with $28.353 billion on
December 31, 1995. The increase in firm backlog related to the Longbow
Apache program and to finalizing terms for the next eight C-17 aircraft.
The 62 percent increase in total backlog related largely to a multi-year
contracts on the C-17 and Longbow Apache programs, and to a lesser extent
increases in the Space Station and F/A-18 programs.
<PAGE> 25
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(a) Articles of Amendment and Restatement of the Company's
charter, as filed May 8, 1996
3(b) Bylaws of the Company, as amended October 25, 1996
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed on July 8, 1996, in response to Item 5. Form 8-K
filed on August 2, 1996, in response to Item 5. Form 8-K filed on
November 1, 1996, in response to Item 5.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, its principal accounting officer, thereunto duly
authorized.
MCDONNELL DOUGLAS CORPORATION
(Registrant)
Date: November 13 , 1996 /s/ R. L. Brand
-------------------------- ---------------
R. L. Brand
Vice President and Controller
and Registrant's Authorized
Officer
MCDONNELL DOUGLAS CORPORATION
ARTICLES OF AMENDMENT AND RESTATEMENT
McDonnell Douglas Corporation, a Maryland corporation, having its
principal office in this state in the City of Baltimore, Maryland (hereinafter
called the "Corporation") hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
1. The Corporation desires to amend and restate its charter as currently in
effect and as hereinafter amended.
2. The following provisions are all the provisions of the charter currently
in effect and as hereinafter amended:
FIRST: The name of the corporation (which is hereinafter called the
"Corporation") is McDonnell Douglas Corporation.
SECOND: The purposes for which the Corporation is formed and the business
or objects to be carried on and promoted by it are as follows:
(1) To manufacture, design, manage, operate, assemble,
construct, produce, purchase or otherwise acquire, import, export,
hold, own, store, mortgage, pledge, lease, sell, distribute, market,
assign, transfer, repair, alter, rent, hire or lease on royalty, and
generally to handle, trade, deal and traffic in and with, either at
wholesale or retail or both, and either as owners, agents, factors or
on commission or otherwise, goods, wares, merchandise and real and
personal property of every class and description, together with any and
all materials, supplies, parts, equipment, accessories, and
appurtenances of any kind or character connected therewith or a part
thereof, or which may be incidental to or arise out of the foregoing,
or which may be conveniently manufactured, supplied or dealt in in
connection therewith or in carrying on the business herein named or any
part thereof.
(2) To conduct and encourage experimental projects in all
matters.
(3) To acquire, by purchase, lease or otherwise, and to own,
use, operate and conduct, factories, experimental plants, warehouses,
aviation fields, stores and salesrooms, including lands, buildings,
machinery, equipment and appliances which may be useful to accomplish
any of the purposes or to carry on any business which the Corporation
is authorized to conduct.
(4) To engage in and carry on any other business which may
conveniently be conducted in conjunction with any of the business of
the Corporation.
(5) To acquire all or any part of the good will, rights,
property and business of any person, firm, association or corporation
heretofore or hereafter engaged in any business similar to any business
which the Corporation has the power to conduct, and to hold, utilize,
enjoy and in any manner dispose of, the whole or any part of the
rights, property and business so acquired, and to assume in connection
therewith any liabilities of any such person, firm, association or
corporation.
<PAGE>
(6) To apply for, obtain, purchase or otherwise acquire, any
patents, copyrights, licenses, trademarks, trade names, rights,
processes, formulas, and the like, which may seem capable of being used
for any of the purposes of the Corporation; and to use, exercise,
develop, grant licenses in respect of, sell and otherwise turn to
account, the same.
(7) To issue shares of its stock of any class, in any manner
permitted by law, to raise money for any of the purposes of the
Corporation or in payment for property purchased or for any other
lawful consideration; and to purchase or otherwise acquire, hold, and
reissue any shares of its capital stock of any class so issued.
(8) To borrow or raise money for any of the purposes of the
Corporation and to issue bonds, debentures, notes or other obligations
of any nature, and in any manner permitted by law, for money so
borrowed or in payment for property purchased, or for any other lawful
consideration, and to secure payment thereof and of the interest
thereon, by mortgage upon, or pledge or conveyance or assignment in
trust of, the whole or any part of the property of the Corporation,
real or personal, including contract rights, whether at the time owned
or thereafter acquired; and to sell, pledge, discount or otherwise
dispose of such bonds, notes or other obligations of the Corporation
for its corporate purposes.
(9) To carry out all or any part of the foregoing objects as
principal, factor, agent, contractor, or otherwise, either alone or
through or in conjunction with any person, firm, association or
corporation, and in any part of the world, and, in carrying on its
business and for the purpose of attaining or furthering any of its
objects and purposes, to make and perform any contracts and to do any
acts and things, and to exercise any powers suitable, convenient or
proper for the accomplishment of any of the purposes herein enumerated
or incidental to the powers herein specified, or which at any time may
appear conducive to or expedient for the accomplishment of any of such
purposes.
