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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
----------------------
COMMISSION FILE NO. 1-8461
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GULFSTREAM AEROSPACE CORPORATION
P. O. Box 2206
500 Gulfstream Road
Savannah, Georgia 31402-2206
Telephone: (912) 965-3000
State of incorporation: Delaware
IRS identification number: 13-3554834
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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 No ______
As of November 3, 1997, there were 74,135,680 shares of
Gulfstream Aerospace Corporation Common Stock outstanding.
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GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
PAGE
NO.
--------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996................3
Consolidated Statements of Income
Three and nine months ended September 30, 1997
and 1996................................................4
Consolidated Statement of Stockholders' Equity
Nine months ended September 30, 1997....................5
Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1996...........6
Notes to Consolidated Financial Statements.............7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................10-13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS........................................14
ITEM 2. CHANGES IN SECURITIES....................................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..........................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS...............................................14
ITEM 5. OTHER INFORMATION........................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.........................14
SIGNATURE................................................15
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
SEPTEMBER DECEMBER
30, 31,
1997 1996
------------ -----------
ASSETS
Cash and cash equivalents $ 242,141 $233,172
Accounts receivable (less allowance for doubtful
accounts: $1,136 and $3,243) 129,349 137,342
Inventories 654,186 655,237
Deferred income taxes 54,250 -
Prepaids and other assets 6,876 7,915
------------ -----------
Total current assets 1,086,802 1,033,666
Property and equipment, net 122,454 126,503
Tooling 45,020 47,677
Goodwill, net of accumulated amortization: $8,130 39,259 35,799
and $7,322
Other intangible assets, net 51,753 55,556
Deferred income taxes 35,050 -
Other assets and deferred charges 16,827 14,014
------------ -----------
Total Assets $1,397,165 $1,313,215
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 62,917 $ 20,000
Accounts payable 140,093 129,410
Accrued liabilities 96,618 111,243
Customer deposits -- current portion 498,030 634,922
------------ -----------
Total current liabilities 797,658 895,575
Long-term debt 323,750 380,000
Accrued postretirement benefit cost 113,845 108,705
Customer deposits -- long-term 111,176 109,037
Other long-term liabilities 9,324 8,709
Commitments and contingencies
Stockholders' equity
Common stock; $.01 par value; 300,000,000
shares authorized; 86,114,119 shares issued in 1997
and 85,890,212 shares issued in 1996 861 859
Additional paid-in capital 363,971 333,686
Accumulated deficit (270,349) (468,971)
Minimum pension liability (1,464) (1,464)
Unamortized stock plan expense (1,118) (2,432)
Less: Treasury stock: 11,978,439 shares in 1997 (50,489) (50,489)
and 1996
------------ -----------
Total stockholders' equity 41,412 (188,811)
------------ -----------
Total Liabilities and Stockholders' Equity $1,397,165 $1,313,215
============ ===========
See notes to consolidated financial statements
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenues $464,036 $283,834 $1,362,568 $742,506
Cost and expenses
Cost of sales 372,983 222,495 1,125,031 577,336
Selling and administrative 23,920 24,819 69,517 70,009
Stock option compensation expense 329 1,463 1,314 6,663
Research and development 4,305 16,356 8,079 51,102
Amortization of intangibles and
deferred charges 1,831 1,882 5,477 5,645
-------- -------- ---------- --------
Total costs and expenses $403,368 $267,015 $1,209,418 $710,755
-------- -------- ---------- --------
Income from operations 60,668 16,819 153,150 31,751
Interest income 2,839 3,613 8,201 11,206
Interest expense (7,495) (3,185) (23,305) (10,351)
--------- --------- ---------- ---------
Income before income taxes 56,012 17,247 138,046 32,606
Income tax benefit (63,076) - (60,576) -
--------- --------- ---------- ---------
Net Income $119,088 $ 17,247 $ 198,622 $ 32,606
========= ========= ========== =========
Earnings Per Share:
Net income per share $ 1.54 $ .22 $ 2.54 $ .42
========= ========= ========== =========
