<PAGE>
10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
---------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3685
MCDONNELL DOUGLAS CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 43-0400674
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Post Office Box 516, St. Louis, MO 63166
(Address and zip code of principal executive offices)
314-232-0232
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for each shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
================================================================================
Common shares outstanding at August 13, 1997 - 100 shares
Registrant, a wholly owned subsidiary of The Boeing Company, meets the
conditions set forth in General Instruction H(1)(a) and (b) to Form 10-Q and is
therefore filing this Form with the reduced disclosure format.
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS 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 ANALYSIS OF RESULTS OF OPERATIONS* 15-18
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
* Management's Analysis of Results of Operations included in lieu of
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which is omitted pursuant to General Instruction H(1)(b) to Form
10-Q.
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCDONNELL DOUGLAS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(Millions of dollars, except share data)
THREE MONTHS ENDED JUNE 30 1997 1996
------- ------
(unaudited)
Revenues $ 3,559 $ 3,264
Costs and expenses:
Cost of products, services and rentals 2,926 2,640
General and administrative expenses 187 177
Research and development 97 91
Interest expense:
Aerospace segments 21 31
Financial services and other segment 33 32
-------- -------
Total Costs and Expenses 3,264 2,971
-------- -------
EARNINGS BEFORE INCOME TAXES 295 293
Income taxes 100 105
-------- -------
NET EARNINGS $ 195 $ 188
======== =======
EARNINGS PER SHARE $ .93 $ .87
======== =======
DIVIDENDS DECLARED PER SHARE $ .12 $ .12
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MCDONNELL DOUGLAS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(Millions of dollars, except share data)
SIX MONTHS ENDED JUNE 30 1997 1996
------- ------
(unaudited)
Revenues $ 6,789 $ 6,435
Costs and expenses:
Cost of products, services and rentals 5,533 5,177
General and administrative expenses 358 346
Research and development 191 179
Interest expense:
Aerospace segments 56 62
Financial services and other segment 68 62
-------- -------
Total Costs and Expenses 6,206 5,826
-------- -------
EARNINGS BEFORE INCOME TAXES 583 609
Income taxes 207 223
-------- -------
NET EARNINGS $ 376 $ 386
======== =======
EARNINGS PER SHARE $ 1.79 $ 1.76
======== =======
DIVIDENDS DECLARED PER SHARE $ .24 $ .24
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
BALANCE SHEET
(Millions of dollars and shares)
McDonnell Douglas Corporation
and Consolidated Subsidiaries
June 30 December 31
1997 1996
(unaudited)
Assets
Cash and cash equivalents $ 167 $ 1,094
Accounts receivable 942 882
Finance receivables and property on lease 3,305 3,090
Contracts in process and inventories 3,980 3,486
Prepaid income taxes - -
Property, plant, and equipment 1,494 1,453
Investment in Financial Services - -
Other assets 1,740 1,626
-------- -------
Total Assets $11,628 $11,631
======== =======
Liabilities and Shareholders' Equity
Liabilities
Accounts payable and accrued expenses $ 2,472 $ 2,595
Accrued retiree benefits 1,109 1,109
Income taxes 111 83
Advances and billings in excess of related
costs 1,449 1,310
Notes payable and long-term debt
Aerospace segments 1,168 1,438
Financial services and other segment 1,877 1,995
-------- -------
8,186 8,530
Minority interest 63 63
Shareholders' equity
Preferred Stock - none issued
Common Stock - issued and
outstanding:
1997, 210.0 shares; 1996, 209.6 shares 210 210
Additional capital 32 -
Retained earnings 3,176 2,850
Unearned compensation (39) (22)
-------- -------
3,379 3,038
-------- -------
Total Liabilities and Shareholders' Equity $11,628 $11,631
======= =======
The accompanying notes are an integral part of the financial statements.