(10) To carry out all or any part of the aforesaid purposes,
and to conduct its business in all or any of its branches in any or all
states, territories, districts, colonies and dependencies of the United
States of America and in foreign countries; and to maintain offices and
agencies, in any or all states, territories, districts, colonies and
dependencies of the United States of America and in foreign countries.
<PAGE>
It is the intention that the objects and purposes specified in
the foregoing clauses of this Article SECOND shall not, unless
otherwise specified herein, be in anywise limited or restricted by
reference to, or in inference from, the terms of any other clause of
this or any other article in this Charter, but that the objects and
purposes specified in each of the clauses of this Article shall be
regarded as independent objects and purposes. It is also the intention
that said clauses be construed both as purposes and powers, and,
generally, that the Corporation shall be authorized to exercise and
enjoy all other powers, rights and privileges granted to, or conferred
upon, corporations of this character, by the laws of the State of
Maryland, and enumeration of certain powers as herein specified is not
intended as exclusive of, or as a waiver of, any of the powers, rights
or privileges granted or conferred by the laws of said State hereafter
in force.
THIRD: The post office address of the principal office of the
Corporation in this State is 32 South Street, Baltimore, Maryland
21202-3242. The name and post office address of the Corporation's
resident agent is The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202-3242. Said resident agent is a corporation
of the State of Maryland.
FOURTH: (1) The number of directors shall be sixteen (16)
which number may be increased or decreased pursuant to the by-laws by a
vote of not less than 80% of the entire Board of Directors, but in no
event shall there be less than three (3) directors. The directors shall
be divided into three classes. Each such class shall consist, as nearly
as may be possible, of one-third (1/3) of the total number of
directors, and any remaining directors shall be included within such
class or classes as the Board of Directors shall designate. At the
annual meeting of the stockholders of the Corporation for 1986, a class
of directors shall be elected for a one (1) year term, a class of
directors shall be elected for a two (2) year term, and a class of
directors shall be elected for a three (3) year term. At each
succeeding annual meeting of stockholders, beginning with 1987,
successors to the class of directors whose term expires at that annual
meeting shall be elected for a three (3) year term or the balance of
the term of any director whose place has been vacated by death,
resignation or otherwise.
(2) In case of a vacancy on the Board of Directors for any
cause other than an increase in the number of directors, the majority
of the remaining directors, whether or not sufficient to constitute a
quorum, may fill such vacancy. A vote of not less than 80% of the
entire Board of Directors shall be required to fill a vacancy on the
Board of Directors 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 by the Board of Directors to
fill a vacancy on the Board of Directors shall hold office until the
next annual meeting of stockholders and until his successor is elected
and qualified.
<PAGE>
(3) A director may be removed by stockholders only by the
affirmative vote of the holders of not less than 80% of all of the
outstanding shares of stock of the Corporation entitled to vote at a
meeting of stockholders called for such purpose.
(4) Except as may be prohibited by law or limited by this
Charter, the Board of Directors shall have the power (which to the
extent exercised, shall be exclusive) to fix the number of directors,
establish the rules and procedures governing nominations for directors
and the internal affairs of the Board of Directors, including, without
limitation, the vote required for any action by the Board of Directors,
and to establish the rules and procedures that from time to time shall
affect the directors' power to manage the business and affairs of the
Corporation, and no by-laws shall be adopted by the stockholders which
shall modify the foregoing.
(5) Notwithstanding any other provisions of this Charter and
except as may be prohibited by law, the affirmative vote of at least
80% of the votes entitled to be cast by all outstanding shares of stock
entitled to vote at a meeting of stockholders, shall be required to
alter, amend, repeal or adopt any provision inconsistent with, this
Article FOURTH.
FIFTH: No director or officer of the Corporation shall be
liable to the Corporation or its stockholders 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 Article
FIFTH 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.
SIXTH: The total number of shares of stock of all classes
which the Corporation has authority to issue is 410,000,000 shares, of
which 400,000,000 shares shall be Common Stock having a par value of
$1.00 per share and 10,000,000 shares shall be Preferred Stock having a
par value of $1.00 per share, so that the aggregate par value of all
authorized shares of all classes of stock is $410,000,000. The unissued
Common and Preferred Stock may be issued upon authority of the Board of
Directors without stockholder approval. The preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the Common
Stock and, until reclassified or changed, from time to time, of the
Preferred Stock are as follows:
<PAGE>
(1) Subject to the preferences and rights of all series of
Preferred Stock from time to time issued and outstanding, the holders
of Common Stock shall be entitled to receive such sums as the Board of
Directors may from time to time declare as dividends thereon, or
authorize as distributions thereon, out of any sums available to be so
distributed, and to receive any balance remaining in case of
dissolution, liquidation or winding up of the Corporation after
satisfying the prior rights of all series of Preferred Stock, if any
then be outstanding. Except as may be mandatory under Maryland law at
the time in effect, and except as the Board of Directors may have
established as herein authorized in respect of one or more series of
Preferred Stock at the time outstanding, the holders of Common Stock
shall have the exclusive voting power for the election of directors and
for all other corporate purposes.