Weighted average common and common
equivalent shares outstanding 77,105 78,535 78,127 78,535
========= ========= ========== =========
</TABLE>
See notes to consolidated financial statements
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional Minimum Unamortized Total
Common Paid-In Accumulated Pension Stock Plan Treasury Stockholders'
Stock Capital Deficit Liability Expense Stock Equity
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of December
31, 1996 $859 $333,686 $(468,971) $(1,464) $(2,432) $(50,489) $(188,811)
Net income 198,622 198,622
Amortization of stock 1,314 1,314
plan expense
Exercise of common 2 886 888
stock options
Tax benefit of common 29,399 29,399
stock options
------------------------------------------------------------------------
Balance as of September $861 $363,971 $(270,349) $(1,464) $(1,118) $(50,489) $41,412
30, 1997
========================================================================
</TABLE>
See notes to consolidated financial statements
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $198,622 $ 32,606
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 24,342 18,273
Postretirement benefit cost 5,140 5,051
Provision for loss on pre-owned aircraft (1,100) 1,000
Non-cash stock option compensation expense 1,314 6,663
Deferred income tax benefit (64,801)
Other, net 712 322
Change in assets and liabilities:
Accounts receivable 7,986 (66,048)
Inventories 2,151 (205,997)
Prepaids, other assets, and deferred charges (2,640) (2,784)
Accounts payable and accrued liabilities (3,942) 17,794
Customer deposits (134,753) 410,314
Other long-term liabilities 615 (2,641)
--------- ---------
Net Cash Provided by Operating Activities 33,646 214,553
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property and equipment (9,619) (9,518)
Dispositions of property and equipment 24
Expenditures for tooling (2,613) (1,593)
--------- ---------
Net Cash Used in Investing Activities (12,232) (11,087)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of common stock options 888 78
Principal payments on long-term debt (13,333) (39,799)
Repurchase of preferred stock (18,938)
Dividends paid on preferred stock (104,010)
--------- ---------
Net Cash Used in Financing Activities (12,445) (162,669)
Increase in cash and cash equivalents 8,969 40,797
Cash and cash equivalents, beginning of period 233,172 223,312
========= =========
Cash and cash equivalents, end of period $242,141 $ 264,109
========= =========
See notes to consolidated financial statements
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared by the Company pursuant to the rules of the Securities
and Exchange Commission ("SEC") and, in the opinion of the Company,
include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of financial position,
results of operations and cash flows. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to SEC rules. The operating results for
the three and nine months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended
December 31, 1996 included in the Company's 1996 Annual Report to
Stockholders.
NOTE 2. NET INCOME PER SHARE
Net income per share is based on net income divided by the
weighted average number of common and common equivalent shares
outstanding during the period. Common equivalent shares consist of the
Company's stock issuable upon exercise of common stock options
determined using the treasury stock method. For the 1996 periods, net
income per share is calculated based on historical net income and
assuming the Company's initial public offering and related
transactions that occurred during October 1996 and the issuance of
stock options in 1996 had occurred as of the beginning of the
respective reporting period.
NOTE 3. INVENTORIES
Inventories consisted of the following at:
September December
30, 31,
1997 1996
------------ ------------
(In thousands)
Work in process $334,760 $355,198
Raw materials 140,270 108,041
Pre-owned aircraft 116,122 87,680
Vendor progress payments 63,034 104,318
------------ ------------
$654,186 $655,237
============ ============
NOTE 4. COMMITMENTS AND CONTINGENCIES
In the normal course of business, lawsuits, claims and
proceedings have been or may be instituted or asserted against the
Company relating to various matters, including products liability.
Although the outcome of litigation cannot be predicted with certainty
and some lawsuits, claims or proceedings may be disposed of
unfavorably to the Company, management has made provision for all
known probable losses related to lawsuits and claims and believes that
the disposition of all matters which are pending or asserted will not
have a material adverse effect on the financial statements of the
Company.
