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McDONNELL DOUGLAS EXPLAINS HEALTH CARE RETIREE PLAN

 McDONNELL DOUGLAS EXPLAINS HEALTH CARE RETIREE PLAN
 ST. LOUIS, Oct. 9 /PRNewswire/ -- Because of the complexity of


McDonnell Douglas' (NYSE: MD) retiree health care announcement that was made yesterday, some media carried inaccurate and misleading reports regarding this announcement. McDonnell Douglas is sharing an internal letter mailed to its retirees in an attempt to help clarify this complex issue. In addition, the company is re-issuing yesterday's announcement. For further comments regarding the announcement, contact: Ray Bassen, president of McDonnell Douglas SAGES Retirees' Club, 314-997-7842; Monty Monachella, past president, McDonnell Douglas SAGES Retirees' Club, 314-522-3448; Michael Lackey, vice president, Towers Perrin, 314-854-5901; or Jerry Wilson, Hewitt Associates, 314-621-0084.
 The following is the letter sent to non-union retirees, dated Oct. 7:
 Dear Retiree or Surviving Spouse:
 For years our retirees have counted on McDonnell Douglas to provide high quality, affordable health care in their retirement years. That's why we have been seeking an innovative solution to a difficult problem P how to continue to maintain our excellent retiree health care benefits without denting your pocketbook.
 The problem we've been wrestling with is not "just" that health care costs continue to skyrocket, as everybody knows. As if that weren't enough to deal with, a new change in nationally mandated accounting rules covering retiree health care threatens to deal a heavy blow to our bottom line P and obviously both retirees and active teammates are affected by anything that seriously impacts our bottom line.
 I'm writing today to tell you we've found a solution. It may seem complicated at first glance, but, when all is said and done, you will have the same coverage under the new plan as you would have had under the current one, for about the same cost. In fact, the vast majority of our retirees will actually come out ahead financially if they itemize their tax deductions for 1993.
 So here's what we're going to do ... First, health care coverage provided by McDonnell Douglas to non-union retirees will end on December 31st of this year, and retirees are then responsible for obtaining and paying for their own coverage. BUT second, as of that date, coverage identical to what you would have had (but arranged by McDonnell Douglas, rather than provided by McDonnell Douglas) will be made available to you. Then, once you elect to sign up for the new coverage, McDonnell Douglas will provide an additional pension benefit equal to all or almost all of your new premium.
 The net result is that this new approach will not change the coverage you would have had on January 1st and there will be little, if any, change in net cost to you, the retiree.
 To deal with the dual problems of escalating health care costs and the new accounting regulations, most companies are cutting health benefits or shifting much more of the financial burden onto the retiree. I'm happy to say we're doing neither with this new four- year approach.
 There is, however, an important caveat you should be aware of P we can only commit to this specific approach for four years. After 1996, we won't be returning to company-paid retiree health care. Resisting a longer term or "indefinite" commitment at this time keeps open the freedom to change this approach after 1996 if we find a more cost-effective method. For example, there may be new legislative funding methods available or there may be national health care in place. However, we are committed to making sure our retirees have access to quality health care at an affordable cost.
 The enclosure to this letter should answer most of your questions. The specifics will be spelled out in detail in an open enrollment package you will receive in about 10 days or so. Also, we've set up a toll-free number (1-800-365-6589) to help with any specific questions you may have. It will be open from 8 a.m. until 6 p.m. central time, weekdays, from now through the enrollment period.
 I'm proud of the excellent teamwork by our finance, human resources, and legal people for creating an innovative solution to a very complex problem.
 By the way, this informal cover letter is not intended to include all the "legal language" I'm told the regulators require I put on paper. So please take time to review the enclosure to this letter carefully. I think it will answer most of your questions. The bottom line is this: This new approach only changes how the health care coverage will be paid for; it will not change any of the features of the coverage itself.
 Best regards,
 John F. McDonnell
 Chairman and Chief Executive Officer
 The following is the news release issued by McDonnell Douglas on Oct. 8:
