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                               UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549
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                                   FORM 10-K
(Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)(MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 1-8461
GULFSTREAM AEROSPACE CORPORATION DELAWARE 13-3554834 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
P. O. BOX 2206 500 GULFSTREAM ROAD SAVANNAH, GEORGIA 31402-2206 (912) 965-3000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - -------------------------------------------------------- --------------------------------------------------------Name of each exchange Title of each class on which registered ------------------- ------------------- COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/X No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /X The aggregate market value of the shares of common stock held by non-affiliates of the registrant (based on the closing price for the common stock on the New York Stock Exchange on March 20, 19981, 1999 was $1,728,385,638.$2,605,156,713. For purposes of this computation, shares held by affiliates and by directors of the registrant have been excluded. Such exclusion of shares held by directors is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant. As of March 20, 1998,1, 1999, there were outstanding 72,667,26572,765,418 shares of the registrant's common stock, par value $.01, which is the only class of common stock of the registrant. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 19971998 (the "1997"1998 Annual Report") are incorporated by reference in Parts II and IV of this Form 10-K. Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 14, 199819, 1999 (the "1998"1999 Proxy Statement") are incorporated by reference in Part III of this Form 10-K to the extent stated herein. Except with respect to information specifically incorporated by reference in this Form 10-K, neither the Annual Report nor the Proxy Statement is deemed to be filed as a part hereof. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------=========================================================================== PART I ITEM 1. BUSINESS GENERAL Gulfstream Aerospace Corporation (the "Company") is recognized worldwide as a leading designer, developer, manufacturer and marketer of the most technologically advanced intercontinental business jet aircraft. Since 1966, when the Company created the large cabin business jet category with the introduction of the Gulfstream II, the Company has dominated this segment of the market, segment, capturing a cumulative market share of approximately 60%. The Company has manufactured and sold over 1,000 large business aircraft since the introduction of the Gulfstream product line in 1958. The Company has developed a broad range of aircraft products to meetoperates principally in three segments: New Aircraft, Aircraft Services and Pre-owned Aircraft. Within New Aircraft, the aviation needs of its targeted customers (which include national and multinational corporations, governments and governmental agencies, heads of state and wealthy individuals). The Company's current principal aircraft productsproduct offerings are the Gulfstream IV-SP, the Gulfstream V, Gulfstream Shares-Registered Trademark-Shares(R) (fractional ownership interestsinterest in Gulfstream IV-SPs)IV-SPs and pre-owned Gulfstream aircraft. As an integral part of its aircraft product offerings, the Company offers aircraft completion (exterior painting of the aircraftVs), and installation of customer selected interiors and optional avionics) and worldwide aircraft maintenance services and technical support for all Gulfstream aircraft. In addition,LeaseSM. Also, the Company's financial services subsidiary, Gulfstream Financial Services Corporation, through its private label relationship with a third-party aircraft financing provider,providers, offers customized products to finance the worldwide sale of Gulfstream aircraft. Within it's Aircraft Services segment, the Company offers aftermarket maintenance services, spare parts, engine overhaul and auxiliary power unit service and overhaul for both Gulfstream and other business aircraft. The Company is the ultimate successorCompany's Pre-owned Aircraft segment markets and sells pre-owned Gulfstream aircraft and other business aircraft, acquired in trade, to a business (the "Predecessor Business") established by Grumman Aerospace in 1956. In 1978,worldwide market. On October 16, 1996, the Predecessor Business was acquired by a group of investors headed by Allen E. Paulson, the then ChairmanCompany sold 4,559,100 shares of the Predecessor Business. Chrysler Corporation ("Chrysler") acquired the Predecessor Business in 1985. In March 1990, the Gulfstream business was acquired from Chrysler byCompany's Common Stock, and certain partnerships (the "Forstmann Little Partnerships") formed by Forstmann Little & Co. ("Forstmann Little"). On October 16, 1996, the Company sold 4,559,100 shares of the Company's Common Stock, and the Forstmann Little Partnerships and certain option holders of the Company's Common Stockcommon stock, sold 37,940,900 shares of the Company's Common Stockcommon stock, in an initial public offering at a price of $24.00 per share. In May 1998, the Forstmann Little Partnerships and certain stockholders and option holders completed the sale of 18 million shares of common stock in a secondary offering at a price of $43.00 per share. As of March 20, 1998,1, 1999, the Forstmann Little Partnerships owned approximately 43.2%22.8% of the outstanding shares of the Company's Common Stock. PRINCIPAL PRODUCTScommon stock. ACQUISITION OF K-C AVIATION On August 19, 1998, the Company completed the acquisition of K-C Aviation, Inc. for approximately $250 million, including acquisition costs. The acquisition is a key part of Gulfstream's growth strategy and has allowed the Company to obtain a skilled workforce, as well as add additional capacity to accelerate its aircraft completions business, jetdiversify and grow its aircraft maintenance and parts business, and strongly establish the Gulfstream name in the aircraft engine and auxiliary power unit service market. K-C Aviation was a leading provider of business aviation services and the largest independent completion center for business aircraft in North America. The acquisition has provided the Company with the capacity for approximately 21 additional aircraft interior completions. In addition to custom aircraft interiors, K-C Aviation was the second largest independent aircraft engine service center in the United States and also offered maintenance services, spare parts, auxiliary power unit service, avionics retrofit, non-destructive testing and component overhaul. NEW AIRCRAFT The Company's New Aircraft segment operates in the business aircraft market which is generally divided into four markets--light,segments -- light, medium, large and ultra-long range. These marketsmarket segments are defined on the basis of range, cabin volume and gross operating weight. The Company sells new aircraft on a completed basis, including exterior paint, installation of customer selected interiors and optional avionics. The Company's principal product offerings are discussed below: GULFSTREAM V The Company's newest aircraft product is the Gulfstream V, which serves the ultra-long range market. The Company believes the Gulfstream V provides the longest range, fastest cruising speed and most technologically advanced avionics of any ultra-long range business jet aircraft currently in operation. The Gulfstream V received final type certification from the Federal Aviation Administration ("FAA") on April 11, 1997. The Company had manufactured and delivered 32 Gulfstream Vs through 1997. Deliveries of the first outfitted aircraft to customers began in 1997. In its first six months in service,To date, the Gulfstream V has set 4055 world and national records. The Company had received a total of 121 orders, 136 including options, for the Gulfstream V and had manufactured and delivered 61 Gulfstream Vs through 1998. As confirmation of the product's innovative design and outstanding performance, the Gulfstream V received the 1997 Robert J. Collier Trophy for aeronautical achievement and was selected by the United States Air Force to provide intercontinental transportation for senior government officials and dignitaries. The Gulfstream V has a maximum operating speed of Mach .885. It can accommodate up to 19 passengers and has a range of up to 6,500 nautical miles. These capabilities permit routine intercontinental travel at cruising speeds comparable to commercial airline cruising speeds, while operating efficiently at altitudes as high as 51,000 feet, flying above most commercial airline traffic and adverse weather. The Gulfstream V is versatile enough to fly long-range missions, such as New York to Tokyo in approximately 14 hours, as well as high-speed missions, such as New York to London, in approximately six hours. 2 The Gulfstream V design process combined modern technology with the conservative design philosophy of all Gulfstream aircraft. The Gulfstream V aircraft development was launched in 1992 and significantly enhanced in 1993 in response to extensive market research. Aerodynamic profiles were developed and verified using computational fluid dynamics (CFD) and scale model wind tunnel testing. Following systems definition, detailed designs were prepared on both two dimensional (CADAM) and three dimensional (CATIA) digital computer models, thereby eliminating the need to construct a physical prototype of the new aircraft. The Company estimates that Gulfstream, its revenue share partners and key suppliers will have invested over $800 million, in the aggregate, in developing the Gulfstream V. The Gulfstream V is equipped with two 14,750-pound-thrust BR710 engines built by BMW Rolls-Royce GmbH, which were specifically designed for use on the Gulfstream V and for which Gulfstream was the launch customer. The sound levels of the Gulfstream V's engines are well below FAA Stage 3 and ICAO/Chapter 3 regulatory requirements (the FAA's and ICAO's most stringent noise abatement regulations). These engines are designed to operate 7,000 flight hours between major overhauls and, due to fuel efficiency, operate at a lower cost than the engines of the Gulfstream IV-SP. The BR710 engine was certified by the Joint Aviation Authorities and the FAA in 1996. The aircraft utilizes dual cabin pressurization systems to minimize cabin altitude. At it'sits cruising altitude of 51,000 feet, the Gulfstream V cabin altitude is only 6,000 feet, the lowest cabin altitude of any jet aircraft.aircraft in its class. This low cabin altitude, together with a 100% fresh air ventilation system (instead of a recirculating air system), significantly reduces passenger fatigue. The advanced flight systems on the Gulfstream V include automatic throttle systems, an integrated performance computer system, an engine information crew advisory system, a dual global positioning system and independent inertial reference systems. These systems provide accurate flight planning, as well as automatic control, throughout the planned flight profile. For maximum safety, a Traffic Collision Avoidance System, turbulence and wind shear-detecting radar and an enhancedEnhanced Ground Proximity Warning System are also standard. An additional safety feature of the Gulfstream V is an optional head-upheads-up display ("HUD"). The HUD optimizes pilot performance and improves flight safety, especially in low visibility conditions, by reducing the pilot's dependence on the instrument panel, thus allowing the pilot to direct his vision outside the cockpit. In order to reduce the business risk associated with the design and manufacture of the Gulfstream V, the Company entered into revenue sharing agreements with Northrop Grumman Corporation for the wing and Fokker Aviation B.V. (a subsidiary of Stork B.V.) for the empennage. Under these agreements, the revenue share partner is responsible for the detailed design, tooling and manufacture of the systems in exchange for a fixed percentage of revenues of each Gulfstream V sold (which the Company records as a cost of goods sold upon an aircraft delivery). Thus, in addition to financing the development, manufacture and delivery of its components, each manufacturer shares in the risk of fluctuations in demand and market price of the Gulfstream V. The Company had received a total of 81 orders through 1997 for the Gulfstream V. In 1997, the Gulfstream V was selected by the U. S. Air Force for its VCX program for use in the Special Mission Air Wing. The list price for a completed Gulfstream V is currentlyexpected to be approximately $38,000,000 (depending on$39.5 million depending upon selected options, escalation and selected options).availability. The Company provides a purchaser of a Gulfstream V with a 20 year or 20,000 flight hour warranty (whichever comes first) on the airframe structure and a six-year warranty on components (other than the engines). BMW Rolls-Royce GmbH provides a direct five-year or 2,500 flight hour warranty (whichever comes first) on the engines to purchasers of a Gulfstream V. GULFSTREAM IV-SP The Company'sNew Aircraft segment's other principal aircraft product is the Gulfstream IV-SP, serving the large cabin business jet market. The Company believes that the Gulfstream IV-SP offers the best combination of large cabin size, long range, fast cruising speed and technologically advanced avionics of any large business jet aircraft in its market segment. The Gulfstream IV-SP is an enhanced version of the Gulfstream IV. (See "--Past Aircraft Product Offerings" page 11). TheIn total, the Company has manufactured and sold 114359 Gulfstream IV/IV-SPs from 1993 to 1997 and 213 Gulfstream IVs from 1985 to 1992. The Company continues to manufacture1998, making it the Gulfstream IV-SP along withbest selling large cabin business jet in the Gulfstream V. 3 history of business aviation. The Gulfstream IV-SP can accommodate up to 19 passengers, has a range of up to 4,220 nautical miles and a cruising speed of up to Mach .85. These capabilities permit routine intercontinental travel at cruising speeds comparable to commercial airline cruising speeds, while operating efficiently at altitudes as high as 45,000 feet, flying above most commercial airline traffic and adverse weather. The Gulfstream IV/IV-SP is the holder of 67over 70 distance, altitude and speed records for aircraft of its class including east-bound and west-bound around-the-world speed records (36 hours and 8 minutes (east-bound) and 45 hours and 25 minutes (west-bound)). The Company developed the SP (Special Performance) version of the Gulfstream IV with enhanced avionics, increased interior cabin width and height, and increased allowable landing weight, providing improved mission flexibility and allowing the Gulfstream IV-SP to fly multiple-leg trips without refueling. The Gulfstream IV-SP is equipped with two Rolls-Royce Tay fan jet engines which have commercial airline-proven reliability and performance. The Tay engines can operate 8,000 flight hours between major overhauls, producing aircraft operating costs for the Gulfstream IV-SP that the Company believes are comparable to those of its competitors. Additionally, the Gulfstream IV-SP, together with the Gulfstream IV and the Gulfstream V, are the only business jet aircraft combiningcombine an electronic "all glass cockpit" and an advanced avionics suite consisting of a fully integrated computerized flight management system, including a performance computer and automatic throttle systems. The list price for a completed Gulfstream IV-SP, is currentlyexpected to be approximately $28,600,000 (depending$29.5 million depending upon selected options).options, escalation and availability. The Company provides a purchaser of a Gulfstream IV-SP with a 15 year or 15,000 flight hour warranty (whichever comes first) on the airframe structure and a 30 month warranty on most other parts (other than the engines). Rolls-Royce provides a direct 5 year or 2,500 flight hour warranty (whichever comes first) on the engines to purchasers of a new Gulfstream IV-SP. Since the first delivery of a Gulfstream IV in 1985, warranty claims on the Gulfstream IV and Gulfstream IV-SP have aggregated less than 1% of aggregate net revenues from the sales of Gulfstream IVs and Gulfstream IV-SPs. GULFSTREAM IV-MPASHARES(R) The Company has designed and manufactured the Gulfstream IV-MPA, a multi-purpose derivative of the Gulfstream IV (designated C20-G) procured by and in service for the U. S. Navy. The Gulfstream IV-MPA may be equipped with a six-foot wide cargo door and/or high density seating (up to 26 passengers). These aircraft have the capability to convert from a cargo configuration to a 26 passenger configuration in less than four hours. Depending upon the specific configuration, the Gulfstream IV-MPA's list price ranges from $28,600,000 to $32,600,000. There are currently 8 Gulfstream IV-MPAs in service. The Company believes that the Gulfstream IV-MPA and other special mission modifications of the Gulfstream IV-SP aircraft will be important products for meeting the needs of government operators, military organizations, civil authorities and intelligence gathering agencies. GULFSTREAM SHARES-REGISTERED TRADEMARK- The Company offersoffered customers fractional ownership in Gulfstream IV-SP aircraft through a program established by the Company in 1995 in conjunction with EJI's NetJets-Registered Trademark- program.Executive Jet ("EJ"). In 1998, the Company and EJ announced the expansion of that program to include Gulfstream V aircraft. This program is designed to provide customers with the benefits of Gulfstream IV-SP aircraft ownership at a substantially lower cost than the purchase of an entire aircraft. The program significantly expands the market for Gulfstream IV-SP and Gulfstream V aircraft to include those customers whose aircraft usage patterns or financial resources do not justify or permit the direct purchase of a Gulfstream aircraft. The Gulfstream Shares-Registered Trademark-Shares program, by teaming Gulfstream and EJI,EJ, has brought the Gulfstream name, quality, reputation and marketing infrastructure together with the operational experience and reputation of the founder and leader in the business jet aircraft fractional ownership market. 