The Company is involved in a tax audit by the Internal Revenue
Service covering the years ended December 31, 1991 and 1990. The
revenue agent's report includes 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.
The Company is currently engaged in the monitoring and cleanup of
certain ground water at its Savannah facility under the oversight of
the Georgia Department of Natural Resources. Expenses incurred for
cleanup have not been significant. The Company received in 1992, at
its Long Beach facility, two inquiries from the U.S. Environmental
Protection Agency and, in 1991, at its Oklahoma facility, a soil
contamination inquiry. The Company believes other aspects of the
Savannah facility, as well as other Gulfstream properties, are being
carefully monitored and are in substantial compliance with current
federal, state and local environmental regulations. The Company
believes the liabilities, if any, that will result from the above
environmental matters will not have a material adverse effect on its
financial statements.
NOTE 5. INCOME TAXES
The Company recorded a net income tax benefit of $63.1 million
and $60.6 million for the quarter and nine month period ended
September 30, 1997, respectively. No provision for income taxes for
the quarter and nine month period ended September 30, 1996 was
recorded, principally as a result of utilization of net operating loss
carryforwards. The Company, in estimating the realizability of its net
deferred tax assets, considers both positive and negative evidence and
gives greater weight to evidence that is objectively verifiable. As a
result of numerous factors, including, but not limited to recent
earnings trends, the Company currently believes its net deferred tax
asset is more likely than not to be realized, and released in the
quarter ended September 30, 1997 its deferred tax valuation allowance,
totalling approximately $94 million, of which $29 million of such
benefits related to the exercise of stock options and was credited to
additional paid-in capital and the remainder, $65 million was recorded
as a one-time, non-cash tax benefit. The Company had available at
September 30, 1997 net operating loss carryforwards for regular
federal income tax purposes of approximately $115.0 million which will
begin expiring in 2006.
NOTE 6. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings
per Share, which will be effective for the Company's 1997 annual
financial statements. SFAS No. 128 simplifies the standards for
computing earnings per share (EPS) information and makes the
computation comparable to international EPS standards. SFAS No. 128
replaces the presentation of "primary" (and when required "fully
diluted") EPS with a presentation of "basic" and "diluted" EPS. Pro
forma amounts under the provisions of SFAS No. 128 are set forth
below:
Three months ended Nine months ended
September 30, September 30,
--------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- --------
Basic EPS $1.61 $0.23 $2.68 $0.44
Diluted EPS $1.54 $0.22 $2.54 $0.42
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information,
which are both effective no later than for the Company's 1998 fiscal
year. These two new statements may affect the Company's financial
statement disclosures. The Company is evaluating how and when to
implement these new disclosure statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Notes to Consolidated Financial Statements beginning on page 7 and
with Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) and the audited Consolidated Financial
Statements and Notes to Consolidated Financial Statements appearing in
the Company's 1996 Annual Report to Stockholders.
COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTER AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
Net Revenues. Net revenues increased by $180.2 million, or 63%,
to $464.0 million in the third quarter of 1997 from $283.8 million in
the third quarter of 1996. The significant increase resulted primarily
from the delivery of 14 new aircraft, six Gulfstream IV-SPs and eight
Gulfstream Vs, as compared with nine aircraft, all Gulfstream IV-SPs,
in the third quarter of 1996. During the nine months ended September
30, 1997, total net revenues increased by $620.1 million, or 84%, to
$1,362.6 million from $742.5 million for the nine months ended
September 30, 1996. For the nine months ended September 30, 1997,
Gulfstream delivered 37 new aircraft, 16 Gulfstream IV-SPs and 21
Gulfstream Vs, up from 20 Gulfstream IV-SPs and no Gulfstream Vs in
the same period of 1996. Also contributing to the increase were
revenues of $158.4 million from the sale of 12 pre-owned aircraft for
the nine months as compared to revenues of $100.3 million from the
sale of 10 aircraft in the corresponding period in 1996.
