[COVER]
Exhibit 13.1
Gulfstream
Exceeding Expectations
[Picture]
1997 Annual Report
Exceeding Expectations
Two simple, but powerful words which act as a common thread uniting the
nearly 5,800 employees of Gulfstream Aerospace Corporation.
Incorporating this theme into all that we do has resulted in Gulfstream
setting the standard for business aviation through excellence in
product, service and financial return. By continuing to do so, we will
remain the leader in large cabin business aviation far into the future.
On the Front Cover
Nearly twice the size of the windows on other corporate jets,
Gulfstream's signature oval windows offer exceptional interior
lighting, panoramic views and enhance the already spacious
cabin's appeal.
GULFSTREAM AEROSPACE CORPORATION
Financial Highlights
December 31,
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1997 1996 1995
- ------------------------------------------------------------------------------- --------- --------- ---------
(Dollars in millions, except per share amounts and units)
Aircraft Deliveries............................................................ 51 27 26
Net Revenues................................................................... $ 1,903.5 $ 1,063.7 $ 1,041.5
Net Income..................................................................... $ 243.0 $ 47.0 $ 28.9
Earnings per Share (EPS)*...................................................... $ 3.12 $ 0.60 $ 0.37
Pro Forma Fully Taxed EPS*..................................................... $ 1.68 $ 0.37 $ 0.23
Contractual Backlog............................................................ $ 2,782.1 $ 3,104.0 $ 1,938.3
[BAR GRAPH]
* Diluted EPS, see notes to the Consolidated Financial Statements.
TABLE OF CONTENTS
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LETTER TO SHAREHOLDERS 2
GULFSTREAM V 7
GULFSTREAM IV-SP 11
GULFSTREAM SHARES 12
MANUFACTURING 13
CUSTOMIZED INTERIORS 15
AIRCRAFT SERVICES 16
BOARD OF DIRECTORS 18
1997 FINANCIAL REVIEW 19
CORPORATE INFORMATION 42
COLLIER TROPHY 43
DEAR SHAREHOLDERS
As Gulfstream enters its fortieth year as the world's leading
business aviation company, we are pleased to report that the Company's
strong momentum continues. We met or exceeded all of our key operating
and financial goals in 1997 and are positioned for significant growth
going forward. Demand for our products remains strong as evidenced by
the Company's backlog which totaled 88 aircraft valued at $2.8 billion
at the end of 1997. Our production expansion plans are ahead of schedule
and we are continuing to invest in new services and technology to
position Gulfstream for the 21st century.
1997: Delivering On Our Promises
For 1997, Gulfstream reported record revenues and earnings.
Revenues increased nearly 80 percent over 1996 to $1.9 billion and
earnings per share increased almost five-fold to $3.12 or $1.68 on a pro
forma fully taxed basis. Net income was $243 million and we ended the
year with a cash balance of $306 million.
The Gulfstream V,-Registered Trademark- the world's
only ultra-long range business jet in service, received final
FAA certification in April and has already set 47 world and
national records. The Gulfstream V has met or exceeded all
performance specifications and customer reaction continues to
be extremely positive. With a significant first-to-market
advantage over the competition, we had taken 81 orders through
December 31 and, in 1997, we delivered 29 Gulfstream Vs as
planned.
In a fitting tribute to the remarkable achievement of the
Gulfstream V, Gulfstream and the Gulfstream V Industry Team received
aviation's most prestigious award, the 1997 Robert J. Collier Trophy.
Presented annually by the National Aeronautics Association, this award
recognized Gulfstream for the successful application of advanced design,
efficient manufacturing techniques and innovative international business
partnerships, to place into customer service the Gulfstream V - the
world's first ultra-long range business jet.
Demand also remains strong for the Gulfstream
IV-SP-Registered Trademark-. This outstanding aircraft has
dominated the large cabin business jet category since its
introduction. Its success continued as we ended the year with
43 aircraft in backlog and delivered the 327th Gulfstream
IV/IV-SP.
Aircraft on runway
Mechanic working on landing gear
Aircraft on tarmac
[Picture]
In total, we received firm orders for 46 new aircraft in 1997. Our
customer base continues to be predominately Fortune 500 companies with
nearly 80 percent of our backlog held by North American corporations and
the Gulfstream Shares-Registered Trademark- program. In addition, we are
continuing to enhance our network of international sales and service
offices to support our growing business worldwide.
The strong backlog and demand for Gulfstream products has led to an
expansion of the Company's manufacturing and completion capacity. In
1997, in support of our announced production goal of 60 aircraft per
year by 1999, we initiated cross-functional teams focused on quality and
efficiency in product design, manufacturing and interior completion. As
a result, we ended the year ahead of our initial production plans and
delivered 51 new aircraft in 1997. We are now targeting production in
excess of 60 aircraft for 1999.
Setting The Stage For Future Growth
Looking forward, we are investing for continued revenue and
earnings growth. For 1998, we are targeting nearly a 70 percent increase
in fully taxed earnings per share to $2.85 as we ramp up production,
reduce costs and continue to expand the products and services offered
under the Gulfstream brand.
The Company is investing $35 million over 1997 and 1998 to support
the targeted increase in our manufacturing and completion capabilities.
These investments, along with our quality teams, are driving cost
efficiencies ahead of our original forecast and we are on track to
realize continued improvements in margins in 1998 and beyond. In our
completions business, we are improving our processes while maintaining
the quality craftsmanship and reliability which distinguish Gulfstream
aircraft. We now provide aircraft interiors for nearly every aircraft we
sell, up from 70 percent at the beginning of the decade.
Anticipating and effectively meeting the aviation transportation
needs of corporations, governments and leaders worldwide is a hallmark
of Gulfstream's success. Gulfstream Shares and Gulfstream Financial
Services Corporation (GFSC) are both examples of the Company's efforts
to meet the changing needs of its customers. The Gulfstream Shares
program has exceeded our initial expectations for market expansion by
providing new customers the benefits of Gulfstream ownership at a
fraction of the cost and by offering existing customers a cost effective
means of expanding their aircraft fleet. In the U.S., 29 aircraft are
either in service or under contract for the Gulfstream Shares program.
GIV-SP flying
Green aircraft in production
GIV-SP flying
[Picture]
[Picture]
Gulfstream Management Committee
Our announced expansion of this program into the Middle East positions
us for continued growth to other strategic areas of the world, including
the Far East.
Gulfstream Financial Services Corporation also positions the
Company for future growth by making it easier to finance the purchase of
Gulfstream aircraft. Today, GFSC has a portfolio of 27 aircraft, valued
at $580 million, which have been financed through private label
relationships. In 1997, GFSC provided financing for over $300 million of
our products.
We are also exploring new opportunities to complement our existing
portfolio of products and services. These include comprehensive
maintenance programs, aircraft management services and short-term
operating lease capabilities.
1997 was a very strong year for Gulfstream, one in which we
exceeded customer and shareholder expectations in all key areas of our
business. We are proud of our accomplishments and of the nearly 5,800
Gulfstream employees who contributed to the Company's outstanding
performance. We also want to thank our suppliers, customers, partners
and investors for their continued support.
Going forward, we will continue to capitalize on our growth
opportunities and enhance shareholder value. Our decision, in early
1998, to initiate a Common Stock Repurchase Program for up to $200
million supports our investment strategy and our firm belief that
Gulfstream is well positioned for earnings growth in 1998 and beyond.
We intend to continue our commitment to setting the standards for
business aviation and exceeding the expectations of our customers and
our shareholders.
Sincerely,
/s/ THEODORE J. FORSTMANN
-------------------------
THEODORE J. FORSTMANN
Chairman of the Board
Chairman of the Management Committee
/s/ W. W. BOISTURE /s/ CHRIS A. DAVIS /s/ JAMES T. JOHNSON /s/ BRYAN T. MOSS
------------------ ------------------ -------------------- -----------------
W.W. BOISTURE, JR. CHRIS A. DAVIS JAMES T. JOHNSON BRYAN T. MOSS
Executive Vice President Executive Vice President and President and Vice Chairman
Member of the Chief Financial Officer Chief Operating Officer Member of the
Management Committee Member of the Member of the Management Committee
Management Committee Management Committee
February 28, 1998
[Picture]
GV flying over water
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(left to right/top to bottom)
Cockpit of GV
GV in flight
Interior of GV
GIV-SP at service center
Gulfstream V: A TRADITION OF EXCELLENCE
On April 11, 1997, Gulfstream introduced a new era
in the history of business aviation with the final FAA
certification of the Gulfstream V, the world's first
ultra-long range, large cabin business jet.
The Gulfstream V has already distinguished itself
as the premier business jet by meeting or exceeding all
performance specifications as promised. The Gulfstream
V has set 47 world and national records for nonstop
distance, speed, time to climb, cruise altitude and
payload.
As of December 31, 1997, Gulfstream had received 81
orders for the Gulfstream V. Twenty-nine Gulfstream Vs
were delivered to customers in 1997, and at year end,
the backlog for the Gulfstream V was 45 aircraft.
Advanced Technology Leads To Unmatched Performance
As a confirmation The Gulfstream V features the most sophisticated
of its innovative technology available to support the rigorous demands of
design and advanced intercontinental missions. From the unique engine
technology, the design and highly advanced communications capabilities
Gulfstream V was to the cabin that offers maximum passenger comfort and
awarded the 1997 flexibility, the Gulfstream V continues the Gulfstream
Robert J. Collier legacy of innovation and high quality.
Trophy for
aeronautical The Gulfstream V's ability to travel nonstop for
achievement. 6,500 nautical miles at speeds up to Mach 0.885 sets
the benchmark for world travel. For the first time,
nonstop business travel between destinations such as
New York and Tokyo, London and Beijing, Los Angeles and
Moscow is routine. No other business jet in service can
match the Gulfstream V's performance for distance.
Additionally, we designed the Gulfstream V to
provide maximum passenger and crew comfort and
productivity. Featuring a spacious cabin with a 1,669
cubic foot interior, the Gulfstream V offers room for
up to 19 passengers and more baggage capacity than any
other corporate jet.
The Gulfstream V also features a 100 percent fresh
air ventilation system and maintains a constant cabin
altitude pressure of 6,000 feet. Other corporate and
commercial aircraft recirculate air, typically allowing
less than 75 percent fresh air. Both of these features
minimize the stress of long range travel by reducing
passenger fatigue and offering a healthier travel
environment.
The Gulfstream V's ability to cruise at 51,000
feet, well above commercial traffic and adverse
weather, permits more direct routing and shorter time
en route. In contrast, commercial airliners are
required to fly at considerably lower altitudes (31,000
to 37,000 feet), leaving them susceptible to turbulent
conditions and rerouting due to weather and traffic.
Able to fly Finally, the Gulfstream V offers significant
comfortably technical advancements, including an innovative
above weather aerodynamic design and an all new wing. Powered by twin
and traffic, BMW Rolls-Royce BR710 turbofan engines, developed
the Gulfstream V especially for the Gulfstream V, the aircraft can take
connects key off under the most arduous conditions without fuel or
cities such as payload restrictions. This gives the Gulfstream V more
New York and travel flexibility than any other current or planned
Tokyo, and corporate jet. The Gulfstream V is able to land and
remote depart from thousands of airports worldwide, which
locations larger corporate jets are unable to access, including
worldwide. remote locations like Aspen, Bogota and Nairobi.
With these enhanced features, the Gulfstream V
offers a lower operating cost than other business jets
in its class. Its excellent short runway
[Picture]
GV in flight
Statue of Liberty and New York skyline
GV flying over mountains
performance, advanced flight control systems, low noise
and clean emissions, combined with unmatched stability
and maneuverability make the Gulfstream V an aircraft
with truly exceptional performance standards.
Superior Capabilities Meet Government
and Special Mission Requirements
In testimony to the Gulfstream V's exceptional
performance, the United States Air Force (USAF)
selected the Gulfstream V to provide intercontinental
transportation for senior government officials and
dignitaries.
The versatility This builds on a long legacy of Gulfstream aircraft
and exceptional used for special missions and provides the opportunity
performance of for expansion to other governments worldwide. Over 130
the Gulfstream V Gulfstream aircraft are currently in service with 38
provides an nations in a variety of roles such as photo
effective reconnaissance, maritime surveillance, medical
platform for evacuation, weather research and astronaut training.
special mission
applications. The Gulfstream V was also chosen by Lockheed Martin
and Northrop Grumman as the aircraft platform for bids
for the United Kingdom's Royal Air Force Airborne
Standoff Radar (ASTOR) program. The selection of the
Gulfstream V by two of the ASTOR contenders underscores
the flexibility and adaptability of this unique
aircraft.