(2) Until reclassified, set or changed by the Board of
Directors, the Preferred Stock shall have no preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, terms and conditions of redemption. The Board of
Directors is expressly authorized, prior to the issuance of any shares
of the Preferred Stock, to establish by resolution or resolutions
providing for the issuance of any such Preferred Stock:
(A) whether and upon what terms the Corporation shall
set apart dividends for or pay dividends to the holders of such
Preferred Stock before any dividends are set apart for or paid to the
holders of Common Stock;
(B) the rate, amount and time of payment of
dividends;
(C) whether and upon what terms the dividends
are cumulative to a limited extent, or noncumulative;
(D) whether and upon what terms such Preferred Stock
is preferred over the Common Stock as to its distributive share of the
assets on voluntary or involuntary liquidation of the Corporation and
the amount of the preference;
(E) whether such Preferred Stock may be redeemed at
the option of the Corporation or of the holders of such Preferred Stock
and the terms and conditions of redemption, including the time and
price of redemption;
(F) whether such Preferred Stock is convertible into
shares of the Common Stock, and the terms and conditions of conversion;
(G) whether and upon what terms the holders of such
Preferred Stock issued or to be issued by the Corporation shall have
any voting or other rights which, by law, are or may be conferred on
stockholders;
<PAGE>
(H) any other preferences, rights, restrictions
(including restrictions on transferability), and qualifications not
inconsistent with law.
The Board of Directors may provide for the issuance of
Preferred Stock in one or more series and, to the extent permitted by
law, may establish by resolution different preferences, rights,
restrictions (including restrictions on transferability) and
qualification for each series.
(3) No holders of stock of the Corporation, of whatever class
or series, shall have any preferential right of subscription to any
shares of any class or to any securities convertible into shares of
stock of the Corporation, whether now or hereafter authorized, nor any
right of subscription to any thereof other than such, if any, as the
Board of Directors in its discretion may determine and at such price as
the Board of Directors in its discretion may fix; and any shares or
convertible securities which the Board of Directors may determine to
offer for subscription to holders of stock may, as said Board of
Directors shall determine, be offered to holders of any class or
classes or one or more series of stock at the time existing to the
exclusion of holders of any or all other classes or series at the time
existing.
(4) The Board of Directors of the Corporation, at a meeting
duly convened and held on August 2, 1990, pursuant to authority
expressly vested in the Board of Directors by Articles SEVENTH and
EIGHTH of the Corporation's Articles of Restatement (as then in
effect), adopted a resolution reclassifying 1,000,000 unissued shares,
par value $1.00 per share, of the unclassified shares of Preferred
Stock of the Corporation, par value $1.00 per share, as Series A Junior
Participating Preferred Stock, par value $1.00 per share, by setting,
before the issuance of such shares, the preferences, rights, voting
powers, restrictions, qualifications, and terms and conditions of
redemption of and the dividends on the shares of Series A Junior
Participating Preferred Stock as hereinafter set forth.
A description of said 1,000,000 shares so reclassified by the
Board of Directors, with the preferences, rights, voting powers,
restrictions, qualifications and terms and conditions of redemption of
and the dividends on such shares as set by the Board of Directors of
the Corporation is as follows:
(A) There shall be a series of the Preferred Stock of
the Corporation which shall be designated as the "Series A Junior
Participating Preferred Stock," par value $1.00 per share, and the
number of shares constituting such series shall be one million
(1,000,000). Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall
reduce the number of shares of Series A Junior Participating Preferred
Stock to a number less than that of the shares then outstanding plus
the number of shares issuable upon exercise of outstanding rights,
options or warrants or upon conversion of outstanding securities issued
by the Corporation.
<PAGE>
(B) Dividends and Distributions
(i) Subject to the rights of the holders of any shares of
any series of Preferred Stock of the Corporation ranking prior
and superior to the Series A Junior Participating Preferred Stock
with respect to dividends, the holders of shares of Series A
Junior Participating Preferred Stock, in preference to the
holders of shares of Common Stock, par value $1.00 per share (the
"Common Stock"), of the Corporation and of any other junior
stock, shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the [regular
quarterly dividend payment date] (each such date being referred
to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Junior
Participating Preferred Stock, in an amount per share (rounded to
the nearest cent) equal to the greater of (a) $1.00 or (b)
subject to the provision for adjustment hereinafter set forth,
100 times the aggregate per share amount of all cash dividends,
and 100 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions, other than a
dividend payable in shares of Common Stock or a subdivision of
the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately
preceding Quarterly Dividend Payment Date, or, with respect to
the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Junior
Participating Preferred Stock. In the event the Corporation shall
at any time after August 2, 1990 (the "Rights Declaration Date")
declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the amount to which
holders of shares of Series A Junior Participating Preferred
Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such
event.