Cost of Sales. Total cost of sales increased $150.5 million to
$373.0 million in the third quarter of 1997 from $222.5 million in the
third quarter of 1996, and increased $547.7 million to $1,125.0
million for the nine months ended September 30, 1997 from $577.3
million for the nine months ended September 30, 1996. These increases
were a result of the higher number of new aircraft and pre-owned
aircraft deliveries discussed above. Excluding pre-owned aircraft,
which generally are sold at break-even levels, the gross profit
percentage for the third quarter of 1997 was 19.3% compared to 24.7%
for the third quarter of 1996, and for the nine months ended September
30, 1997, the gross profit percentage was 19.1% compared to 26.0% for
the comparable period in 1996. The decline in gross profit percentage
is primarily attributable to the introduction of the Gulfstream V
aircraft into production and the higher costs associated with the
early stages of the Gulfstream V production program. The Company
expects the margin percentage of revenue on the Gulfstream V to
approach that of the Gulfstream IV-SP over the next 12-18 months.
Selling and Administrative Expense. Selling and administrative
expense of $23.9 million in the third quarter of 1997 was relatively
unchanged compared to $24.8 million for the third quarter of 1996. For
the nine months ended September 30, 1997, selling and administrative
expense was $69.5 million as compared to $70.0 million for the nine
months ended September 30, 1996. As a percentage of net revenues,
selling and administrative expense decreased to 5.2% during the third
quarter of 1997 compared to 8.7% in the third quarter of 1996, and
decreased to 5.1% during the nine months ended September 30, 1997
versus 9.4% in the comparable period of 1996, both as a result of
higher revenues in 1997.
Stock Option Compensation Expense. The issuance of options to
purchase common stock of the Company resulted in a non-cash
compensation charge of $0.3 million and $1.3 million during the third
quarter of 1997 and the nine months ended September 30, 1997,
respectively, compared to $1.5 million and $6.7 million for the
comparable periods in 1996.
Research and Development Expense. Research and development
expense decreased by $12.1 million to $4.3 million for the third
quarter of 1997 from $16.4 million for the third quarter of 1996,
principally as a result of the substantial completion of the
Gulfstream V development program. For the nine month period ended
September 30, 1997, research and development expense decreased by
$43.0 million to $8.1 million from $51.1 million for the corresponding
period in 1996. Research and development expense for the nine months
ended September 30, 1997 is net of a $10.0 million credit for launch
assistance funds received from a vendor participating in the
development of the Gulfstream V.
Interest Income and Expense. Interest income decreased by $0.8
million to $2.8 million in the third quarter of 1997 and decreased by
$3.0 million to $8.2 million in the nine months ended September 30,
1997 from the comparable 1996 periods. In each case, the decrease was
a result of lower average cash balances invested during the 1997
periods. Interest expense increased by $4.3 million to $7.5 million
for the third quarter of 1997 and by $13.0 million to $23.3 million
for the nine months ended September 30, 1997, respectively, over the
comparable periods in 1996. This increase was principally due to the
increase in average long-term borrowings resulting from the Company's
new credit facilities.
Provision (Benefit) for Income Taxes. The Company recorded a net
income tax benefit of $63.1 million and $60.6 million for the quarter
and nine month period ended September 30, 1997, respectively. No
provision for income taxes for the quarter and nine month period ended
September 30, 1996 was recorded, principally as a result of
utilization of net operating loss carryforwards. The Company, in
estimating the realizability of its net deferred tax assets, considers
both positive and negative evidence and gives greater weight to
evidence that is objectively verifiable. As a result of numerous
factors, including, but not limited to recent earnings trends, the
Company currently believes its net deferred tax asset is more likely
than not to be realized, and released in the quarter ended September
30, 1997 its deferred tax valuation allowance, totalling approximately
$94 million, of which $29 million of such benefits related to the
exercise of stock options and was credited to additional paid-in
capital and the remainder, $65 million was recorded as a one-time
non-cash tax benefit. The Company had available at September 30, 1997
net operating loss carryforwards for regular federal income tax
purposes of approximately $115.0 million which will begin expiring in
2006.