<PAGE>
MDC Aerospace Financial Services
June 30 December 31 June 30 December 31
1997 1996 1997 1996
------- ------- --------- --------
(unaudited) (unaudited)
$ 152 $ 1,077 $ 15 $ 17
1,024 964 - -
544 254 2,761 2,836
3,980 3,486 - -
273 278 - -
1,435 1,391 59 62
413 383 - -
1,652 1,535 88 91
-------- -------- -------- -------
$ 9,473 $ 9,368 $ 2,923 $ 3,006
======== ======== ======== =======
$ 2,375 $ 2,470 $ 179 $ 207
1,109 1,109 - -
- - 384 361
1,394 1,265 55 45
1,153 1,423 15 15
- - 1,877 1,995
-------- -------- -------- -------
6,031 6,267 2,510 2,623
63 63 - -
210 210 - -
32 - 238 238
3,176 2,850 175 145
(39) (22) - -
-------- -------- -------- -------
3,379 3,038 413 383
-------- -------- -------- -------
$ 9,473 $ 9,368 $ 2,923 $ 3,006
======== ======== ======== =======
As used on this page, "MDC Aerospace" means the basis of consolidation as
described in Note 1 to the consolidated financial statements; "Financial
Services" means Boeing Capital Services Company (formerly 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>
MCDONNELL DOUGLAS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
SIX MONTHS ENDED JUNE 30 1997 1996
-------- ------
(unaudited)
OPERATING ACTIVITIES
Net earnings $ 376 $ 386
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation and amortization 131 130
Pension income (79) (65)
Change in operating assets and liabilities (528) (252)
------- -------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (100) 199
INVESTING ACTIVITIES
Property, plant and equipment acquired (135) (87)
Finance receivables and property on lease (251) (318)
Other (3) (6)
-------- -------
NET CASH USED BY INVESTING ACTIVITIES (389) (411)
FINANCING ACTIVITIES
Net change in borrowings (maturities 90 days
or less) 12 33
Debt having maturities more than 90 days:
New borrowings 66 366
Repayments (466) (156)
Common shares purchased - (377)
Dividends paid (50) (49)
------- -------
NET CASH USED BY FINANCING
ACTIVITIES (438) (183)
------- -------
DECREASE IN CASH AND CASH
EQUIVALENTS (927) (395)
Cash and cash equivalents at beginning of year 1,094 797
------- ------
Cash and cash equivalents at end of period $ 167 $ 402
======= ======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MCDONNELL DOUGLAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(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, 1996.
The consolidated financial statements comprise the accounts of McDonnell Douglas
Corporation and its subsidiaries, including Boeing Capital Services Corporation
(formerly McDonnell Douglas Financial Services Corporation) (BCSC), which is the
parent company of Boeing Capital Corporation (formerly McDonnell Douglas Finance
Corporation) (BCC). 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 including all of its subsidiaries other than BCSC 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 BCSC (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).
Earnings Per Share
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," issued in February 1997, specifies the computation, presentation, and
disclosure requirements for earnings per share. The objective of SFAS No. 128,
which is effective for financial statements issued for periods ending after
December 15, 1997, is to simplify the standards for computing earnings per share
<PAGE>
and make them comparable to international earnings per share standards. The
Company does not believe that adoption of this standard will have a material
impact on its earnings per share calculations.
2. Merger with The Boeing Company
On August 1, 1997, McDonnell Douglas and The Boeing Company (Boeing) completed a
transaction whereby McDonnell Douglas became a wholly owned subsidiary of Boeing
by merging a wholly owned subsidiary of Boeing into McDonnell Douglas in a
stock-for-stock transaction. McDonnell Douglas shareholders received 1.3 shares
of Boeing common stock for each share of McDonnell Douglas common stock.
Shareholders' Equity in the June 30, 1997 and December 31, 1996 Balance Sheet
does not reflect the August 1, 1997 transaction in which Common Stock issued and
outstanding changed to one hundred shares, with Additional Capital increasing by
the previous balance in Common Stock.
3. Contracts in Process and Inventories
Contracts in process and inventories consisted of the following:
June 30 December 31
1997 1996
Government contracts in process $ 5,313 $ 5,177
Commercial products in process 2,763 2,211
Material and spare parts 771 713
Progress payments to subcontractors 754 843
Progress payments received (5,621) (5,458)
-------- --------
$ 3,980 $ 3,486
======== =======
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. 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 June 30, 1997, 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.
<PAGE>
On December 19, 1995, the U.S. Court of Federal Claims ordered that the
Government's termination of the A-12 contract for default be converted to a
termination for convenience of the Government. On December 13, 1996, the Court
issued an opinion confirming its prior no-loss adjustment and no-profit recovery
order. Subsequent to an early 1997 stipulation based on the prior orders and
findings of the Court in which the parties agreed that plaintiffs were entitled
to recover $1.071 billion, the Court has preliminarily determined that the
Government is liable for certain adjustments that increase plaintiffs' possible
recovery. A trial to determine plaintiffs' recovery has now concluded and
judgment is expected in the near future. On January 22, 1997, the Court issued
an opinion in which it ruled that plaintiffs are entitled to recover interest on
that recovery.