<PAGE>
(ii) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in
paragraph (i) of this Section immediately after it declares
a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that,
in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per
share on the Series A Junior Participating Preferred Stock
shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(iii) Dividends shall begin to accrue and be cumulative
on outstanding shares of Series A Junior Participating
Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the
date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the
shares of Series A Junior Participating Preferred Stock in
an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may,
in accordance with applicable law, fix a record date for the
determination of holders of shares of Series A Junior
Participating Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record
date shall be not more than such number of days prior to the
date fixed for the payment thereof as may be allowed by
applicable law.
(C) The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(i) Each share of Series A Junior Participating
Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders
of the Corporation.
<PAGE>
(ii) Except as otherwise provided herein or by law, the
holders of shares of Series A Junior Participating Preferred
Stock, the holders of shares of Common Stock, and the
holders of shares of any other capital stock of the
Corporation having general voting rights, shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(iii) Except as otherwise set forth herein, and except
as otherwise provided by law, holders of Series A Junior
Participating Preferred Stock shall have no special voting
rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
(D) Certain Restrictions
(i) Whenever dividends or distributions payable on the
Series A Junior Participating Preferred Stock as provided in
Section B are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not
declared, on shares of Series A Junior Participating
Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(a) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire
for consideration any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Junior Participating Preferred Stock;
(b) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Junior Participating Preferred
Stock, except dividends paid ratably on the Series A Junior
Participating Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares
are then entitled;
(c) except as permitted in Section (D)(i)(d) below,
redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up)
with the Series A Junior Participating Preferred Stock,
provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Junior
Participating Preferred Stock; and
<PAGE>
(d) purchase or otherwise acquire for consideration any
shares of Series A Junior Participating Preferred Stock, or
any shares of stock ranking on a parity with the Series A
Junior Participating Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and
other relative rights and preferences of the respective
series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective
series or classes.
(ii) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless
the Corporation could, under paragraph (i) of this Section
D, purchase or otherwise acquire such shares at such time
and in such manner.
(E) Required Shares
Any shares of Series A Junior Participating Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the
acquisition thereof. The Corporation shall cause all such shares upon
their cancellation to be authorized but unissued shares of Preferred
Stock which may be reissued as part of a new series of Preferred Stock,
subject to the conditions and restrictions on issuance set forth
herein.
(F) Liquidation, Dissolution or Winding Up
(i) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior
Participating Preferred Stock unless, prior thereto, the
holders of shares of Series A Junior Participating Preferred
Stock shall have received $100.00 per share, plus an amount
equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such
payment (the "Series A Liquidation Preference"). Following
the payment of the full amount of the Series A Liquidation
Preference, no additional distributions shall be made to the
holders of shares of Series A Junior Participating Preferred
Stock, unless, prior thereto, the holders of shares of
Common Stock shall have received an amount per share (the
"Common Adjustment") equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) 100
(as appropriately adjusted as set forth in subparagraph
(iii) below to reflect such events as stock dividends, and
subdivisions, combinations and consolidations with respect
to the Common Stock) (such number in clause (ii) being
referred to as the "Adjustment Number"). Following the
payment of the full amount of the Series A Liquidation
<PAGE>
Preference and the Common Adjustment in respect of all
outstanding shares of Series A Junior Participating
Preferred Stock and Common Stock, respectively, holders of
Series A Junior Participating Preferred Stock and holders of
shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with
respect to such Series A Junior Participating Preferred
Stock and Common Stock, on a per share basis, respectively.
(ii) In the event there are not sufficient assets
available to permit payment in full of the Series A
Liquidation Preference and the liquidation preferences of
all other series of Preferred Stock, if any, which rank on a
parity with the Series A Junior Participating Preferred
Stock, then such remaining assets shall be distributed
ratably to the holders of such parity shares in proportion
to their respective liquidation preferences. In the event
there are not sufficient assets available to permit payment
in full of the Common Adjustment, then such remaining assets
shall be distributed ratably to the holders of Common Stock.
(iii) In the event the Corporation shall at any time
after the Rights Declaration Date declare or pay any
dividend on Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the Adjustment Number
in effect immediately prior to such event shall be adjusted
by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(G) Consolidation, Merger, etc.
In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the
shares of Series A Junior Participating Preferred Stock shall at the
same time be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth) equal
to 100 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is changed or exchanged. In the event
the Corporation shall at any time after the Rights Declaration Date
declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
<PAGE>
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange
or change of shares of Series A Junior Participating Preferred Stock
shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number
of shares of Common Stock that are outstanding immediately prior to
such event.
(H) Redemption
The shares of Series A Junior Participating Preferred Stock
shall not be redeemable.
(I) Ranking
The Series A Junior Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred
Stock as to the payment of dividends and the distribution of assets,
unless the terms of any such series shall provide otherwise.
(J) Fractional Shares
Series A Junior Participating Preferred Stock may be
issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Series A Junior Participating
Preferred Stock.