Earnings Per Share. The Company reported earnings per share of
$1.54 for the third quarter 1997 (or $0.70 per share, excluding the
one time tax benefit discussed above) up from the third quarter 1996
of $0.22. For the nine months ended September 30, 1997, earnings per
share increased to $2.54 (or $1.71 per share, excluding the one time
tax benefit discussed above) from $0.42 for the corresponding period
in 1996. On a pro forma basis, assuming an effective tax rate of
37.5%, the Company's earnings per share would have been $0.45 and
$0.14 for the quarters ended September 30, 1997 and 1996, respectively
and $1.10 and $0.26 for the nine months ended September 30, 1997 and
1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from working capital
requirements, capital expenditures, and principal and interest
payments on long-term debt. During the nine months ended September 30,
1997, the Company relied on its available cash balances to fund these
needs. The Company had cash and cash equivalents totaling $242.1
million at September 30, 1997 and available but undrawn borrowings of
$200.0 million under a revolving credit facility.
Net cash generated by operating activities during the nine months
ended September 30, 1997 and 1996, was $33.6 million and $214.6
million, respectively. The reduction in 1997 is primarily attributable
to the timing of progress payments on aircraft in backlog for the
comparable periods.
Capital expenditures for property and equipment and tooling were
$12.2 million and $11.1 million, respectively, during the nine months
ended September 30, 1997. As a result of continued strong demand for
its products, and the Company's objective to make deliveries sooner to
its new aircraft customers, Gulfstream announced, during the fourth
quarter of 1996, plans to increase its annual production rate to
approximately 60 aircraft by 1999, a twofold increase over its 1996
annual production rate. As a result, in 1997 and 1998, the Company's
capital expenditures are expected to increase over the two year period
by approximately $35 million above previously planned annual levels of
approximately $15 million to meet the requirements of the increased
production capacity. The Company continually monitors its capital
spending in relation to current and anticipated business needs. As
circumstances dictate, facilities are added, consolidated, or
modernized.
At September 30, 1997, borrowings under the Company's credit
facilities were $386.7 million. The Company made scheduled payments on
its long-term debt of $13.3 million during the nine months ended
September 30, 1997, and scheduled repayments remaining are $6.7
million in 1997, $75.0 million in each of the years 1998 through 2001,
and $80.0 million in 2002. The Credit Agreement contains customary
affirmative and negative covenants including restrictions on the
ability of the Company and its subsidiaries to pay cash dividends, as
well as financial covenants under which the Company must operate. At
September 30, 1997 the Company was in compliance with the covenants of
its existing credit agreement.
In connection with orders for 25 Gulfstream V aircraft in the
backlog, the Company has offered customers trade-in options (which may
or may not be exercised) under which the Company will accept trade-in
aircraft, primarily Gulfstream IVs and Gulfstream IV-SPs, at a
guaranteed minimum trade-in price. In light of the current market for
pre-owned Gulfstream aircraft, management believes that the fair
market value of such aircraft exceeds the specified trade-in values.
As such, Gulfstream does not believe the existence of such commitments
will have a material adverse effect on its results of operations, cash
flow or financial position.
On October 10, 1996, the Company reached an agreement in
principle with the Pension Benefit Guaranty Corporation (the "PBGC")
concerning funding of the Company's defined benefit pension plans.
Pursuant to this agreement, the Company contributed an additional $20
million in 1996, and $18.8 million during the nine months ended
September 30, 1997. Further, the Company has agreed to contribute $6.2
million for the remainder of 1997 and a total of $25 million annually
from 1998 through 2000 to its pension plans, which payments are
expected to result in such plans being fully funded. The payments to
be made under this agreement were already part of the Company's
overall financial planning, and therefore, are not expected to have a
material effect on the Company's financial statements.
The Company's principal source of liquidity, both on a short-term
and long-term basis, is cash flow provided by operations, including
customer progress payments and deposits on new aircraft orders.
