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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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.
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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.
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