4 The Gulfstream Shares-Registered Trademark-Shares program is marketed by the Company. EJIEJ purchases Gulfstream IV-SPs and Gulfstream Vs from the Company and then sells fractional ownership interests in such aircraft generally in one-eighth or one-quarter increments for which the customer receives 100 or 200 hours of flying time per year, respectively, with a guaranteed response time for pick-up of 10ten hours or 6six hours, respectively. As of December 31, 1997,1998, the Company had contracted to deliver to EJI 27EJ 44 Gulfstream IV-SPs and 212 Gulfstream Vs in connection with the North American Gulfstream Shares-Registered Trademark-Shares program, 15 of which had been deliveredplus options for additional 12 Gulfstream Vs. Of these, 18 Gulfstream IV-SPs are in service, and 14 of which will be deliveredthe remaining 50 Gulfstream IV-SPs and Gulfstream Vs are scheduled for delivery through 2000. EJI also has an option to purchase two additional GIV-SPs.2007. The customers enter into management and operating contracts with EJIEJ which provide guaranteed services and operating costs. EJI'sEJ's agreement with its customers provides for a term of 5five years with certain termination and renewal rights. There is no recourse to the Company under the provisions of these agreements or under the Company's contractual agreement with EJI.EJ. The Gulfstream IV-SP aircraft are maintained by the Company under a maintenance agreement with EJI.EJ. Further, under a lease arrangement, the Company provides EJIEJ up to 3 pre-owned Gulfstream IV aircraft (which are included in the Company's pre-owned aircraft inventory) which make up EJI'sEJ's core fleet and are used to facilitate EJI'sEJ's meeting its response time and service guarantees. In 1998, EJ exercised an option to purchase three new aircraft to replace these core-fleet aircraft. The Company has a proprietary agreement with EJIEJ relating to the marketing activities and provision of the core fleet, pursuant to which the Company is reimbursed for certain marketing expenses and earns royalty fees on certain EJIEJ revenues. The Company's marketing services agreement for Gulfstream Shares-Registered Trademark-Shares has a term of threefive years from 1996 whichto 2003 and can be extended by mutual agreement of the parties. In addition to providing1998, the Company with an incremental source of revenues,expanded the Company believesShares Program into the Gulfstream Shares-Registered Trademark- program represents an important marketing tool. Fractional ownership provides the CompanyMiddle East, with a lower priced product that allows it to broaden its potential market and to create an entry level product for new Gulfstream customers. Fractional ownership also allows the Company to offer an interim solution for customers who have an immediate need for12 aircraft transportation and desire to purchase a whole aircraft, but must wait for delivery due to the order backlog. The Company is currently pursuing opportunities for international Gulfstream Shares-Registered Trademark- programs. In 1997, the Company and EJI announced the signing of letters of intent$335 million contract with a group of Middle East investorsinvestors. The first Middle East Shares aircraft was delivered green in the third quarter of 1998 and will enter service in the second quarter of 1999. SPECIAL MISSION AIRCRAFT The Company has designed and manufactured several derivatives of the Gulfstream V and Gulfstream IV-SP which are utilized for military and government Special Mission applications. These derivatives include the cargo door equipped Gulfstream IV/IV-SP aircraft in service with the U. S. Navy and Japanese Air Force which are designated the C-20G and U-4, respectively, and the long established U. S. Air Force C-20H Special Air Mission Gulfstream IV-SPs. Additional Special Mission derivatives are in military and government use throughout the world in diverse roles including signal intelligence, reconnaissance, medical evacuation, hurricane tracking, airways flight inspection and priority transport. In 1997, a Gulfstream V derivative was selected by the U. S. Air Force for its VCX high priority transport program. With the 1998 order for a Gulfstream V for the purchase of up to 12 Gulfstream IV-SP aircraftU. S. Army and the operation of a Middle East fractional ownership program. AIRCRAFT COMPLETION Whenadditional C-37 option exercised in February 1999, the Company sells a newprogram currently includes four firm orders and three options for Gulfstream V C-37A aircraft. The C-37A aircraft will be operated by the U. S. Air Force Special Air Mission Wing and the U. S. Army. There are currently 49 Gulfstream IV/IV-SP and four Gulfstream V aircraft in military or Gulfstream IV-SP, it generally contractsgovernment service in 34 countries, with its customeran additional 13 Special Mission aircraft to deliver a green aircraft and a completed interior. The Company's completion services include painting and installing customer selected interiors and optional avionics.be delivered. The Company believes that its completion services improve customer satisfaction while enhancing the Company's profitability. The Company has proprietary control over the specifications required to complete a Gulfstream V. Although other companies offer completion services forSpecial Mission derivatives of the Gulfstream IV-SP and Gulfstream V will continue to be important products for meeting the needs of government operators, military organizations, civil authorities and intelligence gathering agencies. GULFSTREAM LEASE In 1998, Gulfstream announced Gulfstream Lease, a venture between the Company believes itand GATX Capital. The venture, Gulfstream GATX Leasing Company, LLC ("GGLC"), has an advantage over other suppliers duesigned a contract to Gulfstream's understanding of its ownpurchase six aircraft and the interface requirements necessary for installation of custom-designed interiors and optional avionics systems. The Company believes that it also provides superior craftsmanship in designing and building customized interiors. Gulfstream has increased its completion order rate on new aircraft as a percentage of green aircraft orders from 70% in 1990 to almost 100% in 1997. In an effort to simplify the selling process and to capture completion business, the Company currently markets its aircraft to customers on a completed basis. As part of this effort, the Company has developed an aircraft completion program that offers customers a customized interior using core standardized design elements. The use of these standardized elements allows the Company to more accurately predict and reduce costs, cut cycle times and increase consistency of production. This, together with its integrated marketing strategy, has allowed the Company to perform substantially all of the completion services for its green aircraft since 1993. The Company's completion centers, located in Savannah, Georgia; Brunswick, Georgia; and Long Beach, California, offer full completion and refurbishing services. The Company's completion centers can accommodate an aggregate of up to 20 aircraft at one time. 5 PREMIUM PRE-OWNED GULFSTREAM AIRCRAFT AND OTHER PRE-OWNED AIRCRAFT Pre-owned aircraft are routinely accepted in trade to facilitate the sale of new Gulfstream IV-SPs and Gulfstream Vs. The Company uses pre-owned Gulfstream aircraft as a significant tool in expanding the Company's potential market and competing with lower priced, new aircraft products. The Company refurbishes pre-owned Gulfstream aircraft and markets these aircraft as a branded product of the Company. Pursuant to this program, the Company backs pre-owned Gulfstream aircraft with a 5 year warranty on the airframe structure and a 12 month warranty on virtually all other parts, including the engines under a separate warranty from Rolls-Royce Commercial Aero Engines Limited. Trade-in values for pre-owned aircraft are based on estimated fair market value ("FMV") at the time the trade-in will actually occur. If the trade-in time is greater than twelve months into the future, the Company's current practice is to reserve the right to determine FMV not more than six months prior to delivery of the green aircraft. Trade-in aircraft are always entered into inventory at the lower of cost or estimated realizable value. Any excess value offered to a customer above estimated realizable value is recognized as a reduction in the revenue received in the new aircraft sale transaction. Through its trade-in agreements, the Company reserves the right to pre-market the trade-in aircraft prior to acceptance of title from the customer. Over the past several years, the Company has generally been successful in entering sales agreements on trade-in aircraft prior to acceptance of title. If market conditions change, however, no assurances can be made that the Company can continue this practice. The Company has provided a portion of its Gulfstream V customers whose contracts are currently in backlog with an option to trade in a Gulfstream aircraft at the time of their Gulfstream V aircraft delivery. These options may be at a specified dollar amount or at FMV "to be determined six months prior to green delivery" of the Gulfstream V. The Company continues to assess those options which are at a fixed dollar amount in light of market conditions and has determined such fixed dollar options are no higher than the FMV estimated for the time of Gulfstream V aircraft delivery. Although no assurance can be given that the fixed dollar trade-in aircraft values will remain at or below FMV at the time of trade, any adjustments required for values in excess of FMV will be appropriately reflected in the new aircraft sales transaction and the pre-owned inventory will be stated on the Company's books at the lower of cost or estimated realizable value. The Company has obtained certification of Gulfstream IIIs, Gulfstream IVs and Gulfstream IV-SPs for use in the Commonwealth of Independent States (the former Soviet Union) as a part of the Company's efforts to develop select international markets through the introduction of lower priced, pre-owned Gulfstreams. AIRCRAFT SERVICES, PARTS AND TECHNICAL SUPPORT The Company is committed to supporting, servicing and expanding the Gulfstream aircraft fleet as part of its customer-oriented strategy. The Company provides worldwide service and support by integrating a network of Company-owned service centers, three levels of authorized third-party service providers, worldwide parts depots, worldwide service representatives and 24 hour-a-day technical/AOG (aircraft on the ground) support. The Company believes that the service business offers potential for future expansion and growth as the Gulfstream fleet grows and that the high level of service the Company provides results in significant repeat business. SERVICE CENTERS. The Company operates service centers in Savannah and Brunswick, Georgia and Long Beach, California for aircraft maintenance functions, including modifications and major repairs. In 1996, the Company opened a new 200,000 square foot, state-of-the-art, service facility in Savannah, Georgia, with capacity for 12 to 20(five Gulfstream Vs and one Gulfstream IVs. In 1997, the Company expanded the Service Center operations in SavannahIV-SP) and options to 24 hours a day, 7 days a week. The Company has license agreements with Marshalls of Cambridge (Cambridge, England), Chrysler's Pentastar Aviation subsidiary (Ypsilanti, Michigan)purchase an additional three Gulfstream Vs and Jet Aviation (Singapore)three Gulfstream IV-SPs. GGLC is owned 85% by GATX Capital and 15% by Gulfstream. This program is expected to provide service, maintenance and repairsan important vehicle for Gulfstream aircraft. The licensees provide additional geographic service locations for the expanding Gulfstream fleet. Royalty fees are paid to the Company by the licensees based on labor hours expended. In addition, Associated Airlines 6 (Melbourne, Australia) and Jet Aviation Business Jets (Geneva and Basel, Switzerland) serve as authorized warranty centers. PARTS. Parts are provided to aircraft owners through a network of five Company parts depots. Proprietary initiatives (including cancellation of discounts to third-party outlets, a gradual adjustment of parts pricing for high use items, and a gradual elimination of international price premiums) have been undertaken in the last three years to develop, improve and sustain the Company's competitive advantage in the fragmented parts market and to improve customer service levels. TECHNICAL INFORMATION. The Company markets aircraft support publications and technical documents to its customers and to third party service facilities. Additionally, a proprietary computerized maintenance program (CMP) is offered as a subscription service to customers for the management and tracking of the maintenance status of their aircraft. Approximately 95% of the Company's customers utilize this service. The Company has instituted a policy requiring third-party maintenance facilities to purchase factory technical support for scheduled maintenance performed on customer aircraft. SERVICECARE. In 1997, the Company introduced its ServiceCareSM program, the first comprehensive airframe, engine and avionics maintenance program to be offered in the business aircraft market, which provides customers of new Gulfstream IV-SPsaircraft sales, by offering customers an additional solution for their interim aircraft operating needs and introducing customers with scheduledless initial capital to Gulfstream's product offerings. Gulfstream will market the leases and unscheduledprovide maintenance at guaranteed costs. Coverage is provided on a world-wide basis, with all work to be accomplished at