-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PLzi8qQ9FeFKSoUidy8ZnRRzFAFYeuqK9r/kIj2yxiPliHVa4MMDJx3MQojzW5ZD 3tMUtpGwDf+HFv/S4mgRgw== 0000063917-97-000027.txt : 19970815 0000063917-97-000027.hdr.sgml : 19970815 ACCESSION NUMBER: 0000063917-97-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDONNELL DOUGLAS CORP CENTRAL INDEX KEY: 0000063917 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT [3721] IRS NUMBER: 430400674 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03685 FILM NUMBER: 97662371 BUSINESS ADDRESS: STREET 1: P O BOX 516 STREET 2: MCDONNELL BLVD AT AIRPORT RD CITY: ST LOUIS STATE: MO ZIP: 63166-0516 BUSINESS PHONE: 3142320232 MAIL ADDRESS: STREET 1: P O BOX 516 CITY: ST LOUIS STATE: MO ZIP: 631660516 FORMER COMPANY: FORMER CONFORMED NAME: MCDONNELL CO DATE OF NAME CHANGE: 19670601 10-Q 1 FORM 10-Q 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. 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. 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. 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. 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. 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. 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. 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 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. 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. 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. 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. 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 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. 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. 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. 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. 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. 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 EX-12 2 RATIO OF ERN TO FIXED 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 ==== EX-27 3
5 McDonnell Douglas Corporation Financial Data Schedule (FDS) 0000063917 MCDONNELL DOUGLAS 1,000,000 6-MOS DEC-31-1997 JUN-30-1997 167 0 942 0 3,980 0 4,148 (2,654) 11,628 0 3,045 0 0 210 3,169 11,628 6,526 6,789 5,601 6,206 0 0 56 583 207 376 0 0 0 376 1.79 1.79 (1) Mortgages and similar debt.
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