[Picture]
GV flying over water
Mt. Fuji
Frontview of GV in flight
[Picture]
GIV-SP on runway
GULFSTREAM IV-SP:
THE WORLD'S BEST-SELLING
LARGE CABIN BUSINESS AIRCRAFT
The Gulfstream IV-SP continues to dominate the long
range, large cabin market. The 327th Gulfstream
IV/IV-SP was delivered in 1997 and worldwide demand for
the aircraft remained strong with 39 new orders and 43
aircraft in backlog at December 31, 1997.
The Gulfstream IV-SP is the world's best selling
large cabin business jet with a record for technical
performance, safety and reliability. The aircraft holds
67 flight records, has more than 850,000 flight hours
and boasts a 99.4 percent reliability rate.
Unprecedented The Gulfstream IV-SP's range of 4,220 nautical miles
demand for the connects many major North American cities with most of
Gulfstream Western Europe, South America and Northern Africa. It
IV-SP continued flies at 45,000 feet, maintaining a constant 6,500 foot
in 1997 as we cabin pressure and a 100 percent fresh air
received orders environmental control system to maximize passenger
for 39 aircraft comfort.
and ended the
year with a Demand for pre-owned Gulfstream IV-SPs is also
backlog of 43. strong. Like their predecessors, Gulfstream IV-SPs
retain their value long after their depreciable life.
Rugged and Reliable, A Proven Platform For Special
Missions
The Gulfstream IV-SP's robust construction and
reputation for reliability allow the aircraft to be
used for challenging special missions without
sacrificing the Gulfstream performance advantage.
The Gulfstream IV-SP is used as a hurricane tracker
for the U.S. National Oceanic and Atmospheric
Administration (NOAA) in Honolulu, Hawaii. With a
cruising altitude of 45,000 feet, the Gulfstream IV-SP
provides observation coverage at levels critical for
defining weather systems in the upper atmosphere. The
aircraft's extensive range allows NOAA to monitor and
assess storm systems worldwide. Other key uses include
special military missions and governmental use for VIP
travel. The Gulfstream IV-SP's efficient short-field
operations make it popular for medical evacuations.
GULFSTREAM SHARES:
EXPANDING OWNERSHIP
OPPORTUNITIES WORLDWIDE
Now in its fourth year, the Gulfstream Shares
program continues to successfully expand the market for
Gulfstream aircraft. The program offers eighth, quarter
and half shares in Gulfstream IV-SP aircraft and allows
customers with more limited aviation requirements to
own the world's most prestigious business jet. For the
individual or corporation that has not previously
operated aircraft, the Gulfstream Shares program
provides the opportunity to realize the benefits of a
Gulfstream at a fraction of the cost. The program has
also become popular as a way to supplement the fleets
of existing aircraft operators.
Growth of Gulfstream Shares, a joint program with
Executive Jet International (EJI), has exceeded
expectations. There are currently 15 Gulfstream Shares
aircraft in service today. In total, 27 Gulfstream
IV-SPs and two Gulfstream Vs have been ordered for the
Gulfstream Shares program. Of these, eleven were
ordered by EJI in 1997. Gulfstream sells the GIV-SPs
into the program and provides supporting technical
The highly services and maintenance, while EJI manages scheduling,
successful customer service and daily flight operations.
Gulfstream
Shares The Gulfstream Shares program also provides an
program provides opportunity to expand Gulfstream's presence worldwide.
ownership of a In 1997, Gulfstream announced the expansion of the
Gulfstream Gulfstream Shares program to the Middle East with a
aircraft at a commitment of 12 aircraft to the region. This
fraction of the represents the first step in creating a global
cost and has fractional ownership network. Gulfstream is also
significantly considering expanding the program into the Far East, as
expanded the well as including Gulfstream V aircraft.
market for our
products.
GIV-SP over water
San Francisco Golden Gate bridge
Front view of GIV-SP in flight
[Picture]
MANUFACTURING:
MEETING THE CHALLENGES
OF STRONG PRODUCT DEMAND
The strong demand for Gulfstream products and
services has challenged the Company to seek new ways of
In 1997 we improving delivery while maintaining the highest
established quality standards. For the first time in the Company's
cross- history, we are producing two Gulfstream models
functional simultaneously, the Gulfstream IV-SP and new ultra-long
teams to focus range Gulfstream V.
on quality and
efficiency in By strategically redeploying resources and
product design increasing productivity, we made significant strides in
and 1997 toward achieving our goal of producing 60 aircraft
manufacturing. by 1999 without having to add new manufacturing
The Company is facilities. In 1997, 51 aircraft (22 Gulfstream IV-SPs
now positioned and 29 Gulfstream Vs) were produced versus 27 in 1996
to cost (24 Gulfstream IV-SPs and three Gulfstream Vs). In
effectively June, the Company delivered its 1,000th aircraft,
produce 60 continuing a tradition of leadership in aviation that
aircraft by spans forty years.
1999, more than
double the 1996 In 1997, cross-functional teams were initiated to
level. focus on quality and efficiency in product design,
manufacturing and interior completions. Capitalizing on
the collective expertise of Gulfstream's highly skilled
work force, we reduced final assembly production time
for the Gulfstream V from 75 to 30 days in just over
six months. At the same time, the manufacturing process
was redesigned to allow Gulfstream the flexibility to
change its annual product mix between Gulfstream IV-SPs
and Gulfstream Vs depending upon customer demand.
As a result of these efficiencies and our focus on
quality, the Company expects to produce 58 aircraft in
1998 and in excess of 60 aircraft in 1999.
[Picture]
GIV-SP in flight
Big Ben, London skyview
GIV-SP over cityscape
[Picture]
Interior of GV
CUSTOMIZED INTERIORS:
ENSURING THAT GULFSTREAM AIRCRAFT
MEET CUSTOMER NEEDS
For many customers, the look and feel of the
aircraft interior and exterior are as important as the
aircraft's performance specifications. Gulfstream
understands this and has built a reputation for
Gulfstream offering the finest quality craftsmanship available to
continues to meet its customers' demand for superior quality, both
invest in inside and outside the aircraft. Interiors designed for
technology and business customers include the most advanced
capability to communications technology to ensure that time spent
provide the traveling is as productive as time spent in the office.
highest quality Gulfstream has also certified configurations for
and most government and military applications which include
productive features such as oversized cargo doors, electronic and
designs to meet optical airborne surveillance equipment and advanced
the needs of medical technology.
our customers.
Today In 1997, Gulfstream invested significant capital to
Gulfstream enhance its full-service design and completions
completes capabilities. A new design presentation center was
nearly 100 unveiled at the Company's completion center in
percent of its Savannah, Georgia. Using advanced computer modeling,
customer Gulfstream designers can manipulate a variety of cabin
interiors. configurations and color schemes to match the
customer's exact needs and specifications. Gulfstream's
newly installed video conferencing technology enables
the customer to participate in the design process from
anywhere in the world.
In addition, in 1997, the Company invested $8.5
million to build a state-of-the-art paint facility at
its Long Beach, California location. The nearly 60,000
square foot facility gives Gulfstream the ability to
paint up to 40 additional aircraft per year, doubling
the Company's current paint capacity. The hangar,
operating on a three shift, 24 hour a day basis,
includes three individual bays which allow three
aircraft to be worked on simultaneously. The new
facility incorporates the latest technology in
environmental air and water pollution control systems
and exceeds current federal and state regulatory
standards.
Gulfstream's customized completions business is an
important source of revenue. The Company now completes
virtually 100 percent of customer interiors, up from 70
percent at the beginning of the decade.
AIRCRAFT SERVICES:
PROVIDING VALUE AND SECURITY
FOR CUSTOMERS WORLDWIDE
Manufacturing and completing the world's finest
business jets is only part of what makes Gulfstream a leader
in its industry. Gulfstream customers also know that they
can count on outstanding service and support wherever their
travels may take them.
To support the Company's products, Gulfstream has built
a 24 hour a day, seven day a week network of service
providers. In Savannah, Georgia, the Company's flagship
service center covers more than four football fields and can
house up to 22 aircraft. Gulfstream also operates
Company-owned service centers in Brunswick, Georgia and Long
Gulfstream Beach, California. Outside the U.S., Gulfstream customers
continues to will find five additional Gulfstream Authorized Service
expand our Centers or Warranty Repair Facilities located on three
worldwide continents.
maintenance and
technical In 1997, Gulfstream introduced the first phase of an
support on-line spare parts system. This enables Gulfstream
services, operators to order spare parts from anywhere in the world
providing through the Company's website (www.gulfstreamaircraft.com).
customers easy Also in 1997, the Company launched ServiceCare for
access 24 hours Gulfstream IV-SP customers. ServiceCare is the industry's
a day. most comprehensive nose-to-tail, guaranteed hourly
maintenance program. ServiceCare covers virtually every
part, component, assembly and system on the aircraft,
offering customers predictable operating costs and around
the clock service.
With over 900 aircraft in the Gulfstream fleet
worldwide, managing the service needs of Gulfstream
customers is a growing and profitable source
Gulfstream employee manufacturing
GV on tarmac
Landing gear
[Picture]
of revenue. At year end, Gulfstream had approximately 60
percent service market share and is on track to achieve
its goal of 65 percent share in 1998.
Comprehensive Training: Benefiting Customers
Through Partnerships
To ensure that customers take advantage of the full
Gulfstream's capabilities of our aircraft, Gulfstream has formed
focus is on long-term partnerships with FlightSafety International
providing value (FSI) and SimuFlite Training International. Through these
added products partnerships Gulfstream offers its customers comprehensive
and service pilot and maintenance training. FSI maintains and operates
offerings its training facilities which are co-located with
which meet the Gulfstream operations in Savannah and Long Beach. In 1997,
entire spectrum FSI opened a new 65,000-square-foot learning center in
of our Savannah which incorporates fully computerized, automated
customers' training on all Gulfstream products. SimuFlite training
aviation needs. sessions are conducted at the Dallas-Ft. Worth
International Airport.
Aircraft Financing: Providing Customized Solutions
To Funding Aircraft Acquisitions
Gulfstream Financial Services Corporation (GFSC) makes
it easier to acquire Gulfstream aircraft by offering
customers a variety of financing alternatives such as
capital and operating leases, loans, tax advantaged leases,
like-kind exchange options and Export-Import Bank support.
In 1997, GFSC provided financing, through private label
relationships, for over $300 million of our products.
Employee working
Open engine
Aircraft on tarmac
Tech rep working
on aircraft
[Picture]
Board of Directors
[Full page picture]
[Photo] [Photo]
BOARD OF DIRECTORS
ROBERT ANDERSON CHARLOTTE L. BEERS
Chairman Emeritus Chairman Emeritus
Rockwell International Ogilvy and Mather
Worldwide, Inc.
[Photo] [Photo] [Photo] [Photo]
THOMAS D. BELL, JR. W.W. BOISTURE, JR. CHRIS A. DAVIS LYNN FORESTER
President & Executive Vice President Executive Vice President & President &
Chief Executive Officer Gulfstream Aerospace Corporation Chief Financial Officer Chief Executive Officer
Burson-Marsteller Gulfstream Aerospace FirstMark Holdings, Inc.
Corporation
[Photo] [Photo] [Photo] [Photo]
NICHOLAS C. FORSTMANN THEODORE L. FORSTMANN SANDRA J. HORBACH JAMES T. JOHNSON
Founding General Partner Chairman General Partner President &
Forstmann Little & Co. Gulfstream Aerospace Corporation Forstmann Little & Co. Chief Operating Officer
Founding General Partner Gulfstream Aerospace
Forstmann Little & Co. Corporation
[Photo] [Photo] [Photo] [Photo]
HENRY A. KISSINGER DREW LEWIS MARK H. McCORMACK BRYAN T. MOSS
Chairman Former Chairman & Chairman, President & Vice Chairman
Kissinger Associates, Inc. Chief Executive Officer Chief Executive Officer Gulfstream Aerospace
Former U.S. Secretary of Union Pacific Corporation International Management Group Corporation
State
[Photo] [Photo] [Photo] [Photo]
MICHAEL S. OVITZ ALLEN E. PAULSON ROGER S. PENSKE COLIN L. POWELL
Former Chairman & Co-Owner Chairman Emeritus Chairman Chairman, America's
Creative Artists Agency, Inc. Gulfstream Aerospace Corporation Penske Corporation Promise-The Alliance
for Youth
Former Chairman
Joint Chiefs of Staff
[Photo] [Photo] [Photo] [Photo]
GERARD R. ROCHE DONALD H. RUMSFELD GEORGE P. SHULTZ ROBERT S. STRAUSS
Chairman Chairman Former U.S. Secretary Founder & Partner
Heidrick & Struggles, Inc. Gilead Sciences, Inc. of State Akin, Gump, Strauss,
Former U.S. Secretary Hauer & Feld
of Defense Former U.S. Ambassador
to Russia
GULFSTREAM AEROSPACE CORPORATION
1997 Financial Review
Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
Consolidated Balance Sheets 26
Consolidated Statements of Income 27
Consolidated Statements of Stockholders' Equity 28
Consolidated Statements of Cash Flows 29
Notes to Consolidated Financial Statements 30
Report of Independent Accountants and
Report of Management's Responsibilities 38
Quarterly Financial Results 39
Selected Financial Data 40
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto beginning on page 26,
which are incorporated herein by reference. Narrative descriptions of
Gulfstream Aerospace Corporation's ("Gulfstream" or the "Company") principal
products begin on page 7.