Gulfstream or Gulfstream authorized service centers.services, while GATX Capital will provide account management services. GULFSTREAM CHARTER AND AIRCRAFT MAINTENANCE SERVICES.MANAGEMENT SERVICES The Company has developed a proactive marketing and sales effort in its maintenance services operations, which has supported an increase in market shareGulfstream Charter Services to approximately 60% of the maintenance services market share for the Gulfstream fleet in 1997. The Company's estimated market share was approximately 55% in 1996. TRAINING AND FACILITIES. The Company provides pilot and maintenance training services toprovide its customers as an integral component of the sale of new Gulfstream IV-SP, Gulfstream V and pre-owned Gulfstream aircraft. The Company has long-term agreements with FlightSafety International ("FSI") for the provision of this high quality training service. FSI maintains and operates training facilities co-located with the Company's Savannah and Long Beach operations. In 1997, FSI completed a new 65,000 square foot training facility adjacenteasy access to the Gulfstream Service Center in Savannah. This facility, which became operational in January 1998, contains 21 classrooms, 16 briefing roomscharter market. The program helps customers meet their interim and four CPM (cockpit procedures modules) rooms.supplemental lift requirements by connecting potential Gulfstream charter customers with operators through a private label relationship with a charter services manager. In addition, it houses simulators supporting the entire Gulfstream product line (Gulfstream I through Gulfstream V). Gulfstream, in conjunction with FSI, facilitatesChrysler Pentastar Aviation, Inc., offers Gulfstream Management Services, a program for the operationmanagement of a Customer Training Advisory Board which provides direct customerGulfstream aircraft. Through this service, individual and original equipment manufacturer input to FSI's training curriculums and course content. Additionally, pilotcorporate owners of Gulfstream aircraft can receive aircrew, dispatch and maintenance training services are provided to Gulfstream customers by SimuFlite Training International ("SimuFlite") located at Dallas-Fort Worth International Airport, Texas. SimuFlite provides training services for Gulfstream II, Gulfstream III and Gulfstream IV aircraft. Gulfstream, in conjunction with SimuFlite, facilitates the operation of an additional Customer Training Advisory Board which provides direct customer and original equipment manufacturer input to SimuFlite training curriculums and course content.management services. AIRCRAFT FINANCING ARRANGEMENTS The Company, through its subsidiary Gulfstream Financial Services Corporation ("GFSC"), provides customers with access to customized financial products to support the worldwide sale of Gulfstream new and pre-owned aircraft. GFSC representatives typically consult with potential customers to develop the most effective means of financing the purchase of a Gulfstream jetaircraft for each such customer's specialized needs. 7 The financial products (including capital and operating leases, loans, tax advantaged leases, like-kind exchange options and Export-Import Bank support) are provided on a competitive basis through a proprietary, private label relationship with a prominent provider of aircraft financing (the "Financing Provider"), that has full credit review and approval rights and assumes all credit risk with no recourse to the Company. Additionally, the Company and the Financing Provider have entered into a re-marketing arrangement which enables the Company to manage the resale of any Gulfstream aircraft whose lease financing period has ended. This private label agreement has a term of five years from 1996 with a minimum lending commitment of $250 million annually, and can be extended by mutual agreement of the parties. In 1997, over $300 million of aircraft were financed through this program. The Company believes that the access provided by GFSC to financing sources for customers throughout the world serves to expedite and increase sales of new and pre-owned aircraft and also enables the Company to effectively manage the residual values of the Gulfstream fleet. BACKLOG AND NEW ORDERS At December 31, 1997, the Company had a firm contract backlog of approximately $2.8 billion, representing a total of 45 contracts for Gulfstream Vs and 43 contracts for Gulfstream IV-SPs compared with $3.1 billion at the end of 1996, representing a total of 67 contracts for Gulfstream Vs and 27 contracts for Gulfstream IV-SPs.TRAINING The Company includesprovides pilot and maintenance training services to its customers as 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. Approximately 38%integral component of the Company's contract backlog is scheduled for delivery beyond 1998. Generally, at the signingsale of anew Gulfstream IV-SP, or Gulfstream V contract, a customer makes a non-refundable deposit with the Company. Subsequently, the customer makes a series of significant progress payments, with the balance of the purchase price due at delivery of the greenand pre-owned Gulfstream aircraft. The Company monitorshas long-term agreements with FlightSafety International ("FSI") for the conditionprovision of its backlogthis high quality training service. FSI maintains and believes, based onoperates training facilities co-located with the nature of its customersCompany's Savannah and its historical experience, that there will not beLong Beach operations. In 1997, FSI completed a significant number of cancellations. However,new 65,000 square foot training facility adjacent to the extent that there is a lengthy period of time between a customer's aircraft orderGulfstream Service Center in Savannah. This facility, which became operational in January 1998, contains 21 classrooms, 16 briefing rooms and its expected delivery date, there may be increased uncertainty as to changes in business and economic conditions which may affect customer cancellations. New orders for the Gulfstream V and the Gulfstream IV-SP totaled 7 and 39, respectively in 1997, 21 and 44, respectively, in 1996, and 12 and 30, respectively in 1995. Orders tend to vary from year to year reflecting a number of factors, including competitive circumstances, worldwide economic and geopolitical conditions and the timing of customer decisions in placing new orders due to budget planning and specific transportation needs. CUSTOMERS AND MARKETING The majority of the Company's aircraft are sold to national and multinational corporations and governments. Gulfstream's aircraft are operated by customers in a wide spectrum of industries and customer groups, including: pharmaceuticals, consumer goods, high technology, energy, industrial manufacturing, finance, insurance, real estate, mining, transportation, communications, public utilities, retail trade, the United States government, other sovereign entities, and individuals Seventy percent of the Gulfstream fleet is based in North America and 30% of the fleet is based in 45 countries worldwide. Current owners of Gulfstream aircraft include 31 of the Fortune 50 companies and 117 of the Fortune 500 companies.four CPM (cockpit procedures modules) rooms. In addition, it houses simulators supporting the United States government, including all branchesentire Gulfstream product line (Gulfstream I through Gulfstream V). Gulfstream facilitates the operation of the United States military,a Customer Training Advisory Board which provides direct customer and 38 foreign governments operateoriginal equipment manufacturer input to FSI's training curriculums and course content. Additionally, pilot and maintenance training services are provided to Gulfstream owners and operators by SimuFlite Training International ("SimuFlite") located at Dallas-Fort Worth International Airport, Texas. SimuFlite provides training services for Gulfstream II, Gulfstream III and Gulfstream IV aircraft. Gulfstream, aircraft provide air transportation forin conjunction with SimuFlite, facilitates the President, Vice President and other senior membersoperation of the United States government. Over 42 Gulfstream aircraft are currently in operation with various United States government agencies, including the FAA. The diverse Gulfstream customer base combined with wide geographic distribution requires an integrated marketing, communications and sales approach. The Company's marketing and communications program is designed to create general awareness of the Company, its products and services, while the sales approach is highly personalized and focused on the key decision makers, as well as flight departments and other managers within the customer's organization. 8 Gulfstream operates an Internationala Customer Training Advisory Board of 14 prominent international business executiveswhich provides direct customer and senior statesmenoriginal equipment manufacturer input to advise the Company on international activities in support of the Company's strategic initiatives to further penetrate the international markets. The Company's marketingSimuFlite training curriculums and communications program is a carefully integrated combination of business and trade advertising, direct mail, press coverage, trade shows and special events. These activities are specifically developed to create personal selling opportunities for the sales team and senior management with assistance from the Board of Directors and International Advisory Board. The Company has 22 sales executives located both in North America and around the world. Internationally, the Company also utilizes independent agents who facilitate transactions in selected local markets. The Company pursues government and special mission business opportunities worldwide with a four person sales team located in Washington, D.C. These sales executives are specifically suited by their background and experience to deal with military and government customers. The Company's government relations function also involves two people with experience in regulatory, legislative and appropriations processes essential to the conduct of the Company's business with the United States government. The Company's export sales by geographical area and sales to major customers, are included on page 36 of Gulfstream's 1997 Annual Report , which information is incorporated herein by reference. COMPETITION The business aircraft market generally is divided into four segments (light, medium, large and ultra-long range) of aircraft either designed or converted for business use. The Gulfstream IV-SP competes in the large cabin business jet aircraft market segment, principally with Dassault Aviation S.A. and Bombardier. The Gulfstream V competes in the ultra-long range business jet aircraft market segment, primarily with the Global Express which is being marketed by Canadair, a subsidiary of Bombardier, and which is scheduled for certification in the second quarter 1998. In July 1996, Boeing, in partnership with General Electric Co., publicly announced that it intends to begin to market a version of the Boeing 737 into the ultra-long range business jet aircraft market segment. Boeing has indicated that it expects that this aircraft could be available for delivery in late 1998 or 1999. In addition, Airbus Industrie announced in June 1997 that it intends to manufacture a version of the A319CJ for the ultra-long range business jet market and expects certification and delivery of this aircraft in early 1999. The Company's competitors may have access to greater resources (including, in certain cases, governmental subsidies) than are available to the Company. The Company believes, however, that it competes favorably with its competitors on the basis of the performance characteristics of its aircraft, the quality, range and timeliness of the service it provides and its innovative marketing techniques, and that it has the leading market share in both the large cabin and ultra-long range business jet aircraft market segments. The Company believes its aircraft's operating costs are comparable to or lower than those of its competitors and that its products are competitively priced. RESEARCH AND DEVELOPMENT The Company conducts an internally funded research and development program primarily for the enhancement of the existing Gulfstream aircraft fleet and for the development of new aircraft. The Company's research and development expenditures are cyclical and tend to be relatively high several years prior to the introduction of a new aircraft model and to decrease significantly as that product cycle matures. All amounts expended on research and development are expensed as incurred. The Company's research and development program is based on product and process improvement to satisfy changing customer needs and changing regulatory requirements. The Company's research and development efforts have focused on improving operating efficiencies, performance, safety and reliability, reducing pilot workloads, realizing environmental benefits, reducing weight and improving ease of manufacture. 9 The Company believes that its emphasis on technology and product improvements for aircraft in the Gulfstream fleet has provided and will continue to provide added value for the Gulfstream customer. For aircraft already produced and in service, aircraft changes, which incorporate product improvements, are generally made available for purchase by existing owners of Gulfstream aircraft. Information regarding the Company's research and development expenditures is contained on pages 21 and 22 of Gulfstream's 1997 Annual Report, which information is incorporated herein by reference.course content. MATERIALS AND COMPONENTS Approximately 70% of the production costs of both the Gulfstream IV-SP and the Gulfstream V consist of purchased materials and equipment. Many materials and items of equipment used in the production of the Company's aircraft, such as the engines, wings, landing gear and avionics systems, are purchased from other manufacturers, generally pursuant to long-term purchase orders. For the Gulfstream V, the Company has entered into revenue sharing agreements for the wing and empennage. Under these agreements, the revenue share partner is responsible for the detailed design, tooling and manufacture of the systems in exchange for a fixed percentage of revenues of each Gulfstream V sold. The terms of the revenue share agreements with Northrop Grumman Corporation for the wing and Fokker Aviation B.V. for the empennage continue so long as the Company is manufacturing the Gulfstream V and prices are determined as a function of the sale price of the Gulfstream aircraft. As is typical among general aviation aircraft manufacturers, the Company relies on single source suppliers for complex aircraft components and systems. These single sources are selected based on overall aircraft systems requirements, quality and certification requirements and competitiveness in the market. The Company's major suppliers include Rolls-Royce Commercial Aero Engines Limited (Gulfstream IV-SP engines), BMW Rolls-Royce GmbH (Gulfstream V engines), Honeywell Incorporated (Gulfstream IV-SP and Gulfstream V flight management systems/avionics), The Aerostructures Corporation (Gulfstream IV-SP wing), Northrop Grumman Corporation (Gulfstream V wing revenue share partner and Gulfstream IV-SP nacelle supplier), Fokker Aviation B.V., a subsidiary of Stork B.V., (Gulfstream V empennage revenue share partner), The B.F. Goodrich Co. (Gulfstream IV-SP and Gulfstream V landing gears and air speed sensors), Sundstrand Corp. (Gulfstream V electrical system and actuators) and AlliedSignal, Inc. (Gulfstream IV-SP and Gulfstream V auxiliary power unit and environmental control systems and Gulfstream IV-SP electrical systems). The Company has negotiated multi-year agreements with its major Gulfstream IV-SP and Gulfstream V suppliers. All of the agreements, with the exception of the revenue share agreements, allow schedule flexibility and have no cost termination clauses at the Company's option, subject to certain conditions and prior notification