SEVENTH: The following provisions are hereby adopted for the
purpose of defining, limiting and regulating the powers of the
Corporation and of the directors and stockholders:
(1) No contract or other transaction between this Corporation
and any other corporation and no act of this Corporation shall in any
way be affected or invalidated by the fact that any of the directors of
the Corporation are pecuniarily or otherwise interested in, or are
directors or officers of, such other corporation; any directors
individually, or any firm of which any directors may be a member, may
be a party to, or may be pecuniarily or otherwise interested in, any
contract or transaction of this Corporation, provided that the fact
that he or such firm is so interested shall be disclosed or shall have
been known to the Board of Directors or a majority thereof, and any
director of this Corporation who is also a director or officer of such
other corporation or who is so interested may be counted in determining
the existence of a quorum at any meeting of the Board of Directors of
this Corporation, which shall authorize any such contract or
transaction, with like force and effect as if he were not such director
or officer of such other corporation or not so interested.
<PAGE>
(2) The Board of Directors shall have power, from time to
time, to fix and determine and to vary the amount of working capital of
the Corporation, to determine whether any and, if any, what part, of
the surplus of the Corporation or of the net profits arising from its
business shall be declared in dividends and paid to the stockholders,
subject however, to the provisions of the Charter, and to direct and
determine the use and disposition of any of such surplus or net
profits. The Board of Directors may in its discretion use and apply any
of such surplus or net profits in purchasing or acquiring any of the
shares of the stock of the Corporation, or any of its bonds or other
evidences of indebtedness, to such extent and in such manner and upon
such lawful terms as the Board of Directors shall deem expedient.
(3) The Corporation reserves the right to make, from time to
time, any amendments of its Charter which may now or hereafter be
authorized by law, including any amendments changing the terms of any
class of its stock, whether issued or unissued, by classification,
reclassification, or otherwise. Any amendment of the Charter shall be
valid and effective if such amendment shall have been authorized by the
affirmative vote of a majority of the total number of shares
outstanding and entitled to vote thereon, except as otherwise required
by the provisions of Article FOURTH and Article EIGHTH of this Charter.
(4) The Board of Directors shall have power by order or
regulation to declare the whole or any portion of the manufacturing
operations and processes of the Corporation to be secret, in which case
no stockholder, director, officer or other person, except under permit
duly obtained in the manner authorized by the Board, shall have the
right or be permitted to view or inspect the operations or processes
which shall have been declared to be secret, or to enter the premises
where such operations or processes shall be carried on; but the
stockholders by the affirmative vote of a majority in interest of those
entitled to vote may suspend the operation of any such order or
regulation and in like manner may suspend the power of the Board to
make such order or regulation.
EIGHTH: (1) For purposes of this Article EIGHTH, any terms not
defined herein shall have the meanings indicated in Subtitle 6 of Title
3 of the Maryland General Corporation Law Section 3-601 and Section
3-603(a)(1), as in effect on January 1, 1984.
(2) In addition to any vote otherwise required by law, a
business combination shall be recommended by the Board of Directors and
approved by the affirmative vote of at least:
(A) 80% of the votes entitled to be cast by all
outstanding shares of voting stock of the Corporation, voting together
as a single voting group; and
<PAGE>
(B) two-thirds of the votes entitled to be cast by
holders of voting stock other than voting stock held by an interested
stockholder who is (or whose affiliate is) a party to the business
combination or an affiliate or associate of the interested stockholder,
voting together as a single group.
(3) Notwithstanding subsection (2) above, a business
combination may be approved by the affirmative vote of two-thirds of
the votes entitled to be cast by outstanding shares of voting stock of
the Corporation if:
(A) there are one or more continuing directors and the business
combination shall have been approved by a majority of them; or
(B) (i) the consideration to be received by stockholders of each
class of stock of the Corporation shall be in cash or in the same form
as the interested stockholder has previously paid for shares of such
class of stock; and
(ii) the cash, or market value of the property, securities
or other consideration to be received per share by the
stockholders of each class of stock of the Corporation in the
business combination is not less than the higher of:
1. the highest per share price paid by the interested
stockholder for the acquisition of any shares of such class in
the two years immediately preceding the announcement date of the
business combination, with appropriate adjustments for stock
splits, stock dividends and like contributions; or
2. the market value of such shares, on the date the business
combination is approved by the Board of Directors.
(4) For the purposes of this Article EIGHTH, the term
"continuing director" shall mean any member of the Board of Directors
who is not an affiliate or associate of an interested stockholder and
any successor who is elected to succeed a continuing director by a
majority of the continuing directors.
(5) This Article EIGHTH may be amended or repealed only in the
manner and by the vote required to approve business combinations set
forth in subsection (2) above.
3. The amendment to and restatement of the charter of the Corporation as
hereinabove set forth has been duly advised by the Board of Directors and
approved by the stockholders as required by law.
4. The total number of shares of stock which the Corporation had authority
to issue immediately prior to this amendment was 210,000,000, $1.00 par value
per share, of which 200,000,000 were shares of Common Stock and 10,000,000 were
shares of Preferred Stock, having an aggregate par value of $210,000,000.
<PAGE>
5. The total number of shares of stock which the Corporation has authority
to issue, pursuant to the charter of the Corporation as hereby amended, is
410,000,000 shares, $1.00 par value per share, of which 400,000,000 are shares
of Common Stock and 10,000,000 are shares of Preferred Stock, having an
aggregate par value of $410,000,000. The information required by Section
2-607(b)(2)(i) of the Maryland General Corporation Law was not changed by the
amendments to the charter of the Corporation contained in these Articles of
Amendment and Restatement.