Although the Government is expected to appeal the resulting judgment, McDonnell
Douglas believes that it will be sustained. Final resolution of the A-12
litigation will depend on such appeals and possible further litigation, or
negotiations, with the Government. If sustained, however, the expected damages
judgment, including interest, ultimately could result in pretax income ranging
up to an amount that could more than offset the loss provision established in
1990.
4. Debt & Credit Arrangements
MDC Aerospace Credit Agreements
As a result of the merger described in Note 2, the revolving credit agreement
(RCA) available to MDC Aerospace at June 30, 1997 was canceled by the Company in
August 1997. There were no RCA amounts outstanding at June 30, 1997 or December
31, 1996. Working capital needs of the Company will be advanced by Boeing as
needed.
During 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, by an aggregate principal amount
of $1 billion. In the fourth quarter of 1996, the Company issued $250 million of
6.9% notes due in 2006 under this shelf registration. As of June 30, 1997, MDC
Aerospace had $948 million 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 $1.145 billion were outstanding at June 30,
1997. The notes were issued in 1992, 1993 and 1996 with interest rates of 6.9%
to 9.8% and maturities from 2000 to 2012. Aerospace long-term debt also includes
aerospace-related obligations of McDonnell Douglas Realty Company in the amount
of $14 million at June 30, 1997.
<PAGE>
Financial Services Credit Agreements
BCSC and BCC have a joint RCA which expires in August 2001. Under the agreement,
BCC may borrow a maximum of $240 million, reduced by BCSC borrowings under this
same agreement, which are limited to $16 million. The interest rate, at the
option of BCC or BCSC, is either a floating rate, generally based on a defined
prime rate or fixed rate related to LIBOR. There were no outstanding borrowings
under this agreement at June 30, 1997. Commercial paper issued by BCC in the
amount of $153 million was outstanding at June 30, 1997. The joint RCA could
therefore be used to support the full amount of commercial paper outstanding.
Various credit and debt agreements require BCC to maintain a minimum net worth,
to restrict indebtedness, and to limit BCC's cash dividends and other
distributions.
During the second quarter of 1995, BCC filed a shelf registration statement with
the SEC relating to up to $750 million aggregate principal amount of debt
securities. BCC established a $750 million medium-term note program under this
shelf registration statement and, as of June 30, 1997, had issued $550 million
of such notes.
During July 1995, BCSC initiated a medium-term note program under a private
placement of up to $100 million principal amount. This note program was
increased to $200 million in April 1996. As of June 30, 1997, BCSC had issued
$135 million of securities under this program.
BCC's senior debt at June 30, 1997, included $50 million secured by equipment
that had a carrying value of $67 million. MDRC's debt of $40 million at June 30,
1997, was secured by indentures of mortgage and deeds of trust on its interest
in real estate developments that had a carrying value of $58 million.
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 June 30, 1997, the notional amount of forward exchange contracts denominated
in currencies of major industrial countries was $293 million. The terms of the
currency derivatives vary, but the longest is three years. At June 30, 1997,
unrealized gains, net of losses, on forward exchange contracts were $12 million.
At June 30, 1997, BCC had interest rate swap agreements outstanding listed
below. The Company believes it has no market rate risk as the interest rate
swaps are matched with specific debt.
Contract Notional Receive Pay
Maturity Amount Rate Rate
Capital lease
obligations 2006 - 2008 $388 Floating 6.7% - 7.6%
Medium-term notes 2000 - 2001 $ 50 6.8% - 8.6% Floating
The floating rates are based on LIBOR or on Federal Funds.
<PAGE>
Because of the off-balance-sheet nature of derivative instruments, counterparty
failure would result in recognition of unrealized gains and losses. The Company
does not anticipate nonperformance by any of its counterparties.