periods. Suppliers are selected on the basis of their ability to produce high quality systems and components at competitive prices on a timely basis. The Company has had continuing relationships with most of its major suppliers since the inception of the Gulfstream II program in 1966. Ongoing supplier relationships are dependent on cooperation, performance and the maintenance of competitive pricing. From time to time suppliers have been replaced as the quality of such suppliers' products declined or the costs associated therewith failed to remain competitive. While the Company's production activities have not been materially affected by the inability to obtain essential components, and while it maintains business interruption insurance in the event that such a disruption should occur, the failure of certain suppliers or subcontractors to meet the Company's performance specifications, quality standards or delivery schedules could adversely impact the Company's operations. In addition, the Company's ability to significantly increase its production rate could be limited by the ability of its key suppliers to increase their delivery rates; however, in the past, the Company's ability to maintain or increase production has not been significantly limited by suppliers' performance. In addition, under many of its supply contracts, the Company is permitted to increase or decrease the quantity of components or systems being ordered at no cost on six monthsmonths' notice. AIRCRAFT SERVICES Within its Aircraft Services segment, the Company offers aftermarket maintenance services, spare parts, engine overhaul and auxiliary power unit service and overhaul for both Gulfstream and other business jets. As part of its customer-oriented strategy, the Company is committed to supporting and servicing the Gulfstream aircraft fleet, which presently numbers over 900 aircraft in service. The Company provides worldwide service and support by integrating a network of Company-owned service centers, three levels of authorized third-party service providers, worldwide parts depots, worldwide service representatives and 24 hour-a-day technical/AOG (aircraft on the ground) support. The Company also provides airframe and engine service and parts support for non-Gulfstream aircraft. As a result of the K-C Aviation acquisition in 1998, Gulfstream now offers services for Challenger, Hawker, Falcon and other aircraft types at their Appleton, WI; Dallas, TX; and Westfield, MA locations. In addition to the incremental revenues and margins that these services generate, they provide the Company with an additional channel to establish new customer relationships with aircraft owners/operators that could ultimately result in the sale of new Gulfstream aircraft. The Company has negotiated multi-yearlicense agreements with Marshalls of Cambridge (Cambridge, England), Chrysler's Pentastar Aviation subsidiary (Ypsilanti, Michigan) and Jet Aviation (Singapore) to provide service, maintenance and repairs for Gulfstream aircraft. The licensees provide additional geographic service locations for the expanding Gulfstream fleet. In addition, Jet Aviation Business Jets (Geneva and Basel, Switzerland), Jamco (Japan) and Linden Airtaxi (Sao Paulo, Brazil) serve as authorized warranty centers. Parts are provided worldwide to Gulfstream and non-Gulfstream aircraft owners and maintenance facilities through a network of nine distribution centers. Sales force initiatives include aggressive new aircraft provision sales, replacement, modification and enhancement sales to existing airframe and engine customers. The Company markets aircraft support publications and technical documents to its majorcustomers and to third party service facilities. Additionally, a proprietary computerized maintenance program ("CMP") is offered as a subscription service to customers for the management and tracking of the maintenance status of their aircraft. Approximately 95% of the Company's customers utilize this service. The Company has instituted a policy requiring third-party maintenance facilities to purchase factory technical support for scheduled maintenance performed on customer aircraft. Additionally, the Company provides, through its ServiceCareSM program, a comprehensive airframe, engine and avionics maintenance program, which provides customers of new Gulfstream IV-SPIV-SPs with scheduled and unscheduled maintenance at guaranteed costs. Coverage is provided on a world-wide basis, with all work to be accomplished at Gulfstream or Gulfstream authorized service centers. The Company has developed a proactive marketing and sales effort in its maintenance services operations. This has resulted in an increase in the Gulfstream maintenance service market share to approximately 75% in 1998. The Company's estimated market share was approximately 60% in 1997. PRE-OWNED AIRCRAFT Pre-owned aircraft are routinely accepted in trade to facilitate the sale of new Gulfstream IV-SPs and Gulfstream V suppliers. AllVs. The Company backs pre-owned Gulfstream aircraft with a five year warranty on the airframe structure and a 12 month warranty on virtually all other parts, including the engines under a separate warranty from Rolls-Royce Commercial Aero Engines Limited. Trade-in values for pre-owned aircraft are based on estimated fair market value ("FMV") at the trade-in date. If the trade-in date is greater than twelve months into the future, the Company's current practice is to reserve the right to determine FMV not more than six months prior to delivery of the agreements withgreen aircraft. Trade-in aircraft are always entered into inventory at the exceptionlower of cost or estimated realizable value. Any excess value offered to a customer above estimated realizable value is recognized as a reduction in the revenue sharereceived in the new aircraft sale transaction. Through its trade-in agreements, allow schedule flexibility and havethe Company reserves the right to pre-market the trade-in aircraft prior to acceptance of title from the customer. Over the past several years, the Company has been successful in entering sales agreements on trade-in aircraft prior to acceptance of title. If market conditions change, however, no cost termination clausesassurances can be made that the Company can continue this practice. The Company has provided a portion of its Gulfstream V customers whose contracts are currently in backlog with an option to trade in a Gulfstream aircraft at the Company's option, subject to certain conditions and prior notification periods. In general, the termstime of these agreements provide for what is anticipated to be slightly deflationary pricing through 1999. The terms of the revenue share agreements with Northrop Grumman Corporation for the wing and Fokker Aviation B.V. for the empennage continue so long as the Company is manufacturing thetheir Gulfstream V and prices areaircraft delivery. These options may be at a specified dollar amount or at FMV "to be determined as a function of the sale pricesix months prior to green delivery" of the Gulfstream aircraft. 10 PAST AIRCRAFT PRODUCT OFFERINGS GULFSTREAM IVV. The Company continues to assess those options which are at a fixed dollar amount in light of market conditions and has determined such fixed dollar options are less than the FMV estimated for the time of Gulfstream IV, launchedV aircraft delivery. Although no assurance can be given that the fixed dollar trade-in aircraft values will remain at or below FMV at the time of trade, any adjustments required for values in 1983, hasexcess of FMV will be appropriately reflected in the new aircraft sales transaction and the pre-owned inventory will be stated on the Company's books at the lower of cost or estimated realizable value. BACKLOG At December 31, 1998, the Company had a rangefinancial contract backlog of 4,220 nautical milesapproximately $3.3 billion, representing a total of 50 contracts for Gulfstream IV-SPs, 56 contracts for Gulfstream Vs, compared with $2.8 billion at the end of 1997, representing a total of 43 contracts for Gulfstream IV-SPs and was45 contracts for Gulfstream Vs. Including the 11 undelivered aircraft in the Middle East Shares contract, the Company had a total of 117 aircraft, valued at approximately $3.6 billion of potential future revenues, under contract at December 31, 1998. This excludes 18 options valued at $0.7 billion. During the third quarter of 1998, Gulfstream GATX Leasing Company executed agreements to purchase five Gulfstream Vs and one Gulfstream IV-SP, valued at approximately $210 million, with deliveries from 1999 through 2001. It also executed options to purchase three Gulfstream Vs and three Gulfstream IV-SPs, valued at approximately $200 million, with potential deliveries from 2001 through 2004. During the first truly intercontinental business jetquarter of 1998, the Company signed a $335 million contract for 12 Gulfstream IV-SPs to expand its highly successful Gulfstream Shares fractional ownership program to the Middle East region. The first green aircraft delivery for the Middle East Shares Program occurred during the third quarter of 1998. The remaining 11 undelivered aircraft are not included in the Company's financial contract backlog. In 1993, the Company established very stringent deposit requirements for recording aircraft into its backlog. The contract for the Middle East Shares expansion includes modestly different deposit requirements early in the program. The Company has decided for the initial phase of the program to record these orders into backlog when the aircraft are delivered. As of December 31, 1998, the Company had contracted to deliver to EJ 44 Gulfstream IV-SPs and 12 Gulfstream Vs in connection with the North American Gulfstream Shares program plus options for additional 12 Gulfstream Vs. Of these, 18 Gulfstream IV-SPs are in service, with the remaining 50 Gulfstream IV-SPs and Gulfstream Vs to be delivered through 2007. The Company includes an order in financial contract backlog only if the Company has entered into a purchase contract (with no contingencies) with a customer and has received a significant (generally non-refundable) deposit from the customer. Approximately 50% of the Company's contractual backlog is scheduled for delivery beyond 1999. Approximately 80% of the Company's backlog is North American and approximately 20% is international. Generally, at the signing of a Gulfstream IV-SP or Gulfstream V contract, a customer makes a non-refundable deposit with the Company, and subsequently makes a series of significant progress payments, prior to delivery of the aircraft. The Gulfstream IV was designedCompany monitors the condition of its backlog and built to incorporatebelieves, based on the most current technologies in aerodynamics, propulsion, digital electronicsnature of its customers and automated flight management systems and representedits historical experience, that there will not be a significant technological advancement overnumber of cancellations. However, to the Gulfstream III and every other business jet aircraft available at the time. Like the Gulfstream IV-SP, the Gulfstream IV is equipped with twin Rolls-Royce Tay engines and an advanced avionics suite. The Gulfstream IV meets current FAA Stage 3 and ICAO Chapter 3 noise limits. The Company produced 213 Gulfstream IVs from 1985 through 1992, 99% of which remain in service. GULFSTREAM III In December 1979, the Company introduced the Gulfstream III, a twin-engine fan-jet aircraft powered by two Rolls-Royce Spey engines with a cabin accommodating up to 19 passengers, a range of 3,600 nautical miles and a cruising speed of Mach .80. The Gulfstream III incorporated an advanced design utilizing NASA developed winglet technology to provide greater range and fuel efficiency than the Gulfstream II. When production ended in January 1987, 202 Gulfstream IIIs had been built, 98% of which remain in service. GULFSTREAM II AND IIB In 1966, the Company introduced the Gulfstream II, which was the first business jet aircraft capable of carrying business passengers non-stop, coast-to-coast. The Gulfstream IIextent that there is a twin-engine fan-jetlengthy period of time between a customer's aircraft powered by two Rolls-Royce Spey engines with a range of 2,400 nautical milesorder and a cruising speed of Mach .80. Beginningits expected delivery date, there may be increased uncertainty as to changes in 1981, the Company modified 43 Gulfstream IIs to Gulfstream IIBs by retrofitting customers' Gulfstream II aircraft with the Gulfstream III's advanced design wingbusiness and economic conditions which enhanced the range capabilitymay affect customer cancellations. CUSTOMERS AND MARKETING The majority of the Company's aircraft are sold to 3,400 nautical miles at Mach .80. When productionnational and multinational corporations and governments. Gulfstream's aircraft are operated by customers in a wide spectrum of industries and customer groups, including: pharmaceuticals, consumer goods, high technology, energy, industrial manufacturing, finance, insurance, real estate, mining, transportation, communications, public utilities, retail trade, the United States government, other sovereign entities and individuals. Seventy-seven percent of the Gulfstream II endedfleet is based in December 1979, 256 units had been produced, 95%North America and 23% of which remainthe fleet is based in service. Several specially modified50 countries worldwide. Current owners of Gulfstream IIsaircraft include 32 of the Fortune 50 companies and 119 of the Fortune 500 companies. In addition, the United States government, including all branches of the United States military, and 33 foreign governments operate Gulfstream aircraft. Gulfstream aircraft provide air transportation for the President, Vice President and other senior members of the United States government. Over 40 Gulfstream aircraft are still used regularly to train NASA's space shuttle astronauts. GULFSTREAM Icurrently in operation with various United States government agencies, including the FAA. The diverse Gulfstream customer base combined with wide geographic distribution requires an integrated marketing, communications and sales approach. The Company's product line originated in 1958 with the introductionmarketing and communications program is designed to create general awareness of the Company, and its products and services, while the sales approach is highly personalized and focused on the key decision makers, as well as flight departments and other managers within the customer's organization. Gulfstream I,operates an International Advisory Board of 16 prominent international business executives and senior statesmen to advise the Company on international activities in support of the Company's strategic initiatives to further penetrate the international markets. The Company's marketing and communications program is a carefully integrated combination of business and trade advertising, direct mail, press coverage, trade shows and special events. These activities are specifically developed to create personal selling opportunities for the sales team and senior management with assistance from the Board of Directors and International Advisory Board. The Company has 28 sales executives located both in North America and around the world. Internationally, the Company also utilizes independent agents who facilitate transactions in selected local markets. The Company's revenues by geographic area are included on page 38 of Gulfstream's 1998 Annual Report, which information is incorporated herein by reference. During 1996, revenues from one customer, Executive Jet, included in the New Aircraft and Aircraft Services reportable segments, represented approximately 11.7% of the Company's total revenues. COMPETITION The business aircraft market generally is divided into four segments - -- (light, medium, large twin-engine turboprop poweredand ultra-long range) of aircraft built by Grumman which was the first aircraft of its size and typeeither designed specificallyor converted for business use. The Gulfstream I is powered by Rolls-Royce Dart enginesIV-SP competes in the large