 McDonnell Douglas today announced changes in its health care and pension plans for non-union retirees that will strengthen the corporation's financial position and maintain access to quality health care coverage for retirees.
 The changes were prompted by new accounting rules -- mandated for most U.S. companies -- that require companies to show estimated costs of providing future health care on their financial statements beginning in 1993. The changes implemented by McDonnell Douglas will significantly reduce a one-time potential accumulated charge to earnings next year when McDonnell Douglas adopts the postretirement standards called SFAS No. 106.
 Effective Jan. 1, 1993, McDonnell Douglas will replace its company-funded health care coverage for its non-union retirees with retiree-funded coverage. Retirees who elect to enroll in this plan will receive a special one-time pension supplement they may use to pay for it. The coverage will be identical to the coverage retirees would have received under the company-funded plan.
 Under the new accounting rules, McDonnell Douglas had estimated last year that its after-tax transition obligation could range between $1.2 billion and $1.8 billion. A charge of this magnitude would represent nearly half of the corporation's shareholders' equity at the end of 1991.
 As a result of these changes, McDonnell Douglas estimates this charge will now range between $600 million and $700 million.
 Corporation Chairman and Chief Executive Officer John F. McDonnell said, "With these changes we have effectively dealt with what could have been a heavy blow to our bottom line."
 While explaining to retired and active employees how these steps will protect the company's financial position, McDonnell also emphasized that the measures were designed with an eye to addressing the rising health care costs retirees face.
 "For years teammates have counted on McDonnell Douglas to provide high-quality, affordable health care in their retirement years. That's why we have been seeking an innovative solution to a difficult problem -- how to continue to maintain excellent health care benefits without denting the pocketbooks of our retirees," McDonnell said in a letter to active and retired teammates.
 The amount of the pension supplement -- after taxes -- is equal to almost all of the cost of the premium. Therefore, most retirees will have little, if any, new costs that are not covered by the supplemental pension benefit.
 The supplemental pension benefit will be paid at the retirees' direction into a trust created by McDonnell Douglas. Money in the trust cannot be used for any purpose other than retiree health care coverage. The pension benefit will be paid out of a surplus in the corporation's pension fund. As of the end of 1991, that surplus stood at $2.2 billion.
 "This solution may seem complicated at first glance, but, when all is said and done, retirees will have the same coverage under the new plan as they would have had under the current one, for about the same cost," McDonnell said.
 In addition to reducing the charge created by the new accounting rules, termination of the company-funded health care plan also allows McDonnell Douglas to reduce its cash expenditures for retiree health care.
 The corporation's retiree health care costs have more than quadrupled in the last decade, growing at a compounded average of nearly 15 percent per year. In 1991, the corporation spent $122 million on retiree health care alone, a cost that represented more than 11 percent of McDonnell Douglas' general and administrative expenses in the same year.
 The health care coverage arranged by McDonnell Douglas extends through the end of 1996. Employees who retire between now and then also will have the opportunity to purchase coverage under the new plan and receive the special one-time pension increase.
 "Resisting a longer term or 'indefinite' commitment to health care keeps open the freedom to change the approach after 1996 if we find a more cost-effective method. For example, there may be new legislative funding methods available or there may be national health care in place. However, we are committed to making sure our retirees have access to quality health care at an affordable cost," McDonnell said.
 The new program affects about 20,000 non-union retirees and 50,000 current non-union employees when they retire.
 Letters outlining the new health care plan and the pension supplement in more detail were mailed to non-union employees and retirees. McDonnell Douglas has opened a toll-free hotline to answer retirees' questions.
 -0- 10/9/92
 /CONTACT: Barbara Anderson of McDonnell Douglas, 314-233-2865/
 (MD) CO: McDonnell Douglas Corp. ST: Missouri IN: ARO SU:


LS-EH -- LA017 -- 8451 10/09/92 15:28 EDT
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