Business
Gulfstream is recognized worldwide as a leading designer, developer,
manufacturer and marketer of the most technologically advanced
intercontinental business jet aircraft. The Company's current principal
aircraft products are the Gulfstream IV-SP, the Gulfstream V, Gulfstream
Shares (fractional ownership interests in Gulfstream IV-SPs) and pre-owned
Gulfstream aircraft. As an integral part of its aircraft product offerings,
the Company offers aircraft completion and worldwide aircraft maintenance
services and technical support for all Gulfstream aircraft. In addition, the
Company's financial services subsidiary, Gulfstream Financial Services
Corporation, through its private label relationship with a third-party
aircraft financing provider, offers customized products to finance the
worldwide sale of Gulfstream aircraft.
Operating Data
The Company recognizes revenue for the sale of a new "green" aircraft
(i.e., before exterior painting and installation of customer selected
interiors and optional avionics) when that aircraft is delivered to the
customer. Revenues from completion services are recorded when the outfitted
aircraft is delivered to the customer. Revenues on all other products and
services, including pre-owned aircraft, are recognized when such products are
delivered or such services are performed. Generally, production of aircraft
for delivery remains relatively smooth throughout a year. However, deliveries
of such aircraft can vary significantly depending upon the timing of contract
execution and final customer acceptance. Accordingly, the Company's revenues
can vary significantly from quarter to quarter.
The following sets forth certain statistical data concerning the
Company's deliveries, orders and backlog for new aircraft.
Year ended December 31,
-------------------------------
1997 1996 1995
--------- ----------- ---------
Operating Data:
Units delivered during period:
Gulfstream IV-SP.................................. 22 24 26
Gulfstream V...................................... 29 3 0
--- --- ---
Total green deliveries............................ 51 27 26
Units ordered during period:
Gulfstream IV-SP.................................. 39 44 30
Gulfstream V...................................... 7 21 12
--- --- ---
Total orders...................................... 46 65 42
Units in backlog at end of period:
Gulfstream IV-SP(1)............................... 43 27 7
Gulfstream V(2)................................... 45 67 50
--- --- ---
Total backlog (in units)(3)....................... 88 94 57
Estimated backlog (in billions)(3)................ $ 2.8 $ 3.1 $ 1.9
- ------------------------
(1) Net of 1 cancellation in 1997, which relates to an order placed in that
year.
(2) Net of cancellations of 1 and 2 in 1996 and 1995, respectively, which
generally relate to orders placed in prior years.
(3) See discussion of contractual backlog on page 24.
Comparison of the Years Ended
December 31, 1997 and 1996
Net Revenues. Total net revenues increased by $839.8 million, or 79.0%,
to $1,903.5 million in 1997 from $1,063.7 million in 1996. Revenues from
green aircraft increased $739.3 million due primarily to the delivery of 29
Gulfstream V aircraft in 1997, as full scale production commenced, compared
to three Gulfstream V aircraft in 1996. During 1997, a total of 51 green
aircraft were delivered as compared to 27 in 1996. Also contributing to the
revenue gain was a $57.1 million increase in the sale of pre-owned aircraft
related to trade-ins on the higher level of Gulfstream V deliveries. In
addition, completion revenues increased by $11.5 million in 1997 principally
due to initial Gulfstream V completion deliveries. Aircraft Services revenue
increased by $22.7 million in 1997, as the Company continues
[BAR GRAPH]
to aggressively market and expand its aftermarket products and
maintenance services.
Cost of Sales. Total cost of sales increased to $1,557.5 million in 1997
compared to $839.3 million in 1996. Excluding pre-owned aircraft, which are
generally sold at break-even levels, the gross profit percentage for 1997 was
20.0% compared to 24.8% for 1996. The decline in gross profit percentage is
primarily attributable to the introduction of the Gulfstream V aircraft into
production and the higher costs associated with the early stages of the
Gulfstream V production and completions. Timing of the learning curve on the
Gulfstream V completions is expected to delay margin improvements somewhat in
the first half of 1998. Overall the Company expects the margin percentage of
revenue on the Gulfstream V to continue to improve as it realizes increased
manufacturing efficiencies.
Selling and Administrative Expense. Selling and administrative expense
decreased by $2.0 million, or 2.0%, to $97.5 million in 1997 from $99.5
million in 1996 and, as a percentage of net revenues, decreased to 5.1% in
1997 from 9.4% in 1996. Expenses were higher in 1996 due principally to the
level of advertising and marketing expense associated with the certification
and initial customer deliveries of the Gulfstream V.
[BAR GRAPH]
Stock Option Compensation Expense. The issuance of options to purchase
common stock of the Company resulted in a non-cash compensation charge of
$1.6 million in 1997 and $7.2 million in 1996.
Research and Development Expense. Research and development expense was
$10.8 million in 1997 a decrease of $47.3 million from 1996, and as a
percentage of net revenues was 0.6% versus 5.5%. Research and development
expense decreased during 1997 principally as a result of the substantial
completion of the Gulfstream V development program. Research and development
expense for 1997 and 1996 are net of credits of $10.0 million and $8.0
million, respectively, for launch assistance funds received from vendors
participating in the development of the Gulfstream V. Research and
development expenditures in 1998 and the near-term future are expected to
stem principally from product improvements and enhancements, rather than new
aircraft development.
Amortization of Intangibles and Deferred Charges. This non-cash expense
includes amortization of goodwill and other intangible assets consisting of
aftermarket service and aftermarket product support, as well as deferred
financing charges related to the Company's pre-existing and new bank credit
facilities. Amortization of intangibles and deferred charges of $7.3 million
for 1997 were $2.1 million lower than 1996. This decrease was a result of the
accelerated amortization in 1996 of financing charges associated with the
Company's prior bank credit facilities, which were repaid in October 1996.
See "Liquidity and Capital Resources."
Interest Income and Expense. Interest income decreased by $3.1 million
to $11.5 million in 1997 from $14.6 million in 1996 as a result of lower
average cash balances the Company had invested in 1997 compared to 1996.
Interest expense consists almost entirely of interest paid on long-term
borrowings under the Company's bank credit facilities. Interest expense
increased to $31.2 million for 1997 from $17.9 million in 1996. This increase
was due to an increase in average borrowings partially offset by the
Company's lower average borrowing costs of 7.7% in 1997 versus 9.0% in 1996.
See "Liquidity and Capital Resources."
Income Taxes. The Company recorded an income tax benefit of $33.9
million for 1997. No provision for income taxes was recorded in 1996,
principally due to the utilization of net operating loss carryforwards. The
Company, in estimating its ability to realize the benefit of its net deferred
tax assets, considers both positive and negative evidence and gives greater
weight to evidence that is objectively verifiable. As a result of numerous
factors including, but not limited to, recent earnings trends and the size of
its contractual backlog, the Company currently believes that its net deferred
tax asset is more likely than not to be realized. In the third quarter of
1997, the Company released its deferred tax valuation allowance, totaling
$94.2 million. Of this amount, $29.4 million related to the exercise of stock
options and was credited to additional paid-in capital and $64.8 million was
recorded as a one-time non-cash income tax benefit. During the fourth quarter
of 1997, the Company recorded a provision for income taxes based on its
overall estimated effective tax rate of 37.5%. The Company had available at
December 31, 1997 and 1996, net operating loss carryforwards for regular
federal income tax purposes of approximately $65.0 million and $228.0
million, respectively, which will begin expiring in 2006.
Earnings Per Share. The Company reported diluted earnings per share of
$3.12 during 1997, up from 1996 diluted earnings per share of $0.60. On a pro
forma basis, assuming an effective tax rate of 37.5%, the Company's earnings
per share would have been $1.68 and $0.37 for 1997 and 1996, respectively.
[BAR GRAPH]
Comparison of the Years Ended
December 31, 1996 and 1995
Net Revenues. Total net revenues increased by $22.2 million, or 2.1%, to
$1,063.7 million in 1996 from $1,041.5 million in 1995. Revenues from green
aircraft increased $55.1 million due to the delivery of one more unit and the
commencement of Gulfstream V deliveries which have higher selling prices. In
1996, a total of 27 green aircraft, 24 Gulfstream IV-SPs and 3 Gulfstream Vs,
were delivered as compared to 26 Gulfstream IV-SP deliveries in 1995. In
addition, Aircraft Services revenues increased by $33.2 million in 1996
principally due to international spares sales and the opening in 1996 of a
new service center in Savannah. Offsetting these increases was a decrease of
$67.3 million in the sale of pre-owned aircraft resulting from a reduced
number of trade-ins and a decrease of $14.0 million in revenues attributable
to the conclusion in 1995 of a U.S. Department of Defense logistical supply
contract.
Cost of Sales. Total cost of sales of $839.3 million in 1996 was
relatively unchanged compared to $835.5 million in 1995. Excluding pre-owned
aircraft, which are generally sold at break-even levels, the gross profit
percentage for 1996 was 24.8% compared to 25.6% for 1995. This decline is
primarily attributable to higher costs associated with the early part of the
production learning curve on Gulfstream V aircraft.
Selling and Administrative Expense. Selling and administrative expense
increased by $6.3 million, or 6.8%, to $99.5 million in 1996 from $93.2
million in 1995 and as a percentage of net revenues increased to 9.4% in 1996
from 9.0% in 1995. The increase principally resulted from increased
advertising and marketing expenses associated with the Gulfstream V program,
higher sales commission and aircraft demonstration costs resulting from
increased levels of sales activity, and continued emphasis on the expansion
of international sales activities.
Stock Option Compensation Expense. The issuance of options to purchase
common stock of the Company during 1996 resulted in a non-cash compensation
charge of $7.2 million.
Research and Development Expense. Substantially all research and
development expense during 1996 and 1995 was associated with the Gulfstream V
development program, which was substantially completed at the end of 1996.
Research and development expense was $58.1 million in 1996, a decrease of
$5.0 million from 1995, and as a percentage of net revenues was 5.5% versus
6.1%. Research and development expense for 1996 is net of an $8.0 million
credit for launch assistance funds received from vendors participating in the
development of the Gulfstream V.
Amortization of Intangibles and Deferred Charges. This non-cash expense
includes amortization of goodwill and other intangible assets consisting of
aftermarket service and aftermarket product support, as well as deferred
financing charges related to the Company's pre-existing and new bank credit
facilities. Amortization of intangibles and deferred charges of $9.4 million
for the year ended December 31, 1996 was $1.9 million higher than 1995. This
increase resulted from the accelerated amortization of financing charges
associated with the Company's pre-existing bank credit facilities, which were
repaid in October 1996. See "Liquidity and Capital Resources."
Interest Income and Expense. Interest income increased by $9.1 million
to $14.6 million in 1996 from $5.5 million in 1995 as a result of higher
average cash balances the Company had invested in 1996 compared to 1995. The
Company generated these higher cash levels from operations, principally
through the receipt of customer deposits and associated progress payments on
new aircraft orders. Interest expense consists almost entirely of interest
paid on borrowings under the Company's new and pre-existing bank credit
facilities. Interest expense decreased to $17.9 million for 1996 from $18.7
million in 1995. This decrease was due to the Company's lower average
borrowing costs of 9.0% in 1996 versus 10.1% in 1995, partially offset by an
increase in average borrowings. See "Liquidity and Capital Resources."
Income Taxes. At December 31, 1996 and 1995 the Company had available
net operating loss carryforwards for regular federal income tax purposes of
approximately $228 million and $150 million, respectively, which will begin
expiring in 2006. Although the Company recorded net income during 1996 and
1995, no provision for income taxes was recorded in either period principally
as a result of the utilization of net operating loss carryforwards.