cabin business aircraft market segment, principally with Dassault Aviation S.A.'s Falcon 900 EX and has900B. The Gulfstream V competes in the ultra-long range business aircraft market segment, primarily with Bombardier's Global Express, and, to a range of more than 1,700 miles. When productionlesser extent, corporate versions of the Boeing 737 and Airbus A319. The Company's competitors may have access to greater resources (including, in certain cases, governmental subsidies) than are available to the Company. The Company believes, however, that it competes favorably with its competitors on the basis of the performance characteristics of its aircraft, the quality, range and timeliness of the service it provides and its innovative marketing techniques. In addition, the Company was able to certify the Gulfstream I endedV significantly in 1966, 200advance of its competition. The Company believes its aircraft's operating costs are comparable to or lower than those of its competitors and that its products are competitively priced. RESEARCH AND DEVELOPMENT The Company conducts an internally funded research and development program primarily for the enhancement of the existing Gulfstream Is had been built, 69%aircraft fleet, through product and process improvement to satisfy changing customer needs and changing regulatory requirements. The Company's research and development efforts have focused on improving operating efficiencies, performance, safety and reliability, reducing pilot workloads, realizing environmental benefits, reducing weight and improving ease of manufacture. The Company believes that its emphasis on technology and product improvements for aircraft in the Gulfstream fleet has provided and will continue to provide added value for the Gulfstream customer. For aircraft already produced and in service, aircraft changes, which remainincorporate product improvements, are generally made available for purchase by existing owners of Gulfstream aircraft. In 1998, the Company announced plans, in service.collaboration with a division of the Lockheed Martin Corp., to study the feasibility of a supersonic business jet. The study is expected to take 18-24 months and require only an insignificant level of research and development spending. The companies expect that if they do decide to develop such a jet it would not be introduced to the market for at least eight to ten years. Information regarding the Company's research and development expenditures is contained on page 22 of Gulfstream's 1998 Annual Report, which information is incorporated herein by reference. REGULATION In order for an aircraft model to be manufactured for sale, the FAA must issue a Type Certificate and a Production Certificate for the aircraft model and, in order for an individual aircraft to be operated, an Airworthiness Certificate. Type Certificates are issued by the FAA when an aircraft model is determined to meet certain performance, environmental, safety and other technical criteria. The Production Certificate ensures that the aircraft is built to specifications approved under the Type Certificate. An Airworthiness Certificate is issued for a particular aircraft when it is certified to have been built in accordance with specifications approved under the Type Certificate for that particular model aircraft. Gulfstream has never had a Type Certificate or a Production Certificate suspended, nor had any jet aircraft grounded as the result of regulatory action. All of the Company's aircraft models comply with all currently applicable federal laws and regulations pertaining to aircraft noise and engine emissions. Due to their weight (under 75,000 pounds), all Gulfstream II, III, IV and IV-SP aircraft are currently exempt from the FAA Stage 3 noise requirements. Notwithstanding federal requirements, foreign and local jurisdictions and airport authorities may establish more stringent restrictions pertaining to aircraft noise. Such local and foreign regulations in several locations currently restrict the operation of certain jet aircraft, including the Gulfstream II, IIB and III and certain of their competitors from landing or taking off during late evening and early morning hours. Each of the Gulfstream IV, IV-SP and V aircraft produce noise levels below the FAA's Stage 3 and ICAO's Chapter 3 noise ceilings. 11 EMPLOYEES At March 1, 1998,1999, the Company employed approximately 5,800 persons,7,740 people, of whom approximately 4,1004,410 were employed at the Company's Savannah, Georgia facility, 100 were employed130 at the Brunswick, Georgia facility, 650 were employed630 at the Bethany, Oklahoma facility, 600 were employed810 at the Long Beach, California facility, 730 at the Dallas, Texas facility, 370 at the Appleton, Wisconsin facility, 130 at the Westfield, Massachusetts and 380 were employed530 at the Mexicali, Mexico facility. None of the workers at the Savannah, Brunswick, Long Beach, or Mexicali facilities are unionized. In 1996, the Company entered into a 5-year contract with the International Union of United Automobile, Aerospace & Agricultural Implement Workers of America, which represents certain ofemployees at the Company's employees at its Bethany, Oklahoma plant. The Company considers its overall employee relations to be good. ENVIRONMENTAL The Company's operations, in common with those of the industry generally, are subject to various laws and regulations governing, among other things, the handling and disposal of solid and hazardous materials, wastewater discharges and the remediation of contamination associated with the use and disposal of hazardous substances. Because of the nature of its business, the Company has incurred, and will continue to incur, costs relating to compliance with such environmental laws. Although the Company believes that it is in substantial compliance with such environmental requirements, and has not in the past been required to incur material costs in connection therewith, there can be no assurance that the Company's costs to comply with such requirements will not increase in the future. Although the Company is unable to predict what legislation or regulations may be adopted in the future with respect to environmental protection and waste disposal, compliance with existing legislation and regulations has not had, and is not expected to have, a material adverse effect on its capital expenditures, results of operations, or competitive position. The Company's expenses for remedial environmental matters and capital outlays for environmental compliance were less than $1.0$2.0 million in 1997.1998. The Company has been named as a Potentially Responsible Party with respect to two cleanup sites, one operated by the Mountaineer Refinery and the other operated by Omega Chemical Company. Based on the Company's limited involvement with such sites, the Company believes that it will not incur material costs in respect of such cleanup sites. The Company is currently engaged in the monitoring and cleanup of certain groundwater at its Savannah facility under the oversight of the Georgia Department of Natural Resources. The continuing expenses for the cleanup are not expected to be material. 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 Savannah facility has been in existence for 31over 30 years. Like the Savannah facility, certain of the Company's other facilities have been in operation for a number of years and, over such time, these facilities have used substances or generated and disposed of wastes which are or may be considered hazardous. As a result, it is possible that the Company could become subject to additional environmental liabilities in the future in connection with these sites. ITEM 2. PROPERTIES The Company's productionlocations and service facilities are located in Savannah and Brunswick, Georgia; Bethany, Oklahoma; Long Beach, California; and Mexicali, Mexico. The Savannah facility occupies approximately 1,500,000 square feet and is the locationfootage of the Company's corporate offices. Functions performedprincipal operating properties at March 1, 1999, are indicated in the Savannah complex include Gulfstream IV-SP and Gulfstream V manufacturing, assembly and completion, product support, service, repair and overhaul of customer-owned Gulfstream aircraft and new product design, engineering and development. The Savannah completion center, occupying approximately 140,000 square feet, is adjacent to the aircraft production line and simultaneously accommodates completion of up to 10 Gulfstream IV-SP or six Gulfstream V aircraft. All of the land and buildings constituting the Savannah facility are owned by the Company. 12 following table:
Approximate Lease Square Expiration Location Purpose Footage Date - -------------------------------------------------------------------------------------- Savannah, Georgia Corporate offices, 1,500,000 Owned principal manufacturing facility, aircraft services and engineering Brunswick, Georgia Aircraft services and completions 53,000 May 31, 1999 Long Beach, California Aircraft services and completions 250,000 Owned Aircraft services and completion 62,000 August 14, 1999 Aircraft completions 22,000 March 31, 2000 Aircraft painting 59,000 Owned Dallas, Texas Aircraft services and completions 200,000 Owned Aircraft services and completions 35,000 January 1, 2003 Aircraft services and completions 57,000 October 31, 2001 Engine and auxiliary power unit maintenance and overhaul 48,000 April 30, 2002 Appleton, Wisconsin Aircraft services and completions 120,000 Owned Aircraft services 35,000 August 31, 2001 Westfield, Aircraft services 50,000 Owned Massachusetts Aircraft services 20,000 July 31, 2000 Oklahoma City, Manufacturing operations 500,000 December 31, 2007 Oklahoma Mexicali, Mexico Manufacturing operations 75,000 December 31, 1999
Any prolonged disruptiondisruptions in the use of the Savannaha major facility due to the destruction of or material damage to such facility, or other reasons, could have an adverse effect on the Company's operations. The Company maintains property and business interruption insurance to protect against any such disruption, but there can be no assurance that the proceeds of such insurance would be adequate to repair or rebuild its facilities in such event or to compensate the Company for losses incurred during the period of any such disruption. The Company leases approximately 53,000 square feet of hangar and adjacent office space in Brunswick, Georgia. The Brunswick facility is both a service center facility and completion facility and has the capacity for four aircraft. The lease term, which is renewable annually at Gulfstream's option, extends to May 1998. The Bethany facility occupies approximately 500,000 square feet, all of which are in buildings leased under leases expiring in 2007. At the Bethany facility, the Company manufactures over 17,000 different detail parts for the Gulfstream IV-SP and over 13,000 for the Gulfstream V. The 250,000 square foot Long Beach facility consists of completion facilities, which have capacity for eight aircraft, service center facilities, which have capacity for seven aircraft, and design and administrative functions. The Company owns the buildings and leases the land; the lease expires in 2014. During 1997, the Company entered into a lease for an additional 62,000 square foot hangar building located on the same airport and in close proximity to the Long Beach facility. The hangar is used for both service and completion operations and has a capacity for six aircraft; the lease expires in 1999. The Company continues to lease an adjacent facility of approximately 22,000 square feet used as a completion facility with a capacity for two aircraft; the lease expires in 2000. Also during 1997, the Long Beach facility expanded further by completing a 59,000 square foot aircraft paint facility. The Company owns this building, and leases the land at this facility; the lease expires in 2007. The expansions described above are part of the Company's overall plan to more than double the 1996 annual production levels to approximately 60 Gulfstream V and Gulfstream IV-SP aircraft by 1999. See "Liquidity and Capital Resources" included on page 22 of Gulfstream's 1997 Annual Report. The Company's Mexicali, Mexico plant occupies approximately 50,000 square feet of leased space under leases expiring in December 1998 and assembles electrical products, including wire harnesses, used in Gulfstream production, and performs repair and service operations. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in a lawsuit instituted on December 12, 1992 and pending in Oklahoma styled KMC LEASING, INC. ET AL. V. GULFSTREAM AEROSPACE CORPORATION ET AL.Leasing, Inc. et al. v. Gulfstream Aerospace Corporation et al. (District Court, State of Oklahoma, Oklahoma County, Case No. CJ 92 10313). This action which may be certified as a class action on behalf of twin-engine Commander aircraft owners, arises from claims relating to potential damage from corrosion and fatigue fractures on wing spars and requirements to inspect and possibly replace wing spars in thosecertain aircraft. While there are currently more than 2,000 twin engine CommanderThese aircraft owners, allwere part of these owners will not qualify as members of any such class. Thisa product line which was discontinued in 1985 and sold during 1989. This lawsuit is not an insured claim. Other than an allegation that the plaintiffs' damages exceed jurisdictional requirements, the plaintiffs have not specified a dollar value of the extent of their damages. The Company believes it has meritorious defenses to all these claims based upon the facts that underlie them. Class certification has been denied, but plaintiffs have filed an appeal. The Company does not expect the results in this action to have a material adverse effect on its financial condition or results of operations. Although there are other lawsuits pending involving the Company's discontinued light aircraft product lines, those claims are (i) covered by the General Aviation Revitalization Act of 1994, which is a federal statute of repose, (ii) the responsibility of the purchasers of those light aircraft product lines, or (iii) covered by the Company's product liability insurance. There are no accident or incident claims pending with respect to any Gulfstream jet aircraft. The Company maintains product liability insurance coverage of $500 million per occurrence and in the aggregate per year, subject to $10 million of self-insurance retention. Management believes this coverage is adequate. The Company has paid $500,000, other than claim expenses and insurance premiums, with respect to product liability occurrences taking place since January 1, 1991. 13 The Company is involved in tax audits by the Internal Revenue Service covering the years 1990 through 1994. The revenue agent's reports 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. However, because the revenue agent's reports are proposing adjustments in amounts materially in excess of what the Company has reflected in its financial statements and because it may take several years to resolve the disputed matters, the ultimate extent of the Company's expected loss of benefit and the liability with respect to these matters cannot be predicted with certainty and no assurance can be given that the Company's financial position or results of operations will not be adversely affected. The Company is also involved in other litigation, including product and general liability matters, and governmental proceedings arising in the ordinary course of its business, the ultimate disposition of which in the opinion of the Company's management, will not have a material adverse effect on the financial position or results of operations of the Company. See also -- Item 1. Business "Environmental"."Business -- Environmental." FORWARD-LOOKING INFORMATION IS SUBJECT TO RISKS AND UNCERTAINTY Certain statements contained in or incorporated by reference in this Form 10-K 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 contained in the forward-looking statements is contained in Exhibit 99, CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 to this Form 10-K.the Company's Securities and Exchange Commission filings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the last quarter of the year ended December 31, 1998. ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY The following paragraphs set forth the name, age and offices with the Company of each present executive officer of the Company, the period during which each executive officer has served as such and each executive officer's business experience during the past five years: Theodore J. Forstmann, age 59, has served as Chairman of the Board of the Company since November 1993 and as Chief Executive Officer since December 1998. Mr. Forstmann has been a general partner of FLC Partnership, L.P. since he co-founded Forstmann Little & Co. in 1978. He is also a director of General Instrument Corporation. Theodore J. Forstmann and Nicholas C. Forstmann are brothers. W.W. Boisture, Jr., age 54, has served as President and Chief Operating Officer of the Company since December 1998 and as a director since February 1995 and is a member of the Office of the Chief Executive. Mr. Boisture served as Executive Vice President from February 1994 to December 1998. Prior to joining the Company, he was President and Chief Executive Officer of British Aerospace Corporate Jets from October 1992 through 1993, where he was responsible for the "Hawker" business jet product line and its worldwide marketing, sales and support organization. From early 1990 to 1992, Mr. Boisture was Chairman, President and Chief Executive Officer of Butler Aviation, a nationwide aviation services company. Chris A. Davis, age 48, has served as Executive Vice President and Chief Financial Officer of the Company since July 1993, Secretary since August 1996, Chief Administrative Officer since December 1998 and a director since March 1997 and is a member of the Office of the Chief Executive. She is also President and Chief Operating Officer of Gulfstream Financial Services Corporation. Ms. Davis served in increasingly senior financial management positions at General Electric Company from 1978 to 1993, most recently as chief financial officer of its Electronic Systems Division. Ms. Davis is also a director of Wolverine Tube, Inc. Bryan T. Moss, age 59, has served as Vice Chairman and a director of the Company since March 1995. Prior to joining the Company, he was President of Bombardier Business Aircraft Division, where he was responsible for the Challenger and Global Express business jet programs from 1989 to March 1995. Ira P. Berman, age 37, has served as Senior Vice President and General Counsel of the Company since March 1997. 14 Before joining the Company, Mr. Berman was a partner in the corporate department of the law firm of Fried, Frank, Harris, Shriver & Jacobson, New York, New York, from September 1997 to March 1998, and an associate from June 1996 to September 1997. G. Kenneth Burckhardt, age 44, has served as Senior Vice President, Finance of the Company since December 1998. Mr. Burckhardt served as Vice President, Finance from June 1996 to December 1998 and Director of Finance from December 1994 to June 1996. Prior to joining the Company, he was Director, Financial Planning & Analysis of a division of GE Capital Corp. from September 1991 to December 1994. Patrick C.G. Coulter, age 58, has served as the Company's Senior Vice President, Corporate Communications since January 1999. Prior to joining the Company, he was Vice President of Communications for The Boeing Company Commercial Airplane Group from July 1997 to December 1998. Mr. Coulter was Vice President of Corporate Communications for Bell Atlantic Corporation from July 1995 to June 1997, and Director of Corporate Communications of The Raytheon Company from January 1991 to July 1995. Larry R. Flynn, age 47, has served as Senior Vice President, Aircraft Services since December 1998. Mr. Flynn was Vice President, Aircraft Services from June 1995 to December 1998. Prior to joining the Company, Mr. Flynn served as Vice President of Stevens Aviation from April 1993 to May 1995. Preston A. Henne, age 51, has served as the Company's Senior Vice President, Programs since September 1994. He was employed by McDonnell Douglas Corporation from July 1969 to August 1994, most recently as Vice President & General Manager. Joseph T. Lombardo, age 51, has served as Senior Vice President, Operations of the Company since December 1998. Mr. Lombardo served as Vice President, Co-Production from June 1996 to December 1998. Prior to joining the Company, he was Director of Twin-Jet Production at McDonnell Douglas from February 1993 to June 1996. Joseph K. Walker, age 45, has served as Senior Vice President, Sales & Marketing of the Company since December 1998. Mr. Walker served as the Company's Senior Vice President, International Sales from September 1997 to December 1998, and as Vice President, North American Sales from 1995 to September 1997. Prior to joining the Company, Mr. Walker served as Vice President, Worldwide Sales of Cessna Aircraft, Inc. from 1994 to 1995. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information required by this itemItem is contained on page 3940 of Gulfstream's 19971998 Annual Report, which information is incorporated herein by reference. TheAt December 31, 1998, the Company's Credit Agreement restricts its ability to payprohibited the payment of dividends. ITEM 6. SELECTED FINANCIAL DATA The following table summarizes certain selected financial data for each ofinformation required by this Item is included under the five years in the period ended December 31, 1997. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis ofcaption "Selected Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto, incorporated herein by reference.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1997 1996 1995 1994 1993 ------------ ------------ ------------ ---------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net revenues................................. $ 1,903,494 $ 1,063,713 $ 1,041,514 $ 901,638 $ 887,113 ------------ ------------ ------------ ---------- ------------ Costs and expenses: Cost of sales.............................. 1,557,250 839,254 835,547 710,554 737,361 Selling and administrative expenses........ 97,499 99,452 93,239 82,180 97,011 Stock option and compensation expense...... 1,640 7,186 Research and development expense........... 10,792 58,118 63,098 57,438 47,990 Amortization of intangibles and deferred charges.................................. 7,347 9,434 7,540 7,583 27,613 Restructuring charge (1)................... 203,911 ------------ ------------ ------------ ---------- ------------ Total costs and expenses..................... 1,674,798 1,013,444 999,424 857,755 1,113,886 ------------ ------------ ------------ ---------- ------------ Income (loss) from operations................ 228,696 50,269 42,090 43,883 (226,773) Interest income............................ 11,532 14,605 5,508 367 486 Interest expense........................... (31,159) (17,909) (18,704) (20,686) (48,940) ------------ ------------ ------------ ---------- ------------ Net income (loss) before income taxes........ 209,069 46,965 28,894 23,564 (275,227) ------------ ------------ ------------ ---------- ------------ Income tax expense (benefit) (2)............. (33,942) -- -- -- -- Net income (loss).......................... $ 243,011 $ 46,965 $ 28,894 $ 23,564 $ (275,227) ------------ ------------ ------------ ---------- ------------ ------------ ------------ ------------ ---------- ------------ Earnings Per Share: Net income per share--basic (3).............. $ 3.28 $ .64 $ .39 --diluted (3).............. $ 3.12 $ .60 $ .37
- ------------------------ (1) 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) The Company recorded an income tax benefit net of $33.9 million for 1997. 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. The Company had available at December 31, 1997 net operating loss carryforwards for regular federal income tax purposes of approximately $65.0 million, which will begin expiring in 2006. (3) Net income per share ("EPS") information for 1995 and 1996 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 1995 and 1996 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. 15
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------ ------------ ---------- ---------- ---------- (IN THOUSANDS, EXCEPT OPERATING DATA) BALANCE SHEET DATA (AT END OF PERIOD): 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 (1) (2)............................. 380,000 400,000 146,331 178,145 206,145 Total stockholders' equity (deficit) (1)....... 92,757 (188,811) 217,540 188,950 164,395 OPERATING DATA: Depreciation and amortization.................. $ 33,022 $ 26,910 $ 23,094 $ 24,151 $ 47,866 OPERATING DATA: Units delivered during period: Gulfstream IV/IV-SP.......................... 22 24 26 22 26 Gulfstream V................................. 29 3 0 0 0 ------------ ------------ ---------- ---------- ---------- Total deliveries............................. 51 27 26 22 26 Units ordered during period: Gulfstream IV/IV-SP.......................... 39 44 30 25 26 Gulfstream V................................. 7 21 12 16 17 ------------ ------------ ---------- ---------- ---------- Total orders................................. 46 65 42 41 43 Units in backlog at end of period: Gulfstream IV/IV-SP (3)...................... 43 27 7 3 3 Gulfstream V (4)............................. 45 67 50 40 24 ------------ ------------ ---------- ---------- ---------- Total backlog (5)............................ 88 94 57 43 27 ESTIMATED BACKLOG (in billions) (3)(4)(5)........ $ 2.8 $ 3.1 $ 1.9 $ 1.5 $ 0.9
- ------------------------ (1) 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"Data" on page 2241 of the 1997Gulfstream's 1998 Annual Report. (2) During November 1993, the Company converted $469 million of subordinated debentures (including accrued interest) to 7% Cumulative Preferred StockReport, and that information is hereby incorporated by reference in connection with the 1993 recapitalization. (3) Net of cancellations of 1 in 1997 and 3 in 1994, which generally relate to orders placed in prior years. (4) Net of cancellations of 1, 2 and 1 in 1996, 1995 and 1993, respectively, which generally relate to orders placed in prior years. (5) See "Contractual Backlog" on page 24 of the 1997 Annual Report. 16 this Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this Item is included in Management's"Management's Discussion and AnalysisAnalysis" on pages 20 to 25 of Gulfstream's 19971998 Annual Report, incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this Item is included in the consolidated financial statementsConsolidated Financial Statements of the Company for the years ended December 31, 1998, 1997 and 1996, and 1995, the notesNotes to the consolidated financial statements,Consolidated Financial Statements, and the report of independent accountantsauditors' report thereon on pages 26 to 3839 of the 19971998 Annual Report, and in the Company's unaudited quarterly financial data for the years ended December 31, 19971998 and 19961997 on page 3940 of Gulfstream's 19971998 Annual Report, incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 17Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by this Item is included in the 19981999 Proxy Statement in the section captioned "Election of Directors," and such information is incorporated herein by reference. Information required by this Item concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 is included in the 19981999 Proxy Statement in the section captioned "Section 16(a) Beneficial Ownership Reporting Compliance," and such information is incorporated herein by reference. Information concerning executive officers required by this Item 10 is located under Part I, Additional Item on pages 14 and 15 of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Information required by this Item is included in the 19981999 Proxy Statement in the sections captioned "Further Information Concerning the Board of the Directors and Committees--CompensationCommittees -- Compensation Committee Interlocks and Insider Participation" and "--Director"-- Director Compensation" and in the section captioned "Compensation of Executive Officers" (other than the subsections thereof captioned "Committee Reports on Executive Compensation" and "Performance Graph"), and such information (other than the subsections thereof captioned "Committee Reports on Executive Compensation" and "Performance Graph") is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this Item is included in the 19981999 Proxy Statement in the section captioned "Security Ownership of Certain Beneficial Owners and Management," and such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this Item is included in the 19981999 Proxy Statement in the sections captioned "Further Information Concerning the Board of the Directors and Committees--CompensationCommittees -- Compensation Committee Interlocks and Insider Participation" and "Certain"Related Party Transactions," and such information is incorporated herein by reference. See also, Note 1112 to the consolidated financial statementsConsolidated Financial Statements on page 3637 of Gulfstream's 19971998 Annual Report. 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1997 FORM 10-K ANNUAL REPORT (PAGE) ( PAGE) ---------- --------------- (a) FINANCIAL STATEMENTS Consolidated Balance Sheets at December 31, 1997 and December 31, 1996...................................................... 26 For the years ended December 31, 1997, 1996, and 1995: Consolidated Statements of Income.......................................... 27 Consolidated Statements of Stockholders' Equity............................ 28 Consolidated Statements of Cash Flows...................................... 29 Notes to Consolidated Financial Statements................................. 30-37 Report of Independent Accountants............................................ 38 Supplementary Information (Unaudited) Quarterly Financial Results for 1997 and 1996.............................. 39 FINANCIAL STATEMENT SCHEDULES Report of Independent Accountants............................................ 20 I. Condensed financial information......................................... 21-22 II. Valuation and qualifying accounts...................................... 23 All other schedules have been omitted because they are not applicable, not required or the information required is included in the consolidated financial statements or notes thereof. EXHIBITS The exhibits are listed in the accompanying Index to Exhibits on pages 27 to 29.1998 FORM 10-K ANNUAL REPORT (PAGE) (PAGE) ------------- -------------- (a) FINANCIAL STATEMENTS Consolidated Statements of Income for the years ended December 31, 1998, 1997, and 26 1996 Consolidated Balance Sheets at December 31, 1998 and December 31, 1997 27 For the years ended December 31, 1998, 1997, and 1996: Consolidated Statements of Stockholders' 28 Equity Consolidated Statements of Cash Flows 29 Notes to Consolidated Financial 30-38 Statements Independent Auditors' Report 39 Supplementary Information (Unaudited) Quarterly Financial Results for 1998 40 and 1997 FINANCIAL STATEMENT SCHEDULES Independent Auditors' Report 19 I. Condensed financial information 20-21 II. Valuation and qualifying 22 accounts All other schedules have been omitted because they are not applicable, not required or the information required is included in the consolidated financial statements or notes thereof. EXHIBITS The exhibits are listed in the accompanying Index to Exhibits on pages 26 to 30. (b) REPORTS ON FORM 8-K None
