=================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
---------------
COMMISSION FILE NO. 1-8461
---------------
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
---------------
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 May 6, 1997, there were 74,075,240 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
March 31, 1997 and December 31,
1996.................................... 3
Consolidated Statements of Income
Three months ended March 31, 1997
and 1996................................ 4
Consolidated Statement of Stockholders'
Equity
Three months ended March 31, 1997....... 5
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and
1996.................................... 6
Notes to Consolidated Financial
Statements.............................. 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9-11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS......................... 12
ITEM 2. CHANGES IN SECURITIES..................... 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS........................ 12
ITEM 5. OTHER INFORMATION......................... 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......... 13
SIGNATURE................................. 13
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 200,510 $ 233,172
Accounts receivable (less allowance for
doubtful accounts: $1,648 and $3,243) 125,034 137,342
Inventories 629,505 655,237
Prepaids and other assets 9,147 7,915
---------- ----------
Total current assets 964,196 1,033,666
Property and equipment, net 124,317 126,503
Tooling 46,277 47,677
Goodwill, net of accumulated amortization:
$7,591 and $7,322 35,530 35,799
Other intangible assets, net 54,289 55,556
Other assets and deferred charges 13,842 14,014
---------- ----------
Total Assets $1,238,451 $1,313,215
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 38,750 $ 20,000
Accounts payable 127,660 129,410
Accrued liabilities 90,776 111,243
Customer deposits--current portion 540,047 634,922
---------- ----------
Total current liabilities 797,233 895,575
Long-term debt 361,250 380,000
Accrued postretirement benefit cost 110,504 108,705
Customer deposits--long-term 108,664 109,037
Other long-term liabilities 8,552 8,709
Commitments and contingencies
Stockholders' equity
Common stock; $.01 par value; 300,000,000
shares authorized; 86,013,767 shares
issued in 1997 and 85,890,212 shares
issued in 1996 860 859
Additional paid-in capital 334,192 333,686
Accumulated deficit (428,941) (468,971)
Minimum pension liability (1,464) (1,464)
Unamortized stock plan expense (1,910) (2,432)
Less: Treasury stock: 11,978,439 shares
in 1997 and 1996 (50,489) (50,489)
---------- -----------
Total stockholders' equity (147,752) (188,811)
---------- -----------
Total Liabilities and Stockholders'
Equity $1,238,451 $1,313,215
========== ===========
</TABLE>
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
MARCH 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
Net revenues $375,626 $215,063
Cost and expenses
Cost of sales 305,152 168,272
Selling and administrative 22,615 22,444
Stock option compensation expense 522 122
Research and development (1,520) 16,026
Amortization of intangibles and deferred
charges 1,820 1,882
--------- --------
Total costs and expenses $328,589 $208,746
--------- --------
Income from operations 47,037 6,317
Interest income 3,123 3,475
Interest expense (8,130) (3,715)
--------- --------
Income before income taxes 42,030 6,077
Provision for income taxes 2,000 -
--------- --------
Net Income $ 40,030 $ 6,077
========= ========
Earnings Per Share:
Net income per share $ .51 $ .08
========= ========
Weighted average common and common
equivalent shares outstanding 78,557 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 40,030 40,030
Amortization of stock
plan expense 522 522
Exercise of common
stock options 1 506 507
--------------------------------------------------------------------------------
BALANCE AS OF MARCH
31, 1997 $860 $334,192 $(428,941) $(1,464) $(1,910) $(50,489) $(147,752)
================================================================================
</TABLE>
See notes to consolidated financial statements
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 40,030 $ 6,077
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,832 6,139
Postretirement benefit cost 1,799 1,798
Provision for loss on pre-owned aircraft 350
Non-cash stock option compensation
expense 522 122
Other, net (1,595) 123
Change in assets and liabilities:
Accounts receivable 13,903 5,009
Inventories 25,732 (79,575)
Prepaids, other assets, and deferred
charges (1,343) (176)
Accounts payable and accrued
liabilities (22,217) 157
Customer deposits (95,248) 112,990
Other long-term liabilities (157) 997
-------- -------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (30,742) 54,011
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property and equipment (2,267) (4,543)
Dispositions of property and equipment 22
Expenditures for tooling (160) (356)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (2,427) (4,877)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 507
Principal payments on long-term debt (13,266)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 507 (13,266)
-------- --------
Increase (decrease) in cash and cash
equivalents (32,662) 35,868
Cash and cash equivalents, beginning of
period 233,172 223,312
-------- --------
Cash and cash equivalents, end of period $200,510 $259,180
======== ========
</TABLE>
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
months ended March 31, 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
period, 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 reporting period.