Occasionally, however, the Company may borrow against the credit
agreement to supplement cash flow from operations. The Company
believes that based upon its analysis of its consolidated financial
position, its cash flow during the past 12 months and the expected
results of operations in the future, operating cash flow and available
borrowings under the credit agreement will be adequate to fund
operations, capital expenditures and debt service for at least the
next 12 months. The Company intends to repay its remaining
indebtedness primarily with cash flow from operations. There can be no
assurance, however, that future industry specific developments or
general economic trends will not adversely affect the Company's
operations or its ability to meet its cash requirements.
CONTRACTUAL BACKLOG
At September 30, 1997, Gulfstream had a firm contract backlog of
approximately $2.8 billion of revenues, representing a total of 89
aircraft. The Company includes an order in backlog only if the Company
has entered into a purchase contract (with no contingencies) with the
customer and has received a significant (generally non-refundable)
deposit from the customer.
The Company continually monitors the condition of its backlog and
believes, based on the nature of its customers and its historical
experience, that there will not be a significant number of
cancellations. However, to the extent that there is a lengthy period
of time between a customer's aircraft order and its delivery date,
there may be increased uncertainty as to changes in business and
economic conditions which may affect customer cancellations.
PART II. OTHER INFORMATION
ITEM LEGAL PROCEEDINGS
1.
Not Applicable.
ITEM CHANGES IN SECURITIES
2.
Not Applicable.
ITEM DEFAULTS UPON SENIOR SECURITIES
3.
Not Applicable.
ITEM SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
4.
Not Applicable.
ITEM OTHER INFORMATION
5.
Certain statements contained in this Form 10-Q contain
"forward-looking" information that involves risk and
uncertainty, including, but not limited to, statements
regarding planned future deliveries and expenditures. Actual
future results and trends may differ materially depending on
a variety of factors. For discussion of these factors, see
Exhibit 99, Cautionary Statement for Purposes of the "Safe
Harbor" Provisions of the Private Securities Litigation
Reform Act of 1995.
ITEM EXHIBITS AND REPORTS ON FORM 8-K
6.
(a) Exhibits
The following exhibits are filed as part of this report:
Exhibit 11.1 Computation of Earnings per Common Share.
Exhibit 27.1 Financial Data Schedule.
Exhibit 99.1 Cautionary Statement for Purposes of the
"Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995.
(b) Report on Form No reports on Form 8-K were filed during the
8-K quarter ended September 30, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated: November 11, 1997
GULFSTREAM AEROSPACE CORPORATION
/s/ Chris A. Davis
----------------------------------
Chris A. Davis
Executive Vice President,
Chief Financial Officer and
Secretary
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
EXHIBITS
Exhibit 11.1 Computation of Earnings per Common Share.
Exhibit 27.1 Financial Data Schedule.
Exhibit 99.1 Cautionary Statement for Purposes of the "Safe
Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995.
EXHIBIT 11.1
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ---------------------
1997 1996 1997 1996
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net income applicable to common shares $119,088 $17,247 $198,622 $32,606
========= ========== ========= ==========
Shares:
Average shares issued and outstanding (after
giving effect to the Recapitalization) 74,119 65,403 74,036 65,403
Exercise of certain stock options with the - 3,949 - 3,949
Offering
Incremental shares applicable to stock
options, excluding the tax benefit,
outstanding after the exercise of certain 4,637 4,624 4,641 4,624
stock options with the Offering
Incremental shares applicable to the tax (1,651) - (550) -
benefit of stock options
Shares issued pursuant to the Offering - 4,559 - 4,559
--------- ---------- --------- ----------
Weighted average common and common
equivalent shares outstanding 77,105 78,535 78,127 78,535
========= ========== ========= ==========
Net income per common and common
equivalent share $ 1.54 $ .22 $ 2.54 $ .42
========= ========== ========= ==========
Note: Shares and stock options issued prior to October 16, 1996, the date of the
Offering (see Note 10 to the consolidated financial statements included in the 1996
Annual Report to Stockholders), are treated as outstanding for all reported periods.