6. Commitments and Contingencies
A number of legal proceedings and claims are pending or have been asserted
against the Company. A substantial number of such legal proceedings and claims
are 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 sometimes results in agreements to provide
or to guarantee long-term financing of some portion of the delivery price of
aircraft, to lease aircraft, or to guarantee customer lease payments or aircraft
values. At June 30, 1997, the Company had made offers of this nature totaling
$1.919 billion related to aircraft on order or under option. The Company had
made guarantees and other commitments totaling $862 million on delivered
aircraft. At June 30, 1997, BCSC also had commitments to provide leasing and
other financing in the aggregate amount of $207 million. 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 the restructuring of its financial obligations. In connection with that
restructuring, the Company made lease, loan, and interest payments totaling $70
million on behalf of VARIG in 1994 and 1995. At June 30, 1997, VARIG had made
repayments totaling $28 million to the Company. During January 1996, VARIG
requested deferral of additional obligations covering the January 1996 through
January 1998 period. VARIG and the Company agreed to defer up to $60 million in
certain payments owed to the Company, with repayment by VARIG to begin in 1998.
At June 30, 1997, the Company had made payments related to this additional
deferral in the amount of $40 million on behalf of VARIG. These restructurings
and payments have not had and, if the restructuring steps are successful, are
not expected to have a material adverse effect on the Company's earnings, cash
flow, or financial position.
Trans World Airlines Inc. (TWA), one of the Company's largest aircraft-leasing
customers, continues to operate under a reorganization plan, confirmed by the
U.S. Bankruptcy Court in 1995 that restructured its indebtedness and leasehold
obligations to its creditors. TWA continues to face financial and operational
challenges due in part to an airliner crash in July 1996 and turnover of key
management, which occurred during 1996. The reorganization plan and TWA's
current financial condition have not had, and are not expected to have, a
material adverse effect on the Company's earnings, cash flow, or financial
position. However, TWA's independent auditors included an explanatory paragraph
in their "Independent Auditors' Report" for TWA's December 31, 1996 financial
statements expressing "substantial doubt" about TWA's ability to continue as a
going concern. The Company anticipates deliveries of additional aircraft to TWA
during 1997. The Company will continue to evaluate the impact of TWA's financial
condition on existing and potential future financial commitments and guarantees
to TWA.
<PAGE>
The Company is a party to a number of proceedings brought under the
Comprehensive Environmental Response, Compensation, and Liability Act, commonly
known as Superfund, and under similar state statutes. The Company has been
identified as a potentially responsible party (PRP) at 37 sites. Of these, the
Company believes that it has de minimis liability at 25 sites, including 19
sites at which it believes that it has no future liability. At two 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 ten 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 that the parties will bear. In addition, the
Company is remediating, or has begun environmental engineering studies to
determine cleanup requirements for, certain of its current operating sites or
former sites of industrial activity.
At June 30, 1997, the accrued liability for study and remediation expenditures
at Superfund sites and at the Company's current and former operating sites was
$47 million. Because of the inherent uncertainty of the estimation process,
actual costs could differ from estimates. Ongoing operating and maintenance
costs at current operating sites and remediation expenditures on property held
for sale are not included in this amount. The Company believes that any amounts
paid in excess of the accrued liability will not have a material effect on its
earnings, cash flow, or financial position. Claims for recovery are recorded as
receivables and therefore they have not been netted against the environmental
liabilities. At June 30, 1997, a receivable had been recorded from one insurance
carrier for agreed reimbursement of environmental costs for $7 million.
7. Operations of BCSC
The condensed financial data presented below have been summarized from the
unaudited consolidated financial statements of BCSC:
Six Months Ended June 30 1997 1996
-------- ------
Earned income $ 123 $ 112
Costs and expenses 83 77
Net earnings 25 23
Cash flow provided (used) by:
Operating activities $ 72 $ 72
Investing activities 48 (327)
Financing activities (123) 257
<PAGE>
8. Supplementary Payment Information
Six Months Ended June 30 1997 1996
-------- ------
Interest paid $ 131 $ 108
Income taxes paid 167 207
9. Earnings Per Share
Earnings per share computations are based upon the weighted average common
shares outstanding during the six-month period which were 209.9 million in 1997
and 220.1 million in 1996.
<PAGE>
ITEM 2. MANAGEMENT'S ANALYSIS OF 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 the
Results of Operations section of the Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A), the Audited Consolidated
Financial Statements and the Notes to Consolidated Financial Statements
appearing in the Company's 1996 Annual Report to Shareholders (the 1996 Annual
Report).