NOTE 3. INVENTORIES
Inventories consisted of the following at:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
(In thousands)
<S> <C> <C>
Work in process $349,827 $355,198
Raw materials 101,597 108,041
Vendor progress payments 89,909 104,318
Pre-owned aircraft 88,172 87,680
-------- --------
$629,505 $655,237
======== ========
</TABLE>
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.
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. NEW ACCOUNTING STANDARD
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 for the three months ended
March 31, 1997 and 1996 would have been $0.54 and $0.08 for basic
EPS and $0.51 and $0.08 for diluted EPS, respectively.
NOTE 6. INCOME TAXES
The Company recorded a provision for alternative minimum taxes
of approximately $2.0 million for the first quarter of 1997, and
no provision for income taxes for the first quarter of 1996,
principally as a result of the utilization of net operating loss
carryforwards. The Company had available at March 31, 1997 net
operating loss carryforwards for regular federal income tax
purposes of approximately $188 million, which will begin expiring
in 2006.
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 ENDED MARCH
31, 1997 AND 1996
NET REVENUES. Total net revenues increased by $160.5 million,
or 74.6%, to $375.6 million in the first quarter of 1997 from
$215.1 million in the first quarter of 1996. The significant
increase resulted primarily from the delivery of 11 aircraft,
five Gulfstream IV-SPs and six Gulfstream Vs, as compared with
five aircraft, all Gulfstream IV-SPs, in the first quarter of
1996. Offsetting this increase was a decrease of $19.1 million
from the sale of pre-owned aircraft resulting from a reduced
number of trade-ins requiring resales.
COST OF SALES. Total cost of sales increased $136.9 million, or
81.3%, to $305.2 million in the first quarter of 1997 from $168.3
million in the first quarter of 1996. The increase was a result
of the higher number of aircraft deliveries discussed above,
partially offset by two fewer pre-owned aircraft deliveries.
Excluding pre-owned aircraft, which generally are sold at break-
even levels, the gross profit percentage for the first quarter of
1997 was 20.0% compared to 25.6% for the first quarter of 1996.
This decline is primarily attributable to higher costs associated
with the early stages of the learning curve on Gulfstream V
aircraft. The Company expects the margin on the Gulfstream V to
approach that of the Gulfstream IV-SP over the next 24 months.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative
expense of $22.6 million in the first quarter of 1997 was
relatively unchanged compared to $22.4 million in the first
quarter of 1996 but as a percentage of net revenues, decreased to
6.0% in the first quarter of 1997 from 10.4% in the first quarter
1996 due to the higher level of revenues.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development
expense was $(1.5) million in the first quarter of 1997, as
compared to $16.0 million in the first quarter of 1996. Research
and development expense for 1997 is net of a $10.0 million credit
for launch assistance funds received from vendors participating
in the development of the Gulfstream V. Substantially all
research and development expenditures were associated with the
Gulfstream V development program, which was substantially
completed at the end of 1996.
INTEREST INCOME AND EXPENSE. Interest income decreased by $0.4
million to $3.1 million in the first quarter of 1997 from $3.5
million in the first quarter of 1996 as a result of lower average
cash balances the Company had invested during 1997 compared to
the same period of 1996. Interest expense increased by $4.4
million to $8.1 million for the first quarter of 1997. This
increase was due to the increase in average borrowings resulting
from the Company's new credit facilities.