Liquidity and Capital Resources
The Company's liquidity needs arise from working capital requirements,
capital expenditures, principal and interest payments on long-term debt and
the Company's share repurchase program described below. During 1997 and 1996,
the Company relied on its available cash balances to fund these needs.
[BAR GRAPH]
Net cash generated by operating activities was $120.4 million, $243.4
million and $282.4 million in 1997, 1996 and 1995, respectively. The
reduction in 1997 was primarily due to the decrease in customer progress
payments associated with new aircraft in backlog. The reduction in 1996 was
primarily due to the temporary build-up in inventory associated with
Gulfstream V production and the timing
of cash receipts to satisfy customer receivables, partially offset by the
increase in customer progress payments associated with aircraft in backlog
and new sales activities.
During the year ended December 31, 1997, additions to property and
equipment amounted to $26.7 million. At December 31, 1997, the Company was
not committed to the purchase of any significant amount of property and
equipment. Additions to property and equipment were $16.2 million in 1996 and
$25.2 million in 1995. The increased level of spending of $10.5 million in
1997 over 1996, primarily related to the Company's strategic initiative to
increase its annual production rate to approximately 60 aircraft by 1999, a
twofold increase over its 1996 annual production rate. As a result, in 1997,
the Company's capital expenditures increased $15 million and in 1998 are
expected to increase by approximately another $20 million above previously
planned annual levels of approximately $15 million. At December 31, 1997, the
Company was nearing completion on a new $8.5 million paint facility located
at its Long Beach, California plant. This facility is part of the Company's
60 aircraft plan and will allow the Company to double its present volume of
painting new, pre-owned and customer aircraft. The Company continually
monitors its capital spending in relation to current and anticipated business
needs. As circumstances dictate, facilities are added, consolidated, or
modernized.
During 1997, 1996 and 1995 the Company invested $3.0 million, $2.1
million and $25.7 million, respectively, for tooling associated with the
Gulfstream V program. As of December 31, 1997, the Company had recorded, net
of amortization, an aggregate of $42.7 million in tooling associated with the
Gulfstream V program. Gulfstream V tooling is being amortized to cost of
sales on a unit basis over the first 200 units of the Gulfstream V program.
Tooling associated with the Gulfstream IV and IV-SP has been fully amortized
to cost of sales.
In January 1998, the Company established a program to repurchase up to
$200 million of its common stock. The purchases will be made from time to
time in the open market or through negotiated transactions as market
conditions warrant. The Company expects to fund the stock purchases from cash
on hand. As of January 30, 1998, approximately 2.5 million shares, at an
average price of $30.01 per share, had been repurchased under this plan for
an aggregate amount of $74.6 million.
On October 16, 1996, Gulfstream Delaware Corporation, a wholly owned
subsidiary of the Company, entered into a $650 million credit facility (the
"Credit Agreement"). The Credit Agreement consists of a $400 million term loan
facility and a $250 million revolving credit facility. A portion of the
revolving credit facility, in an amount not to exceed $150 million, may be
used (to the extent available) for standby and commercial letters of credit,
and up to $200 million of the revolving credit facility will be available to
the Company for borrowings. In addition, up to $20 million of the revolving
credit facility may be used for swing line loans. The revolving credit
facility expires September 30, 2002 with any amounts outstanding due on that
date. There were no amounts outstanding under the revolving credit facility
on December 31, 1997. The Credit Agreement contains customary affirmative and
negative covenants including restrictions on the ability of the Company and
its subsidiaries to pay cash dividends, as well as financial covenants under
which the Company must operate. As of December 31, 1997, the Company was in
compliance with the covenants contained in the Credit Agreement. Payments
under the term loan facility were $20.0 million in 1997, and scheduled
repayments are $75.0 million in each of the years 1998 through 2001 and $80.0
million in 2002.
On October 16, 1996, the Company completed an initial public offering
(the "Offering") from which the Company received net proceeds of approximately
$100 million after deducting underwriting discounts and other expenses. In
connection with the Offering, certain members of senior management and other
employees of the Company exercised options to purchase approximately 4
million shares of common stock of the Company and sold those shares in the
Offering, resulting in additional net proceeds to the Company of $14.2
million. The Company used the net proceeds of the Offering, together with the
$400 million term loan under the new Credit Agreement and available cash from
operations, to (i) repurchase the remaining $450 million of 7% Cumulative
Preferred Stock and pay accrued dividends, (ii) repay all the outstanding
indebtedness under the Company's pre-existing credit facilities, which
totaled $107.7 million, and (iii) pay fees and expenses incurred in
connection with the Offering and the refinancing of the Company's
indebtedness. During 1996, the Company had previously repurchased
approximately four shares of 7% Cumulative Preferred Stock at their stated
value of $18.9 million and paid accumulated dividends of $105.3 million out
of available cash from operations.
The Company's principal source of liquidity both on a short-term and
long-term basis is cash flow provided from operations, including customer
progress payments and deposits on new aircraft orders. Occasionally, however,
the Company may borrow against the Credit Agreement to supplement cash flow
from operations. The Company believes, based upon its analysis of its
consolidated financial position, its cash flow during the past 12 months and
its expected results of operations in the future, that operating cash flow
and available borrowings under the Credit Agreement will be adequate to fund
operations, capital expenditures, debt service and the Company's share
repurchase program for at least the next 12 months. The Company intends to
repay its remaining indebtedness primarily with cash flow from operations.
There can be no assurance, however, that future industry specific
developments or general economic trends will not adversely affect the
Company's operations or its ability to meet its cash requirements.
As of December 31, 1997, in connection with orders for 21 Gulfstream V
aircraft in the backlog, the Company has offered customers trade-in options
(which may or may not be exercised by the customer) under which the Company
will accept trade-in aircraft (primarily Gulfstream IVs and IV-SPs) at a
guaranteed minimum trade-in price. Additionally, in connection with recorded
sales of new aircraft, the Company has agreed to accept pre-owned aircraft
with trade-in values totaling $174.6 million as of December 31, 1997.
Management believes that the fair market value of all such aircraft exceeds
the specified trade-in value.
The Company is currently engaged in the monitoring and cleanup of certain
ground water at its Savannah facility under the oversight of the Georgia
Department of Natural Resources. Expenses incurred for cleanup have not been
significant. Liabilities are recorded when environmental assessments and/or
remedial efforts are probable and the costs can be reasonably estimated. The
Company believes other aspects of the Savannah facility, as well as other
Gulfstream properties, are being carefully monitored and are in substantial
compliance with current federal, state and local environmental regulations.
The Company believes the liabilities, if any, that will result from the above
environmental matters will not have a material adverse effect on its
financial statements.
On December 24, 1997, the Company executed final documents with the
Pension Benefit Guaranty Corporation (the "PBGC") concerning funding of the
Company's defined benefit pension plans. The terms were essentially the same
as those set out in the agreement in principle reached between the PBGC and
the Company during October 1996. Pursuant to this agreement, the Company
contributed $25.0 million in 1997 and has agreed to contribute a total of
$25.0 million annually from 1998 through 2000 to its pension plans which
payments are expected to result in such plans being fully funded. The
payments to be made under this agreement were already part of the Company's
overall financial planning and therefore, are not expected to have a material
adverse effect on the Company's financial statements. The funding required
under this agreement will not result in any increase in the Company's annual
pension expense.
The Company is involved in tax audits by the Internal Revenue Service
covering the years 1990 through 1994. The revenue agent's report and the
notice of proposed adjustments include several proposed adjustments involving
the deductibility of certain compensation expense, items relating to the
initial capitalization of the Company, the allocation of the original
purchase price for the acquisition by the Company of the Gulfstream business,
including the treatment of advance payments with respect to and the cost of
aircraft that were in backlog at the time of the acquisition, and the
amortization of amounts allocated to intangible assets. The Company believes
that the ultimate resolution of these issues will not have a material adverse
effect on its financial statements because the financial statements already
reflect what the Company currently believes is the expected loss of benefit
arising from the resolution of these issues.
Contractual Backlog
At December 31, 1997, the Company had a firm contract backlog of
approximately $2.8 billion, representing a total of 43 contracts for
Gulfstream IV-SPs and 45 contracts for Gulfstream Vs, compared with $3.1
billion at the end of 1996, representing a total of 27 contracts for
Gulfstream IV-SPs and 67 contracts for Gulfstream Vs. The decline in backlog
from 1996 is directly related to the increased level of Gulfstream V
deliveries during 1997.
[BAR GRAPH]
The Company includes an order in backlog only if the Company has entered
into a purchase contract (with no contingencies) with the customer and has
received a significant (generally non-refundable) deposit from the customer.
In total, approximately 38% of the Company's contractual backlog is scheduled
for delivery beyond 1998.
The Company continually monitors the condition of its backlog and
believes, based on the nature of its customers and its historical experience,
that there will not be a significant number of cancellations. However, to the
extent that there is a lengthy period of time between a customer's aircraft
order and its expected delivery date, there may be increased uncertainty as
to changes in business and economic conditions which may affect customer
cancellations.
Foreign Exchange
The Company does not have any significant assets located outside the
United States. All the Company's sales and contracts have historically been
and currently are denominated in U.S. dollars and, as a result, are not
subject to changes in exchange rates. In addition, substantially all of the
Company's material purchases are currently denominated in U.S. dollars.
Inflation
The Company continually attempts to minimize any effect of inflation on
earnings by controlling its operating costs and selling prices. During the
past few years, the rate of inflation has been low and has not had a
significant impact on the results of the Company's operations.
A significant portion of the Company's Gulfstream V contracts contain an
adjustment in the purchase price to account for inflation. Such adjustments
are generally capped at an aggregate of 3% per year. These adjustments are
intended to minimize the Company's cost risk associated with the small
portion of material contracts which are not under long-term agreements.
Outlook
The Company plans to deliver 58 green aircraft in 1998 and to double its
completion rate. The gross margins are expected to improve from 20% in 1997
to the mid-20s by the end of 1998. Based on projections of increasing
aircraft production and improving margins, Gulfstream now expects 1998
diluted earnings per share of approximately $2.85. The Company also expects
diluted earnings per share to increase 15% per year in 1999 and 2000.
Forward-Looking Information Is Subject To
Risk and Uncertainty
Certain statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations", including the
statements under the heading "Outlook", as well as other statements elsewhere
in this Annual Report to Stockholders, contain forward-looking information.
These forward-looking statements are subject to risks and uncertainties.
Actual results might differ materially from those projected in the
forward-looking statements. Additional information concerning factors that
could cause actual results to materially differ from those in the
forward-looking statements is contained in Exhibit 99 to the Company's
Securities and Exchange Commission filings.