6. The current address of the principal office of the Corporation is as set
forth in Article THIRD of the charter of the Corporation as amended and restated
herein.
7. The name and address of the Corporation's current resident agent is as
set forth in Article THIRD of the charter of the Corporation as amended and
restated herein.
8. The Corporation has thirteen directors currently in office whose names
are J. H. Biggs, B. A. Bridgewater, Jr., B. B. Byron, W. E. Cornelius, W. H.
Danforth, K. M. Duberstein, W. S. Kanaga, J. S. McDonnell III, J. F. McDonnell,
G. A. Schaefer, H. C. Stonecipher, R. L. Thompson and P. R. Vagelos.
The undersigned Senior Vice President and General Counsel acknowledges
these Articles of Amendment and Restatement to be the corporate act of the
Corporation and as to all matters or facts required to be verified under oath,
the undersigned Senior Vice President and General Counsel acknowledges that to
the best of his knowledge, information and belief, these matters and facts are
true in all material respects and that this statement is made under the
penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment and Restatement to be signed in its name and on its behalf by its
Senior Vice President and General Counsel and attested to by its Secretary on
this 7th day of May, 1996.
ATTEST: MCDONNELL DOUGLAS CORPORATION
/s/Steven N. Frank By:/s/F. Mark Kuhlmann (SEAL)
Steven N. Frank F. Mark Kuhlmann
Secretary Senior Vice President
and General Counsel
25 October 1996
BYLAWS
of
MCDONNELL DOUGLAS CORPORATION
(as amended 25 October 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 Stockholders
Section 1. Notice. Written or printed notice, stating the time and
place of every meeting of stockholders (and in the case of special meetings or
if the notice of the purpose is required by law, stating the business proposed
to be transacted thereat) shall be given to each stockholder entitled to vote at
such meeting and to each stockholder not entitled to vote who is entitled to
notice of the meeting by personally delivering it to him or her, by leaving it
with him or her at the stockholder's residence or usual place of business, or by
mailing it, postage prepaid, and addressed to him or her at the stockholder's
address as it appears upon the corporate records of the Secretary, all not less
than ten nor more than 90 days before such meeting.
Section 2. Annual Meetings. The annual meeting of the stockholders
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
stockholders 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. Special meetings of the stockholders, 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 of the
Directors or a majority of the members of the Executive Committee, and shall,
unless otherwise prescribed by statute, be called by the Secretary at the
request in writing of stockholders entitled to cast at least a majority of all
votes entitled to be cast at the meeting. Such request shall state the purpose
of the proposed meeting and the matters proposed 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 stockholders shall be called as set forth in
(a) through (d) of this Article III, Section 3.
<PAGE>
(a) The Secretary shall advise the stockholders 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
stockholders entitled to vote. Notice of the meeting shall not be mailed until
such costs are paid to the corporation.
(b) The Board shall set the record date for stockholders entitled to
notice of and to vote at the meeting. The record date shall not be (a) prior to
the close of business on the day it is fixed, (b) more than 90 days or less than
ten days before the date of the meeting or (c) less than five nor more than ten
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 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 nor more than 90
days after the record date.
Section 4. Nominations and Stockholder Proposals. All nominations of
individuals for election to the Board and proposals of business to be considered
at any meeting of the stockholders shall be made as set forth in this Section 4
of Article III.
(a) Annual Meeting of Stockholders. (1) Nominations of individuals for
election to the Board and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (i) pursuant to
the corporation's notice of meeting, (ii) by or at the direction of the
Directors or (iii) by any stockholder of the corporation who was a stockholder
of record both at the time of giving of notice provided for in this Section 4(a)
of Article III and at the time of the meeting, 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 stockholder pursuant to clause (iii) of paragraph
(a)(l) of this Section 4 of Article III, the stockholder must have given timely
notice thereof in writing to the Secretary and such other business must
otherwise be a proper matter for action by stockholders. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on the
60th day nor earlier than the opening of business on the 90th day 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 stockholder to be timely must be so delivered not earlier than the opening
of business on 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 by the corporation. In no event shall the public
announcement of a postponement or adjournment of an annual meeting commence a
new time period for giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a Director all information
<PAGE>
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors in an election contest, 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 stockholder 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
stockholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the stockholder 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 stockholder, 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 stockholder and
such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 4 of Article III to the contrary, in the event
that the number of Directors to be elected to the Board is increased and there
is no public announcement by the corporation 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 stockholder's notice required by this Section 4(a) of Article III
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive office of the corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders 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
stockholders 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 stockholder of the corporation who is a stockholder
of record both at the time of giving of notice provided for in this Section 4(b)
of Article III and at the time of the special meeting, 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 stockholders for the purpose of electing one or more Directors to the
Board, any such stockholder 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 stockholder'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 opening of business on
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 stockholders
requested by the stockholders in accordance with Section 3 of Article III only
if the stockholder's notice required by paragraph (a)(2) of this Section 4 of
Article III was delivered at the time such stockholder requested the meeting. In
no event shall the public announcement of a postponement or adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
<PAGE>
(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
stockholders 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 or proposed,
as the case may be, 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 nomination
or proposal shall be disregarded.