19in the fourth quarter of 1998. REPORT OF INDEPENDENT ACCOUNTANTSAUDITORS' REPORT To the Board of Directors and Stockholders of Gulfstream Aerospace Corporation: We have audited the consolidated balance sheets of Gulfstream Aerospace Corporation and subsidiaries (the "Company") as of December 31, 19971998 and 19961997 and the related consolidated statements of income, stockholders' equity and cash flows for the three years in the period ended December 31, 1997,1998, and have issued our report thereon dated January 30, 1998;February 1, 1999 (March 1, 1999 as to Note 16); such financial statements and report are included in the Company's 19971998 Annual Report and are incorporated herein by reference. Our audits also included the consolidated financial statement schedules of the Company, listed in Item 14 of Form 10-K. These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Atlanta, Georgia January 30, 1998 20February 1, 1999 GULFSTREAM AEROSPACE CORPORATION (PARENT COMPANY ONLY) SCHEDULE I -- CONDENSED FINANCIAL INFORMATION BALANCE SHEETS AS OF DECEMBER 31, 19971998 AND 19961997 (IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
ASSETS 1997 1996 --------- --------- Investment in subsidiary.............................................. $ 200,895 $ (87,393) --------- --------- Total Assets...................................................... 200,895 (87,393) --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 --------- --------- Payable to subsidiary................................................. $ 8,138 $ 1,418 Note Payable to subsidiary............................................ 100,000 100,000 --------- --------- Total liabilities................................................. 108,138 101,418 --------- ---------ASSETS 1998 1997 ------------ ----------- ------------ ----------- Investment in subsidiary $ 310,538 $ 200,895 ============ =========== Total Assets 310,538 200,895 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 ------------ ----------- Payable to subsidiary $ 14,858 $ 8,138 Note Payable to subsidiary 100,000 100,000 ------------ ----------- Total liabilities 114,858 108,138 ------------ ----------- Stockholders' equity: Preferred stock; Series A, 7% Cumulative; $.01 par value; 20,000,000 shares authorized; no shares outstanding in 1997 and 100 shares issued in 1996....... -- -- 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........................................ (1,115) (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............................ $ 200,895 $ (87,393) --------- --------- --------- ---------
- ------------------------- no shares outstanding Common stock, $.01 par value; 300,000,000 shares authorized; Shares issued: 89,818,774 and 86,522,089 898 865 Additional paid-in capital 444,301 370,258 Accumulated deficit (672) (225,960) Accumulated other comprehensive income (2,441) (762) Unamortized stock plan expense (52) (1,155) Less: Treasury stock: 17,244,581 and 11,978,439 (246,354) (50,489) shares ------------ ----------- Total stockholders' equity 195,680 92,757 ============ =========== Total Liabilities and Stockholders' Equity $ 310,538 $ 200,895 ============ =========== - -------------- Notes: (1) The Company accounts for its investment in its subsidiary using the equity method of accounting. (2) The Company received cash dividends in 1996 of approximately $355.0 million from its subsidiary in satisfaction of intercompany balances. See notes to consolidated financial statementsConsolidated Financial Statements included in the 19971998 Annual Report, incorporated herein by reference. 21 GULFSTREAM AEROSPACE CORPORATION (PARENT COMPANY ONLY) SCHEDULE I -- CONDENSED FINANCIAL INFORMATION STATEMENTS OF INCOME (IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 ---------- --------- --------- Interest expense................................................................ $ (6,720) $ (1,418) $ -- Net income of subsidiary........................................................ 249,731 48,383 28,894 ---------- --------- --------- Net income...................................................................... $ 243,011 $ 46,965 $ 28,894 ---------- --------- --------- ---------- --------- ---------
YEAR ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 ---------- ---------- ---------- Interest expense $ (6,720) $ (6,720) $ (1,418) Net income of subsidiary 232,008 249,731 48,383 ---------- ---------- ---------- Net income $ 225,288 $243,011 $ 46,965 Other comprehensive income, net of tax (1,679) 702 (14) ---------- ---------- ---------- Total comprehensive income $ 223,609 $243,713 $ 46,951 ========== ========== ========== - ---------------------------------------- Statements of cash flows are not presented since the Parent Company had no cash flows from operations. See notes to consolidated financial statementsConsolidated Financial Statements included in the 19971998 Annual Report, incorporated herein by reference. 22 GULFSTREAM AEROSPACE CORPORATION SCHEDULE II -- CONDENSED SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997, AND 1998 (IN THOUSANDS)
BALANCE CHARGED AT CHARGED TO BALANCE BEGINNING COSTS ANDTO OTHER AT END OF COSTS AND ACCOUNTS DEDUCTIONS OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS (1) (2) PERIOD - --------------------------------------------------------------- ----------- ----------- --------------- ------------------------------------ --------- ---------- ---------- ------------ --------- Allowance for Doubtful Accounts: Year ended December 31, 1995................................. $ 1,312 $ 2,506 $ 381 $ 3,437 $ 344 $ - $ 538 $ 3,243 31, 1996 Year ended December 3,243 (1,588) - 511 1,144 31, 1996................................. 3,437 344 538 3,2431997 Year ended December 1,144 326 1,484 429 2,525 31, 1997................................. $ 3,243 $ (1,588) $ 511 $ 1,1441998 - -------------- (1) The amount of $1,484 represents amounts assumed in connection with the acquisition of K-C Aviation. See Note 2 to the Consolidated Financial Statements included in the 1998 Annual Report, incorporated herein by reference. (2) Deductions from the allowance for doubtful accounts represent the write-off of uncollectible accounts.
- ------------------------ (1) Deductions from the allowance for doubtful accounts represent the write-off of uncollectible accounts. 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 25th29th day of March 1998.1999. GULFSTREAM AEROSPACE CORPORATION BY: /S/ CHRIS A. DAVIS ----------------------------------------- By: /s/Chris A. Davis EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY------------------------------------------- Chris A. Davis Executive Vice President & Chief Financial & Administrative Officer and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE - ------------------------------ --------------------------- --------------------------------------------------- ---------------------------- -------------- /s/ THEODORETheodore J. FORSTMANNForstmann Chairman of the Board;Board, Chief March 29, 1999 - ------------------------------ Director March 25, 1998-------------------------------- Executive Officer and Theodore J. Forstmann /s/ W. W. BOISTURE, JR. Executive Vice President; - ------------------------------ Director March 25, 1998 /s/W. W. Boisture, Jr. President, Chief Operating March 29, 1999 - -------------------------------- Officer and Director W. W. Boisture, Jr. /s/Chris A. Davis Executive Vice President, March 29, 1999 - -------------------------------- Chief Financial Officer /s/ CHRIS A. DAVIS and Secretary; Director - ------------------------------ (Principal Financial March 25, 1998 Chris A. Davis & Administrative Officer, Secretary and Director (Principal Financial Officer and Principal Accounting Officer) /s/ JAMESBryan T. JOHNSON President and Chief - ------------------------------ Operating Officer; March 25, 1998 James T. Johnson Director /s/ BRYAN T. MOSSMoss Vice Chairman of the Board;Board March 29, 1999 - -------------------------------------------------------------- and Director March 25, 1998 Bryan T. Moss /s/ ROBERT ANDERSONRobert Anderson Director March 29, 1999 - ------------------------------ March 11, 1998-------------------------------- Robert Anderson /s/ CHARLOTTE L. BEERS Director - ------------------------------ March 25, 1998 Charlotte L. Beers 24 SIGNATURE TITLE DATEDirector March 29, 1999 - ------------------------------ --------------------------- --------------------------------------------------- Charlotte L. Beers /s/ THOMASThomas D. BELL, JR.Bell, Jr. Director March 29, 1999 - ------------------------------ March 25, 1998-------------------------------- Thomas D. Bell, Jr. /s/ LYNN FORESTERLynn Forester Director March 29, 1999 - ------------------------------ March 25, 1998-------------------------------- Lynn Forester /s/ NICHOLASNicholas C. FORSTMANNForstmann Director March 29, 1999 - ------------------------------ March 25, 1998-------------------------------- Nicholas C. Forstmann /s/ SANDRASandra J. HORBACHHorbach Director March 29, 1999 - ------------------------------ March 25, 1998-------------------------------- Sandra J. Horbach /s/ HENRYJames T. Johnson Director March 29, 1999 - -------------------------------- James T. Johnson /s/Henry A. KISSINGERKissinger Director March 29, 1999 - ------------------------------ March 25, 1998-------------------------------- Henry A. Kissinger /s/ DREW LEWISDrew Lewis Director March 29, 1999 - ------------------------------ March 25, 1998-------------------------------- Drew Lewis /s/ MARKMark H. MCCORMACKMcCormack Director March 29, 1999 - ------------------------------ March 25, 1998-------------------------------- Mark H. McCormack /s/ MICHAELMichael S. OVITZOvitz Director March 29, 1999 - ------------------------------ March 25, 1998-------------------------------- Michael S. Ovitz /s/ ALLENAllen E. PAULSONPaulson Director March 29, 1999 - ------------------------------ March 25, 1998-------------------------------- Allen E. Paulson /s/ ROGERRoger S. PENSKEPenske Director March 29, 1999 - ------------------------------ March 25, 1998-------------------------------- Roger S. Penske /s/ COLINColin L. POWELLPowell Director March 29, 1999 - ------------------------------ March 25, 1998-------------------------------- Colin L. Powell /s/ GERARD R. ROCHE Director - ------------------------------ March 10, 1998 Gerard R. Roche 25 SIGNATURE TITLE DATEDirector March 29, 1999 - ------------------------------ --------------------------- --------------------------------------------------- Gerard R. Roche /s/ DONALDDonald H. RUMSFELDRumsfeld Director March 29, 1999 - ------------------------------ March 25, 1998-------------------------------- Donald H. Rumsfeld /s/ GEORGEGeorge P. SHULTZShultz Director March 29, 1999 - ------------------------------ March 25, 1998-------------------------------- George P. Shultz /s/ ROBERT S. STRAUSS Director - ------------------------------ March 25, 1998 Robert S. Strauss 26Director March 29, 1999 - -------------------------------- Robert S. Strauss GULFSTREAM AEROSPACE CORPORATION INDEX TO EXHIBITS
EXHIBIT DESCRIPTION - ----------- --------------------------------------------------------------------------------------------------------- Exhibit Description 2.1 Agreement of Purchase and Sale, dated as of July 23, 1998 by and between Kimberly-Clark Corporation and Gulfstream Aerospace Corporation. (Incorporated herein by reference to Exhibit 10.28 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.) 3.1 Restated Certificate of Incorporation of the Company. (Incorporated herein by reference to Exhibit 3.1 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.) 3.2 Restated By-Laws of the Company. (Incorporated herein by reference to Exhibit 3.2 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.) 4.1 Specimen Form of Company's Common Stock Certificate. (Incorporated herein by reference to Exhibit 4.1 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.1 Gulfstream Aerospace Corporation Pension Plan, amended and restated January 1, 1989, as amended ("GAC Pension Plan"). (Incorporated herein by reference to Exhibit 10.1 of Registrant's Registration Statement on Form S-1, No. 333-09897.) ** 10.2 First Amendment to GAC Pension Plan, dated December 10, 1996. (Incorporated herein by reference to Exhibit 10.2 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1996.)** 10.3 Gulfstream Aerospace Corporation Supplemental Executive Retirement Plan, effective as of April 1, 1991. (Incorporated herein by reference to Exhibit 10.2 of Registrant's Registration Statement on Form S-1, No. 333-09897.)** 10.4 Gulfstream Aerospace Corporation November 1, 1991 Supplemental Executive Retirement Plan. (Incorporated herein by reference to Exhibit 10.3 of Registrant's Registration Statement on Form S-1, No. 333-09897.)** 10.5 Form of Indemnification Agreement between the Company and its directors and executive officers. (Incorporated herein by reference to Exhibit 10.4 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.6 Form of Outside Director Stock Option Agreement. (Incorporated herein by reference to Exhibit 10.5 of Registrant's Registration Statement on Form S-1, No. 333-09897.)** 10.7 Form of Outside Director Stockholder's Agreement. (Incorporated herein by reference to Exhibit 10.6 of Registrant's Registration Statement on Form S-1, No. 333-09897.)** 10.8 [Reserved] 10.9 Form of Employee Stock Option Agreement. (Incorporated herein by reference to Exhibit 10.9 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1996.)** 10.10 Form of Employee Stockholder's Agreement. (Incorporated herein by reference to Exhibit 10.10 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1996.)** 10.11 Lease Agreement, dated as of February 22, 1995, between Oklahoma City Airport Trust and Gulfstream Aerospace Corporation. (Incorporated herein by reference to Exhibit 10.11 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1997.) 3.2 Restated By-Laws of the Company. (Incorporated herein by reference to Exhibit 3.2 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.) 4.1 Specimen Form of Company's Common Stock Certificate. (Incorporated herein by reference to Exhibit 4.1 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.1 Gulfstream Aerospace Corporation Pension Plan, amended and restated January 1, 1989, as amended ("GAC Pension Plan"). (Incorporated herein by reference to Exhibit 10.1 of Registrant's Registration Statement on Form S-1, No. 333-09897.)A 10.2 First Amendment to GAC Pension Plan, dated December 10, 1996. (Incorporated herein by reference to Exhibit 10.2 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1996.)A 10.3 Gulfstream Aerospace Corporation Supplemental Executive Retirement Plan, effective as of April 1, 1991. (Incorporated herein by reference to Exhibit 10.2 of Registrant's Registration Statement on Form S-1, No. 333-09897.)A 10.4 Gulfstream Aerospace Corporation November 1, 1991 Supplemental Executive Retirement Plan. (Incorporated herein by reference to Exhibit 10.3 of Registrant's Registration Statement on Form S-1, No. 333-09897.)A 10.5 Form of Indemnification Agreement between the Company and its directors and executive officers. (Incorporated herein by reference to Exhibit 10.4 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.6 Form of Outside Director Stock Option Agreement. (Incorporated herein by reference to Exhibit 10.5 of Registrant's Registration Statement on Form S-1, No. 333-09897.)A 10.7 Form of Outside Director Stockholder's Agreement. (Incorporated herein by reference to Exhibit 10.6 of Registrant's Registration Statement on Form S-1, No. 333-09897.)A 10.8 [Reserved] 10.9 Form of Employee Stock Option Agreement. (Incorporated herein by reference to Exhibit 10.9 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1996.)A 10.10 Form of Employee Stockholder's Agreement. (Incorporated herein by reference to Exhibit 10.10 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1996.)A 10.11 Lease Agreement, dated as of February 22, 1995, between Oklahoma City Airport Trust and Gulfstream Aerospace Corporation.* 10.12 Lease Agreement, dated as of March 14, 1989, between City of Long Beach and 7701 Woodley Avenue Corporation d/b/a Gulfstream Aerospace. (Incorporated herein by reference to Exhibit 10.12 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.13 Form of Lease Agreements, dated January 1, 1994 between Immuebles El Vigia, S.A., and Interiores Aeros, S.A. De C.V. (Incorporated herein by reference to Exhibit 10.13 of Registrant's Registration Statement on Form S-1, No. 333-09897.)