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27.1
Financial Data Schedule
For Period Ended September 30, 1997
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
(Unaudited)
(In millions, except per share data)
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 242
<SECURITIES> 0
<RECEIVABLES> 129<F1>
<ALLOWANCES> 1<F1>
<INVENTORY> 654
<CURRENT-ASSETS> 1,087
<PP&E> 122<F2>
<DEPRECIATION> 107<F2>
<TOTAL-ASSETS> 1,397
<CURRENT-LIABILITIES> 798
<BONDS> 323
0
0
<COMMON> 1
<OTHER-SE> 40
<TOTAL-LIABILITY-AND-EQUITY> 1,397
<SALES> 1,363
<TOTAL-REVENUES> 1,369
<CGS> 1,125
<TOTAL-COSTS> 1,209
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 138
<INCOME-TAX> (61)
<INCOME-CONTINUING> 199
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 199
<EPS-PRIMARY> 2.54
<EPS-DILUTED> 2.54
<FN>
Amounts inapplicable or not disclosed as a separate line on the
Statement of Financial Position or Results of Operations are reported
as 0 herein.
<F1> Notes and accounts receivable - trade are reported net of
allowances for doubtful accounts in the Consolidated Balance
Sheet.
<F2> Property, plant and equipment are reported net of accumulated
depreciation in the Consolidated Balance Sheet.
</FN>
</TABLE>
EXHIBIT 99.1
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES REFORM ACT OF 1995
Gulfstream Aerospace Corporation (the "Company" or "Gulfstream")
cautions readers that the important factors set forth below, as well
as factors discussed in other documents filed by the Company with the
Securities and Exchange Commission (the "SEC"), among others, could
cause the Company's actual results to differ materially from
statements contained in this report, future filings by the Company
with the SEC, the Company's press releases and oral statements made by
or on behalf of the Company. The words "estimate", "project",
"anticipate", "expect", "intend", "believe", and similar expressions
are intended to identify forward looking statements.
AIRCRAFT PRODUCTION
While the Company generally receives non-refundable deposits in
connection with each order, an order may be cancelled (and the deposit
returned) under certain conditions if the delivery of a Gulfstream V
aircraft is delayed more than six months after a customer's scheduled
delivery date. An extended delay in the production process could cause
an increase in the number of cancellations of orders, which could have
an adverse effect on the Company's results of operations.
In contrast to its historical practice of discontinuing prior
models, the Company will continue to manufacture and sell Gulfstream
IV-SPs at the same time that it manufactures and sells Gulfstream Vs.
The Company expects to increase its aircraft production rate in 1997
as compared to its aircraft production rate in 1996. In addition, the
Company has announced its plan to increase its annual production rate
to approximately 60 aircraft by 1999, a two-fold increase over its
1996 annual production rate. No assurance can be given as to the
extent to which the Company can successfully increase its rate of
production.
THE BUSINESS JET AIRCRAFT MARKET
The Company's principal business is the design, development,
manufacture and marketing of large and ultra-long range business jet
aircraft. Because of the high unit selling price of its aircraft
products and the availability of commercial airlines and charters as
alternative means of business travel, a downturn in general economic
conditions could result in a reduction in the orders received by the
Company for its new and pre-owned aircraft. The Company would not be
able to rely on sales of other products to offset a reduction in sales
of its aircraft. If a potential purchaser is experiencing a business
downturn or is otherwise seeking to limit its capital expenditures,
the high unit selling price of a new Gulfstream aircraft could result
in such potential purchaser deferring its purchase or changing its
operating requirements and electing to purchase a competitor's lower
priced aircraft. Since the Company relies on the sales of a relatively
small number of high unit selling price new aircraft to provide
approximately 60% to 70% of its revenues, small decreases in the
number of aircraft delivered in any year could have a material adverse
effect on the results of operation for that year.
The Company believes that its reputation and the exemplary safety
record of its aircraft are important selling points for new and
pre-owned Gulfstream aircraft. However, if one or a number of
catastrophic events were to occur with the Gulfstream fleet,
Gulfstream's reputation and sales of Gulfstream aircraft could be
adversely affected.