Consolidated Balance Sheets
GULFSTREAM AEROSPACE CORPORATION
December 31,
--------------------------
1997 1996
- ------------------------------------------- ---------- ------------
(In thousands, except for share amounts)
Assets
Cash and cash equivalents.................. $306,451 $ 233,172
Accounts receivable (less allowance for
doubtful accounts:$1,144 and $3,243)..... 177,228 137,342
Inventories................................ 629,876 655,237
Deferred income taxes...................... 33,795 --
Prepaids and other assets.................. 11,318 7,915
---------- -----------
Total current assets..................... 1,158,668 1,033,666
Property and equipment, net................ 134,611 126,503
Tooling, net of accumulated amortization:
$7,680 and $600.......................... 43,471 47,677
Goodwill, net of accumulated amortization:
$8,433 and $7,322........................ 38,957 35,799
Other intangible assets, net............... 50,485 55,556
Deferred income taxes...................... 32,950 --
Other assets and deferred charges.......... 14,525 14,014
---------- -----------
Total Assets............................... $1,473,667 $ 1,313,215
---------- -----------
---------- -----------
Liabilities and Stockholders' Equity
Current portion of long-term debt.......... $75,000 $ 20,000
Accounts payable........................... 147,618 129,410
Accrued liabilities........................ 93,798 111,243
Customer deposits-current portion.......... 546,441 634,922
---------- -----------
Total current liabilities.................. 862,857 895,575
Long-term debt............................. 305,000 380,000
Accrued postretirement benefit cost........ 115,405 108,705
Customer deposits-long-term................ 88,075 109,037
Other long-term liabilities................ 9,573 8,709
Commitments and contingencies
Stockholders' equity
Common stock; $.01 par value; 300,000,000
shares authorized; 86,522,089 shares
issued in 1997 and 85,890,212 shares
issued in 1996........................... 865 859
Additional paid-in capital................. 370,258 333,686
Accumulated deficit........................ (225,960) (468,971)
Minimum pension liability.................. (762) (1,464)
Unamortized stock plan expense............. (1,155) (2,432)
Less: Treasury stock: 11,978,439 shares in
1997 and 1996............................ (50,489) (50,489)
---------- -----------
Total stockholders equity.................. 92,757 (188,811)
---------- -----------
Total Liabilities and Stockholders'
Equity................................... $1,473,667 $1,313,215
---------- -----------
---------- -----------
See Notes to Consolidated Financial Statements
Consolidated Statements of Income
GULFSTREAM AEROSPACE CORPORATION
Year ended December 31,
----------------------------------
1997 1996 1995
- ---------------------------------------------------------------- ---------- ---------- ----------
(In thousands, except per share amounts)
Net revenues.................................................... $1,903,494 $1,063,713 $1,041,514
Cost and expenses
Cost of sales................................................. 1,557,520 839,254 835,547
Selling and administrative.................................... 97,499 99,452 93,239
Stock option compensation expense............................. 1,640 7,186 --
Research and development...................................... 10,792 58,118 63,098
Amortization of intangibles and deferred charges.............. 7,347 9,434 7,540
---------- ---------- ----------
Total costs and expenses.................................... 1,674,798 1,013,444 999,424
---------- ---------- ----------
Income from operations.......................................... 228,696 50,269 42,090
Interest income................................................. 11,532 14,605 5,508
Interest expense................................................ (31,159) (17,909) (18,704)
---------- ---------- ----------
Income before income taxes...................................... 209,069 46,965 28,894
Income tax expense (benefit).................................... (33,942) -- --
---------- ---------- ----------
Net income.................................................... $ 243,011 $ 46,965 $ 28,894
---------- ---------- ----------
---------- ---------- ----------
Earnings per share:
Net income per share--basic................................... $ 3.28 $ .64 $ .39
---------- ---------- ----------
---------- ---------- ----------
Net income per share--diluted................................. $ 3.12 $ .60 $ .37
---------- ---------- ----------
---------- ---------- ----------
See Notes to Consolidated Financial Statements
Consolidated Statements of Stockholders' Equity
GULFSTREAM AEROSPACE CORPORATION
Additional Minimum Unamortized Total
Preferred Common Paid-in Accumulated Pension Stock Plan Treasury Stockholders'
Stock Stock Capital Deficit Liability Expense Stock Equity
- ------------------------- ---------- ----------- ---------- ------------ --------- ------------ ---------- -------------
(In thousands)
Balance as of
December 31, 1994...... $ 468,938 $ 523 $210,621 $(439,507) $(1,136) $ $(50,489) $ 188,950
Net income for fiscal
1995................... 28,894 28,894
Exercise of common stock
options................ 10 10
Minimum pension liability
adjustment............. (314) (314)
---------- ----- ---------- ------------ --------- ------------ ---------- ------------
Balance as of
December 31, 1995...... 468,938 523 210,631 (410,613) (1,450) (50,489) 217,540
Net income for fiscal
1996................... 46,965 46,965
Repurchase of preferred
stock.................. (468,938) (468,938)
Dividends paid on
preferred stock........ (105,323) (105,323)
Issuance of compensatory
common stock options... 9,618 (9,618)
Amortization of stock
plan expense........... 7,186 7,186
Conversion of common
stock.................. (8) 8 --
Stock split of
1.5 for 1.............. 258 (258) --
Common stock offering,
net of expenses........ 46 99,557 99,603
Exercise of common stock
options................ 40 14,130 14,170
Minimum pension liability
adjustment............. (14) (14)
---------- ----- ---------- ------------ --------- ------------ ---------- ------------
Balance as of
December 31, 1996...... -- 859 333,686 (468,971) (1,464) (2,432) (50,489) (188,811)
Net income for fiscal
1997................... 243,011 243,011
Issuance of compensatory
common stock options... 363 (363) --
Amortization of stock
plan expense........... 1,640 1,640
Tax benefit of
exercised common stock
options................ 33,682 33,682
Exercise of common stock
options................ 6 2,527 2,533
Minimum pension liability
adjustment............. 702 702
---------- ----- ---------- ------------ --------- ------------ ---------- ------------
Balance as of
December 31, 1997...... $ -- $ 865 $370,258 $(225,960) $ (762) $(1,155) $(50,489) $ 92,757
---------- ----- ---------- ------------ --------- ------------ ---------- ------------
---------- ----- ---------- ------------ --------- ------------ ---------- ------------
See Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows
GULFSTREAM AEROSPACE CORPORATION
Year ended December 31,
----------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------ ---------- ---------- ----------
(In thousands)
Cash Flows from Operating Activities
Net income.................................................................... $ 243,011 $ 46,965 $ 28,894
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 33,022 26,910 23,094
Postretirement benefit cost................................................. 6,700 6,684 6,395
Provision for loss (recovery) on pre-owned aircraft......................... (1,600) 1,000 2,050
Non-cash stock option compensation expense.................................. 1,640 7,186
Deferred income tax benefit................................................. (37,867)
Other, net.................................................................. 1,428 417 2,277
Change in assets and liabilities:
Accounts receivable....................................................... (39,978) (55,029) 91,817
Inventories............................................................... 26,961 (263,112) (105,844)
Prepaids, other assets, and deferred charges.............................. (5,080) (5,578) 1,368
Accounts payable and accrued liabilities.................................. 763 102,551 11,975
Customer deposits......................................................... (109,443) 432,365 217,934
Other long-term liabilities............................................... 864 (56,956) 2,412
---------- ---------- ----------
Net Cash Provided by Operating Activities..................................... 120,421 243,403 282,372
Cash Flows from Investing Activities
Expenditures for property and equipment....................................... (26,692) (16,167) (25,186)
Dispositions of property and equipment........................................ 1 28 18
Expenditures for tooling...................................................... (2,984) (2,085) (25,693)
---------- ---------- ----------
Net Cash Used in Investing Activities......................................... (29,675) (18,224) (50,861)
Cash Flows from Financing Activities
Proceeds from issuance of common stock........................................ 99,603
Proceeds from exercise of common stock options................................ 2,533 14,170 10
Repurchase of preferred stock................................................. (468,938)
Dividends paid on preferred stock............................................. (105,323)
Proceeds from issuance of long-term debt...................................... 400,000
Payment of financing costs.................................................... (8,500)
Principal payments on long-term debt.......................................... (20,000) (146,331) (31,814)
---------- ---------- ----------
Net Cash Used in Financing Activities......................................... (17,467) (215,319) (31,804)
---------- ---------- ----------
Increase in cash and cash equivalents......................................... 73,279 9,860 199,707
Cash and cash equivalents, beginning of year.................................. 233,172 223,312 23,605
---------- ---------- ----------
Cash and cash equivalents, end of year........................................ $ 306,451 $ 233,172 $ 223,312
---------- ---------- ----------
---------- ---------- ----------
See Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
GULFSTREAM AEROSPACE CORPORATION
NOTE 1 Summary of Significant Accounting Policies
Business
Gulfstream is primarily engaged in the design, development, production
and sale of large business jet aircraft. The Company is also engaged in
a number of related businesses, including: product support and services
for customer-owned aircraft, which include maintenance services and
replacement parts for the Company s world-wide fleet; aircraft
completion services, which involve the installation of customized
interiors and optional avionics as well as exterior painting; and the
sale of pre-owned aircraft. The majority of the Company s aircraft are
sold to domestic and multinational corporations and domestic and
foreign governments.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All
significant intercompany transactions and balances have been
eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions
and estimates that directly affect the amounts reported in the
consolidated financial statements. Significant estimates for which
changes in the near term are considered reasonably possible and that
may have a material effect on the financial statements are addressed in
these notes to the consolidated financial statements.
Revenue Recognition
Contracts for new aircraft are segmented between the manufacture of the
"green" aircraft (i.e., before exterior painting and installation of
customer selected interiors and optional avionics) and its completion.
Sales of new Gulfstream green aircraft are recorded as deliveries are
made to the customer prior to the aircraft entering the completion
process. With respect to completed aircraft, any costs related to parts
to be installed and services to be performed under the contract, after
the delivery of the aircraft, which are not significant, are included
as cost of sales at the time of the sale of the new aircraft. Sales of
all other products and services, including pre-owned aircraft, are
recognized when delivered or the service is performed.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid financial
instruments which have maturities of less than three months upon
purchase. The Company places its temporary cash investments with high
credit quality financial institutions.
Inventories
Inventories of work in process and finished goods for aircraft are
stated at the lower of cost (based on estimated average unit costs of
the number of units in a production lot) or market. Raw materials,
material components of other work in process and substantially all
purchased parts inventories are stated at the lower of cost (first-in,
first-out method) or market. Pre-owned aircraft acquired in connection
with the sale of new aircraft are recorded at the lower of the trade-in
value or estimated net realizable value.
Property and Equipment
Property and equipment are stated at cost and depreciated by the
straight-line method over their estimated useful lives, ranging from 15
to 25 years for buildings and improvements and 4 to 12 years for all
other property and equipment. The cost of maintenance and repairs is
charged to operations as incurred; significant renewals and betterments
are capitalized.
Tooling
Tooling is stated at cost and represents primarily production tooling
relating to the Gulfstream V aircraft program. Tooling associated with
the Gulfstream V is amortized to cost of sales on a unit basis over the
first 200 units of the Gulfstream V program.
Intangibles and Other Assets
Goodwill is being amortized on a straight-line basis over 40 years.
Other intangible assets consisting of aftermarket service and product
support (i.e. customer lists) are being amortized on a straight-line
basis over the expected useful lives which range from 10 to 21 years.
The costs of obtaining bank financing have been included in other
assets and deferred charges and are being amortized over the lives of
the related bank borrowings.
Research and Development
Research and development expenses are charged directly to operations as
incurred.
Product Warranties
Product warranty expense is recorded as aircraft are delivered based
upon the estimated aggregate future warranty costs relating to the
aircraft.
Customer Deposits
Substantially all customer deposits represent advance payments for new
aircraft purchases. The deposits on aircraft that are expected to be
delivered in the following year are classified as current in the
accompanying consolidated balance sheets.
Concentrations of Credit
Financial instruments which may potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade and contract receivables. Approximately 32.0% and
34.0%, respectively, of accounts receivable outstanding at December 31,
1997 and 1996 are represented by a contract receivable associated with
the sale of multiple aircraft to one customer. Generally, contract
receivables are satisfied prior to delivery of the outfitted aircraft.
In the normal course of business the Company performs ongoing credit
evaluations of its customers financial position, and for trade
receivables, generally requires no collateral from its customers.
Overall, credit risk with respect to trade receivables are limited due
to the Company's large number of customers and their dispersion across
many industries and geographic regions.
Income Taxes
Deferred income taxes reflect the impact of temporary differences
between the amounts of assets and liabilities recognized for financial
reporting purposes and the amounts recognized for tax purposes as well
as tax credit carryforwards and loss carryforwards. These deferred
income taxes are measured by applying enacted tax rates in the years in
which the differences are expected to reverse. A valuation allowance
reduces deferred tax assets when it is "more likely than not" that some
portion or all of the deferred tax assets will not be realized.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities reflected in the financial
statements approximates fair value because of the short-term nature of
these instruments. Based on the borrowing rates currently available to
the Company for bank loans with similar terms and maturities, the
Company estimates that the carrying value of its long-term debt
approximates fair value.
Impairment of Long-Lived Assets
The Company periodically assesses the recoverability of assets based on
its expectations of future profitability and undiscounted cash flow of
the related operations and, when circumstances dictate, adjusts the
carrying value of the asset. These factors, along with management s
plans with respect to the operations, are considered in assessing the
recoverability of goodwill, other purchased intangibles, and property
and equipment.
Stock Options
Statement of Financial Accounting Standard No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123) defines a fair value based
method of accounting for an employee stock option or similar equity
instrument. This statement gives entities a choice of recognizing
related compensation expense by adopting the fair value method or to
measure compensation using the intrinsic value approach under
Accounting Principles Board (APB) Opinion No. 25. The Company has
elected to continue using the measurement method prescribed by APB
Opinion No. 25, and accordingly, this pronouncement did not affect the
Company's financial position or results of operations.
Earnings per Share
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings per Share, which simplifies the standards for computing
earnings per share (EPS) information and makes the computation comparable to
international EPS standards. SFAS No. 128 replaces the presentation of
"primary" (and when required "fully diluted") EPS with a presentation of
"basic" and "diluted" EPS. Basic EPS is computed based on net income divided
by the weighted average common shares outstanding. Diluted EPS is computed
by dividing net income by the weighted average common shares outstanding plus
the incremental shares that would have been outstanding under stock option
plans. All EPS information for 1996 and 1995 has been restated to conform to
the requirements of SFAS No. 128.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, which are both
effective no later than for the Company s 1998 fiscal year. Management
believes that the adoption of these statements will not have a material
effect on the Company's consolidated financial statements.