(2) For purposes of this Section 4 of Article III, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable news service or in a document
publicly filed by the corporation with the Securities and Exchange Commission
pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 4
of Article III, a stockholder 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
stockholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Section 5. Quorum. At any meeting of stockholders, the presence in
person or by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at the meeting shall constitute a quorum for the transaction
of business. If a quorum is not present or represented at any meeting of
stockholders, the stockholders entitled to vote thereat, present in person or by
proxy, shall have power to adjourn the meeting to a date not more than 120 days
after the original record date, 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. Voting. 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 stockholders. A plurality of all the votes cast at a meeting of stockholders
duly called and at which a quorum is present shall be sufficient to elect a
Director. Each share may be voted for as many individuals as there are Directors
to be elected and for whose election the share is entitled to be voted. A
majority of the votes cast at a meeting of stockholders duly called and at which
a quorum is present shall be sufficient to approve any other matter which may
properly come before the meeting, unless more than a majority of the votes cast
is required by statute or by the Charter.
Section 7. Record Holders. The corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person, whether or
not it shall have express or other notice thereof, save as expressly provided by
the laws of Maryland.
<PAGE>
Section 8. Organization and Conduct of Meetings. At every meeting of
stockholders, the Chairman of the Board, if there be one, shall serve as
chairman of the meeting. In the case of a vacancy in the office or the absence
of the Chairman of the Board, one of the following officers present shall serve
as chairman of the meeting in the order stated: the Vice Chairman of the Board,
if there be one, the Chief Executive Officer, or the President. The Secretary or
a person appointed by the chairman of the meeting shall act as secretary of the
meeting. The order of business and all other matters of procedure at every
meeting of the stockholders shall be determined by the chairman of the meeting.
The chairman of any meeting of stockholders may prescribe such rules,
regulations and procedures and take such action as, in the discretion of such
chairman, are appropriate for the proper conduct of the meeting, including (a)
maintaining order and security at the meeting; (b) limiting attendance or
participation at the meeting to stockholders of record of the corporation, their
duly authorized and constituted proxies or such other persons as the chairman of
the meeting may determine; (c) restricting admission to the meeting after the
time fixed for the commencement thereof; and (d) limiting the time allotted to
and manner of presenting and answering questions or comments by participants.
Unless otherwise determined by the chairman of the meeting, meetings of
stockholders shall not be required to be held in accordance with the rules of
parliamentary procedure.
ARTICLE IV
Directors
Section 1. General Powers. 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 stockholders by law or by the Charter or Bylaws of the
corporation.
Section 2. Vacancies. The number of Directors of the corporation shall
be 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 nor
more than 20. Directors shall serve for three-year staggered terms, with
approximately one-third (1/3) of the total number of Directors to be elected at
each annual meeting of the stockholders. 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
fill the vacancy. 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 by the Board to fill a vacancy serves until the next annual
meeting of stockholders and until such Director's successor is elected and
qualifies. 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 stockholders called for such purpose.
Section 3. Meetings. 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.
<PAGE>
Section 4. Chairman. At its last meeting before, or first meeting
after, the annual meeting of stockholders, 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 or her 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.
Section 5. Quorum and Voting. 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. The action of a majority of the Directors
present at a meeting at which a quorum is present is the action of the Board of
Directors.
Section 6. Special Meetings. 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. Notice. A written notice of all regular meetings of the
Board shall be mailed to each Director at his or her address as listed in the
corporate records of the Secretary at least ten 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 of the meeting. Special meetings of the Board may be called upon 24-hours
notice, given personally or by mail, telephone, facsimile transmission or
electronic mail. Any Director may waive any notice required to be given by these
Bylaws. Notice of any meeting by mail shall be deemed to be given when deposited
in the United States mail properly addressed, with postage thereon prepaid.
Telephone notice shall be deemed to be given when the Director is personally
given such notice in a telephone call to which he or she is a party. Facsimile
transmission notice shall be deemed to be given upon completion of the
transmission of the message to the number given to the corporation by the
Director and receipt of a completed answer-back indicating receipt. Electronic
mail notice shall be deemed to be given upon completion of the transmission of
the message to the address given to the corporation by the Director. Neither the
business to be transacted at, nor the purpose of, any meeting of the Board of
Directors need be stated in the notice, unless specifically required by statute
or these Bylaws.
Section 8. Telephone Meetings. 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. Compensation. Directors as such shall not receive any stated
salary for their services as Directors, 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.