Forward-Looking Information
Certain statements in Management's Analysis of Results of Operations contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995) that involves risk and uncertainty, including projections of
future sales, earnings, production levels and costs, aircraft deliveries,
research and development, environmental and other expenditures, and various
business environment trends. Actual results and trends in the future may differ
materially depending on a variety of factors including, but not limited to,
changing priorities or reductions in the U.S. and worldwide defense and space
budgets; global trade policies; worldwide political stability and economic
growth; termination of government contracts due to unilateral government action
or the Company's failure to perform; governmental export and import policies;
the Company's successful execution of internal operating plans; performance
issues with key suppliers and subcontractors; factors that result in significant
and prolonged disruption to air travel worldwide; aircraft delivery delays or
defaults by customers; collective bargaining labor disputes; other regulatory
uncertainties; and legal proceedings. For further discussion of certain risks
and uncertainties that 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 $3.6 billion in the second quarter of 1997,
above the 1996 revenues of $3.3 billion for the same period. Revenues increased
in all segments, with the largest gain in the military aircraft segment.
Revenues for the first six months of 1997 were $6.8 billion, up from $6.4
billion in the first six months of 1996.
Net earnings for the second quarter of 1997 were $195 million, or 93 cents per
share, an increase from the second quarter 1996 net earnings of $188 million, or
87 cents per share. Costs related to merger activities in the second quarter of
1997 were offset by favorable resolution of state tax issues. Net earnings for
the first six months of 1997 were $376 million, or $1.79 per share, compared
with $386 million, or $1.76 per share in the first six months of 1996.
<PAGE>
Operating earnings were $320 million for the second quarter, and $641 million
for the first six months of 1997, compared to $328 million and $675 million,
respectively, for the same periods in 1996.
Interest expense totaled $21 million in the second quarter of 1997, down from
$31 million in the second quarter of 1996. The decrease in 1997 largely reflects
interest reductions associated with favorable resolution of prior years' state
tax issues.
Pension income totaled $39 million in the second quarter and $79 million in the
first six months of 1997, compared with $33 million and $65 million in the same
periods of 1996. The increase is associated with a higher level of plan assets.
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
------ ----- ------ ----
(Millions of dollars)
Revenues
Military aircraft $ 2,065 $ 1,923 $ 4,011 $ 3,962
Commercial aircraft 805 722 1,429 1,150
Missiles, space and electronic
systems 587 529 1,140 1,137
Financial services and other 97 87 198 174
------- ------- -------- -------
Operating revenues 3,554 3,261 6,778 6,423
Non-operating income 5 3 11 12
------- ------- -------- -------
Total Revenues $ 3,559 $ 3,264 $ 6,789 $ 6,435
======= ======= ======== =======
Earnings
Military aircraft $ 238 $ 243 $ 497 $ 493
Commercial aircraft 14 18 18 37
Missiles, space and electronic
systems 45 53 81 111
Financial services and other 23 14 45 34
------- ------- -------- ------
Operating earnings 320 328 641 675
Corporate and other (4) (4) (2) (4)
Interest expense (21) (31) (56) (62)
Income taxes (100) (105) (207) (223)
-------- -------- -------- -------
Net Earnings $ 195 $ 188 $ 376 $ 386
======== ======== ======== =======
Military Aircraft
Revenues in the military aircraft segment increased to $2.1 billion in the
second quarter of 1997, compared with $1.9 billion in the second quarter of
1996. Increased revenues in the F-15, C-17 and classified programs were
partially offset by lower revenues in the F/A-18 C/D program. Revenues for this
segment in the first six months of both 1997 and 1996 were $4.0 billion.
<PAGE>
Operating earnings in this segment were $238 million in the second quarter of
1997, compared with $243 million in the same period in 1996. Improved earnings
in the C-17 and F-15 programs largely offset lower earnings in the F/A-18
program. Earnings in the second quarter of 1996 included an award fee on the
development portion of the F/A-18 program. Operating earnings in this segment
for the first six months of 1997 were $497 million, compared with $493 million
in the 1996 same period.
Commercial Aircraft
Revenues in the commercial aircraft segment increased to $805 million in the
1997 second quarter and $1.4 billion for the first six months of 1997, from $722
million and $1.2 billion, respectively, in the 1996 same periods. McDonnell
Douglas deliveries in the first two quarters of 1997 and 1996 were as follows:
Three Months Ended Six Months Ended
30 June June 30
1997 1996 1997 1996
---- ---- ---- ----
MD-80 8 3 8 7
MD-90 4 1 11 4
MD-11 2 4 4 7
One of the twin jet deliveries in the second quarter of 1997, two of the twin
jet deliveries in the first quarter of each year and two of the 1996 first
quarter trijet deliveries were accounted for as operating leases with minimal
revenue recorded on such transactions at the time of delivery.