PROVISION FOR INCOME TAXES. The Company recorded a provision
for alternative minimum taxes of approximately $2.0 million for
the first quarter of 1997, and no provision for income taxes for
the first quarter of 1996, principally as a result of the
utilization of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from working capital
requirements, capital expenditures, and principal and interest
payments on long-term debt. During the three months ended March
31, 1997, the Company relied on its available cash balances to
fund these needs. The Company had cash and cash equivalents
totaling $200.5 million at March 31, 1997 and available
borrowings of $200.0 million under a revolving credit facility.
During the first quarter of 1997, the Company used $30.7 million
of cash to fund operating activities compared with the first
quarter of 1996 when the Company generated $54.0 million in cash
from operations. This difference is primarily attributable to
the timing of progress payments on aircraft in backlog for the
comparable accounting periods. A partially offsetting factor was
the decline in inventories in the first quarter of 1997 as a
result of Gulfstream V deliveries versus the temporary build up
in inventory associated with Gulfstream V production experienced
during the same period in 1996.
During the first quarter of 1997, additions to property and
equipment were $2.3 million. 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 by a total of $25 to $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 March 31, 1997, borrowings under the Company's credit
facilities were $400 million. Scheduled repayments under the term
facility are $20.0 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 March 31,
1997, the Company was in compliance with the covenants of its
existing credit agreement.
In connection with orders for 26 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, $6.3 million in
the first quarter of 1997, and has agreed to contribute a total
of $25 million annually from 1997 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 March 31, 1997, Gulfstream had a firm contract backlog of
approximately $3.3 billion of revenues, representing a total of
104 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 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders during the
quarter ended March 31, 1997.
ITEM 5. OTHER INFORMATION
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(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 No Reports on Form 8-K were filed
Form 8-K during the quarter ended March 31,
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: May 8, 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>
Quarter ended
March 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Net income applicable to common shares $ 40,030 $ 6,077
======== ========
Shares:
Average shares issued and outstanding (after
giving effect to the Recapitalization) 73,920 65,403
Exercise of certain stock options with the
Offering - 3,949
Incremental shares applicable to stock options
outstanding after the exercise of certain
stock options with the Offering 4,637 4,624
Shares issued pursuant to the Offering - 4,559
-------- --------
Weighted average common and common equivalent
shares outstanding 78,557 78,535
======== ========
Net income per common and common equivalent
share $ .51 $ .08
======== ========
</TABLE>
Note: Shares and stock options issued prior to October 16,
1996, 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.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27.1
Financial Data Schedule
For Period Ended March 31, 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 MARCH 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 201
<SECURITIES> 0
<RECEIVABLES> 125*
<ALLOWANCES> 0*
<INVENTORY> 630
<CURRENT-ASSETS> 964
<PP&E> 124**
<DEPRECIATION> 0**
<TOTAL-ASSETS> 1,238
<CURRENT-LIABILITIES> 797
<BONDS> 400
0
0
<COMMON> 1
<OTHER-SE> (149)
<TOTAL-LIABILITY-AND-EQUITY> 1,238
<SALES> 376
<TOTAL-REVENUES> 379
<CGS> 305
<TOTAL-COSTS> 329
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 42
<INCOME-TAX> 2
<INCOME-CONTINUING> 40
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
Amounts inapplicable or not disclosed as a separate line on the
Statement of Financial Position or Results of Operations are
reported as 0 herein.
* Notes and accounts receivable - trade are reported net of
allowances for doubtful accounts in the Consolidated Balance
Sheet.
** Property, plant and equipment are reported net of accumulated
depreciation in the Consolidated Balance Sheet.
</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 55% to 65% 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 is scheduled for certification at least 12 months after the
initial delivery of the Gulfstream V. In addition, in July 1996,
The Boeing Company ("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. 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.