<PAGE>
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, each to consist of not less than three Directors, and
there may be such other committees as the Board may determine, each to consist
of not less than three Directors, to be appointed by the Board to hold office
until the next annual organizational meeting of the Board and until their
successors are elected and qualify. The Chairman and the Chief Executive Officer
shall be members of the Executive Committee. A majority of the Executive
Committee members and all members of the Audit Committee, the Management
Compensation and Succession 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, she 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 or 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 on stock, issue stock other than in
accordance with Section 2-411(b) of the Maryland General Corporation Law,
recommend to stockholders any action requiring stockholders' approval, or
approve any merger or share exchange which does not require stockholder
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
telephone, and a majority of the entire committee shall constitute a quorum. The
action of a majority of the members of a committee present at a meeting at which
a quorum is present is the action of the committee. In the absence of a meeting,
any resolution signed by all members of a committee shall be valid.
ARTICLE VI
Officers
Section 1. Elected, Executive and Appointed Officers. 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 general counsel, a chief accounting
officer, a chief communications officer, a chief human resources officer, a
chief business development officer, a head of Washington Office operations, 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
Douglas Aircraft Company, McDonnell Douglas Aerospace, and Military Transport
Aircraft; chief financial, accounting, communications, human resources and
business development officers, head of Washington Office operations; general
counsel; treasurer; and secretary (hereinafter referred to as Elected Officers).
<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. Service on Board; Removal; Vacancies. 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. Authority and Duties. 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. Compensation. 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. Chairman. 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. Vice Chairmen. 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. Chief Executive Officer. 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.
Section 8. President. 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.
<PAGE>
Section 9. Other Officers. 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. 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. 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. Closing of Stock Transfer Books. The Board may fix the time,
not exceeding 90 days preceding the date of any meeting of stockholders, 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 90 days preceding the date of any meeting of stockholders
(and otherwise subject to Article III, Section 3(b)), any dividend payment date
or any date for the allotment of rights, as a record date for the determination
of the stockholders 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
stockholders of record on such date shall be entitled to notice of and to vote
at such meeting, or to receive such dividends or rights, as the case may be.
Section 3. Replacement Certificates. The Board may direct a new stock
certificate be issued in place of any certificate theretofore issued which are
alleged to have been lost, stolen or destroyed upon the making of an affidavit
of that fact by the person claiming the certificate to be lost, stolen or
destroyed. When authorizing such issue of a new certificate, the Board may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or his or her 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.
<PAGE>
ARTICLE VIII
Authorization of Corporate Commitments
Section 1. Board Approval. 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. Commitment by Chief Executive Officer. 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 or her 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. Designation by Chief Executive Officer. 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.
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.
<PAGE>
Section 3. With respect to Officers and other persons who serve or have
served the corporation, the corporation shall provide indemnification as
required by law and may, as authorized at any time by general or specific action
of the Board, provide further indemnification and advance expenses (without a
determination of entitlement to indemnification) in connection with any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) arising out of such persons' service
to the corporation or to another organization at the corporation's request
except with respect to any action, suit, or proceeding brought by such person
against the corporation or to the extent such indemnification is expressly
prohibited by the Maryland General Corporation Law, as the same exists or may
hereafter be amended. The indemnification provided by this Section 3 of Article
IX shall not be deemed exclusive of any other rights to which the Officer or
other person may be entitled under any statute, agreement, vote of shareholders
or disinterested Directors or otherwise.
Section 4. Notice. 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 stockholders with the notice of the next stockholders'
meeting or prior to the meeting.
ARTICLE X
Amendments
The Board shall have the exclusive power to make, alter and repeal the
Bylaws; provided, however, that any amendment to the 80% vote requirements in
Article IV, Section 2, must be approved by an affirmative vote of not less than
80% of the entire Board.
<PAGE> Exhibit 12
McDonnell Douglas Corporation
Computation of Ratio of Earnings to Fixed Charges
Nine months Ended September 30, 1996
(Dollars in Millions)
Earnings
Earnings before income taxes $911
Add: Interest expense 187
Interest factor in rents 39
-------
$1,137
=======
Fixed Charges
Interest expense $187
Interest factor in rents 39
-------
$226
=======
Ratio of earnings to fixed charges 5.0X
======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
McDonnell Douglas Corporation
Financial Data Schedule (FDS)
</LEGEND>
<CIK> 0000063917
<NAME> MCDONNELL DOUGLAS
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 567
<SECURITIES> 0
<RECEIVABLES> 879
<ALLOWANCES> 0
<INVENTORY> 3,652
<CURRENT-ASSETS> 0
<PP&E> 4,037
<DEPRECIATION> (2,591)
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<BONDS> 2,990 <F1>
0
0
<COMMON> 213
<OTHER-SE> 2,811
<TOTAL-LIABILITY-AND-EQUITY> 10,948
<SALES> 9,403
<TOTAL-REVENUES> 9,743
<CGS> 7,937
<TOTAL-COSTS> 8,832
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 93
<INCOME-PRETAX> 911
<INCOME-TAX> 330
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<CHANGES> 0
<NET-INCOME> 581
<EPS-PRIMARY> 2.66
<EPS-DILUTED> 2.66
<FN>
<F1>(1) Mortgages and similar debt.
</FN>
</TABLE>