Operating earnings in this segment in the 1997 second quarter and first six
months were $14 million and $18 million, respectively, compared with $18 million
and $37 million, respectively, in the 1996 same periods. Earnings from the sale
of spare parts and related services in both periods were largely offset by
losses from development activities and sale of production aircraft. Increased
losses in both 1997 quarters on the MD-95 program, currently in development,
were in part offset by reduction in cost estimates related to prior period
deliveries of trijet and twin jet aircraft. Additionally, earnings in the 1996
first quarter included recoveries from an insurance carrier related to
environmental coverage at several sites, and in the 1996 second quarter included
recoveries from an insurance carrier of charges previously expensed related to a
1987 airline accident.
During the 1997 second quarter, McDonnell Douglas received one MD-11 trijet
order, scheduled for delivery in 1998. On June 30, 1997, McDonnell Douglas had
firm orders for 21 MD-80 twin jets, 96 MD-90 twin jets, 50 MD-95 twin jets, and
17 MD-11 trijets.
<PAGE>
Missiles, Space and Electronic Systems
Revenues in the missiles, space and electronic systems segment were $587 million
in the second quarter of 1997, compared with $529 million in the same period in
1996. The Delta programs contributed to the higher revenues in the 1997 second
quarter. Revenues for the first six months in both 1997 and 1996 were $1.1
billion.
Operating earnings in this segment were $45 million and $81 million,
respectively, in the second quarter and first six months of 1997, compared with
$53 million and $111 million, respectively, in the same periods of 1996. Profit
margins in this segment were down two percentage points in the second quarter
and three percentage points for the first six months of 1997, as compared to
1996. Expenditures on the Delta III, a launch vehicle currently under
development, and lower earnings on the Space Station and Delta II program caused
the decrease during the first six months in 1997.
Financial Services
Operating earnings in the financial services and other segment were $23 million
in the second quarter and $45 million in the 1997 first six months, compared
with $14 million and $34 million in the 1996 same periods. Revenues in this
segment were up $10 million during the second quarter to $97 million and were
$198 million for the first six months of 1997, $24 million higher than in the
first six months of 1996. The earnings and revenue growth reflects the
corporation's continued focus on growing this segment of its business.
Backlog
McDonnell Douglas had firm backlog of $21.9 billion on June 30, 1997, compared
with $23.7 billion on December 31, 1996. Total backlog was $42.2 billion on June
30, 1997, compared with $44.4 billion on December 31, 1996.
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed on July 3, 1997, in response to Item 5.
Form 8-K filed on July 17, 1997, in response to Item 5.
Form 8-K filed on July 23, 1997, in response to Item 5.
Form 8-K filed on July 24, 1997, in response to Item 5.
Form 8-K filed on July 31, 1997, 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: August 14, 1997 /s/ M. N. Schroeder
------------------------ ------------------------------
M. N. Schroeder
Vice President and Controller
and Registrant's Authorized
Officer
Exhibit 12
McDonnell Douglas Corporation
Computation of Ratio of Earnings to Fixed Charges
Six Months Ended June 30, 1997
(Dollars in Millions)
Earnings
Earnings before income taxes $583
Add: Interest expense 124
Interest factor in rents 33
----
$740
Fixed Charges
Interest expense $124
Interest factor in rents 33
----
$157
Ratio of earnings to fixed charges 4.7X
====
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 167
<SECURITIES> 0
<RECEIVABLES> 942
<ALLOWANCES> 0
<INVENTORY> 3,980
<CURRENT-ASSETS> 0
<PP&E> 4,148
<DEPRECIATION> (2,654)
<TOTAL-ASSETS> 11,628
<CURRENT-LIABILITIES> 0
<BONDS> 3,045 <F1>
0
0
<COMMON> 210
<OTHER-SE> 3,169
<TOTAL-LIABILITY-AND-EQUITY> 11,628
<SALES> 6,526
<TOTAL-REVENUES> 6,789
<CGS> 5,601
<TOTAL-COSTS> 6,206
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 583
<INCOME-TAX> 207
<INCOME-CONTINUING> 376
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 376
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 1.79
<FN>
<F1>(1) Mortgages and similar debt.
</FN>
</TABLE>