NOTE 2 Inventories
Inventories consisted of the following at:
December 31,
--------------------------
1997 1996
------------ ------------
(In thousands)
Work in process................................... $ 330,155 $355,198
Raw materials..................................... 134,973 108,041
Vendor progress payments.......................... 60,606 104,318
Pre-owned aircraft................................ 104,142 87,680
------------ -----------
$ 629,876 $655,237
------------ -----------
------------ -----------
NOTE 3 Property and Equipment
The major categories of property and equipment consisted of the
following at:
December 31,
--------------------------
1997 1996
------------- -----------
(In thousands)
Land............................................. $ 4,109 $ 4,109
Buildings and improvements....................... 101,836 96,201
Machinery and equipment.......................... 118,077 107,428
Furniture and fixtures........................... 12,414 10,451
Construction in progress......................... 9,074 1,826
------------ ----------
Total............................................ 245,510 220,015
Less accumulated depreciation.................... (110,899) (93,512)
------------ ----------
$ 134,611 $126,503
------------ ----------
------------ ----------
NOTE 4 Other Intangible Assets
Other intangible assets were comprised of the following at:
December 31,
---------------------------
1997 1996
----------- -----------
(In thousands)
Aftermarket--Service Center...................... $ 15,000 $ 15,000
Aftermarket--Product Support..................... 75,000 75,000
----------- -----------
Total............................................ 90,000 90,000
Less accumulated amortization.................... (39,515) (34,444)
----------- ------------
$ 50,485 $ 55,556
----------- ------------
----------- ------------
NOTE 5 Income Taxes
The components of income tax expense (benefit) consisted of the
following at:
December 31,
--------------
1997
-------------
(In thousands)
Current......................................................... $ 3,925
Deferred........................................................ 26,934
Decrease in valuation allowance................................. (64,801)
-------------
Income tax expense (benefit).................................... $(33,942)
-------------
-------------
Although the Company recorded net income during 1996 and 1995, no
provision for income taxes was recorded, principally as a result of
utilization of net operating loss carryforwards. The Company made
income tax payments of $4.8 million and $0.3 million for 1997 and 1996,
respectively. No income tax payments were made in 1995. The Company's
provision for income taxes differed from the amount computed by
applying the U. S. federal income tax rate as follows:
December 31,
--------------
1997
--------------
(In thousands)
Tax expense at statutory rates.................................. $ 73,174
Decrease in valuation allowance................................. (64,801)
Net operating loss carryforwards................................ (43,613)
Foreign Sales Corporation tax benefit........................... (1,888)
State income taxes.............................................. 1,605
Other, net...................................................... 1,581
--------------
Income tax expense (benefit).................................... $(33,942)
--------------
--------------
The tax effects of significant components of the Company's deferred tax
assets and liabilities are as follows:
December 31,
--------------------------
1997 1996
------------- -----------
(In thousands)
Deferred Tax Assets
Postretirement benefits............................. $43,386 $40,873
Net operating loss carryforwards.................... 24,500 85,760
Intangible assets................................... 7,031 13,072
Pension and other benefits.......................... -- 3,253
Other............................................... 10,169 17,559
---------- ----------
Total............................................... 85,086 160,517
Less valuation allowance............................ -- (145,490)
--------- - ----------
85,086 15,027
Deferred Tax Liabilities
Property and equipment,
principally due to
basis difference.................................. (17,392) (15,027)
Other............................................... (949) --
---------- ----------
Net deferred tax assets............................. $ 66,745 $ --
---------- ----------
---------- ----------
At December 31, 1997, the Company had available a net operating loss
carryforward for regular federal income tax purposes of approximately
$65.0 million which will expire beginning in 2006.
As a result of numerous factors, including, but not limited to recent
earnings trends and the size of its contractual backlog,
the Company currently believes that its net deferred tax asset is more
likely than not to be realized, and in the third quarter of 1997
released its deferred tax valuation allowance, totaling $94.2 million.
Of this amount, $29.4 million related to the exercise of stock options
and was credited to additional paid-in capital and the remainder, $64.8
million, was recorded as a one-time, non-cash income tax benefit.
The Company is involved in tax audits by the Internal Revenue Service
covering the years 1990 through 1994. The revenue agent s report and
the notice of proposed adjustments include several proposed adjustments
involving the deductibility of certain compensation expense, items
relating to the initial capitalization of the Company, the allocation
of the original purchase price for the acquisition by the Company of
the Gulfstream business, including the treatment of advance payments
with respect to and the cost of aircraft that were in backlog at the
time of the acquisition, and the amortization of amounts allocated to
intangible assets. The Company believes that the ultimate resolution of
these issues will not have a material adverse effect on its financial
statements because the financial statements already reflect what the
Company currently believes is the expected loss of benefit arising from
the resolution of these issues.
NOTE 6 Accrued Liabilities
Accrued liabilities were comprised of the following at:
December 31,
---------------------------
1997 1996
------------- ------------
(In thousands)
Employee compensation and benefits................ $ 33,245 $ 47,424
Accrued warranty.................................. 23,844 11,644
Uncompleted work on delivered aircraft............ 11,098 8,737
Deferred income................................... 9,499 18,758
Other............................................. 16,112 24,680
------------- ------------
$ 93,798 $111,243
------------- ------------
------------- ------------
NOTE 7 Long-term Debt
Long-term debt consisted of the following at:
December 31,
---------------------------
1997 1996
------------- ------------
(In thousands)
Term loans......................................... $380,000 $400,000
Less current portion............................... (75,000) (20,000)
------------- ------------
$305,000 $380,000
------------- ------------
------------- ------------
On October 16, 1996, the Company entered into a new long-term credit
agreement under which the lenders who are parties to the credit
agreement made available to the Company a $400 million term loan
facility and a $250 million revolving credit facility. A portion of the
revolving credit facility, in an amount not to exceed $150 million, may
be used (to the extent available) for standby and commercial letters of
credit, and up to $200 million of the revolving credit facility is
available to the Company for borrowings. Concurrently with entering
into the credit agreement, the Company repaid all amounts outstanding
under its pre-existing credit agreements totaling $107.7 million, and
terminated such agreements.
The term loan is repayable in consecutive quarterly installments which
commenced June 30, 1997 with a final maturity on September 30, 2002, in
aggregate amounts for each of the following years as follows: 1998
through 2001-$75.0 million; 2002-$80.0 million. The revolving credit
facility expires September 30, 2002 with any outstanding amounts due on
that date. The Company is required to pay commitment fees on the
average daily unutilized portion of the term loan facility and the
revolving credit facility, which fees were initially set at 0.375% per
annum. The credit agreement permits the Company to choose either the
Adjusted Base Rate (the "ABR") interest option which is based on the
greater of the prime rate or the federal funds rate, or a Eurodollar
rate (LIBOR), in each case, plus an applied margin. The interest rates
and commitment fees are subject to change based on the Company's
performance with respect to certain financial ratios set forth in the
credit agreement.
The credit agreement includes restrictions as to, amongst other things,
the amount of additional indebtedness, contingent obligations, liens,
capital expenditures, and dividends, and requires the maintenance of
certain financial ratios. In addition, under the credit agreement,
certain changes in control of the Company would cause an event of
default and the banks could declare all outstanding borrowings under
the credit agreement immediately due and payable. None of the
restrictions contained in the credit agreement are expected to have a
significant effect on the ability of the Company to operate. As of
December 31, 1997, the Company was in compliance with all financial and
operating covenants under the credit agreement.
The Company has pledged the common stock of certain of its subsidiaries
as well as certain intercompany notes as collateral under the credit
agreement, and the Company and certain of its subsidiaries have
guaranteed repayment of amounts borrowed under the credit agreement.
The available revolving credit commitment was $203.6 million at
December 31, 1997. At December 31, 1997 and December 31, 1996, the
Company had outstanding letters of credit totaling $46.4 million and
$23.1 million, respectively.
The effective interest rate on the Company's long-term debt
at December 31, 1997 and 1996 was 6.93% and 7.44%, respectively. The Company
paid interest of $32.3 million, $12.9 million and $19.4 million during the
years 1997, 1996 and 1995, respectively.
NOTE 8 Leases
The Company has various operating leases for both real and personal
property including Company aircraft. Rental expense for 1997, 1996 and
1995 was $10.9 million, $13.4 million and $14.9 million, respectively.
Future minimum lease payments for all noncancelable operating leases
having a remaining term in excess of one year at December 31, 1997
aggregated approximately $40.3 million, and payments during the next
five years are: 1998, $10.3 million; 1999, $8.7 million; 2000, $5.9
million; 2001, $4.3 million; 2002, $1.5 million. The Company also
receives sub-lease rental income under an operating lease, which the
approximate annual future minimum sub-rentals are $2.5 million through
November 1999.
NOTE 9 Employee Benefit Plans
Pension Plans
The Company maintains three noncontributory plans covering
substantially all employees. Benefits paid to retirees are based
primarily on age at retirement, years of credited service
and compensation earned during employment. The Company's funding policy
complies with the requirements of Federal law and regulations. The
Company's total pension fund contributions were $25.0 million, $34.4
million and $14.3 million in 1997, 1996 and 1995, respectively. The
Company's contributions are made to a master trust and invested in a
diversified portfolio consisting primarily of equity and debt
securities.
The Company has recorded an additional minimum liability representing
the excess of the accumulated benefit obligation over the fair value of plan
assets and accrued pension liability. The additional liability has been
offset by intangible assets to the extent of previously unrecognized prior
service cost. Amounts in excess of previously unrecognized prior service cost
are recorded as a reduction of stockholders' equity of $0.8 million, $1.5
million and $1.5 million in 1997, 1996 and 1995, respectively.
Net periodic pension cost was as follows:
December 31,
-----------------------------------------
1997 1996 1995
------------- ------------ ------------
(In thousands)
Service cost--benefits
earned during the period....... $ 12,466 $ 11,258 $ 9,232
Interest cost on projected
benefit obligation.............. 16,743 14,966 13,158
Actual return on
plan assets..................... (49,892) (14,431) (15,937)
Net amortization
and deferral.................... 33,974 1,794 5,570
------------- ------------ ------------
$ 13,291 $ 13,587 $ 12,023
------------- ------------ ------------
------------- ------------ ------------
Actuarial assumptions used were:
December 31,
-----------------------------------------
1997 1996 1995
------------- ------------ ------------
Discount rate................... 7.50% 8.00% 8.00%
Rate of increase in future
compensation levels............ 4.75% 4.75% 4.75%
Expected long-term rate
of return on plan assets....... 9.50% 9.50% 9.50%
The following table sets forth the funded status at September 30 and
amounts recognized in the Company's balance sheet at December 31:
1997 1996
--------- ----------
(In thousands)
Actuarial present value of benefits:
Vested............................................ $177,399 $151,048
Nonvested......................................... 26,879 20,623
--------- ----------
Accumulated benefit obligation......................... 204,278 171,671
Projected benefit obligation........................... 255,074 213,080
Plan assets at fair value.............................. 239,001 163,598
--------- ----------
Projected benefit obligation
in excess of plan assets.......................... 16,073 49,482
Unrecognized prior service cost........................ (5,860) (6,327)
Contributions paid in fourth quarter................... (6,250) (14,446)
Unamortized loss resulting from
changes in plan experience
and actuarial assumptions......................... 3,900 (9,137)
Adjustment required to recognize
additional minimum liability...................... -- 3,612
--------- ----------
Accrued pension cost................................... $ 7,863 $ 23,184
--------- ----------
--------- ----------
Other Postretirement Benefits
In addition to pension benefits, the Company provides certain health
care insurance benefits to retired Company employees and their
dependents. The Company currently funds these plans on a pay-as-you-go
basis. Substantially all of the Company s salaried employees and
certain hourly employees become eligible for such benefits when they
attain certain age and service requirements while employed by the
Company.