In many cases, the Company has agreed to accept, at the
customer's option, the customer's pre-owned aircraft as a trade-in in
connection with the purchase of a Gulfstream V. Based on the current
market for pre-owned aircraft, the Company expects to continue to be
able to resell such pre-owned aircraft, and does not expect to suffer
a loss with respect to the possible trade-in of such aircraft.
However, an increased level of pre-owned aircraft or changes in the
market for pre-owned aircraft may increase the Company's inventory
costs and may result in the Company receiving lower prices for its
pre-owned aircraft.
The market for large cabin business jet aircraft is highly
competitive. The Gulfstream IV-SP competes in the large cabin business
jet aircraft market segment, principally with Dassault Aviation S.A.
(which has announced that it will merge with Aerospatiale SA) and
Bombardier Inc. ("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, according to published reports, is scheduled
for certification in May 1998, 18 months after the initial delivery of
the Gulfstream V. The Boeing Company, in partnership with General
Electric Co., is marketing a version of the Boeing 737 into the
ultra-long range business jet aircraft market segment. Boeing has
indicated that it expects this aircraft to be available for delivery
in the fourth quarter of 1998. In June 1997, Airbus Industrie
announced it would market a version of the Airbus A319 into this
market segment as well. Airbus has indicated it expects the aircraft
to be available 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's ability to compete successfully in the large
business jet and ultra-long range business jet aircraft markets over
the long term requires continued technological and performance
enhancements to Gulfstream aircraft. No assurance can be given that
the Company's competitors will not be able to produce aircraft capable
of performance comparable or superior to Gulfstream aircraft in the
future.
PURCHASED MATERIALS AND EQUIPMENT
Approximately 70% of the production costs of both the Gulfstream
IV-SP and the Gulfstream V consist of materials and equipment
purchased from other manufacturers. While the Company's production
activities have never been materially affected by its inability to
obtain components, and while the Company maintains business
interruption insurance in the event that such a disruption should
occur, the failure of the Company's suppliers to meet the Company's
performance specifications, quality standards, pricing terms or
delivery schedules could have a material adverse impact on the
profitability of the Company's new aircraft sales or the ability of
the Company to timely deliver new aircraft to customers.
POSSIBLE FLUCTUATIONS IN QUARTERLY AND ANNUAL RESULTS
The Company records revenue from the sale of a new "green"
aircraft (i.e., before exterior painting and installation of customer
selected interiors and optional avionics) when that aircraft is
delivered to the customer. As a result, a delay or an acceleration in
the delivery of new aircraft may affect the Company's revenues for a
particular quarter or year and may make quarter-to-quarter or
year-to-year comparisons difficult. In addition, the Company's
production schedule may be affected by many factors, including timing
of deliveries by suppliers.
PENDING TAX AUDIT
The Company is involved in a tax audit by the Internal Revenue
Service covering the years ended December 31, 1991 and 1990. The
revenue agent's report includes several proposed adjustments involving
the deductibility of certain compensation expense, items relating to
the initial capitalization of the Company as well as 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 report is 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 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.
LEVERAGE AND DEBT SERVICE
The degree to which the Company is leveraged at a particular time
could have important consequences to the Company, including the
following: (i) the Company's ability to obtain additional financing in
the future for working capital, capital expenditures, product
development, acquisitions, general corporate purposes or other
purposes may be impaired; (ii) a portion of the Company's and its
subsidiaries' cash flow from operations must be dedicated to the
payment of the principal of and interest on its indebtedness; (iii)
the Company's credit agreement contains certain restrictive financial
and operating covenants, including, among others, requirements that
the Company satisfy certain financial ratios; (iv) a significant
portion of Gulfstream's borrowings will be at floating rates of
interest, causing Gulfstream to be vulnerable to increases in interest
rates; (v) the Company's degree of leverage may make it more
vulnerable in a downturn in general economic conditions; and (vi) the
Company's financial position may limit its flexibility in responding
to changing business and economic conditions.