10.14 Lease Agreement, dated May 1, 1996, between Immuebles El Vigia, S.A., and Interiores Aeros, S.A. De C.V. (Incorporated herein by reference to Exhibit 10.14 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.15 Sublease Agreement, dated June 1, 1992, between Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation. (Incorporated herein by reference to Exhibit 10.15 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.16 Credit Agreement, dated as of October 16, 1996, among Gulfstream Delaware Corporation, The Chase Manhattan Bank, and the banks and other financial institutions parties thereto (including guaranty and pledge agreement). (Incorporated herein by reference to Exhibit 10.16 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.) 10.17 Registration Rights Agreement, among Gulfstream Aerospace Corporation, Gulfstream Delaware Corporation, Gulfstream Partners, Gulfstream Partners II, L.P., and MBO-IV. (Incorporated herein by reference to Exhibit 10.17 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.18 Repurchase Agreement, dated as of May 15, 1996, between Gulfstream Aerospace Corporation and MBO-IV. (Incorporated herein by reference to Exhibit 10.18 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.19 Repurchase Agreement, dated as of August 8, 1996, between Gulfstream Aerospace Corporation and MBO-IV. (Incorporated herein by reference to Exhibit 10.19 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.20 Amendment No. 1 to Sublease Agreement, dated May 23, 1996, by and between Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation. (Incorporated herein by reference to Exhibit 10.20 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.21 Amendment No. 2 to Sublease Agreement, dated May 25, 1996, by and between Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation. (Incorporated herein by reference to Exhibit 10.21 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.22 Agreement, effective August 9, 1996, between Gulfstream Aerospace Technologies and the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America Local #2130. (Incorporated herein by reference to Exhibit 10.22 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.23 Lease Agreement, dated as of August 27,
EXHIBIT DESCRIPTION - ----------- --------------------------------------------------------------------------------------------------------- 10.141996, between Long Beach Million Air, Inc. and Gulfstream Aerospace Corporation. (Incorporated herein by reference to Exhibit 10.23 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.24 Outfitted Gulfstream V Sales Agreement dated June 13, 1997 between Gulfstream Aerospace Corporation and Allen E. Paulson. (Incorporated herein by reference to Exhibit 10.24 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.) 10.25 Marketing Services Agreement dated June 13, 1997 between Gulfstream Aerospace Corporation and Allen E. Paulson. (Incorporated herein by reference to Exhibit 10.25 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.) 10.26 Gulfstream IV Aircraft Purchase Agreement and amendment to Outfitted Gulfstream V Sales Agreement dated August 1, 1997 between Gulfstream Aerospace Corporation and Allen E. Paulson. (Incorporated herein by reference to Exhibit 10.26 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.) 10.27 Amended and Restated Gulfstream Aerospace Corporation 1990 Stock Option Plan, as further amended through July 30, 1997. (Incorporated herein by reference to Exhibit 10.27 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.)** 10.28 Amendment dated December 24, 1997 to Credit Agreement among Gulfstream Delaware Corporation, The Chase Manhattan Bank, and the banks and other financial institutions parties thereto. (Incorporated herein by reference to Exhibit 10.28 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1997.) 10.29 Agreement dated December 24, 1997 between Gulfstream Aerospace Corporation and its wholly owned subsidiaries, Gulfstream Delaware Corporation, Gulfstream Aerospace Corporation, a Georgia Corporation and the Pension Benefit Guaranty Corporation. (Incorporated herein by reference to Exhibit 10.29 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1997.) 10.30 Lease Agreement, dated April 11, 1997, between Aeroplex Aviation and Gulfstream Aerospace Corporation. (Incorporated herein by reference to Exhibit 10.30 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1997.) 10.31 Amendment dated February 26, 1998 to Credit Agreement among Gulfstream Delaware Corporation, The Chase Manhattan Bank, and the banks and other financial institutions parties thereto. (Incorporated herein by reference to Exhibit 10.31 of Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.) 10.32 Amendment dated July 15, 1998 to Credit Agreement among Gulfstream Delaware Corporation, The Chase Manhattan Bank, and the banks and other financial institutions parties thereto. (Incorporated herein by reference to Exhibit 10.32 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.) 10.33 Amendment dated October 6, 1998 to Credit Agreement among Gulfstream Delaware Corporation, The Chase Manhattan Bank, and the banks and other financial institutions parties thereto. (Incorporated herein by reference to Exhibit 10.33 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.) 10.34 Lease Agreement, dated January 1, 1998, by and between Immuebles El Vigia, S.A., and Interiores Aeroes, S.A. De C.V. (Incorporated herein by reference to Exhibit 10.34 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.) 10.35 Amendment No. 3 to Sublease Agreement, dated February 23, 1998, by and between the Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation. (Incorporated herein by reference to Exhibit 10.35 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.) 10.36 Amendment No. 4 to Sublease Agreement, dated March 23, 1998, by and between the Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation. (Incorporated herein by reference to Exhibit 10.36 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.) 10.37 Lease Agreement, dated January 25, 1968, by and between Outagamie County, Wisconsin and K-C Aviation Incorporated which was assigned to K-C Aviation on October 9, 1980; as amended by Addendum No. 1, dated December 24, 1980, Addendum No. 2, dated February 9, 1988, Addendum No. 3 dated January 26, 1989, Addendum No. 4 dated October 22, 1996, and Addendum No. 5 to Lease Agreement, dated March 11, 1997. (Incorporated herein by reference to Exhibit 10.37 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.) 10.38 Lease Agreement, dated February 1, 1978, by and between City of Dallas and K-C Aviation, Incorporated for lease of land and facility at Dallas Love Field; as amended by Agreement Amending Lease dated May 1, 1996, between Immuebles El Vigia, S.A., and Interiores Aeros, S.A. De C.V. (Incorporated herein by reference to Exhibit 10.14 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.15 Sublease Agreement, dated June 1, 1992, between Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation. (Incorporated herein by reference to Exhibit 10.15 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.16 Credit Agreement, dated as of October 16, 1996, among Gulfstream Delaware Corporation, The Chase Manhattan Bank, and the banks and other financial institutions parties thereto (including guaranty and pledge agreement). (Incorporated herein by reference to Exhibit 10.1 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.) 10.17 Registration Rights Agreement, among Gulfstream Aerospace Corporation, Gulfstream Delaware Corporation, Gulfstream Partners, Gulfstream Partners II, L.P., and MBO-IV. (Incorporated herein by reference to Exhibit 10.17 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.18 Repurchase Agreement, dated as of May 15, 1996, between Gulfstream Aerospace Corporation and MBO-IV. (Incorporated herein by reference to Exhibit 10.18 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.19 Repurchase Agreement, dated as of August 8, 1996, between Gulfstream Aerospace Corporation and MBO-IV. (Incorporated herein by reference to Exhibit 10.19 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.20 Amendment No. 1 to Sublease Agreement, dated May 23, 1996, by and between Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation. (Incorporated herein by reference to Exhibit 10.20 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.21 Amendment No. 2 to Sublease Agreement, dated May 25, 1996, by and between Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation. (Incorporated herein by reference to Exhibit 10.21 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.22 Agreement, effective August 9, 1996, between Gulfstream Aerospace Technologies and the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America Local #2130. (Incorporated herein by reference to Exhibit 10.22 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.23 Lease Agreement, dated as of August 27, 1996, between Long Beach Million Air, Inc. and Gulfstream Aerospace Corporation. (Incorporated herein by reference to Exhibit 10.23 of Registrant's Registration Statement on Form S-1, No. 333-09897.) 10.24 Outfitted Gulfstream V Sales Agreement dated June 13, 1997 between Gulfstream Aerospace Corporation and Allen E. Paulson. (Incorporated herein by reference to Exhibit 10.24 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.) 10.25 Marketing Services Agreement dated June 13, 1997 between Gulfstream Aerospace Corporation and Allen E. Paulson. (Incorporated herein by reference to Exhibit 10.25 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.) 10.26 Gulfstream IV Aircraft Purchase Agreement and amendment to Outfitted Gulfstream V Sales Agreement dated August 1, 1997 between Gulfstream Aerospace Corporation and Allen E. Paulson. (Incorporated herein by reference to Exhibit 10.26 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.) 10.27 Amended and Restated Gulfstream Aerospace Corporation 1990 Stock Option Plan, as further amended through July 30, 1997. (Incorporated herein by reference to Exhibit 10.27 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.)A
28,
EXHIBIT DESCRIPTION - ----------- --------------------------------------------------------------------------------------------------------- 10.28 Amendment dated December 24, 1997 to Credit Agreement among Gulfstream Delaware Corporation, The Chase Manhattan Bank, and the banks and other financial institutions parties thereto.* 10.29 Agreement dated December 24, 1997 between Gulfstream Aerospace Corporation and its wholly owned subsidiaries, Gulfstream Delaware Corporation, Gulfstream Aerospace Corporation, a Georgia Corporation and the Pension Benefit Guaranty Corporation.* 10.30 Lease Agreement, dated April 11, 1997, between Aeroplex Aviation and Gulfstream Aerospace Corporation.* 13.1 Annual Report to Stockholders for fiscal year ended December 31, 1997. (The 1997 Annual Report, except for those portions thereof which are expressly incorporated by references in this Annual Report on Form 10-K, is being furnished for the information of the Commission and is not to be deemed "filed" as part of the Form 10-K.)* 21.1 Subsidiaries of the Company (Incorporated herein by reference to Exhibit 21.1 of Registrant's Registration Statement on Form S-1, No. 333-09827.) 27.1 Financial Data Schedule--Fiscal 1997.* 27.2 Restated Financial Data Schedule--Fiscal 1996 and Third Quarter 1996.* 27.3 Restated Financial Data Schedule--First, Second and Third Quarter1981, Second Amendment dated June 1, 1989, and that certain letter from the City of Dallas to K-C Aviation dated December 9, 1997. (Incorporated herein by reference to Exhibit 10.38 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.) 10.39 Sublease Agreement, dated January 17, 1989, by and between Dalfort Aviation Services, a division of Dalfort Corporation and K-C Aviation, Incorporated, as amended by that certain First Additional Agreement effective January 17, 1989. (Incorporated herein by reference to Exhibit 10.39 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.) 10.40 Sublease Agreement, dated December 1, 1996, by and between Dallas Airmotive, Incorporated and K-C Aviation, Incorporated. (Incorporated herein by reference to Exhibit 10.40 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.) 10.41 Lease Agreement, dated May 1, 1997, by and between Carpenter Freeway Properties and K-C Aviation, Incorporated. (Incorporated herein by reference to Exhibit 10.41 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.) 10.42 Amendment dated December 2, 1998 to the Amended and Restated Gulfstream Aerospace Corporation 1990 Stock Option Plan.* ** 10.43 Form of Stock Option Agreement effective December 1998.* ** 10.44 Form of Stock Option Agreement for partners or employees of FLC Partnership effective December 1998.* ** 10.45 Fifth Amendment dated March 1, 1999 to Credit Agreement among Gulfstream Delaware Corporation, The Chase Manhattan Bank, and the banks and other financial institutions parties thereto.* 10.46 Secured Promissory Note dated November 30, 1998 between Gulfstream Aerospace Corporation and The CIT Group/Equipment Financing, Inc.* 10.47 Secured Promissory Note dated November 30, 1998 between Gulfstream Aerospace Corporation and The CIT Group/Equipment Financing, Inc.* 10.48 Secured Promissory Note dated November 30, 1998 between Gulfstream Aerospace Corporation and The CIT Group/Equipment Financing, Inc.* 10.49 Form of Security Agreement, dated as of November 30, 1998 by and between Gulfstream Aerospace Corporation, as Borrower and The CIT Group/Equipment Financing, Inc., as Secured Party.* 10.50 Form of Guaranty Agreement, dated November 30, 1998, given in connection with the Security Agreement and Promissory Note, between Gulfstream Aerospace Corporation, as Borrower and The CIT Group/Equipment Financing, Inc., as Secured Party.* 13.1 Annual Report to Stockholders for fiscal year ended December 31, 1998. (The 1998 Annual Report, except for those portions thereof which are expressly incorporated by reference in this Annual Report on Form 10-K, is being furnished for the information of the Commission and is not to be deemed "filed" as part of the Form 10-K.)* 21.1 Subsidiaries of the Company.* 27.1 Financial Data Schedule - Fiscal 1998.* 99.1 Cautionary Statement for Purpose of the "Safe Harbor" Provisions of The Private Securities Litigation Reform Act of 1995.*
- ------------------------ A-------- ** Management contract or compensatory plan. * Filed herewith. 29