The status of the Company's unfunded postretirement benefit obligation
is as follows at December 31:
1997 1996
--------- ----------
(In thousands)
Accumulated postretirement
benefit obligation
Retirees........................................... $28,696 $29,577
Fully eligible active
plan participants............................. 3,371 1,645
Other active plan participants..................... 59,672 51,394
--------- ----------
Accumulated postretirement
benefit obligation in excess
of plan assets..................................... 91,739 82,616
Unrecognized prior service cost......................... 7,848 7,678
Unrecognized net loss................................... 15,818 18,411
--------- ----------
Accrued postretirement benefit cost..................... $115,405 $108,705
--------- ----------
--------- ----------
Net postretirement benefit cost included the following components:
1997 1996 1995
------------- ------------ ------------
(In thousands)
Service cost-benefits
attributed to service
during the period............... $4,091 $3,957 $3,795
Interest cost of postretirement
benefit obligation.............. 6,467 6,237 6,268
Other net amortization
and deferral.................... (1,527) (1,261) (1,139)
----------- ---------- ----------
$9,031 $ 8,933 $ 8,924
----------- ---------- ----------
----------- ---------- ----------
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.50% in 1997, 8.0% in 1996 and
8.0% in 1995. The assumed health care cost trend rate used in measuring
the accumulated postretirement benefit obligation pre-age 65 was 8.50%
in 1997, 9.25% in 1996 and 10.0% in 1995, declining annually 0.75% to a
rate of 5.5%; and for post-age 65 was 6.50% in 1997, 7.25% in 1996 and
8.0% in 1995, declining annually 0.75% to a rate of 5.0%. If the health
care cost trend rate assumptions were increased by 1.0%, the
accumulated postretirement benefit obligation as of December 31, 1997
would be increased by 14.9%. The effect of this change on the sum of
the service cost and interest cost components would be an increase of
16.2%.
Investment Plan
The Company sponsors two voluntary 401(k) investment plans which cover
substantially all employees and are designed to enhance existing
retirement plans. The Company generally matches between 37.5% to 50.0%
of employee contributions up to a maximum of four percent. Total
expense for the plans were $2.6 million, $2.2 million and $2.1 million
for 1997, 1996 and 1995, respectively.
Other Employee Benefits
The Company has supplemental benefit plans covering certain key
executives. These plans provide for benefits which supplement those
provided by the Company s other retirement plans. The Supplemental
Executive Retirement Plans are unfunded plans of deferred compensation
for certain key executives. These supplemental plans are non-qualified
and are being provided for by charges to operations sufficient to meet
the projected benefit obligation. The Executive Insurance Plan provides
additional death benefits to certain key executives. The Company
acquired life insurance policies or annuity contracts to provide
funding of the benefits. The costs for these plans are based on
substantially the same actuarial methods and economic assumptions as
those used for the defined benefit pension plans. The Company s expense
for these plans was $0.9 million in 1997, $1.1 million in 1996 and $1.3
million in 1995. The accumulated benefit obligation related to these
plans totaled approximately $5.0 million and $4.5 million, at December
31, 1997 and 1996, respectively, and is recorded in other long-term
liabilities.
The Company has an Incentive Compensation Plan administered by the
Compensation Committee of the Board of Directors which provides for
payment of cash awards to officers and key employees based upon
achievement of specific goals by the Company and the participating
employees. For the years ended 1997, 1996 and 1995 provisions of
approximately $5.8 million, $5.5 million and $4.5 million,
respectively, were charged against income related to the plan. Payouts
are based entirely on achievement of financial and business objectives.
NOTE 10 Stockholders' Equity
On October 16, 1996, the Company issued 4,559,100 shares of common
stock, and selling stockholders sold 37,940,900 shares of common stock,
in an initial public offering pursuant to the Securities Act of 1933
(the "Offering"). In connection and simultaneously with the closing of
the Offering, the Company (a) effected a recapitalization plan (the
"Recapitalization") which included (i) the repurchase of all of its
outstanding 7% Series A Cumulative Preferred Stock for a purchase price
of $450 million plus approximately $1.3 million of unpaid dividends,
(ii) the exchange of all outstanding shares of Class A, Series A-2 and
Class B common stock for Class A, Series A-1 common stock, (iii) the
redesignation of all Class A, Series A-1 common stock into common
stock, (iv) a 1.5-for-1 stock split of the common stock, and (v) the
restatement of the Company s certificate of incorporation to provide
that the authorized capital stock of the Company consists of
300,000,000 shares of common stock, par value of $.01 per share, and
20,000,000 shares of Preferred Stock, par value of $.01 per share, and
(b) issued 3,949,346 shares of common stock to certain option holders
pursuant to existing option agreements, who subsequently sold those
shares in the Offering.
Stock Options
Under the Amended and Restated 1990 Stock Option Plan approved by its
stockholders effective March 28, 1997, the Company has granted options
to purchase its common stock to certain Company employees, directors
and advisors. Generally, options granted prior to July 1, 1994 vest
25.0% on date of issuance, 25.0% on the first anniversary of the date
of issuance and 25.0% annually thereafter. Generally, options granted
on or after July 1, 1994 vest 33.3% on the first anniversary of the
date of issuance, 33.3% on the second anniversary of the date of
issuance and the last 33.3% on the third anniversary of the date of
issuance. In addition, the Company has granted options to purchase its
common stock to certain of its executive officers, directors and
advisors outside the Stock Option Plan with vesting periods ranging
from immediately up to three years. Generally, such options expire ten
years from date of grant. The Company recorded compensation expense of
$1.6 million and $7.2 million in 1997 and 1996, respectively, related
to stock option grants. At December 31, 1997, approximately 7.8 million
shares of common stock were reserved for issuance under the Stock
Option Plan and non-plan options.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Had compensation cost for the Company s stock options granted been determined
based on the fair value at the grant dates for awards under those plans
consistent with a method prescribed in SFAS No. 123, the Company s net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
1997 1996 1995
------------- ------------ ------------
(In thousands, except per share amounts)
Net income--
As reported...................... $243,011 $46,965 $28,894
Pro forma........................ 240,769 46,480 28,148
Net income per share--
basic--As reported................. $ 3.28 $ .64 $ .39
Pro forma.......................... 3.25 .63 .38
Net income per share-
diluted--As reported............... $ 3.12 $ .60 $ .37
Pro forma.......................... 3.09 .59 .36
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1997, 1996 and 1995,
respectively: expected volatility of 32.01%, 36.02% and 36.02%,
respectively; risk-free interest rate of 5.96%, 6.27% and 6.67%,
respectively; expected lives of 3 years for all years; and no dividend
yield.
A summary of the status of the Company's stock option plans as of
December 31, 1997, 1996 and 1995, and changes during the years ending
on those dates is presented below:
1997 1996 1995
------------------- ------------------ --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Shares Price Shares Price Shares Price
- ------- --------- -------- --------- -------- --------- --------
Outstanding at beginning of year.. 5,673,029 $ 3.91 8,635,323 $3.88 7,918,691 $3.83
Granted........................... 1,566,000 26.72 1,020,000 4.10 1,740,000 4.10
Exercised......................... (631,877) 4.01 (3,949,346) 3.88 (2,914) 3.51
Forfeited......................... (168,424) 3.90 (32,948) 4.10 (1,020,454) 3.89
--------- -------- --------- -------- --------- --------
Outstanding at end of year........ 6,438,728 $ 9.45 5,673,029 $3.91 8,635,323 $3.88
--------- --------- ---------
--------- --------- ---------
Options exercisable at year-end... 4,112,728 3.86 3,817,582 3.80 5,630,948 3.81
Weighted average fair value
of options granted during
the year..................... $26.95 $13.53 $4.10
Information with respect to stock options outstanding and exercisable
at December 31, 1997, is as follows:
Options Outstanding Options Exercisable
------------------------------------------------ ------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------------- ----------- ----------- -------- ----------- --------
$ 3.11-$ 4.10 4,872,728 6.4 $ 3.90 4,112,728 $3.86
$21.50-$22.75 202,000 9.2 22.09 -- --
$26.93-$29.75 1,364,000 9.7 27.40 -- --
----------- ----------- -------- ----------- --------
6,438,728 7.2 $ 9.45 4,112,728 $3.86
----------- ----------- -------- ----------- --------
----------- ----------- -------- ----------- --------
The Company had granted stock appreciation rights (SARs) to certain
officers and key employees. During 1996, the Company recorded
compensation expense related to SARs of approximately $0.4 million and
terminated its agreements with the holders of the SARs.
NOTE 11 Related Party Transactions
At December 31, 1997 and 1996, certain partnerships formed by Forstmann
Little & Co. ("Forstmann Little") owned approximately 42.1% and 42.5%,
respectively, of the Company's common stock.
During 1997, the Company purchased a pre-owned aircraft for $21.0
million from a company controlled by a director of the Company.
Under a usage agreement which ended in August 1996, the Company paid an
affiliate of Forstmann Little for the use of a Gulfstream IV which was
utilized as a demonstrator aircraft by the Company. Total expenses
associated with this agreement were $1.6 million in 1996 and $2.3
million in 1995. Beginning in August 1996, the Company engaged an
affiliate of Forstmann Little to manage the operations of the
Gulfstream IV aircraft discussed below. Total payments were $2.1
million and $0.7 million in 1997 and 1996, respectively. The Company
also procures certain inventory items from a former Forstmann Little
affiliate engaged in the aircraft industry. Management believes all
these transactions with related parties are on terms similar to those
of other customers and vendors.
In August 1996, the Company entered into agreements with the Company's
Chairman pursuant to which the Company will provide the Chairman with the use
of a Gulfstream V for a period of ten years. Until the Gulfstream V becomes
available, the Company has made available to the Chairman a Gulfstream IV,
which the Company received through an assumption of a lease from an affiliate
of Forstmann Little. During January 1997, the Company exercised its early buy
out option under the lease and purchased the aircraft from the lessor, an
international financial institution. The Chairman paid $0.8 million in 1997
and has agreed to pay the Company up to $1.0 million annually for non-company
use of the aircraft. If the Chairman is no longer serving as a director or
official of the Company, he has agreed to reimburse the Company $1,800 per
hour for all use of the aircraft, or other such rate required so as not to
exceed FAA regulatory requirements.
NOTE 12 Commitments and Contingencies
In the normal course of business, lawsuits, claims and proceedings have
been or may be instituted or asserted against the Company relating to
various matters, including product liability. Although the outcome of
litigation cannot be predicted with certainty and some lawsuits, claims
or proceedings may be disposed of unfavorably to the Company,
management has made provision for all known probable losses related to
lawsuits and claims and believes that the disposition of all matters
which are pending or asserted will not have a material adverse effect
on the financial statements of the Company.
The Company is currently engaged in the monitoring and cleanup of
certain ground water at its Savannah facility under the
oversight of the Georgia Department of Natural Resources. Expenses
incurred for cleanup have not been significant. Liabilities are
recorded when environmental assessments and/or remedial efforts are
probable and the costs can be reasonably estimated. The Company
believes the remainder of the Savannah facility, as well as other
Gulfstream properties, are being carefully monitored and are in
substantial compliance with current federal, state and local
environmental regulations. The Company believes the liabilities, if
any, that will result from the above environmental matters will not
have a material adverse effect on its financial statements.
The Company has agreements with certain of its suppliers to procure
major aircraft components such as engines, wings and avionics. The
agreements vary in length from three to five years and generally
provide for price and quantity of components to be supplied. In
connection with the Gulfstream V program, the Company has entered into
revenue sharing agreements with two suppliers. The terms of such
agreements require the suppliers to design, manufacture and supply
certain aircraft components in exchange for a fixed percentage of the
revenues of each Gulfstream V sold. Progress payments under the revenue
sharing agreements are generally required to be made on a pro rata
basis concurrent with the associated deposits received on Gulfstream V
contracts.
As of December 31, 1997, in connection with orders for 21 Gulfstream V
aircraft in the backlog, the Company has offered customers trade-in
options (which may or may not be exercised by the customer) under which
the Company will accept trade-in aircraft (primarily Gulfstream IVs and
IV-SPs) at a guaranteed minimum trade-in price. Additionally, in
connection with recorded sales of new aircraft, at December 31, 1997
the Company has agreed to accept pre-owned aircraft totaling $174.6
million. Management believes that the fair market value of all such
aircraft exceeds the specified trade-in value.
The Company purchases its major aircraft components from a limited
number of suppliers. Although the Company purchases from a limited
number of suppliers, management believes that there are other suppliers
who could provide similar components on comparable terms without
significant disruption of its production.
NOTE 13 Export Sales and Major Customers
Foreign sales by geographical area consisted of the following at:
December 31,
---------------------------
1997 1996 1995
-------- --------- --------
(In thousands)
Europe.......................................... $186,560 $ 24,764 $ 51,330
Asia............................................ 168,829 88,101 102,990
Latin America and Caribbean..................... 117,884 103,706 36,479
Africa.......................................... 3,827 73,155 6,773
Other........................................... 30,515 736 19,460
-------- --------- --------
$507,615 $290,462 $217,032
-------- --------- --------
-------- --------- --------
During 1997 and 1996, aircraft sales and services provided to one
customer comprised 8.3% and 11.7%, respectively, of the Company's net revenues.
NOTE 14 Earnings Per Share
Net income per share ("EPS") information for 1996 and 1995 is based on
historical unadjusted net income divided by pro forma weighted average
number of shares. Shares included for basic EPS give retroactive effect
to the Recapitalization, the shares issued to option holders upon the
exercise of options at the date of the Offering, and the shares issued
pursuant to the Offering (all of which are described in Note 10) as if
such transactions had occurred at the beginning of the period. Diluted
EPS further includes the effects of options granted in 1996 and 1995 as
if such options had been outstanding for all periods presented.
The following table sets forth the reconciliation of per share data as
of:
Year ended December 31,
---------------------------
1997 1996 1995
-------- ------- -------
(In thousands, except per share amount)
Net Income................................... $243,011 $46,965 $28,894
-------- ------- -------
-------- ------- -------
Basic EPS
Average shares issued
and outstanding
(after giving effect to
the Recapitalization)................... 74,095 67,530 65,403
Exercise of certain stock
options with
the Offering............................ 2,962 3,949
Shares issued pursuant
to the Offering......................... 3,419 4,559
-------- ------- -------
Weighted average common
shares outstanding...................... 74,095 73,911 73,911
Diluted EPS
Incremental shares
from stock options...................... 3,800 4,624 4,624
-------- ------- -------
Weighted average
common and common
equivalent shares
outstanding............................. 77,895 78,535 78,535
-------- ------- -------
-------- ------- -------
Earnings Per Share:
Net income
per share--basic................... $ 3.28 $ .64 $ .39
-------- ------- -------
-------- ------- -------
Net income
per share--diluted................. $ 3.12 $ .60 $ .37
-------- ------- -------
-------- ------- -------
NOTE 15 Subsequent Event
During January 1998, the Company began the repurchase of up to $200
million of its common stock. The repurchase will be funded from the
Company's available cash. As of January 30, 1998, the Company had
repurchased approximately 2.5 million shares, at an average price of $30.01 per
share, for an aggregate amount of $74.6 million.
Report of Independent Accountants
The Board of Directors and Stockholders of
Gulfstream Aerospace Corporation:
We have audited the consolidated balance sheets of Gulfstream Aerospace
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Gulfstream
Aerospace Corporation and subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- --------------------------
Deloitte & Touche LLP
Atlanta, Georgia
January 30, 1998
Report of Management's Responsibilities
The management of Gulfstream Aerospace Corporation is responsible for
the preparation and integrity of the consolidated financial statements
of the Company. The financial statements and notes have been prepared
by the Company in accordance with generally accepted accounting
principles and, in the judgment of management, present fairly the
Company s financial position and results of operations. The financial
information contained elsewhere in this annual report is consistent
with that in the financial statements. The financial statements and
other financial information in this annual report include amounts that
are based on management s best estimates and judgments and give due
consideration to materiality.
The Company maintains a system of internal accounting controls to
provide reasonable assurance that assets are safeguarded and that
transactions are executed in accordance with management's authorization
and recorded properly to permit the preparation of financial statements
in accordance with generally accepted accounting principles.
The Company's independent auditors were engaged to perform an audit of
the consolidated financial statements. This audit provides an objective
outside review of management's responsibility to report operating
results and financial condition. They review and perform tests, as
appropriate, of the data included in the financial statements.
The Board of Directors discharges its responsibility for the Company's
financial statements primarily through its Audit Committee. The Audit
Committee, comprised solely of outside directors, meets periodically
and privately with the independent auditors and representatives from
management to appraise the adequacy and effectiveness of control
systems and quality of our financial accounting and reporting.
/s/ Chris A. Davis
- ----------------------
Chris A. Davis
Executive Vice President and
Chief Financial Officer
January 30, 1998
Quarterly Financial Results (Unaudited)
The following table sets forth the unaudited consolidated statement of
operating data for each quarter of 1997 and 1996.
The operating results for any quarter are not indicative of results for
any future period.
1997(1)
-------------------------------------------------
First Second Third Fourth
---------- ---------- ----------- ----------
(In thousands, except deliveries and per share amounts)
Net revenues.................................................... $ 375,626 $ 522,906 $ 464,036 $ 540,926
Gross profit.................................................... 70,474 76,010 91,053 108,437
Income from operations.......................................... 47,037 45,445 60,668 75,546
Net income...................................................... 40,030 39,504 119,088(2) 44,389(2)
Earnings per share:
Earnings per share--basic...................................... $ .54 $ .53 $ 1.61 $ .60
Earnings per share--diluted.................................... $ .51 $ .50 $ 1.54 $ .58
Pro forma (fully taxed)
Earnings per share--diluted(3)................................. $ .33 $ .32 $ .45 $ .58
Aircraft deliveries (in units):
Gulfstream IV-SP (green)....................................... 5 5 6 6
Gulfstream V (green)........................................... 6 7 8 8
Completion..................................................... 5 5 5 11
Pre-owned aircraft............................................. 1 9 2 2
1996(1)
------------------------------------------------
First Second Third Fourth
---------- ---------- ---------- ----------
(In thousands, except deliveries and per share amounts)
Net revenues..................................................... $ 215,063 $ 243,609 $ 283,834 $ 321,207
Gross profit..................................................... 46,791 57,040 61,339 59,289
Income from operations........................................... 6,317 8,615 16,819 18,518
Net income....................................................... 6,077 9,282 17,247 14,359
Earnings per share:
Earnings per share--basic........................................ $ .08 $ .13 $ .23 $ .20
Earnings per share--diluted...................................... $ .08 $ .12 $ .22 $ .18
Pro forma (fully taxed)
Earnings per share--diluted(3).................................. $ .05 $ .07 $ .14 $ .11
Aircraft deliveries (in units):
Gulfstream IV-SP (green)........................................ 5 6 9 4
Gulfstream V (green)............................................ -- -- -- 3
Completion...................................................... 6 6 5 10
Pre-owned aircraft.............................................. 3 4 3 6
- ------------------------
(1) Non-cash compensation expense of $0.5 million, $0.5 million, $0.3 million
and $0.3 million was recorded in each of the 1997 quarters, and $0.1
million, $5.1 million, $1.5 million and $0.5 million was recorded in each
of the 1996 quarters, respectively, related to the issuance of options to
purchase common stock. See Note 10 to the consolidated financial
statements.
(2) As described under the caption Income Taxes on page 21, the Company
recorded a net income tax benefit of $63.1 million during the third
quarter of 1997. During the fourth quarter of 1997, the Company recorded
an income tax provision of $26.6 million based on an estimated effective
tax rate of 37.5%.
(3) Pro forma (fully taxed) Earnings per sharediluted is presented for all
periods assuming an estimated effective tax rate of 37.5%.
Quarterly Common Stock Price Range
1997
------------------------------------------
First Second Third Fourth
--------- --------- --------- ---------
High............................................................. $ 24.13 $ 32.75 $ 31.13 $ 32.06
Low.............................................................. 21.25 21.75 26.00 26.50
1996 (Beginning October 10th)
------------------------------------------
First Second Third Fourth
--------- --------- --------- ---------
High............................................................. -- -- -- $ 26.00
Low.............................................................. -- -- -- 20.75
Gulfstream Aerospace Corporation's common stock is traded principally
on the New York Stock Exchange under the symbol GAC. At March 5, 1998 there
were approximately 220 holders of record. The Company has never paid cash
dividends on the common stock and does not anticipate paying any cash
dividends in the near future.
Selected Financial Data
Fiscal Year 1997 1996 1995 1994 1993
- ---------------------------------------------- ------------ ------------ ------------ ---------- -----------
(In thousands, except per share data)
Income Statement Data
Revenues...................................... $ 1,903,494 $ 1,063,713 $ 1,041,514 $ 901,638 $ 887,113
Income (loss) from operations(1).............. 228,696 50,269 42,090 43,883 $ (226,773)
Net income (loss)............................. 243,011 46,965 28,894 23,564 (275,227)
Earnings per share:
Earnings per share--basic(2).................. 3.28 .64 .39 N/A N/A
--diluted(2)................ 3.12 .60 .37 N/A N/A
------------ ------------ ------------ ---------- -----------
Balance Sheet Data
Working capital............................... $ 295,811 $ 138,091 $ 356,976 $ 301,913 $ 302,369
Total assets.................................. 1,473,667 1,313,215 981,253 745,761 799,470
Total debt(3)(4).............................. 380,000 400,000 146,331 178,145 206,145
Total stockholders' equity deficit(3)......... 92,757 (188,811) 217,540 188,950 164,395
- ------------------------
(1) In 1993, the Company recorded a charge for a restructuring plan based upon
the Company's reassessment of its business plan and its products from
which it has realized improved operating efficiencies, reduced costs and
increased overall profitability.
(2) Earnings per share ("EPS") information for 1996 and 1995 is based on
historical unadjusted net income divided by pro forma weighted average
number of shares. Shares included for basic EPS give retroactive effect to
the Recapitalization, the shares issued to option holders upon the exercise
of options at the date of the Offering, and the shares issued pursuant to
the Offering (all of which are described in Note 10 to the consolidated
financial statements) as if such transactions had occurred at the beginning
of the period. Diluted EPS further includes the effects of options granted
in 1996 and 1995 as if such options had been outstanding for all periods
presented. See also Note 14 to the consolidated financial statements for a
reconciliation of per share data.
(3) Total stockholders'equity and total debt at December 31, 1996 gives effect
to the Recapitalization and Offering which occurred during the fourth
quarter 1996. See "Liquidity and Capital" Resources on page 22 of the 1997
Annual Report.
(4) During November 1993, the Company converted $469 million of subordinated
debentures (including accrued interest) to 7% Cumulative Preferred Stock in
connection with the 1993 recapitalization.
GV flying
[FULL PAGE PICTURE]
Gulfstream Aerospace Corporation is a leading designer, developer,
manufacturer and marketer of the world's most technologically advanced
intercontinental business jet aircraft. Gulfstream has developed a range of
products and services to meet the aviation needs of its customers, including
the Gulfstream IV-SP, the Gulfstream V, Gulfstream Shares, Pre-owned
Gulfstream Aircraft and Gulfstream Financial Services. In 1997, Gulfstream
delivered its 1,000th aircraft, continuing a tradition of leadership in
business aviation which spans forty years. Nearly two-thirds of all large
cabin aircraft operated by Fortune 500 corporations bear the Gulfstream name.
In addition, 38 governments around the world employ Gulfstream aircraft for a
variety of special missions.
Corporate Information
Corporate Offices
Gulfstream Aerospace Corporation
500 Gulfstream Road
Savannah, Georgia 31408
(912) 965-3000
Website
www.gulfstreamaircraft.com
Annual Meeting
9:30 a.m.
May 14, 1998
St. Regis Hotel
Two East 55th Street
New York, New York 10022
Transfer Agent and Registrar
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660
(800) 526-0801
www.chasemellon.com
Stock Listing
New York Stock Exchange
Symbol "GAC"
Independent Accountants
Deloitte & Touche LLP
100 Peachtree Street
Atlanta, Georgia 30303-1943
Financial Information
Copies of Gulfstream's annual
report and Form 10-K submitted
to the Securities and Exchange
Commission may be obtained
by visiting the Company's website
or by written request to:
Investor Relations
P.O. Box 2206, Mail Stop B-14
Savannah, Georgia 31402-2206
Robert J. Collier Trophy
[FULL PAGE PICTURE]
GULFSTREAM AND THE GULFSTREAM V INDUSTRY TEAM
ARE PROUD TO BE THE RECIPIENTS OF THE
1997 ROBERT J. COLLIER TROPHY.
- ------------------------------------------------------------------------------
Awarded annually by the National Aeronautic Association, the Collier
Trophy is recognized as the aviation industry's most prestigious award and
honors the year's top aeronautical achievement.
Gulfstream and the Gulfstream V Industry Team were recognized "for
successful application of advanced design and efficient manufacturing
techniques, together with innovative international business partnerships, to
place into customer service the Gulfstream V -- the world's first ultra-long
range business jet."
Gulfstream joins a distinguished list of past Collier Trophy recipients
which includes Orville Wright, Chuck Yeager, John Glenn and Neil Armstrong.
The Collier Trophy is on permanent display at the Smithsonian Institute's
National Air and Space Museum in Washington, D.C.